Kahn was visiting the Atlanta “nightclub” Flashers in November of 2006 when he was shot in the parking lot. Kahn had been inside the club for approximately 45 minutes and as he was leaving and walking to his car, he saw two individuals exit the club behind him. One of the individuals shot at him with a firearm, hitting Kahn six times in the chest and back. Kahn filed a premises liability suit against Flashers, alleging that Flashers had negligently failed to provide adequate security for its invitees. In addition, Kahn asserted a cause of action for assault and battery, alleging that an employee or employees of Flashers either ordered or directed the assault on him or actually shot him six times. According to the complaint, the employee or employees were acting as agents of Flashers within the course of Flashers’ business and, thus, Flashers was responsible for their actions under the doctrine of respondeat superior.
Landmark insured Flashers which tendered the lawsuit to Landmark and asked Landmark to defend the club. Landmark denied coverage and notified Flashers that it would not defend it against Kahn’s claims because the claims were not covered under Flashers’ insurance policy. Specifically, Landmark took the position that the policy only covered an assault and battery if it was committed by a Flashers employee while the employee was trying to protect persons or property. According to Landmark’s investigation into the shooting, the person who shot Kahn did not fall within that description and, therefore, the assault was not covered by the policy.
In Kahn’s suit against Flashers, the trial court ultimately entered an Order striking Flashers’ Answer and entered a default judgment against the club awarding Kahn over $2.3 million. In exchange for Kahn’s promise not to execute the judgment against Flashers’ assets, Flashers assigned to Kahn all of its causes of action against Landmark arising out of the incident, including claims based upon Landmark’s failure to defend Flashers and its failure to provide insurance coverage. Kahn then filed a lawsuit against Landmark, asserting claims for the breach of its duty to defend, bad faith refusal to defend or settle, and breach of contract. Landmark filed a motion to dismiss the complaint and Kahn moved for partial summary judgment as to Landmark’s liability on its claim for breach of duty to defend. The trial court granted Kahn’s motion for partial summary judgment and denied Landmark’s motion to dismiss. These rulings were appealed to the Georgia Court of Appeals which affirmed the decision of the trial court.
Landmark argued that Kahn’s underlying personal injury claim against Flashers did not specifically allege that the assault and/or battery was committed by Flashers’ employees while they were protecting persons and/or property and therefore were not covered by the insurance policy. The Court of Appeals restated long standing Georgia law to the effect that an insurer’s duty to defend is determined by comparing the allegations of the complaint with the provisions of the policy and that, in construing the policy of insurance, any ambiguities are strictly construed against the insurer and any exclusion from coverage sought to be invoked by the insurer is likewise strictly construed. If the facts as alleged in the complaint even arguably bring the occurrence within the policy’s coverage, the insurer has a duty to defend the action. To avoid the duty to defend, the lawsuit must unambiguously exclude coverage under the policy. Doubt as to liability and an insurer’s duty to defend should be resolved in favor of the insured. The insurer is obligated to defend where the allegations of the complaint against the insured are ambiguous or incomplete with respect to the issue of insurance coverage.
The Court of Appeals agreed with Landmark that the policy excluded any claims for assault and battery unless the assault and battery was committed by a Flashers employee or agent while trying to protect persons and/or property. In his lawsuit Kahn had specifically asserted that Flashers’ employee or employees either shot him six times or ordered someone to shoot him. Although the underlying lawsuit did not specially allege that Flashers’ employees were acting to protect persons or property the Court of Appeals and the trial court concluded that the allegations of the complaint did not reveal, with certainty, that Kahn would not be entitled to relief under any state of provable facts asserted in the complaint.
The Court of Appeals also pointed out that if Landmark was uncertain whether the language of Mr. Kahn’s complaint triggered its duty to defend, it could have defended the case under a reservation of rights, requested a stay of the underlying case, and filed a declaratory action to determine its obligation to provide a defense.
Certainly, based upon this decision, the Court of Appeals’ suggestion that Landmark should have provided a defense and filed a declaratory judgment action would have been the better course. By failing to defend, Landmark may be saddled with the default judgment of $2.3 million. This case will now be sent back to the trial court with a ruling in Mr. Kahn’s favor that, as a matter law, Landmark has breached its contract with Flashers by failing to defend. A jury will be left to determine damages against Landmark. This is certainly not an enviable position for an insurer.
For what it’s worth, I think this case employs a very broad definition of the duty to defend and seems to go beyond existing case law in placing the duty on an insurer to try to interpret ambiguities in a complaint to try to predict covered claims. I will be interested to see if the Supreme Court agrees to review this issue.
Please let me know if you would like a copy of this decision.