No Duty to Defend

Breach of Contract & Intentional Act Not Insured

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Carl Hemphill asked the Third Circuit to find that his liability insurer, Landmark American Insurance Co., is obligated to defend him in a lawsuit by a former employee. That employee brought a panoply of claims against Hemphill in his original complaint. None is covered by Hemphill’s policy with Landmark. In Carl Hemphill; MJC Labor Solutions, LLC v. Landmark American Insurance Company, No. 20-2544, United States Court of Appeals, Third Circuit (April 5, 2023) applied the four corners rule to resolve the dispute.


Carl Hemphill and MJC Labor (together, Hemphill) provide temporary employee placement and visa application processing services to workers from Mexico and Central America. Hemphill is insured by a miscellaneous professional liability (MPL) policy with Landmark, covering claims “arising out of [] negligent act[s], error[s] or omission[s]” “in the rendering or failure to render . . . permanent and/or temporary placement services[.]”

Former MJC client Jose Castillo sued Hemphill (the Castillo Lawsuit), alleging violations of federal human trafficking, wage-and-hour, and unfair trade practices laws, as well as claims for breach of contract and unjust enrichment. When Castillo eventually arrived in the U.S., Hemphill and his wife confiscated his passport; housed him in conditions he described as “filthy,” overcrowded, and vermin-infested; assigned him tasks outside the scope of his employment contract; and considerably underpaid him.

The parties have since settled the Castillo Lawsuit, but the reimbursement of legal defense costs, incurred in the underlying suit, remain in dispute.


Landmark declined to defend Hemphill on the grounds that Castillo’s allegations arose from Hemphill’s intentional actions, occurring after Castillo had been placed as an employee, rather than from negligent actions in providing placement services.

If the underlying complaint avers facts that might support recovery under the policy, coverage is triggered, and the insurer has a duty to defend.

Under Pennsylvania law, the question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint. Courts applying Pennsylvania law must not stray from the operative complaint in determining duty-to-defend issues, even when later proceedings reveal the existence of a covered claim.

The District Court Conclusion

The District Court found that:

  1. Hemphill could not expect Landmark to cover him for any claim not listed in the Landmark policy, and
  2. Castillo’s complaint does not allege a covered claim.

Insured’s Reasonable Expectations

An insured’s reasonable expectations may occasionally prevail over the express terms of a contract, but only in very limited circumstances to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.

Hemphill did not argue that the Landmark policy language is facially unclear or that Landmark engaged in deceptive tactics. Instead, he claims that the mere fact that Landmark defended a different lawsuit created a reasonable expectation that it would defend the Castillo Lawsuit. Landmark subjected its defense of the earlier Lawsuit to a complete reservation of rights.

The Duty to Defend

An insurer’s duty to defend is determined solely from the language of the complaint against the insured. It is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer’s duty to defend.

Castillo’s unfair trade practices claim alleged that Hemphill “deceiv[ed]” Castillo “about rental housing in which he would be living.” But Castillo does not allege that Hemphill or MJC ever represented to him that his housing conditions would be sanitary or not crowded, or that he would not have accepted Hemphill’s employment offer had he known that the housing conditions were subpar.

As for Castillo’s start date, his allegations amount to nothing more than a breach-of-contract claim: he alleges that his contracted-for start date was delayed and that he lost money and employment opportunities as a result. Landmark expressly carved out breach-of-contract claims in its policy with Hemphill. It has no duty to defend this one, or any other claim in Castillo’s suit.


The four corners rule allowed the insurer to refuse to defend or indemnify its insured because Castillo’s suit was basically for breach of contract and did not meet any of the requirements of the policy which limited its coverages and did not promise to defend a claim of breach of contract.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and

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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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