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Liability insurance only provides defense or compensation for an unintentional act



The plaintiffs Outdoor Venture Corporation (OVC), JC Egnew and L. Ray Moncrief appealed a district court ruling that denied their request that the defendants Grange Mutual Casualty Company and Scottsdale Indemnity Company reimburse them for attorneys' fees and costs that the appellant incurs to defend himself in underlying lawsuits I Outdoor Venture Corporation, JC Egnew and L. Ray Moncrief v Philadelphia Indemnity Insurance Co., et al No. 20-5306. United States Court of Appeals for the Sixth Circuit (December 22, 2020) The Sixth Circuit was asked to reverse the district court's summary judgment in favor of the insurers.

FACTUAL BACKGROUND

The complainants in this matter are three companies and two individuals who were officers in the companies. The three companies (together "OVC") and Kentucky Highlands Investment Corporation. The two individual complainants are J.C. Egnew and L. Ray Moncrief. For at least some time, Egnew was president of the OVC. Moncrief was the director of OVC and an officer in the Kentucky Highlands.

The root of this dispute is three lawsuits filed against various of the applicants by a company called LEEP, Inc. and one of LEEP's insiders, Roger Blanken. LEEP claimed that it had entered into "joint venture negotiations" with OVC. During the negotiations, Egnew, on behalf of OVC, signed a non-disclosure and circumvention agreement ("NDA") which prevented OVC from contacting LEEP's lenders or customers.

At that time, LEEP owed more than $ 7 million to Fortress Credit Corporation and was in default under the parties' financing agreement. Following the termination of the LEEP-OVC joint venture, Kentucky Highlands purchased Fortress rights under the financing agreement. Kentucky Highlands then took back LEEP's assets and sold the assets to plaintiff Stearns Manufacturing, a subsidiary of OVC. Stearns Manufacturing no longer exists; OVC now owns Stearn's assets and liabilities.

With the three lawsuits behind this action, LEEP and Blanken claimed that the Kentucky Highlands were wrongly reclaiming their assets.

Kentucky Highlands, OVC, Egnew and Moncrief were insured by at least one of the responding insurers in this action: Grange Mutual Casualty Co., Scottsdale Indemnity Company or Auto-Owners / Owners Insurance Company (collectively, "Owners"). However, these insurers claimed that LEEP and Blanken's claims on their insured were not covered by applicable insurances. Grange refused at all to defend his insured. Owners offered to defend the insured during a "reservation of rights" and appointed a lawyer to represent them. Scottsdale did the same, except for Moncrief, which Scottsdale refused to defend at all.

However, the appellants retained their own council to represent them. They sued the insurance companies claiming compensation for the amounts they paid to defend themselves in the three lawsuits.

After the plaintiffs voluntarily denied their claims against the Philadelphia Indemnity Insurance Company, the district court issued a lengthy opinion concluding that the summary judgment would

The only questions remaining in the appeal concerned the plaintiff's claims that Grange and Scottsdale were responsible for compensation for the expenses incurred by the appellant in obtaining an independent lawyer to defend himself in the underlying trials. [19659003] DISCUSSION

The Kentucky Supreme Court has consistently argued that the construction of insurance contracts is generally considered a matter of law to be decided by the court and the decision on whether a defense is required must be made at the beginning of disputes

Claims against Grange

District Court ruled that Grange had nothing to defend the plaintiffs against the accusations made by LEEP and Blanken. Concretely, the conclusion that Grange was only obliged to defend his insured from allegations of "bodily harm", "property damage" or "personal and advertising damage." Since the lawsuits filed by LEEP and Blanken did not, according to the district court, claim measures that fall within the defined parameters for these contract terms, no obligation to defend followed.

Because the policy defined an "event" to mean "an accident," coverage – and thus an obligation to defend – was excluded in situations where bodily injury or property damage "was expected or intended from the insured's point of view." Both complaints claimed that the measures taken by the plaintiffs led to machines and other assets belonging to LEEP or Blanken being taken without legal permission. The insurances for the coverage of such property damage, the physical damage or loss of use must not have been "expected or intended from the insured's point of view" and must not have arisen as a result of a failure of the insured (or a person acting on behalf of a insured) "to perform a contract or agreement in accordance with its terms."

The insured insisted that, although they intended to take back the LEEP and Blanken assets, they did not intend to disrupt all legitimate and older rights of LEEP and Blanken. Such a formulation of the plaintiffs' actions turns the concepts of unhappiness and trust upside down. In fact, the complainants referred to the exact damage that occurred – seizure of the assets in LEEP and Blanken.

Since Grange had no obligation to defend the plaintiffs in the underlying documents alleging damage to property, Grange also has no responsibility to now reimburse the plaintiff for attorney's fees and costs of retaining independent lawyer.

Personal Injury and Advertising Injury

Kentucky law calls on courts to determine an insurer's obligation to defend "at the beginning of disputes" with reference to the allegations in the underlying complaint. Here, the allegations of "personal and advertising damage" in LEEP's complaint were clarified that the documents taken by the plaintiffs fall outside the scope of Grange's policy coverage due to the plaintiffs' alleged knowledge of the consequences of those documents.

The trial clearly stated that the complainants' actions in this case were taken with full knowledge of the fact that they were violating the rights of others, that the complainants were given access to a room only as a result of breaches of the terms of a confidentiality agreement, and that Egnew despised an "organization's goods, products or services". Consequently, Grange also bears no responsibility for reimbursing the complainants for the costs they incurred in hiring independent lawyers for their defense.

Claim against Scottsdale

The plaintiffs, as a last resort, argue that although Scottsdale appointed a lawyer to defend them in the lawsuits filed by LEEP and Blanken, the insurance company should now reimburse them for the costs of hiring their own independent lawyer. .

The complainants admitted that they did not suggest that the appointed lawyer had done anything wrong in these cases. In fact, the complainants admit that they "did not expressly do so… Reject the defense of their insurance company" before hiring their own adviser. " Under the terms of the Scottsdale policy, the plaintiffs had to seek the insurer's written consent before incurring any additional expenses, and the plaintiffs did not request such permission.

Kentucky law does not require compensation for the counselors selected.OVC and Egnew not only failed to identify any damage they suffered as a result of Scottsdale providing them with legal advice, they also failed to take the necessary steps to justify the action for which they are now seeking compensation

The Sixth Circuit concluded that the district court did not error in concluding that the claims against the plaintiffs for "bodily injury or property damage" and for "personal and advertising damage" by LEEP and Blanken were covered by the exemption for coverage in the Grange policy.

As Grange thus had no obligation to defend these claims , it was not responsible for the costs incurred by the appellant in retaining his own lawyer . In addition, Scottsdale provided OVC and Egnew with legal representation – a petition which the plaintiffs failed to reject before hiring their own lawyer. Thus, the district court also did not err in refusing OVC and Egnew compensation for the fees they received for employing independent lawyers.

The plaintiffs forgot that an insurance contract contains mutual promises that are limited by the wording of the insurance. No insurance can respond to allegations that the insured acted intentionally to harm a third party. Since the plaintiff's conduct which caused the damage which was the subject of the lawsuits against them was intentional and not unintentional, there could be no cover for defense or damages. And when Scottsdale provided a defense subject to rights, the plaintiffs had no right to unilaterally, for no reason and without the consent of the insurers, retain an independent attorney, they had no right to compensation.


© 2020 – Barry Zalma [19659005] Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance management, insurance claims and insurance fraud almost equally for insurers and policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He can be found at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insured.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Last read two issues of ZIFL here.

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