An appellate court in Texas has confirmed that an insurer did not have to defend its insured under a commercial general liability insurance policy against lawsuits alleging that the insured had discriminated against a potential customer because he was Muslim.
The Case
Faisel Saleh filed two lawsuits against Dorvin D. Leis Company of Texas, Inc., a heating and air conditioning contractor.
In his first lawsuit, Mr. Saleh alleged that he called Leis in June 2016 because he believed his thermostat was malfunctioning. Mr. Saleh alleged that he left a voicemail and that, the next day, a Leis employee returned his phone call. Mr. Saleh said that he requested price information and, although the Leis employee stated he would obtain the information and call Mr. Saleh, the Leis employee failed to do so.
According to Mr. Saleh, he "sent an email message to [Leis] and mentioned that he plans to sue [Leis] in court for discrimination unless [Leis] pays a settlement out of court."
Leis did not respond to the email or Mr. Saleh's subsequent phone calls, according to Mr. Saleh. His lawsuit alleged that:
Plaintiff suffered four counts of discrimination based on race, religion, and/or ethnic background. Plaintiff's name indicates that he is a Muslim and possibly an Arab, and he mentioned his first name in the message he left for Defendant. Furthermore, Defendant could have seen the name on its caller ID. Defendant does not tell the average American customer that it will call him back and then neglect him completely and refuse to pick up when he calls, especially when it has a member living in his apartment complex. The four counts of discrimination are the following:
1. Saying that it will call Plaintiff back and neglecting to do so[;]
2. Refusing to pick up when Plaintiff called after the first offense[;]
3. Refusing to pick up again when Plaintiff called the other number[; and]
4. Neglecting to call back after the two missed calls[.]
Mr. Saleh sought damages as a result of Leis' alleged actions because he "suffered four counts of discrimination based on race, religion, and/or ethnic background, and is demanding damages in the amount of $150,000 (one-hundred and fifty thousand dollars)."
Mr. Saleh also filed a second action, against Leis, Leis' attorney, and a private process server. Mr. Saleh alleged that the process server – who had served his petition in the first lawsuit – had filed a defective return of service. Mr. Saleh alleged that the process server had amended the document after being informed about the errors, but that he had "intentionally put incorrect information on there again." Mr. Saleh asserted that Leis and its attorney had paid the process server "to put the five defects in the first Return of Service document, for the purpose of preventing [Mr. Saleh] from being awarded a Default Judgment" in the first lawsuit. Mr. Saleh sued the process server for breach of contract and all three defendants for aggravated perjury and bribery to change the outcome of an official proceeding. Mr. Saleh sought $12,039.99 in damages.
Leis requested that its insurance carrier, Ohio Casualty Insurance Company d/b/a Liberty Mutual Group ("Liberty"), provide a defense to the Saleh lawsuits, but Liberty refused.
Leis retained counsel who obtained dismissal of Mr. Saleh's lawsuits. Although Leis had no liability to Mr. Saleh, it incurred attorney's fees and costs to defend the litigation.
After the Saleh lawsuits were dismissed, Leis sued Liberty for breach of contract and for violations of Chapters 541 and 542 of the Texas Insurance Code.
Leis and Liberty filed cross-motions for summary judgment. Leis argued that Liberty was required to provide a defense in the Saleh lawsuits. Liberty asserted the Saleh actions did not plead a covered occurrence under the policy.
The trial court denied Leis' motion and granted Liberty's motion.
Leis appealed, asserting that there was coverage under the Liberty policy because it could be inferred from Mr. Saleh's pleadings that Mr. Saleh had "suffered some damage or harm to his person or property because Leis did not repair [Mr.] Saleh's air conditioning system in the blaring heat of the summer." Additionally, Leis stated, it was a reasonable inference that Mr. Saleh claimed that "he suffered harm to his person or property as a result of Leis's inaction" for which he sought damages of $150,000. Therefore, Leis argued, liberally construing the pleadings, Liberty was required to provide a defense pursuant to the terms of the policy.
The Liberty Policy
The Liberty policy provided:
SECTION I – COVERAGESThe Appellate Court's DecisionCOVERAGE A – BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages….
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; [and]
(2) The "bodily injury" or "property damage" occurs during the policy period. . .
SECTION V — DEFINITIONS
3. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
17. "Property damage" means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it."
The appellate court reversed.
In its decision, the appellate court ruled that, liberally construing Mr. Saleh's pleadings, Mr. Saleh had alleged in his first lawsuit that he had been damaged when Leis had failed to communicate with him because his name indicated he was Muslim or Arab. Mr. Saleh asserted that Leis had discriminated against him because of his race, religion, or ethnic background, which had caused him to suffer damages.
The appellate court added that, in the second lawsuit, Mr. Saleh had alleged that he had been damaged because Leis had conspired with others to file a false return of service.
The appellate court found that Mr. Saleh had made "no allegation" that he had suffered "bodily injury, sickness or disease or physical injury or loss of use of tangible property."
According to the appellate court, neither the discrimination alleged by Mr. Saleh nor the alleged conspiracy to file a false return of service constituted an allegation of bodily injury or property damage. It held that Mr. Saleh's actions "did not state a cause of action for bodily injury or property damage covered under the terms of the [Liberty policy]."
The appellate court concluded that, in light of Mr. Saleh's failure to allege any bodily injury or property damage, Liberty did not have a duty to defend Leis against Mr. Saleh's claims, that Liberty had not breached the policy, and that Leis' claims under Chapters 541 and 542 of the Texas Insurance Code similarly failed.