Homeowners Insurer Found Not Obligated to Defend or Indemnify for Racial Discrimination Claim

HOMEOWNERS – OCCURRENCE – RACIAL DISCRIMINATION CLAIM – INTENTIONAL ACT EXCLUSION
Reiss v. United Services Auto. Assn.
(Sup. Ct., Nassau Co., decided 6/4/2008)

Brownlee and Schwaneman sued Reiss and others in New York federal court for racial discrimination. USAA disclaimed and denied coverage based on: (1) the lack of an alleged accident or "occurrence"; and (2) applicability of the "intentional or purposeful acts" exclusion of Reiss's homeowners policy. Travelers (Automobile Insurance Company of Hartford, CT) defended Reiss in that action under her umbrella policy with Travelers and eventually settled that case for $20,000. Reiss and Travelers then commenced this action against USAA for recovery of the $20,000 settlement, plus defense costs.

In denying plaintiffs' motion for partial summary judgment and granting USAA's cross motion for summary judgment, Nassau County Supreme Court Justice Thomas Phelan found that the underlying federal court complaint did not allege an "occurrence", but instead alleged intentional acts by the insured which fell within policy exclusions:

Defendant was obligated to defend and indemnify plaintiff Reiss under the terms of the Homeowner s policy if the complaint can be reasonably interpreted to allege an "occurrence" within the policy definitions. If the complaint alleges "intentional acts" on the part of the insured, it is excluded from coverage. The claimed "personal injuries" are essentially emotional distress, embarrassment, humiliation, inconvenience, anxiety and frustration. Whether these constitute personal injuries" within the policy definitions is relevant only if they were caused by an "occurrence" and not by an intentional act."

An occurrence within the policy definition is an accident, or continuous exposure to harmful conditions, leading to personal injury. An intentional act by the insured is one which is purposeful. None of the allegations of the complaint constitute [sic] an accident, and therefore they are not occurrences. The alleged misconduct by the insured includes refusal to accept tendered payment in accordance with the lease, commencement of an unwarranted eviction proceeding, and the refusal to obey a lawful stay of eviction, all of which were motivated by racial discrimination. These are clearly intentional acts by the insured which fall within the policy exclusions.

Even if the complaint were to contain language sounding in negligence and alleging carelessness, it would not alter the fact that the operative fact giving rise to the claim for recovery is the unlawful eviction. (Desir v. Nationwide Mutual Fire Insurance Company, __ N.Y.S.2d __, 2008 WL 1823427 (2nd Dept.), 2008 Slip Op. 03578).

Since there is no legal basis upon which the insurer could be liable for coverage, there was no obligation to provide a defense or to indemnify the insured.