On August 8, 2001, John Vara was sued by his landlord, Ralph Hodges, for negligently causing a fire that started the sprinkler system that Vara negligently installed and maintained, and such negligent conduct damaged Ralph Hodges d/b/a Industrial Marine Diesel’s new and rebuilt parts inventory; also, the rental agreement contained an indemnification agreement. On September 13, 2001, Vara was served. The facts are set-forth in more detail in Hodges d/b/a Industrial Marine Diesel v. Vara et al. , Case No. A04A1644. On October 15, 2001, Essex Insurance Company, the insurer, hired a lawyer to defend and an answer was filed. Subsequently on June 1, 2002, Hodges amended to add I. E. Lee, Inc., the named insured, as an additional defendant. Essex gave written notice to Vara and I. E. Lee, Inc. that there was no coverage; that Essex would not cover the claims; that it would not provide a defense; and that the attorney had been instructed to abandon the case. On November 8, 2002, Vara and I. E. Lee, Inc. filed their third-party action against Essex and Risi Insurance Services, Inc. On February 28, 2003, Essex answered, denying all liability.
Subsequently, Essex unilaterally asserted that “while agreeing to assume the defense of the claims alleged in the new Complaint, Essex reserves its rights to deny coverage under the above referenced policy” and “reserves its right to deny that coverage exists for any and all claims made by the plaintiff in the new complaint. Such a denial may include a denial of the duty to indemnify the insured as well as a denial of the duty to defend the insured in this case.” Essex had been advised that some of the claims asserted by Hodges could come within the policy coverage. Neither Vara nor I. E. Lee, Inc. agreed to Essex’s attempt at reservation of rights.
