In Pennsylvania General Insurance Company v. Thakur, et al., 2014 WL 3906456 (D. Conn. Aug. 11, 2014), the United States District Court for the District of Connecticut, applying Connecticut law, granted an insurer’s motion for summary judgment, holding that the insurer had no duty to defend or indemnify its insured in connection with underlying litigation involving a fraudulent tax return business (the Program) run out of the insured’s home. 

Criminal charges had been brought against the insured’s daughter and ex-husband based on their involvement in the Program.  Id.  It was undisputed that the insured played a role in the Program, but she was not a defendant in the criminal litigation.  Id.  The insured sought defense and indemnity from her insurer in connection with the civil litigation that followed. 

The homeowners’ policy at issue stated that “[i]f a claim is made or a suit is brought against an ‘insured’ for damages because of ‘bodily injury’ or ‘property damage’ caused by an ‘occurrence’ to which this coverage applies,” then the insurer will defend insured in the lawsuit and pay, up to its policy limit, any amount that the insured was ordered to pay.  Id. at *1.  The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” which results, during the policy period, in bodily injury or property damage.  Id.  The policy also included a criminal activity exclusion that applied whether or not the insured was charged with or convicted of a crime.  Id.

The insurer argued that the acts alleged in the underlying litigation did not qualify as “occurrences.” Id. at *3.  The district court agreed.  Although the policy did not define the term “accident,” the court noted that the Connecticut Supreme Court, in interpreting similar policy provisions, has defined “accident” as:  “‘[a]n unintended and unforeseen injurious occurrence,’ ‘an occurrence for which no one is responsible’; and ‘an event of unfortunate character that takes place without one’s foresight or expectation.’” Id., citing Allstate Ins. Co. v. Barron, 269 Conn. 394, 408 n. 10 (2004) (internal citations omitted) (emphasis in original). 

The district court thus held that an “occurrence,” as defined in the policy, does not include intentional torts or other intended actions.  Thakur, at *3.  It then held:  “While [the insured] may possibly not have intended for the victims to be injured in the way that they were, or to the degree that they were, it is alleged that she intended to take the actions that led to those injuries, i.e., letting her ex-husband and daughter operate the ‘program’ out of her home, handle money for the business, etc.”  Id.   

The court found it immaterial that the underlying plaintiffs pled claims for negligent misrepresentation.  Id. at *4.  It noted that Connecticut courts “look past the terminology,” focusing on the facts alleged, not legal theories or titles assigned to particular causes of action.  Id. at *3-4.  Accordingly, merely describing an action as potentially involving negligence was of no consequence when the action itself could only be described as intentional.  Id. at *4. 

The court added that, even if the insured had been genuinely mistaken about the Program, and was negligent in being mistaken, her actions taken with respect to the Program could not possibly be characterized as accidental, unforeseen, or unintended.  Id.  Because there was no genuine issue of material fact with respect to whether the factual allegations contained in the underlying litigation alleged an “occurrence,” the court concluded, as a matter of law, that the insurer had no duty to defend the insured.  Id

The court noted that the allegations in the underlying civil lawsuits also fell within the “intentional acts or criminal activity” exclusion, providing another basis for the finding of no duty to defend.  Id.  In addition, there was evidence demonstrating that the policy was void ab initio as a result of fraud, since the insured had stated, in the policy application, that no business was being conducted on the premises.  Id.  The court then concluded that, because the duty to defend is significantly broader than the duty to indemnify, where there is no duty to defend, there can be no duty to indemnify.  Id. at *5. 

The Thakur ruling, by focusing on factual allegations in the underlying litigation, rather than the description of the causes of action, demonstrates a sophisticated and balanced approach to the assessment of when the duty to defend is triggered, and reaffirms that the traditionally broad scope of an insurer’s duty to defend is not without limits.