In its recent decision New Orleans Deli & Dining v. Cont'l Cas. Co., 2011 U.S. Dist. LEXIS 111928 (E.D. La. Sept. 30, 2011), the United States District Court for the Eastern District of Louisiana had occasion to consider whether under Louisiana law, an underlying suit pertaining to the insured’s alleged practice of depriving its employees of tips triggered a duty to defend under a commercial general liability policy.
The underlying suit was brought by current and former employees of New Orleans Deli & Dining (“NODD”). Plaintiffs alleged that customers deposited tips directly into a tip jar or otherwise paid tips directly a credit card slip, and that restaurant management had agreed to evenly distribute these tips to the employees. Plaintiffs claimed, however, that management either kept the tips or otherwise donated the tips to charity. The underlying suit alleged causes of action for breach of contract, negligence, fraud, unjust enrichment, and conversion.
The insurer, Continental, argued that it had no duty to defend the underlying suit because plaintiffs did not allege property damage arising out of an occurrence, but instead alleged intentional conduct resulting in pure economic loss, which cannot be considered property damage as that term is defined in a standard form general liability policy. NODD, on the other hand, contended that the loss alleged in the underlying suit constituted property damage since it could be considered loss of use of tangible property not physically injured. In this regard, NODD argued that the underlying plaintiffs claimed “that they lost the use of cash, which is a corporeal movable, and thus, tangible property.” NODD further claimed that Continental at the very least owed a defense since the underlying suit alleged that NODD acted negligently in depriving its employees of their tip money, thus raising the possibility that NODD’s conduct was accidental.
The court held against NODD, finding that even if the alleged loss could qualify as property damage, the underlying suit did not allege an occurrence. Looking to the complaint in the underlying matter, the court concluded that notwithstanding the general allegation of negligence, “[t]he alleged acts of implementing the tip policy and taking the tips were done intentionally, not accidentally nor negligently.” As such, explained the court, the underlying suit did not sound in negligence but rather intentional tort, for which no duty to defend triggered under a general liability policy.