In a recent decision, the Supreme Court of Rhode Island declared that a claimant lacks the ability to bring an action against an insurer for violation of Rhode Island’s Unfair Claims Settlement Practices Act, R.I. Gen. Laws, tit. 27, ch. 9.1 (1956). The case is Great American E&S Insurance Company v. End Zone Pub & Grill of Narragansett, Inc., No. 2010-375-Appeal. A copy of the decision is available here.
The case is an insurance coverage dispute, arising from an altercation between a patron of the insured and the insured’s employees. When the patron filed suit against the insured, the insurer denied coverage based on an assault and/or battery exclusion in the insured’s commercial general liability policy. In the ensuing coverage litigation, the claimant contended that the insurer had committed an “unfair claims practice” under the Unfair Claims Settlement Practices Act by failing to inform him of its denial of coverage within a reasonable period of time. Section 27-9.1-4 of the Act sets forth “improper claims practice[s]” of insurers conducting business in Rhode Island. Included among these practices is an insurer’s “[f]ail[ure] to affirm or deny coverage of claims within a reasonable time after having completed its investigation [of] the claim or claims.” The claimant also argued that the assault and/or battery exclusion in the policy rendered coverage under the policy illusory and, therefore, should not be enforced to deny coverage.
In its opinion, the Court rejected the claimant’s arguments. The Court first observed that the purpose of the Act is to set forth standards to which insurance carriers should adhere in the investigation and disposition of claims. The Court further noted that the Act establishes the required procedure for the filing of complaints with the director of business regulation, and describes the penalties available for violations of the Act. The Court held that, by its terms, the Act does not create or imply a private cause of action. The claimant, therefore, was not entitled to relief from the Court for the insurer’s alleged violation of the Act.
The Court also determined that the claimant’s argument concerning the assault and/or battery exclusion was flawed. The claimant alleged that the exclusion rendered coverage under the policy illusory because it would preclude coverage in all situations where an employee’s physical contact with a patron results in injury, regardless of whether an intent to injure was present. Rejecting this logic, the Court explained that because battery requires intentional contact, the assault and/or battery exclusion would only preclude coverage where intentional contact has occurred and would not apply where the contact is unintentional. Holding that the assault and/or battery exclusion precludes coverage only in very specific circumstances, the Court determined that it did not render coverage under the policy illusory.
Notably, the Court in End Zone assumed, without deciding, that the claimant could contest the viability of the policy because the insurer had not challenged the claimant’s ability to do so. However, in a footnote to the decision, the Court suggested that the insurer may have had grounds to argue that the claimant lacked standing to challenge the validity of the policy exclusion because he was neither a beneficiary nor a third-party beneficiary of the policy. The Rhode Island Supreme Court thus seems to be signaling a willingness to consider some limits on which parties have standing to contest questions of coverage. How far it will go remains to be seen.