October 14, 2005
Let your lawyer help you determine if the insurance company, not you, should pay to defend a claim
If your insurance company refuses to provide legal counsel to defend a claim that you feel is covered by your insurance policy, go to your lawyer. The Connecticut Supreme Court in the Wentland v. American Equity Insurance Company 267 Conn. 592 (2005) case reminds us all that an insurance company has broad duties to defend a claim, even if the company may not have to obligation to pay out on the claim. The Wentland case involved a suit against a bar for serving alcoholic beverages to a person who then injures another.
Marci Wentland and Diana Rodriguez, 19 and 20 years old, went to the Stadium Club on March 16, 1997. The Stadium Club, a dance club, admitted both minors and majority age patrons. The Stadium Club employed various procedures to insure that minor patrons were NOT provided with alcoholic beverages, but Diana Rodriguez managed to get served with drinks any way. When Diana Rogriguez was driving home from the Club with Marci Wentland, she crossed over the center line and collided head-on with another vehicle, causing Marci Wentland to be ejected from the car, and killed.
The Estate of Marci Wentland sued The Stadium Club owners under the "dram shop" statute, Connecticut General Statutes Sec. 30-102, as well as for negligence regarding the Stadium Club's efforts to prevent drinking by minor patrons. Each claim was insured with a different insurance company. American Equity Insurance Company covered the negligence claim.
When the Stadium Club notified American Equity of the suit, American Equity denied coverage, stating that it would neither represent the Stadium Club in the litigation, nor pay any damages that were awarded against the Stadium Club on the negligence claim. The insurer covering the dram shop claim accepted coverage of the claim, and hired Larry Price of Brown Paindiris & Scott to represent the Stadium Club on the dram shop claim.
The dram shop insurer ultimately settled the claim for the Stadium Club, and assigned to Marci Wentland its rights to sue American Equity Insurance Company for bad faith for its failure to defend the negligence claim. Whether American Equity was on the hook for the claim depended on the language of the policy. The relevant provision said that American Equity didn't have to pay a claim if the damage resulted from the Stadium Club "causing or contributing to the intoxication of any person", a variation of the "alcohol exclusion" common to most general liability policies. The Stadium Club's position was that American Equity should have provided a defense because the complaint did not specifically claim that Diana Rodriguez was "intoxicated". The Stadium Club claimed that the complaint was a simple negligence claim that American Equity should cover. American Equity claimed that the provision excused it from covering the claim.
Our Supreme Court agreed with the Stadium Club and directed the trial court to proceed further in determining the merits of the case beyond the duty to defend under the subject exclusion. The Supreme Court did not address another provision of the policy, excluding coverage for damages resulting from "the furnishing of alcoholic beverages to a person under the legal drinking age" because it was not properly presented to the Court.
What can we glean from the Wentland case? First, as always, if you are presented with a claim against you or your business, put all of your insurance carriers on notice and let them sort it through. Involve your insurance agent. Don't take "no" for an answer. Ask for a written explanation if a defense or coverage is denied. Talk to your lawyer. The Wentland case analysis was decided on specific language in the pleadings and the insurance policy. Let lawyers help you understand the language.
One final note: touch base with your insurance agent to be sure that you have all appropriate insurance protecting you and your business, before a problem arises. Speak to your attorney to make sure that the legal structure of your business is set up so you are not only operating appropriately, within the constraints of the law, but that you are also personally insulated from exposure to liability as a result of a business activity.