Title: Cute'-Togs of No, Inc. v. La. Health Serv., Etc.
Citation: 386 So. 2d 87
Docket Number: N/A
State: Louisiana
Issuer: Louisiana Supreme Court
Date: July 8, 1980

386 So. 2d 87 (1980) CUTE'-TOGS OF NEW ORLEANS, INC. v. LOUISIANA HEALTH SERVICE &amp; INDEMNITY COMPANY. No. 66413. Supreme Court of Louisiana. July 8, 1980. *88 Arthur H. Andrews, Franklin, Moore &amp; Walsh, Baton Rouge, for defendant-applicant. John R. Tharp, Nancy C. Tyler, Taylor, Porter, Brooks &amp; Phillips, Baton Rouge, for plaintiff-respondent. BLANCHE, Justice. Plaintiff, Cute'-Togs of New Orleans, Inc., entered into an agreement with defendant, Louisiana Health Service &amp; Indemnity Company (hereinafter referred to as Blue Cross) whereby Blue Cross agreed to insure the subscribing employees of Cute'-Togs under a group policy. Plaintiff's business was that of a clothing manufacturer and one of its employees completed and sent in an application to Blue Cross applying for medical insurance protection coverage for himself and his family. Thereafter, the wife of the employee became hospitalized and allegedly, upon discovering that Blue Cross had not yet processed his application for group insurance coverage, the employee terminated his employment with Cute'-Togs. Thereafter, Cute'-Togs instituted suit against Blue Cross, alleging negligence in the processing of the insurance policy and claiming that as a result of that negligence, a skilled employee quit, causing a loss of production. Blue Cross then responded by filing a third-party demand against its liability insurer, Aetna Fire Underwriters Insurance Company (hereinafter referred to as Aetna), contending that it had a duty to defend the action filed against it by Cute'-Togs. The insuring clause relied upon by Blue Cross reads as follows: To this third party demand, Aetna refused to provide a defense on the grounds that there was no coverage and it prayed for and was granted a summary judgment by the trial court. From this judgment, Blue Cross perfected a devolutive appeal and the First Circuit Court of Appeal reversed the decision of the trial court finding that assuming all of the allegations of fact in Cute'-Togs' petition to be true, negligent acts constituting an occurrence did take place and damage to property resulted, and that on the occurrence of these two events, Aetna had a duty to defend. The exclusion relied upon reads as follows: "This insurance does not apply Clearly, the above clause excludes coverage for any damage occasioned by the breach of any contracts or agreements. With reference to the agreement between the parties, Cute'-Togs, in an amending and supplemental petition, alleges that it entered into an agreement with Blue Cross whereby Blue Cross agreed to insure its subscribing employees pursuant to the terms of the insurance policy (paragraph (1)(a)). Thus, it may be observed that the duty owed to Cute'-Togs is one which arose from the contract between them, and it follows that any harm or damage which Cute'-Togs claims to have suffered resulted from the failure of Blue Cross to comply with its agreement thereunder. *89 The allegations of plaintiff's petition allege a negligent breach of contract in the following language: The court of appeal, relying on these allegations, reasoned that: This reasoning overlooks the source of Cute'-Togs' alleged damages. According to the allegations of plaintiff's petition, the duty/right relationship between the parties arose out of the insurance agreement between them, and the allegations of plaintiff's petition allege no more than a negligent failure of that duty. In American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So. 2d 253 (1969), we clearly stated the "duty to defend" rule as follows: Accordingly, when the duty and its breach causing damages have been properly identified, we find the exclusion relied upon by Aetna to be unambiguous and applicable. For the above reasons, the court of appeal is hereby reversed, and there is further judgment herein reinstating the decision of the district court dismissing third-party plaintiff's suit at its cost. DENNIS and LEMMON, JJ., specially concurring. WATSON, J., dissents believing the Court of Appeal to be correct.