Sales of Insurance Key Issues have been humming along so the price has been full retail for a long time.  

I am pleased to report that Key Issues will soon be having a half-price sale.  I know I said this in the last issue but it really is going to happen.  Soon. 

So, if you’ve been on the fence about making a purchase, or would like an extra copy, to avoid having to share with someone you don’t like, this will be your chance.

Stay tuned.

 

Sorry for the shameless plug for Insurance Key Issues.

The last issue of Coverage Opinions featured the inaugural insurance coverage crossword puzzle.

Click here for the answers:

Click here to do the crossword:

 

     

   

I certainly couldn’t let this go by without comment.  Late last month the Eastern District of California issued a decision in Amazing Insurance, Inc. v. DiManno. 

The law loves doctrines.  There’s the Erie Doctrine, the Reasonable Expectations Doctrine, the Doctrine of Last Clear Chance and the list goes on and on.  As I see it, a doctrine is just a rule that had a good P.R. department, that was able to elevate it to a more important sounding “doctrine.”

Add this to this list.  I recently came across the “Confusion Doctrine.”  Really.    

“Under the well-named confusion doctrine, ‘[w]hen the qualities of obligee and obligor are united in the same person, the obligation is extinguished by exhaustion.’  La. Civ. Code Ann. art. 1903. ‘[A]n obligation is said to be extinguished by confusion when a person is placed in the position of owing the obligation to himself.’ Langley v. Police Jury of Calcasieu Parish, 201 So. 2d 300, 304 (La. App. 3d Cir. 1967) (en banc) (quotation omitted); see, e.g., Matter of Dibert, Bancroft & Ross Co., Ltd., 117 F.3d 160, 170-71 (5th Cir. 1997) (confusion arises, for example, when a ‘promissory note that is secured by [a] mortgage is acquired by its maker’ or ‘an encumbered building is acquired by the mortgagee’ (emphasis omitted)). ‘For confusion to occur the same person must acquire the full and perfect ownership of both sides of the obligation.’”  Lloyd’s Syndicate 457 v. Am. Global Mar. Inc., 346 F. Supp. 3d 908 (S.D. Tex. 2018).
 
So, if the “confusion doctrine” means that, when the qualities of obligee and obligor are united in the same person, the obligation is extinguished by exhaustion, how do you explain this definition provided by the North Dakota Supreme Court in City of Bismarck v. King, 2019 ND 74 (2019):  “The ‘confusion doctrine’ provides that when an arresting officer introduces the question of a drunken-driving suspect’s right to counsel by giving a Miranda warning prior to requesting a chemical test, the suspect’s subsequent refusal to take a test until an attorney is consulted may not constitute a ‘refusal to submit’ to a chemical test.’  We further explained the confusion doctrine does not apply when the officer explicitly informs the driver that the Miranda rights do not apply to the taking of a chemical test pursuant to the implied consent law.” 

But wait, it gets even more, well, you know….

There is also a Reverse Confusion Doctrine in the trademark context, where a “large junior user saturates the market with a trademark similar or identical to that of a smaller, senior user such that the public comes to assume that the senior user’s products are really the junior user’s or that the former has become somehow connected to the latter.”  Fortres Grand Corp. v. Warner Bros. Entm’t, Inc., 947 F. Supp. 2d 922 (N.D. Ind. 2013).   

We've all seen this in a reservation of rights letter. And, if you are on the insurer-side of things, you've probably written it yourself.

An insurer receives a new claim, the clock is ticking for the defendant-insured to respond, but the insurer has not yet determined if it owes a defense. So it sends a letter to the insured saying something along the lines – although perhaps not exactly (as discussed below) -- of what Hartford did as described in Hartford Casualty Ins. v. Swapp Law, PLLC, No. 17-1130 (D. Utah Aug. 1, 2019).

The insurer stated: "At this time . . . Hartford has not yet made a determination as to whether [Swapp Law] is entitled to coverage in connection with the [Underlying Action]. In the interim, we suggest that you retain your own attorney to protect your interests in this matter. In the event we determine that coverage may exist and we agree to defend this suit, we will reimburse you only for those reasonable legal costs and fees incurred by you for the defense of this action . . . While the issue of what constitutes 'reasonable legal costs and fees' may not be apparent to you, the legal community doing defense work in this area is well aware of the acceptable scale. You may wish to contact the undersigned prior to hiring an attorney since charges considered to be above the acceptable scale could result in our not covering your legal costs and fees in their entirety."

The Swapp Law firm was seeking coverage for a claim that it violated the federal Driver's Privacy Protection Act (18 U.S.C. § 2721 et seq.) "by purchasing accident reports from the Washington State Patrol and using the personal information gleaned from the reports to mail motorists unsolicited Swapp Law advertisements."

Two days after getting Hartford's letter, Swapp retained the Lane Powell law firm to defend the action. Swapp's coverage counsel provided Hartford with the hourly rates for the Lane Powell lawyers: Barbara Duffy ($645), Ryan McBride ($540) and Aaron Schaer ($310).

A representative of Hartford responded that the company would make "an accommodation on this one case only to accept" the rates charged by Duffy and McBride. Hartford advised that all other timekeepers would be paid at $195 per hour for associates and $100 for paralegals.

One week after agreeing to defend, under a reservation of rights, Hartford filed an action seeking a declaration that it had no duty to defend or indemnify Swapp Law in the Underlying Action. The court granted Hartford's motion for judgment on the pleadings, finding that the claims against Swapp Law were excluded from coverage and Hartford had no duty to defend.

At issue before the court now -- Swapp Law seeking payment for the full amounts billed by Lane Powell.

The court's decision did not require it to address the extent of Hartford's obligation for any Lane Powell fees over $195 per hour for associates and $100 for paralegals. The court held that, because Hartford had no duty to defend, it had no obligation to pay Swapp's legal fees – even those incurred up until the court's no duty to defend decision was made. This gets to a separate issue in the case of Hartford's right to reimbursement of defense costs.

However, the court also explained that, even if Hartford did have a duty to pay Swapp Law's legal fees prior to the determination that it had no duty to defend, "Swapp Law acted unreasonably by hiring Lane Powell and failing to confirm with Hartford that Lane Powell's rates would be reimbursed."

I'll let the court describe it from here. It is worth hearing it in full as well as with the court's tone:

"In Hartford's August 15, 2017 letter to Swapp Law acknowledging Hartford's notice of the Underlying Action, Hartford stated that Swapp Law would be reimbursed only for 'reasonable' legal costs and fees. That letter further stated that 'the legal community doing defense work in this area is well aware of the acceptable scale' of legal costs and fees. Finally, the letter warned Swapp Law that, in order to ensure reimbursement, Swapp Law may wish to confirm before hiring an attorney what rates Hartford will consider to be reasonable. And, as evidenced by attorney Humphery's February 2, 2018 email, Swapp Law was clearly aware of the precise rates Hartford considered to be reasonable.

On the basis of Hartford's August 15, 2017 letter, and Swapp Law's knowledge of Hartford-approved rates, Swapp Law knew, or should have known, it would not be reimbursed for any and all attorneys' fees it incurred. In its August 15, 2017 letter, Hartford indicated that it considered a particular spectrum of legal fees and costs to be reasonable and therefore, eligible for reimbursement. Thus, Swapp Law was on notice that, to ensure it would not be saddled with unreimbursable attorneys' fees, it had an obligation to determine that range, whether by contacting Hartford directly or seeking the opinion of lawyers who perform this kind of defense work in the relevant area. Even without Hartford's warning about reimbursable attorneys' fees, Swapp Law—no stranger to the mechanics of insurance defense—would have been well aware that insurance companies don't merely write blank checks to fund the defense of potentially covered claims.

Only two days after receiving Hartford's letter, Swapp Law hired Lane Powell, under an engagement letter agreeing to pay multiple lawyers more than $500 per hour. Swapp Law may well have concluded that its potential liability flowing from the Underlying Action was so great that it needed lawyers who charged nearly three times what Hartford deemed reasonable, and further that it was willing to assume the difference between Lane Powell's rates and Hartford's reimbursement. Or Swapp Law may have merely overlooked Hartford's clear warnings about the rates it would reimburse. In any event, in light of these facts, Swapp Law incurred these attorneys' fees at its own risk, knowing that Hartford would not merely rubber stamp any attorneys' invoice it received. In sum, Hartford had no duty under the Policy to defend against the Underlying Action and Swapp Law incurred exorbitant attorneys' fees at its own risk. Thus, Hartford has no obligation to reimburse Swapp Law for the difference between the rates charged by Lane Powell and those approved by Hartford."

It is easy to see how policyholders would likely respond to this: Simply because Hartford stated that the "reasonable legal costs and fees" are $195 per hour for associates and $100 for paralegals does not make it so. Policyholders would likely say, as they invariably do in cases of this type, that the fees paid by insurers, to panel counsel, are not "market rates," but, rather, are agreed to by lawyers in exchange for a steady flow of work from an insurer, etc. You know the drill. And some courts have said that panel counsel rates are not market rates when determining the rate to be paid to independent counsel.

But putting that aside, what makes the situation here unique is the explicit warning that was included in Hartford's reservation of rights letter when addressing the fact that Harford's rates may be lower than the rates of the lawyers retained by Swapp Law. Granted, it may not have mattered if Swapp Law addressed the rate issue with Hartford, as it seems that Hartford had already told the law firm what its maximum rates were. But if Swapp Law had addressed the rate issue with Hartford, and been refused anything higher than $195, perhaps the court would have been more sympathetic to Swapp.

It's all a little confusing. Nonetheless, the take-away is that, by having this explicit warning, Hartford won over the court and may have kept the court from concluding that the reasonable rate is somewhere between $195 per hour and the Lane Powell rates. Of course, this is all a non-issue, as the court held that Hartford had no obligation to pay Swapp's legal fees, even those incurred up until the court's no duty to defend decision was made.

Again, it's confusing. But there is little doubt that Hartford, with the strong warning in its reservation of rights letter, put itself in the catbird seat for dealing with an insured that paid no heed to the Stag's warning.    

 

As I’ve discussed lots of times in the past, in general, insurers have had mixed results in construction defect cases when it comes to enforcing the Montrose (known loss) endorsement (which, of course, hasn’t been an endorsement for years, but it hasn’t shed that label).  Some courts have interpreted the Montrose provision narrowly and required a strict “sameness” (my term) between the “property damage” that existed pre-policy inception date and that which took place during the policy period, for which coverage was being sought.  Further, it is the “property damage” itself that must be known by the insured prior to the policy period and not the cause of the “property damage.” 

In Mesa Underwriters Specialty Ins. Co. v. Blackboard Insurance Specialty Co., No. 18-4410 (N.D. Cal. July 15, 2019), the California federal court declined to preclude coverage on the basis of a Montrose endorsement.  Again, the pre- and post-policy period injury and damage was not sufficiently the same to trigger the applicability of the Montrose/known loss provision.

As is often the case when it comes to litigation over the Montrose endorsement, the decision is “insurer vs. insurer.”          

NDO Group acquired a “single room occupancy,” long-term residential hotel located in Oakland.  A number of low-income tenants resided there.  NDO group began renovations on common areas and some units in the Hotel.

Over time, various tenants began to file suit against NDO, alleging a variety of claims in connection with the habitability of their units on account of the NDO construction work.  The first complaint was filed on July 8, 2016.  A first amended complaint, filed on July 21, 2016, alleged: “NDO Group directed ongoing construction and renovation activities that disrupted the quiet enjoyment of the plaintiffs’ homes and resulted in the constructive and wrongful evictions of tenants.  The tenants were no longer being supplied heat, garbage pickup, or secure mail delivery.  The apartments all around them were gutted to the studs, large holes were created in the ceilings of apartments (including apartment of a tenant-plaintiff), and construction debris was dumped down the holes.  Some of the tenants were forced to vacate their units due to water leaks, failure to repair habitability defects, ongoing wrongful entries to their apartments, noise, dust, and a continuing nuisance resulting from the construction activities.”

A second amended complaint was filed on May 1, 2017 and a third amended complaint was filed on May 22, 2018.  These amended complaints contained further allegations concerning an alleged lack of habitability of the units.

Mesa Underwriters undertook NDO’s defense.  However, Mesa tendered the defense to Blackboard Insurance, which issued two one-year general liability policies to NDO covering the period from November 18, 2016 to November 16, 2018.     
     
Blackboard argued that it had no duty to defend based on “no occurrence” and no “bodily injury” or “property damage” during the policy period.  The court rejected both of these arguments.

Turning to the issue relevant here, Blackboard also argued that it had no duty to defend based on the Montrose endorsement.  As Blackboard saw it, NDO knew, prior to its policy periods, that the “bodily injury” or “property damage” had occurred, in whole or in part” including any “continuation, change or resumption of such ‘bodily injury’ or ‘property damage’”

It is easy to see why Blackboard made this argument.  The first complaint was filed on July 8, 2016.  A first amended complaint was filed on July 21, 2016.  These were both before the inception of the first Blackboard policy issued to NDO, which was November 18, 2016.  Then, the complaints filed after November 18, 2016 contained further – and similar -- allegations concerning an alleged lack of habitability of the units.
     
But Mesa disagreed, arguing that each discrete injury claimed must be evaluated separately for this purpose.  The court agreed with Mesa, concluding that the Montrose endorsement did not preclude coverage, as there was not enough sameness between the “bodily injury” and “property damage” that existed prior to inception of the Blackboard policies and that which took place during the policy period. 

The court explained: “Here, while NDO Group may have been aware of some of the bodily injuries and property damage alleged before Blackboard’s coverage began on November 18, 2016, many of the alleged injuries and property damage occurred after the policy’s inception, including loss of electricity, bathroom facilities, damage to property due to water leaks in unit’s closet, a slip-and-fall injury to one tenant navigating an unlit stairwell, and a physical attack on another tenant by a construction worker on the Hotel project. These allegations raised a potential for coverage of new, distinct injuries and property damage not alleged to have been known to NDO Group prior to Blackboard’s policy period.” 

The court pointed to a single, simple, word in the policy language to support this conclusion: The known-loss provision bars coverage of ‘property damage’ if the insured “knew that the “property damage” had occurred.”  The court stated that “the use of the definite article [the] particularizes the subject which it precedes and indicates that the claimed damage must be the same as the known damage.”

Or, as I call it, the strict “sameness” test.

I’ve always found this to be an interesting issue.  Is coverage owed, for “personal and advertising injury,” if the insured says something about its own product and makes no mention of the claimant’s product.  One theory is that, if a company touts its own product in a way that is not true, then its competitor’s product is, by implication, disparaged, if it does not also have the same supposed positive trait as the insured’s. 

The facts that gave rise to the coverage issues in Albion Engineering Company v. Hartford Fire Insurance Co., No. 18-1756 (July 10, 2019) are not spelled out in detail.  But, in general, the case involves coverage for “personal and advertising injury,” for disparagement, where the insured made no mention of the claimant’s product.

Albion Engineering sells products such as caulking guns and dispensing accessories.  Albion’s competitor, Newborn, believed Albion had claimed its products were made in the United States when they were really made in Taiwan.  Newborn sued Albion in the District of New Jersey, bringing claims for false advertising and product marking in violation of the Lanham Act and New Jersey tortious unfair competition through false statements and material omissions.

Albion sought coverage for the Newborn action under a commercial general liability policy issued by Hartford.  The insurer refused to defend.  Albion sued Hartford.

At issue was whether the Newborn action alleged “personal and advertising injury,” specifically, “oral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”

The district court found in favor of Hartford and the Third Circuit affirmed.  At the heart of the court’s decision was that, under New Jersey law, Newborn’s causes of action require publication of a false statement concerning another.

Here, the court concluded that Albion did not publish a false statement about Newborn: “For its Lanham Act claim, Newborn alleged that Albion made ‘false statements of facts, misrepresentations, and material omissions of facts of the geographic origin of the subject merchandise and the commercial activity of Albion in violation of . . . the Lanham Act.’  Newborn made materially similar allegations for its claim of unfair competition.  The gravamen of Newborn’s suit, in other words, is that Albion lied about Albion’s products, not Newborn’s. Newborn never claims that Albion published false statements about Newborn’s products. Newborn’s suit therefore does not meet the requirements for coverage under the Hartford policy.”  (emphasis in original).

The court also declined to conclude that Albion had “implicitly” defamed Newborn, concluding that New Jersey law did not recognize such a claim.   
 
It is an interesting issue, as well as involving an interplay between coverage and the elements of the law controlling the underlying action.  And how does that fit in with the issue of whether extrinsic evidence can be considered for purposes of determining an insurer’s duty to defend?    

Plein v. USAA Casualty Insurance Company is not a coverage case per se.  However, it is likely to be of interest to CO readers.  It involves the ability of a lawyer to be adverse to a former client, specifically, an insurer client.  As a general rule, this is permitted under rules of professional conduct, so long as the current case, where the lawyer is adverse to the former client, is not “substantially related” to the lawyer’s prior representation.

The issue arose this way.  Attorney Joel Hanson filed a first party bad faith action, on behalf of the Pleins, against USAA.  It had to do with USAA’s handling of a fire claim.  The ins and outs of the bad faith claim are not important here.

A few months later, attorneys William Smart and Ian Birk, from the law firm Keller Rohrback LLP, associated with Attorney Hanson in the case against USAA.  To be clear, Smart and Birk were still working at Keller Rohrback.  They simply joined the Pleins’ team.

Here’s the rub.  Keller Rohrback had had a long relationship with USAA.  Over a decade, ending in 2017, at least eight attorneys at Keller Rohrback had represented USAA in at least 165 cases, including approximately 12 that involved bad faith.  Keller Rohrback was USAA’s primary law firm in Washington for bad faith.  The firm billed over 8,000 hours of work for USAA during the last two years of the representation.    

USAA objected to Keller Rohrback’s participation in the litigation based on this prior representation.  However, the Keller firm’s past work for USAA had not involved the Pleins and attorneys Smart and Birk had never been involved in Keller’s relationship with USAA.  The lawyers did not have any knowledge of attorney-client communications with USAA.

USAA sought disqualification of the attorneys.  The trial court said no: “The Plein matter is factually distinct from and not substantially related to [Keller]’s prior representation of USAA, and as a result, the firm’s representation of the Pleins is not a conflict under RPC [Rule of Professional Conduct] 1.9.”

[Rule 1.9 provides: “A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.”]

The Washington appeals court reversed.  The court’s decision was guided by a comment to RPC 1.9: “Matters are ‘substantially related’ for purposes of this Rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter.”

For a host of reasons, the court concluded that the Plein matter was substantially related to the Keller firm’s prior representation of USAA.  Some of these are as follows:

• “Keller learned significant confidential information about USAA's strategies for bad faith litigation.”

• “According to USAA, it trusted Keller attorneys ‘with direct access to confidential and proprietary business information of USAA CIC and its affiliated companies’ including, confidential claims handling materials, thought processes of adjusters and in-house attorneys, business and litigation philosophies, and strategies such as ‘approaches to settlement discussions, motion practice, case analysis, defenses, witness meetings, witness preparation, trial preparation, and discovery both on a case-by-case and institutional, company-wide level.”

• Keller also participated in seminars as part of enterprise-wide strategic discussions where attorneys became privy to ‘proprietary information including litigation approach and strategies that has only been shared with a limited group of all of the law firms nationally representing USAA CIC and its affiliate companies in alleged bad faith litigation across the United States.’  And Keller attorneys had electronic login credentials to certain internal proprietary and confidential documents concerning insurance bad faith litigation, ‘including document repositories holding attorney-client information and electronic claim databases.’”

• “[T]he temporal proximity of the prior representation affects the analysis of risk to the former client. ‘Information acquired in a prior representation may have been rendered obsolete by the passage of time.’ RPC 1.9 cmt. 3. Here, Keller agreed to represent the Pleins within three months of the end of its relationship with USAA. This short time frame provides scant opportunity for obsolescence, particularly given the extent—in substance and duration—of the prior representation.”

Thus, the court concluded that the Keller firm’s representation of the Pleins generated “a substantial risk that USAA’s confidential information would materially advance the Pleins’ position.”  The court held that there was a conflict of interest under RPC 1.9(a) and attorneys Smart and Birk and the Keller Rohrback firm were disqualified from representing the Pleins.

    

 

Ok, Cam-Sam Real Estate Holding, LLC v. Merchants Mutual Insurance Co., No. 18-433 (D.N.H. July 8, 2019) is not a duty to defend case.  But I just couldn’t help myself.  Shocking.

Cam-Sam is a property coverage case.  Property cases rarely get discussed in CO.  But, when a property coverage case involves all manner of things gone awry at a doggie day care, I’ll write about a property case. 

Cam-Sam Real Estate Holding rented a commercial building, in Hooksett, New Hampshire, to D La Pooch Hotel, LLC for its use as a pet day care and grooming business.  The deal went to the dogs for Cam-Sam. 

Cam-Sam initiated eviction proceedings against D La Pooch and discovered that the space “was severely contaminated by pet urine and feces, and substantial damage had been caused by spillage/seepage from overflowing toilets. Substantial repairs were required including: removal of all building materials from Unit 1 down to the shell; remediation of odor, mold, and bacteria in the air and duct systems; and shot blasting the concrete floor to remove embedded odors.”

Did you hear that - shot blasting the concrete floor to remove embedded odors.  I have no idea what that is.  But, obviously, the odor was pretty intense, and required much more than a few squirts of Fabreze.

Cam-Sam sought coverage for the damage from Merchants Mutual under a property policy.  Merchants Mutual told Cam-Sam to heel.  Among other reasons, Merchants asserted that no coverage was owed on account of the old “Animal Waste exclusion,” which provided that no coverage was owed for loss or damage resulting from or caused by “nesting or infestation, or discharge or release of waste products or secretions by insects, birds, rodents or other animals.”

As Merchants saw it, dog urine and feces “unquestionably” fall within the definition of “waste products or secretions by . . . other animals,” as dogs are animals and urine and feces are animal waste products.

Cam-Sam barked back, taking the position that Merchants reads the Policy’s exclusion too broadly and inconsistent with the Policy’s purpose: “The Policy is intended, Cam-Sam argues, to provide coverage for damage done to property that is not within the landlord’s control, including, without limitation, damage done by tenants.  Consistent with that purpose, Cam-Sam contends, the Animal Waste exclusion applies only when damages are caused by pest or wildlife infestations, not domestic animals, and not animal related damage brought about by human negligence and failure to manage animals under human control and care.  Here, Cam-Sam says, the damage was plainly not caused by pests infesting the property, rodents leaving droppings, or insects destroying building materials, all of which would fall within the exclusion.  Instead, the damage was caused by D La Pooch’s employees’ negligent operation of the business: ‘Dog feces merely happened to be involved in those business operations.’  At the least, Cam-Sam contends, the Animal Waste exclusion is ambiguous, and ought to be construed in the insured’s favor to provide coverage.”

All things considered, given that Cam-Sam had a steep climb here, it did the best it could with that argument.  

The court did not bite, noting that “the Policy language provides, categorically, that damages resulting from animal waste and secretions are excluded from coverage. Dogs are animals. Given the Policy’s broadly worded exclusion, Cam-Sam could not have reasonably understood the Policy to insure against damages to the premises resulting from dog urine and feces.  Cam-Sam’s argument that the animal waste was not the direct and immediate cause of the damages (but rather the damage was caused by negligent D La Pooch employees) does not alter the analysis.  The Policy unambiguously provides that Merchants ‘will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.’  So, to the extent the damage alleged by Cam-Sam was caused, even indirectly, by dog ‘discharge or release of waste products or secretions,’ that damage is not covered by the Policy.”

Cases involving tragic and unusual facts are de rigueur in the world of coverage.  This is how I explain to my students why they read about so much misery in coverage cases – when things go right, there is no need for insurance.   By definition, at the heart of every coverage case, is something that went awry.

Tragic and unusual facts were on display in Great Lakes Insurance v. 1 Bank of Eufaula, No. 18-055 (E.D. Okla. Aug. 5, 2019).  The court described them like this: “[O]n January 21, 2016, while Julie Huff was a business invitee at the Bank [of Eufaula], an armed robber entered the Bank. He shot and killed the Bank’s president and then shot a teller who resisted his demand for money. He then took Mrs. Huff hostage at gunpoint. The robber ordered Mrs. Huff to drive him in a stolen vehicle and forced her to take him several miles as he sat in the passenger seat with a gun pointed at her. Law enforcement chasing the stolen vehicle were informed that Mrs. Huff was a hostage. After law enforcement stopped the vehicle, Mrs. Huff ran, but the robber caught up to her, put his arm around her neck and used her as a  human shield.  Law enforcement and the robber exchanged fire, during which law enforcement bullets struck Mrs. Huff approximately nine (9) times.”

The Huffs filed suit against the Bank, alleging that they owed a duty to Mrs. Huff, as a business invitee, and failed to follow industry standards to protect its customers from such a foreseeable situation.  Great Lakes insurance undertook the bank’s defense, under a general liability policy, pursuant to a reservation of rights.  Great Lakes filed an action seeking a declaration that it owed no duty to defend or indemnify the bank for the Huff action.  At issue before the court were cross motions for summary judgment.

First the court found that there was no “occurrence” as there was no accident: “The injuries to the Huffs at issue in the state court action were caused by the bank robber shooting and killing the Bank president, shooting the Bank teller, taking Mrs. Huff hostage at gunpoint, and using her as a human shield.  These were all acts that constitute battery. Acts that are intended to and do, in fact, cause offensive contact constitute the intentional tort of battery and are not ‘an accident.  Mrs. Huff's injuries were not caused by an ‘occurrence’ under the Policy.” 

I can certainly see policyholders taking issue with this conclusion since the bank did not shoot the Bank president or Bank teller or take Mrs. Huff hostage at gunpoint.  The Bank is alleged to have failed to follow industry standards to protect its customers from such a foreseeable situation.

The court also concluded that coverage was precluded by an Assault or Battery Exclusion: “The ‘assault’ or ‘battery’ exclusion is not ambiguous on its face. The Bank argues, however, that it is ambiguous because it ‘fails to distinguish and determine what, if any, effect the intentional or negligent nature of an act has on its terms.’ The Bank argues further that ‘[w]here intentionality is not present in the acts resulting in Ms. Huff’s injuries, this ambiguity should be construed in favor of the insured Bank.’  The court does not agree that there is any ambiguity. The Policy clearly excludes coverage for any claims ‘arising out of assault or battery, or out of any act or omission in connection with assault or battery, or with the prevention or suppression of an assault or battery’ and any claims ‘arising out of charges or allegations of negligent hiring, training, placement or supervision with respect [thereto].’  Mrs. Huff's injuries clearly were caused by the intentional battery by the bank robber and by the intentional acts of law enforcement trying to prevent or suppress the bank robber from further intentional battery. To the extent that the Bank could be found negligent for not hiring enough security to prevent such an event, that is also excluded. To the extent that the Bank could also be found negligent for having too many entrances, that does not change the fact that Mrs. Huff's injuries were caused by an assault and battery, coverage for which is excluded under the Policy. Accordingly, as the Policy excludes coverage for the Huffs' claims, Great Lakes has no duty to defend or indemnify the Bank.”