Summary
In Atlantic Mutual, an insurance dispute arose after a customer was injured while opening a storm door on display at Home Depot.
Summary of this case from Cincinnati Ins. Co. v. Richfield Corp.Opinion
CIVIL ACTION No. 02-2241-KHV
January 27, 2003.
MEMORANDUM AND ORDER
Atlantic Mutual Companies ("Atlantic Mutual") brings suit against Home Depot U.S.A., Inc. ("Home Depot"), Stephanie Meadows and Deputy Christopher Meadows. Atlantic Mutual seeks a declaratory judgment that an insurance policy which it issued to Larson Manufacturing Company does not require it to defend and indemnify Home Depot for certain claims which the Meadows assert in separate litigation against Home Depot. The matter is before the Court on Plaintiff's Motion For Summary Judgment (Doc. #43), Motion Of Defendant/Counterclaimant Home Depot For Summary Judgment (Doc. #48), Defendants/Cross-Claimant/Counterclaimant, Stephanie Meadows And Deputy Christopher Meadows' Motion For Summary Judgment (Doc. #46), all filed October 31, 2002, and Defendants Stephanie Meadows And Deputy Christopher Meadows,' Motion For Leave To File Short Supplemental Reply Regarding Meadows' Motion For Summary Judgment And Short Supplement[al] Response To Plaintiff's Motion For Summary Judgment And Memorandum In Support Thereof (Doc. #72) filed January 15, 2003. For reasons set forth below, the Court sustains in part the three motions for summary judgment and grants Deputy and Mrs. Meadows leave to file a supplemental brief. It finds that as a matter of law, Atlantic Mutual is required to defend and indemnify Home Depot for the Meadows' claims.
Summary Judgment Standards
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir. 1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. at 252.
The moving party bears the initial burden of showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir. 1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.
"[W]e must view the record in a light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir. 1991). Summary judgment may be granted if the non-moving party's evidence is merely colorable or is not significantly probative. Anderson, 477 U.S. at 250-51. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 794 (10th Cir. 1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52.
Factual Background
For purposes of the cross motions for summary judgment, the following facts are uncontroverted or deemed admitted.
I. Underlying Lawsuit (Meadows v. Home Depot U.S.A., et al., D. Kan. No. 01-2005-JAR)
Stephanie and Christopher Meadows sued Home Depot and Larson Manufacturing Company ("Larson") for injuries which Mrs. Meadows sustained while looking at a storm door display at the Home Depot store in Merriam, Kansas. See Meadows v. Home Depot U.S.A., Inc., Larson Mfg. Co. Leeman Constr. Co., D. Kan. No. 01-2005-JAR (the "Meadows action"). Mrs. Meadows alleges that on July 30, 1999, while she was opening a storm door made by Larson that was on display at Home Depot, the frame of the door display suddenly and unexpectedly came loose from the store's steel shelving beams (to which it was attached) and struck her. See Amended Complaint ¶¶ 6-7, attached as Exhibit 1 to Home Depot's Appendix (Doc. #50). Mrs. Meadows alleges that the display frame was attached to steel shelving beams, and that defendants were negligent in failing to secure, remove, modify or maintain the display frame and warn customers that the display system was dangerous and unsafe. See id. ¶¶ 13, 14. She brings claims for negligence, res ipsa loquitur and loss of consortium. The Meadows action is scheduled for trial on April 8, 2003 before the Honorable Julie A. Robinson. See id. at 35.
Deputy and Mrs. Meadows originally filed suit in the Circuit Court of Jackson County, Missouri. Home Depot removed the case to the United States District Court for the Western District of Missouri, which transferred the case to this court.
Leeman Construction Company apparently assisted Larson with the installation of the display system which injured Mrs. Meadows. The parties in the Meadows action have stipulated to the dismissal of Leeman Construction Company. See Order (Doc. #109) filed May 6, 2002 in Case No. 01-2005-JAR.
Larson's business operation included construction, installation and maintenance of door displays in retail and wholesale establishments such as Home Depot. Larson constructed, installed and maintained the door displays to promote its products, which include storm doors. To construct the display, Larson mounted one of its doors on a frame which was connected to a hinge post on one side of the door. See Depo. of Ronald Haffa at 15-30, attached to Appendix to Motion Of Defendant/Counterclaimant Home Depot For Summary Judgment (Doc. #50) ("Home Depot's Appendix"). Larson connected the display frame to a vertical beam on shelving which housed the Home Depot inventory of storm doors. See Depo. of Henry Hitt at 31, attached to Home Depot's Appendix (Doc. #50). Each display system contained two doors, one vertically stacked above the other. See Haffa Depo. at 24. The display system was structured so that the customer could operate the lower storm door without opening the entire display system. See id. at 25. If a customer wanted to purchase a product, he or she could pull open the entire display system (a swinging rack) and remove from Home Depot's inventory one of the doors on the shelving behind the display. See Hitt Depo. at 31.
In discovery, Home Depot stated that it sold Larson storm door display systems in the regular course of its business, e.g. when its stock of a door had been depleted. A Home Depot employee in Merriam, however, testified that Home Depot has never sold the display systems in the regular course of business. He testified that the manufacturers ordinarily discarded the display doors in a dumpster and that Home Depot did not sell them (in part) because the door manufacturer (not Home Depot) owned the door which was contained within the display system. See Depo. of Randy Haven at 17, attached as Exhibit K to Index To Exhibits To Plaintiff's Memorandum In Support Of Plaintiff's Motion For Summary Judgment (Doc. #45) filed October 31, 2002.
The original state court petition contained the same allegations. See Petition For Damages, attached as Exhibit A to Notice Of Removal Of Civil Action (Doc. #1) filed June 28, 2000 in Case No. 01-2005-JAR. In particular, Mrs. Meadows alleges that under a premises liability theory, defendants are negligent for:
1. Defects in the design, manufacture, and installation of the storm door display, and its component parts, including the protruding red handle [on the storm door display], the storm doors within the display and the magnets;
2. Failure to warn of possible dangers of the storm door display;
3. Failure to secure, remove, modify and maintain the storm door display;
4. Failure to properly and regularly inspect the storm door display;
5. Failure to alternate the storm doors within the storm door displays so that each storm door opens on the opposite side than that from which the Storage Door [metal housing door display] opens; and
6. Failure to utilize a system which would more properly and reliably secure the Storage Door.
Pretrial Order (Doc. #166 in Case No. 01-2005-JAR) filed November 7, 2002 at 11-12.
Deputy Meadows originally asserted a loss of consortium. Because Mrs. Meadows is now asserting that claim in her own name, Deputy Meadows is no longer a named plaintiff in the case.
II. Atlantic Mutual Insurance Policy
Effective January 1, 1999 to January 1, 2000, Atlantic Mutual issued a Commercial General Liability ("CGL") policy to Larson. The policy includes the following endorsement:
ADDITIONAL INSURED — DESIGNATED PERSON OR ORGANIZATION
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART.
SCHEDULE
Name of Person or Organization:
AS REQUIRED BY CONTRACT
(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement).
WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the schedule as an insured but only with respect to liability arising out of your operations or premises owned by or rented to you.
Exhibit 5 at 14 (the "designated organization endorsement"). The policy also includes a separate "vendors endorsement," as follows:ADDITIONAL INSURED "VENDORS" BROAD FORM SCHEDULE
This endorsement modifies the insurance provided by the following:
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
WHO IS AN INSURED (SECTION II) is amended to include as an insured any person or organization (referred to below as "vendor") shown in the schedule, but only with respect to "bodily injury" or "property damage" arising out of "your products" shown in the schedule which are distributed or sold in the regular course of the vendor's business, subject to the following additional provisions.
1. The insurance afforded the vendor does not apply to: . . .
D. Demonstration, installation, servicing or repair operations, except such operations performed at the vendor's premises in connection with the sale of the product.
Id. at 15 (the "vendors endorsement"). The attached schedule indicates that the endorsement covers "all vendors" and "all products." Id. at 16. As to Larson, the policy further defines "Your product" as follows:
a. Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(1) You;
(2) Others trading under your name; or
(3) A person or organization whose business or assets you have acquired; and
b. Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products.
Id. at 10.
Atlantic Mutual or one of its agents (Mesirow Insurance Services, Inc.) delivered the CGL policy to Larson in South Dakota.
Atlantic Mutual also issued Larson a commercial umbrella liability policy. To the extent that it is an insured under the underlying CGL policy, Home Depot is an insured under the umbrella policy. The underlying policy provides the first $1,000,000 in coverage and the umbrella policy provides the second $1,000,000 in coverage per occurrence.
III. Contracts Between Home Depot And Larson
Home Depot and Larson entered into a Vendor Buying Agreement ("VBA"). Paragraph nine of that agreement required Larson to procureliability insurance as follows:
In Meadows, Home Depot filed a crossclaim against Larson for indemnification under the VBA. In 1997, Larson designed and installed the door display system at the Home Depot store in Merriam. Part of Larson's business operation is to construct display systems and install them in retail and wholesale facilities. Pursuant to an agreement between Home Depot and Larson, Larson agreed to maintain the door display area. On a weekly basis, a Larson representative visited Home Depot to inspect and maintain its doors and door display.
[Larson] shall procure and maintain Commercial General Liability Insurance including Products Liability and Completed Operations coverage on an occurrence basis with limits of not less than $2,000,000 per occurrence and annual aggregate for property damage and bodily injury or death to any number of persons. A Broad Form Vendor's Endorsement shall be maintained in said insurance policy with The Home Depot named as an additional insured, requiring that [Larson's] insurance be the primary policy with respect to any loss.
Pursuant to paragraph nine, Larson provided Home Depot a Certificate of Insurance that Home Depot was named as additional insured under the vendors endorsement. Mesirow Insurance Services (an agent of Atlantic Mutual) issued the Certificate of Insurance.
Although Atlantic Mutual's agent issued the certificate of insurance, the certificate states that it is for informational purposes only, confers no rights upon the certificate holder and is subject to the terms, exclusions and conditions of the actual policies. See Pekin Ins. Co. v. Am. Country Ins. Co., 572 N.E.2d 1112, 1114 (Ill.App.Ct. 1991) (based on disclaimer, certificate was not part of policy and conveyed no rights to certificate holder).
In addition to the VBA, Larson also executed a Vendor's In Store Responsibilities Agreement ("Responsibilities Agreement"). Pursuant to the Responsibilities Agreement, Larson agreed to "maintain the area including displays and point of purchase materials." The VBA and the Responsibilities Agreement were in effect on July 30, 1999, when Mrs. Meadows was injured.
IV. Tender Of Coverage
On April 2, 2002, believing that it was an additional insured under Larson's CGL policy, Home Depot asked Larson whether Larson had tendered to Atlantic Mutual the defense of the Meadows action. At 3:55 p.m. on April 3, 2002, Larson forwarded Home Depot's letter to Margarita Rankin, a claims supervisor for Atlantic Mutual. The following day, April 4, 2002, Rankin sent Home Depot counsel a letter which denied any duty to defend or indemnify because Home Depot did not qualify as an insured under any policy or endorsement. In issuing the denial, Rankin did not rely on the advice of counsel or discussions with anyone else. Rankin did not inspect the door or the display, and to this date she has never seen them. Rankin reviewed only the amended complaint, the VBA, the CGL policy and the umbrella policy. In her deposition, Rankin explained that in denying coverage, she assumed that Home Depot did not sell the door contained within the display system because it was essentially a used item. See Rankin Depo. at 19-20, attached to Home Depot's Appendix (Doc. #50).
On April 23, 2002, Home Depot counsel sent another letter to Rankin, again requesting that Atlantic Mutual provide a defense in Meadows under the policy issued to Larson. Home Depot stated that it qualified as an insured under either the vendors endorsement or the designated organization endorsement. On May 1, 2002, Atlantic Mutual again denied Home Depot's tender.
V. Declaratory Judgment Action
On May 24, 2002, Atlantic Mutual filed this action, seeking a declaration that it does not owe Home Depot a duty to defend or indemnify the claims in the Meadows action. All parties seek summary judgment on these issues. Defendants maintain that Home Depot is an insured under either the vendors endorsement or the designated organization endorsement and that they are entitled to attorneys' fees because Atlantic Mutual has unreasonably refused to defend or indemnify.
Analysis
Because this is a diversity action, the Court applies Kansas choice of law rules. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941). In Kansas, the construction of a contract is governed by the law of the state in which the contract was made. See Simms v. Metro. Life Ins. Co., 9 Kan. App. 2d 640, 642, 685 P.2d 321, 324 (1984) (in Kansas lex loci contractus governs construction of contracts). A contract is made where the last act necessary for its formation occurs. See Wilkinson v. Shoney's, Inc., 269 Kan. 194, 210, 4 P.3d 1149, 1160 (2000); Novak v. Mut. of Omaha Ins. Co., 29 Kan. App. 2d 526, 534, 28 P.3d 1033, 1039 (2001). In the context of an insurance policy, the last act is generally the delivery of the insurance policy. See Chute v. Old Am. Ins. Co., 6 Kan. App. 2d 412, 420, 629 P.2d 734, 741 (1981) (insurance contract comes into existence when offer is accepted and policy is issued and delivered), overruled in part on other grounds by Harper v. Prudential Ins. Co. of Am., 233 Kan. 358, 662 P.2d 1264 (1983); Aetna Cas. Sur. Co. v. Souras, 552 A.2d 908 (Md.Ct.Spec.App. 1989) (typically, locus contractus of insurance policy is state in which policy is delivered and premiums are paid); Rouse Co. v. Fed. Ins. Co., 991 F. Supp. 460, 462 (D.Md. 1998) (last act necessary to form insurance contract usually is delivery of policy and payment of premiums); See v. United Ins. Co., 171 Kan. 146, 147, 150, 230 P.2d 1008, 1009, 1011 (1951) (where proposed insured completed application in Kansas and received policy through mail in Kansas, policy made in Kansas). Atlantic Mutual and Home Depot agree that Atlantic Mutual or one of its agents (Mesirow Insurance Services, Inc.) delivered the insurance policy to Larson in South Dakota. Accordingly, the Court looks to South Dakota law in determining the scope of the insurance coverage.
Deputy and Mrs. Meadows state that they do not know whether South Dakota law applies because they do not know the facts surrounding the execution of the CGL policy. See Defendants', Stephanie Meadows And Deputy Christopher Meadows', Memorandum In Opposition To Plaintiff's Motion For Summary Judgment (Doc. #60) filed November 20, 2002 at 4. The Meadows have not properly controverted plaintiff's statement that the policy was delivered to Larson in South Dakota. See D. Kan. Rule 56.1(b) (opposing party must refer with particularity to those portions of record upon which it relies to support its denial). Moreover, discovery is closed and the Meadows have not sought leave to take discovery on this issue. The Meadows do not dispute that delivery of the policy is the last act and that delivery to Larson occurred in South Dakota. Accordingly, the Court accepts as true the stipulation of Atlantic Mutual and Home Depot.
Initially, the Court notes the general principles of insurance policy interpretation. Under South Dakota law, the interpretation of an insurance policy, like other contracts, is a question of law. See State Farm Mut. Auto. Ins. Co. v. Vostad, 520 N.W.2d 273, 275 (S.D. 1994). The rights and obligations of parties to an insurance contact are determined by the express language of the contract, which must be construed according to the plain and ordinary meaning of its terms. See Biegler v. Am. Family Mut. Ins. Co., 621 N.W.2d 592, 598-99 (S.D. 2001); St. Paul Fire Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 887 (S.D. 1994). The scope of coverage is determined from the intent and objectives of the parties as expressed in the contract. See id. An insurance policy is ambiguous when it is fairly susceptible of two or more constructions. See Fall River County v. S.D. Pub. Assur. Alliance, 623 N.W.2d 735, 737 (S.D. 2001) (citing Sawyer v. Farm Bureau Mut. Ins. Co., 619 N.W.2d 644, 648 (S.D. 2000)). Where the terms of an insurance policy are ambiguous, the construction most favorable to the insured must prevail. See Rogers v. Allied Mut. Ins. Co., 520 N.W.2d 614, 616 (S.D. 1994). If the policy is not ambiguous, the Court must enforce it as written. See id.
Defendants maintain that Home Depot is an additional insured under either the vendors endorsement or the designated organization endorsement. Plaintiff claims that Home Depot does not qualify as an insured under either endorsement. If Home Depot qualifies as an additional insured under either endorsement, Atlantic Mutual must defend and indemnify Home Depot in the Meadows action under the terms of the CGL policy.
I. Coverage Under The Vendors Endorsement
Defendants seek summary judgment declaring that Atlantic Mutual must defend and indemnify Home Depot under the vendors endorsement. Atlantic Mutual concedes that Home Depot is an additional insured under the vendors endorsement in limited circumstances, i.e. if a claim for bodily injury or property damage arises out of Larson products which are distributed or sold in the regular course of Home Depot's business. For the claims in the Meadows action, however, Atlantic Mutual seeks summary judgment declaring that Home Depot is not an additional insured under the vendors endorsement because the display system which injured Mrs. Meadows was not sold in the regular course of Home Depot's business.
The vendors endorsement provides:
ADDITIONAL INSURED "VENDORS" BROAD FORM SCHEDULE
This endorsement modifies the insurance provided by the following:
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
WHO IS AN INSURED (SECTION II) is amended to include as an insured [all vendors], but only with respect to "bodily injury" or "property damage" arising out of "your products" . . . which are distributed or sold in the regular course of the vendor's business, subject to the following additional provisions.
1. The insurance afforded the vendor does not apply to: . . .
D. Demonstration, installation, servicing or repair operations, except such operations performed at the vendor's premises in connection with the sale of the product.
Policy at 15, attached as Exhibit 5 to Home Depot's Appendix (Doc. #50).
To determine whether Home Depot is an additional insured under the vendors endorsement for purposes of the Meadows action, the Court must determine whether Mrs. Meadows claims to have suffered "bodily injury" arising out of a Larson product which was distributed or sold in the regular course of Home Depot's business. Atlantic Mutual does not dispute that in the regular course of its business, Home Depot distributed or sold Larson storm doors which were identical to the one contained in the display system which injured Mrs. Meadows. It argues, however, that the specific door and frame display which struck her was not for sale in the regular course of Home Depot's business, and that the vendors endorsement does not apply. Cf. Plaintiff's Memorandum In Opposition To Motion For Summary Judgment Filed By Defendant Home Depot (Doc. #56) filed November 18, 2002 at 7 ("Had Defendant Stephanie Meadows been injured by a Larson storm door held for sale by Defendant Home Depot, there would be coverage for Defendant Home Depot under the Vendors Endorsement.").
South Dakota courts interpret the phrase "arising out of" broadly to mean "originating from," "having its origin in," "growing out of" or "flowing from." Auto-Owners Ins. Co. v. Transamerica Ins. Co., 357 N.W.2d 519, 521 (S.D. 1984) (phrase "arising out of" has much broader significance than "caused by"). Here, the display system which injured Mrs. Meadows clearly included a Larson product. The door was on display rather than for sale at the time of the accident. Home Depot's inventory, however, included identical doors which it distributed or sold in the regular course of its business. Mrs. Meadows' injuries were ones "arising out of" the product, in that they originated or flowed from the Larson storm door which was a central component in the display system. See Depo. of Randy Haven at 11-12 (Larson storm door was inside display system), attached as Exhibit K to Index To Exhibits To Plaintiff's Memorandum In Support Of Plaintiff's Motion For Summary Judgment (Doc. #45) filed October 31, 2002; Haffa Depo. at 25, 30 (storm door display structured so that customer could see Larson door and operate storm door on display), attached to Home Depot's Appendix (Doc. #50); see also id. at 28 (one function of display system was to house inventory of Larson doors). Even if the display system and the storm door were not then for sale in the regular course of Home Depot's business, Mrs. Meadows suffered bodily injury arising from a Larson product, and Home Depot distributed or sold that product in the regular course of its business. The fact that Larson pulled one product specimen from its inventory for display purposes did not divest the door of its membership in the universe of Larson doors distributed or sold in the regular course of Home Depot's business. Accordingly, Atlantic Mutual must defend and indemnify Home Depot for injuries caused by the display system.
In Auto-Owners, the phrase "arising out of" was contained in the following policy exclusion:
this policy does not apply . . . to bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of . . . any recreational motor vehicle owned by any Insured, if the bodily injury or property damage occurs away from the residence premises.357 N.W.2d at 520. In that case, the insured tried to repair his go-cart on his friend's property. The insured did not completely drain the gasoline from the go-cart and during some welding work, a small fire started. The insured used a carbon dioxide fire extinguisher (instead of a dry chemical fire extinguisher), but the extinguisher exaggerated the fire — which ultimately spread beyond the work area and caused extensive damage. See id. at 521. The Supreme Court of South Dakota held that coverage was excluded because plaintiff's injury was one "arising out of" the go-cart's maintenance. See id. at 522 ("but for the maintenance [of the go-cart], the fire damage would not have occurred").
Based on this ruling, the Court need not address defendants' argument that the display frame is part of a Larson product sold in the regular course of its business because it is a "container" for such products.
For purposes of the instant motions, the Court also need not decide whether Home Depot sold its display doors in the regular course of business. As noted above, Home Depot initially stated in discovery that it sold Larson storm door display systems in the regular course of its business, but a Home Depot employee in Merriam later testified that Home Depot does not sell and has never sold the display systems in the regular course of its business. Deputy and Mrs. Meadows assert that they have new evidence which confirms that Home Depot sold display doors in the regular course of business. See Defendants Stephanie Meadows And Deputy Christopher Meadows,' Motion For Leave To File Short Supplemental Reply Regarding Meadows' Motion For Summary Judgment And Short Supplement[al] Response To Plaintiff's Motion For Summary Judgment And Memorandum In Support Thereof (Doc. #72) filed January 15, 2003. Although this evidence is not essential to the Court's ruling on the motions for summary judgment, it nevertheless grants Deputy and Mrs. Meadows leave to supplement the record on this issue. On or before January 31, 2003, Deputy and Mrs. Meadows may file and serve by facsimile a supplemental reply in support of their motion for summary judgment and a supplemental opposition to plaintiff's motion for summary judgment on the limited issue whether Home Depot sells display storm doors in the regular course of its business. On or before February 7, 2003, Atlantic Mutual and Home Depot may file a response.
Atlantic Mutual attempts to limit the vendors endorsement to injuries directly caused by product defects, but it reads too narrowly the scope of the endorsement. As explained, the phrase "arising out of" should be interpreted broadly. If Atlantic Mutual did not intend to cover display products, it could have excluded all "demonstration operations" including those performed at the vendor's premises in connection with the sale of the product. Although the exclusion cannot create coverage, the language of the exclusion reinforces the Court's interpretation that products on display are covered under the vendors endorsement.
The limited exclusion in the policy in this case does not preclude coverage because the exclusion excepts "such operations performed at the vendor's premises in connection with the sale of the product," Policy at 15, and the door display system was installed and serviced by Larson in "connection with the sale of the product" at Home Depot.
In Kmart Corp. v. Fireman's Fund Ins. Co., 88 F. Supp.2d 767 (E.D.Mich. 2000), the court found that Kmart was covered under a vendors endorsement for injuries which customers sustained while sitting in a display model patio chair. See id. at 767. Kmart had assembled the patio chairs and maintained that they were available for purchase. The court noted that assembling chairs for demonstration purposes fell within the meaning of the vendors endorsement, which covered demonstration operations performed at the vendor's premises in connection with the sale of the product. See id. at 774.
The reasoning of Sportmart, Inc. v. Daisy Mfg. Co., 645 N.E.2d 360 (Ill.App.Ct. 1994), is persuasive. There, a 15-year-old boy injured his eye when pellets from his BB gun ricocheted off a light pole. The boy had purchased the gun and pellets from Sportmart. He alleged that because of his age, the store should not have sold him the ammunition. The store sought coverage under the vendors endorsement of an insurance policy which covered the manufacturer of the gun and ammunition. The insurance company denied coverage, in part because the boy did not allege a product defect but only claimed that store employees were negligent. See id. at 363. The court found that the broad phrase "arising out of" must be construed against the insurer to require coverage for all bodily injury "growing out of" or resulting from use of the pellets. See id. Because the injury would not have occurred but for the boy's use of the pellets, the court found coverage. See id. In Auto-Owners, the Supreme Court of South Dakota interpreted the phrase "arising out of" in a similar manner. See supra note 7.
A New Jersey appellate court reached a similar result in Pep Boys v. Cigna Indem. Ins. Co. of N. Am., 692 A.2d 546, 548 (N.J.Super.Ct.App.Div. 1997). Pep Boys negligently sold a freon product to a minor, leading another minor to suffer death by inhalation. The court held that because of the broad meaning of the phrase "arising out of," the vendors endorsement in the freon manufacturer's policy provided coverage to Pep Boys. See id. at 548-52. The court noted that the endorsement, though it contained detailed and specific exclusions, did not exclude coverage if the vendor's negligence was a proximate cause of injury or limit its coverage to claims of manufacturing or design defects, or failure to warn. See id. at 550.
Atlantic Mutual maintains that several courts have interpreted vendors endorsements to exclude coverage based on similar facts. See Plaintiff's Memorandum In Opposition To Motion For Summary Judgment Filed By Defendant Home Depot (Doc. #56) filed November 18, 2002 at 8-9 (citing Hartford Acc. Indem. Co. v. Bennett, 651 So.2d 806 (Fla.Dist.Ct.App. 1995); Dominick's Finer Foods, Inc. v. Am. Mfrs. Mut. Ins. Co., 516 N.E.2d 544 (Ill.App.Ct. 1987); Mitchell v. Stop Shop Cos., Inc., 672 N.E.2d 544, 545-46 (Mass.App.Ct. 1996); Salerno v. Atl. Mut. Ins. Co., 6 P.3d 758, 762-63 (Ariz.Ct.App. 2000)). In Hartford Acc. Indem. Co. v. Bennett, a store patron was injured while inspecting a display model of a garden shed. See 651 So.2d at 807. The model was a full-size replica of the facade of an actual garden shed, ten feet wide, eight feet high, and two feet deep. See id. The court held that the store was not an additional insured under the manufacturer's policy which contained a vendors endorsement. See id. at 807-08. The court reasoned that because the display model was not sold in the regular course of the store's business, the store was not an additional insured. See id. It noted that if the injury had resulted from a full-size storage building which the store had purchased for resale to the public, the store would have been covered under the vendors endorsement. See id. at 807. Bennett, however, is not persuasive. Here, the Larson display system contained a full-size Larson door, not a replica or model of a door. Bennett did not address the situation where an actual product is incorporated in the display model. More importantly, Bennett did not address whether the store patron's injury "arose out of" a garden shed that was sold in the regular course of the store's business. The court addressed only whether the display was sold in the regular course of the store's business.
The endorsement stated:
WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization (referred to below as vendor) shown in the Schedule, but only with respect to "bodily injury" or "property damage" arising out of "your products" shown in the Schedule which are distributed or sold in the regular course of the vendor's business.
Id. at 807.
In Dominick's Finer Foods, Inc. v. Am. Mfrs. Mut. Ins. Co., 516 N.E.2d 544 (Ill.App.Ct. 1987), a Coca-Cola employee was injured when he slipped and fell while making a delivery to a Dominick's store. The employee claimed that slippery and dangerous dock conditions caused his injury. See id. at 545. He did not assert any causal link between his injury and the Coca-Cola products he was delivering. See id. The court ruled that because the Coca-Cola products did not contribute to the condition of the loading dock, the employee's injury did not arise out of the Coca-Cola products under a vendors endorsement. See id. at 546. Mitchell and Salerno involved similar factual situations and the courts reached similar conclusions to Dominick's. See Mitchell v. Stop Shop Cos., Inc., 672 N.E.2d 544, 545-46 (Mass.App.Ct. 1996) (employee of baking company injured by store's truck while he was trying to deliver bread products; vendors endorsement does not cover vendors for their own negligence); Salerno v. Atl. Mut. Ins. Co., 6 P.3d 758, 762-63 (Ariz.Ct.App. 2000) (because of drop in floor and distraction of colorful books on display, book fair patron slipped and fell). As explained above, here the Larson product (a display system which contained a full-size door) injured Mrs. Meadows. Dominick's, Mitchell and Salerno therefore are not persuasive.
For these reasons, the Court finds as a matter of law that the "Additional Insured — Vendors — Broad Form Schedule" endorsement to the CGL policy which Atlantic Mutual issued to Larson entitles Home Depot to coverage for defense and indemnity in Meadows v. Home Depot U.S.A., Inc. et al., No. 01-2005-JAR (D.Kan.). On this issue, defendants' motions for summary judgment are sustained and plaintiff's motion is overruled.
II. Coverage Under The Designated Organization Endorsement
As explained above, if Home Depot qualifies as an additional insured under either endorsement, Atlantic Mutual must defend and indemnify Home Depot in the Meadows action. Both parties seek a declaration, however, with respect to coverage under both endorsements. Accordingly, even though the Court has already found that Atlantic Mutual must defend and indemnify Home Depot under the vendors endorsement, the Court will also address coverage under the designated organization endorsement.
The designated organization endorsement states that the CGL policy provides coverage for all persons or entities "as required by [Larson's] contract[s] . . . but only with respect to liability arising out of [Larson's] operations or premises owned by or rented to [Larson]." Policy at 14, attached as Exhibit 5 to Home Depot's Appendix (Doc. #50).
Defendants maintain that the VBA required Larson to provide insurance for Home Depot, that coverage was therefore "required by Larson's contracts," and that Home Depot is therefore an additional insured under the designated organization endorsement. As noted, paragraph 9 of the VBA required Larson to provide liability insurance as follows:
The Vendor shall procure and maintain Commercial General Liability Insurance including Products Liability and Completed Operations coverage on an occurrence basis with limits of not less than $2,000,000 per occurrence and annual aggregate for property damage and bodily injury or death to any number of persons. A Broad Form Vendor's Endorsement shall be maintained in said insurance policy with The Home Depot named as an additional insured, requiring that the Vendor's insurance be the primary policy with respect to any loss. The Vendor further agrees to forward a copy of this Vendor Buying Agreement to its insurer, and as a condition precedent to The Home Depot's obligations hereunder, to have delivered to The Home Depot by the Vendor's insurer a current Certificate of Insurance, including renewals before the expiration of the then-current coverage, showing the coverage required by this provision.
VBA ¶ 9, attached as Exhibit 3 to Home Depot's Appendix (Doc. #50) (emphasis added).
Defendants argue that based on the testimony of Margarita Rankin, Atlantic Mutual's claim representative, Atlantic Mutual has conceded that Home Depot is an insured under the designated organization endorsement "with respect to liability arising out of Larson's operations or premises owned by or rented to Larson." Rankin Depo. at 29-30, attached to Home Depot's Appendix (Doc. #50). Rankin's testimony, however, is not dispositive. First, the interpretation of an insurance policy is a question of law for the Court. See Vostad, 520 N.W.2d at 275. Absent ambiguity in the policy, the Court cannot consider extrinsic evidence to vary the terms of the written policy. See Lewis v. Benjamin Moore Co., 574 N.W.2d 887, 889 (S.D. 1998). Second, in the testimony cited by defendants, Rankin did not address the question whether Larson's contracts required it to insure Home Depot, as stated in the designated organization endorsement.
Home Depot also argues that the Court should refer solely to the insurance policy, and not the VBA which is a contract between the insured (Larson) and a third party (Home Depot). Home Depot does not explain how absent reference to Larson contracts, the Court can interpret the designated organization endorsement. Under the express terms of this provision, a party is an additional insured only "as required by [Larson's] contract[s]." The Court therefore must examine the VBA (a Larson contract) to determine whether Home Depot falls within the scope of the endorsement.
The VBA required Larson to procure and maintain a CGL policy for itself, see id. at Sentence 1, but it did not require Larson to maintain a CGL policy with Home Depot as an additional insured for all purposes. Larson's obligation to have Home Depot named as an additional insured was limited to claims falling under a Broad Form Vendors Endorsement. See id. at Sentence 2; see also Shade Foods, Inc. v. Innovative Prods. Sales Mktg., Inc., 93 Cal.Rptr.2d 364, 378 (Cal.Ct.App. 2000) (noting distinction between being named as additional insured for general liability policy or under vendors endorsement limited to specific types of claims). The certificate of insurance which Mesirow Insurance Services (an agent of Atlantic Mutual) issued to Home Depot confirms this interpretation. See Certificate of Insurance, attached as Exhibit 4 to Home Depot's Appendix (Doc. #50) (Home Depot is additional insured under the "vendor endorsement").
For these reasons, the Court finds that Home Depot is not an additional insured under the "Additional Insured — Designated Person Or Organization" endorsement to the Atlantic Mutual policy. On this issue, the Court sustains Atlantic Mutual's motion for summary judgment and overrules defendants' motions for summary judgment.
III. Attorneys' Fees
Defendants also seek summary judgment on their claim for attorneys' fees incurred in defending this declaratory judgment action. Attorney fees ordinarily may only be awarded by contract or when specifically authorized by statute. City of Sioux Falls v. Kelley, 513 N.W.2d 97, 111 (S.D. 1994). Defendants rely on Biegler v. Am. Family Mut. Ins. Co., 621 N.W.2d 592 (S.D. 2001), as authority for an award of attorneys' fees in this case. In Biegler, the Supreme Court of South Dakota affirmed the trial court's award of fees under Section 58-12-3, S.D. Codified Laws, which provides:
In all actions or proceedings hereafter commenced against any employer who is self-insured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, the Department of Labor, the trial court and the appellate court, shall, if judgment or an award is rendered for plaintiff, allow the plaintiff a reasonable sum as an attorney's fee to be recovered and collected as a part of the costs[.]
The statute further provides:
The determination of entitlement to an allowance of attorney fees as costs and the amount thereof under § 58-12-3 shall be made by the court or the Department of Labor at a separate hearing of record subsequent to the entry of a judgment or award in favor of the person making claim against the insurance company, and, if an allowance is made, the amount thereof shall be inserted in or added to the judgment or award. Such a hearing shall be afforded upon the request of the claimant made within ten days after entry of the judgment or award.
Section 58-12-3.1, S.D. Codified Laws. Defendants have not addressed the above statutory provisions. Moreover, defendants have not shown as a matter of law that Atlantic Mutual's refusal to pay was "vexatious or without reasonable cause." Accordingly, the Court must overrule defendants' motions for summary judgment on this issue.
In the pretrial order, defendants seek attorneys' fees and costs incurred in defending this action, see Pretrial Order (Doc. #67) filed December 17, 2002 at 11, which the Court construes as a request under S.D. Codified Laws § 58-12-3. Because the Court determines the issue of attorneys' fees and costs under the South Dakota statute, that issue shall remain for trial to the Court on February 4, 2003.
IT IS THEREFORE ORDERED that Plaintiff's Motion For Summary Judgment (Doc. #43) filed October 31, 2002, be and hereby is SUSTAINED in part. As a matter of law, the "Additional Insured — Designated Person Or Organization" endorsement to the CGL policy which Atlantic Mutual issued to Larson Manufacturing Company does not provide Home Depot coverage for defense or indemnity in Meadows v. Home Depot U.S.A., Inc. et al., No. 01-2005-JAR (D.Kan.). Plaintiff's motion is otherwise overruled.
IT IS FURTHER ORDERED that the Motion Of Defendant/Counterclaimant Home Depot For Summary Judgment (Doc. #48) filed October 31, 2002, be and hereby is SUSTAINED in part. As a matter of law, the "Additional Insured — Vendors — Broad Form Schedule" endorsement to the CGL policy which Atlantic Mutual issued to Larson Manufacturing provides Home Depot coverage for defense and indemnity in Meadows v. Home Depot U.S.A., Inc., et al., No. 01-2005-JAR (D.Kan.). Home Depot's motion is otherwise overruled.
IT IS FURTHER ORDERED that Defendants/Cross-Claimant/Counterclaimant, Stephanie Meadows And Deputy Christopher Meadows' Motion For Summary Judgment (Doc. #46) filed October 31, 2002, be and hereby is SUSTAINED in part. As a matter of law, the "Additional Insured — Vendors — Broad Form Schedule" endorsement to the CGL policy which Atlantic Mutual issued to Larson Manufacturing provides Home Depot coverage for defense and indemnity in Meadows v. Home Depot U.S.A., Inc. et al., No. 01-2005-JAR (D.Kan.). The Meadows' motion is otherwise overruled.
IT IS FURTHER ORDERED that Defendants Stephanie Meadows And Deputy Christopher Meadows,' Motion For Leave To File Short Supplemental Reply regarding Meadows' Motion For Summary Judgment And Short Supplement[al] Response To Plaintiff's Motion For Summary Judgment And Memorandum In Support Thereof (Doc. #72) filed January 15, 2003 be and hereby is SUSTAINED. On or before January 31, 2003, Stephanie Meadows and Deputy Christopher Meadows may file and serve by facsimile a supplemental reply on their motion for summary judgment and a supplemental opposition to plaintiff's motion for summary judgment on the limited issue whether Home Depot sells display storm doors in the regular course of its business. On or before February 7, 2003, Atlantic Mutual and Home Depot may file a response.
The Clerk is directed to enter judgment in favor of Home Depot U.S.A., Inc., Stephanie Meadows and Deputy Christopher Meadows in accordance with the above rulings. As explained above, however, the issue of attorneys' fees and costs under S.D. Codified Laws § 58-12-3 remains for a bench trial on February 4, 2003.