Opinion
No. 2 CA-CV 2016-0154
03-31-2017
COUNTRY MUTUAL INSURANCE COMPANY, AN ILLINOIS CORPORATION, Plaintiff/Appellee, v. MELISSA LAWSON, A SINGLE WOMAN; TANNER LAWSON, A MINOR CHILD; JORDYN LAWSON, A MINOR CHILD, Defendants/Appellants.
COUNSEL Goering, Roberts, Rubin, Brogna, Enos & Treadwill-Rubin, P.C., Tucson By Kristin A. Green and Chris Enos Counsel for Plaintiff/Appellee Torgenson Law, Phoenix By John P. Torgenson and Paul M. Benson Counsel for Defendants/Appellants
THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
NOT FOR PUBLICATION
See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f). Appeal from the Superior Court in Graham County
No. CV201500004
The Honorable D. Corey Sanders, Judge Pro Tempore
AFFIRMED
COUNSEL Goering, Roberts, Rubin, Brogna, Enos & Treadwill-Rubin, P.C., Tucson
By Kristin A. Green and Chris Enos
Counsel for Plaintiff/Appellee Torgenson Law, Phoenix
By John P. Torgenson and Paul M. Benson
Counsel for Defendants/Appellants
MEMORANDUM DECISION
Presiding Judge Staring authored the decision of the Court, in which Judge Miller and Judge Espinosa concurred. STARING, Presiding Judge:
¶1 Melissa Lawson appeals from a declaratory judgment that the injuries she suffered during an exercise class at a local fitness club were not covered by the instructor's homeowner's insurance policy. For the reasons that follow, we affirm.
Lawson's minor children are also named as parties. The disposition of this appeal does not require us to discuss the children or the claims specific to them. Thus, we use "Lawson" throughout the decision.
Factual and Procedural Background
¶2 We view the facts in the light most favorable to sustaining the trial court's judgment. Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, ¶ 51, 200 P.3d 977, 989 (App. 2008). In January 2013, Lawson suffered a stroke during an exercise class taught by Maria Kouts at a Safford, Arizona fitness club. In July 2014, Lawson filed a lawsuit against Maria and her spouse Jason Kouts for damages resulting from her injuries, and the Koutses submitted a claim for liability coverage under their homeowner's insurance policy. The insurer, Country Mutual Insurance Company ("Country Mutual"), subsequently brought an action seeking a declaratory judgment that the Koutses' homeowner's policy did not provide coverage for Lawson's claims because, at the time of the incident, Kouts was engaged in business activity expressly excluded from coverage.
In October 2015, because Country Mutual had defended the Koutses under a reservation of rights based on the coverage exclusion at issue here, Lawson and the Koutses resolved their dispute by entering into what is commonly known as a Morris agreement. See United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987). Under its terms, the parties agreed to the entry of judgment in favor of Lawson and against the Koutses, subject to Lawson agreeing not to enforce the judgment and the Koutses' assignment to Lawson of any claims they had against Country Mutual.
¶3 The factual issues in the declaratory judgment action were tried to a jury in May 2016. Kouts testified she was a lifelong fitness enthusiast, and began attending classes for Zumba, a dance-based fitness program, in 2011. She became close friends with the club's co-owner Cami Warren, and by August 2011 she was teaching a one-hour Zumba class three days per week for $10 per hour in bartered compensation. This arrangement continued until Kouts injured her knee in December 2011 and stopped teaching for seven months.
Our disposition of this appeal does not require determining whether there were factual issues necessitating a jury trial or whether the declaratory judgment action only presented issues of law.
¶4 In 2012, the Koutses borrowed $40,000 and loaned the proceeds to the club, in what they characterized as an interest-free loan with flexible repayment terms. Also, using their own funds and resources, the Koutses purchased new Zumba equipment, and Jason Kouts used his personal expertise and the resources of his construction business to make improvements to the club, including painting, moving walls, and building new bathrooms, an office, and a "Zumba room."
¶5 As of the date of Lawson's injury, Kouts taught two one-hour classes at the club each week, issued checks for payroll and other club expenses, and spent six hours at the club five days per week, serving as a familiar face to encourage people to keep returning to the club. She received no regular compensation when she resumed teaching and assumed additional responsibilities in July 2012. She testified she had reluctantly agreed to an informal one-year partnership with Warren when Warren moved out of state because she was passionate about Zumba, did not want the club to close, and Warren was her best friend. Kouts also confirmed she did not take compensation because of Warren's promise to make her a partner, and believed her unpaid work entitled her to an ownership interest in the club. Additionally, she represented herself online as the club's co-owner at some point after March 2013.
Kouts received two small paychecks from the club, but this occurred in the months after Lawson's injury.
¶6 The jury found Kouts's activity at the club constituted "a trade, profession, or occupation," and as a result the trial court entered judgment that Country Mutual's policy excluded coverage for Lawson's claims. Lawson filed a motion for new trial and a renewed motion for judgment as a matter of law. See Ariz. R. Civ. P. 50, 59. The court denied both motions, and entered a signed judgment on July 1, 2016, which lacked the language required by Rule 54(c), Ariz. R. Civ. P., but was later amended pursuant to our order temporarily revesting jurisdiction in the court. See Ariz. R. Civ. App. P. 3(b) (authority to revest). This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-2101(A)(1) and 12-2102(B).
Several rules cited herein, specifically Rules 50, 54(b)-(c), and 59(a), Ariz. R. Civ. P., were amended effective January 2017. The revisions are immaterial to the disposition of this appeal; we therefore cite the current versions of these rules.
We have an independent duty to confirm appellate jurisdiction. State v. Bejarano, 219 Ariz. 518, ¶ 2, 200 P.3d 1015, 1016 (App. 2008). Here, the notice of appeal does not refer to the July 2016 judgment, but instead to a May declaratory judgment and the rulings denying Lawson's Rule 50 and 59 motions. But there is ample precedent for accepting a notice in substantial compliance with the rules, when it is clear what issues a party is appealing and no one has been misled. See Hanen v. Willis, 102 Ariz. 6, 10, 423 P.2d 95, 99 (1967) (timely notice not invalidated by reference to date of earlier version of judgment); Desert Palm Surgical Grp., P.L.C. v. Petta, 236 Ariz. 568, ¶¶ 17-19, 343 P.3d 438, 446-47 (App. 2015) (timely notice not invalidated for omitting reference to amended judgment; original and amended judgments "part of the same determination of the same claims" and no party prejudiced); see also Bauer v. Crotty, 167 Ariz. 159, 163 n.1, 805 P.2d 392, 396 n.1 (App. 1991) (§ 12-2102(B) permits review of denial of motion for new trial in review of signed final judgment), disapproved on other grounds by Williams v. Thude, 188 Ariz. 257, 260, 934 P.2d 1349, 1352 (1997). However, to the extent Lawson is appealing the unsigned denial of her motion for judgment as a matter of law pursuant to Rule 50, we lack jurisdiction. See id.
Discussion
¶7 On appeal, Lawson challenges the trial court's judgment that the Koutses' homeowner's policy excludes coverage for her injury because it arose in connection with business activity subject to an express exclusion. She disputes the court's interpretation of policy language and challenges the jury's finding that Kouts was engaged in a "trade, profession or occupation."
¶8 The interpretation of insurance policy language is a matter of law that we review de novo. First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, ¶ 8, 187 P.3d 1107, 1110 (2008). We view the evidence in the light most favorable to sustaining the jury verdict, and will affirm "if any substantial evidence exists" to support it. Hutcherson v. City of Phoenix, 192 Ariz. 51, ¶ 13, 961 P.2d 449, 451 (1998); see also Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, ¶ 51, 200 P.3d 977, 989 (App. 2008). We review a ruling on a motion for new trial for an abuse of discretion. McBride v. Kieckhefer Assocs., Inc., 228 Ariz. 262, ¶ 16, 265 P.3d 1061, 1065 (App. 2011). A court abuses its discretion when its discretionary action involves an error of law, failure to consider the evidence, or factual findings not supported by "substantial evidence." Grant v. Ariz. Pub. Serv. Co., 133 Ariz. 434, 455-56, 652 P.2d 507, 528-29 (1982).
Policy Language
¶9 At issue are two related policy provisions. First, coverage is excluded for:
"Bodily injury" . . . arising out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured" whether or not the "business" is owned or operated by an "insured" or employs an "insured".The policy defines "Business" as follows in relevant part:
a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or
b. Any other activity engaged in for financial compensation, other compensation, or other professional purposes, except the following:
(1) Activities for which no "insured" receives more than $2,000 in total compensation for the 12 months before the "occurrence".
¶10 Lawson asserts that the plain language of the policy "provides a safe-harbor for business activity where the insured earned less than $2,000 in the previous year." She argues in the alternative that the policy definition is ambiguous and should be construed to find coverage.
¶11 Our goal in interpreting an insurance policy is to give effect to the parties' intent. Potter v. U.S. Specialty Ins. Co., 209 Ariz. 122, ¶ 7, 98 P.3d 557, 559 (App. 2004). In doing so, we look first to the plain language of the policy "in view of all the circumstances." Smith v. Melson, Inc., 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983); see also United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 259, 681 P.2d 390, 411 (App. 1983) (court ascertains parties' intent by considering plain language "as viewed in the context of the contract as a whole").
¶12 Our interpretation of the policy also includes a de novo determination of any claimed ambiguity. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App. 1992). "An ambiguity exists when the language of the policy is unclear and can be reasonably construed in more than one sense." Potter, 209 Ariz. 122, ¶ 8, 98 P.3d at 559. In determining the existence of ambiguity, we examine the policy "from the standpoint of a person not trained in law or in the insurance business." Thomas, 173 Ariz. at 325, 842 P.2d at 1338. We will not, however, invent ambiguity in order to expand coverage when the policy language is clear. Sec. Ins. Co. of Hartford v. Andersen, 158 Ariz. 426, 428, 763 P.2d 246, 248 (1988); Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 95-96, 804 P.2d 822, 824-25 (App. 1990).
¶13 Here, applying plain-language analysis to the policy leads us to reject Lawson's assertion that the $2,000 exception in Subsection 1 to Part b applies to all business activity. The very placement of the exception in a subsection under Part b makes clear that it applies to "other activity engaged in for financial compensation, other compensation, or other professional purposes" as described in Part b. It plainly does not apply to the "trade, profession or occupation" activity found in Part a, a fact made doubly clear by the inclusion of the disjunctive "or" at the end of Part a. No specialized training or knowledge is required to reach this conclusion.
¶14 Lawson also argues the business definition is ambiguous. She first claims there is ambiguity because the definition "use[s] a semicolon and the coordinating conjunction 'or'" instead of a period to separate Parts a and b, creating ambiguity about whether the $2,000 exception found in Part b applies to all business activity. The policy is not reasonably susceptible to this strained interpretation. The use of the semicolon and "or" between the two parts of the definition plainly indicates a "business" can be whatever is described in either Part a or Part b. But there is no support for the assertion that an exception found only in a subsection of Part b also applies to Part a. Millar, 167 Ariz. at 96, 804 P.2d at 825 ("A policy term is not ambiguous . . . merely because one party assigns a different meaning to it in accordance with his or her own interest.").
Lawson's contention that the policy places "clarifying or limiting language at the end of a definition" elsewhere in the policy is unavailing. The cited example regarding "Actual cash value" involves language found in a hanging paragraph at the end of the definition section, not an indented, numbered subsection as is the case with the business definition.
¶15 Lawson also contends the definition of "Business" is "imprecise and ambiguous" about what activity would fall under Part b but not Part a, and argues the definition is overbroad because "[a]lmost any business activity could be described as a trade, profession or occupation." We disagree.
¶16 First, rather than ambiguity, the policy's broadly drafted "Business" definition reflects a clear intent to exclude coverage for business activity. The definition is also not ambiguous as to the distinction between Parts a and b. Part a describes "trade, profession or occupation" activity without any reference to compensation, while Part b describes "other activity" for which an insured receives "financial . . . [or] other compensation." The reasonable interpretation is that Part a describes commercial or professional pursuits, including those that are unsuccessful or result in no immediate compensation, such as a commercial or professional practice start-up. Part b, on the other hand, describes "other activity," including odd jobs, hobbies and social activities, for which an insured receives compensation.
"Parties to an insurance agreement may contract for any lawful coverage, and the insurer has a right to limit its liability by imposing conditions and restrictions on its obligation, provided those restrictions are not inconsistent with public policy." Millar, 167 Ariz. at 95-96, 804 P.2d at 824-25.
¶17 This interpretation is consistent with the examples offered by both parties. Lawson identifies several activities, specifically selling jewelry or baked goods and acting as a sports referee, that could qualify as "other activity" under Part b without being considered a "trade, profession or occupation" under Part a. Country Mutual also provides several examples, including garage sales, lemonade stands, and home day care, the subject of its limited exception under Part b.
¶18 Homeowner's insurance policies generally exclude coverage for business activity because it involves "risks over and beyond the ordinary and usual hazards to be found in the operation and maintenance of a home." Kepner v. W. Fire Ins. Co., 109 Ariz. 329, 330, 509 P.2d 222, 223 (1973); Fimbres v. Fireman's Fund Ins. Co., 147 Ariz. 75, 77, 708 P.2d 756, 758 (App. 1985) (business exclusion removes nonessential coverage, controls premiums by avoiding need for "specialized underwriting and rating"). In general, "'business pursuits' denotes 'a continued or regular activity for the purpose of earning a livelihood such as a trade, profession, or occupation, or a commercial activity.'" Indus. Indem. Co. v. Goettl, 138 Ariz. 315, 318-19, 674 P.2d 869, 872-73 (App. 1983), quoting Job A. Sandoval, Annotation, Construction and Application of "Business Pursuits" Exclusion Provision in General Liability Policy, 48 A.L.R.3d 1096, 1100 (1973). To constitute a business pursuit, an activity must thus satisfy the requirement for "continuity and profit motive." Id. at 319, 674 P.2d at 873. The jury received an instruction defining "trade, profession, or occupation" that was consistent with this definition.
The instruction read as follows:
To constitute a trade, profession, or occupation, there must be two elements: first, continuity, and secondly, the profit motive; as to the first, there must be a customary engagement or a stated occupation; and, as to the latter, there must be shown to be such activity as a means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements.
¶19 We conclude the definition of "Business" contained in the policy was not ambiguous, and the trial court did not err in concluding the $2,000 exception applied only to Part b of the definition.
Kouts's Business Activity
¶20 We turn to the question of whether Lawson's injury arose in connection with Kouts's engagement in activity that constituted a "trade, profession or occupation," for which liability coverage was excluded under the policy. As noted, we view the evidence in the light most favorable to sustaining the jury verdict, and will affirm "if any substantial evidence exists" to support the jury's finding. Hutcherson v. City of Phoenix, 192 Ariz. 51, ¶ 13, 961 P.2d 449, 451 (1998).
¶21 Lawson has not argued Kouts's activity at the club failed to satisfy the continuity requirement. See Goettl, 138 Ariz. at 318-19, 674 P.2d at 872-73. The evidence at trial established that both Maria and Jason Kouts invested substantial time and monetary resources to maintain and improve the fitness club. As noted, they loaned $40,000 to the club on favorable terms, and used Jason's construction business to make substantial improvements for which they received no payment.
¶22 As of the date of Lawson's injury, Kouts was spending approximately thirty hours per week serving as the public "face" of the club and signing checks for payroll and club expenses. She believed her activity and presence were essential to the club's survival through both Warren's absence and a difficult period around March 2013 after Warren fired two fitness instructors. And she testified she wanted to see the club expand and become the most successful in the area.
¶23 Finally, Kouts's testimony revealed an explicit connection between her unpaid services and an expectation of an ownership interest in the club. In the months before her December 2011 knee injury, she had received the equivalent of ten dollars per hour in Zumba clothes for instructing three one-hour classes per week. But when she returned to teaching in July 2012, she began to both teach and assume additional responsibility for no compensation because Warren promised to make her a partner. Kouts also testified that when she inquired about buying the club after Lawson's injury, she offered money only to elicit a response from Warren, and did not ultimately intend to pay anything because she had "been working there for absolutely nothing." She also held herself out as the co-owner of the club in her profile on Zumba.com at some point after March 2013.
¶24 Lawson nevertheless maintains Kouts's activities at the club were her "passion, hobby and primary social activity," and not a "trade, profession or occupation." But Kouts's insistence that she was engaged in a hobby and that her husband was merely being supportive is not determinative. Cf. Farmers Ins. Co. of Ariz. v. Wiechnick, 166 Ariz. 266, 268, 801 P.2d 501, 503 (App. 1990) (insured's "subjective characterization" of business activity is irrelevant). To the extent the Koutses denied having a profit motive, it was a matter for the jury to resolve. See Correa v. Pecos Valley Dev. Corp., 126 Ariz. 601, 607, 617 P.2d 767, 773 (App. 1980) (jury's function "to weigh conflicting evidence and inferences and to determine the credibility of witnesses").
¶25 Kouts's testimony about the hours she spent at the club, the character of her activity, and her motivation for declining a salary, were all evidence from which the jury could reasonably have inferred her enthusiasm for Zumba was accompanied by some expectation of profit, including ownership of the club. The same is true of the $40,000 loan and the construction services her husband and his employees performed for the club. Accordingly, we conclude the record contains substantial evidence supporting a finding that Kouts's involvement with the club as of the date of Lawson's injury constituted a "trade, profession or occupation" under the policy. See Hutcherson, 192 Ariz. 51, ¶ 13, 961 P.2d at 451; Goettl, 138 Ariz. at 318-19, 674 P.2d at 872-73.
Reasonable Expectations
¶26 Lawson's arguments also suggest some applicability of the doctrine of reasonable expectations, but she cites only one case, Keggi v. Northbrook Property & Casualty Insurance Co., 199 Ariz. 43, ¶ 27, 13 P.3d 785, 792 (App. 2000), for the proposition that "[p]ublic policy supports a narrow interpretation of [an] exclusion so that it does not eviscerate coverage otherwise reasonably expected by the insured." Keggi involved the interpretation of an ambiguous pollution exclusion clause in two commercial policies. Id. ¶¶ 11, 14-19. In contrast, the doctrine of reasonable expectations provides for the non-enforcement of a term found in a contract of adhesion when "one party has reason to believe that the other would not have assented to the contract if it had known of that term." First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, ¶ 31, 187 P.3d 1107, 1113 (2008); Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 387-94, 682 P.2d 388, 392-99 (1984).
¶27 Although Lawson claims the Koutses reasonably expected coverage, she has cited no evidence nor explicitly argued the Koutses would not have purchased their policy had they been fully aware of the business exclusion. See Darner Motor Sales, Inc., 140 Ariz. at 390, 682 P.2d at 395 (reasonable expectations doctrine requires "more than the fervent hope" insurance will cover a loss); Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 97, 804 P.2d 822, 826 (App. 1990) ("[E]xpectation of coverage must be objectively reasonable."). And although the Koutses briefly testified they would not have purchased the policy had they been aware of the exclusion, Jason Kouts also testified he purchased the policy because it was required when he purchased the family home in 2008. The jury's finding that awareness of the business exclusion would not have deterred a reasonable consumer from purchasing the policy is supported by substantial evidence, and will not be disturbed. Hutcherson, 192 Ariz. 51, ¶ 13, 961 P.2d at 451.
In addition, at oral argument in this court, Lawson essentially conceded her argument based on the doctrine of reasonable expectations. --------
Attorney Fees
¶28 Both parties have requested a discretionary award of attorney fees on appeal pursuant to A.R.S. § 12-341.01(A), which provides that "[i]n any contested action arising out of a contract . . . the court may award the successful party reasonable attorney fees." This action arises out of contract and, in our discretion, we award Country Mutual its reasonable attorney fees pursuant to § 12-341.01(A), subject to compliance with Rule 21(b), Ariz. R. Civ. App. P. Country Mutual is also entitled to its costs on appeal pursuant to A.R.S. § 12-341.
Disposition
¶29 For the foregoing reasons, we affirm the judgment of the trial court.
Lawson did not object to the instruction.