Breach of Contract Claim and Insurance Coverage for an Occurrence
The plaintiff, Essex Insurance Company, filed a complaint against Paric Corporation seeking a declaratory judgment that an insurance policy issued by Essex to Clarinet, LLC does not provide coverage for claims asserted in an underlying lawsuit by Paric against Clarinet. This case is Essex Insurance Company v. Paric Corporation, 2010 WL 2696709 (E.D.Mo.).
Clarinet owned a building in St. Louis, Missouri . A severe windstorm swept through the city in 2006 and caused a portion of the building to collapse. The city ordered Clarinet to demolish the building in order to abate the danger and hazard that the building presented to persons and third party property immediately adjacent to the building. Clarinet hired Paric to demolish the building, which Paric did at a cost exceeding $650,000.
In 2008, Paric filed a lawsuit against Clarinet to collect the balance due for the demolition of the building. The lawsuit alleged breach of contract against Clarinet in that Clarinet failed to pay for the demolition work. Clarinet tendered the lawsuit to Essex for defense coverage but the insurer denied any and all coverage, and the insurer filed this lawsuit seeking a declaratory judgment.
The district court said that the case involved the interpretation of an insurance policy under Missouri law. The first step was to determine whether Essex had a duty to defend its insured, and the court had to consider whether there was a potential or possible liability to pay based on the facts at the outset of the case. The court said that the duty to defend is not dependent on the probable liability to pay based on the facts ascertained through trial, but rather by comparing the language of the insurance policy with the allegations asserted in the petition. In this case, the allegations of the Paric lawsuit are all based on Clarinet's alleged failure to comply with the terms of a contract it entered into with Paric to demolish a building.
The court found that the breach of contract allegations that formed the basis for the Paric lawsuit were based on intentional acts that cannot be interpreted to be accidental in any way. Moreover, said the district court, Missouri courts have consistently held that a breach of contract is neither an occurrence nor an accident, with the rationale being that because the performance of a contract is within the insured's control, a breach of that contract cannot qualify as an accident, and therefore, cannot be an occurrence as defined in a liability policy.
The district court ruled that, because a breach of contract cannot amount to an accident or an occurrence, and because the Paric lawsuit involved only claims related to an alleged failure to comply with the terms of a contract, the insurer had no potential or possible liability to pay at the outset of the Paric lawsuit. Therefore, there was no duty to defend.
Editor's Note: This case is presented to point out that the duty to defend is (in most states) determined by the pleadings in the underlying lawsuit which courts then compare with the policy language. If the underlying lawsuit does not allege the bodily injury or property damage or personal and advertising injury that the standard general liability policy requires, insurers will assert that there is no duty to defend. And if there is no duty to defend, there is no duty to indemnify. Breach of contract allegations not accompanied by an allegation of BI, PD, or personal and advertising injury will not usually require the insurer to defend the insured.
In a separate note, the court said that, while the insurer alleged some exclusions applied, the fact that the insuring agreement in the policy was not met meant that there was no need to discuss any exclusions. The exclusions were not relevant since the claims against the insured did not fulfill the requirements of the insuring agreement.