October 13, 2010
Mistaken Representation is not an "Accident"
The Sixth Circuit has affirmed, in an unpublished opinion, a district court case holding that a commercial general liability carrier was not obligated to defend partners in a family limited partnership who were sued for conversion and "constructive fraud. The opinion held that a mistaken material misrepresentation was not an "accident" under the policy.
In Ashley v. Valley Forge Ins. Co., 2010 U.S. Dist. LEXIS 46401 (E.D. Ark. May 11, 2010), Judge James Moody was faced with policy language that covered "[p]hysical injury to tangible property, including all resulting loss of use of that property. . . , or . . . [loss] of use of tangible property that is not physically injured," if it was the result of "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy excluded liability incurred "by the reason of the assumption of liability in a contract or agreement."
When father J.D. Ashley and his daughter Charlotte sued his sons Richard and J.D. Junior over various allegedly fraudulent activities with the family limited partnership, Richard and Junior sought to have their CGL insurance carriers defend the action. Judge Moody held that the claims against the two—which involved allegations that they had abused their position to cut off their father’s income and had made material false statements—were not accidental. "Whether one wrongly exercises control over another's property or makes a material misrepresentation by mistake, or with malfeasance in his heart," wrote Moody, " makes little difference as both are intentional acts and neither can be called an accident."
The Circuit Court’s affirmance is at 2010 U.S. App. LEXIS 20806 (October 7, 2010): "We agree with the district court that, based on the allegations in a state court suit brought against appellants in connection with their conduct towards one of their partners, appellees had no duty to defend appellants against that lawsuit under the terms of the insurance policies at issue."
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