In its recent decision in Pa. Gen. Ins. Co. v. Thakur, 2014 U.S. Dist. LEXIS 110251 (D. Conn. Aug. 11, 2014), the United States District Court for the District of Connecticut had occasion to consider whether a claim for negligent misrepresentation can trigger a duty to defend.
Pennsylvania General insured Urmila Thakur under a homeowners’ policy containing a third-party liability coverage part applicable to bodily injury and property damage arising out of an “occurrence.” The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period” in bodily injury or property damage. Additionally, the policy contained an exclusion applicable to injury resulting from intentional acts or omissions, or criminal activity.
Thakur was named as a defendant, along with other members of her household, relating to a fraudulent business run out of her home involving preparation of tax returns. While her husband and daughter were found guilty of, or plead guilty to, federal crimes, Thakur was not prosecuted. She was, however, named as a defendant in underlying civil suits relating to the fraudulent scheme.
Pennsylvania General brought a declaratory judgment action against Thakur and sought summary judgment on the duty to defend, arguing that in light of the criminal nature of the acts alleged in the underlying suits, they did not constitute “occurrences.” The court readily agreed that the causes of action alleged in the underlying suits for fraud did not qualify as an “occurrence,” sincese the claims all arose out of Thakur’s fraudulent scheme, which the court agreed could not “even possibly characterized as accidental, unforeseen, or unintended.”
Underlying plaintiffs did, however, allege alternative causes of action for negligent misrepresentation. In considering whether these causes of action triggered Pennsylvania General’s duty to defend, the court observed that under Connecticut law, it is the facts alleged, not plaintiffs legal characterizations of the facts, which dictate coverage. The court also noted that Connecticut courts have long held that the “terminology” used in a complaint cannot transform a lawsuit involving intentional acts into one for negligence that triggers a duty to defend. For instance, in Middlesex Ins. Co. v. Mara, 699 F. Supp. 2d 439 (D. Conn 2010), the District Court of Connecticut held that “merely describing an action in terms of ‘negligence’ is of no consequence when the action itself” can only be deemed intentional.
Given this legal framework, the court agreed that the negligent misrepresentation claims in the underlying suits did not trigger Pennsylvania General’s duty to defend, explaining:
… these claims are based on Thakur?s representation to the victims that the “program” was legitimate. Even if Thakur was genuinely mistaken about the “program”, and was negligent in being mistaken, such mistakes are not “accidents” so as to qualify as “occurrences” under Connecticut law.
The court further held that the policy’s intentional acts exclusion operated to preclude coverage for the underlying suits since the underlying suits alleged that the insured participated in a criminal scheme.