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Insurance carrier loses effort to deny coverage for death in group home

The family of Erynn Doe, a group home resident, sued Earl Miller, Renee Alford and Real Place, Inc., after Erynn drowned in the shower. Fire Insurance Exchange provided liability coverage for Miller, who owned the subject home and was a shareholder in the corporation that operated it.  Although it had written $100,000.00 of liability coverage on Miller's ownership, Fire Insurance Exchange refused to provide coverage for Erynn's death.  It argued that several exclusions and legal arguments stood in the way of Miller claiming indemnity from the insurer, and it filed a declaratory judgment action against Miller to invalidate the coverage.

The Court of Appeals rejected all of the Insurance Exchange's arguments.  It held that the "business pursuits" exception and "professional services" exceptions did not obviate Miller's coverage (as owner/landlord) because the business and service elements of the group home were provided by a corporation, not Miller, personally.  Since the insurer had not argued that the corporation was a sham, the Court was legally bound to treat it as a separate, independent legal entity.  Miller was sued individually in his role as landlord because he had failed to repair the shower drain despite several months of complaints; therefore, the Insurance Exchange had agreed to provide coverage for the liability that Erynn's family was attempting to impose on Miller.

The insurer also raised technical arguments based on Miller's settlement with the family while the insurer was denying liability. The insurer argued that this settlement violated Miller's duty to avoid prejudicing the insurer's rights.  The Court noted, however, that the insurance policy language precluded Miller from suing the insurer on the policy if he had not complied with its terms:   in this case, the insurer had sued Miller. Therefore, a provision intended to preclude Miller from filing suit precipitously was irrelevant to the declaratory judgment action and did not prevent the court from interpreting the policy language to properly afford coverage, despite Miller's settlement of the underlying action.

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