Insurance And Intent

Garland insurance attorneys need to understand when coverage under an insurance policy is going to be provided and when it is not, due to the intent of the policyholder. A 1998, Amarillo Court of Appeals case is a good case to examine in helping to determine this issue. The style of the case is, Spruiell v. Lincoln Insurance Company. Here is some of the relevant information from that opinion.
McKean was a business person who leased a premises from Smith in which McKean operated the Tumbleweed Cafe. Spruiell’s Automotive shared an adjoining firewall with the cafe. Fire destroyed the cafe, heavily damaged Spruiell’s Automotive, severely burned McKean and killed McKean’s brother-in-law. McKean pleaded guilty to first degree arson and was sentenced to sixteen years in prison.
Spruiell subsequently filed a lawsuit against McKean and Smith alleging negligence in causing the fire and res ipsa loquitur, and seeking damages for the loss of personal property and equipment as a result of the fire.
McKean was insured under a GCL policy issued by Lincoln. Lincoln hired an attorney to defend McKean. Lincoln also filed a declaratory judgment action seeking a determination that it had no duty to defend McKean. Lincoln named both McKean and Spruiell as defendants in the declaratory judgment action. Lincoln moved for summary judgment contending it had no duty to defend McKean because, as established by McKean’s criminal conviction, he had intentionally set the fire which destroyed the cafe and damaged Spruiell’s Automotive. Therefore, the fire was not an “occurrence,” but was excluded from coverage because it was “expected or intended from the standpoint of the insured.” The trial court granted Lincoln’s summary judgment and Spruiell appealed the trial court decision.
The Amarillo Court of Appeals reversed the trial court and remanded the case back to that court. Lincoln argued that Spruiell had no standing to challenge the trial court’s judgment. By suing Spruiell, Lincoln gave him standing to contest the judgment on appeal and, under the doctrine of invited error, Lincoln was precluded from challenging Spruiell’s lack of standing. The Texas Supreme Court has also suggested that an injured third-party may wish to participate in declaratory judgment actions involving the insurance company’s duty to defend.
An insurance company’s duty to defend is determined by the factual allegations in the plaintiff’s petition. A court must focus on the factual allegations rather than the legal theories asserted in reviewing the underlying lawsuit petition. The insurance company’s duty is to defend is unaffected by the facts ascertained before the lawsuit is filed (McKean’s arson conviction), by facts developed during litigation, or the ultimate outcome of the suit.
Spruiell alleged that McKean “carelessly and negligently … caused an explosion to occur …”. These allegations are sufficient to invoke Lincoln’s duty to defend. The Amarillo Court of Appeals was unwilling to depart from a strict interpretation of the “eight corners test,” but noted “had Lincoln chosen to conduct pre-trial discovery, this case may have attained a posture where it could have been properly disposed of by summary judgement.” Because McKean’s rights were inextricably intertwined with Spruiell’s rights, the judgment as to both parties was reversed even though McKean was not a party to the appeal.