Handling General Liability Complaints

A complaint alleging the freeze-out of a minority shareholder in a closely held corporation triggered coverage under three commercial general liability Ins -- because of an allegation that the minority shareholder was ousted and ejected from the company's business premises.

Donald Owens filed a complaint for damages against several defendants including Murray Sportsman, Sportsman Associates Inc. and Hall & Powell Insurance Services Inc. According to Owens, he was president and part owner of an insurance shop called the Escondido Agency. After the Escondido Agency was sold to Glenfed Insurance Services, Owens and the defendants agreed to go into business.

Their agreement allegedly called for Owens to purchase the assets of the Escondido Agency from Glenfed, with a new corporation being formed to then acquire the agency's assets. Owens was supposed to be one of the owners of the agency, president of the new corporation and manager of the business. Acting under the alleged agreement, Owens purchased the assets of the Escondido Agency with a down payment and sizable promissory note. Owens allegedly received the agency's assets, including an assignment of the agency's office lease.

The new corporation held its first meeting, and as agreed, Owens was named president. Shares were issued, and Owens became a minority shareholder. Although Owens managed the business for the new corporation, it allegedly failed to purchase the assets of the agency from Owens or assume the office lease. Then, according to Owens, he was fired as president and office manager. The defendants allegedly operated the Escondido Agency for their own benefit, excluding Owens from occupying the agency's offices.

Based on this corporate squeeze-out, Owens alleged a slew of contract and tort claims (including breaches of contract and fiduciary duty, and interference with both contract and prospective business advantages). Owens also alleged intentional infliction of emotional distress, claiming that he was callously ejected from the Escondido Agency.

The new corporation, which was also named as a defendant, had a business-owner policy from West American that covered personal injury caused by an occurrence to which this insurance applies. As defined in the policy, occurrence included the commission of an offense, or a series of similar or related offenses. And personal injury was defined as injury which arises out of one or more of the following offenses committed in the conduct of the named insured's business: ... (c) wrongful entry or eviction, or other invasion of the right of private occupancy.

The general accident policy contained the same provisions. Another defendant was insured by Aetna under a policy providing that the insurer will pay those sums that the insured becomes legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies. The personal injury section of the Aetna policy provided coverage for the offenses of wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies.

The complaint was tendered to General Accident, Aetna and West American on behalf of all defendants. But only General Accident accepted the tender. The claims eventually were settled for $160,000 -- with General Accident contributing $25,000 to the settlement. And General Accident spent more than $118,000 defending the defendants. After receiving an assignment of the claims the defendants had against the other insurers, General Accident filed a lawsuit against Aetna and West American.

The trial judge concluded there was no coverage under any of the policies and entered summary judgment against General Accident. The California Court of Appeals in Santa Ana reversed, concluding that all three carriers had a duty to defend against the Owens complaint.