SEPTEMBER 2011 BAD FAITH CASES: INSURER’S MOTION TO DISMISS DENIED BECAUSE THE UNDERLYING TORT ALLEGATIONS FALL WITHIN THE SCOPE OF THE INSURED’S POLICY COVERAGE (PHILADELPHIA FEDERAL)
The court was faced with declaratory judgment, breach of contract, and bad faith claims by an insured against its carrier, which denied its duty to defend the insured in an underlying negligence action. The carrier moved the court to dismiss the insured’s claims.
The insured is a property management company that operates an apartment complex. In 2009, an employee of the insured was driving while intoxicated and struck a nine year old girl, who sustained serious physical and psychological injury.
The insured owned a general liability policy from the carrier. In response to a negligence claim by the accident victim, the insured sought coverage under this policy. The carrier denied its duty to defend the insured on the basis of the “auto exclusion,” which excludes coverage for “bodily injury or property damage arising out of the ownership, maintenance, use or entrustment to others of any aircraft, auto or watercraft owned or operated by or rented or loaned to any insured.”
However, the insured does not dispute the applicability of the auto exclusion – if the intoxicated driver was acting in the scope of his employment at the time of the accident, the exclusion bars policy coverage. Instead, the insured argues that, despite the exclusion, it is entitled to coverage because the underlying negligence claim also contains several counts of “‘independent’ allegations of negligence.” The underlying negligence action alleges that the insured is independently liable for failing to implement proper procedures to maintain a safe environment for its tenants, failing to prevent employee alcohol consumption, and failing to provide adequate security to protect its tenants given the prior history of employee alcohol consumption.
The underlying negligence complaint also alleges that the driver was not acting in the scope of his employment. Therefore, the court ruled, even if the driver is not covered, because he was acting outside the scope of his employment, the insured is still covered by the policy for the independent negligence allegations listed in the underlying complaint.
Because the underlying negligence suit alleged that the insured’s failure to maintain a safe environment on its premises created the foreseeable risk that injury would occur, the court concluded that the complaint brought this claim within the insured’s scope of coverage. As a result, the carrier owes a duty to defend.