COURT HOLDS INSURERS HAVE NO DUTY TO DEFEND OR INDEMNIFY WHERE APPLICABLE POLICIES DO NOT PROVIDE COVERAGE FOR CLAIMS MADE IN AND UNDERLYING SUIT

Last Thursday, on October 27, 2011, Judge Harry Hudspeth of the federal District Court for the Western District of Texas granted a declaratory judgment in favor of Plaintiffs, National Fire Insurance of Hartford and Continental Casualty Company, holding that they did not owe a duty to defend or indemnify their commercial policyholders in an underlying lawsuit pending in state court. National Fire Insurance Co., et al v. C. Hodges & Associates, PLLC, et al, Cause No. SA-l0-CA-579, Doc. 35 (October 27, 2011).  The underlying suit involved claims of misrepresentation asserted by tenants of a shopping center against the developers.  The tenants claimed the shopping center did not realize the level of traffic and business allegedly promised by the developers.

Turning to the terms of the policies, the court found that in order to trigger the Plaintiffs’ duties to defend Defendants against claims made by the tenants, the underlying suit must include allegations of an “occurrence”  which  resulted  in  “bodily  injury”  or  “property  damage.”   The  Court  found  that  the underlying petition alleged none of these elements.  Applying Texas precedent, the court held that allegations of negligent misrepresentations did not constitute an “occurrence.”  The court further held that the claimed economic loss in the underlying suit did not constitute “physical injury” or “loss of use of tangible property.”   Regarding Plaintiffs’ duty to indemnify, the Court determined that since neither of the policies at issue provided coverage for the losses alleged in the underlying suit, there was no duty to indemnify Defendants on the part of either Plaintiff.