Race Discrimination Claim not an Occurrence
April 15, 2013
Five African-American men alleged they were refused entry into the insured's nightclub because of their race on several occasions in 2007 and 2008. The men filed a lawsuit based on alleged racial discrimination in a place of public accommodation and discrimination in contractual relations. This case is Gatlin v. Delux Entertainment, LLC d/b/a Decibel Deep Bar, 2010 WL 1904984.
Society Insurance Company provided coverage for the insured under a businessowners policy. The insurer argued that the complaint does not trigger a duty to defend because the claims do not arise out of an occurrence or involve personal and advertising injury as defined in the policy.
Society said that the injuries were not caused by an occurrence because the doormen's actions in refusing the men entry in the nightclub were not accidental. The insured countered that while refusing entry was volitional rather than accidental, this did not mean that the insured intended to discriminate against the men. In addition, the insured said that certain allegations in the complaint could be construed to state claims based on unintentional discrimination.
The District Court said that there are two problems with the insured's argument. First, the insured assumed that a volitional act can constitute an accident (and thus, an occurrence) simply because the person committing the act did not intend to violate the law or inflict harm on the victim. The court said that Wisconsin law governs the interpretation of insurance contracts, and the state courts have held that a volitional act is not an occurrence even if the actor did not intend to cause harm. The second problem is that, although the insured suggests that the complaint alleges that the insured engaged in unintentional discrimination, the insured does not offer an interpretation of the complaint under which such unintentional discrimination could, if proven, actually result in liability. Delux must point to allegations in the complaint that could arguably be construed consistently with a viable theory of liability based on unintentional discrimination, and this the insured did not do. Accordingly, because the complaint does not allege that the plaintiffs' injuries were caused by an accident, the complaint does not allege harm caused by an occurrence.
The insured also argued that the complaint could be construed as alleging that Delux wrongfully evicted the plaintiffs from the nightclub and/or invaded their right of private occupancy, an offense included in the definition of personal and advertising injury. The court found that there have been no Wisconsin state courts that interpret the wrongful eviction or right of private occupancy language in a policy such as Society's. However, the court went on, the Seventh Circuit, in a case applying Wisconsin law, held that a person must have a legal right to occupy a room, dwelling, or premises before the insured could have wrongfully evicted that person or invaded that person's right of private occupancy. In this instance, the plaintiffs do not allege that they had a legal right to occupy the nightclub. The fact that the plaintiffs allege that they were excluded for impermissible reasons does not mean that they had a legal right to occupy the premises. Accordingly, the court concluded that the complaint did not state any claims falling within Society's coverage of personal and advertising injury.
Because the complaint did not allege either an occurrence or personal and advertising injury, the court ruled that Society had no duty to defend or indemnify the insured in this case. Society's motion for declaratory judgment was granted.
Editor's Note: The United States District Court for the Eastern District of Wisconsin found that the complaint in this case did not arguably assert liability covered by the policy. The court said that a complaint does not trigger an insurer's duty to defend unless there is a plausible interpretation of the complaint that brings its allegations within the scope of the policy. The court found no occurrence and no violation of personal and advertising injury (as defined) in this instance and so, the insurer had no duty to defend or indemnify the insured.