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Judge Wallace Grants Motion for Judgment on the Pleadings for Declaratory Judgment of No Coverage in Insurance Dispute

January 24, 2018

In Catlin Specialty Insurance Co. v. CBL & Associates Properties, Inc., C.A. No. N16C-07-166 PRW CCLD (Sept. 20, 2017), Judge Wallace denied the defendants’ Motion for Judgment on the Pleadings, and granted the plaintiff’s Motion for Judgment on the Pleadings on all counts except a claim for unjust enrichment. In their cross-motions, both parties requested a declaratory judgment to establish whether the governing insurance policy provided coverage for a lawsuit against the defendants. The insurance coverage dispute arose from an underlying lawsuit brought against the defendants claiming that the defendants had fraudulently and purposefully overcharged a hair salon (and many others) for electricity. The defendants argued to Judge Wallace that they were entitled to coverage for the underlying lawsuit, whereas the plaintiff argued that coverage was unavailable because the claims in the underlying lawsuit arose from the defendants’ allegedly intentional, knowing, and wrongful conduct—conduct that was excluded from coverage under the insurance policy. The complaint included a claim for a declaratory judgment of no coverage and a claim for unjust enrichment seeking recovery of defense costs incurred in the underlying action.

In deciding the competing motions, Judge Wallace first engaged in a choice-of-law analysis. Finding the principal place of business of the insured to be the most significant factor, Judge Wallace held that Tennessee law should apply. Under Tennessee law, an insurer’s duty to defend depends on whether the underlying complaint alleges any damages that fall under the risks covered by the insurance policy and for which there is a basis for recovery.

Here, the complaint made no reference to negligent conduct and instead alleged only intentional, wrongful, and fraudulent conduct. Based on the plain language of the insurance policy, the plaintiff would only ever need to provide coverage for a “negligent act, error or omission.” Although the defendants argued that the insurance policy covered any error or omission by arguing that the word “negligent” modified the word “act[s]” only, Judge Wallace concluded that such a contractual interpretation would defy elementary rules of grammar. Rather, the word “negligent” is an adjective that modifies each noun following in the list (“act, error or omission”). Furthermore, Judge Wallace found that other courts have “almost uniformly” held that the phrase means “negligent act, negligent error, or negligent omission.”

Although the defendants also argued that the fraud claim in the underlying lawsuit boiled down to allegations of negligent billing, and that certain other claims brought in the underlying action did not actually require intent (and thus were not based on intentional acts), Judge Wallace concluded that the Court must consider what the allegations in that underlying action actually were, rather than what they should or could be. Therefore, Judge Wallace granted the plaintiff’s Motion for Judgment on the Pleadings for all counts except the unjust enrichment claim, noting in a footnote that the Court would have to consider matters outside of the pleadings to rule on the unjust enrichment claim and thus could not do so in the context of the current motion.

Analysis: Insurance coverage disputes are common in CCLD, and, similar to the instant dispute, many insurance coverage cases start as declaratory judgment actions seeking a determination concerning the availability of coverage. Because these cases often involve a “case within a case,” the members of the CCLD panel are called upon to scrutinize the allegations involved in the underlying action before determining whether coverage is available for the claims involved in such underlying action.

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