Fifth Circuit Clarifies “Business Activities” in PI Liability Insuring Agreement

A recent decision from the Fifth Circuit addresses “business activities” within the context of a general liability insurance policy’s personal injury liability insuring agreement, reversing the district court’s decision in favor of the insurer. See St. Paul Guardian Ins. Co. v. Centrum GS Ltd., ___ F.3d ___, 2002 WL 256989 (5th Cir. March 11, 2002).

In Centrum GS Ltd., the insured, a building property manager, was sued for various causes of action arising out of the alleged wrongful termination of its employee, the chief building engineer. More specifically, the employee alleged that he was wrongfully terminated and that the insured hired uniformed police officers to patrol the building’s lobby and garage, as well as circulated to the general public, including tenants and customers, wanted posters and a memorandum requesting that security be called if anyone saw him. The employee also alleged that the insured made defamatory statements about him, stating that he had cut off pumps to the building.

The employee pleaded causes of action for wrongful termination, for which he maintained he suffered loss of salary, bonuses, benefits, commissions, medical benefits, retirement benefits, vacation, insurance, and the down payment of an automobile financed during his employment. The employee also alleged causes of action for libel, slander, invasion of privacy and intentional infliction of emotional distress for which he contended he suffered mental distress, mental anguish, physical sickness and loss of reputation.

The carrier filed a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify. The district court held that the economic damages sought were not covered because wrongful termination was not an enumerated offense of personal injury under the policy.

On the other hand, the district court found that while the invasion of privacy and slander allegations stated a claim for an enumerated personal injury offense, under the facts as alleged, the offenses did not result from the insured’s “business activities” as required by the policy’s insuring agreement. The Fifth Circuit disagreed and reversed. The insured argued that the circumstances relating to the termination of an employee are “business activities.” To the contrary, the carrier argued that the circumstances related to the termination of the employee are internal employment practices, and are not a business activity.

Disagreeing with the district court’s finding that the facts as presented were inconsistent with the insured’s “business activities,” the court found that the insured’s activities were consistent with its perceived risk and potential duty to protect its tenants and customers from the potential criminal acts of a third party. Accordingly, the court found the insured’s actions consistent with the ownership and management of a commercial property, reversing the district court’s holding.