Insurer Has No Duty to Defend or Indemnify Insured for Action Alleging Solely Intentional Wrongdoing
A Delaware superior court, applying Tennessee law, has held that a professional liability insurer is entitled to judgment that it has no duty to defend or indemnify its insured because the underlying action against the insured alleged only intentional wrongdoing. Catlin Spec. Ins. Co. v. CBL & Assocs. Properties, Inc., 2017 WL 4173511 (Del. Super. Ct. Sept. 20, 2017).
The insureds, a managing agent for a shopping center and several related entities, were sued by one of the shopping center’s tenant companies. The tenant alleged that the shopping center and the insureds fraudulently inflated the tenants’ utility bills for about a decade. The tenant asserted claims on behalf of a purported class for unjust enrichment, breach of contract, breach of the covenant of good faith and fair dealing, and violations of the Racketeer Influenced and Corrupt Organizations Act, as well as violations of the Florida Deceptive and Unfair Trade Practices Act and the Florida Civil Remedies for Criminal Practices Act. The insureds sought coverage under a professional liability policy. The insurer agreed to defend under a reservation of rights and sought a declaration that it had no duty to defend or indemnify the insureds.
As a threshold matter, the insureds argued that Florida law governed the dispute because they faced liability in Florida for claims arising under Florida law. The court held that in complex insurance cases with risks in multiple states, the most significant factor for the conflict-of-laws analysis in Delaware is the principal place of business of the insured, and thus agreed with the insurer that Tennessee law applied.
The court also rejected the insureds’ argument that the policy’s insuring agreement – which provided coverage for loss resulting from a “negligent act, error or omission” – could be triggered by a non-negligent act or omission. The court held, as it noted most other courts have, that elementary grammar dictates that the term “negligent” modifies the terms “act,” “error,” and “omission,” and that non-negligent errors or omissions therefore could not trigger coverage.
The court went on to find that the underlying action against the insureds alleged only intentionally wrongful conduct. The insureds argued that the complaint allowed for a finding that they erroneously overcharged tenants in a manner that was negligent or unintentionally misleading. In particular, the insureds pointed to the causes of action that do not require a showing of intent as an element of liability. The court concluded, however, that the underlying action was based on a plainly pled theory that the insureds engaged in a pattern of intentional, knowing, wrongful, and fraudulent conduct and that the complaint contained no hint that the insureds acted in a negligent fashion. Because the underlying action alleged only intentional conduct, and because the policy does not afford coverage for intentional acts, the court entered judgment for the insurer that it had no duty to defend or indemnify the insureds.