# MEMORANDUM **To:** Harborline Hospitality — Ownership and General Counsel **From:** Outside Counsel (Harborline's own counsel, not insurer-appointed) **Re:** *Teel v. Harborline* — coverage posture, time-limited $950,000 demand expiring Friday **Deadlines:** Insurer wants Harborline's "position" **Wednesday**; demand expires **Friday** --- ## 1. Executive summary The insurer holds a defense obligation for the entire lawsuit, its two coverage defenses are weak (the exclusion) and probably worthless (late notice), and it is now sitting on a within-limits demand in a case its own defense counsel scores at 60–70% liability with a $1.4–2.6 million verdict range. That is the classic setup for excess-judgment liability — **against the insurer**, not Harborline, provided Harborline papers the file correctly in the next 48 hours. Harborline's single objective before Friday is **not** to settle the case itself and **not** to fund the insurer's obligation. It is to create an unambiguous written record that (a) Harborline consents to settlement at $950,000, (b) Harborline demanded the insurer accept, (c) the insurer was told in specific terms that rejection exposes it to the full judgment including amounts above limits, and (d) the insurer was offered a face-saving path — fund now, litigate coverage later. Then let the insurer choose. --- ## 2. Duty to defend the entire action — count by count **Count 1 (battery by the bouncer).** On its face this count pleads the excluded act. If the jury finds an intentional blow by the bouncer caused the skull fracture, the exclusion likely defeats *indemnity* for that count. **Count 2 (negligent hiring, training, supervision, crowd management).** This count pleads pre-incident corporate acts and omissions: hiring a man with a prior bar-fight arrest with no background check, no training, no use-of-force policy, and understaffing the exit. Those are breaches of Harborline's own duties, not the bouncer's blow. **Consequence.** Under Rule 1, if *any* claim is potentially within coverage the insurer must defend the *whole* action — including Count 1. There is no basis on this record for the insurer to withhold or limit a defense. Its remedy for the exclusion is a reservation of rights plus, if it wishes, a declaratory action — not a partial or conditional defense. Two additional points strengthen the defense obligation: - **Facts known to the insurer help Harborline, not the insurer.** The video shows the struggle *partially off camera*. The mechanism of a skull fracture is therefore genuinely unresolved: a blow, a shove, a fall to pavement during a struggle, or an injury in a crowded, unstaffed exit area. Rule 2 requires doubts at the defense stage to be resolved for the insured. The insurer cannot establish, from the complaint plus known facts, that every path to liability runs through a battery. - **We have not seen the exclusion's actual wording.** Whether it reaches "any claim arising out of" assault or battery, and whether it expressly extends to "negligent hiring, training, supervision, or failure to prevent," is decisive. Many forms do not. Any ambiguity is construed against the insurer (Rule 8). **Demand the complete policy and all endorsements Wednesday.** --- ## 3. Are the negligence allegations independent of the battery? Largely yes, and they do not "depend entirely" on the excluded act (Rule 3). **Independent features:** - The hiring decision was complete and wrongful *before* any contact occurred. Its wrongfulness does not require proof of a battery — it requires proof that Harborline put a foreseeably violent, untrained employee in a use-of-force position. - The absence of a use-of-force policy and training is an independent omission causally tied to the *pursuit itself*: a trained bouncer with a written policy does not follow an ejected patron into the parking lot. The pursuit is the negligence, and the pursuit is what created the injury opportunity. - **Understaffing the exit** is entirely independent. A properly staffed exit produces a second employee who intervenes or restrains; the absence of one is a management failure, not a battery. - **Causation is factually open.** If the fracture came from a fall on pavement during an unsupervised struggle, there may be no battery injury at all — only a negligently created, negligently unsupervised confrontation. **The insurer's best counter** is that all damages "arise out of" the confrontation, so the exclusion swallows the negligence count. That is an indemnity/allocation argument that may have some force at judgment, but it cannot defeat the *defense* obligation, and it must overcome both the off-camera causation gap and the contra-drafter rule. It is exactly the kind of doubt Rule 2 resolves for Harborline. **Practical implication:** the covered/excluded line will be drawn by the *verdict form and the trial narrative*. That is why counsel selection matters (§5) and why settling now, which eliminates allocation risk for both sides, is objectively the rational outcome. --- ## 4. Late notice — the insurer's weakest card **Burden.** The insurer bears it. Prejudice is not presumed; it must be *proved* and must be *substantial* (Rule 4). Delay alone is legally irrelevant. **What the insurer cannot show on these facts:** - No default, no missed pleading deadline — notice came three weeks after suit was filed and the case is answered. - **No depositions taken.** The insurer lost no testimony and can participate in all of it. - **All witnesses remain available.** - **The video was preserved** — the single most important piece of evidence, and it exists. - No spoliation of the personnel file; the *absence* of a background check and policy is itself the evidence, and it cannot degrade. **The insurer's likely argument** — that it lost the chance to investigate early or to settle cheaply pre-suit — is speculative on this record. Teel's specials are $310,000 and the liability facts (the pursuit video, the prior arrest, the empty personnel file) would have been just as bad nine months ago; there is no reason to think an earlier settlement would have been cheaper, and no way to prove it. **Assessment:** the late-notice defense should fail. Say so in writing, and demand the insurer identify with specificity what evidence, witness, or defense it claims to have lost. Its inability to answer that question is itself useful evidence later. **Internal note:** the general manager's conduct is a governance problem to fix (written claim-intake protocol, immediate tender rule), but it is not a coverage forfeiture. --- ## 5. Independent counsel, and why the "pursuit" narrative is the whole case **Entitlement.** The insurer is defending under a reservation citing the assault-and-battery exclusion. That reservation creates a direct conflict over facts the defense controls, which under Rule 5 entitles Harborline to **independent counsel of its selection at the insurer's reasonable expense.** **Why the conflict is real and not theoretical.** The same evidence determines liability *and* coverage, in opposite directions: | Factual narrative | Effect on liability | Effect on coverage | |---|---|---| | Bouncer intentionally pursued and struck Teel | Liability high, damages high | **Excluded** — insurer wins coverage | | Untrained bouncer with no policy drifted into a struggle; fracture from a fall in an unstaffed exit | Liability still substantial | **Covered** — insurer pays | Insurer-appointed counsel has a structural incentive to develop the record — deposition questions, expert framing, verdict-form language, admissions in the answer and pretrial statement — toward *intentional battery*, because that outcome eliminates the insurer's payment obligation while conceding a loss Harborline pays for. Counsel controlling the "pursuit" narrative controls whether the case is characterized as an intentional tort by an employee (excluded) or as a foreseeable consequence of Harborline's own hiring, training, and staffing failures (covered). That is not a defense Harborline can safely leave in the insurer's hands. **Also note:** the insurer's floated 50% contribution proposal is an allocation demand resting on exactly these facts. Harborline cannot negotiate allocation while the insurer's lawyer is building the allocation record. **Action:** demand independent counsel Wednesday, propose two names and rates, and state expressly that the independent-counsel demand does **not** delay or condition the demand that the insurer accept Teel's offer by Friday. --- ## 6. The insurer's obligations on a time-limited, within-limits demand The demand is $950,000 against a $1 million limit. Its own defense counsel puts liability at 60–70% and the verdict range at $1.4–2.6 million. Specials alone are $310,000. The exposure is above limits under any realistic scenario, and Harborline — with $600,000 in reserves — cannot absorb an excess verdict. Under Rule 6, the insurer must give Harborline's interests at least equal weight, evaluate promptly, and accept a reasonable within-limits demand when liability is reasonably clear. Here liability is reasonably clear on the insurer's own numbers. Consequences of letting Friday pass: - **Full excess-judgment exposure.** If the case is later tried to a verdict of, say, $1.9 million, the insurer is liable for the *entire* judgment, not $1 million. Its coverage defenses do not cap this: an insurer that breaches the settlement duty while defending cannot invoke limits. - **"Evaluating" is a rejection.** Allowing a written, within-limits, 21-day demand to lapse without a substantive response is, functionally and evidentially, a rejection — and a rejection with no articulated reasoning is the best bad-faith exhibit a plaintiff can have. - **Coverage defenses are not an excuse.** The correct move for an insurer with a genuine exclusion question is to **pay now and litigate coverage later** — fund the settlement under a reservation and pursue reimbursement or a declaratory judgment. Gambling the insured's balance sheet to preserve a contested exclusion is precisely the conduct Rule 6 punishes. - **The 50% contribution proposal is improper.** The demand is *within limits*. There is no gap to fill. Asking the insured to fund half of a within-limits settlement is an attempt to convert the insurer's settlement duty into a coverage negotiation conducted under a plaintiff's deadline. --- ## 7. The Wednesday letter — required contents Send it Wednesday morning, by email plus overnight, to the adjuster, coverage counsel, and insurer-appointed defense counsel, with a read receipt and a request for written confirmation. It must contain, expressly: 1. **Consent and demand.** "Harborline consents to settlement at $950,000 and demands that [Insurer] accept the demand in full, within limits, on or before [Thursday, 12:00 p.m.] so documents can be executed before expiration." 2. **The record of exposure, in the insurer's own numbers.** Quote defense counsel's 60–70% liability assessment and $1.4–2.6 million verdict range; recite the $310,000 specials, the pursuit video, the prior arrest, and the empty personnel file. Frame liability as reasonably clear and exposure as above limits. 3. **Explicit excess-judgment notice.** "If [Insurer] fails or refuses to accept this within-limits demand, Harborline will hold [Insurer] fully responsible for the entire judgment ultimately entered, **including all amounts in excess of policy limits**, together with pre- and post-judgment interest, defense and coverage litigation fees and costs, and all consequential damages. Harborline lacks the financial capacity to satisfy an excess judgment and has so advised you." 4. **Demand for written reasons.** Require the insurer, if it declines, to state in writing (a) the specific policy language and specific facts on which it relies under the exclusion, and (b) the specific evidence, witness, or defense it contends was lost through late notice — identifying the prejudice it can prove. 5. **Full defense demanded.** Demand unconditional defense of both counts and immediate written notice of any intent to withdraw or narrow the defense. 6. **Independent counsel.** Demand independent counsel at the insurer's reasonable expense, with proposed names and rates, on the conflict grounds in §5. 7. **Document demand.** Complete policy with all endorsements, the reservation-of-rights letter, and any coverage or reserve analyses relied upon. 8. **The "yes" path.** Offer it affirmatively: "Harborline does not object to [Insurer] funding this settlement under a full reservation of rights, with all coverage and reimbursement issues preserved for later resolution. Coverage disputes are no reason to expose the insured to an excess verdict." 9. **Extension.** Demand the insurer immediately request a written extension from Teel's counsel and furnish proof. Separately, *our* firm (not the insurer's) should ask Teel's counsel for a 10–14 day extension in writing today — the request and any refusal both help us. 10. **Rejection of the contribution proposal** as inconsistent with the insurer's obligations on a within-limits demand, with express reservation of all rights and no waiver. 11. **Reservation.** "Nothing herein waives any right of Harborline, including its rights to independent counsel, indemnity, and damages for breach of the duty to settle." --- ## 8. Settling directly with Teel — the trap and when it disappears **Do not settle unilaterally this week.** The insurer is currently *providing* a defense. Under Rule 7, an insured who settles without consent while the insurer defends **forfeits indemnity** unless the insurer has *wrongfully denied a defense*. A reservation of rights is not a denial. If Harborline wrote a check now, it would likely be a voluntary payment: it cannot fund $950,000 out of $600,000, and it would hand the insurer a complete defense to the very indemnity claim that is Harborline's main asset. **The risk disappears only when one of these occurs, in writing:** - The insurer **denies or withdraws** the defense, or refuses to defend Count 2; - The insurer **consents** to the settlement (best case — get consent, even consent under reservation); - The insurer accepts and funds (no issue at all). If the insurer does deny the defense, the calculus flips entirely and Harborline may settle and sue for reimbursement plus consequential damages. In that scenario the further fallback — a consent judgment with a covenant not to execute and assignment of Harborline's rights against the insurer — becomes available, but only after a documented wrongful denial. Do not reach for that tool before the trigger exists. --- ## 9. Should Harborline contribute its own money? **Default answer: no.** The demand is within limits; there is nothing for Harborline to fill. Contributing 50% would (a) fund the insurer's own obligation, (b) supply an allocation concession the insurer will later cite as an admission that the exclusion applies, (c) weaken the excess-judgment claim by making the settlement look jointly negotiated, and (d) consume $475,000 of $600,000 in liquidity for a nightclub that needs working capital. **If, and only if, the deal will otherwise die and the insurer will fund a substantial majority**, a contribution can be structured defensively. Non-negotiable terms in a written funding agreement signed *before* any money moves: - Payment is made **under protest, involuntarily, and solely to mitigate**, expressly reserving all rights; - **No admission** that the exclusion applies, that any allocation is correct, or that late notice caused prejudice; the payment is inadmissible as evidence of allocation; - Harborline's money is an **advance/loan repayable** if coverage is established, and is expressly the **last dollars in** (insurer funds to limits first, or Harborline's contribution sits on top as the reimbursable layer); - Harborline **expressly preserves** its claim for breach of the duty to settle and for the insurer's failure to accept a within-limits demand; - Insurer **consents** to the settlement (curing any Rule 7 forfeiture risk) and pays independent counsel's fees; - Contribution is contingent on a **complete release of Harborline** and full resolution — no partial peace; - Keep the number small and time-limited; open at zero, and do not exceed what can be repaid comfortably. --- ## 10. The single most defensible course of action **Wednesday: deliver the §7 letter — a written consent to settle at $950,000 coupled with a formal demand that the insurer accept by Thursday noon, an explicit excess-judgment/bad-faith notice, a demand for independent counsel, a demand for written reasons for any denial, and an express offer to let the insurer fund under a full reservation of rights and litigate coverage afterward. Simultaneously, have Harborline's own counsel request a short written extension from Teel's counsel. Do not settle unilaterally, and do not tender any Harborline funds absent a signed non-waiver funding agreement.** This course costs Harborline nothing, forfeits nothing, and forces a binary choice on the insurer. If it accepts, the case is over at zero cost to Harborline. If it refuses, Harborline holds a fully papered claim for the entire judgment — including the excess — against an insurer that rejected a within-limits demand in a case its own lawyer valued at up to $2.6 million, on a defense (late notice) it cannot prove and an exclusion that cannot reach the independent hiring, training, and staffing counts.