National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

In American Best Food, Security guards from the insured nightclub escorted George and Michael from the premises.   Once outside, George shot Michael nine times.   Michael struggled to the alcove of the club where security guards then brought him back inside.   A club owner ordered the guards to remove Michael from the club which they did.   Michael later sued the club for its negligence in failing to protect him from criminal conduct.   In his suit, Michael specifically alleged that the club exacerbated his injuries by dumping him onto the sidewalk outside the club.   In other words, Michael alleged negligent conduct, occurring after he was shot, worsened his damages.

Alea London, the club’s liability insurer, denied both defense and indemnity for the suit because of its broad assault and battery exclusion which included the phrase “arising out of”:

This insurance does not apply to any claim arising out of:

A.                 Assault and/or Battery committed by any person whosoever, regardless of degree of culpability or intent and whether the acts are alleged to have been committed by the insured or any officer, agent, servant or employee of the insured or by any other person; or

B.                 Any actual or alleged negligent or omission in the:

1.                  Employment;

2.                  Investigation;

3.                  Supervision;

4.                  Reporting to the proper authorities or failure to so report; or

5.                  Retention;

of a person for whom any insured is or ever was legally responsible, which results in Assault and/or Battery; or

C.        Any actual or alleged negligent act or omission in the                     prevention or suppression of any act of Assault and/or Battery.

(Emphasis added).   Alea argued that this language relieved if of the duty to defend or indemnify because, relying on over 20 years of Washington cases, the phrase “arising out of” broadens the exclusion and encompasses any occurrence with a causal connection to the excluded conduct.   According to Alea, but for the excluded assault, Michael would not have sued the insured club.  

The Supreme Court disagreed pointing out that no Washington decision interpreted an assault and battery exclusion when post assault negligence is alleged, and a split of authority existed on the issue in cases which had addressed the issue.   The Court adopted the reasoning of cases holding that “arising out of” in an assault and battery exclusion did not apply to allegations of post assault negligence.   Since there was no analogous Washington decision, and a split of authority existed, Alea should have given the benefit of the doubt to its insured and picked up the defense.   

Perhaps more surprisingly, the Court held that Alea’s denial of the duty to defend was bad faith as a matter of law.   In Washington, bad faith supposedly means the insurer’s denial was unreasonable, frivolous, or unfounded.   To no avail was Alea’s argument that it did not act in bad faith because it relied on a reasonable interpretation of case law.      The Court disagreed and held that Alea should not have denied the duty to defend when it was arguable – based on conflicting non-Washington cases – whether the assault and battery exclusion applied to post assault negligence.