The 6th Circuit Court of Appeals upheld a lower court decision that State Auto Insurance Co. was not entitled to coverage under its errors and omissions (E&O) insurance policies in connection with a $13.3 mn wrongful death judgment involving a Florida motel operator, according to BestWire.
The case began in April 2016 when Yaimi Machado was killed at a property owned by The Waves of Hialeah Inc.
After an argument with a male companion that continued outside their room, Machado, partially clothed, was locked out.
She approached the front desk for help, but staff refused access, stating the room was registered under a different name.
While waiting for her companion to return, an intoxicated and aggressive individual arrived, raped and fatally beat her, according to court records.
Machado’s estate filed a wrongful death lawsuit against Waves. At the time, State Auto provided general liability coverage and agreed to defend the motel.
In the months that followed, the estate sent a $1 mn policy limit settlement demand. State Auto declined.
A year later, a second demand letter increased the amount to $5 mn and alleged bad faith. State Auto again declined. The case proceeded to trial, where a jury awarded a $12 mn verdict, which later increased to $13.3 mn with post-judgment interest.
After the verdict, State Auto notified its E&O insurers, Columbia Casualty Co. and Ace American Insurance, and sought coverage for the portion exceeding the general liability policy. State Auto also provided documentation and stated it had hired a bad faith attorney.
Columbia responded by classifying the verdict as a “notice of circumstance” rather than a “claim” under its E&O policy. Ace agreed.
Columbia then filed a lawsuit seeking a declaratory judgment that it owed no coverage. State Auto filed a breach of contract counterclaim.
The district court sided with Columbia, ruling the 2017 demand letter was not a claim against State Auto. The appeals court affirmed this decision, explaining that the letter aimed to settle a claim against the motel operator, not the insurer.
The court also noted that even if the letter had asserted a claim against State Auto, it did not meet the policy’s requirement. Although it included bad faith allegations, the letter did not demand payment from State Auto based on those allegations. The E&O policies would only apply if State Auto received a claim alleging it acted wrongfully in performing or failing to perform professional services.
