Century Surety Company v. Ajredin Deari
893 F.3d 328
5th Cir.2018Background
- Jane Doe (18) alleged Pastazios Pizza (restaurant) and its owner Ajredin Deari provided her multiple alcoholic drinks at the restaurant despite her protests, after which she was drugged, driven to a hotel, and sexually assaulted; Deari pleaded no-contest to aggravated assault.
- Doe sued Deari, a co-defendant, and Pastazios in Texas state court asserting negligence, gross negligence, Dram Shop liability, false imprisonment, premises liability, and sought punitive damages; the state court entered a $20M judgment against Dearazios and Pastazios with findings drafted by Doe’s counsel and unopposed by Pastazios.
- Century Surety insured Pastazios under a CGL policy, initially defended but later withdrew and sought a federal declaratory judgment that it had no duty to defend or indemnify based on policy exclusions.
- Pastazios’ bankruptcy assigned its policy claims to a trustee; Doe intervened in the declaratory action to enforce the judgment against Century.
- The district court granted summary judgment for Century relying on liquor-liability and intentional-harm exclusions; the Fifth Circuit affirmed based on the Policy’s criminal-act exclusion because all alleged injuries arose from furnishing alcohol to a minor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under eight-corners rule | Doe alleged injuries not wholly excluded and sought coverage; pleadings did not need to label the conduct "criminal." | Century: complaint pleads furnishing alcohol to an underage person, so criminal-act exclusion bars any duty to defend. | Held: No duty to defend — complaint shows all injuries arose from the insured’s criminal act of providing alcohol to a minor. |
| Duty to indemnify (facts of underlying trial govern) | Trustee/Doe argued trial did not establish a criminal act or requisite mens rea for exclusion to apply. | Century: state trial findings (unopposed) show Pastazios furnished alcohol to a minor and that conduct was proximate/but-for cause of all damages. | Held: No duty to indemnify — trial established that all damages resulted from the criminal act of furnishing alcohol to a minor. |
| Whether pleading must explicitly allege a "crime" to trigger criminal-act exclusion | Appellants: exclusion shouldn't apply absent express allegation that conduct was criminal. | Century: pleading of age and provision of alcohol necessarily implies statutory crime; no need to label it as such. | Held: Pleading that Doe was underage and that Pastazios provided alcohol suffices to trigger the exclusion. |
| Mens rea / corporate liability (vice-principal) | Appellants: record didn’t explicitly find "criminal negligence" by Pastazios; thus exclusion shouldn’t apply. | Century: punitive damages show gross negligence (satisfies criminal-negligence), and Deari’s state of mind imputable to Pastazios via vice-principal doctrine. | Held: Mens rea satisfied — punitive damages imply criminal negligence and Deari’s culpability is imputed to Pastazios; exclusion applies. |
Key Cases Cited
- Lyda Swinerton Builders, Inc. v. Okla. Surety Co., 877 F.3d 600 (5th Cir. 2017) (summary-judgment standard and review of coverage rulings)
- City of College Station v. Star Ins. Co., 735 F.3d 332 (5th Cir. 2013) (explaining the eight-corners rule for duty to defend)
- Burlington N. & Santa Fe Ry. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 334 S.W.3d 217 (Tex. 2011) (duty to indemnify is governed by facts established in the underlying trial)
- Canutillo Indep. Sch. Dist. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 99 F.3d 695 (5th Cir. 1996) (contract interpretation principles under Texas law)
- Scottsdale Ins. Co. v. Tex. Sec. Concepts & Investigation, 173 F.3d 941 (5th Cir. 1999) (criminal-act exclusions construed broadly when injuries "arise out of" described conduct)
- D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., Ltd., 300 S.W.3d 740 (Tex. 2009) (procedure for resolving duty to indemnify when underlying trial leaves coverage facts unresolved)