Must an insurer consider the possibility that putative class members (i.e., potential class members not named in the complaint) other than the proposed class representatives (i.e., the plaintiffs named in the complaint to represent the proposed class) have claims within the proscribed policy period in determining whether its duty to defend has been triggered? Many insurers answer "no," arguing putative class members' claims—many of which would otherwise be barred by the applicable statute of limitations—are too speculative to trigger coverage. But courts across the country have disagreed, repeatedly answering the question in the affirmative. Last year, the Northern District of Indiana was the latest court to decide this issue in favor of policyholders.
In Liberty Mutual Ins. Co. v. Dometic Corp., the insured (Dometic) purchased four consecutive insurance policies from Liberty Mutual, covering a period from 2001 to 2005. The policies provided commercial general liability coverage for "property damage" caused by an "occurrence" during a policy period. The policies required Liberty Mutual to provide Dometic with a defense "against any 'suit' seeking [damages because of property damage]."
Dometic tendered three putative class complaints to Liberty Mutual seeking a defense under the policies. Liberty Mutual denied coverage because the property damage claims of the proposed class representatives in the three underlying complaints all occurred in years after the policies had expired. Dometic argued that Liberty Mutual still owed a defense because the complaints contained allegations of property damage sufficient to trigger the duty to defend, including broad allegations of thousands of fires that caused millions of dollars in property damage. Dometic maintained that, although the proposed class representatives' claims fell outside of the coverage periods, the putative class' claims—which fell within the policy periods—had to be considered. In response, Liberty Mutual contended the putative class claims were too speculative to trigger coverage.
In deciding whether to consider the putative class' claims, the court looked to see how courts around the country addressed the issue. The court cited a number of opinions, including decisions from the Eleventh Circuit and several other district courts. Notably, every opinion cited held putative class claims should be considered in determining whether an insurer's duty to defend was triggered. The court noted that the Liberty Mutual did not "point the court to any cases directly addressing the issue that disagree with this persuasive authority." Accordingly, the court held it would consider the putative class' claims in deciding whether Liberty Mutual owed Dometic a defense on the underlying class actions, following Indiana law providing that coverage is triggered when the claims raised in an underlying complaint "potentially" fall within the coverage provided by the relevant policies.
Holdings like that in Dometic Corp. continue to amass, which is good news for policyholders. Any potential funding of a class action defense is critical to a class defendant's continued business success, and in many cases, its viability going forward. And insurers should now think long and hard before denying a defense on a putative class action because the proposed class representatives' claims do not fall within the proscribed policy periods. Those insurers that fail to also consider putative class members' claims run the risk of liability for bad faith, as it is becoming increasingly clear how courts across the country will come out on this issue—especially in jurisdictions where an insurer's duty to defend is triggered whenever a claim is potentially covered under a policy.