Weekly Law Resume - October 2013: Insurance Coverage – Bad Faith - Unfair Claim Act Cause of Action

by Low, Ball & Lynch
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Mt. Vernon Fire Ins. Corp. v. Oxnard Hospitality Enterprise, Inc., et al.
Court of Appeal, Second District (September 16, 2013)

Commercial liability policies for entertainment businesses often contain an “Assault or Battery” exclusion, precluding or limiting coverage for claims relating to acts of violence. This case considered the extent to which “physical contact” was required under such exclusion.

Roberta Busby was a nightclub dancer who suffered bodily injury when a patron of Oxnard Hospitality’s (“Oxnard”) nightclub threw flammable liquid on her and then set her on fire. Her assailant was later convicted of aggravated mayhem and torture. Busby then sued Oxnard and others for negligent failure to provide adequate security.

While the underlying action was pending, Oxnard’s insurer, Mt. Vernon Fire Insurance Corporation (“Mt. Vernon”), brought an action for declaratory relief, seeking a judgment that it had no duty under the policy to pay any damages that might be awarded in the underlying action. Mt. Vernon relied on the “Assault or Battery” exclusion in the policy, which excluded coverage for “all ‘bodily injury’…arising out of ‘assault’ or ‘battery’…” Battery was defined to mean “negligent or wrongful physical contact with another without consent that results in physical or emotional injury.”

The underlying action was resolved by stipulated judgment against Oxnard in the amount of $10 million. Oxnard assigned all of its rights against Mt. Vernon to Busby. In the declaratory relief action, Mt. Vernon then filed a summary judgment motion against Busby. She opposed the motion, arguing that the term “physical contact” in the exclusion required actual body-to-body physical contact. Since that admittedly did not occur here, she contended the exclusion did not apply and that there was coverage under the policy. Citing a different dictionary’s definition of “physical contact,” Mt. Vernon argued that the term meant the “union or junction of things that have a material existence, or the touching of material things,” and that actual body-to-body contact was not required. The trial court agreed and granted Mt. Vernon’s motion. Busby appealed.

The Court of Appeal affirmed. First, it noted that apart from the endorsement’s own definitions, the tort of battery itself is generally not limited to direct body-to-body contact. The Restatement Second of Torts stated that a person can be found liable for battery if one throws a substance, such as water upon the other. The Court of Appeal held that the trial court’s ruling was consistent with this definition.

Secondly, the Court noted that insurance policy terms are to be given the “objectively reasonable meaning” a lay person would ascribe to them, and that the context in which a term appears is critical. Here, had Busby’s assailant struck her with a closed fist, there could be no argument that such a striking was not a “battery” under Oxnard’s policy. Likewise, if that fist was holding a glass container that it used to strike Busby, this too would be a “battery” under the policy. The Court found that the result could not be any different if the glass container was filled, as in this case, with a flammable substance used to set Busby afire. According to the Court, neither Oxnard, nor its assignee Busby, could have had any reasonable expectations to the contrary.

Next, the Court noted that prior case law involving a chain reaction collision between vehicles (Car “A” hits car “B” and pushes it into Car “C”) had found that there was “physical contact” between the cars to trigger coverage on an automobile policy. Similarly in this case, the exclusion’s definition of battery as “physical contact with another” did not distinguish between directly striking an individual and striking an individual through an intermediary object.

Finally, the Court held that its analysis of the meaning of “physical contact” was consistent with cases in other jurisdictions.

Based on all of the above, the Court of Appeal affirmed the judgment against Busby.

COMMENT

The “Assault or Battery” exclusion is a common method of excluding or limiting claims based on the intentional acts of third persons at a commercial enterprise. This case makes it clear that such policies typically will exclude coverage for any act of the third person that causes injury, regardless of whether the actor physically touches the injured person, or does so indirectly.

For a copy of the complete decision see: http://www.courts.ca.gov/opinions/documents/B244569.PDF

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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