Barry Zalma, Attorney and Consultant
Artful Pleading Fails
Insurers who insure bars and other places where alcoholic beverages are sold are loathe to insure the bar against liability for bar room fights, acts of security personnel (bouncers) or any form of assault or battery. Plaintiffs' lawyers recognize this fact and will therefore add to their pleadings allegations of negligence on the part of the bar or its owners to drag the insurer and its big pockets of cash into the case. Such a case was presented to the District Court, District of Nevada in Versatility, Inc v. Capitol Indemnity Corporation, et al, No. 2:10-CV-1942 JCM (D.Nev. 08/05/2011) who refused to submit to the artful pleading of the plaintiff's lawyer and upheld an assault and battery exclusion.
Capitol Indemnity Corporation (Capitol) asked Lewis T. Babcock, Judge of the District Court for the District of Nevada to dismiss the suit brought by Versatility, Inc. (plaintiff).
Plaintiff filed the instant action alleging breach of contract and bad faith when Capitol declined to defend plaintiff in an alleged "assault and battery" lawsuit filed in Clark County, Nevada. Capitol claimed that the policy specifically excluded any coverage for any suit (including one founded on claims of negligence) arising out of or related to any assault, battery, and harmful or offensive contact or threat.
Generally, in federal court, to survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face. Where a complaint pleads facts that are merely consistent with a Capitol's liability, it stops short of the line between possibility and plausibility of entitlement to relief. However, where there are well pled factual allegations, the court should assume their veracity and determine if they give rise to relief.
To state a claim for breach of contract, the plaintiff must allege, and eventually prove:
(1) the existence of a valid agreement between the plaintiff and the Capitol;
(2) a breach by the Capitol; and
(3) damages as a result of the breach.
Once a plaintiff proves these prima facie elements, the burden shifts to the defendant to show that his nonperformance was excused or otherwise defensible.
Insurance contracts are interpreted like other contracts and an insurance company's duty to defend and/or indemnify its insured arises from the provisions of the insurance policy and the insurer must defend any lawsuit brought against its insured which potentially seeks damages within the coverage of the policy in Nevada. The general rule followed by courts when interpreting the language of an insurance policy, ambiguous terms will be construed in favor of the insured and against the insurer bit when contract language is clear and unambiguous, a court cannot, under the guise of interpretation, distort the plain meaning of the contract.
Neither party disputed the existence of a valid agreement. The question arises as to whether Capitol's coverage determination constitutes a breach of the insurance policy.
In the underlying action, plaintiff was sued by a patron of its bar who alleged that an unidentified employee struck him in the face and head, severely injuring him. Specifically, the patron alleged claims of assault and battery; intentional infliction of emotional distress; vicarious liability; negligence; negligent hiring, supervision and retention; and punitive damages. Capitol contended that these claims all arise from the alleged "assault and battery." It concluded that, as a result, the claim is not covered under the policy.
Upon the filing of the complaint, plaintiff provided Capitol with a video tape which proved no physical contact ensued between the patron and employee. Based on this evidence, plaintiff claims that the lawsuit was frivolous, and the Capitol had an obligation to defend because no apparent battery or assault ever occurred. Thus, the only viable claims were those alleging negligence, which were covered under the insurance agreement.
With regard to the underlying suit, the patron's negligence claims arose out of the alleged battery and assault damages that occurred between the patron and employee. The patron's negligence claim in his complaint states that "[patron] suffered injury to his body, and [experienced] severe pain and suffering," which occurred because of the "attack" by the employee. This claim is not independent of the alleged battery or assault.
Plaintiff eventually won the suit three years later; but incurred attorneys' fees and costs in excess of $54,000 for which plaintiff now seeks reimbursement.
THE INSURANCE POLICY
To resolve the dispute, the court was called upon to interpret the parties' insurance agreement, which outlines the parties' obligations as follows:
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.
Exclusion - Assault or Battery
We have no duty to defend or indemnify any insured or any other person against any claim or suit for bodily injury, property damage, or personal and advertising injury, including claims or suits for negligence arising out of or related to any: (1) assault, (2) battery, (3) harmful or offensive contact, or (4) threat, whether committed by a patron, employee, or any other individual. This exclusion applies regardless of fault or intent. . . . For purposes of this exclusion, negligence includes but is not limited to claims for negligent: (1) hiring, (2) employment, (3) training, (4) supervision. (Emphasis added)
The denial of coverage applies regardless of whether the underlying intentional claims are factually accurate. The insurance policy does not state that coverage was dependent upon there actually being facts to support the damages for an underlying claim. Therefore plaintiff's proposed, extrinsic video evidence is irrelevant to determining the parties' obligations. The agreement makes it clear that Capitol's duty to defend the plaintiff is contingent upon the underlying claims and damages alleged in the complaint, and not on the actual outcome of the case.
Because plaintiff's alleged negligence caused the patron to suffer injuries which "arose out" of and were "causally connected" to his alleged assault and battery, plaintiff's claim for breach of contract was dismissed by the District Court because it was not covered by the express terms of the insurance policy.
Insurance contracts can be drafted to avoid the artful legal drafting of a skilled attorney.
The attorney for the injured person worked diligently to plead a cause of action for negligence that contradicted the basic facts of the incident in an effort to drag an insurer in to the action who would probably have entered into a settlement with the injured party. Because the insurer refused to defend the insured bar the case went to trial and the bar received a defense verdict. It was required, however, to pay its attorneys and sought that money from its insurer plus bad faith damages. It failed because the policy wording drafted by the insurer not only excluded assault and battery but also excluded claims of negligence resulting from the battery.
Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma, firstname.lastname@example.org and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.
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