Strong briefs filed by Jordon Steinway and Amanda Bushemi Buckley in the Southern District of Texas recently elicited a magistrate judge’s Report and Recommendation granting judgment on the pleadings in favor of BatesCarey’s client, Munich Re (PESLIC).  After Maxum Indemnity Company refused to defend PESLIC’s insureds in an underlying lawsuit in which the plaintiff was the victim of an assault at a Houston-area gentlemen’s club, PESLIC filed a declaratory judgment lawsuit seeking a determination that Maxum has a duty to defend PESLIC’s insureds as additional insureds under the Maxum policy, and that such duty is primary to PESLIC.  PESLIC also requested, and was granted, equitable contribution from Maxum for its fees incurred in the defense of such insureds.   

The underlying lawsuit was brought against the gentlemen’s club (PESLIC’s Named Insured), the club manager, and its parking lot security services vendor by the alleged victim of an assault, false imprisonment, and malicious prosecution after a dispute regarding a bill for club bottle service.  Pursuant to the Security Services Contract between the club and its parking lot security vendor, the club and its employees were to be added as additional insureds on the vendor’s general liability policy, issued by Maxum, with such insurance responding on a primary and noncontributory basis for the risks at issue in the underlying lawsuit. 

 Maxum refused to defend PESLIC’s insureds based on the purported applicability of a Designated Operations exclusion, which precluded coverage for injuries arising out of work performed at establishments selling alcoholic beverages—while ignoring that the exclusion expressly does not apply to “Parking Lot Security at Gentlemen’s Clubs.”  PESLIC assumed the defense pursuant to a reservation of rights and filed a declaratory judgment lawsuit against Maxum. 

 PESLIC very quickly filed a motion for judgment on the pleadings, seeking a determination that Maxum has a duty to defend its insureds as additional insureds under the Maxum policy, and that Maxum’s duty is primary. While PESLIC argued that “Parking Lot Security at Gentlemen’s Clubs” are precisely the type of operations at issue, with allegations, in part, that the parking lot security vendor detained the underlying plaintiff outside the club while waiting for police (services which fall within the scope of the Security Service Contract), Maxum premised its argument on the alleged acts committed by the vendor solely inside the club, where alcohol was served, in their role as bouncers.  Maxum also filed a motion for summary judgment, seeking a declaration that it has no duty to defend. 

The magistrate judge’s Report and Recommendation granted PESLIC’s motion for judgment on the pleadings and denied Maxum’s motion for summary judgment, ruling that Maxum has a primary duty to defend PESLIC’s insureds as additional insureds under the Maxum policy, and that PESLIC’s coverage applies on an excess basis.  The court also granted PESLIC’s request for equitable contribution from Maxum for its fees and costs incurred in the defense.  The court agreed with PESLIC that the exception to the Designated Operations exclusion for “Parking Lot Security at Gentlemen’s Clubs” unambiguously applied, rejecting Maxum’s position as not only misstating the underlying allegations but also reading the exclusionary language much too narrowly and in a manner inconsistent with the expressed intent.  Although finding it unnecessary to turn to extrinsic evidence, the court also highlighted its agreement with PESLIC that Maxum was applying an overly-restrictive interpretation of Texas’s “eight corners” rule to prohibit examination of the terms of the Security Service Contract as to the scope of the vendor’s work, noting that, if it were to also consider these terms, the contract would only bolster the court’s conclusion by illustrating that the vendor was retained to perform security in the parking lot, which it was doing when the plaintiff was detained.