Restaurant Assault Claim: Reservation of Rights, Independent Counsel, and a Ten-Day Policy-Limits Demand
A French Quarter restaurant is sued after a bouncer injured a patron. The CGL policy has a $1,000,000 each-occurrence limit and an assault-and-battery exclusion. The petition alleges negligent hiring and training of security staff in one count and battery and intentional infliction of emotional distress in separate counts, and prays for $1.2 million. The insurer sends a reservation-of-rights letter on day 40 and assigns panel counsel, who files an answer. The insured retains his own lawyer, who demands that the insurer pay him and warns of bad faith. Plaintiff's counsel then sends a $900,000 demand expiring in 10 days, conditioned on disclosure of policy limits and a release of the bouncer only.
1. Analyze the defense obligation and the insured's demand for independent counsel.
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The duty to defend is broader than the duty to indemnify and is measured by the allegations of the petition. Because the petition pleads negligent hiring and training - a covered occurrence - the insurer must defend the entire suit, including the excluded battery counts, until the covered theories are eliminated.
The reservation of rights is proper: the assault-and-battery exclusion may defeat indemnity if the facts show intentional conduct. But a reservation creates a conflict where defense counsel's handling could shape the very facts that decide coverage. Here counsel's investigation could establish that the bouncer acted intentionally, defeating coverage while exposing the insured to personal liability. In that situation Louisiana law permits the insured to select independent counsel at the insurer's expense.
Do not refuse the demand reflexively. Confirm whether the conflict is real, and if it is, agree on reasonable rates, document the analysis in the file, and confirm the arrangement in writing. If the conflict is not real, explain why in writing.
2. How do you handle the 10-day, $900,000 demand?
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A demand within limits creates real exposure, and a 10-day fuse makes the response time-critical.
- Acknowledge in writing immediately and ask for a short, reasonable extension if the file cannot be evaluated in 10 days.
- Evaluate liability and damages on the merits: $900,000 against a $1,000,000 limit leaves only $100,000 of cushion while the insured faces personal exposure on a $1.2 million prayer.
- Examine the conditions. Policy-limits disclosure is routine. A release of the bouncer only preserves the claim against the restaurant, so the insurer must consider whether settling helps or further exposes the insured.
- Louisiana law (La. R.S. 22:1973) exposes an insurer to penalties, attorney fees, and excess-judgment liability for arbitrarily failing to settle within limits. A demand with unreasonable conditions may not trigger bad faith, but an unexplained failure to respond will.
- Escalate to the carrier with a written evaluation; the decision and its reasons belong in the file.