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The Tenth Circuit held that Universal Underwriters Insurance Company (parent company, Zurich), the insurer of a car dealership, had a duty to defend he dealership when it was sued. Automax Hyundai South, was sued by two of its customers who alleged that Automax had fraudulently represented the condition of the car they sold and that they had inflated the income of one of the customers to ensure loan approval, among many other claims.
The customers won the cases in state court, and the district court did not think that Zurich had any duty to defend Automax in this underlying lawsuit. The Tenth Circuit disagreed, and sided instead with Automax.
The insurance policy between Automax and Zurich was specifically designed for automotive businesses, such as dealerships and repair shops. The policy provided coverage up to $500,000 for, in relevant part, "an occurrence arising out of garage operations or autohazard."
Citing Oklahoma law, the Tenth Circuit provided that an insurer usually has two duties: the duty to defend and the duty to indemnify. Under state law, the duty to defend is far broader than the latter and will be the focal point of the discussion in this case. They read the definition of a duty to defend as a duty that is triggered whenever an insurer was aware of the presence of facts that give rise to potential liability under the policy.
So, in other words, it was a fairly high bar to meet -- if the insurance company was aware of the facts of the suit and knew that those facts could possibly lead to liability, the duty would be triggered.
Probability of indemnification was not required, just the presence of specific facts. Following up on this, the court also stated that the duty to defend is triggered by the facts reasonably available at the time the defense is demanded, not necessarily based on how likely they were to result in a certain way.
Here, Zurich was aware from the very beginning that there may have been negligent conduct involved in the lawsuit. They were notified when the parties in the underlying suit wrote a letter to Automax. Automax had then forwarded that letter to Zurich, listing the claim. Zurich acknowledged the receipt of this letter.
The court then went on to state that the general rule says that that once an insurer's duty to defend is triggered, which it had been at that point, it must defend all the claims in a lawsuit.
They saw in turn that Zurich has offered no evidence to the contrary that Oklahoma law deviates from this rule. So, therefore, they were not exempt from it, and the duty is upheld.
The Tenth Circuit reversed and remanded the case to the district court.