NORTHERN DISTRICT OF TEXAS REFUSES TO EXTEND INSURER’S DUTY TO DEFEND BEYOND THE POLICYHOLDER’S EMPLOYEES

May 9, 2013

In Colony Insurance Company v. Marty D. Price, No. 3:11-CV-3536-D, 2013 WL 1797786 (N.D. Tex. April 29, 2013). The Northern District of Texas determined that that Colony Insurance Company (“Colony”) did not owe a duty to defend to multiple defendants associated with a nightclub. Colony insured Tommy Sinclair d/b/a Mustang Entertainment (“Sinclair”) under the policy at issue. Sinclair operated a nightclub were a patron was allegedly falsely imprisoned, assaulted, and kicked out of the night club. The following day the patron died. The estate and beneficiaries sued several defendants, including Marty Price (“Price”), Mustang Town Property LP (“Mustang”), and T.O.M GP, LLC (“T.O.M.”) in the underlying suit. In a separate action, these defendants brought suit against Colony for coverage under Sinclair’s Policy.

According to the underlying petition, Price was Sinclair’s attorney and was either an owner of the night club or acted as the owner on behalf of Sinclair. Mustang and T.O.M. are entities formed by Sinclair and Price more than year after the alleged wrongful death took place.

The only named insured on the Policy was Sinclair, and additional insureds under the Policy were limited to Sinclair’s employees. In an interesting turn of events, Price, Mustang, and T.O.M. alleged that they were Sinclair’s employees as defined by the policy. The parties seeking coverage maintained that since the underlying petition alleges that “employees” falsely imprisoned the decedent and also alleged that “Defendants” falsely imprisoned him, and it is known that only Sinclair’s employees falsely imprisoned the decedent, that all of the Defendants referenced in the underlying petition must be employees.

Applying the eight-corners test, the Court determined that the petition treated the words “defendants” separate from “employees”. The Court carefully explained that underlying lawsuit simply alleged that the Defendants were liable for false imprisonment, not that all defendants were employees. As such, the defendants seeking coverage were not additional insureds under the Policy. Further, the Court determined that it is unreasonable to construe the underlying petition as alleging all “defendants” physically committed a tort on decedent because some of the defendants are entities, not people. As such, the Court granted Colony’s Motion for Summary Judgment and determined that Price, Mustang, and T.O.M. are not entitled to coverage under Sinclair’s policy as additional insureds.