Insurance coverage disputes were probably the last thing on bar owners’ or patrons’ minds at RumFest 2017. Patrons were bouncing a beach ball around the crowd, until the beach ball bounced toward one particular plaintiff, who pushed it away with his outstretched arms and suffered severe ligament and tendon injuries, so his complaint alleges. When the patron sued the bar owner, the bar owner turned the matter over to his insurance, expecting a defense. Instead, the insurer took the position they did not owe a defense, and filed a separate action asking the court to declare there was no coverage under the policy, due to a policy exclusion for injuries and damages arising from the use of an “amusement device.”
The United States District Court in the Orlando Division of the Middle District recently held the insurer had no duty to defend the bar owner against the patron’s injury claim, because the patron’s injuries and damages resulted from the use of an “amusement device,” validating the insurer’s argument. The bar owner is now asking the Eleventh Circuit to review and reverse the lower court, as it is now left without a defense in the injured patron’s underlying lawsuit, as a result of the District Court’s decision. The insurer now faces the risk that a more liberal panel will carve out equitable remedy for the patron negating an otherwise valid policy exclusion, and reviving a duty to defend. How an insurer investigates the facts of a case at the outset can affect whether a court is convinced to craft equitable remedies to cure a perceived injustice.
The patron/plaintiff’s complaint alleges an inflatable beach ball was bounced towards him in the crowd, causing him to push the ball away from himself with outstretched arms, causing severe ligament and tendon injuries. The patron sued the bar owner, and the bar owner’s insurance carrier filed a declaratory relief action, asking for a declaration of no coverage. The bar owner’s insurer argued the beach ball was an amusement device within the meaning of an applicable policy exclusion. The bar owner argued the beach ball was a decoration, not intended to be taken out of the pond in which it floated and was decoratively placed. The bar owner’s insurance carrier moved for judgment on the pleadings in their declaratory relief action.
The policy exclusion at issue specifically excluded coverage for damages arising from the use of an amusement device, which was defined as including “any device that requires the user to strike, punch or kick . . . .” The court took a plain language reading of the policy exclusion in conjunction with the allegations of the complaint and found that an inflatable beach ball, being used as plaintiff had plead, squarely fit within the definition of an amusement device, not a decoration. Of course, evidence that the beach ball was a mere decoration was outside of the complaint, and not able to be considered on a motion for judgment on the pleadings. Thus, the insurer’s motion was granted, and no contractual duty to defend the bar owner was found, leaving the bar owner without a defense in the underlying case. The bar owner is now asking the Eleventh Circuit to reserve that decision, and find a duty to defend under the policy.
The bar owner relies, partly, on a case in the Southern District of Florida which referred to a different rule in cases where the face of the complaint shows no coverage, but the insurer is placed on notice of additional facts outside of the complaint that would potentially place the claim within policy coverages. An insurer who fails to investigate those additional facts, and then denies a defense, may be liable for breach of contract if a reasonable investigation would have revealed the potential for coverage. The lower court rejected this argument on the basis it was not persuasive authority in the Middle District. However, there is a chance the Eleventh Circuit will validate the bar owner’s argument and fashion some form of equitable relief reviving the duty to defend.
Whether a good investigation of the facts is performed at the initial claims handling stage affects whether a policy exclusion is enforced or negated in a subsequent declaratory relief action. Turning a blind eye to facts that may create the potential for coverage may be perceived by courts as an improper attempt by an insurer to disclaim coverage. When this happens, the court is more likely to fashion equitable remedies to prevent the perceived injustice caused by enforcing a policy exclusion when reasonable investigation into the facts of the case may have revealed the exclusion does not apply. One such a remedy is looking at facts outside of the complaint on a motion for judgment on the pleadings, where that is usually not allowed. By fashioning this equitable relief, the court can consider the facts the insurer should have reasonably investigated in the first place, in making their decision. However, if a thorough initial factual investigation is performed, the court is less likely to undue contractual disclaimers or refusals to defend, with such an equitable remedy.
- Victoria Select Insurance Company v. Vrchota Corp. (S.D. Fla, 2011) 805 F.Supp.2d 1337
- Princeton Excess and Surplus Lines Insurance Company v. Hub City Enterprises, Inc. (M.D. Fla, 2019) WL5265260