788 F.3d 750
8th Cir.2015Background
- At a bar's closing, patron Curtis Lammert drove his pickup through the parking lot, struck patron Daniel Minden, who later died; Lammert pleaded guilty to involuntary manslaughter and leaving the scene.
- Plaintiff Nicholas Minden sued Gannon's (the tavern) on premises-liability and dram-shop theories; Gannon's insurer defended dram-shop claim and settled; Gannon's assigned any claim against its general-liability insurer, Atain, to Minden.
- Atain refused to defend or indemnify Gannon's on the premises-liability/negligence claims, citing two policy exclusions: an automobile exclusion and an assault-and-battery exclusion.
- A Missouri state court entered a $2 million consent judgment against Gannon's; Minden then sued Atain in federal court (diversity) seeking equitable garnishment and statutory penalties for a vexatious refusal to defend.
- The district court held the exclusions did not clearly bar coverage and granted equitable garnishment for Minden, but denied vexatious-refusal damages because Atain’s denial was reasonable given the close-call coverage questions.
- Both parties appealed: Minden appealed the denial of vexatious-refusal damages; Atain appealed the equitable-garnishment ruling and the district court’s construction of the exclusions.
Issues
| Issue | Minden's Argument | Atain's Argument | Held |
|---|---|---|---|
| Whether the automobile exclusion bars coverage for premises-liability claims arising from an unrelated patron's vehicle | The phrase "whether or not" modifies possession only; a lay purchaser would read the exclusion to apply only to autos connected to the insured, so the exclusion does not cover an independent patron's vehicle | The exclusion covers bodily injury "arising out of any auto whether or not owned…by any insured," so it excludes injuries caused by any vehicle regardless of ownership or connection to insured | Exclusion ambiguous; construed against insurer. Auto exclusion does not bar coverage under these facts. |
| Whether the assault-and-battery exclusion applies where the tortfeasor pleaded guilty to a reckless (manslaughter) offense and intent is disputed | The exclusion requires an intentional assault or battery; evidence supported nonintentional accident, so Atain cannot prove the exclusion applies | The exclusion’s wording encompasses injuries arising from assault/battery or from negligent/reckless conduct referenced in policy language, so it may bar coverage | Because Missouri law treats assault/battery as intentional torts, and the record supports nonintentional/reckless interpretations, Atain failed to prove the exclusion applied. |
| Whether Atain’s refusal to defend was "vexatious" under Mo. Rev. Stat. § 375.420 | Atain failed to investigate; factual disputes (witness statements, expert testimony) create triable issue about reasonableness of refusal—vexatious penalty warranted | Denial was reasonable based on pleadings and initial police report charging assault; Missouri does not require extensive investigation to avoid vexatious finding when coverage is a close call | Insurer had reasonable cause to deny defense given close-call exclusions and initial reports; refusal was not vexatious as a matter of law. |
Key Cases Cited
- Porter v. Sturm, 781 F.3d 448 (8th Cir.) (standard of review for summary judgment)
- Allstate Ins. Co. v. Blount, 491 F.3d 903 (8th Cir.) (applying state substantive law in diversity)
- Glover v. State Farm Fire & Cas. Co., 984 F.2d 259 (8th Cir.) (insurer may raise same defenses in equitable garnishment as it could against insured)
- Heacker v. Safeco Ins. Co. of Am., 676 F.3d 724 (8th Cir.) (plaintiff bears burden to show claim within policy coverage in equitable garnishment)
- Jensen v. Allstate Ins. Co., 349 S.W.3d 369 (Mo. Ct. App.) (exclusion clauses construed strictly against insurer)
- Trainwreck West, Inc. v. Burlington Ins. Co., 235 S.W.3d 33 (Mo. Ct. App.) (duty to defend is determined from pleadings/police report at commencement; insurer not required to investigate beyond those to avoid vexatious finding)
- Pace Props. v. Am. Manufacturers Mut. Ins. Co., 918 S.W.2d 883 (Mo. Ct. App.) (vexatious-refusal is fact question where insurer’s reliance on its basis is unreasonable)
- Watters v. Travel Guard Int’l, 136 S.W.3d 100 (Mo. Ct. App.) (elements and standards for vexatious-refusal claim)