Penn-Star Insurance Company v. New Edition Early Learning Academy LLC et al

Filing 49

ORDER: Motion to strike Moore's affidavit, 40 , denied. Penn-Star's 26 Motion for summary judgment granted in part and denied in part. Cervantes's 28 Cross Motion is denied. An Amended Final Scheduling Order will issue. Signed by Judge D. P. Marshall Jr. on 11/28/2016. (jak)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
JONESBORO DIVISION
PENN-STAR INSURANCE COMPANY,
a Pennsylvania Corporation

v.

PLAINTIFF/
COUNTER-DEFENDANT

No. 3:15-cv-104-DPM

NEW EDITION EARLY LEARNING ACADEMY, LLC,
an Arkansas Limited Liability Company;
JACQUELINE STANBACK, an Individual;
and MONICA CERVANTES,
Individually and as Parent and Next Friend
of Jonathan Cervantes, a Minor
MONICA CERVANTES, Individually
and as Parent and Next Friend of
Jonathan Cervantes, a Minor

DEFENDANTS

COUNTER-CLAIMANT

ORDER
1. This declaratory judgment action hinges on whether a professional
services exclusion to liability insurance applies to a bad accident at a day care.
On 27 January 2013 Monica Cervantes arrived to pick up her four-year-old
son, Jonathan, and his sister from New Edition Early Learning Academy.
Cervantes signed Jonathan out for the day, but she and her husband hung
around talking with others inside. Meanwhile Jonathan had his eye on some
pine cones on the shelf of a TV cart. During the conversation, a day care
employee, as well as Cervantes and her husband, told Jonathan to stay away

from the pine cones and cart. But, as little boys will do, he went for them
anyway. The cart and heavy tube television sitting on top of it tumped over
on Jonathan, severely injuring him.
Cervantes has sued New Edition and its owner, Jacqueline Stanback, in
state court. Her complaint focuses on the day care facility: the allegedly
dangerous nature of the premises, the failure to remove objects and devices
that are dangerous to children, and the failure to employ sufficient staff
trained to supervise children and remove dangerous conditions. NQ 2-2. New
Edition's liability insurer, Penn-Star Insurance Company, is defending in the
state case, and has filed this declaratory judgment action to determine the
coverage limit. Cervantes counterclaimed for the same purpose. Although
not all the factual details matter in the coverage dispute, it's important to note
at the threshold what Cervantes alleged happened to her son that day.
2. New Edition's insurance policy with Penn-Star covers sums New
Edition must pay as damages because of bodily injury. It has an aggregate
limit of $600,000, with $300,000 of coverage per occurrence. This commercial
general liability insurance excludes coverage for certain professional services,
though it's disputed whether the exclusion was part of the policy when the

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accident happened.

New Edition's policy also has professional liability

coverage of $100,000 for day-care-related risks. The key language of these
provisions is in the margin.*
Penn-Star admits the injury triggered the CGL coverage, but argues the
professional services exclusion applies.

And Penn-Star concedes the

professional liability insurance covers the accident, so there's $100,000 in
coverage. Cervantes argues the professional services exclusion wasn't part
of the policy when the accident happened. But even if it was, she continues,
it doesn't apply because New Edition doesn't provide professional
services-so the CGL limit applies to the injury. Penn-Star and Cervantes
both seek summary judgment on these points.

· The professional services exclusion excludes coverage for any
actual or alleged negligent act, error, [or] omission ... for which the
insured is legally liable in the performance of or failure to perform
'professional services."' As used here, professional services are services
performed for others requiring special skills, experience and knowledge."
NQ 27-4 at 21 .
The professional liability insurance covers any negligent act, error
or omission in the rendering or failure to render 'professional services,"'
which is defined here as any act or service requiring the employment of
specialized knowledge labor or skill of a predominantly mental or
intellectual nature." NQ 27-4 at 14, 18.
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3. New Edition's policy excluded professional services from the CGL
insurance, and added professional liability coverage of $100,000 for day care
related risks. The object of the whole policy was for Penn-Star to insure New
Edition against various liabilities. Continental Casualty Company v. Davidson,
250 Ark. 35, 41-42, 463 S.W.2d 652, 655 (1971). Under a reasonable and
practical reading of the entire policy, and considering the provisions in
connection with each other, the parties agreed to exclude injuries from
professional services from the CGL coverage. Ibid.; First Financial Insurance

Companyv. National Indemnity Company,49 Ark. App.115, 117, 898 S.W.2d 63,
64 (1995).

New Edition's separate coverage for professional services

underscores this conclusion. First Financial, 49 Ark. App. at 118, 898 S.W.2d
at 65.
It's unclear why professional services are defined slightly differently in
the exclusion than in the coverage. But the exclusion is clear: It exempts
injuries from an act, error, or omission in the use or failure to use special
skills, experience, and knowledge. These terms are unambiguous, so, like all
unambiguous contract terms, they aren't construed against Penn-Star.

McGrew v. Farm Bureau Mutual Insurance Company of Arkansas, Inc., 371 Ark.
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567, 570-71, 268 S.W.3d 890, 894-95 (2007); compare State Farm Fire and

Casualty Co. v. Midgett, 319 Ark. 435, 438, 892 S.W.2d 469, 471 (1995), with
Smith v. Shelter Mutual Insurance Co., 327 Ark. 208, 210, 937S.W.2d 180, 181-82
(1997).

Injuries arising from professional services-here, day care

operations - are plainly excluded from the CGL coverage. Smith, 327 Ark. at
210, 937 S.W.2d at 181-82.

To conclude otherwise would make the

professional liability coverage superfluous. Continental Casualty, 250 Ark. at
41, 463 S.W.2d at 655.
No trial is needed on exactly what happened on the day of the accident,
or exactly who was at fault, to answer the coverage question. The premise for
any recovery by Cervantes is negligence in New Edition's operations- a lack
of due care in arranging the cart and TV, securing play things, maintaining
the facility, and hiring and training the caregivers. All these things are an
important part of running a safe place for parents to take their children each
day. Capitol Indemnity Corporation v. Especially for Children, Inc., 2002 WL
31002849, at *6 (D. Minn. 29 August 2002). Decisions about them involve
professional judgment about day care operations, and require the skills,
experience, and knowledge of running that business. All the allegedly

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negligent acts and omissions are reasonably embraced by the exclusion's
definition of professional services. For these reasons, this exclusion - if it was
in place-limits coverage for Jonathan's accident to $100,000.
4.

There's a genuine factual dispute, though, about whether the

professional services exclusion was in New Edition's policy when the cart fell
on Jonathan. Penn-Star offers a copy of the certified policy that includes the
endorsement adding the exclusion. Ng 27-4 at 3. Penn-Star also offers an
affidavit from Laura Moore (the underwriter), who says the endorsement was
part of the policy all along. (Cervantes moves to strike this affidavit, but her
arguments lack merit: Moore has personal knowledge because she reviewed
the file; and Penn-Star disclosed Moore's involvement during discovery.)
But Cervantes points to the endorsement itself: It's dated almost a
month after Jonathan's accident. Ng 2 7-4 at 20. Stanback' s copy of the policy,
moreover, lists the professional services exclusion and professional liability
coverage on the covering schedule, but the exclusion itself is missing. Ng 36-5

at 4. And in Penn-Star's records, Ng 47-3, Moore first said the exclusion form
was missing, and added it after the accident, before concluding that she'd
made a mistake and it was there after all. Ng 34-1. All this creates a material

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dispute of fact: Either the exclusion was part of New Edition's policy on
27 January 2013 or it wasn't. A jury must decide. And that decision will
make a $200,000 difference in coverage.
5. A few final points. Cervantes argues the professional services
exclusion doesn't exclude all alleged damages because the general liability
coverage is for" damages because of 'bodily injury,"' whereas the exclusion
is for "bodily injury." This difference in words makes no legal difference.
The exclusion merely excluded one type of bodily injury from the general
liability coverage for "damages because of bodily injury."

Cervantes's

argument about the child-abuse coverage also lacks merit. The underlying
allegations of negligence aren't" abuse" under the policy terms, Ng 36-4 at 79,
or in the plain, ordinary, and popular sense of that word. CNA Insurance
Company v. McGinnis, 282 Ark. 90, 92, 666 S.W.2d 689, 691 (1984). Jonathan

had an accident involving the pine cones, the cart, and the old TV. Finally,
Penn-Star has conceded that the professional liability coverage of $100,000
applies. Ng 2 at iii! 24-25. But the insurer is right the policy excludes punitive
damages. Ng 35-4 at 76.

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Motion to strike Moore's affidavit, Ng 40, denied. Penn-Star's motion
for summary judgment, Ng 26, granted in part and denied in part. Cervantes's
cross motion, Ng 28, denied. An Amended Final Scheduling Order will issue.
So Ordered.
D.P. Marshall Jr.
United States District Judge

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