A recent U.S. federal court decision underscores the power of exclusion clauses in commercial general liability policies—particularly those involving firearms.
Facts of the case:
Two patrons of a Georgia-based lounge brought lawsuits after suffering injuries during a violent incident at the establishment. One patron was shot, while the other was trampled in the ensuing panic. Both alleged that the lounge operator failed to provide adequate security despite prior criminal activity in the area. The insurer sought a declaratory judgment that it had no duty to defend or indemnify the lounge under its policy.
Issues for court determination:
The court was asked to determine the following issues:
a) Whether the insurer had a duty to defend the insured in the underlying lawsuits.
b) Whether the insurer had a duty to indemnify the insured for any potential liability arising from those lawsuits.
Insurance principles and policy terms
The case centred on two key coverage provisions:
a) Coverage A: Bodily Injury Liability
b) Coverage B: Personal and Advertising Injury Liability
Both were modified by a Firearms or Weapons Exclusion, which excluded coverage for injuries “arising out of firearms or weapons or omission in connection with the prevention or suppression of firearms or weapons.”
Under Georgia law:
The duty to defend is broader than the duty to indemnify and is triggered by the potential for coverage based on the allegations. Exclusion clauses must be strictly construed, and any ambiguity is resolved in favour of the insured.
Application of Policy terms in the case
The court found as follows:
The injuries—being shot and trampled during a shooting—arose directly from the use of firearms. Further, even claims of false imprisonment (being unable to flee) were linked to the presence of armed assailants. The exclusion applied because “but for” the firearms, the injuries would not have occurred.
The court rejected arguments that the insured's alleged negligence in failing to secure the premises could independently trigger coverage. It held that the firearms were the legally significant cause of the injuries.
Court's decision
The court found in favour of the insurer and held that:
a) The Firearms Exclusion unambiguously barred coverage.
b) The insurer had no duty to defend or indemnify the insured in the underlying lawsuits.
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