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AIG not obligated to indemnify special needs residence operator

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An American International Group Inc. unit is not obligated to indemnify a special needs residence operator in connection with the settlement of litigation stemming from the physical abuse and death of one of its residents.

Mobile, Alabama-based New Way Out Corp., which provided residential services to special needs customers under a contract with the Alabama Department of Mental Health, subcontracted some of its services with three companies, according to Tuesday’s ruling by the U.S. District Court in Mobile in Granite State Insurance Co. v. New Way Out, Corporation, et al.

AIG unit Granite State had issued a policy under which the subcontractors were also named insureds. New Way lost its certification from the state agency in February 2019 after three incidents of physical abuse involving the subcontractors, including one in which a resident died after suffering severe internal injuries, according to court papers.

New Way Out filed suit against the subcontractors, seeking indemnification for the damages it sustained because of its decertification. AIG provided defense counsel to the subcontractors under a reservation of rights.

New Way Out reached an agreement to settle the litigation against the subcontractors for $3 million each, conditional on New Way Out’s agreement to pursue collection from the policy proceeds. AIG “did not at any time consent to the settlement,” the ruling said.

AIG filed suit against the contractor and subcontractors, seeking summary judgment. After initially ruling against the insurer, the court agreed to grant summary judgment after the insurer asserted additional grounds.

The ruling noted that among the defendants’ theories of coverage was that the subcontractors agreed to indemnify New Way Out from any liability based on their negligence and described it as an “insured contract.”

“The defendants have offered no evidence that such an agreement exists, much less the precise language of the agreement,” the ruling said.

The defendants also contended New Way was insured for “personal and advertising injury,” which is covered under the policy. However, “the complaint alleged nothing even remotely implicating any of the covered offenses,” the ruling said, in granting AIG summary judgment.

Attorneys in the case did not respond to requests for comment.