Court Opinion

ID: 184473
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:20:53+00
Date Added: 2024-06-11T17:26:08.782517
License: Public Domain

United States Court of Appeals

                     FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 19, 1997                               Decided March 13, 1998

                            Nos. 97-7046 & 97-7050

             Interstate Fire & Casualty Company, Incorporated,  

                          an Illinois Corporation, 

                           Appellant/Cross-Appellee

                                      v.

                1218 Wisconsin, Inc., t/a The Third Edition, 

                           a District Corporation, 

                           Appellee/Cross-Appellant

                Appeals from the United States District Court 

                        for the District of Columbia 

                               (No. 95cv00549)

     Douglas M. Coleman argued the cause for Interstate Fire 
& Casualty Co., appellant/cross-appellee.  David D. Hudgins 
and James P. Bobotek were on the briefs.

     Michael J. Jack argued the cause and filed the brief for 
The Third Edition, appellee/cross-appellant.

     Before Edwards, Chief Judge, Tatel, Circuit Judge, and 
Buckley, Senior Circuit Judge.

     Opinion for the court filed by Senior Judge Buckley.

     Buckley, Senior Judge:  In this diversity case, we consider 
whether, notwithstanding "assault and battery" and "liquor 
liability" exclusions in its insurance contracts, an insurer may 
have a duty to defend a client sued by a patron who was 
injured by another who was intoxicated.  We also address an 
insured's obligation to indemnify its insurer when, in return 
for a release from all liability, the insured assigns its claim 
against its insurer to a third party with whom the insurer 
then settles.

                                I. Background

     On February 11, 1993, Teresa Williams, a resident of 
Virginia, was viciously beaten outside The Third Edition, a 
District of Columbia bar where she and her attacker had been 
patrons.  The Third Edition is owned and operated by 1218 
Wisconsin, Inc., a D.C. corporation.  Because The Third 
Edition's employees had allegedly observed the attack with-
out intervening and had allegedly served the attacker sub-
stantial amounts of alcohol, Ms. Williams sued both her 
attacker and The Third Edition.  In her complaint, she 
charged the latter with (1) negligent provision of alcohol to an 
intoxicated patron, (2) failure to protect a patron, (3) failure 
to discharge a voluntarily assumed obligation to protect its 
patrons, and (4) the negligent hiring, supervision, and/or 
training of employees.  As for her attacker, Ms. Williams 
alleged (1) assault and battery, (2) intentional infliction of 
emotional distress, and in the event he did not have the intent 
necessary to support these charges, (3) gross negligence in 
disregarding the possible consequences of his actions, and (4) 
negligent intoxication.

     At the time of the attack, The Third Edition was insured by 
Interstate Fire & Casualty Company ("Interstate").  The 

parties agree on appeal that at all relevant times Interstate's 
contract with The Third Edition included "assault and bat-
tery" and "liquor liability" exclusions.  These exclusions bar 
coverage for personal injury claims arising respectively from 
"assault and/or battery;  or ... any act or omission connected 
directly or indirectly with the prevention or suppression of an 
assault and/or battery" and from "[c]ausing or contributing to 
the intoxication of any person."

     On the basis of those exclusions, Interstate declined to 
defend The Third Edition against Ms. Williams' suit.  Just 
prior to trial, The Third Edition reached a settlement with 
Ms. Williams.  In exchange for being released from all liabili-
ty, The Third Edition stipulated to a $1 million judgment and 
assigned its entire interest in the Interstate policy to Ms. 
Williams.  The district court, which was not apprised that Ms. 
Williams was foregoing her right to enforce the judgment 
directly against The Third Edition, approved the settlement, 
and, in February 1995, entered a consent judgment against 
The Third Edition in the amount of $1 million.  Interstate 
sought to intervene after entry of the judgment, but its 
motion was denied.

     Interstate then filed a declaratory judgment action against 
The Third Edition, Ms. Williams, and the agent who had 
negotiated the original insurance contract on behalf of The 
Third Edition, seeking, in relevant part, to be absolved of all 
liability and to be indemnified for all legal fees and costs 
incurred as a result of the allegedly collusive settlement 
between The Third Edition and Ms. Williams.  Ms. Williams 
filed a counterclaim against Interstate, seeking enforcement 
of the $1 million judgment.  Because Interstate had refused 
to defend it against her claims, The Third Edition filed a 
counterclaim against the insurer for indemnification of the 
legal costs incurred in defending itself against Ms. Williams' 
suit.

     The claims between Ms. Williams and Interstate were 
voluntarily dismissed after Interstate agreed to pay her 
$275,000.  Interstate and The Third Edition then filed com-
peting summary judgment motions, each seeking indemnifica-

tion.  The court granted summary judgment to Interstate on 
the duty to defend, holding that the insurance policy did not 
cover Ms. Williams' claim against The Third Edition, but 
otherwise denied the motion.  The court denied The Third 
Edition's counterclaim in its entirety.  Interstate now appeals 
the district court's holding that it is not entitled to indemnifi-
cation for the amount of the settlement and for the attendant 
legal costs.  The Third Edition cross-appeals the court's 
decision that Interstate had no duty to defend it against Ms. 
Williams' suit.

     The district court had diversity jurisdiction over this claim 
under 28 U.S.C. s 1332 (1994), and we have jurisdiction 
pursuant to 28 U.S.C. s 1291 (1994).  Because the District of 
Columbia is the only jurisdiction with any significant interest 
in the outcome of this suit, the case is governed by District 
law.  See District of Columbia v. Coleman, 667 A.2d 811, 816-
18 (D.C. 1995) (discussing "governmental interests" analysis 
in choice of law).  We review the district court's judgment de 
novo.  See Tao v. Freeh, 27 F.3d 635, 638 (D.C. Cir. 1994).  
Because the outcome of Interstate's claim is in part contin-
gent on the resolution of certain issues that arise in The 
Third Edition's cross-appeal, we first consider the latter.

                              II. Duty to Defend

     The Third Edition asserts that Ms. Williams' allegations in 
her original complaint fall within the scope of the insurance 
contract's duty to defend and that Interstate should now 
indemnify it for the funds it expended in defending against 
Ms. Williams' suit.  Under District of Columbia law, "if it is 
possible that the allegations of a complaint would bring it 
within coverage of the policy, the insurer is obligated to 
defend, even if it ultimately is not required to pay a judg-
ment."  American Continental Ins. Co. v. Pooya, 666 A.2d
1193, 1198 (D.C. 1995).  Thus in the District, as in most 
states, the duty to defend is broader than the duty to 
indemnify.  S. Freedman & Sons, Inc. v. Hartford Fire Ins. 
Co., 396 A.2d 195, 197 (D.C. 1978).  Although Interstate is 

obliged to defend The Third Edition against any claims that 
arguably are covered by the policy, it has no duty to defend 
claims arising from conduct that falls within the terms of 
either the assault and battery or the liquor liability exclusion.

     Ms. Williams' first claim against The Third Edition and 
part of her fourth claim allege affirmative conduct on the part 
of The Third Edition that is plainly covered by the terms of 
the liquor liability exclusion, which exempts from coverage 
any injury resulting from The Third Edition's "[c]ausing or 
contributing to the intoxication of any person."  The first 
claim seeks compensation for The Third Edition's negligent 
provision of drinks to Ms. Williams' attacker after he was 
already intoxicated;  the fourth claim alleges, in part, the 
negligent hiring, training, and supervision of those who 
served her attacker excessive amounts of alcohol.  Neither 
the remaining causes of action nor the remainder of the 
fourth claim, which concerns the negligent hiring, training, 
and supervision of security personnel, alleges conduct on the 
part of The Third Edition that is subject on its face to the 
exclusions.  Interstate therefore had a duty to defend against 
those claims unless they were premised upon conduct by 
some third party that was otherwise subject to the exclusions.

     As against her attacker, Ms. Williams alleges assault and 
battery, intentional infliction of emotional distress, and in the 
alternative, gross negligence and negligence.  Any claim 
against The Third Edition derived from the assault and 
battery claim plainly "ar[ose] out of ... assault and/or bat-
tery" and therefore is subject to the assault and battery 
exclusion.  The intentional infliction charge similarly alleges 
that her attacker's "brutal and vicious assault," Williams' 
Compl. at 5, caused her severe emotional injury.  Thus, any 
claim against The Third Edition derived from that count is 
also subject to the assault and battery exclusion.

     In its briefs, The Third Edition appears to argue that 
neither the gross negligence claim, which alleges that the 
attacker "acted in a wanton manner and with reckless disre-
gard of the possibility that his conduct would cause severe 
harm to Williams," id. at 6, nor the negligence claim, which 
states that the attacker was negligent "in becoming so intoxi-

cated that he lost control of his conduct and caused severe 
harm to Williams," id. at 7, fits within either exclusion.  
Because we find that the negligence count is dispositive, we 
need not decide whether a claim of gross negligence premised 
upon the facts alleged here could compel a duty to defend.

     Interstate asserts that the negligence claim is indistin-
guishable from the alleged assault and battery and that 
recharacterization of the attacker's conduct as "negligent" 
does not change the nature of the underlying cause of action.  
Nevertheless, even assuming that the complaint's description 
of the attack can only be read to allege an assault and 
battery, cf. Watwood v. Credit Bureau, Inc., 97 A.2d 460, 462 
(D.C. 1953) (stating that "a party should be bound by state-
ments made in formal pleadings, even if they are not sworn 
to"), should intoxication be recognized in the District of 
Columbia as an affirmative defense to a charge of civil assault 
and battery, Ms. Williams' negligence claim would be distin-
guishable from one of assault and battery.

     Because intent is a necessary element of civil assault and 
battery, see Madden v. D.C. Transit System, Inc., 307 A.2d
756, 757 (D.C. 1973), a finding that the defendant did not have 
the requisite intent would dispose of any cause of action 
alleging assault and battery.  Interstate's insurance contract 
only excluded conduct pertaining to "the prevention or sup-
pression of an assault and/or battery."  Because insurance 
contracts are read narrowly against the interests of the 
insurer, see First Nat'l Bank of Decatur v. Insurance Co. of 
North America, 424 F.2d 312, 317 (7th Cir. 1970), the phrase 
"assault and/or battery" must be presumed to have its strict 
legal definition.  Therefore, if it should be the law of the 
District of Columbia that an intoxicated person does not have 
the intent necessary to support such a cause of action, the 
attack on Ms. Williams would not fall within the scope of the 
assault and battery exclusion and Interstate would be obliged 
to defend any action seeking redress for any injury resulting 
from it.

     A number of state courts have held that an alleged tortfea-
sor's intoxication will negate the intent necessary to invoke 

the "intentional acts" exclusion in insurance policies.  See, 
e.g., Parkinson v. Farmers Ins. Co., 594 P.2d 1039, 1041 
(Ariz. Ct. App. 1979) (stating in dicta that proof of intoxi-
cation could negate capacity to form intent);  State Farm Fire 
& Cas. Co. v. Morgan, 364 S.E.2d 62, 64 (Ga. Ct. App. 1987) 
(agreeing with "the majority view in other jurisdictions ... 
that voluntary intoxication may destroy the capacity to form 
the intent required to invoke a policy exclusion for acts 
'intended or expected' by the insured"), aff'd, 368 S.E.2d 509 
(Ga. 1988);  Hanover Ins. Co. v. Talhouni, 604 N.E.2d 689, 
692 (Mass. 1992) ("The majority rule is consistent with our 
prior decisions on the subject which hold that evidence of 
voluntary intoxication is relevant to determining the presence 
or absence of intent with reference to an exclusion clause.");  
Burd v. Sussex Mut. Ins. Co., 267 A.2d 7, 15 (N.J. 1970) 
("With respect to voluntary intoxication, the public policy 
considerations applicable to a criminal prosecution are not 
decisive as to liability insurance coverage.");  Safeco Ins. Co. 
v. McGrath, 817 P.2d 861, 864 (Wash. Ct. App. 1991) ("An 
insured may be so intoxicated as to be unable to form an 
intent to commit an act, but this is a question for the trier of 
fact.");  see also James L. Rigelhaupt, Jr., Annotation, Liabil-
ity Insurance:  Intoxication or Other Mental Incapacity 
Avoiding Application of Clause in Liability Policy Specifi-
cally Exempting Coverage of Injury or Damage Caused 
Intentionally by or at Direction of Insured, 33 A.L.R. 4th 983, 
s 4 (1984).  A similar number of courts have gone the other 
way.   See, e.g., Allstate Ins. Co. v. Sherrill, 566 F. Supp.
1286, 1288 (E.D. Mich. 1983) ("To allow such a defense would 
create an intolerable precedent of self-immunity."), aff'd, 735
F.2d 1363 (6th Cir. 1984) (table);  Prudential Property & Cas. 
Co. v. Kerwin, 576 N.E.2d 94, 97 (Ill. App. Ct. 1991) ("We 
reject the Kerwins' attempted transition of an affirmative 
defense of criminal law to civil law.");  American Family 
Mut. Ins. Co. v. Peterson, 405 N.W.2d 418, 422 (Minn. 1987) 
(construing language of policy to exclude intoxication as an 
affirmative defense);  Travelers Ins. Co. v. Cole, 631 S.W.2d
661, 664 (Mo. Ct. App. 1982) (holding that intoxication does 

not negate intent because public policy cannot countenance 
such a defense).

     Although District of Columbia courts have held that intoxi-
cation is not a defense to criminal assault, see Parker v. 
United States, 359 F.2d 1009, 1012 (D.C. Cir. 1966), they have 
not yet addressed the specific issue that is before us.  They 
have held, however, that "[i]n case of doubt [over whether the 
allegations in a complaint state a cause of action within the 
terms of the insurance contract] such doubt ought to be 
resolved in the insured's favor."  Boyle v. National Cas. Co., 
84 A.2d 614, 616 (D.C. 1951).  Doubt, of course, may be legal 
as well as factual.  Although California distinguishes between 
the two, holding that "[t]here is no duty where the only 
potential for liability turns on resolution of a legal question," 
McLaughlin v. National Union Fire Ins. Co., 29 Cal. Rptr.
2d 559, 570 (Cal. Ct. App. 1994) (internal quotation marks and 
citation omitted), no other state has so held.  Because Dis-
trict of Columbia law states a broad presumption in favor of 
the insured, we decline to assume that the D.C. Court of 
Appeals would follow California's lead.  Thus, unless another 
exclusion applies, Interstate had a duty to defend The Third 
Edition against any claim arising from the attacker's negli-
gent intoxication.

     We now consider whether the liquor liability exclusion, 
whose relevance to two of the claims against The Third 
Edition we discussed earlier, applies to any claim derived 
from the conduct of the attacker.  The liquor liability exclu-
sion applies only to injuries for which the insured is

     held liable by reason of:

(1)Causing or contributing to the intoxication of any 
          person;

(2)The furnishing of alcoholic beverages to a person 
          under the legal drinking age or under the influence of 
          alcohol;  or

(3)Any statute, ordinance or regulation relating to the 
          sale, gift, distribution or use of alcoholic beverages.

Neither the third clause nor the first half of the second clause 
applies to Ms. Williams' claims.  While the first clause and 
the second half of the second clause apply to her charge that 
The Third Edition had negligently contributed to her attack-

er's intoxication, neither reaches her claim that The Third 
Edition failed to protect her from such an attack.  Because 
that claim was not contingent either on The Third Edition's 
"[c]ausing or contributing" to the attacker's intoxication or on 
its "furnishing alcoholic beverages to a person ... under the 
influence of alcohol," Interstate had a duty to defend The 
Third Edition against Ms. Williams' allegations that The 
Third Edition's security personnel had failed to halt the 
alcohol-induced attack.

                     III. The Third Edition's Obligation 

     to Indemnify Interstate

     Interstate seeks indemnification from The Third Edition 
for all costs incurred in defending against Ms. Williams' suit, 
including $99,412 in attorneys' fees and the $275,000 paid in 
settlement of her claim.  Interstate claims it is entitled to 
indemnification because it has satisfied the procedures set 
forth in Central Armature Works, Inc. v. American Motorists 
Ins. Co., 520 F. Supp. 283, 288 (D.D.C. 1980), which it asserts 
an insurer must follow in order to contest its obligation to pay 
a settlement reached between an insured and a third party.  
In the alternative, Interstate claims that it is due compensa-
tion for the damages it incurred as a consequence of the 
allegedly fraudulent settlement between Ms. Williams and 
The Third Edition.

     The procedures described in Central Armature are not 
relevant to this case.  Unlike the insurance company in 
Central Armature, which was defending a claim for indemnifi-
cation and damages by its insured, see id. at 285, Interstate 
was being sued by the third party, Ms. Williams, who was 
seeking to collect the amount for which she had settled her 
claim against The Third Edition.  Because her claim was 
entirely derivative, Interstate had no greater obligation to 
pay Ms. Williams than it had to indemnify The Third Edition.  
By the same token, because Ms. Williams stood in the place of 
The Third Edition, Interstate's settlement of her derivative 
claim was tantamount to a settlement with The Third Edition.  
By settling the claim, Interstate extinguished its right to 

challenge its contractual obligation to cover the settlement 
between Ms. Williams and The Third Edition.

     Interstate also advances two tort theories of recovery, 
neither of which is availing.  According to the first theory, 
Interstate was entitled to indemnification because, in failing 
to disclose to the district court that the settlement underlying 
its $1 million consent judgment was entered collusively, The 
Third Edition had committed a fraud upon the court.  The 
problem with that theory is that, even assuming that the 
settlement was exorbitant and collusive, Interstate fails to 
allege a tort.  Upon a showing by an insurer that the 
settlement for which a plaintiff is seeking to hold it liable is 
exorbitant and was entered collusively, a court may vacate 
the judgment into which the settlement was incorporated.  
See, e.g., Spence-Parker v. Maryland Ins. Group, 937
F. Supp. 551, 562-63 (E.D. Va. 1996) (holding that failure to 
disclose collusive nature of settlement negotiations amounted 
to constructive fraud on court and that consent judgment 
must therefore be set aside).  Such an action is premised 
upon the insurer's proving a fraud upon the court.  Although 
the act complained of is styled a "fraud," the remedy lies 
within the court's equitable discretion, see, e.g., Carlin v. 
McKean, 823 F.2d 620, 624-25 (D.C. Cir. 1987) (stating that 
"the 'historic power of equity' ... [is a] narrow[ ] power to 
revise a judgment that was obtained by perpetrating a fraud 
upon the court");  cf. Synanon Found., Inc. v. Bernstein, 503
A.2d 1254, 1264 (D.C. 1986) ("The claim of 'fraud on the court' 
is similar in effect to the equitable defense of unclean 
hands.").  Because such an action does not sound in tort, the 
only remedy available to an insurer is vacatur of the consent 
judgment.  In this case, Interstate's liquidation of that judg-
ment through its settlement with Ms. Williams moots its 
present attack upon it.

     Interstate's second theory is that The Third Edition's 
misrepresentations to the trial court and its exorbitant and 
collusive settlement with Ms. Williams tortiously embroiled 
Interstate in litigation to which it otherwise would not have 
been a party.  In making its claim for indemnification, Inter-

state relies on the following dicta from Brem v. United States 
Fidelity & Guaranty Co., 206 A.2d 404 (D.C. 1965):

     [A] plaintiff [may] seek[ ] in a separate action to recover 
     attorney['s] fees incurred by him in earlier litigation with 
     a third person arising out of the tortious act of the 
     defendant, ... if the natural and proximate consequences 
     of the defendant's tortious act were to involve the plain-
     tiff in litigation with a third person....

Id. at 407.  Assuming that this rule is recognized in the 
District of Columbia and that it is applicable here, it would 
permit Interstate to recover its attorney's fees but not the 
$275,000 it paid Ms. Williams.  Although The Third Edition's 
settlement agreement with Ms. Williams and the resulting 
consent judgment caused Interstate to retain a lawyer to 
defend against Ms. Williams' suit, they did not require Inter-
state to settle a derivative claim that it insists was worthless.

     But regardless of the amount that Interstate reasonably 
could anticipate securing were it to prevail on this theory, its 
claim suffers a more fundamental inadequacy.  Interstate 
alleges that The Third Edition committed two predicate torts 
which, considered alone or in conjunction, wrongfully entan-
gled it in litigation:  The Third Edition entered into a collu-
sive and exorbitant settlement, and it fraudulently failed to 
disclose the existence of the insurance contract's exclusion 
clauses to Ms. Williams.  Assuming, for the purposes of this 
analysis, that The Third Edition's conduct was in fact tor-
tious, Interstate is entitled to a remedy only if The Third 
Edition's wrongful acts caused Interstate to become a party 
to litigation in which it otherwise would not have been 
involved.  See Nepera Chem., Inc. v. Sea-Land Serv., Inc., 
794 F.2d 688, 697 (D.C. Cir. 1986) (defendant's conduct tor-
tious only if plaintiff's being haled into court "flow[ed] from 
the defendant's malfeasance").  Interstate could have antici-
pated defending this action either because it was actually 
bound to indemnify The Third Edition or because it was 
contractually obligated to defend it.  Cf. Potomac Residence 
Club v. Western World Ins. Co., __ A.2d ___, 1997 WL 746362 
at *4-5 (D.C. Dec. 4, 1997) (holding that insured that prevails 

in suit for reimbursement of legal expenses incurred in 
defending claim for which insurer had duty to defend is 
entitled to compensation for legal fees expended in suit 
against insurer).  Because Interstate was required to defend 
The Third Edition, see supra Part II, Interstate's involve-
ment in the litigation did not "aris[e] out of the tortious act of 
the defendant."  Brem, 206 A.2d at 407.

                                IV. Conclusion

     For the foregoing reasons, the district court judgment is 
affirmed as to Interstate's claim for indemnification and 
reversed as to The Third Edition's counterclaim.

So ordered.