Certain Lloyd’s underwriters lost their unopposed coverage motion for summary judgment based on an assault and battery policy exclusion, because a bar patron injured by gunfire did not allege she was shot as a result of a dispute, threat or other intentional conduct. The decision, made under South Carolina law, was published February 13, 2017, and is reported as Certain Underwriters at Lloyd’s London v. Butler and Green, 2017 U.S. Dist. LEXIS.
The insurance claim arose from a state court lawsuit filed by Shakila Green against Round Two, an adult nightclub business, and its owners, Sarah and Willie Butler, alleging that in August, 2013, while Green was a guest at Round Two, she was shot in both of her legs, causing permanent injury. Green’s complaint stated a cause of action against the nightclub and its owners based on their negligence in not securing the business premises, such as by conducting security checks for weapons as guests entered the nightclub.
As is standard, the Lloyd’s policy covering the nightclub provided liability insurance to defend and indemnify the owners for claims and liability imposed upon them for bodily injury to which the policy applied. The policy, however, contained an assault and battery exclusion stating that the policy did not apply to any claim arising from an assault and/or battery, “regardless of culpability or intent,” from physical altercation, or any failure to prevent such an event.
The exclusion was broad, applying whether a claim was caused by the insured, an employee, a patron or any other person and whether or not the conduct occurred on the premises insured. The exclusion also applied to damages arising out of allegations of negligent hiring, placement, training or supervision. Finally, the exclusion stated specifically that the insurers were under no duty to defend any lawsuit based on an assault and/or battery or physical altercation of any nature whatsoever.
The insurers filed suit in federal court, seeking a judicial declaration that the policy provided no duty to defend or indemnify the bar owners for Green’s claim, because it arose from an assault and battery. The bar owners failed to answer the declaratory relief complaint and their defaults were entered. They never responded to the motion for summary judgment brought by the insurers, and the court concluded that the facts asserted by the insurers were undisputed for purposes of the motion.
Nevertheless, the court conducted a full insurance coverage analysis, concluding that the assault and battery exclusion did not excuse the insurers from defending or indemnifying the bar owners for the claim against them based on the shooting. There was no dispute that Green’s state court complaint alleged the bar owners were liable to her for the injuries she suffered from being shot, which she alleged was caused by the owners’ negligence in failing to properly secure the premises against such occurrences.
Under South Carolina law, however, an insurer’s duty to defend is determined by the allegations of the injury complaint, and the complaint is construed liberally with all doubts resolved in favor of the policyholder. The court pointed out that there is a different approach to the duty to defend compared to the duty to indemnify. With regard to the latter, some South Carolina authorities have stated that while the duty to defend is based on the allegations of the underlying complaint, the duty to indemnify is based on the findings of the trier of fact made after the trial of the injury case.
A key to the case is the court’s observation that, if the underlying case complaint creates even a possibility of coverage under an insurance policy, the insurer must defend the policyholder. Accordingly, if an insurer has no duty to defend, it necessarily has no duty to indemnify. If, on the other hand, the facts alleged in the underlying complaint fail to bring the case within policy coverage, the insurer is free of the obligation to defend the insured against the claim. Nevertheless, if the court either determines that the insurer has a duty to defend or is unable to make a determination regarding the duty to defend the treatment, a determination regarding the insurer’s duty to indemnify is premature. It follows that if the insurer does have a duty to defend, the court may be unable to determine whether the insurer has a duty to indemnify until resolution of the underlying action.
Applying these principles, the court concluded that Green’s state court complaint left open the possibility that her injuries did not arise from an assault or battery, the predicate for invoking the assault and battery exclusion of the policy. The court quoted, in its entirety, the only sentence of the operative injury case complaint describing the shooting incident. It read as follows:
“On or about the 11th day of August 2013, the Plaintiff, a minor at the time, was a guest at the adult business of the Defendants when she [was] shot in both of her legs, causing permanent damage.”
The court observed that nothing in this sentence suggested that the weapon injuring Green was discharged during, or in relation to, a dispute, or that its discharge resulted from someone’s intent to cause bodily injury or to threaten it. Instead, the court said, the allegation is consistent with a weapon being discharged unintentionally. “Ultimately,” the court stated, “because Green’s underlying complaint creates a possibility that her injury did not arise from assault or battery, the court cannot conclude that the assault and battery exclusion of the policy precludes Plaintiffs’ duty to defend.”
Although not discussed as such, for the public policy basis of the decision, and overcoming the effect of the policy wording negating coverage for assault and/or battery “regardless of culpability or intent,” the court said it agreed with Canopius U.S. Ins., Inc. v. Middleton, 2016 WL4379538, at *4 (D S C. Aug. 17, 2016), an earlier US District Court decision it found to be in all material respects “on all fours” with the facts of the subject case, including the wording of the assault and battery exclusion. The earlier decision stood for the proposition that, for an injury to arise from an assault or battery, the conduct of the person committing the putative offense must act with “some form of intent.” Otherwise, excluding coverage for injuries arising from assault and battery would “swallow” a policy’s coverage provision and render it “virtually meaningless,” a result not permitted by South Carolina law. Accordingly, the court in the earlier case rejected the insurer’s proposed definition of assault and battery, because it included unintentional conduct.