Catlin Specialty Insurance Company v. CBL & Associates Properties, Inc.
N16C-07-166 PRW CCLD
| Del. Super. Ct. | Sep 20, 2017Background
- Catlin issued a Contractor's Protective, Professional, and Pollution Liability policy to CBL & Associates covering "claims for an actual or alleged negligent act, error or omission in the rendering of Professional Services" for the 12/31/2015–12/31/2016 policy period.
- Salon Adrian (a tenant at a CBL-managed mall in Florida) sued CBL Defendants and the mall owner in federal court, alleging a decade‑long fraudulent scheme to overcharge tenants for electricity and asserting RICO, FDUTPA, unjust enrichment, civil remedies for criminal practices, and contract claims.
- CBL Defendants tendered defense to Catlin; Catlin agreed to defend under a full reservation of rights and then filed this declaratory‑judgment action seeking a declaration that it owes no defense or indemnity because the underlying claims allege intentional, fraudulent conduct excluded by the policy.
- The Catlin Policy contains two pertinent exclusions: (H) liability under contract unless it would exist absent the contract, and (I) dishonest, fraudulent, criminal, intentionally or knowingly wrongful acts (with a knowledge/participation carve‑out for innocent insureds).
- The Delaware court applied Delaware choice‑of‑law principles and determined Tennessee law governs (insured’s principal place of business was the most significant contact given potential nationwide exposure).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper choice of law | Tennessee law applies (Catlin & insured headquartered in TN; policy delivered in TN; nationwide risk) | Florida law should apply because the underlying claims arise from conduct in Florida and no class certified yet | Tennessee law applies under Restatement §193 analysis and Delaware precedent for multi‑state risks |
| Scope of policy phrase "negligent act, error or omission" | Adjective "negligent" modifies all three nouns; coverage requires negligence | Phrase ambiguous; "negligent" modifies only "act," so "error" and "omission" can be non‑negligent and covered | "Negligent act, error or omission" reasonably read to require negligence for any covered act/error/omission; insurer’s reading controls |
| Duty to defend given underlying complaint alleging fraud/conspiracy/RICO | No duty to defend because the underlying complaint alleges intentional, knowing, fraudulent conduct excluded by the policy | There is potentially a negligent theory (gravamen) in the complaint; at least one claim might be covered, so duty to defend | No duty to defend — the underlying complaint’s allegations are plainly intentional/fraudulent with no viable negligent theory pleaded; duty to defend does not arise |
| Coverage for FDUTPA / breach of contract counts | These claims as pleaded allege intentional misconduct and are not pled in a way that permits a negligent theory; thus excluded | FDUTPA and contract claims do not require intent and could be premised on negligence, making coverage possible | Claims, as pled, allege intentional/willful conduct; they do not present a reasonable negligent theory to trigger coverage |
Key Cases Cited
- Oliver B. Cannon & Son, Inc. v. Dorr‑Oliver, Inc., 394 A.2d 1160 (Del. 1978) (sets out Delaware choice‑of‑law framework for contracts)
- Clark v. Sputniks, LLC, 368 S.W.3d 431 (Tenn. 2012) (Tennessee law on insurer's duty to defend is governed by underlying pleadings)
- Jones v. Fla. Ins. Guar. Ass'n, Inc., 908 So. 2d 435 (Fla. 2005) (Florida rule that duty to defend depends on the complaint's allegations and doubts resolved for insured)
- Certain Underwriters at Lloyd's, London v. Chemtura Corp., 160 A.3d 457 (Del. 2017) (in multi‑state risk contexts, insured’s principal place of business is a key contact for choice‑of‑law)
- Travelers Indem. Co. of Am. v. Moore & Assocs., Inc., 216 S.W.3d 302 (Tenn. Ct. App. 2007) (duty to defend arises if any allegation potentially falls within coverage)
- Matthew T. Szura & Co., Inc. v. General Ins. Co. of Am., [citation="543 F. App'x 538"] (6th Cir. 2013) (recognizes that policies covering "negligent acts, errors or omissions" generally do not cover intentional wrongful conduct)