Eleventh Circuit Stretches Policy Wording to Find a Duty to Defend


Georgia’s Four Corners Rule Requires a Defense Even When Rape is Alleged

Annalee Hunter sued Five Paces Inn, an Atlanta bar after being drugged, assaulted and raped by an employee of Five Paces. Five Paces’s insurers brought a declaratory judgment action to clarify whether they had an obligation to defend and indemnify Five Paces. Hunter filed a motion to dismiss, which the district court granted.

In Houston Specialty Insurance Company, Scottsdale Insurance Company v. The Five Paces Inn Co., Annalee Hunter, No. 20-10209, United States Court Of Appeals For The Eleventh Circuit (August 27, 2020) the insurers sought reversal of an order compelling them to defend the Inn.


On a summer night in 2016, Hunter and several female friends were enjoying themselves at Five Paces. Hunter was in the restroom when the bar began to close at approximately 2:00 a.m. The bar was cleared of patrons, including Hunter’s friends. When Hunter emerged from the restroom, a bartender offered her another drink. He gave her a drink and a “blue shot.” According to Hunter, one or both of these beverages rendered her defenseless, which led to a vicious assault by one of the bartenders. Hunter’s suit names a bartender who she says “assaulted and raped” her “in unspeakable ways,” which caused “severe and permanent harm.” She sued Five Paces, alleging premises liability, negligence, and negligence per se.

At the time of the assault, Five Paces had two commercial liability insurance policies: a commercial general liability policy issued by Houston Specialty Insurance Company and an umbrella policy issued by Scottsdale Insurance Company. The Houston policy excludes from this coverage any injury “arising out of or resulting from” an assault, battery, or other harmful contact. Instead, assault and battery coverage is subject to a $25,000 sublimit. This limited assault and battery coverage excludes injuries “arising, directly or indirectly, out of sexual assault, abuse or molestation.”

Houston and Scottsdale sued seeking a declaration that they have neither a duty to indemnify nor a duty to defend. The district court dismissed as premature the portion of Houston and Scottsdale’s complaint dealing with the duty to indemnify. It further dismissed the portion of their complaint dealing with the duty to defend, ruling that “the allegations on the face of the underlying lawsuit set forth a claim of potential coverage.” Houston and Scottsdale appealed the latter determination.


It is axiomatic that an “insurer’s duty to defend is broader than its duty to indemnify,” so a declaration that neither company had a duty to defend Five Paces would necessarily relieve them of a duty to indemnify the bar.  In Georgia, whether an insurer has a duty to defend depends on the language of the policy as compared with the allegations of the complaint. The insurer has a duty to defend an action if the facts as alleged in the complaint even arguably bring the occurrence within the policy’s coverage.

This dispute is essentially about the meaning of the phrase “arising out of” in Houston’s policy. If Hunter’s suit against Five Paces alleges injuries “arising out of” assault or battery (or sexual assault), then Houston and Scottsdale are correct that the lower sublimit (or the sexual assault exclusion) applies.

In Georgia, insurance contracts are liberally construed in favor of coverage. Thus, when the phrase “arising out of” is found in an exclusionary clause of an insurance policy, Georgia courts interpret that phrase narrowly, “applying the ‘but for’ test traditionally used to determine cause-in-fact for tort claims. Like blanket exceptions and exclusions, limitations on coverage, such as sublimits, are subject to the same narrowing construction.

The Eleventh Circuit concluded that neither Houston nor Scottsdale were able to show that assault or battery were “but for” causes of Five Paces’ potential liability. Hunter was injured the moment she consumed an incapacitating beverage, regardless of any subsequent assault by a Five Paces bartender. This point is clearer if we imagine that Hunter had been assaulted at a second bar. In that counterfactual, Five Paces would still potentially have liability because of its negligent service; it was the drink service itself that created that liability.

The Houston policy states that the company is responsible for paying “damages because of ‘injury’ to which this insurance applies if liability for such ‘injury’ is imposed on the insured by reason of the selling, serving or furnishing of any alcoholic beverage.” Houston and Scottsdale cannot escape this fact merely because Hunter had the misfortune of being assaulted in the same bar that served her the incapacitating drink.

The insurance companies also argue that Five Paces’s service of drinks to Hunter constituted an assault under Georgia law. This argument, however, turns on just one possible interpretation of Hunter’s complaint—and not even the best interpretation. By the words of her complaint, Hunter does not allege that she was drugged or poisoned, but that she was served “unwholesome” drinks.

The district court analyzed that allegation, noting that while assault is an intentional tort, Hunter’s complaint says nothing directly about what the offending bartender intended: “while the complaint can certainly be read to support the plaintiffs’ theory that [the bartender] purposefully drugged Hunter with the intent to rape her, it could also be read to allege that he took advantage of her incapacity—caused by his own negligence or that of a coworker—and assaulted her only after the opportunity presented itself.”

The Eleventh Circuit felt compelled to resolve doubt as to an insurer’s duty to defend in favor of the insured. As a result it concluded that there is at least enough doubt as to coverage to sustain that duty.

This is not a suggestion, of course, that Houston or Scottsdale must necessarily indemnify Five Paces. Although an insurer need not indemnify an insured for a liability the insured incurs outside the terms of the insurance contract, an insurer must provide a defense against any complaint that, if successful, might potentially or arguably fall within the policy’s coverage.


I continue to dislike the four corners or eight corners rule that allow a clever drafter to compel an insurer to defend a lawsuit that would never have dealt with an action that the insurer did not agree to defend or indemnify the insured. The purpose, of course, is to obtain a settlement from the insurer to save the costs of defense. The insurers should be able to obtain evidence from the bartender involved – even if he is in jail for his misconduct – that showed he intentionally drugged Hunter so that he could easily rape her, and bring a new motion. If not, they will be required to defend Five Paces through trial. Extrinsic evidence, not available in such a situation to insurers, could have brought about a different decision that bent over backwards to find drugging a woman to easily rape her was merely negligent conduct.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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