Dzielski v. Essex Ins. Co.
(4th Dept., decided 12/23/2011)
We all know that courts construe policy exclusions narrowly and, when they are found to be ambiguous, against the insurer. But it's seemingly getting tougher and tougher to sustain exclusion-based denials in New York's Fourth Judicial Department. Is the "clear and unmistakable language ... subject to no other reasonable interpretation" standard of construing policy exclusions ever attainable when a court wants to find coverage?1
The Merriam-Webster dictionary defines the intransitive verb "participate" to mean:
a : to take part
b : to have a part or share in something
The "stage hand" exclusion of the "Restaurant, Bar, Tavern, Night Clubs, Fraternal and Social Clubs Endorsement" of Essex' commercial liability policy negated liability coverage for "bodily injury, ... or any injury, loss or damage arising out of ... [i]njury to any entertainer, stage hand, crew, independent contractor, or spectator, patron or customer who participates in or is a part of any athletic event, demonstration, show, competition or contest[.]"
Plaintiff provided sound equipment to a band that was performing at Essex' insured's nightclub. After the show, plaintiff was carrying some of his equipment from the nightclub to his truck when he fell from the nightclub's allegedly defective loading dock, sustaining injuries. Essex denied liability coverage to the nightclub based on the policy's "stage hand" exclusion, and plaintiff obtained a $950,000 default judgment against the insured nightclub in his personal injury action. Plaintiff then brought this action against Essex to recover that judgment pursuant to New York Insurance Law § 3420(b)(1). Supreme Court, Erie County (Diane Y. Devlin, J.), granted plaintiffs' motion and denied Essex' cross motion for summary judgment, awarding plaintiffs the entire $950,000 underlying judgment amount, plus interest and costs, even though the Essex policy had a $500,000 per occurrence liability coverage limit. Essex appealed.
In a 3-2 decision, the three-justice majority of the Appellate Division, Fourth Department, AFFIRMED the judgment appealed from, agreeing with the motion court that the exclusion's language was ambiguous:
While ruling against Essex on the coverage issue, the majority did at least recognize that a judgment creditor proceeding via Insurance Law § 3420(b)(1) against the judgment debtor's liability insurer may not recover more than the limit of the judgment debtor's liability coverage, which in this case was $500,000 per occurrence, less a $500 deductible. Consequently, the majority reduced the award against Essex from $950,000 to $499,500, plus interest and costs.It is axiomatic that, "to negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case' " (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383). We agree with plaintiffs that the language "participates in or is a part of any . . . show" is ambiguous, and that the court properly resolved that ambiguity against the insurer, "particularly [because it is] an exclusionary clause" (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 398). Although, as defendant suggests, the policy language may be read broadly to encompass all persons who performed any tasks in connection with the show, including loading and unloading sound equipment, it may also reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show. It is undisputed that the accident occurred after the show had ended, and we note in particular that the accident was caused by a defect in the premises that was wholly unrelated to the show itself. We thus conclude that the court properly determined that the exclusion does not apply in this case.We reject defendant's contention that the inclusion of the phrase "arising out of" in the exclusion mandates the broader interpretation espoused by defendant. Even assuming, arguendo, that the phrase "arising out of" is interpreted as "originating from, incident to, or having connection with" (Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 470 [internal quotation marks omitted]), we note that coverage is excluded only if an accident originates from, is incident to or has connection with a person's "participat[ion]" in a "show." Here, it cannot be said that there is no ambiguity concerning whether the accident arose out of plaintiff's participation in a show, which in fact had ended before the accident occurred.
Justices Fahey and Peradotto dissented, all but guaranteeing an appeal of this case to the New York Court of Appeals. The dissenting justices concluded that the language "participates in or is a part of any . . . show" is not ambiguous, and that the plaintiff fell squarely within that language:
With respect to the majority's rejection of the broadening effect of the exclusion's "arising out of" language, the dissenters, relying on New York Court of Appeals' case law, noted:[P]laintiff was hired by the band to provide sound reinforcement services for the show, and thus there is no question that he "participate[d] in or [wa]s a part of" the show on the night of his accident. The majority's conclusion that such clause may "reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show" is not supported by the plain language of the exclusion. First, if the exclusion was intended to apply only to those persons who "actually performed" in a show, then the language "spectator, patron or customer" in the exclusion would be superfluous. Second, such an interpretation imposes a temporal limitation on the exclusion where no such limitation appears therein. Indeed, if defendant had intended to limit the exclusion in that manner, it could have done so explicitly as it did in other provisions of the policy (see Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 473). For example, the policy's medical payments coverage provision specifically excludes expenses for bodily injury "[t]o a person injured while taking part in athletics" (emphasis added). Similarly, the policy's "combination endorsement" excludes expenses for bodily injury or personal injury to any person "while practicing for or participating in any event or function of a sporting or athletic nature" (emphasis added). Here, by contrast, the absence of such limiting language in the exclusion in question reflects an intent to provide a broad exclusion for all injuries arising from participation in shows or other special events (see Maroney, 5 NY3d at 473).
With its double dissent, expect this case to head to Albany. Although the "stage hand" exclusion itself may not be of great interest to most liability insurers doing business in New York, the "participates in" and "arising out of " language of that exclusion, and the New York courts' interpretation of those phrases, should be.We further conclude that plaintiff's injury "ar[o]se out of" his participation in the show within the meaning of the exclusion. In the insurance context, the phrase "arising out of" has been broadly interpreted to mean "originating from, incident to, or having connection with" (Maroney, 5 NY3d at 472 [internal quotation marks omitted]; see Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA, 15 NY3d 34, 38). Here, plaintiff's accident occurred while he was in the process of removing his sound equipment from the nightclub. The process of packing up and removing sound equipment at the conclusion of a show necessarily "originat[es] from, [is] incident to, or ha[s] connection with" the show (Maroney, 5 NY3d at 472 [internal quotation marks omitted]). The fact that plaintiff's accident was allegedly caused by the defective nature of the loading dock rather than any condition of the show itself does not remove plaintiff's injury from the policy exclusion. "[T]he focus of the inquiry is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (Regal Constr. Corp., 15 NY3d at 38). Indeed, "the phrase arising out of' . . . requires only that there be some causal relationship between the injury and the risk for which coverage is provided" (Maroney, 5 NY3d at 472), and such a causal relationship clearly exists here.
Post Script (July 11, 2012) ~~ On June 5, 2012, the New York Court of Appeals unanimously REVERSED this decision for the reasons given by the dissenting justices at the Fourth Department in a very short memorandum decision that you can read here.
1. Rhetorical coverage question.