Breach of Contract & Intentional Act Not Insured
Barry Zalma
Apr 19, 2023
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Carl Hemphill asked the Third Circuit to find that his liability insurer, Landmark American Insurance Co., is obligated to defend him in a lawsuit by a former employee. That employee brought a panoply of claims against Hemphill in his original complaint. None is covered by Hemphill’s policy with Landmark. In Carl Hemphill; MJC Labor Solutions, LLC v. Landmark American Insurance Company, No. 20-2544, United States Court of Appeals, Third Circuit (April 5, 2023) applied the four corners rule to resolve the dispute.
FACTS
Carl Hemphill and MJC Labor (together, Hemphill) provide temporary employee placement and visa application processing services to workers from Mexico and Central America. Hemphill is insured by a miscellaneous professional liability (MPL) policy with Landmark, covering claims “arising out of [] negligent act[s], error[s] or omission[s]” “in the rendering or failure to render . . . permanent and/or temporary placement services[.]”
Former MJC client Jose Castillo sued Hemphill (the Castillo Lawsuit), alleging violations of federal human trafficking, wage-and-hour, and unfair trade practices laws, as well as claims for breach of contract and unjust enrichment. When Castillo eventually arrived in the U.S., Hemphill and his wife confiscated his passport; housed him in conditions he described as “filthy,” overcrowded, and vermin-infested; assigned him tasks outside the scope of his employment contract; and considerably underpaid him.
The parties have since settled the Castillo Lawsuit, but the reimbursement of legal defense costs, incurred in the underlying suit, remain in dispute.
ANALYSIS
Landmark declined to defend Hemphill on the grounds that Castillo’s allegations arose from Hemphill’s intentional actions, occurring after Castillo had been placed as an employee, rather than from negligent actions in providing placement services.
If the underlying complaint avers facts that might support recovery under the policy, coverage is triggered, and the insurer has a duty to defend.
Under Pennsylvania law, the question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint. Courts applying Pennsylvania law must not stray from the operative complaint in determining duty-to-defend issues, even when later proceedings reveal the existence of a covered claim.
The District Court Conclusion
The District Court found that:
1 Hemphill could not expect Landmark to cover him for any claim not listed in the Landmark policy, and
2 Castillo’s complaint does not allege a covered claim.
Insured’s Reasonable Expectations
An insured’s reasonable expectations may occasionally prevail over the express terms of a contract, but only in very limited circumstances to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.
Hemphill did not argue that the Landmark policy language is facially unclear or that Landmark engaged in deceptive tactics. Instead, he claims that the mere fact that Landmark defended a different lawsuit created a reasonable expectation that it would defend the Castillo Lawsuit. Landmark subjected its defense of the earlier Lawsuit to a complete reservation of rights.
The Duty to Defend
An insurer’s duty to defend is determined solely from the language of the complaint against the insured. It is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer’s duty to defend.
Castillo’s unfair trade practices claim alleged that Hemphill “deceiv[ed]” Castillo “about rental housing in which he would be living.” But Castillo does not allege that Hemphill or MJC ever represented to him that his housing conditions would be sanitary or not crowded, or that he would not have accepted Hemphill’s employment offer had he known that the housing conditions were subpar.
As for Castillo’s start date, his allegations amount to nothing more than a breach-of-contract claim: he alleges that his contracted-for start date was delayed and that he lost money and employment opportunities as a result. Landmark expressly carved out breach-of-contract claims in its policy with Hemphill. It has no duty to defend this one, or any other claim in Castillo’s suit.
ZALMA OPINION
The four corners rule allowed the insurer to refuse to defend or indemnify its insured because Castillo’s suit was basically for breach of contract and did not meet any of the requirements of the policy which limited its coverages and did not promise to defend a claim of breach of contract.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
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Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; https://creators.newsbreak.com/home/content/post; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library.
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Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected]
Go to the Insurance Claims Library – https://lnkd.in/gWVSBde.
Policy Limits Demand Accepted Settles Claim
Post 5434
Posted on August 26, 2026 by Barry Zalma
See the full video at https://lnkd.in/g-ZtsSgK and at https://lnkd.in/ghMBdYWR
A Contingent Offer Accepted Ends the Dispute
In Farmers Insurance Exchange, a California Reciprocal Insurance Exchange, The Superior Court For The County Of San Bernardino, Kathleen Ann Wood, E087128, California Court of Appeals, (July 9, 2026) Farmers Insurance Exchange insured Doyle Archer under an automobile policy with bodily injury limits of $15,000 per person and $30,000 per accident.
FACTUAL BACKGROUND
Archer rear-ended Kathleen Ann Wood at a red light, causing Wood to assert a bodily injury claim against him. Wood’s counsel sent Farmers a pre-litigation settlement demand offering to resolve Wood’s claim for the available policy limits, stating that if the $100,000 demand exceeded the policy, the offer was for the policy limits.
Farmers timely responded in writing, agreed to pay Wood the $15,000 per-person policy limit, and provided the requested ...
Policy Limits Demand Accepted Settles Claim
Post 5434
Posted on August 26, 2026 by Barry Zalma
See the full video at https://lnkd.in/g-ZtsSgK and at https://lnkd.in/ghMBdYWR
A Contingent Offer Accepted Ends the Dispute
In Farmers Insurance Exchange, a California Reciprocal Insurance Exchange, The Superior Court For The County Of San Bernardino, Kathleen Ann Wood, E087128, California Court of Appeals, (July 9, 2026) Farmers Insurance Exchange insured Doyle Archer under an automobile policy with bodily injury limits of $15,000 per person and $30,000 per accident.
FACTUAL BACKGROUND
Archer rear-ended Kathleen Ann Wood at a red light, causing Wood to assert a bodily injury claim against him. Wood’s counsel sent Farmers a pre-litigation settlement demand offering to resolve Wood’s claim for the available policy limits, stating that if the $100,000 demand exceeded the policy, the offer was for the policy limits.
Farmers timely responded in writing, agreed to pay Wood the $15,000 per-person policy limit, and provided the requested ...
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Fraud & the Fear of Bad Faith Suits
Posted on July 22, 2026 by Barry Zalma
See the full video at https://lnkd.in/gWQQEySW and at https://lnkd.in/gyhdK6wv
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
After ...
Insurance Requires Fortuity to be an Insured Risk
Post 5485
Posted on September 8, 2026 by Barry Zalma
In Industrial Park Center, LLC, doing business as Mainspring Capital Group v. Great Northern Insurance Company, a foreign insurer, No. CV-25-0330-CQ, Supreme Court of Arizona (September 1, 2026).
The United States Court of Appeals for the Ninth Circuit certified the following question to this Court:
"Is damage to property a “fortuitous” loss when, based on the insured’s knowledge at the time the insurance policy issued, it was reasonably foreseeable that such damage was almost certain to occur if certain preventative measures were not taken?"
FACTUAL BACKGROUND
Mainspring owned commercial property leased to Star Fisheries for decades. Star Fisheries’ use of water and salt allegedly caused structural damage over time. In 2010, Mainspring learned of damage and made some repairs but did not implement all recommended preventive measures. In 2021–2022, additional similar structural damage was discovered, and ...
Qui Tam Relators are not officers of the United States
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Attempt to use Constitution to Stop a Qui Tam False Claims Act Case
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FCA’s Qui Tam Provisions do not Violate the Appointments Clause.
In United States Of America, Clarissa Zafirov, ex rel; Dr. v. Florida Medical Associates, LLC, d.b.a. Vipcare, Physician Partners, LLC, Anion Technologies, LLC, Freedom Health, Inc., Optimum Healthcare, Inc., Physician Partners Specialty Services, LLC, et al., No. 24-13581, United States Court of Appeals, Eleventh Circuit (September 1, 2026).
The False Claims Act (“FCA”) allows the Attorney General to bring civil suits against perpetrators of fraud against the government. This case involves another portion of the FCA-the qui tam provisions-which allow people, called relators, who have knowledge about fraud against the government to pursue a case against the perpetrator of the fraud.
Dr. Clarissa Zafirov filed a qui tam action under the False Claims Act on behalf of...
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Post 5484
In David Cromp v. Johnny Harkrider, Monique Harkrider, and their Marital Community, dba Able Plumbing Plus, No. 61678-5-II, Court of Appeals of Washington, Division 2 (August 25, 2026) David Cromp hired Able Plumbing Plus in 2018 to install plumbing, including two toilets, at his residence. In 2019, both toilets allegedly leaked, causing damage. Insurance claims were submitted through Able’s contractor policy, but the insurer eventually denied the claims.
Cromp sued Able in 2022 for breach of contract based on the allegedly defective toilet installation. During that case, Cromp attempted to add claims related to Able’s conduct during the insurance claim process, including fraud, bad faith, tortious conduct, and bond-related claims, but the superior court denied leave to amend. The 2022 breach-of-contract claim was later dismissed with prejudice on summary judgment as time-barred.
On the same day the 2022 case was dismissed, Cromp filed a ...
