Arizona Superior Court Finds No Coverage Owed for Liabilities Of Insured’s Alleged Predecessor Company
In a case of first impression in Arizona, BatesCarey’s Adam Fleischer and Michael Passman recently obtained summary judgment for Gotham Insurance Company in the Superior Court of Maricopa County where another insurer attempted to hold Gotham responsible for an underlying judgment entered against an alleged predecessor of Gotham’s insured.
In 2009, MC Fire Protection, LLC (“MC Fire”) negligently installed a sprinkler system at a home in Arizona. In 2011, two years after that construction, a new company, MC Fire Protection Systems, LLC (“MC Systems”) was formed. In 2012, Gotham began insuring MC Systems (i.e. the new company that did NOT perform the sprinkler work years earlier). Gotham’s policy had a “who is an insured” provision stating that no person or organization is an insured “with respect to the conduct of any current or past . . . company that is not shown as a Named Insured.” The only Named Insured on the policy was MC Systems—not MC Fire.
Later in 2012 (during Gotham’s coverage period), the sprinkler installed by MC Fire (NOT Gotham’s insured) leaked, causing damage to the homeowner’s property. The homeowner’s insurer fixed the damage and then sued MC Fire, as well as the general contractor, Madison, to collect the cost of fixing the home. Gotham refused to defend MC Fire on the grounds that Gotham insured a different legal entity, MC Systems. A default judgment was entered against MC Fire for part of the damages. As for the other part of the damages, the general contractor’s insurer, Financial Pacific, settled with the homeowner’s insurer in exchange for an alleged assignment of rights to collect on the judgment against MC Fire from MC System’s insurer, Gotham, even though MC Systems had not even been a party in the construction defect case. Financial Pacific claimed that MC Fire and MC Systems were really the same company. Therefore, according to Financial Pacific, when Gotham insured MC Systems, Gotham also insured MC Fire’s liabilities.
In support of its Motion for Summary Judgment, Gotham argued that: (1) corporate filings and licensing documentation independently obtained by BatesCarey indicated that MC Fire and MC Systems were in fact two distinct legal entities; and (2) the “who is an insured” provision precluded coverage for the conduct of any company other than the Named Insured. The court agreed with Gotham on both issues, and entered summary judgment in favor of Gotham. The interpretation of the “who is an insured” provision, as it related to alleged predecessor companies, was an issue of first impression in Arizona.