In a recent United States District Court decision, the court denied the insurer’s motion for summary judgment as to its duty to defend and indemnify for an alleged assault and battery. The facts of Certain Underwriters at Lloyd’s London v. Butler are typical and straightforward.
The plaintiff was a patron at a nightclub. Shots were fired, striking the plaintiff in both legs. He sued the nightclub and its owners in state court, and the insurance carrier defended under a reservation of rights. The carrier then filed a declaratory judgment action in federal court, asking the court to declare that the injury arose from acts excluded under the policy’s assault and battery exclusion. The comprehensive exclusion also applied to claims for failure to provide adequate hiring, training, security, or safe premises.
The nightclub and the individual owners did not answer the carrier’s federal court complaint, and the clerk entered default against them. The carrier then moved for summary judgment, arguing it had neither a duty to defend nor a duty to indemnify the alleged assault and battery. In denying the unopposed motion for summary judgment, the district court cited two lines of cases regarding the duty to indemnify in South Carolina. The court noted that the duty to defend is determined solely from the allegations of the underlying complaint. First, the court discussed cases wherein the duty to indemnify was resolved solely by reference to the underlying complaint. The district court also discussed those cases wherein the allegations of the complaint, if proven, took the claim outside of coverage, such that the duty to indemnify could be resolved without findings of fact. In essence, if there is not duty to defend based on the complaint, there is not duty to indemnify. Second, the court discussed cases wherein the duty to indemnify turned “on the evidence found by the factfinder.” In fact, the district court cited several cases for the proposition that the duty to indemnify could only be resolved after “findings of fact have been made in the underlying lawsuit.” This is based on the premise that “if the court either determines that the insurer has a duty to defend or is unable to make a determination as to the duty to defend, a determination as to the insurer’s duty to indemnify is premature”.
In reviewing the complaint, the court referenced a nearly identical, earlier district court case involving another nightclub shooting. In that older case, the court found a duty to indemnify where the complaint did not allege the injury resulted from an intentional assault. “For purposes of an insurance policy exclusion, … for an injury to arise from an assault or battery, the conduct of the person committing the putative assault or battery must include some form of intent.”
In Butler, the district court held the carefully crafted state-court complaint, by omitting any allegations of intent (or any allegations which could be construed as intentional), “[left] open the possibility that the injury [alleged] does not arise from an assault or battery.” In fact, the only allegation regarding the shooting simply alleged the plaintiff was shot in the insureds’ nightclub. As such, the court could not grant the motion for summary judgment as to the duty to defend. Similarly, because the court could not resolve the duty to defend in favor of the carrier, the district court could not conclude the carrier has no duty to indemnify under the policy under either line of cases cited by the court. “Under the first line of cases set forth above, looking only to the allegations of the complaint, the court cannot conclude that the assault and battery exclusion excludes coverage for the injury alleged by Green in her complaint. Under the second line of cases, because the court cannot conclude that Plaintiffs have no duty to defend, a determination as to Plaintiffs’ duty to indemnify is premature.”
Because plaintiffs’ lawyers will continue to file complaints that omit critical facts relative to coverage (if not increase the practice), it likely will become harder for carriers in South Carolina to obtain declaratory relief in an expedient manner. Even in default situations, the district court has signaled it will closely guard insureds’ rights under the policies. So carriers must develop the facts in the underlying claim to provide sufficient evidence to support a motion for summary judgment in the declaratory judgment action.