No Coverage for Intentional Tort

Malicious Prosecution Suit Not Accidental

A standard liability insurance policy insures against bodily injury or property damage caused by an occurrence. Intentional torts, by definition, can never be an occurrence since they are both expected and intended by the tortfeasor.

In Grinnell Mutual Reinsurance Company v. Sleeper, United States District Court, W.D. Missouri,  Slip Copy,  2016 WL 868850 (March 7, 2016) the U. S. District Court was asked to compel an insurer to provide a defense to the insured for a case alleging only the intentional tort of malicious prosecution.

BACKGROUND

Plaintiffs Mary Ellison and Susan Sleeper asserted claims against defendants Linda Fry, and four other family defendants. Sleeper and Ellison asserted they had been unlawfully deprived by these defendants of property that should have passed to Sleeper and Ellison on the death of Vincil and Willa Fry.

In response, the state court defendants brought a counterclaim for malicious prosecution against Susan Sleeper. The counterclaim alleged that Sleeper’s claims were barred by the statute of limitations, that she and her counsel were aware of this impediment, and therefore that she had brought suit without probable cause and solely as a means of harassment. In defense Sleeper alleged that the defendants had concealed their unlawful activity and therefore the statute of limitations had been tolled. Ultimately, the Missouri Supreme Court acknowledged and abrogated the line of cases that supported Sleeper’s position and ruled Sleeper’s claims were barred by the statute of limitations.
Sleeper holds an insurance policy with CFM Insurance, Inc. for which Grinnell Mutual Reinsurance affords potential liability coverage. Grinnell filed suit before the Court seeking a declaratory judgment that this policy does not cover the malicious prosecution counterclaim.

DISCUSSION

To determine whether there is insurance coverage a Court must first interpret Sleeper’s policy. The interpretation of an insurance policy is a question of law. When performing this assessment, a court will consider the terms of the policy, attaching to those terms the meaning which would be attached by an ordinary person of average understanding if purchasing insurance. Sleeper bears the burden of establishing coverage under her insurance policy.

Because neither party disputes the contents of Sleeper’s policy or of the underlying state court case, there are no factual disputes at issue and the Court shall grant summary judgment if Grinnell is entitled to judgment as a matter of law.

Interpretation of the Policy

Sleeper’s insurance policy contains a coverage form entitled “Personal Liability Coverage.” Grinnell argues that “accident” plainly suggests an injury caused by negligence, which necessarily precludes acts of an intentional nature. The concepts of negligence and intentional conduct are contradictory and mutually exclusive.

Sleeper does not appear to dispute this argument. Although she maintains “accident” is an ambiguous term in the policy, and consequently it should be construed against Grinnell, she proceeds to offer third-party definitions of “accident” that define the term as “an unfortunate incident that happens unexpectedly or unintentionally” and “an unfortunate event resulting from carelessness, unawareness, ignorance or a combination of causes.” These definitions are consistent with Grinnell’s argument that an accidental act bespeaks negligence. Accordingly, as with all third party policies, Sleeper’s policy provides coverage for injuries caused by negligence.

Duty to Defend

An insurer has a duty to defend when the underlying action alleges facts which state a claim potentially within the policy’s coverage. Conversely, where the underlying claim is outside the coverage of the insurance policy, no such duty exists.

In response, Sleeper argues that the malicious prosecution counterclaim lacked merit.  Sleeper maintains she had probable cause to file the underlying lawsuit and thus the only possible way that these counterclaimants could succeed is under a theory of negligence which would be fully covered by this policy.

The  Court’s task in this case is not to reexamine the merits of a state lawsuit by parsing allegations for factual support. Rather, the Court must only look at the allegations as they are contained in the complaint. At no point does the counterclaim suggest Sleeper acted negligently. Instead, regardless of its ultimate merits, the counterclaim charged Sleeper solely with intentional, malicious acts.

Therefore, the court concluded that the malicious prosecution counterclaim falls outside the coverage of Sleeper’s policy and Grinnell has no duty to defend.

Duty to Indemnify

Unlike the duty to defend, the duty to indemnify is determined by the facts as they are established at trial or as they are finally determined by some other means, for example through summary judgment. Missouri courts have found that an insurer’s duty to defend is broader than its duty to indemnify. Accordingly, where there is no duty to defend, there is no duty to indemnify.

Given that Grinnell has no duty to defend Sleeper, it follows that Grinnell also has no duty to indemnify her regarding the malicious prosecution counterclaim.

ZALMA OPINION

Ms. Sleeper’s case against Grinnell failed because of the effect of the fortuity doctrine which is embedded in the definition of “occurrence.” Intentional acts, like malicious prosecution, can never be an occurrence. Like every risk, if a person is willing to pay a sufficient premium, can be covered even events that are intentional acts.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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