Opinion ID: 852323
Heading Depth: 2
Heading Rank: 1

Heading: Accident or Commercial Error

Text: Cincinnati's CGL and umbrella policies both insure against liability for bodily injury caused by an occurrence. The policies follow the widely used CGL form defining occurrence as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The parties dispute whether Michael Young's death resulted from an accident. [2] The Court of Appeals held that the Estate's claim for liability arising from the loss was an occurrence because it was caused by Tri-Etch's unintentional oversight in failing to make the 12:30 a.m. call. Tri-Etch v. Cincinnati Ins. Co., 891 N.E.2d 563, 574 (Ind. Ct.App.2008). The complaint in the wrongful death action was for Tri-Etch's failure to call within a short time after it recorded the failure to set the alarm at midnight. The Estate argues that Tri-Etch's failure was an accident, noting that no one claims that Tri-Etch intentionally delayed its call with the expectation that Young would be killed. Lack of intentional wrongdoing does not convert every business error into an accident. This failure is the same sort of claim as lawyer malpractice, or an insurance agent's failure to secure coverage as the client directed. 1 Couch on Insurance § 1:35 (3d ed. 2005) (Within professional liability insurance, several different coverages are available... [including] errors and omissions (E & O) coverage protecting against liability based on the failure of the insured, in his or her professional status, to comply with what can be considered in simplistic terms to be the standard of care for that profession.... E & O coverage appears in insurance policies protecting a wide variety of groups (not all of which fit the classical definition of `profession'), including attorneys... [and] insurance agents....). Tri-Etch's failure was just such an error or omission, not an accident, and for that reason it is not an occurrence covered by Cincinnati's CGL and umbrella policies. The CGL policy does not guarantee the quality of work or products of its insureds. To the extent Tri-Etch had a duty to Young, it arose from its contract with Young's employer. This may give rise to tort liability. See Restatement (Second) of Torts § 324A (1965). But it does not convert a failure to meet a standard of care under a contractually assumed duty into an accident. As explained below, that conclusion is consistent with precedent and the actions of the parties in this case. Indiana courts have frequently addressed whether a given event qualifies as an occurrence under identical or similar definitions in CGL policies. Most recently, in Auto-Owners Insurance Co. v. Harvey, 842 N.E.2d 1279 (Ind.2006), the issue was coverage under a homeowner's liability policy for a drowning after the insured pushed a woman into the Wabash River. The policy covered bodily injury caused by an occurrence, defined as an accident. We reaffirmed that an accident means an unexpected happening without an intention or design, and found the policy applied because it was clear that the drowning was unintended even if the push was an intentional act. Id. at 1283-85. Although accident is broadly construed, in Harvey we noted the distinction between an occurrence as the term is used in CGL policies, and claims based on commercial or professional conduct. Id. at 1284. Claims based on negligent performance of commercial or professional services are ordinarily insured under errors and omissions or malpractice policies. For this reason, CGL policies typically exclude claims arising out of professional or other business services. [3] Erie Ins. Group v. Alliance Envtl., Inc., 921 F.Supp. 537, 541 (S.D.Ind.1996) (applying Indiana law); see, e.g., Transamerica Ins. Servs. v. Kopko, 570 N.E.2d 1283, 1284-85 (Ind.1991) (holding that a claim against a home builder for property damage because of settled soil did not arise from an accident); Erie Ins. Co. v. Am. Painting Co., 678 N.E.2d 844 (Ind.Ct.App.1997) (no coverage for property damage alleged to have arisen from negligent hiring and retention of an employee); Terre Haute First Nat'l Bank v. Pac. Employers Ins. Co., 634 N.E.2d 1336, 1338 (Ind.Ct.App.1993) (a bank's negligent administration of a guardianship was a professional relationship, not an accident). The record includes no conclusive evidence on the timing of notice to Cincinnati, but it permits the inference that the parties' actions in this case reflect their assumption that the Scottsdale policy applied and the Cincinnati policy did not. Scottsdale, which had included errors and omissions coverage in its policy, appears to have defended the underlying wrongful death case for almost five years without asserting any claim that Cincinnati should contribute. Similarly, under Cincinnati's view of the evidence, Tri-Etch asserted no claim to coverage by Cincinnati's underlying [4] CGL policy or its umbrella policy until March 17, 2004, when its attorney wrote to Cincinnati reporting that there is some risk of a verdict in excess of one million dollars. [5] Plaintiffs had offered to settle the claim for $750,000 in March 2004. The Estate also argues that coverage is required under Cincinnati's CGL policy because the injury was to someone who was not a party to the contract and therefore could not be the basis of an errors and omissions claim. It is often the case that an errors or omissions claim is asserted by an insured rather than by a third party. But errors and omissions coverage is not limited to first-party claims. As Judge Hamilton explained in addressing the scope of an exclusion for professional services involved in Erie Insurance Group, Nothing in the language of the professional services exclusion here or in the reasoning of those cases limits the exclusion to claims brought by the clients of the professional, i.e., to first party claims. The exclusion here applies to damages or liability due to any service of a professional nature and does not require privity between the insured and the claimant. 921 F.Supp. at 542. The Estate next argues that Cincinnati's policy applies because the liability action was tried on a tort theory, not on contract. It is true that occurrences ordinarily do not include contractual obligations. 9 Couch on Insurance § 126:29 (3d ed.2008). But the obverse is not the case. Not all tort claims are necessarily occurrences. See id. § 126:30 (intentional torts are not accidents). Moreover, as Couch explains, It is important to note ... that there is a difference between risks that arise out of a business and business risks. While the former may be covered under a commercial general liability insurance policy, the latter is not. Business risk occurs as a consequence of the insured not performing well and is a component of every business relationship that is necessarily borne by the insured in order to satisfy its customers. 9A Couch on Insurance § 129:1 (3d ed.2005). The same is true of contractually assumed duties that give rise to tort liability. Both require rating by an insurer that takes into account the particular business of the insured. Finally, this is the third appeal of some aspect of this case. The Estate argues that this Court necessarily decided in the first appeal that Tri-Etch did not make a business mistake. This argument reads too much into our holding in Young v. Tri-Etch, 790 N.E.2d 456 (Ind.2003). In that case, we held only that the liquor store's contract with Tri-Etch, which limited the time in which the store could bring suit against Tri-Etch, did not apply to claims by the Estate because Young was not a party to the contract. We did not address whether Tri-Etch's action was a business error or an accident.