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The eleventh circuit extends after the wording to find a duty to defend



Annalee Hunter sued Five Paces Inn, a bar in Atlanta after being drugged, attacked and raped by a Five Paces employee. Five Paces Insurance Company brought a declaratory judgment to clarify whether they had an obligation to defend and replace Five Paces. Hunter filed a motion for dismissal, which the district court granted.

In Houston Specialty Insurance Company, Scottsdale Insurance Company v. The Five Paces Inn Co., Annalee Hunter No. 20-10209, United States Court of Appeals for the Eleventh Circuit (August 27, 2020) assured insurers revocation of an order that forced them to defend the inn.

FACTS

One summer night in 201

6, Hunter and several female friends enjoyed themselves. at five steps. Hunter was in the toilet when the bar began to close at 2 p.m. The bar was cleared of patrons, including Hunter's friends. When Hunter came out of the toilet, a bartender offered her another drink. He gave her a drink and a "blue shot". According to Hunter, one or both of these drinks rendered her defenseless, leading to a vicious attack by one of the bartenders. Hunter's suit mentions a bartender who she says "attacked and raped" her "in vague ways", causing "serious and permanent injury." She sued Five Paces, claiming local responsibility, negligence and negligence per se.

At the time of the assault, Five Paces had two commercial liability insurances: a commercial general liability insurance policy issued by the Houston Specialty Insurance Company and an umbrella policy issued by the Scottsdale Insurance Company. The Houston policy excludes from this coverage any damage that "occurs as a result of or as a result of" an assault, battery or other harmful contact. Instead, abuse and battery coverage are subject to a sublimit of $ 25,000. This limited abuse and battery coverage excludes damages "that occur directly or indirectly as a result of sexual assault, assault or abuse."

Houston and Scottsdale sued and requested a declaration that they have no obligation to replace or defend. The district court prematurely dismissed the part of Houston and Scottsdale's complaint that concerned liability for damages. It further dismissed the part of their complaint which concerned the obligation to defend and ruled that "the allegations before the underlying trial constitute a claim of potential coverage." Houston and Scottsdale appealed the latter decision.

ANALYSIS

It is axiomatic that an 'insurer's obligation to defend is broader than its obligation to indemnify', so a declaration that none of the companies had an obligation to defend Five Paces would necessarily alleviate. them obligation to replace the bar. In Georgia, it depends on the insurer's obligation to defend itself in the language of the policy compared to the accusations about the complaint. The insurer has an obligation to defend a measure of facts alleged in the complaint and even probably brings with it the event within policy coverage.

This dispute is essentially about the meaning of the phrase "derived from" in Houston's policy. If Hunter's lawsuit against Five Paces claims damages that "result from" assault or battery (or sexual assault), then Houston and Scottsdale are correct that the lower sublimity (or exclusion of sexual assault) applies.

In Georgia, insurance contracts are interpreted liberally in favor of coverage. When the phrase "derived from" is found in an exclusion clause in an insurance policy, the Georgian courts interpret that phrase narrowly, "using the" but for "test traditionally used to determine the cause of a claim for damages. Like comprehensive exceptions and exceptions, limitations of coverage, such as sublimits, are subject to the same narrower construction.

The Eleventh Circuit concluded that neither Houston nor Scottsdale could show that assault or battery was "without cause" for Five Pace's potential liability. Hunter was injured the moment she consumed an inability to drink, regardless of any subsequent attack by a conifer in Five Paces. This point is clearer if we imagine that Hunter had been attacked in a second bar. In the counterfactual situation, Five Paces would still be liable for its negligence; it was the beverage service itself that created that responsibility.

The Houston policy states that the company is liable to pay "damages due to" damage that this insurance applies to if liability for such "damage" is imposed on the insured due to the sale, serving or furnishing of alcoholic beverages. "Houston and Scottsdale cannot escape this fact just because Hunter had the misfortune of being attacked in the same bar that served her the incapable drink.

The insurance companies also claim that Five Pace's service of beverages to Hunter constituted an attack under Georgia law. However, this argument shows only a possible interpretation of Hunter's complaint – and not even the best interpretation. With the words in her complaint, Hunter does not claim that she was drugged or poisoned, but that she was served "unhealthy" drinks.

The district court analyzed the allegation and noted that while assault is an intentional liability, Hunter & # 39 ;s complaint says nothing directly about what the abusive bartender intended: “while the complaint can certainly be read to support the plaintiff's theory that [the bartender] knowingly deceived Hunter with intent to rape her, it could also be read to claim that he exploited her incapacity for work – caused by his own negligence or that of an employee – and attacked her only after the opportunity arose.

The Eleventh Circuit felt compelled to resolve doubts about the insurer's obligation to defend the insured's benefit. As a result, it was concluded that there is at least sufficient doubt about the coverage to maintain this duty.

Of course, this is not a suggestion that Houston or Scottsdale must necessarily harm five steps. Although an insurance company does not have to compensate an insured for a liability that the insured assumes outside the terms of the insurance contract, the insurer must provide a defense against all complaints that, if successful, potentially or allegedly fall within the insurance coverage.

I continue to disapprove of the four corners or eight corner rules that allow a smart draftsman to force an insurance company to defend a lawsuit that would never have dealt with a measure that the insurer did not agree to defend or replace the insured. The purpose is, of course, to get a solution from the insurer to save on the cost of defense. Insurers should be able to obtain evidence from the bartender involved – even though he is in prison for his misconduct – which showed that he intentionally pulled Hunter up so that he could easily rape her and come up with a new motion. If not, they will have to defend Five Paces through trial. Extreme evidence, which is not available in such a situation for insurers, could have led to another decision that bent backwards to find a drug of a woman to easily rape her was just negligent behavior.

© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance management, insurance sentiment and insurance fraud almost equally for insurers and insurers. 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 is available at http://www.zalma.com and zalma@zalma.com.

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

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