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Metropolitan Property And Casualty Insurance Co. v. Auto-Owners Mutual Insurance Co.

Supreme Court of Iowa

March 8, 2019

METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY d/b/a METLIFE AUTO & HOME and ECONOMY PREMIER ASSURANCE COMPANY, Appellees,
v.
AUTO-OWNERS MUTUAL INSURANCE COMPANY, Appellant.

          Appeal from the Iowa District Court for Polk County, Jeanie K. Vaudt and Jeffrey D. Farrell, Judges.

         Business insurer appeals judgment in favor of homeowners' insurer for indemnification for half the cost of a settlement of tort claims arising from an accidental shooting death on the insured property. AFFIRMED.

          Matthew T. Nelson of Warner Norcross & Judd, Grand Rapids, Michigan; John J. Bursch of Bursch Law PLLC, Caledonia, Michigan; and Timothy W. Hamann and Joshua L. Christensen of Clark, Butler, Walsh & Hamann, Waterloo, for appellant.

          Michael S. Jones of Patterson Law Firm, L.L.P., Des Moines, for appellees.

          WATERMAN, Justice.

         In this appeal, we must resolve a dispute between insurance companies over liability coverage for a fatal accident. A dentist and his wife formed a limited liability company (LLC) that held title to investment properties, including a farmhouse where an accidental shooting occurred. The dentist had purchased personal (homeowners) liability insurance and commercial general liability (CGL) insurance from separate insurers. The CGL insurer denied coverage. The homeowners' insurer and insured settled the death claim for $900, 000 and sued the CGL insurer for reimbursement. The case proceeded to a bench trial, and the district court entered judgment against the CGL insurer for $450, 000, rejecting various coverage defenses. The CGL insurer appealed, and we retained the appeal.

         The principal fighting issue is whether the LLC, as owner of the farmhouse, had potential liability under a premises liability theory for a dangerous condition (the loaded, unsecured rifle left on a bed for several months). On our review, we conclude the district court correctly interpreted the CGL insurance contract, and its factual findings on potential liability and the reasonableness of the settlement are supported by substantial evidence. For the reasons explained below, we affirm the district court judgment.

         I. Background Facts and Proceedings.

         Jay and Lorrie Lala, husband and wife, live in Mason City, Iowa.[1] The Lalas have been married for twenty-seven years and have two children, Nick and Sam. Jay is a dentist with a practice in Mason City.

         In 1997, Jay and Lorrie organized Parker House Properties, L.L.C. (Parker House), as a limited liability company to hold property. Jay and Lorrie each own fifty percent of Parker House. That entity owns various investment properties, including the building that houses Jay's dental practice. Parker House also owns apartment buildings, land in Mason City, a house in Cedar Rapids where Jay's mother lives, and land in Floyd County, Iowa, with a farmhouse at 1545 Foothill Avenue.

         The Lalas purchased the Foothill Avenue property for investment purposes. The farmhouse is furnished, but no one lives there. Jay hosts occasional business and public service events there. The Lalas also use the house and farmland for recreation, including hunting, fishing, target shooting, riding all-terrain vehicles (ATV) and dirt bikes, running their dogs, and swimming.

         A. The Accidental Shooting.

         On April 22, 2012, Nick, his friend, seventeen-year-old Hunter True, and Nick's girlfriend, Hayley, went to the Foothill Avenue property to ride dirt bikes and ATVs. Jay had also been at the property that day. Jay left shortly before the teenagers departed. Before leaving, Jay told Nick to lock up the house.

         While Nick was locking up, he noticed that one of the Lalas' firearms, a .22 caliber Ithaca lever action rifle, had been left on a bed in one of the bedrooms. Jay had purchased the rifle when he was about ten years old and kept it at the farm for hunting and target shooting. The rifle had been left on the bed after Sam and Nick last used it in January or February.

         Jay expected Nick to secure each firearm in a soft gun case in one of the bedrooms after ensuring it was unloaded. When Nick was about twelve years old, he took a hunter safety class in which he learned how to store firearms properly. Jay had also talked to Nick about how to handle firearms safely and to treat every gun as if it was loaded. Nevertheless, on this April day, Nick picked up the rifle and the weapon accidentally discharged. The bullet struck Hunter in the abdomen. Hunter was taken by ambulance to the hospital in Mason City, where he died from the gunshot wound.

         B. The Insurance Policies.

         The Lalas had a personal insurance policy through Metropolitan Property and Casualty Insurance Company (Metropolitan) that covered Jay and Lorrie, as well as Nick and Sam. This policy provided liability defense and indemnity coverage. The Metropolitan policy specifically insured the Lalas' primary home, personal vehicles, and the Foothill Avenue property.

         Parker House separately purchased a "Tailored Protection" insurance policy from Auto-Owners Mutual Insurance Company (Auto-Owners). The policy included CGL coverage with a $1, 000, 000 each occurrence liability limit.

         In September 2006, the CGL policy was amended with an endorsement insuring the 116.78 acres of farmland in Floyd County. After Parker House purchased the Foothill Avenue home, Jay's insurance agent inspected the farm and then added the property to the Auto-Owners' policy. The CGL policy described the unoccupied farmhouse as a "Storage Building" and the remaining property as "Vacant Land (for-profit)."

         "Insureds" under the Auto-Owners' CGL policy are described as follows:

         SECTION II-WHO IS AN INSURED . . . .

1. If you are designated in the Declarations as:
. . . .
c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.
. . . .
2. Each of the following is also an insured:
a. Your "employees", other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business, or your "volunteer workers" only while performing duties related to the conduct of your business. . . .

         C. The Insurance Settlement and Litigation.

         In January 2014, Metropolitan reached a settlement with Michael and Hillary Carpenter, Hunter's parents, whereby Metropolitan agreed to pay $900, 000 in exchange for a release of all claims and potential claims against the Lalas, Parker House, Metropolitan, and Auto-Owners.

         Jay and Parker House also made a coverage claim with Auto-Owners. Auto-Owners denied coverage, stating that its policy only covered individuals with respect to the "conduct of a business," and any claims resulting from Hunter's death were not business-related. Auto-Owners also stated that the policy only covered Parker House, not the Lalas personally.

         In June 2014, Metropolitan filed this civil action seeking subrogation from Auto-Owners. Metropolitan later amended its petition to include Parker House as a defendant and to allege indemnity and contribution claims. Auto-Owners denied liability, asserting that its policy only provided business coverage. Auto-Owners' pleadings also disputed Metropolitan's right to recover contribution, subrogation, or indemnity. Auto-Owners amended its answer multiple times to add additional affirmative defenses. At the time of trial, Auto-Owners had asserted ten affirmative defenses.

         Auto-Owners filed a motion for summary judgment, arguing its policy did not cover the shooting because it was unrelated to Parker House's business. Auto-Owners later filed two motions for partial summary judgment, one seeking to prevent Metropolitan from asserting a contribution claim and the other seeking a ruling that comparative fault principles apply to the subrogation claim. The ...


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