In Kaufmann v. The Travelers Companies, Inc., 2010 U.S. Dist. LEXIS 20027 (D. Md. March 5, 2010), the insureds sold their restaurant to plaintiffs. The insureds represented that the restaurant and bar seated 400 patrons. The plaintiffs made known to the insureds they intended to create a patio that would utilize the 400 seat capacity.
After the sale, the plaintiffs built a patio, but then the septic system at the restaurant could accommodate only 226 patrons. The plaintiffs sued, contending the insureds violated the sales agreement by breaching warranties and failing to indemnify the plaintiffs for such breach. The insureds had warranted that they were in compliance with all relevant laws and regulations. The restaurant, however, had 277 chairs and 20-30 bar stools in violation of the 226 seating capacity at the time of sale.
Travelers refused to defend and indemnify after the underlying suit settled. When the insureds sued, Travelers moved for summary judgment. The district court first determined there was no occurrence. Because it was foreseeable that the plaintiffs would want to accommodate 400 patrons in the restaurant, no accident occurred. Second, there was no loss of use or tangible property damage that fit into the definition of "property damage" under the CGL policy. Although the plaintiffs were unable to seat 400 patrons immediately after they built the patio to increase seating capacity, the rest of the restaurant was still functioning, and the septic system was in working condition at all times.
