Am. Safety Indem. Co. v. T.H. Taylor, Inc., et al., (Index No. 11-12245) (11th Cir.)
In a majority decision, the Eleventh Circuit endorsed the use of evidence extrinsic to an arbitration complaint for the purpose of determining an insurer’s duty to defend. In Am. Safety Indem. Co. v. T.H. Taylor, Inc., et al., (Index No. 11-12245), the insurer issued a CGL policy to a general contractor who was hired by certain land owners to construct a residence on their behalf for around $760,000. After some time, the owners ordered suspension of the work at which point the insured had been paid approximately 96 percent of the contract price, even though roughly only 80 percent of the home had been constructed. It was estimated that an additional $200,000 would be required to complete the project and there also remained $70,000 in unpaid subcontractor invoices.
The owners and insured were sued in state court. The owners cross-claimed against insured but the court later ordered that their claim was subject to arbitration. The cross-claim contained allegations for negligence and intentional wrongdoing. The owners subsequently filed an arbitration complaint but it was determined that the complaint “did not specify either a legal theory of recovery or allege any detail concerning the operative facts,” at least with respect to a coverage assessment.
The Eleventh Circuit found that the question of coverage hinged on whether the allegations against insured involved a claim of negligence or intentional wrongdoing. If the latter, there was not coverage and no duty to defend. To make that assessment, the court addressed the issue of whether it could “look beyond the legal theories of the pleadings in the underlying litigation and examine the operative facts of the case.” Based on Alabama precedence, the court found that it was permitted to do so. Accordingly, the Eleventh Circuit looked to and assessed the pleadings in the state court action and found that they “strongly infer[red] intentional deception by [the insured].” Accordingly, there was no coverage. The dissent disagreed on the majority’s assessment of the extrinsic evidence but not on its use of extrinsic evidence.