AUGUST 2013 BAD FAITH CASES: COMPLAINT’S “AND/OR” LANGUAGE CREATES DUTY TO DEFEND; FAILURE TO PROPERLY INTERPRET COMPLAINT NOT BAD FAITH (Philadelphia Commerce Court)
Plaintiff brought suit alleging breach of contract and bad faith for the insurer’s failure to provide plaintiff with a defense against a claim of negligence. Plaintiff’s business consisted of leasing commercial truck drivers to its clients on a temporary basis. Plaintiff obtained a commercial general liability (“CGL”) policy from the insurer, which included auto and professional liability exclusions. The auto exclusion excluded coverage wherever bodily injury or property damage arose “out of the ownership, maintenance, use or entrustment to others of any… “auto”… owned or operated by or rented or loaned to any Insured.”
The policy auto exclusion applied even in cases of claims against any Insured alleging “negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that Insured, if the “occurrence”…. involved the ownership, maintenance, use or entrustment to others of any… “auto”… that is owned or operated by or rented or loaned to any Insured.”
The professional liability exclusion excluded coverage where liability arose “out of the rendering of or failure to render professional services, or any error or omission, malpractice or mistake of a professional nature committed by or on behalf of the “Insured” in the conduct of any of the “Insured’s” business activities.”
In January 2007, plaintiff leased a driver to a client who was involved in an automobile accident. The opposing driver brought suit against plaintiff, the individual driver, the client, and the company which provided the truck that was involved in the accident. In the complaint, the opposing driver alleged the driver was the “agent, servant, workman and/or employee of Defendants [client], [plaintiff], [truck leasing company] and/or [truck leasing company trade name].” The complaint also alleged plaintiff was negligent in its hiring and training practices.
Plaintiff turned the claims over to the insurer, who denied coverage and a defense based on the auto and professional liability exclusions in the CGL policy. Plaintiff successfully provided its own defense, was found not liable, and then renewed its demand to the carrier, requesting $73,130.24 in defense costs. The carrier again denied the request, causing plaintiff to file an action alleging breach of the CGL policy and bad faith.
The court found the carrier’s denial was proper insofar as it was based on the auto exclusion language excluding coverage where the auto involved in the accident was “owned or operated by or rented or loaned to” plaintiff or its employee. However, the complaint also contained claims arising from the driver’s employment status as an employee of plaintiff, plaintiff’s client, “and/or” the truck leasing company.
Based on the “and/or” language, the court found it possible to read the complaint as alleging a situation in which the driver was not plaintiff’s employee, but instead the employee of another defendant. This would mean the truck was not “operated by” the plaintiff, making the auto exclusion inapplicable, and the carrier responsible for defending plaintiff under the policy with respect to the claims that plaintiff negligently placed the driver with its client.
The carrier denied coverage for the negligent placement claims under the professional liability exclusion. The court, however, found “the leasing and placement of truck drivers is not the “rendering of or failure to render a professional service” as set forth in the exclusion.” The policy did not define ‘professional service,’ leading the court to use a case-law based definition recognizing professional as “distinguished by specialized training or education, state licenses, and legal liability for professional negligence or malpractice.” Since the placement services did not fit within the professional liability exclusion, the carrier should have provided a defense for those claims.
Since the carrier did breach the CGL contract, the court next turned to whether the refusal to provide a defense was made in bad faith. The court found “no showing that [the carrier] was motivated by self-interest in denying coverage for the defense” of the claims. While the court found the insurer may have been “negligent or exercised bad judgment in finding the Auto and Professional Liability Exclusions applicable to the [underlying plaintiff’s] claims” there was “no evidence that they acted with malice in misreading the claims.” Furthermore, the insurer’s decision not to renew plaintiff’s CGL policy after it filed suit was not done in bad faith because the evidence supported the insurer’s claims it was a business decision.