Why it matters

In a fascinating – albeit unpublished – decision from the Ninth U.S. Circuit Court of Appeals, two judges on the appellate panel reversed summary judgment for an insurer that had failed to consider facts extrinsic to the underlying complaint when denying coverage to the policyholder. According to the majority, a police report and witness statements provided by the insured offered an alternative theory of the plaintiff’s case that removed it from the application of a policy exclusion. Because the extrinsic facts available to the insurer indicated the potential for coverage, that was sufficient to trigger the duty to defend, the court held.

Detailed Discussion

Rudy Martinez, a patron at the Crazy Horse Restaurant and Nightclub, filed suit after he was allegedly injured by the bar’s security guards.

In addition to the complaint, Crazy Horse sent insurer Burlington Insurance Co. a copy of the police report, which contained multiple witness statements from the night in question. Some of the witnesses told police that Martinez was injured not by the security guards but when he tried to sit down on a stool and lost his footing, hitting his head on the wall.

According to Burlington, the allegations in Martinez’s complaint against the security guards brought it within a policy exclusion for injuries “[a]rising out of assault or battery, or out of any act or omission in connection with the prevention or suppression of an assault or battery.”

Burlington denied defense coverage and a federal district court granted the insurer summary judgment on the ground that it had no duty to defend or indemnify.

On appeal, the Ninth Circuit reversed, relying upon the police report and attached witness statements that “also contained facts indicating that Martinez’s injuries might have been caused by events that would not fall within the assault-or-battery exclusion. Those extrinsic facts, which Burlington was obligated to consider in making its coverage decision, triggered a duty to defend because they reveal[ed] a possibility that the claim may be covered by the policy.”

If the witnesses were correct that Martinez fell from a stool, that version of events would not fall within the exclusion, the court said. “Thus, the extrinsic facts available to Burlington indicated the potential for coverage, which is all that was necessary to trigger its duty to defend,” the panel wrote.

The court acknowledged that extrinsic facts cannot trigger the defense duty when they relate only to claims that have not been pleaded in the third-party claimant’s complaint.

“But here the extrinsic facts at issue do relate to a claim pleaded in Martinez’s complaint – namely, his negligence claim,” the court said. “Although as originally pleaded Martinez’s negligence claim was predicated on the theory that he had been assaulted, the extrinsic facts available to Burlington revealed the possibility that Martinez could amend his negligence claim to allege theories of liability that would fall outside the assault-or-battery exclusion. Under well-settled California law, that possibility was enough to trigger Burlington’s duty to defend.”

To read the decision in The Burlington Insurance Co. v. CHWC, click here.