FACE v. Scottsdale Insurance Company

Filing

OPINION FILED - THE COURT: JAMES B. LOKEN, LAVENSKI R. SMITH and STEVEN M. COLLOTON. Steven M. Colloton, Authoring Judge (PUBLISHED) [3755297] [09-3647]

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

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No. 09-3647
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FACE, Festivals and Concert Events,
Inc.,
Appellant,
v.
Scottsdale Insurance Company,
Appellee.

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* Appeal from the United States
* District Court for the
* District of Minnesota.
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Submitted: October 21, 2010
Filed: February 14, 2011
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Before LOKEN, SMITH, and COLLOTON, Circuit Judges.
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COLLOTON, Circuit Judge.
Festivals and Concert Events, Inc. (“FACE”) appeals from the district court’s1
grant of summary judgment for Scottsdale Insurance Company (“Scottsdale”). FACE
filed this declaratory judgment action, seeking defense costs and indemnity in its
underlying lawsuit with D.D.N. Because we conclude that no claim in the underlying
suit was arguably within the policy coverage, we affirm.

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The Honorable Michael J. Davis, Chief Judge, United States District Court for
the District of Minnesota.

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I.
FACE purchased a commercial general liability policy from Scottsdale that
covers the period from May 1, 2006, until May 1, 2007. The policy covered damages
that the insured became legally obligated to pay because of “bodily injury” that is
caused by an “occurrence.” The policy granted Scottsdale the right and duty to
defend FACE against any suit seeking covered damages.
The underlying lawsuit arose out of FACE’s involvement as a promoter of WE
Fest, an annual country music festival held in Detroit Lakes, Minnesota. FACE hired
Eric Fanning to provide security services at the 2006 WE Fest, which took place
during August 3-5, 2006. Fanning gave D.D.N. her tickets and wristband for the
festival. D.D.N. claims that Fanning sexually assaulted her on August 5, 2006, on the
festival premises.
D.D.N. brought suit against FACE and the security company in charge of
securing the festival grounds, Security Specialists, Inc. She asserted claims against
FACE for negligent hiring, negligent supervision, negligent retention, respondeat
superior, negligent infliction of emotional distress, and landowner’s negligence.
FACE tendered the defense of the suit to Scottsdale, but Scottsdale denied the claim
based on a policy exclusion concerning injuries arising from assault and battery.
After the denial, FACE filed this action seeking indemnity and defense costs under
the policy.
During the underlying trial, FACE denied that a sexual assault occurred. The
jury, through a special verdict form, found that Fanning had committed a sexual
battery on D.D.N., and that FACE was liable for negligent hiring. The jury awarded
D.D.N. total damages of $750,000, and apportioned 42.5 percent of the fault to
FACE. After the verdict, FACE withdrew its indemnity claim, but it continues to
seek defense costs.
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The district court granted summary judgment for Scottsdale, concluding that
D.D.N.’s allegations were not within the scope of coverage. Summary judgment is
appropriate if there is no genuine issue of material fact for trial. Fed. R. Civ. P. 56(a);
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). We review both the district
court’s interpretation of provisions in an insurance contract and its decision to grant
summary judgment de novo. Transcon. Ins. Co. v. W.G. Samuels Co., 370 F.3d 755,
757 (8th Cir. 2004).
II.
The parties agree that Minnesota law governs this diversity action. Under
Minnesota law, an insurer’s obligation to defend is contractual. Meadowbrook, Inc.
v. Tower Ins. Co., 559 N.W.2d 411, 415 (Minn. 1997). The insured bears the initial
burden of establishing coverage, and the insurer carries the burden of demonstrating
that a policy exclusion applies. Travelers Indem. Co. v. Bloomington Steel & Supply
Co., 718 N.W.2d 888, 894 (Minn. 2006). When interpreting an insurance contract,
the language should be given its plain and ordinary meaning, and any ambiguity
should be resolved in favor of the insured. Id.
The duty to defend is broader than the duty to indemnify. Meadowbrook, 559
N.W.2d at 415. In determining whether a duty to defend exists, we look at the duty
as of the time the insured tendered the defense to the insurer. Jostens, Inc. v. Mission
Ins. Co., 387 N.W.2d 161, 166 (Minn. 1986). This duty arises if any part of the cause
of action is arguably within the scope of policy coverage. Id. at 165. Absent any
knowledge to the contrary, an insurer may make an initial determination of whether
it has a duty to defend from the factual allegations in the complaint. Garvis v. Emp’rs
Mut. Cas. Co., 497 N.W.2d 254, 258 (Minn. 1993). “Where the pleadings do not
raise a claim arguably within the scope of coverage, the insurer has no duty to defend
or investigate further to determine whether there are other facts present which trigger
such a duty.” Id. The insurer may not simply rely on the pleadings, however, if it has
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independent knowledge of facts that indicate there may be a covered claim, or if the
insured tells the insurer of such facts. Id.
The policy in this case covers damages that the insured becomes legally
obligated to pay because of “bodily injury” that is caused by an “occurrence.” It
grants Scottsdale the right and duty to defend FACE against any suit seeking covered
damages, but states that Scottsdale does not have a duty to defend “against any ‘suit’
seeking damages for ‘bodily injury’ . . . to which [the] insurance does not apply.”
The policy contains an exclusion, described by the parties as the “assault and battery
exclusion,” that provides:
This Insurance does not apply to “Injury” . . . arising from:
1. Assault and/or Battery committed by any Insured, any employee of
any Insured, or any other person;
2. The Failure to suppress or prevent Assault and/or Battery by any
person in 1. above;
3. The selling, serving or furnishing of alcoholic beverages which
results in an Assault and/or Battery.
4. The negligent:
a. Employment;
b. Investigation;
c. Supervision;
d. Reporting to the proper authorities, or failure to so
report; or
e. Retention

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by a person for whom any Insured is or ever was legally responsible and
whose conduct would be excluded by paragraphs 1, 2 or 3 above.
The district court determined that because FACE’s only potential liability to D.D.N.
was within the scope of this exclusion, Scottsdale had no obligation to defend FACE.
FACE argues that the district court erred, because the exclusion in this policy
applies only to injuries arising from an “Assault and/or Battery committed by any
Insured, any employee of any Insured, or any other person,” and Scottsdale had
reason to know that Fanning had not “committed” an assault on D.D.N. The
difficulty with this contention is that whether or not Fanning “committed” an assault,
there was no possibility of coverage under the policy. If Fanning did commit an
assault, then the assault and battery exclusion applied to defeat coverage. See, e.g.,
Ross v. City of Minneapolis, 408 N.W.2d 910, 913-14 (Minn. App. 1987). If Fanning
did not commit an assault, then FACE was not legally obligated to pay damages to
D.D.N., and coverage was not implicated. There was no potential outcome of the trial
that would require Scottsdale to indemnify FACE, and the insurer thus had no duty
to defend. See Bobich v. Oja, 104 N.W.2d 19, 25 (Minn. 1960).
FACE responds by urging that Crum v. Anchor Casualty Co., 119 N.W.2d 703
(Minn. 1963), upheld a duty to defend under analogous circumstances. In Crum, a
tenant in an apartment building brought a claim under the Workmen’s Compensation
Act against her landlords arising from injuries when she fell down a stairway in the
building. The tenant was also an employee of the landlords. The insurer for the
landlords refused to defend the action on the ground that its policy excluded coverage
for injuries to an employee who has rights under the Workmen’s Compensation Act.
The Supreme Court of Minnesota held that the insurer did have a duty to
defend the landlords, because the insurer knew – contrary to the tenant’s amended
complaint – that the tenant was not acting within the scope of her employment when

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she sustained her injuries, and that the exclusion therefore did not apply. Id. at 712.
In that instance, the insurer had knowledge that “the actual facts are such as to bring
the cause of action – if it can be established at all – within the insurance coverage.”
Id. at 708. Although the tenant’s amended complaint had omitted a negligence claim
against the landlords, the court explained that “the amendment of pleadings is
liberally allowed even after judgment has been entered.” Id. at 710. Crum was a
case, therefore, in which the insured had potential liability in the lawsuit covered
under its policy, and the insurer knew it, so there was a duty to defend. The
Minnesota court expressly distinguished the situation in which an insured has no
potential covered liability, and the insurer thus has no duty to defend. Id. at 708-09
(citing Bobich, 104 N.W.2d at 25).
FACE separately contends that Scottsdale’s treatment of another claim
involving an alleged assault by a WE Fest employee at WE Fest is an “admission
against interest” that precluded summary judgment. The other claim involved an
assault of a patron, Tollefson, by a WE Fest employee who claimed that he acted in
self-defense. Scottsdale settled the claim, and contemporaneous notes of an insurance
adjuster said “it appears that the A[ssault] & B[attery] exclusion will not apply in this
case as [the insured’s] actions were in self defense.” Scottsdale now says that
coverage could have been denied, because there is no self-defense exception to the
assault and battery exclusion. Whatever the merits of the Tollefson claim, the
insurer’s treatment of that matter cannot override the unambiguous terms of the
insurance policy at issue in this case. See United Fire & Cas. Co. v. Maw, 510
N.W.2d 241, 244 (Minn. Ct. App. 1994). Extrinsic evidence, such as an adjuster’s
notes, cannot be used to “construe” unambiguous policy language. See In re SRC
Holding Corp., 545 F.3d 661, 668 (8th Cir. 2008); Donnay v. Boulware, 144 N.W.2d
711, 716 (Minn. 1966). Scottsdale’s treatment of the Tollefson claim does not affect
our analysis of the exclusion in this case.

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FACE has failed to establish a potential liability covered under the policy. It
is therefore not entitled to defense costs in the underlying litigation.
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For the foregoing reasons, the judgment of the district court is affirmed.
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