IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
CATLIN SPECIALTY
INSURANCE COMPANY,
Plaintiff,
v.
CBL & ASSOCIATES C.A. No. N16C-07-166 PRW CCLD
PROPERTIES, INC., CBL &
ASSOCIATES LIMITED
PARTNERSHIP, CBL &
ASSOCIATES MANAGEMENT,
INC., and JG GULF COAST
TOWN CENTER, LLC,
VVVVVVVVVVVVV\/VV
Defendants.
Submitted: June 20, 2017
Decided: September 20, 2017
Corrected: October 17, 2017
Upon Defena’ants CBL & Associates Properties, lnc., CBL & Associates Limited
Partnership, CBL & Assocz'ates Management, Inc., and JG GulfCOast T own
Center, LLP ’s Motionfor Judgment on the Pleadings,
DENIED.
Upon Plaz`ntz'jj”Catlil/z Specl`alty Insurance Company ’s
Motionfor Judgment on the Pleaa’ings,
GRANTED as to Counts I and II and DENIED as to Count III.
MEMORANDUM OPINION AND ORDER
Emily K. Silverstein, Esquire, Marks, O’Neill, O’Brien, Doherty & Kelly P.C.,
Wilmington, Delaware, Louis H. Kozloff, Esquire (pro hac vice) (argued), Goldberg
Segalla LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff.
John A. Sensing, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware,
Alan E. Popkin, Esquire (pro hac vice), David W. Sobelman, Esquire (pro hac vice),
Melissa Z. Baris, Esquire (pro hac vice), Husch Blackwell LLP, St. Louis, Missouri,
Attorneys for Defendant.
WALLACE, J.
I. INTRODUCTION
Plaintiff Catlin Specialty Insurance Company (“Catlin”) and Defendants CBL
& Associates Properties, Inc., CBL & Associates Limited Partnership, CBL &
Associates Management, Inc. (collectively, “CBL Defendants”), and JG Gulf Coast
Town Center, LLC (“GCTC”) each ask this Court to enter a declaratory judgment
outlining the rights and obligations of an insurance policy between Catlin and CBL
Defendants in connection With claims asserted against CBL Defendants by Wave
Lengths Hair Salon of Florida, Inc. d/b/a Salon Adrian (“Salon Adrian”). Salon
Adrian’s claims against CBL Defendants are currently pending in the United States
District Court for the Middle District of Florida (“Underlying Action”).l Salon
Adrian’s lawsuit against the CBL Defendants and GCTC arises out of those
defendants’ allegedly fraudulent scheme devised to purposefully and fraudulently
overcharge Salon Adrian (and many others) for electricity.
Following the filing of that suit, CBL Defendants and GCTC sought Catlin’s
insurance coverage for the Underlying Action, pursuant to a policy in effect from
December 31, 2015 until December 31, 2016 (the “Catlin Policy”).2 In this action,
Catlin argues that each and every claim in the Underlying Action is based upon
l See Wave Lengths Hair Salon ofFl., Inc. d/b/a Salon Adrian, et al. v. CBL & Assocs.
Props., Inc., et al., Case No. 2:16-cv-00206-SPC-MRM.
2 Policy No. CPL-680077-l216.
_1_
Defendants’ allegedly intentional, knowing, and Wrongful conduct.3 And so, Catlin
argues: its policy does not cover such claims; it has no duty to defend CBL
Defendants in the Underlying Action; and it has no obligation to pay any defense
costs or damages incurred by the litigation. CBL Defendants and GCTC counter
that they are entitled to Catlin’s insurance coverage because the Underlying Action
involves alleged negligent acts, errors, or omissions in the rendering of professional
services_something explicitly covered by the Catlin Policy.4
Before the Court are each side’s cross-motions for Judgment on the
Pleadings.5 Each asks for declaratory judgment that there either is or is not coverage
under the Catlin Policy.
II. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Catlin is a Delaware corporation With its principal place of business
in Atlanta, Georgia.6 Defendant CBL & Associates Properties, Inc., is a Delaware
corporation With its principal place of business in Chattanooga, Tennessee.7
3 Pl.’s Mot. for J. on the Pleadings, at 1, C.A. No. N16C-07-l66 PRW CCLD (Del. Super.
Ct. Jan. 17, 2017) (D.I. 26) [hereinafter Pl.’s Mot.].
4 Def.’s Mot. for J. on the Pleadings, at l, C.A. No. N16C-07-l66 PRW CCLD (Del. Super.
Ct. Jan. 17, 2017) (D.I. 27) [hereinafter Def.’s Mot.].
5 See DEL. CODE. ANN. tit. 10, § 6501 (Delaware’s Uniform Declaratory Judgment Act).
6 Pl.’s Compl.1l 2.
7 Pl.’s Compl. 11 3.
Defendant CBL & Associates Limited Partnership is a limited partnership organized
under the laws of Delaware, with its principal place of business in Chattanooga,
Tennessee.8 CBL & Associates Management, Inc., is a Delaware corporation with
its principal place of business in Chattanooga, Tennessee.9 Defendant GCTC is a
limited liability company organized under the laws of Ohio, with its principal place
of business in Chattanooga, 'l`ennessee.10
A. THE UNDERLYING FLORIDA ACTIoN GIvEs RIsE To
THIs DELAWARE LITIGATION.
On March 16, 2016, on behalf of itself and all others similarly situated, Salon
Adrian filed suit against “CBL & Associates, Inc.” alleging that company had
“executed a fraudulent scheme through a criminal enterprise to overcharge small
business tenants for electricity at its shopping malls” resulting in “fraudulent and
illegal markups [that] exceeded 100% of the tenant’s actual electricity usage
charges.”ll On July 1, 2016, Salon Adrian amended the complaint, naming CBL
Defendants and GCTC.12
8 Pl.’s Compl.11 4.
9 Pl.’s Compl.11 5.
10 Pl.’s Compl.11 6.
ll Pl.’s Compl. 11 13 (Ex l (Pl. Salon Adrian, et al. Compl. 11 1)).
12 Pl.’s Compl. 11 14 (Ex. 2 (Pl. Wave Lengths Hair Salon of Florida d/b/a Salon Adrian, et al.
Am. Compl.)).
_3_
Underlying Plaintiff Salon Adrian is an upscale salon located in the GCTC, a
shopping mall in Fort Myers, Florida.]3 In 2006, Salon Adrian executed a ten-year
lease with JG Gulf Coast, the owner of GCTC,14 with CBL Management signing as
JG Gulf Coast’s agent.15 One lease provision concerned billing for utilities.16
Section 2.5 of the Lease stated:
Tenant shall pay promptly, as and when the same become
due and payable, all water rents, rates and charges, all
sewer rents and all charges for electricity, gas, heat, steam,
hot and/or chilled water, air conditioning, ventilating,
lighting systems, and other utilities supplied to the Leased
Premises. If any such utilities are not separately metered
or assessed or are only partially separately metered or
associated and are used in common with other tenants in
the Shopping Center, Tenant will pay to Landlord a
proportionate share of such charges in addition to Tenant’ s
payments of the separately metered charges. Landlord
may install registering meters and collect any and all
charges aforesaid from Tenant, making returns to the
proper utility company or government unit, provided that
Tenant shall not be charged more than the rates it would
be charged for same services if furnished directly to the
Leased Premises by the Local Utility Company, as
hereinafter defined.'7
13 Pl.’s Compl. Ex. 2 11 8.
'4 Pl.’s Compl.11ll.
15 Pl.’s Compl. Ex. 2 11 19. The lease is Exhibit A to Plaintiff’ s Compl. Ex 2.
16 Pl.’s Compl. Ex. 2 11 20. See also id. Ex. 2, Ex. A at 7.
17 See id. Ex. 2 11 20. See also id. Ex. 2, Ex. A at 7.
_4_
As expected, Salon Adrian began receiving electricity invoices.18 Its energy
bills averaged $500-$600 per month.19 Sometimes, though, the bills would range
from $600-$700 per month, far higher than Salon Adrian paid at another location it
operated.zo In response, Salon Adrian began to “tak[e] on additional debt to purchase
state of the art high efficiency lightbulbs and other products.”z] It also upgraded to
energy-efficient appliances22 Nothing helped. Salon Adrian’s bills continued to
average $600 per month.23
Concurrently, CBL Defendants had a contract with non-party Valquest, an
energy audit company.24 Valquest provided CBL Defendants and its tenants with
energy surveys. According to Salon Adrian, the surveys project energy costs or
substantiate CBL Defendants’ billed energy costs.25 Salon Adrian says the CBL
18 Pl.’s Compl. Ex. 2 at 11 24.
19 Id
20 lai
21 Id. at 11 27.
22 Id
23 1a 11 28.
24 1a 1111 29_30.
25 Id. 11 29.
Defendants directed Valquest to inflate its electricity costs in its projections or audits
and that CBL Defendants reaped the profits.26
In 2009, Salon Adrian complained to CBL Defendants about Salon Adrian’s
rising electricity costs.27 In May of that year, Valquest performed an energy audit
for Salon Adrian at CBL Defendants’ request in order to justify its electricity
charges.28 Salon Adrian contends that the audit results are inflated.29
In September 2015, Wells Fargo sued JG Gulf Coast for defaulting on its
mortgage loan.30 Wells Fargo assumed ownership of GCTC and hired new
management31 The new operator performed its own electrical usage audit.32 lt
informed Salon Adrian that Salon Adrian’s energy charge would be reduced to
$269.00/month, less than half the $600-$700 Salon Adrian had normally been
charged.33
26 Id. 11 30.
27 Id. 11 31.
28 ld-
29 Id_
30 Id. 11 32.
31 ld_
32 Id. 11 33.
33 Id. 11 34.
Once Salon Adrian confirmed its previous suspicions that it had been paying
allegedly inflated electricity prices for about a decade, it filed the Underlying Action.
In it, Salon Adrian suggests that CBL Defendants’ conduct occurred nationwide, and
seeks to certify several groups of classes.34
Salon Adrian alleges six causes of action against the CBL Defendants. First,
Salon Adrian contends CBL Defendants violated the Racketeer Influenced and
Corrupt Organizations (“RICO”) Act.35 Second, it alleges CBL Defendants are
unjustly enriched by receiving inflated payments for electricity from tenants
nationwide. Third, it alleges CBL Defendants violated Florida’s Deceptive and
Unfair Trade Practices Act (“FDUTPA”).36 Fourth, it alleges CBL Defendants
violated Florida’s Civil Remedies for Criminal Practices Act.37 Fifth, it alleges that
JG Gulf Coast breached its contract by charging inflated electricity rates. Last, it
alleges that JG Gulf Coast breached the implied covenant of good faith and fair
dealing.
34 See id. 1111 41-52 (allegations and argument for class certification).
25 18 U.s.C. § 1962(A), (c), & (D).
36 FLA. STAT. § 501.201-23.
37 FLA. STAT. § 772.101-19. Catlin says this is Florida’s version of RICO.
_7_
B. CBL DEFENDANTS DEMAND CATLIN DEFEND THEM
IN THE UNDERLYING AcTIoN.
Catlin issued a Contractor’s Protective, Professional, and Pollution Liability
Insurance Policy, No. CPL-680077-1216, to CBL & Associates Properties, Inc. as
the Named Insured, with a policy period of December 31, 2015-December 31,
2016.38 CBL Defendants tendered the Underlying Action to Catlin for coverage.39
Catlin agreed to defend CBL Defendants under a full reservation of rights, including
the right to seek a declaratory judgment that it has no duty to defend or indemnify
CBL Defendants.40 Not surprisingly, Catlin is now seeking such a declaration.
In July 2016, Catlin filed its complaint. In it, Catlin makes three claims. Its
first two claims seek declarations that it does not have to cover CBL Defendants and
JG Gulf Coast. Its third claim is an unjust enrichment claim.41 Catlin alleges that
its defense of CBL Defendants in the Underlying Action unjustly enriches CBL
Defendants at Catlin’s expense.
38 Pl.’s Compl. 11 22. The Policy is attached to Catlin’s Complaint as Exhibit 3.
39 Ia'. 11 23.
40 Id. 11 24.
41 The parties disagree on whether the Court can dispose of this claim via their cross-motions
for judgment on the pleadings. Def.’s Br. in Opp. to Pl.’s Mot., at 34, C.A. No. N16C-07-l66
PRW CCLD (Del. Super. Ct. Feb. 17, 2017); Pl.’s Ans. Br. in Opp. to Def.’s Mot., at 42, C.A. No.
N16C-07-l66 PRW CCLD (Del. Super. Ct. Feb. 17, 2017). Because the Court would be required
to consider matters outside the pleadings, the Court cannot rule on Catlin’s unjust enrichment claim
here. Mergenthaler v. Asbestos Corp. of Am., 500 A.2d 1357, 1360 (Del. Super. Ct. 1985) (stating
that “facts and arguments outside the pleadings cannot be considered in a motion for judgment on
the pleadings[.]”).
_3_
III. CHOICE OF LAW
A. THE PARTIES’ CHoICEs oF LAW.
The parties disagree on the law that should govern this action. Catlin says
Tennessee law applies, while CBL Defendants argue for Florida law.
Catlin is headquartered in Tennessee. The insurance policy was delivered to
CBL Defendants in Tennessee.42 And CBL Defendants are headquartered in
Tennessee.43 lnvoking Delaware’s choice-of-law rules, Catlin suggests that the
location of the insured’s headquarters is an important factor. Catlin notes that Salon
Adrian has filed a proposed class action. lf that class is certified, then CBL
Defendants may face claims nationwide. lt would be sensible for the Court to apply
Tennessee law to these claims, as Catlin provides nationwide coverage and may be
subject to nationwide claims.44
On the other hand, CBL Defendants argue for Florida law. CBL Defendants
assert that this is an isolated claim; thus, the location of the insured’s covered
activities should is most important.45 And, no class has yet been certified. So, CBL
42 Pl.’s Mot. at 19-20.
43 Id
44 lai
43 Def.’s Mot. at 11~12 (citing Chemtura Corp. v. Certain Underwriters at Lloyd ’s, 2016 WL
3884018 (Del. Super. Ct. April 27, 2016)). The Delaware Supreme Court reversed this Court’s
Chemtura decision on March 23, 2017. See Certain Underwriters at Lloyds, London v. Chemtura
Corp., 160 A.3d 457, 461 (Del. 2017).
_9_
Defendants currently only face liability in Florida for claims arising under Florida
law.
B. DELAWARE CHOICE-OF-LAW RULES.
Delaware applies its own choice-of-law rules as the forum state.46 The Court
must consider facts in accordance with the most significant relationship test.47 That
test is set forth in the Restatement (Second) of Conflict of Laws Section 188.48
Section 188 provides:
(1) The rights and duties of the parties with respect to an
issue in contract are determined by the local law of the
state which, with respect to that issue, has the most
significant relationship to the transaction and the parties
under the principles stated in [Restatement (Second) of
Conflict of Laws] § 6.
(2) ln the absence of an effective choice of law by the
parties (see § 187), the contacts to be taken into account in
applying the principles of § 6 to determine the law
applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil[e], residence, nationality, place of
46 Shook & Fletcher Asbestos Seltlement Tr. v. Safety Nat’l Cas. Corp., 2005 WL 2436193,
at *2 (Del. Super. Ct. Sept. 29, 2005), ajj”’a’, 909 A.2d 125 (Del. 2006).
47 Ia’. at *2.
48 Oliver B. Cannon and Son, Inc. v. Dorr-Oliver, Inc., 394 A.2d 1160, 1166 (Del. 1978).
_1()_
incorporation and place of business of the parties.
These contacts are to be evaluated according to their
relative importance with respect to the particular issue.49
Section 188’s comment e states the location of the contract’s subject matter is
an important factor when the contract deals with a specific physical thing, such as
land or a chattel, or affords protection against a localized risk. “The state where the
thing or the risk is located will have a natural interest in transactions affecting it.”50
Section 6 of the Restatement (Second) of Conflict of Laws enumerates the
following factors:
[T]he factors relevant to the choice of the applicable rule of law
include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the
relative interests of those states in the determination of the
particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be
applied.51
Section 193 of the Restatement (Second) of Conflict of Laws provides:
49 RESTATEMENT (SEcoND) oF CoNFLICT oF LAws § 188 (1971).
50 Ia'. cmt. e (1971).
51 1a §6 (1971).
_11_
The validity of a contract of fire, surety or casualty
insurance and the rights created thereby are determined by
the local law of the state which the parties understood was
to be the principal location of the insured risk during the
term of the policy, unless with respect to the particular
issue, some other state has a more significant relationship
under the principles stated in § 6 to the transaction and the
parties, in which event the local law of the other state will
be applied.52
Where a claim under an insurance policy involves nationwide risk, the
Restatement recognizes that Section 193 assumes less significance because there is
no single, principal location of the insured risk. And it would be impractical to apply
the law of multiple states to a claim under one insurance policy covering multiple
locations.53
ln complex insurance cases with risks in multiple states such as this one,
Delaware courts have generally held that the most significant factor for the conflict-
of-laws analysis is the principal place of business of the insured because it is “the
situs which link[s] all the parties together.”54
Under Chemtura, Tennessee’s is the law to apply to this case. 55
52 Id. § 193 (1971).
53 Ia’. cmt. b.
54 Monsanto Co. v. Aetna Cas. & Sur. Co., 1991 WL 236936 (Del. Super. Ct. Oct. 29, 1991).
55 Chemtura, 160 A.3d at 459-60 (The Court explains the proper focus on an insurance
contract’s contacts where nationwide claims may occur).
_12_
IV. STANDARD OF REVIEW
Before the Court are the parties’ cross-motions for judgment on the pleadings
A party may move for judgment on the pleadings pursuant to this Court’s Civil Rule
12(c).56 ln determining a Rule 12(c) motion, the Court is required to view the facts
pleaded and the inferences to be drawn from such facts in a light most favorable to
the non-moving party.57 The Court must take the well-pleaded facts alleged in the
complaint as admitted.58 The Court also assumes the truthfulness of all well-pled
allegations of fact in the complaint.59 The Court accords a party opposing a Rule
12(c) motion the same benefits as a party defending a motion under Rule l2(b)(6).60
And so, the Court may grant a motion for judgment on the pleadings only when no
material issue of fact exists and the movant is entitled to judgment as a matter of
law.61
56 super. Ct. Civ. R. 12(¢).
57 Almah LLC v. Lexington Ins. Co., 2016 WL 369576, at *4 (Del. Super. Ct. Jan. 27, 2016)
(citing Desert Equities, Inc. v. Morgan Stanley Leveragea’ Equily Fund, II, L,P., 624 A.2d 1199,
1205 (Del. 1993)).
58 Id
59 Id
60 Id
61 Id
_13_
V. DISCUSSION
A. THE RELATIoNsHlP BETWEEN CATLIN AND CBL DEFENDANTS
AND THE AvAILABLE CovERAGE.
Catlin and CBL Defendants’ relationship is wholly contractual. ln turn,
contract law governs this dispute. The Court must, therefore, look to the language
of the contract between CBL Defendants and Catlin to identify what is indemnified
and what is defendable.
CBL Defendants are correct; the duty to defend encompasses more than the
duty to indemnify. But Catlin need only defend what it may eventually have to pay
out in covered claims CBL Defendants incurs. Here, Catlin has agreed to defend
CBL Defendants for the Underlying Action and pay any associated expenses
(including fees and costs) incurred in defending that Underlying Action under a full
reservation of rights. Specifically, Catlin has reserved the following rights: (l) “the
right to obtain declaratory judgment that it is not obligated to provide coverage under
the [Catlin] Policy for the Underlying Action”; (2) “the right to disclaim any
coverage obligations under the [Catlin] Policy, including the duty to provide an
ongoing defense . . . [and/or] pay ‘Claim Expenses’ and/or a duty to indemnify [CBL
Defendants]”; and (3) “the right to seek reimbursement for Claim Expenses Catlin
pays on behalf of [CBL Defendants] in connection with the Underlying Action.”62
62 Pl.’s Br. in Support of lts Mot. for J. on the Pleadings at 14-15.
_14_
Because the duty between Catlin and CBL Defendants is rooted in their
contractual relationship, the language of their contract controls any duty Catlin has
to CBL Defendants. The Catlin Policy is a “Contractor’s Protective, Professional
and Pollution Liability Insurance Policy” that was in effect from December 31, 2015,
to December 31, 2016,63 lt provides for claims-made coverage to CBL Defendants.64
The Professional Liability portion of the Catlin Policy reads
The lnsurer will pay on behalf of the lnsured all sums in
excess of any applicable Self-lnsured Retention that the
lnsured is legally obligated to pay as Damages or Claim
Expenses because of a Claim for an actual or alleged
negligent act, error or omission in the rendering of
Professional Services, provided that:
1. the Claim for such an actual or alleged negligent,
act, error or omission is first made against the
lnsured during the Policy Period and first
reported in writing by the lnsured to the lnsurer
within 60 days after either the end of the Policy
Period or the end of the Optional Extended
Reporting Period, if applicable, and
2. the Claim arises out of an actual or alleged
negligent, act, error or omission performed by
the lnsured or by a Design Professional for
whom the lnsured is legally responsible, on or
after the Retroactive Date and before the end of
the Policy Period . . . .65
63
64
65
Compl. 11 22.
Ia'.
Pl.’s Br., Ex. A, at 15.
_15_
There are two Policy exclusions that are important here. They read:
This Policy does not apply and the lnsurer will not be
liable to make payments, defend or indemnify any lnsured
for any Ultimate Loss, Damages, Pollution Loss, Claim,
or Claim Expense, or to pay any amounts pursuant to any
Supplemental Coverage, directly or indirectly arising out
of any of the following To the extent an exclusion below
applies by reason of the act, error or omission of an
Insured, it shall also apply to the act, error or omission of
anyone retained by an lnsured or for whom the lnsured is
legally responsible.
>l< >l< >l<
H. Liability under any contract, agreement, express
warranty, or guarantee, unless such liability would
have existed in the absence of such contract,
agreement, express warranty, or guarantee.
l. Any dishonest, fraudulent, criminal, or intentionally or
knowingly wrongful, or malicious act, error, or
omission or those of an inherently harmful nature,
except that this exclusion shall not apply to an lnsured
who did not commit, participate in, or have knowledge
of such conduct.66
B. RULES oF CoNsTRUCTIoN AND CBL DEFENDANTS’ ATTEMPTS
To DEFY THE ELEMENTARY RULEs oF GRAMMAR.
CBL Defendants suggest that the Catlin Policy is ambiguous. They surmise
that “negligent” modifies only “act,” not “error” or “omission.” So, they go on, the
policy covers any error or any omissions_not just those that are negligent Catlin
66 Id., Ex. A, 3123-24.
_16_
maintains that the policy follows proper grammar: the adjective negligent precedes
all three nouns (act, error, and omission). As such, it modifies all three.
CBL Defendants’ interpretation of the policy language ignores the basic tenets
of parallelism. The American Heritage Book of English Usage, for instance,
instructs that “an initial article, preposition, auxiliary verb, or modifier will tend to
govern all elements in the series unless it is repeated for each element. For example,
if you set up a series of nouns with the first modified by an adjective, the reader will
expect the adjective to modify the rest of the series as well.”67 Here, the adjective
“negligent” precedes a series of nouns: “act, error or omission.” The comma
between “act” and “error” denotes a list.68
As well, courts that have addressed the interpretation of the phrase “negligent
act, error or omission” have “almost uniformly held that ‘negligent act, error or
omission’ means ‘negligent act, negligent error, or negligent omission.’ These courts
67 THE AMERICAN HERITAGE BooK oF ENGLlsH USAGE: A PRACTICAL AND AuTHoRITATIvE
GUIDE To CoNTEMPoRARY ENGLlsH 53 (Houghton Mifflin Harcourt 1996). See also Lewis v.
Jackson Energy Co-op. Corp., 189 S.W.3d 87, 92 (Ky. 2005) (“[T]he first adjective in a series of
nouns or phrases modifies each noun or phrase in the following series unless another adjective
appears.”).
58 CBL Defendants’ appended construction argument ~ that an errant comma appearing twice
in the Catlin Policy after “negligent” in the phrase “actual or alleged negligent, act, error, or
omission” “further indicates that negligent does not modify the whole phrase, such that an ‘error
or omission’ need not be negligent to be covered” - is nonpersuasive. lf that comma were anything
more than a typo, it would mean that the phrase “actual or alleged negligent” is an independent
adjectival phrase with no connection to the list of nouns that follows and no connection to any
other noun ~ that is, it would be a modifying phrase with nothing to modify. That reading is
nonsensical.
_17_
reasoned that it would be self-defeating for the insurers who draft these contracts to
limit coverage for intentional acts, while at the same time covering intentional errors
and omissions.”69
But to support their odd reading, CBL Defendants cite to Corporate Really,
Inc. v. Gulflns. Co., an Eastern District of Louisiana case.70 ln Corporate Realzy,
the insured had a professional services policy which covered “errors, omissions, and
negligent acts.”71 The Corporate Realty court found that an insurer had a duty to
defend an insured because the policy covered errors and omissions of any type; only
“acts” was modified by the term negligent72
CBL Defendants’ reliance on Corporate Realz_“y is in vain. The Corporate
Really policy language placed the “negligent” directly and only before “acts,”
leaving “errors” and “omissions” unmodified. But that’s not the construct of the
Catlin Policy language.
69 Acora’ia Ne., Inc. v. Thesseus Int'l Asset Funa’ NV, 2003 WL 22057003, at *2 (S.D.N.Y.
Sept. 4, 2003) (listing cases).
70 2005 WL 236182 (E.D. La. Jan. 31, 2005).
74 Ia'. at *1.
72 Ia’. at *7 (“[H]ad Gulf Insurance intended to limit coverage to damages arising out of
negligent acts, errors, and omissions, it would have so stated.”). See also Cont ’l. Cas. Co. v. Cole,
809 F.2d 891, 895-96 (DC Cir. 1987) (finding a duty to defend intentional errors in a policy
limiting coverage to “errors, negligent omissions and negligent acts.”).
_18_
ln short, the Catlin Policy provides coverage to CBL Defendants for claims
arising out of “negligent acts, errors or omissions.” In other words, whatever the
act, error, or omission that brings about CBL Defendants’ liability, that act must be
negligent, that error must be negligent, or that omission must be negligent. lf not,
that act, error, or omission is not covered.
C. THE SCOPE OF THE DUTY TO DEFEND AND INDEMNIFY.
Under Tennessee (and Florida)73 law, a court determines an insurer’s duty to
defend by examining the allegations in the pleadings.74 The insurer has a duty to
defend when the underlying complaint alleges damages that are within the risk
covered by the insurance contract and for which there is a potential basis for
recovery.75 The duty to defend arises even if only one of the complaint’s allegations
is covered by the policy.76 And any doubt as to whether the complainant has stated
a cause of action within the coverage of the policy is resolved in favor of the
insured.77
73 While the parties made much of the choice-of-law question, in reality, Tennessee and
Florida law are nearly identical on the salient issues presented here. And Delaware law too is well-
aligned with those two sister states’ holdings on these issues.
74 Clark v. Sputniks, LLC, 368 S.W.3d 431, 439 (Tenn. 2012); Jones v. Fla. Ins. Guar. Ass ’n,
Inc., 908 So. 2d 435, 443 (Fla. 2005).
75 Travelers Ina'em. Co. ofAm. v. Moore &Assocs., Inc., 216 S.W.3d 302, 305 (Tenn. 2007);
Jones, 908 So, 2d at 443.
76 Travelers Ina'em. Co., 216 S.W.3d at 305; Jones, 908 So, 2d at 443.
77 Travelers Ina’ern. Co., 216 S.W.3d at 305; Jones, 908 So. 2d at 443.
_19_
The Tennessee Court of Appeals, in Professional Coonhunters Associatz`on v.
Northfz`eld Insurance Company, addressed the insurer’s duty to defend the insured
under a policy providing coverage for claims “arising out of any negligent act, error
or omission in rendering or failing to render professional services.”78 Because the
Tennessee court found that the complaint did not contain any allegations that the
insured committed a “negligent act, error or omission,” and instead described
intentional and willful conduct on the part of the insured, the insurer had no duty to
defend.79
Catlin’s position is the same as the insurer’S in Professional Coonhunters. lt
argues that not one of the Underlying Action’s allegations hint at negligence
Instead, it says, the Underlying Action is replete with references to “fraudulent,”
“intentional,” “willful,” and “malicious” conduct. The Underlying Allegations,
Catlin posits, go well beyond negligence_Salon Adrian alleges that CBL
Defendants intended their wrongful acts. So, Catlin concludes, it has no duty to
defend.
CBL Defendants propose that Court should look to the “gravamen” of the
underlying complaint CBL Defendants say that Salon Adrian’s alleged “fraud”
78 Prof’l Coonhunters Ass’n v. Northfiela' Ins. Co., 1990 WL 105895, at *5, *11 (Tenn. Ct.
App. July 27, 1990).
79 Ia'. at*ll.
_2()_
boils down to a claim that CBL Defendants billed for utilities differently than how
Salon Adrian contends tenants should have been charged.80 CBL Defendants argue
that there is a possibility that they could be liable based on a finding that they just
erroneously overcharged tenants in a way that was negligent or unintentionally
misleading81
But that’s not how the Underlying Action’s allegations read. ln its complaint,
Salon Adrian asserts no theory of recovery that the Court could reasonably deem
mere (or any other sort of) negligence And “courts around the nation are in general
agreement that a [professional liability] policy covering ‘negligent acts, errors or
omissions’ does not cover intentionally wrongful conduct.”82
The Underlying Action alleges no negligent (or even grossly negligent)
conduct. lnstead, it is based on a plainly pled theory that CBL Defendants engaged
in a pattern of intentional, knowing, wrongful, fraudulent conduct. There is no hint
in the Underlying Action’s claims that CBL Defendants acted in a negligent fashion.
80 See Defs.’ Opp. to Pl.’s Mot. for J. on Pleadings at 2. See also ia'. at 19 (“While [Wave]
embellishes the Florida Complaint with allegations of fraud and conspiracy, the gravamen of its
claim is that [CBL Defendants] erroneously charged tenants for utility services. This is precisely
the type of error against which the Policy protects [CBL Defendants.]”).
81 Id
82 Matthew T. Szura & Co., Inc. v. Gen. Ins. Co. of Am., 543 F. App’x 538, 543 (6th Cir.
2013) (citations omitted).
_21_
D. THE FDUTPA CLAIM AND THE BREACH-oF-CoNTRACT CLAIM
CBL Defendants argue that certain claims (including the breach-of-contract
claim and the FDUTPA claim) are covered because they do not require intent, and
therefore cannot be based on “intentional acts.”83 CBL Defendants contend that the
claims’ lack of required intent may allow this Court to find coverage because CBL
Defendants could be found liable for negligently breaching the contract or
negligently violating FDUTPA. But the Court cannot find such coverage
The Court must focus on what the underlying allegations actually are, not
what they might be.84 ln Philaa’elphl`a Ina’emnity Ins. Co. v. Ha)nl`c, the federal
district held that one of the claims, malicious prosecution, could be found through
gross misconduct85 The underlying plaintiff averred specifically that the defendants
either knew its assertions were false when made or acted in reckless disregard of
83 See, e.g., Phila. Ina'ern. Ins. Co. v. Hamic, 2012 WL 3835088 (M.D. Fla. Sept. 4, 2012)
(finding that a Florida RICO claim was covered under a “negligent acts, errors, or omissions”
policy because there was also a companion malicious prosecution count. Under Florida law, the
malice intent required for the latter could be inferred by demonstrating “gross negligence.” And
under Florida law, if one ground for liability alleged in a complaint is within the insurance
coverage, the insurer is obligated to defend the entire suit).
84 Travelers Ina’em. Co., 216 S.W.3d at 305; Jones, 908 So. 2d at 443 (“lndeed, ‘[w]hen the
actual facts are inconsistent with the allegations in the complaint, the allegations in the complaint
control in determining the insurer's duty to defend.”’). See also Amerisure Ins. C0. v. Gola’ Coast
Marz'ne Distribs., Inc., 771 So. 2d 579, 580 (Fla. Dist. Ct. App. 2000) (“The general rule is that an
insurance company’s duty to defend an insured is determined solely from the allegations in the
complaint against the insured, not by the actual facts of the cause of action against the insured, the
insured’s version of the facts or the insured’s defenses.”).
85 See Hamic, 2012 WL 3835088, at *4.
_22_
their truth or falsity.86 The underlying plaintiff expressly averred further in its
complaint that the defendants acted with “legal malice.”87 And under Florida law,
legal malice includes acts of gross negligence That was enough to bring one of the
complaint’s counts, and, in turn, the entirety of the action within the disputed
insurance coverage
Not so here. Salon Adrian, in the Underlying Complaint, has alleged no
semblance of negligent conduct. Nor has it alleged any claim through which CBL
Defendants could be found liable under a negligent theory. CBL Defendants have
pointed to no authority that one can be found to have negligently violated FDUTPA
or breached on a contract through a negligent act, error, or omission. And here Salon
Adrian alleges CBL Defendants intentionally and willfully engaged in a decade-long
course of conduct designed to defraud its tenants.
86 See id.
87 See ia'. at *3.
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VI. CONCLUSION
Because the only reasonable interpretation of the allegations in the Underlying
Action sound in intentional conduct, and the Policy does not cover such acts, Catlin’s
Motion for Judgment on the Pleadings is GRANTED as to Counts I and II and
DENIED as to Count III, and CBL Defendants’ Motion for Judgment on the
Pleadings is DENIED.
IT IS SO ORDERED.
Pa'ul R. Wallace, Judge
_24_