The court determined that failure to comply with a contract was not an occurrence and not a covered claim. Selective Ins. Co. v. Miami Valley Paper Tube Co., 2021 U.S. Dist. LEXIS 4741 (E.D. Ky. Jan. 11, 2021).
Crown Services, Inc. was a staffing agency and entered into a labor contract with Miami Valley Paper Tube Company. The contract required Crown to provide employees to Miami Valley and obtain workers' compensation insurance. Miami Valley was required to provide a safe workplace. An employee provided by Crown to Miami Valley was seriously injured while working at a cutting machine. Crown and its insurer paid nearly two million dollars in workers compensation benefits on behalf of the injured employee.
Several lawsuits followed. The injured employee sued Miami Valley for gross negligence in creating unsafe working conditions. In another suit, Crown and its insurer, Zurich, sued Miami Valley, alleging breach of contract for failing to provide a safe workplace to Crown's workers. They also sought indemnification from Miami Valley. Selective Insurance Company had issued a liability policy and a Workers' Compensation and Employers Liability Policy to Miami Valley.
This current lawsuit related to coverage for the injury. Selective sought a declaratory judgment that the policies it issued to Miami Valley did not provide coverage to defend the two underlying actions. On a motion for summary judgment, the court considered whether there was an occurrence under the liability policy. Selective contended that Crown's lawsuit was contractual in nature and thus Miami Valley's liability to Crown did not stem from bodily injury. On the other hand, Crown and Miami Valley argued that the genesis of Crown's claims arose out of bodily injury to the employee and thus was covered under the CGL policy. Selective's argument focused too much on the thereof recovery rather than how any potential liability was created. The liability and damages stemming from the alleged breach would not exist but for the bodily injury. The liability was sufficiently related to a bodily injury to trigger coverage.
Selective also argued that under Kentucky law, a breach of contract claim could not be an accident. Kentucky also did not recognize defects caused by faulty workmanship to be an occurrence. Like construction cases, a party had direct control over how they fulfilled obligations they agreed to by contract. Breaching a contract should not be an "accident" covered by a CGL policy, as the contracting party generally had control over how the contract was performed.
The court had no reason to believe that the Kentucky Supreme Court would hold differently. Crown's complaint depended on the breach of the staffing agreement. Thus, Selective did not owe coverage for Crown's lawsuit against Miami Valley because in Kentucky, a breach of contract claim was not an occurrence.
