Universal Underwriters Ins. Co. v. Lallier
334 F. Supp. 3d 723
E.D.N.C.2018Background
- Universal Underwriters issued a garage-operations liability policy covering Reed Lallier Chevrolet, Michael Lallier, and Gene Reed. Quinn (a former employee) sued the dealership, Lallier, and others alleging wrongful termination, abuse of process, obstruction of justice, negligent hiring/retention, UDTPA, and related claims arising after Quinn assisted law enforcement in investigating alleged sexual crimes by Lallier.
- Universal agreed to defend the Quinn Action under a reservation of rights, citing potential coverage exclusions: dishonest/criminal acts, intent to cause harm, and public-policy concerns.
- The policy expressly covers various "INJURY" groups, including wrongful employment practices (e.g., wrongful termination) and abuse of process; it defines "Occurrence" differently across injury groups and includes exclusions for dishonest acts by an insured and acts committed with intent to cause harm.
- Universal moved for judgment on the pleadings seeking a declaration that it has no duty to defend or indemnify and sought dismissal of counterclaims for breach, bad faith, and UDTPA. Defendants moved for partial judgment that Universal has a duty to defend.
- The court applied North Carolina law and the standard for Rule 12(c) motions, construing policy language and exclusions narrowly against the insurer and resolving ambiguities for the insured.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend generally | Universal: underlying claims arise from Lallier's criminal acts and are excluded; thus no duty to defend or indemnify. | Defendants: some claims (wrongful termination, abuse of process) are affirmatively covered by the policy and trigger a defense. | Court: Universal must defend — wrongful termination and abuse of process are occurrences under the policy; duty to defend applies to entire suit once any covered claim exists. |
| Dishonest/criminal-acts exclusion | Universal: the exclusion bars all Quinn claims because they "arise out of" Lallier's criminal acts. | Defendants: Quinn's injuries were caused by the employer's decision to fire him, not directly by the criminal acts; claims are one step removed. | Court: Rejected Universal; exclusion does not apply because Lallier's criminal acts were not the sole cause of Quinn's injuries. |
| Intent-to-cause-harm exclusion | Universal: several claims (obstruction, wrongful termination, abuse of process, conspiracy, UDTPA) are intentional and thus excluded. | Defendants: policy affirmatively covers wrongful termination and abuse of process; applying the exclusion would render coverage illusory. | Court: Ambiguity exists between coverage grant and exclusion; resolved for insured — wrongful termination (and therefore entire suit) is covered; duty to defend. |
| Public policy argument | Universal: enforcement of coverage would violate public policy (insuring criminal results). | Defendants: underlying dispute is civil and post-criminal; public policy distinctions apply. | Court: Rejected Universal; distinguishing Shew and other authority, enforcement here does not bar civil indemnification at this pleading stage. |
| Duty to indemnify | Universal: asks declaration of no duty to indemnify. | Defendants: assert breach for failing to indemnify settlement. | Court: Denied on pleadings — factual development needed; indemnity depends on trial/settlement facts. |
| Bad faith counterclaim | Universal: move to dismiss bad faith. | Defendants: allege insurer acted unfairly and forced settlement costs on insureds. | Court: Granted Universal — defendants failed to plausibly allege insurer recognized a valid claim and then refused payment or engaged in aggravated conduct. |
| UDTPA (N.C. Gen. Stat. § 75-1.1) counterclaim | Universal: moves to dismiss UDTPA-based unfair-claims allegations. | Defendants: allege statutory unfair settlement practices and misrepresentations caused damage. | Court: Granted Universal — defendants failed to plausibly plead causation/damages and that liability was reasonably clear; allegations amount at best to breach of contract. |
Key Cases Cited
- Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688 (N.C. 1986) (duty-to-defend comparison test; insurer must defend if complaint alleges covered facts)
- Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 364 N.C. 1 (N.C. 2010) (coverage-determination principles; resolve doubts for insured)
- State Capital Ins. Co. v. Nationwide Mut. Ins. Co., 318 N.C. 534 (N.C. 1986) (exclusions disfavored; excluded sources must be sole cause to bar coverage)
- Shew v. Southern Fire & Cas. Co., 307 N.C. 438 (N.C. 1983) (insurer need not cover criminal restitution; public-policy limits on insuring criminal penalties)
- ABT Bldg. Prods. Corp. v. Nat'l Union Fire Ins. Co., 472 F.3d 99 (4th Cir. 2006) (indemnification analysis post-settlement focuses on types of underlying claims)
- Elliott v. American States Ins. Co., 883 F.3d 384 (4th Cir. 2018) (UDTPA claims may proceed under § 75-1.1 for violations of § 58-63-15 practices)
- Graham v. James F. Jackson Assocs., Inc., 84 N.C. App. 427 (N.C. Ct. App. 1987) (ambiguity between coverage grant and exclusion resolved for insured)
- Plum Props., LLC v. N.C. Farm Bureau Mut. Ins. Co., 802 S.E.2d 173 (N.C. Ct. App. 2017) (policy interpretation principles; coverage clauses broadly construed)