Shot Through the Heart, But the Excess Carrier Isn’t to Blame: Georgia Federal Court Finds Policy’s Broad Firearms Exclusion Bars Coverage

by Carlton Fields

On June 1, 2017, the U.S. District Court for the Northern District of Georgia granted summary judgment in favor of AIG Specialty Insurance Co. in a case involving the application of the firearms exclusion in Powe v. Chartis Specialty Insurance Co., No. 1:16-CV-01336. The court dismissed the case, in which claimant Christopher Powe sought the remaining $3 million of a $4 million settlement against the insureds, property management company HMI Property Solutions, Inc. (HMI) and property owner Biscayne at Old National, LLC (Biscayne). In addition, the court awarded costs to defendant AIG Specialty.

The underlying case arose from a May 29, 2012 incident where claimant was attacked and shot by unknown assailants while a guest at a multi-family apartment complex owned by Biscayne and managed by HMI. The claimant brought suit alleging that his injuries were due to the insureds’ negligence in providing security. His lawsuit settled at mediation for $4 million, but AIG Specialty denied coverage under its umbrella policy based on a firearms exclusion providing that the insurance did not apply to “any liability arising out of any firearm or weapon.”

As part of the settlement, HMI and Biscayne assigned their rights to the claimant, who then sued AIG Specialty in Georgia State Court, DeKalb County, for breach of contract and bad faith. AIG Specialty removed the case to federal court, and filed a motion to dismiss the bad faith count based on Georgia law providing that bad faith claims are not assignable. The district court granted that motion and dismissed the bad faith claim.

AIG Specialty subsequently filed a motion for summary judgment on claimant’s breach of contract claim, arguing that the firearms exclusion’s unambiguous language barred coverage because without the firearm, claimant would not have been shot and would have no claim against the insureds. In response, the claimant argued, among other things, that the exclusion was inapplicable under its plain terms because the liability in the underlying case was premised on a theory of negligent security, and because the exclusion was vague and ambiguous.

In the first Georgia case interpreting a firearms exclusion, Judge Steve C. Jones of the Northern District of Georgia granted AIG Specialty’s motion. The district court recognized that Georgia law requires the narrow construction of exclusions in insurance policies and that such exclusions are to be liberally construed against the insurer unless they are clear and unequivocal. However, the district court rejected claimant’s attempt to narrow the application of the exclusion, finding that though it was broad in scope, the plain language clearly excluded “any liability” that would not have arisen but for “any firearm.”

The court stated:

“[W]here an exclusionary provision’s terms are themselves, even after applying the requisite narrow gloss, broad, the Court cannot construe that breadth out of existence. In other words, if the plain language and meaning of a clause is broad, broad it must remain.”

The court then found the firearms exclusion barred coverage because “[b]ut for the gun, the claim [the claimant] brought would not exist.” The fact that alleged negligence in securing the premises might also qualify as a but for cause did not remove the claim from falling under the exclusion. Rejecting again the policyholder’s argument that the breadth of the exclusion rendered it ambiguous, the court stated:

But again, that breadth does not translate to ambiguity. Liability, “arising out of,” “any,” and “firearm” have established meanings independent of one another. Their combination creates the aforementioned breadth, but injects no opacity that requires resort to anything beyond the usual contract construction canons.

Although policyholders often argue that broad exclusionary language cannot be enforced or must be inherently ambiguous, this case is an example of courts adhering to the principle that the parties’ bargained-for language, even if broad, will be upheld where it is clear and unambiguous.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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