Opinion ID: 751714
Heading Depth: 4
Heading Rank: 1

Heading: Coverage for Insured Contracts

Text: 54 Koenig argues that although its policy with Massachusetts Bay expressly excludes coverage for liability assumed under any contract or agreement, the insurer nevertheless had a duty to defend it in the Film House suit because the lease between Koenig and Film House is an insured contract, and its policy makes clear that this exclusion does not apply to liability for damages ... [a]ssumed in a contract or agreement that is an 'insured contract;'.... (R. 1, Ex. A, Garage Coverage Form, at 3). Whether the facts alleged state a claim for breach of an insured contract obviously depends on the policy's definition of that term, which reads, [t]hat part of any contract or agreement entered into, as part of [Koenig's] garage business, by [Koenig] or any of [its] employees pertaining to the rental or lease of any 'auto.'  (Id. at 12.) Koenig contends that the Film House complaint's allegation stating, it [Film House] properly and fully performed its obligations pursuant to a vehicle lease and purchase agreement so as to own said vehicle and its title but defendant Koenig failed and refused to transfer documentary title to the vehicle in question after demand, articulated a claim within the aforementioned definition of an insured contract. We disagree. Reading this sentence in isolation, as Koenig would advise us to do, is deceptive, for the remainder of the paragraph in the complaint from which this sentence is excerpted leaves no doubt that such facts refer solely to a claim for wrongful conversion: 55 This is a case involving the tortious conduct of the defendants in seizing the plaintiff's automobile. [Film House] alleges that it properly and fully performed its obligations pursuant to a vehicle lease and purchase agreement so as to own said vehicle and its title but defendant Koenig failed and refused to transfer documentary title to the vehicle in question after demand. The defendant unconscionably and without cause seized such vehicle in Nashville, Tennessee. These actions amounted to a conversion by the defendants. 56 (R. 1, Ex. B, Film House Complaint, at 1. (emphasis added)). Once again, the omitted text makes clear that the Film House suit was a case involving ... tortious conduct, as opposed to breach of contract, arising out of Koenig's conversion of the BMW automobile. 57 Even if we were to assume, arguendo, that the Film House complaint somehow stated a claim for breach of contract, Massachusetts Bay still would not have had a duty to defend Koenig under the plain language of the parties' agreement. The insured contracts clause covers only liability for damages ... assumed in ... [such] contracts.... Tennessee courts recognize that assumed liability requires an express provision assuming liability; that is, one set forth in and agreed upon as part of a lease agreement. See Coble Systems, Inc. v. Gifford Co., 627 S.W.2d 359, 363 (Tenn.Ct.App.1981) (holding lessee liable for total cost of vehicle where it executed lease agreement which contained an absolute assumption of liability provision). An insurer's exclusion of, or limitation of liability to, an insurer's assumed liabilities is by no means a prohibited practice. In fact, to the extent that only those risks are covered by the policy which were contemplated by the parties when the contract was made, Industrial Sugars, Inc. v. Standard Accident Ins. Co., 338 F.2d 673, 675 (7th Cir.1964), it makes sound business sense. The seven-page lease executed by and between Koenig and Film House in the instant case included no provision under which Koenig even remotely assumed liability for its refusal to transfer documentary title to the BMW automobile. Koenig's insurance policy, therefore, did not cover such liability and, in turn, Massachusetts Bay had no duty to defend against claims therefor. Moreover, as already stated, the policy's exclusion of losses expected or intended from the standpoint of the 'insured'  precludes coverage for Koenig's intentional conduct. 58