Arch Insurance Company has gone to federal court in Dallas to step away from a commercial general liability policy it sold to Sundown at Granada, a restaurant on Greenville Avenue. In a complaint filed May 11, 2026, the carrier asks a judge to declare it owes the restaurant nothing - no defense, no indemnity, no reimbursement.
The underlying claim is severe. In a Dallas County personal injury suit, customer Evelyn Taylor alleges she visited the restaurant on June 15, 2022 and was exposed to Legionella bacteria. According to Arch's complaint, Taylor "ultimately experienced severe sepsis shock and multiorgan failure that she attributes to Legionella exposure, which eventually led to her undergoing quadruple amputation to her hands and feet."
Arch's coverage suit, filed in the Northern District of Texas, builds on three pillars: a near two-year delay in notice, a dispute over who picks defense counsel, and two policy exclusions Arch says shut the claim out entirely.
The notice timeline, in Arch's telling, looks like this. On December 14, 2022, Sundown's broker sent Arch a "First Notice of Loss Report." The filing states the FNOL said: "Per the insured, no claim is being made against Sundown at Granada at this time. Therefore, this matter is being reported as a record only notice of an occurrence that may result in a claim…." Arch issued a pre-suit reservation of rights on January 26, 2023, flagged the likely exclusions, and reminded Sundown to forward any suit papers if a lawsuit followed.
Taylor filed her original petition on April 22, 2024, then three amended petitions during the rest of that year. According to the complaint, Sundown forwarded none of them. The filing alleges the restaurant instead joined with co-defendant Granada Theater - which the complaint says is not an insured under the Arch policy - to retain Thompson Coe Cousins & Irons, LLP as joint defense counsel, filing a single answer on June 11, 2024.
Sundown did not tender the lawsuit to Arch until March 19, 2026, the complaint alleges. By then, mediation was set for May 14, 2026 and trial for June 2, 2026. Arch alleges Sundown demanded a response within six business days, reimbursement of approximately $50,000 in past defense costs charged by Thompson Coe, and confirmation of settlement authority for the mediation.
Arch says it agreed to defend, subject to a full reservation of rights, and appointed Downs Stanford as counsel on April 21, 2026. According to the complaint, Sundown insisted on keeping Thompson Coe at Arch's expense and did not have Thompson Coe transfer its files to Downs Stanford until April 29, 2026.
The coverage arguments turn on familiar CGL language. The policy, number SNCGL0023305, ran from January 8, 2022 to January 8, 2023, with a $1 million per-occurrence limit and a $5 million general aggregate, written on the ISO CG 00 01 04 13 form.
Two endorsements anchor Arch's case. The Communicable Disease Exclusion bars coverage for "'Bodily injury' or 'property damage' arising out of the actual or alleged transmission of a communicable disease." The Fungi or Bacteria Exclusion knocks out injury "which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any 'fungi' or bacteria on or within a building or structure."
Arch also invokes the policy's notice and cooperation conditions, which require the insured to "Notify us in writing as soon as practicable" and bar voluntary payments without the carrier's consent. The complaint alleges Sundown's silence cost Arch the chance to investigate, pursue subrogation, drive an early settlement, and seek coverage clarity well before mediation and trial.
The relief Arch seeks is broad: a declaration that it owes no defense, no indemnity, and no reimbursement of pre-tender defense costs - particularly any work Thompson Coe did jointly for Granada Theater, which the complaint says is not on the policy.
The allegations have not been tested in court. Sundown has not yet filed a response, and no court has ruled.
