Fifth Circuit Court of Appeals Affirms Grant of Summary Judgment Holding Insurer did not Owe Insured a Duty to Defend or Indemnify in Claims Involving Theft

By Mustapha M. Nyallay and Ramy P. Elmasri         

On May 13, 2024, the Fifth Circuit Court of Appeals affirmed the U.S. District Court for the Southern District of Texas decision granting motion for summary judgment for Insurer and denying similar motion for Insureds.  

The case is Nationwide Mut. Ins. Co. v. Choi, 2024 U.S. App. LEXIS 11599. (5th Cir., May 13, 2024). This case involved a declaratory judgment action brought by the insurer Nationwide Mutual Insurance Company against its insured Hui Lam Cookie Choi seeking declaratory judgment that it did not owe the Insureds a duty to defend or indemnify the Insureds in an underlying case involving the Insureds participation in the Bitcoin theft. The Insurer sought a declaration that it did not owe a duty to defend or indemnify the Insureds under the Insureds’ homeowner insurance and umbrella policies.

Insurer issued a homeowner policy and a personal liability umbrella policies to Insureds Hiu Lam Cookie Choi and Brandon Ng. The policies provided that Nationwide will pay its limit of liability and provide a defense if a suit is brought against the Insureds for damages incurred due to an “‘occurrence’ resulting from negligent personal acts.” The policy defines occurrence as “an accident … which results, during the policy period, in … property damage.”

The underlying lawsuit alleges that the Insureds together with other defendants worked together through a malware attack to steal approximately 1,400 Bitcoin worth $80 million dollars. The plaintiff’s claims for relief in the underlying lawsuit included civil conspiracy, conversion, civil theft and unjust enrichment.

Both Insured and Insurer moved for summary judgment on the issue of whether the duties to defend and indemnify are triggered under the policies.

The District Court held that the Insurer did not owe a duty to defend or indemnify the Insured under the policies. The District Court reasoned that determining whether the insurer owe a duty to defend or indemnify Insured requires comparing the allegations in the underlying action to the terms of the insurance policy. The underlying action alleges intentional conduct of theft whereas, the insurance policies only cover damages arising from an occurrence resulting from negligent conduct and the policy further defined an occurrence as “an accident … which results in … property damage.” The District Court concluded that because intentional theft constitutes neither negligent nor accidental conduct, the Insurer did not owe a duty to defend or indemnify the Insureds.

The insureds appealed to the 5th Circuit Court of Appeals.

The 5th Circuit Court of Appeals affirmed the District Court decision holding the Insurer did not have a duty to defend or indemnify the Insureds where the underlying action constituted an intentional act not covered under the insurance policy.

Nationwide Mut. Ins. Co. v. Choi, 2024 U.S. App. LEXIS 11599. (5th Cir., May 13, 2024).

Nationwide Mut. Ins. Co. v. Hui Lam Cookie Choi, 2023 U.S. Dist. LEXIS 127783.