Federal Insurance Company v. Great American Insurance Company et al
Filing
99
OPINION MEMORANDUM AND ORDER IT IS HEREBY ORDERED that the Motions for Summary Judgment filed by Federal Insurance Company, [Doc. No. 64], and Zurich American Insurance Company, [Doc. No. 63], are GRANTED. IT IS FURTHER ORDERED that Great Americans M otions for Summary Judgment, [Doc. No.s 67, 69 and 71] are DENIED. IT IS FURTHER ORDERED that (a) The Indemnity clause within the Management Agreement is an Insured Contract under the Great American Policy; (b) The Whispering Lake Insurance Line (Ind ian Harbor Policy and Great American Policy) must be exhausted before the Yarco Insurance Line applies as a result of the Indemnity Clause within the Management Agreement; (c) Yarco and its insurers, Zurich and Federal, are entitled to reimbursement for all amounts they contributed settlement. A separate judgment in accordance with this Opinion, Memorandum and Order is entered this same date. 64 67 63 71 69 Signed by District Judge Henry Edward Autrey on 9/30/16. (CLA)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
FEDERAL INSURANCE COMPANY,
And ZURICH AMERICAN INSURANCE
COMPANY,
Plaintiffs,
vs.
GREAT AMERICAN INSUANCE
COMPANY,
Defendant.
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) Case No: 4:14CV1730 HEA
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OPINION, MEMORANDUM AND ORDER
This matter is before the Court on the cross-motions for summary judgment
filed by Plaintiffs Federal Insurance Company, [Doc. No. 64], and Zurich
American Insurance Company, [Doc. No. 63] and Defendant/ Counterclaim
Plaintiff Great American Insurance Company, [Doc. No.’s 67, 69 and 71]. For the
reasons stated below, Plaintiffs’ motions will be granted and Great American’s
motions will be denied.
Facts and Background
This is an action seeking declaratory relief pursuant to 28 U.S.C. §§ 2201
and 2202, for the purpose of determining the obligations and priority of coverage
for commercial general liability Policy No. CPO 6552614-00 (the Zurich Policy)
issued by Defendant Zurich to Yarco Company, Inc. (“Yarco”) ; commercial
excess and umbrella insurance Policy No. 7985-91-48 (the Federal Policy) issued
by Plaintiff Federal to Yarco ; commercial general liability Policy No.
ESG0033185 (the Indian Harbor Policy) issued by Indian Harbor to Municipal
Mortgage & Equity, LLC (“MM&E”) for the benefit of Whispering Lake; and
umbrella insurance Policy No. UM 2386960 (the Great American Policy) issued by
Defendant Great American to Distinguished Properties Umbrella Managers, Inc.
(“Distinguished Properties”) for the benefit of Whispering Lake arising out of the
shooting death of a child by Aaron Sullivan.
The Federal Policy limits are $25,000,000.00 per occurrence. The Great
American Policy limits are $10,000,000.00 per occurrence. The Zurich Policy
limits are $1,000,000.00 per occurrence. The Indian Harbor Policy limits are
$1,000,000.00 per occurrence.
On May 1, 2007,Yarco and Whispering Lake entered into a Management
Agreement for a term of one (1) year, which was automatically renewed for
successive additional terms of (1) year each. Whispering Lake (Owner) and Yarco
(Managing Agent) entered into a Management Agreement that included an
Indemnity clause and provided in part, as follows:
10. Indemnity
(a)
Except for fraud, willful misconduct or gross negligence on the part of
the Managing Agent, the Owner shall hold and save the Managing
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Agent (and Managing Agent’s directors, officers, employees,
shareholders, partners and affiliates) free and harmless from any
claim, cause, proceeding, or suit arising out of, or in connection with
any actions by the Managing Agent in accordance with this
Agreement or acting under the express or implied direction of the
Owner. Subject to the same exceptions, the Owner shall reimburse the
Managing Agent, upon demand, for all costs and expenses (including
reasonable attorney’s fees) and for any monies which the Managing
Agent is required to pay in connection therewith or shall, if requested
in writing by Managing Agent, defend promptly and diligently, at the
sole expense of the Owner, any claim, action or proceeding against
the Managing Agent which arises out of, or in connection with, the
foregoing. . .
Insurance
(a)
The Owner will inform the Managing Agent as to the types and
amounts of insurance to be carried with respect to the Development
and its operation, and the Owner will cause such insurance to placed
and kept in effect at all times. The Managing Agent shall pay
insurance premiums out of the Project Operating Account, and all
insurance premiums will be treated as a Development expense….
Yarco maintained the Indian Harbor Policy as a CGL and the Great
American Policy as an Excess Policy (“Whispering Lakes Insurance Line”). Yarco
also maintained the Zurich policy as a CGL and the Federal Policy as an Excess
Policy (“Yarco Insurance Line”).
Michele DeMoss, mother of the B. L. (“Decedent”) sued Aaron Sullivan in a
lawsuit styled Michelle DeMoss v. Aaron Sullivan, Case No. 1116-CV31736 in the
Circuit Court of Jackson County, Missouri (the “Underlying Litigation or
Underlying Lawsuit”). A Second Amended Petition for Damages was filed on
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April 2, 2014. 21. In the Second Amended Petition, DeMoss alleged that on July 4,
2011, Aaron Sullivan was a pool monitor employed by Yarco at Whispering Lake.
It further alleges that Sullivan and some friends fired shots from the apartment
complex across a lake into a wooded area. It was alleged that one of these shots
struck Decedent, an 11-year old child, resulting in her death.
DeMoss brought claims, among others, against Yarco and Sullivan for
Negligence, Negligent failure to supervise and/or provide appropriate security,
Negligent hiring of a pool monitor and her own claim for emotional distress.
During the course of the case, a dispute arose among Federal, Indian Harbor,
Zurich and Great American over the amount of each carrier’s obligation and the
order in which each insurance policy was triggered by virtue of both the terms of
the Management Agreement and the language of the insurance policies.
A global settlement in the underlying litigation was reached on May 13,
2014, for confidential terms of settlement. The settlement was approved by the
Circuit Court of Jackson County, Missouri on June 9, 2014. Indian Harbor,
Zurich, Great American and Federal were present for settlement negotiations and
final settlement. However, due to the various coverage opinions, it was agreed
there was a question of priority of coverage, which was set aside for the purpose of
resolving the case. Indian Harbor, Zurich, Great American and Federal contributed
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to a settlement. The settlement proceeds were paid on June 25, 2014. Releases in
favor of Whispering Lake, Yarco and Sullivan were executed.
Plaintiff seeks a declaratory judgment under 28 U.S.C. §§ 2201 and 2202
determining and declaring as follows: (a) The Indemnity clause within the
Management Agreement is an “Insured Contract” under the Great American
Policy; (b) The Whispering Lake Insurance Line (Indian Harbor Policy and Great
American Policy) must be exhausted before the Yarco Insurance Line applies as a
result of the Indemnity Clause within the Management Agreement; (c) Yarco and
its insurers, Zurich and Federal, are entitled to reimbursement for all amounts they
contributed settlement.
Plaintiff seeks summary judgment on Count I of its declaratory judgment
action based on the indemnity provision of the Management Agreement between
Yarco and Whispering Lakes. If applicable, Plaintiff argues that the Whispering
Lake line of insurance must be exhausted before the Yarco line of insurance must
pay. In opposition, Great American argues that the “gross negligence” exception
contained in the indemnity clause applies in this instance, and therefore, the
indemnity requirement is not triggered.
Summary Judgment Standard
The Standard for Summary Judgment is well settled. Summary judgment is
proper if the evidence, viewed in the light most favorable to the nonmoving party,
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demonstrates no genuine issue of material fact exists and the moving party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Cordry v. Vanderbilt
Mortg. & Fin., Inc., 445 F.3d 1106, 1109 (8th Cir.2006) (quoting Bockelman v.
MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir.2005)). The proponent of a
motion for summary judgment “bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of ‘the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any,’ which it believes demonstrate the absence of a genuine
issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting
Fed.R.Civ.P. 56(c)). The proponent need not, however, negate the opponent's
claims or defenses. Id. at 324–25.
In response to the proponent's showing, the opponent's burden is to “come
forward with ‘specific facts showing that there is a genuine issue for trial.’ “
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
(quoting Fed.R.Civ.P. 56(e)). A “genuine” dispute of material fact is more than
“some metaphysical doubt as to the material facts.” Id. at 586.
“[T]here is no issue for trial unless there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986). “If the evidence is merely colorable ... or is
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not significantly probative ... summary judgment may be granted.” Id. at 249–50
(citations omitted).
Discussion
This action was brought pursuant to the Court’s diversity of citizenship
jurisdiction, 28 U.S.C. § 1332, accordingly, Missouri State Law applies to the
substantive issues. Winthrop Res. Corp. v. Stanley Works, 259 F.3d 901, 904 (8th
Cir.2001) (A federal court sitting in diversity jurisdiction must apply the
substantive law of the forum state.). When the underlying facts are not in question,
disputes arising from the interpretation and application of insurance contracts are
matters of law for the court. Southeast Bakery Feeds v. Ranger Ins. Co., 974
S.W.2d 635, 638 (Mo.App.1998). In addition, summary judgment may properly
resolve claims interpreting a contractual indemnification provision. Nusbaum v.
City of Kansas City, 100 S.W.3d 101, 105 (Mo. banc 2003). Fed. Ins. Co. v. Gulf
Ins. Co., 162 S.W.3d 160, 164 (Mo. Ct. App. 2005).
In deciding whether losses suffered are covered by a liability policy under
Missouri law, “courts look to the allegations in the underlying complaint and
compare them to the language in the insurance policy. Reliance Ins. Co. v.
Shenandoah South, Inc., 81 F.3d 789, 791 (8th Cir.1996).” Stein v. State Farm Fire
& Cas. Co., 120 F.3d 909, 910 (8th Cir. 1997); Berry v. American States Ins. Co.,
563 S.W.2d 514 (Mo. App. 1978). “The duty to indemnify is determined by the
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facts as they are established at trial or as they are finally determined by some other
means, for example through summary judgment or settlement.” McCormack
Baron Mgmt. Servs., Inc. v. Am. Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 173
(Mo. 1999).
At issue is whether the Great American is required to contribute its policy
limits prior to Zurich and Federal contributing to the settlement. 1
The Management Agreement clearly sets out that Whispering Lake agreed to
indemnify Yarco and its employees for any claims, cause, proceedings, or suit
arising out of, or in connection with any actions taken in accordance with the
Agreement. Ergo, if Sullivan was acting on behalf of Yarco, Whispering Lake is
required to indemnify both Sullivan and Yarco.
In the Second Amended Petition, DeMoss alleged that Sullivan was acting in
the course and scope of his employment and agency for Yarco; that Yarco was
performing its work as a real estate manager pursuant to a contract; and that Yarco
was acting as Whispering Lake’s real estate manager.
Under the Great American Policy, an insured includes “[a]ny person…or
any organization while acting as your real estate manager.” In the underlying
litigation, the Second Amended Petition alleged that both Yarco and Sullivan were
acting as Whispering Lake’s “real estate manager” at the of the accidental shooting
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The Indian Harbor Policy is not at issue since Indian Harbor contributed its policy limits to the settlement
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of the Decedent. There is no dispute that the Second Amended Petition details the
allegations claiming both Sullivan and Yarco were acting as Whispering Lake’s
real estate manager. Ergo, under the policy, both Sullivan and Yarco are insured.
DeMoss’ Second Amended Petition unequivocally alleges Yarco and
Sullivan were acting as Whispering Lake’s real estate manager and acting on
behalf of Whispering Lake.
Great American attempts to avoid the applicability of the indemnity
provision of the Management Agreement. Great American argues that Sullivan
was “grossly negligent” and therefore the indemnification is excused. Great
American’s characterization of Sullivan’s actions however cannot provide the basis
for the Court’s determination. Great American asks the Court to go beyond the
underlying case pleadings and find, because of the manner and result of Sullivan’s
actions, that he was “grossly negligent.” Great American provides no support in
this record, other than its opinion that Sullivan was “grossly negligent,” for this
conclusion. Great American does argue that because Sullivan pled guilty to
manslaughter in the first degree, his actions were grossly negligent. This argument
however is based on opinion and supposition. In contravention, Plaintiffs point out
that Sullivan testified that he was actually trying to avoid injuries by shooting into
the lake.
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Additionally, Great American’s attempt to argue that its contribution to the
settlement was only for Yarco, evidenced by the small amount of the contribution,
is belied by the fact that there was no apportionment whatsoever in the settlement
itself. Great American at no time attempted to limit its contribution solely with
regard to Yarco and not Sullivan. See Harold S. Schwartz & Assoc., Inc. v Contl.
Cas. Co., 705 S.
The Second Amended Petition alleges negligence, negligent supervision and
failing to provide adequate security, negligent hiring of Sullivan. It also sets out
allegations that Sullivan was acting on behalf of Yarco at all times during the
events giving rise to the tragic death of B.L. in working as “real estate manager”
for Whispering Lake.
Conclusion
Considering all of the allegations contained in the Second Amended Petition,
the global settlement and the relevant policies and indemnity provision contained
in the Management Agreement, it is clear that Great American is obligated to
provide coverage for Yarco and Sullivan. Indian Harbor contributed its policy
limit, therefore, Great American, the excess carrier in the Whispering Lake line is
required to exhaust its limits before the Zurich and Federal policies become
triggered for contribution. The Great American policy would not have reached its
limit with the settlement. Because both Federal and Zurich contributed to the
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settlement before the exhaustion of the Great American policy, both are entitled to
reimbursement. Federal and Zurich are entitled therefore to summary judgment on
Count I. The remaining grounds for summary judgment are accordingly moot.
Great American’s Motions for Summary Judgment is denied.
Accordingly,
IT IS HEREBY ORDERED that the Motions for Summary Judgment filed
by Federal Insurance Company, [Doc. No. 64], and Zurich American Insurance
Company, [Doc. No. 63], are GRANTED.
IT IS FURTHER ORDERED that Great American’s Motions for
Summary Judgment, [Doc. No.’s 67, 69 and 71] are DENIED.
IT IS FURTHER ORDERED that (a) The Indemnity clause within the
Management Agreement is an “Insured Contract” under the Great American
Policy; (b) The Whispering Lake Insurance Line (Indian Harbor Policy and Great
American Policy) must be exhausted before the Yarco Insurance Line applies as a
result of the Indemnity Clause within the Management Agreement; (c) Yarco and
its insurers, Zurich and Federal, are entitled to reimbursement for all amounts they
contributed settlement.
A separate judgment in accordance with this Opinion, Memorandum and
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Order is entered this same date.
Dated this 30th day of September, 2016.
________________________________
HENRY EDWARD AUTREY
UNITED STATES DISTRICT JUDGE
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