Opinion
CIV. 99-5042
September 1, 2000.
J. Crisman Palmer, Gunderson, Palmer, Goodsell Nelson, LLP, Rapid City, SD, Stacy Broman, Meagher Geer, PLLP, Minneapolis, MN, Attorneys for Plaintiff.
Gregory James Erlandson, Bangs, McCullen, Butler, Foye Simmons, Rapid City, SD, Attorney for Defendant.
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
[¶ 1] Scottsdale Insurance Company filed a complaint seeking declaratory judgment against AYUSA International. Scottsdale alleges that a policy of insurance purchased by AYUSA from Scottsdale does not provide coverage for any of the claims pending against AYUSA in an underlying lawsuit, which arises from the death of Jan Wunderlich. AYUSA and Scottsdale have each moved for summary judgment. Each party opposes the other's motion for summary judgment.
[¶ 2] Jan Wunderlich was a foreign exchange student from Germany. AYUSA, a nonprofit high school exchange program, placed Wunderlich in the home of Shelley Halbmeier in Newell, South Dakota. Shortly after Wunderlich began living with Halbmeier, he was killed in an automobile accident. His mother, Ivana Klenz, brought a wrongful death action alleging various theories of liability against AYUSA, the driver of the vehicle, and Halbmeier. Klenz alleges that AYUSA was negligent in the placement and supervision of Wunderlich in the Halbmeier home and that AYUSA is vicariously liable for the negligent conduct of Halbmeier.
[¶ 3] At the time of Wunderlich's death, AYUSA had in effect a Commercial General Liability insurance policy which was issued by Scottsdale Insurance Company. The policy provides in part:
SECTION I — COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
I. Insuring Agreement.
a. We will pay those sums that [AYUSA] becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to this insurance applies.We will have the right and duty to defend any "suit" seeking those damages. . . . policy also contains the following exclusion:
EXCLUSION — DESIGNATED PROFESSIONAL SERVICES
This endorsement modified insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
SCHEDULE
Description of Professional Services:
ALL OPERATIONS OF THE INSURED . . . With respect to any professional services shown in the Schedule, this insurance does not apply to "bodily injury," "property damage," "personal injury" or "advertising injury" due to the rendering or failure to render any professional service.
[¶ 4] The issue before the court is whether the exclusion relieves Scottsdale of its duty to defend and indemnify AYUSA in the underlying lawsuit.
SUMMARY JUDGMENT STANDARD
[¶ 5] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if it can show that "there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999). In determining whether summary judgment should issue, the court must view the evidence and inferences reasonably drawn therefrom "in the light most favorable to the nonmoving party." Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999) (citing Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996); Adkison v. G.D. Searle Co., 971 F.2d 132, 134 (8th Cir. 1992)). The burden is on the moving party to establish the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); see also Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 SCt 1348, 1356-57, 89 L.Ed.2d 538 (1986). "As to materiality . . . [o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 SCt 2505, 2510, 91 L.Ed.2d 202 (1986). Once this burden has been met, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts that create a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 SCt 2505, 2514, 91 L.Ed.2d 202 (1986).
[¶ 6] In determining whether a genuine issue of material fact exists, the court views the evidence presented based upon which party has the burden of proof under the underlying substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 SCt 2505, 2513, 91 L.Ed.2d 202 (1986). "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 SCt 2548, 2555, 91 L.Ed.2d 265 (1986).
[¶ 7] "Summary judgment is to be granted only where the evidence is such that no reasonable jury could return a verdict for the nonmoving party." Lambert v. City of Dumas, 187 F.3d 931, 934 (8th Cir. 1999) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 SCt 2505, 2511, 91 L.Ed.2d 202 (1986)).
DISCUSSION
[¶ 8] In a diversity case, the rules for construing insurance policies are controlled by state law. See Langley v. Allstate Ins. Co., 995 F.2d 841 (8th Cir. 1993). Under South Dakota law, a contract is "interpreted according to the law and usage of the place where the contract is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made." SDCL 53-1-4. The insurance contract issued by Scottsdale Insurance Company does not contain a place of performance clause or a choice of law selection, so the court must determine the place where the contract was made. "Generally, unless the parties agree otherwise, an insurance contract is `made' at the place where the last act necessary to its completion is accomplished." Great West Cas. Co. v. Hovaldt, 1999 SD 150, 603 N.W.2d 198, 201 (SD 1999) (citing Briggs v. United Services Life Ins. Co., 117 N.W.2d 804, 807 (SD 1962)). The parties agree the last act necessary to complete the contract was performed in Arizona and thus Arizona law controls this litigation.
[¶ 9] AYUSA contends that the "professional services" exclusion of the CGL policy is void as a matter of public policy under the doctrine of reasonable expectation. The doctrine of reasonable expectation applies if the insured did not receive "full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage. . . ." Averett v. Farmers Ins. Co. of Ariz., 869 P.2d 505 (Ariz. 1994) (citing Gordinier v. Aetna Cas. Sur. Co., 742 P.2d 277, 283-84 (Ariz. 1987)). Under this theory, the doctrine of reasonable expectation requires that AYUSA did not receive notice of the term. However, this is not a case of hidden boilerplate language that would surprise the insured. AYUSA had notice of the term as the exclusion is contained on a separate sheet attached to the basic policy and is in regular, if not larger, type. In addition, the president of AYUSA, John F. Wilhelm, admits that he was aware of the professional services exclusion, but that he had a different understanding of professional services. Clearly the defendant had notice of the term which precludes this court from determining that the doctrine of reasonable expectations applies here.
[¶ 10] Even if the lack of notice was not a prerequisite for the application of the doctrine, the provision could not be deemed "unusual or unexpected, or one that emasculates apparent coverage." Averett v. Farmers Ins. Co. of Ariz., 869 P.2d 505 (Ariz. 1994) (citing G ordinier v. Aetna Cas. Sur. Co., 742 P.2d 277, 283-84 (Ariz. 1987)). It is not uncommon for an insurance company to limit its liability. A professional services exclusion does not seem so far out of the ordinary as to be unexpected. Additionally, two previous claims have been filed by AYUSA for other incidents involving the AYUSA premises. These claims were honored by Scottsdale. Hence, the policy does provide AYUSA with limited coverage. Since the term was not unusual or unexpected, nor did it deny coverage altogether, and AYUSA had notice of the term, the exclusion is not void under this exception.
[¶ 11] The Arizona Supreme Court recognized three other limited circumstances under which the doctrine of reasonable expectation may be applied. The first is "[w]here some activity which can be reasonably attributed to the insurer would create an objective impression of coverage in the mind of a reasonable insured." Averett v. Farmers Ins. Co. of Ariz., 869 P.2d 505 (Ariz. 1994) (citing Gordinier v. Aetna Cas. Sur. Co., 742 P.2d 277, 283-84 (Ariz. 1987)). The second is "[w]here some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and unambiguously denied by the policy." Id. Both of these situations require that the activity creating the reliance be "reasonably attributable to the insurer."
[¶ 12] There is no doubt that AYUSA believed that this policy provided coverage in situations such as this. However, the question is whether this belief is in reliance on the actions of the insurer. AYUSA admits the policy was purchased through a broker, who received the policy from Scottsdale. It is upon the broker's statements that AYUSA appears to have placed its reliance. However, under Arizona law, a broker "is not the agent or other representative of an insurer and does not have power by his own acts to obligate the insurer upon any risk or with reference to any insurance transaction." Ariz. Rev. Stat. Ann. § 20-300 (2000).
[¶ 13] In Federoff v. Aetna Casualty Surety Co., 788 P.2d 104, 106 (Ariz.Ct.App. 1989), the plaintiff purchased an insurance policy through a broker. The broker knew the purposes of the policy. Id. Yet, when the policy failed to provide the coverage anticipated, the Arizona Court of Appeals determined that the law prohibited the extension of coverage because the knowledge of the broker could not be imputed to the insurance company. Id. Though it is undisputed that the broker who sold AYUSA the policy knew of the purpose for the purchase, that knowledge cannot be imputed to Scottsdale. Thus, the broker's liability for the representations cannot be extended to Scottsdale. AYUSA has not identified any activity which can be reasonably attributed to the insurer that would create or induce the reliance of the insured.
[¶ 14] The third limited exception under which the doctrine of reasonable expectation may be applied is "[w]here the contract terms, although not ambiguous to the court, cannot be understood by the reasonably intelligent consumer who might check on his or her rights." Averett, 869 P.2d at 507. The policy declaration page which identifies coverage clearly indicates that no premium was charged for and no coverage was provided for professional liability. A reasonably intelligent consumer would be able to conclude after examining the policy declaration page and the exclusion page to the commercial general liability policy that coverage did not exist for professional services.
[¶ 15] AYUSA also contends that the term "professional services" is ambiguous and therefore, is either void as against public policy or should be construed against the insurer to afford coverage. Under Arizona law, for a term to be considered ambiguous, the provision must be susceptible to "more than one possible construction." Busch Dev., Inc. v. American Ins. Co., 760 P.2d 560, 562 (Ariz.Ct.App. 1988) (citing D.M.A.F.B. Fed. Cr. U. v. Employers Mut. Liab. Ins. Co. of Wis., 396 P.2d 20 at 23 (Ariz. 1964)). "In determining whether an ambiguity exists, we examine the language from the viewpoint of one not trained in law or in the insurance business." National Bank of Ariz. v. St. Paul Fire Marine, 975 P.2d 711, 713 (Ariz.Ct.App. 1999). In addition, the provisions of the policy must be construed "according to their plain and ordinary meaning." Id. at 714. Thus, looking at the entire policy, the court must find that there is more than one way to construe the provision in order to find the term ambiguous.
[¶ 16] The policy provides general coverage which is then limited by several exclusions. Each exclusion is listed separately from the policy and each other. The exclusion in question provides that certain designated professional services are excluded from the coverage. The excluded professional services are identified as "all operations of the insured." The average reader would assume that this would mean that any professional service performed by AYUSA would not be covered by this policy. "When the policy language is clear, we may not invent ambiguity and then resolve it to find coverage where none exists under the policy." Id. at 713. There is no other way to construe the provision itself. Therefore, the exclusion is not ambiguous nor void as against public policy.
[¶ 17] Once it has been determined that the contract is valid and applicable, it is necessary for the court to determine if there is coverage under the policy for the particular instance. For coverage to be afforded, the acts alleged in the underlying complaint must fall within the parameters of the policy. AYUSA argues that the alleged negligence in the underlying claim did not arise out of actions that constitute "professional services." In this case, the acts in dispute are the placement and supervision of a foreign exchange student. Scottsdale contends that this service requires specialized knowledge and skill, thus making it a professional service. AYUSA, however, claims that the placement of the students does not require any skill or knowledge above regular common sense and therefore, is not a professional service. This particular determination is a matter of law. Aetna Cas. Sur. Co. v. Dannenfeldt, 778 F. Supp. 484, 496 (D.Ariz. 1991).
[¶ 18] In wrestling with the definition of "professional services," the United States District Court of Arizona determined that "`it referr[ed] to any business activity conducted by the insured which involves specialized knowledge, labor, or skill, and is predominantly mental or intellectual as opposed to physical or manual in nature.'" Aetna Cas. Sur. Co. v. Dannenfeldt, 778 F. Supp. 484, 496 (D.Ariz. 1991) (quoting State St. Bank Trust Co. v. INA Ins. Co., 567 N.E.2d 42 (Ill.App.Ct. 1991)). Other courts have defined the term as "more than an ordinary task. . . . To qualify as a professional service, the task must arise out of the acts particular to the individual's specialized vocation." Potomac Ins. Co. of Ill. v. Jayhawk Med. Acceptance Corp., 198 F.3d 548, 552 (5th Cir. 2000) (citing Atlantic Lloyd's Ins. Co. v. Susman Godfrey, 982 S.W.2d 472, 476-77 (Tex.App. 1998)). California has gone so far as to expand its definition of professional services to include any "activity done for remuneration as distinguished from a mere pastime." Hollingsworth v. Commercial Union Ins. Co., 208 Cal.App.3d 800, 807, 256 Cal.Rptr. 357, 360 (1989)
[¶ 19] The court must then consider AYUSA's actions in the "context of the business or profession in which it is performed." Aetna Cas. Sur. Co. v. Dannenfeldt, 778 F. Supp. 484, 496 (D.Ariz. 1991). AYUSA's actions meet each of the previously stated definitions of "professional services." AYUSA argues that its services require common sense and no special training or knowledge. Though the determination of the actual qualifications of host families may not at first appear to be professional, when consideration is given to the great trust and expectations of skill and knowledge that the families of these exchange students place in AYUSA, the court is hard pressed to say that these services are not professional.
[¶ 20] AYUSA's business is to provide homes for students from across the world who are seeking to experience life in America. According to AYUSA's "Host Family Qualifications" sheet, AYUSA is bound to follow regulations and standards placed on it by two other organizations, USIA and CSIET. Failure to meet those standards and regulations would result in AYUSA's losing its "designation and/or listing" by these agencies. The fact that AYUSA is regulated indicates that special skills and/or knowledge is requisite in the performance of its services, thus qualifying its actions as professional services. In addition, the placement of a child with a family, and the continuing supervision over that placement, cannot be considered an ordinary task. AYUSA is charged with the duty of spotting both potential and real problems with its placements. Thus, special knowledge and skill are required to spot those problems. The services provided are not as simple as assigning a room to a student and then making sure the accommodations are adequate. These are professional services that were rendered. As a result, the alleged negligence in the underlying complaint arises out of actions that are not covered by this policy.
[¶ 21] Therefore, it is hereby
[¶ 22] ORDERED that the motion for summary judgment of Scottsdale Insurance Company (Docket 27) is granted, and the motion for summary judgment of AYUSA International (Docket 22) is denied.