Why it matters: Policyholders should be mindful that if any potentially covered claims are included within a lawsuit, the duty to defend generally is triggered even if some or most claims clearly are not covered. In this illustrative case, the Indiana Court of Appeals reversed summary judgment in favor of an insurer on the duty to defend, holding that some of the claims in an underlying complaint against the insured fell within the policy’s scope of coverage. In particular, the underlying plaintiff alleged that a security contractor incorrectly accused him of shoplifting, assaulted him, and detained him in a store. In the ensuing coverage action, the trial court held that an assault and battery exclusion precluded coverage for the underlying lawsuit. But the Court of Appeals reversed, holding that claims for false imprisonment and slander in the underlying lawsuit were potentially covered and did not “arise out of” nor were they “related to” assault and battery.
Detailed discussion: On March 18, 2010, Arthur Barnard and his fiancée went to a Menards retail store in Indianapolis. Barnard purchased some items and the couple exited the store. But as they headed for their car, a loss prevention officer allegedly grabbed Barnard by the arm, slammed him into a vehicle, and threw him on the ground. Accusing him of stealing a hasp worth $1.99, the loss prevention officer then forced Barnard back into the store.
Barnard sued Menards and Blue Line, the company that contracted with Menards to provide security services, claiming that he was detained in the store for an unreasonable amount of time, that he was slandered, and that he was injured as a result of the incident.
Blue Line was insured by Capitol Specialty Insurance Corporation, with Menards listed as an additional insured on the policy. The policy provided coverage for any lawsuit seeking damages for bodily injury, property damage, and personal and advertising injury. The definition of “personal and advertising injury” included “false arrest, detention, or imprisonment” as well as “[o]ral or written publication in any manner … that slanders or libels a person.” The policy also featured an endorsement excluding coverage for assault and battery.
Seeking to enforce Capitol’s defense obligation, Menards and Blue Line sued Capitol. Capitol then filed a motion for summary judgment based on the assault and battery exclusion in its policy. The trial court judge granted the motion, and Menards and Blue Line appealed.
The Court of Appeals agreed with Capitol that the term “assault and/or battery” was unambiguous. Nevertheless, the court held, Barnard’s alternative theories of liability brought the underlying complaint within the scope of coverage despite the assault and battery exclusion.
“While Capitol does not have the duty to defend or indemnify Menard or Blue Line with respect to the allegations of battery, there is no such exclusion applied to his claims of false imprisonment or slander,” the court opined. “If a claim is clearly excluded under the policy, then no defense is required, but ‘[t]here is no question that if the policy is otherwise applicable, the insurance company is required to defend even though it may not be responsible for all of the damages assessed.’”
The policy was “otherwise applicable” apart from the battery, the court explained. “We do not agree with Capitol’s assertion that the entire incident ‘arose out of’ or was ‘related to’ the battery. What occurred inside the store was separate from and unrelated to what occurred outside in the parking lot. In other words, we do not find this to be one continuous, ongoing incident that is categorically excluded from coverage.”
Because the policy applied to Barnard’s allegations related to false imprisonment and slander, the court held that Capitol was required to defend Menards and Blue Line. “Whether Capitol is responsible for a portion of the damages, if any, will have to be determined at a later date,” the court added.
The court also rejected Capitol’s reliance on another exclusion applicable to “[t]he use of force to protect persons or property.” “The sole purpose of Blue Line’s business—for which Menard contracted, and which Capitol insured—is to protect the store’s property,” the court opined. “To interpret this provision in the way suggested by Capitol would render the entirety of the Policy illusory.”
To read the decision in Barnard v. Menards, Inc., click here.