In Clear Blue Specialty Insurance Co. v. TFS NY Inc., the U.S. District Court for the Eastern District of New York, interpreting the plain and unambiguous terms of a commercial general liability policy issued by Clear Blue Specialty Insurance Co. to TFS NY Inc., ruled Clear Blue did not have a duty to defend TFS against a suit arising from an alleged assault.
TFS does business as Sugardaddy’s and owns and operates a nightclub. The underlying dispute stemmed from a state court personal injury lawsuit filed against TFS in which a patron of TFS alleged he was assaulted and battered in the nightclub by TFS employees and that TFS’ security contractor, Castillo Security Services, was involved in the incident, which left him severely injured.
TFS sought coverage under the commercial general liability policy, and Clear Blue filed a declaratory action. Clear Blue and TFS agreed that the policy’s insuring agreement under the “sublimited assault or battery” endorsement was implicated. The parties’ dispute was whether the policy’s “third party or contracted security” exclusion abrogated Clear Blue’s duty to defend TFS against the assault suit.
The exclusion provided, in pertinent part, that coverage does not apply to any “suit” “involving” “operations of any third party or contracted security services provider.” Clear Blue contended the exclusion released it of any duty to defend against the assault suit. But, while TFS agreed Clear Blue was not liable for any claims involving Castillo, it argued Clear Blue still needed to “defend the entire action” because there were also claims against TFS employees.
In addressing TFS’ argument that the exclusion is ambiguous, the court noted TFS’ argument could not be “squared with the plain language of the exclusion, which states repeatedly that it ‘does not apply to any … suit… directly or indirectly based on, attributable to, arising out of, involving, resulting from or in any way related to the acts, omissions or operations of any third party or contracted security services provider.’” The court ruled the patron’s “suit” clearly “‘involved’ a ‘contracted security services provider’” and was thus excluded.
TFS also argued that if the exclusion were to apply, the sublimited assault or battery endorsement was illusory because it would exempt Clear Blue from defending suits any time a third-party security company is involved. The court also rejected this argument because “the endorsement offers some coverage even if the exclusion applies” and followed binding precedent that “parties to an insurance arrangement may generally contract as they wish and the courts will enforce their agreements without passing on the substance of them.” The court granted summary judgment for Clear Blue.
The court also noted that, on the facts presented, Clear Blue would not have a duty to indemnify but ruled that developments in the state court action “may trigger a duty to indemnify” if the claims against Castillo are dismissed and the jury decides TFS employees were solely involved in the alleged assault. In that case, TFS may move to reopen the declaratory action on the issue of indemnification.