CINCINNATI SPECIALTY UNDERWRITERS INSURANCE COMPANY v. CODE 3 SECURITY & PROTECTION SERVICES, INC.
1:15-cv-02028
D.D.C.Aug 9, 2017Background
- On Oct. 3, 2014 a gunfight occurred at the Mayfair Mansions complex; a stray bullet injured a nine‑year‑old (J.S.).
- Nichols sued Code 3 (security contractor at Mayfair Mansions III), MM, MMLP, Edgewood, and E&G in D.C. Superior Court for negligence, alleging failures in perimeter security, guarding, training, warnings, and removal of trespassers. She seeks $50 million.
- At the time, Code 3 was insured by Cincinnati Specialty Underwriters (CSU) under a primary and excess policy (May 18, 2014–May 18, 2015). The policies included an Assault or Battery Exclusion and a Security Agency Errors & Omissions (E&O) endorsement.
- CSU agreed to defend Code 3 under a reservation of rights, denied MM/E&G additional‑insured coverage, and filed this declaratory judgment action seeking a ruling that it owes no duty to defend or indemnify Code 3 for the underlying suit. Code 3 counterclaimed for breach of contract and bad faith (Md. Code § 3‑1701).
- The court applied D.C. law (no true conflict with Maryland law on these insurance issues) and granted CSU summary judgment, declaring no duty to defend or indemnify and dismissing Code 3’s counterclaims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Assault or Battery Exclusion bars coverage for Nichols’ negligence claims | Exclusion plainly covers claims alleging failure to provide adequate security/warn of assault risks; so no duty to defend or indemnify | Underlying allegations are ordinary negligence claims; exclusion should not preclude coverage for negligent security operations | Exclusion applies; claims fall squarely within its plain language — no duty to defend or indemnify |
| Whether the E&O endorsement contradicts or is rendered illusory by the Assault or Battery Exclusion | E&O endorsement is subject to the policy’s exclusions; no conflict exists | E&O endorsement provides negligent‑acts coverage for security operations and would be nullified by the exclusion | No conflict: E&O applies broadly but is limited by the Assault or Battery Exclusion; endorsement is not illusory |
| Whether Code 3 had a reasonable expectation of coverage for assaults/batteries given its security business | CSU should not be allowed to invoke the exclusion against a security firm whose operations aim to prevent assault/battery | Policy language governs; reasonable‑expectation doctrine cannot rewrite clear contract terms | Reasonable‑expectation doctrine cannot override unambiguous policy language; no coverage created by expectation |
| Viability of Code 3’s counterclaims for breach of contract and bad faith (Md. Code § 3‑1701) | CSU breached and acted in bad faith by disclaiming/denying coverage | CSU consistently defended under reservation of rights and properly denied coverage as a matter of law | Counterclaims fail because no coverage exists; bad faith requires a coverage determination in insured’s favor; breach claim contradicted by record of reservation of rights defense |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment evidence viewed in light most favorable to nonmovant)
- GEICO v. Fetisoff, 958 F.2d 1137 (no conflict between D.C. and nearby jurisdictions on insurance contract interpretation)
- Doe v. Gates, 981 F.2d 1316 (standard for resisting summary judgment)
- Levelle, Inc. v. Scottsdale Ins. Co., 539 F. Supp. 2d 373 (D.C. follows eight‑corners rule for duty to defend)
- Stevens v. United General Title Ins. Co., 801 A.2d 61 (duty to defend determined by comparing complaint to policy)
- Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123 (reasonable‑expectation doctrine does not override clear policy language)
- Essex Ins. Co. v. Night & Day Mgmt., LLC, 536 F. Supp. 2d 53 (assault/battery exclusion precluded coverage for negligent security claims)
- Stiglich v. Tracks, D.C., Inc., 721 F. Supp. 1386 (assault/battery exclusion barred coverage for negligent failure to prevent assault)
- Capitol Indem., Inc. v. Brown, 581 S.E.2d 339 (assault/battery exclusion limits, but does not nullify, E&O endorsement)
- First Mercury Ins. Co. v. Sudderth, [citation="620 Fed. App'x 826"] (similar construction of E&O and assault/battery exclusions)