Harleysville Worchester Insurance Company v. Diamondhead Property Owners Association, Inc. et al
AMENDED MEMORANDUM OPINION granting 38 Motion for Summary Judgment. Signed by Honorable Susan O. Hickey on April 11, 2013. (adw)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
HOT SPRINGS DIVISION
CASE NO. 6:12-CV-6057
DIAMONDHEAD PROPERTY OWNERS
ASSOCIATION, INC; FRED ENSMINGER;
JERRY CHAMBLISS; and CYNTHIA NELSON
AMENDED MEMORANDUM OPINION
By its Memorandum Opinion on April 11, 2013, the Court granted Plaintiff Harleysville
Worchester Insurance Company’s Motion for Summary Judgment. (ECF No. 51). The Court
declared as a matter of law that Harleysville has no duty to defend or indemnify Defendant
Diamondhead Property Owners Association, Inc. in a separate state court action involving the
personal injuries and property damage of Defendants Jerry Chambliss and Cynthia Nelson. The
Court, however, neglected to specify that Harleysville also owes no duty to defend or indemnify
Diamondhead employee, Fred Ensminger, in that state court action. The Court’s Opinion is
amended as follows:
Before the Court is Plaintiff Harleysville Worchester Insurance Company’s Motion for
Summary Judgment. (ECF No. 38). This case involves an insurance contract dispute between
Harleysville and Diamondhead Property Owners Association, Inc. Harleysville, the insurer, asks
the Court to declare as a matter of law that it has no duty to defend or indemnify Diamondhead,
the insured, or its employee, Fred Ensminger, in a separate personal injury lawsuit in an
Arkansas state court. Defendants have not responded to Harleysville’s motion. 1 The matter is
ripe for the Court’s consideration.
The Court grants Harleysville’s motion because the undisputed facts show that the
parties’ insurance contract unambiguously excludes the coverage sought by Diamondhead in the
underlying state court action.
The parties in this case dispute whether Harleysville owes certain duties to Diamondhead
under their insurance contract. Harleysville filed this declaratory judgment action seeking to
avoid coverage for personal injuries and property damage suffered by Defendants Jerry
Chambliss and Cynthia Nelson on Diamondhead’s premises.
In July 2010, Ensminger was involved in a “shoot-out” with Chambliss and Nelson
outside of their home within the Diamondhead community. Ensminger, an employee of the
Diamondhead Police Department, brought suit against Chambliss for his injuries during the
incident, and Nelson was later joined in the lawsuit as a Defendant. Chambliss and Nelson then
filed a counterclaim against Ensminger for their injuries and property damage during the incident
and joined Diamondhead as a third-party Defendant.
The third-party complaint alleges nine claims: (1) assault and battery; (2) property
damage; (3) malicious prosecution/abuse of process and false imprisonment; (4) gross
negligence; (5) negligence; (6) negligent hiring; (7) negligent retention; (8) negligent
supervision; and (9) outrage. Most of these claims are brought against Diamondhead under a
theory of vicarious liability because Ensminger was allegedly acting within the scope of his
The Court notes that Defendants attempted to a file late response and late motions for extension to respond to
Harleysville’s motion. (ECF No’s 41, 42, & 43). However, the Court denied those requests and struck any late
responses because Defendants failed show good cause or excusable neglect for their untimely pleadings. (ECF No.
employment as a Diamondhead law enforcement officer when the incident occurred. The
remaining claims, however—such as the negligent hiring, negligent retention, and negligent
supervision claims—are brought under a theory of direct liability for Diamondhead’s own
When the incident occurred, Diamondhead had a commercial general liability insurance
policy (the “CGLP”) issued by Harleysville. 2 The CGLP provides that Harleysville has a duty to
defend and indemnify Diamondhead in any lawsuit asserting “bodily injury” or “property
damage” to which the insurance applies. 3 The policy further provides that coverage extends to
the actions of Diamondhead’s employees when acting within the scope of their employment.
Chambliss and Nelson’s third-party complaint against Diamondhead and Ensminger
includes recovery for their personal injuries and property damage. Thus, according to the terms
Harleysville also supplied Diamondhead with an umbrella insurance policy. The umbrella policy provides
coverage for any “ultimate net loss” in excess of the “retained limit,” i.e. the policy limit specified in the CGLP.
Harleysville’s duty under the umbrella policy is not triggered unless a duty arises under the CGLP, and coverage
under that policy reaches the policy limit. Because the Court concludes that Harleysville has no duty to defend or
indemnify Diamondhead under the CGLP, it need not address Harleysville’s duty under the umbrella policy.
Specifically, the policy states:
COVERAGE A – BODILY INJURY AND PROPERTY DAMAGE LIABILITY
a. We will pay those sums that the insured becomes legally obligated to pay as damages because
of “bodily injury” or “property damage” to which this insurance applies. We will have the right
and duty to defend the insured against any “suit” seeking those damages. However, we will have
no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property
damage” to which this insurance does not apply.
COVERAGE B – PERSONAL AND ADVERTISING INJURY LIABILITY
a. We will pay those sums that the insured becomes legally obligated to pay as damages because
of “personal and advertising injury” to which this insurance applies. We will have the right and
duty to defend the insured against any “suit” seeking those damages. However, we will have no
duty to defend the insured against any “suit” seeking damages for “personal and advertising
injury” to which this insurance does not apply.
(ECF No. 38).
of the CGLP, Harleysville is required to defend and indemnify Diamondhead and Ensminger in
the underlying state court action, unless a relevant exclusion of coverage applies.
When Harleysville issued the CGLP to Diamondhead, the parties inadvertently omitted
an exclusion of law enforcement coverage from the policy. The parties, however, clearly
intended for the policy to contain a law enforcement exclusion at the time of contracting.
Accordingly, in its previous order, the Court reformed the parties’ insurance contract to give
effect to their true intent. (ECF No. 37). As reformed, the CGLP excludes coverage for any acts
of Diamondhead employees “arising out of” the community’s law enforcement activities. (ECF
Harleysville now argues that each of the claims against Diamondhead and Ensminger in
the underlying state court action arose out of Diamondhead’s law enforcement activities.
Harleysville contends that the law enforcement exclusion in the CGLP applies, thus relieving it
of its duty to defend and indemnify Diamondhead or Ensminger.
STANDARD OF REVIEW
The standard of review for summary judgment is well established. When a party moves
for summary judgment, “[t]he court shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact, and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); Krenik v. County of LeSueur, 47 F.3d 953 (8th Cir. 1995).
This is a “threshold inquiry of…whether there is a need for trial—whether, in other words, there
are genuine factual issues that properly can be resolved only by a finder of fact because they may
reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986); see also Agristor Leasing v. Farrow, 826 F.2d 732 (8th Cir. 1987). A fact is material
only when its resolution affects the outcome of the case. Anderson, 477 U.S. at 248. A dispute is
genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either
party. Id. at 252.
The Court must view the evidence and the inferences reasonably drawn from the
evidence in the light most favorable to the nonmoving party. Enterprise Bank v. Magna Bank, 92
F.3d 743, 747 (8th Cir. 1996). The moving party bears the burden of showing that there is no
genuine issue of material fact and that it is entitled to judgment as a matter of law. Id. The
nonmoving party must then demonstrate the existence of specific facts in the record that create a
genuine issue for trial. Krenik, 47 F.3d at 957. A party opposing a properly supported motion for
summary judgment may not rest upon mere allegations or denials, but must set forth specific
facts showing that there is a genuine issue for trial. Anderson, 477 U.S. at 256.
The sole issue before the Court is whether the law enforcement exclusion in the parties’
reformed insurance contract absolves Harleysville of its duty to defend and indemnify
Diamondhead and Ensminger in the underlying state court action.
As an initial matter, the Arkansas Supreme Court has recognized that the duty to defend
is broader than the duty to indemnify. Murphy Oil USA, Inc. v. Unigard Security Ins. Co., 61
S.W.3d 807, 812 (Ark. 2001). In other words, where there is no duty to defend, there is generally
no duty to indemnify. See id. Therefore, if the Court finds that Harleysville has no duty to defend
under the reformed CGLP, then it also has no duty to indemnify.
As a general rule, an insurer’s duty to defend is determined by the allegations in the
pleadings against the insured. Id. “[T]he duty to defend arises when there is a possibility that the
injury or damage may fall within the policy coverage.” Id. at 813. However, “where there is no
possibility that the damage alleged in the complaint may fall within the policy coverage, there
would be no duty to defend.” Id.
In this case, the allegations in the third-party complaint against Diamondhead contain two
distinct theories of liability: vicarious liability for the conduct of Ensminger, and direct liability
for Diamondhead’s own unlawful conduct. The Court will address Harleysville’s duty to defend
according to each of these theories.
Duty to Defend Vicarious Liability Claims
Chambliss and Nelson allege in their third-party complaint that Ensminger caused their
injuries while acting within the scope of his employment as a Diamondhead police officer.
Because Ensminger was allegedly acting within the scope of his employment, Chambliss and
Nelson seek to recover not only from Ensminger directly, but also from Diamondhead under a
theory of respondeat superior, or vicarious liability.
Assuming that Ensminger was acting within the scope of his employment, 4 Harleysville’s
duty to defend turns on whether the law enforcement exclusion under the reformed CGLP
applies. The law enforcement exclusion excludes coverage for any liability “arising out of”
Diamondhead’s law enforcement activities. Because Ensminger is a Diamondhead law
enforcement officer, any damage caused by him within the scope of his employment necessarily
arises out of law enforcement activity. The record contains no evidence to suggest that
Ensminger had any other responsibilities as a Diamondhead employee other than his law
enforcement duties. Therefore, if Ensminger was acting within the scope of his employment, the
law enforcement exclusion provides that Harleysville has no duty to defend Diamondhead
The CGLP covers actions by Diamondhead’s employees only if they occur within the scope of their employment.
Therefore, if Ensminger was somehow not acting within the scope of his employment as a law enforcement officer
at the time of the incident, then the CGLA would not apply, and Harleysville would have no duty to defend.
against the vicarious liability claims in the third-party complaint. This also means that
Harleysville has no duty to defend Ensminger directly for the allegations against him in his law
enforcement capacity. Because Harleysville has no duty to defend against these claims, it also
has no duty to indemnify. Murphy Oil USA, Inc., 61 S.W.3d at 812.
Duty to Defend the Direct Liability Claims
Chambliss and Nelson also seek to recover from Diamondhead for its own unlawful
conduct in negligently hiring, retaining, and supervising Ensminger. These allegations raise the
question of whether Diamondhead’s own negligent behavior “arises out of” its law enforcement
activity for purposes of the law enforcement exclusion in the CGLP.
In the context of insurance contracts, the Arkansas Supreme Court interprets the term
“arising out of” broadly. Hisaw v. State Farm Mut. Auto. Ins., 122 S.W. 3d 1, 6 (Ark. 2003). To
come within the meaning of that term, there must merely be a causal relation or connection
between the relevant conduct and the exclusion in the policy. Hartford Fire Ins. Co. v. State
Farm Mut. Auto. Ins. Co., 574 S.W.2d 265, 267 (Ark. 1978). This causal requirement is
construed as less than legal proximate cause but more than “but for” causation. Hisaw, 122
S.W.3d at 7.
In this case, the allegations against Diamondhead for its own negligence in hiring,
retaining, and supervising Ensminger fall within the CGLP’s law enforcement exclusion. The
causal relationship between Diamondhead’s alleged negligence and the community’s law
enforcement activity is substantial. Indeed, Ensminger’s improper law enforcement behavior was
a natural consequence of Diamondhead’s failure to adequately hire, retain, or supervise him.
Therefore, any liability against Diamondhead in this regard necessarily arises out of its law
enforcement activity. Accordingly, the law enforcement exclusion applies, and Harleysville has
no duty to defend or indemnify Diamondhead as to these claims.
For the reasons stated in this opinion, the Court finds that Plaintiff Harleysville
Worchester Insurance Company’s Motion for Summary Judgment (ECF No. 38) should be and
hereby is GRANTED. A Judgment of even date, consistent with this opinion, shall issue.
IT IS SO ORDERED, this 11th day of April, 2013.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge
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