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Insurer not obligated to defend landlord in tenant dispute

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Insurer not obligated to defend landlord in tenant dispute

An insurer is not obligated to defend a landlord in a dispute with its tenant if the tenant never physically occupied the property, says an appellate court, in overturning a lower court ruling.

Houston-based 2200 West Alabama Inc. had begun negotiating a lease with Houston-based Dubrow Partners, during which Dubrow had taken steps toward opening a restaurant, including ordering equipment and hiring employees, according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in 2200 West Alabama Inc. v. Western World Insurance Co.

After 2200 West Alabama repudiated the lease agreement, Dubrow filed suit against the landlord. The landlord then asked Franklin Lakes, New Jersey-based Western World, which had issued it a commercial general lines policy, to provide a defense in the case, according to the ruling.

Western World denied any duty to defend on the basis Dubrow had never occupied the premises. The landlord then filed suit against the insurer in U.S. District Court in Houston, which ruled in 2200 West Alabama’s favor.

The ruling was overturned by a three-judge appeals court panel.  “Western World claims the policy requires physical presence, as opposed to a mere right to occupy, to trigger the duty-to-defend provision,” said the ruling. 

“Therefore, Western World asserts: the third-party action falls outside the policy coverage because Dubrow never occupied the premises; and, therefore, there is no duty to defend the third-party action.”

The panel agreed. The ruling pointed to the “eight-corners rule,” which says courts cannot look beyond the complaint in the third-party action and the insurance policy’s language.

Because “Texas law has determined the word ‘occupy’ in a commercial-general-lines policy to be unambiguous, and to require more than a mere right to occupancy, 2200 West Alabama fails to meet its burden under the eight corners rule,” said the ruling, in vacating the lower court’s ruling.

 

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