A federal court in North Carolina has held that liability coverage for garage operations other than covered autos did not provide coverage for underlying lawsuits against an insured alleging economic damages resulting from the insured's fraudulent business practices. Pa. Nat'l Mut. Cas. Co. v. Grassroots Assocs., No. 3:20-cv-240-MOC-DCK, 2021 U.S. Dist. LEXIS 183863, 2021 WL 4429196 (W.D.N.C. Sept. 27, 2021).

The insured, a car dealership, was named a defendant in multiple lawsuits alleging that the insured defrauded elderly, disabled and otherwise unsophisticated buyers by inducing them to purchase vehicles they could not afford, misrepresenting information on credit applications, increasing the price of vehicles by including unrequested packages and misrepresenting the ease of later refinancing for lower payments. The insured tendered the lawsuits to its insurer, which agreed to defend under a reservation of rights. The insurer then filed a declaratory judgment action for a determination of coverage and moved for summary judgment.

The court observed that the underlying plaintiffs alleged financial damages stemming from the insured's actions, but that there were no allegations of "physical injury" that would qualify as "bodily injury" under the policy or of "damage to or loss of use of tangible property" as the policy defined "property damage." The court further held that there was no accident alleged because the insured's alleged actions were both intentional and substantially certain to result in the harms complained of in the lawsuits. The court rejected the argument that underlying claims for negligence were suggestive of an accident and not of intentionality, determining that, in assessing an insurer's defense obligations, North Carolina law focuses on the facts pled, not on the characterization of the claims. Accordingly, the court concluded that the insurer had no defense or indemnity obligations under the policy and granted summary judgment to the insurer.

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