Opinion
Civil No.: A3-98-32.
Filed June 29, 1999.
Summary : The Court granted insurance company's motion for summary judgment, granted reformation and the assault or battery exclusion endorsement is deemed included in the insurance policy, and declared that insurer has no duty defend nor indemnify the insured, the Berger defendants, for the claims alleged in the Torpy state complaint based on injuries arising from a bar fight on insured's premises.
MEMORANDUM AND ORDER
I. INTRODUCTION
Before the Court is a motion by the plaintiff, Northfield Insurance Company, ("Northfield"), for summary judgment, (docket # 26). Northfield seeks reformation of the insurance contract between Northfield and Robert Berger and Lucas Berger, Jr., d/b/a Silver Dollar Bar, ("the Berger defendants"), covering the policy period from May 1, 1995, to May 1, 1996. Northfield also seeks the Court's declaration that the insurance policy at issue does not provide coverage for a cause of action asserted against the Berger defendants by Machelle Torpy. The Berger defendants resist plaintiff's motion and urge the Court to either grant Judgment in their favor or allow the matter to proceed to trial.
II. DISCUSSION A. Factual Background
The action concerns a dispute regarding insurance coverage for an incident that occurred on or about December 17, 1995, when Machelle Torpy allegedly sustained injuries as a result of an altercation on the premises of the Silver Dollar Bar in Mandan, North Dakota. See Am. Compl. Torpy has brought an action in state court against Patti K. Schanzenbach, a/k/a Patti K. Knapp, for intentionally and maliciously attacking her, and against Silver Dollar Bar and Lucas Berger, Jr., on negligence and dram shop theories. See Ex. C to Pl.'s Original Compl. ("the Torpy state complaint"). Northfield is the issuer of a commercial general liability insurance policy to Robert Berger and Lucas Berger, Jr., d/b/a Silver Dollar Bar ("the Berger defendants") covering the policy period from May 1, 1995, to May 1, 1996. Northfield asserts that they have no duty to defend or indemnify their insureds, the Berger defendants, in the Torpy matter.
The policy at issue, policy Number CPP221740, issued to "Silver Dollar Bar . . . Robert Berger Luke Berger — DBA" does not contain an assault or battery exclusion endorsement, elsewhere identified as S23-CG(R3/92). See Ex. A, Attach. Pl.'s Req. Admis. Supp. Pl.'s Mot. Summ. J. Nonetheless, Northfield asserts that the insurance policy should be reformed to include an assault or battery exclusion endorsement as such was anticipated and intended by the parties to the insurance contract as evidenced by (1) the Commercial Insurance Application dated April 26, 1995, and signed by Lucas Berger and Bradley Charnholm of the Ellis Agency, (2) the Quotation dated March 23, 1995, issued by Bjornson/Sentinel to Ellis Agency, and (3) the Binder dated May 2, 1995, issued by Bjornson/Sentinel to Ellis Agency. See Ex. Q, N, O, respectively, Attach. Pl.'s Req. Admis. Supp. Pl.'s Mot. Summ. J. The Court notes that it is clear from the record that in this transaction Bjornson/Sentinel was acting as agent for Northfield and Bradley Charnholm of the Ellis Agency, as the Berger defendants' insurance broker, was the agent for the Berger defendants. See N.D. Cent. Code § 26.1-26-07 (providing that in any controversy between the insured and the insurer, an insurance broker is regarded as representing the insured).
In further support of reformation, Northfield submits the policy numbered CPP58531, in effect from May 1, 1992, through May 1, 1995, issued to "Dale Berger Lucas Berger, Jr. — DBA: Silver Dollar Bar," as evidence of the parties' intent to include the assault or battery exclusion endorsement. See Ex. B, Attach. Pl.'s Req. Admis. Supp. Pl.'s Mot. Summ. J. The Berger defendants argue that the prior policy, numbered CPP58531, is irrelevant because the policy at issue, number CPP221740, was a new policy and that Robert Berger had not previously been insured by Northfield.
Northfield further asserts that upon reformation of the insurance policy, including the assault or battery exclusion endorsement, that the Court should declare that Northfield has no duty to defend nor indemnify their insureds, the Berger defendants, on the claims alleged in the Torpy state complaint.
B. Jurisdiction
A federal court has jurisdiction over actions involving insurance where the requisite amount in controversy and diversity of citizenship among the parties exists. 32A Am.Jur. 2d Federal Courts § 974 (1995). Diversity is properly pleaded. See 28 U.S.C. § 1332(c)(1). In declaratory judgment suits involving liability insurance policies, the test for jurisdictional purposes is the maximum amount for which the insurer might be liable under the policy, even if the claims of the injured parties are less than the jurisdictional amount. 22A Am.Jur. 2d Declaratory Judgments § 191 (1988). Where the insurer's maximum liability under the policy exceeds the jurisdictional amount, as is the case here, that is the value of the matter in controversy that brings the case under diversity jurisdiction. Id. The Court concludes that there is subject matter jurisdiction in this case.
Neither Machelle I. Torpy nor Patti K. Schanzenbach a/k/a Patti K. Knapp have answered in this action. Nonetheless, they are not necessary for the Court to render a decision in this matter. Northfield and the Berger defendants are properly before the Court. See 28 U.S.C. § 1332 (establishing jurisdiction based on diversity of citizenship); 28 U.S.C. § 2201(a) (providing for declaratory judgments); N.D.Cent. Code § 32-23-06 (declaratory judgment appropriate in action brought by or against an insurance company to determine liability of the insurance company to the insureds even if insureds' liability not yet determined). Of primary concern here is the insurance contract between the insurer, Northfield, and its insureds, the Berger defendants, North Dakotans. North Dakota law applies. Bell v. Allstate Life Ins. Co., 160 F.3d 452, 455 (8th Cir. 1998) ("State law controls the construction of insurance policies when a federal court is exercising diversity jurisdiction.").
C. Standards
Summary judgment is appropriate only when there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is "material" if it might affect the outcome of a case, and a factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);Churchill Bus. Credit, Inc. v. Pacific Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995). The "basic inquiry" for purposes of summary judgment is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law." Quick v. Donaldson Co., Inc., 90 F.3d 1372, 1376 (8th Cir. 1996) (citingAnderson, 477 U.S. at 251-52).
D. Reformation of Contract
Under North Dakota law, when, through fraud or mistake, a written contract does not truly express the intention of the partied, it may be revised. N.D. Cent. Code § 32-04-17 (1996). When a written contract fails to express the real intention of the parties due to a mistake, the true intention is to be regarded and the error to be disregarded. N.D. Cent. Code § 9-07-05 (1987). Parole evidence is admissible to reform a written instrument to correct the instrument to conform with the intention of the parties. Ell v. Ell, 295 N.W.2d 143, 149 (N.D. 1980). However, reformation will not be used to make a new contract never considered or intended by the parties. Id. at 150. The burden of proof is on the party seeking to reform the contract, and it must be proven that the written contract doesn't fully state the agreement the parties intended to make. Id. A court will not grant reformation unless the evidence presented is clear and convincing. Id.
There is no North Dakota case specifically addressing reformation of an insurance contract to include a missing exclusion endorsement. However, Northfield has brought to the Court's attention cases where other courts have reformed insurance policies to include accidentally omitted exclusions. See, e.g.,Ranger Ins. Co. v. Globe Seed Feed Co., 865 P.2d 451 (Or.Ct.App. 1993) (upholding trial court's reformation of insurance contract adding seed liability exclusion); Twin City Fire Ins. Co. v. Pittsburgh Corning Corp., 813 F. Supp. 1147 (W.D.Pa. 1992) (reforming insurance contract adding asbestos exclusion).
In this context, the Court first seeks the parties' intent at the time the contract was entered. As noted above, Bradley Charnholm of the Ellis Agency, as the Berger defendants' insurance broker, was the agent for the Berger defendants in the procurement of the commercial general liability policy. This is not denied by the Berger defendants; rather, it is declared that Charnholm was exclusively relied upon in this regard. See L. Berger Depo. at 22. It is clear from the Commercial Insurance Application dated April 26, 1995, which is signed by Charnholm, that Charnholm himself understood that an assault or battery exclusion endorsement should be a part of the insurance contract at issue. It is clear from Charnholm's testimony that he did not consider assault and battery coverage to even be available to the Berger defendants at that time. See Charnholm Depo. at 53-54. Notwithstanding, the Berger defendants lament that it was, and always had been, their intention for the bar to be covered for assault or battery. See L. Berger Depo. at 19-20. The Berger defendants' argument in this regard, at least as against Northfield, is disingenuous, or at least naive. The Commercial Insurance Application dated April 26, 1995, which is also signed by Lucas Berger on April 26, 1995, specifically listed the assault or battery exclusion endorsement. "It is the outward manifestations of assent which govern, not the secret intentions of the parties." National Bank v. International Harvester Co., 421 N.W.2d 799, 804 (N.D. 1988).
Further, the Quotation dated March 23, 1995, issued by Bjornson/Sentinel to Ellis Agency, and the Binder dated May 2, 1995, issued by Bjornson/Sentinel to Ellis Agency also clearly list the assault or battery exclusion and establish Northfield's intent to include the assault or battery exclusion in the policy. If the Berger defendants didn't understand all of the terms contained in and coverage provided for in the Application, Quotation and Binder, they should have sought further explanation before entering into the contract. The Berger defendants do not refute the testimony of Nancy Mathison of Bjornson/Sentinel that it was Northfield's intention to include the assault or battery exclusion and its subsequent omission from the policy itself was a mere "clerical and processing error." See Mathison Depo. at 39-40. It simply would not be just to allow the Berger defendants to enjoy a benefit under the policy that they did not bargain for or pay for simply due to a clerical/processing error.
The Court finds that the evidence in this case is clear and convincing that the assault or battery exclusion endorsement should have been included in the insurance policy Number CPP221740. See Ell, 295 N.W.2d at 150. Mere clerical error will not defeat the reformation of the contract. See e.g., Ranger Ins. Co., 865 P.2d at 456 (permitting reformation in case involving negligent scrivener error); Twin City Fire Ins. Co., 813 F. Supp. at 1151 (reforming in case involving careless or negligent clerical error). Here, it is obvious to the Court that the assault or battery exclusion endorsement was intended by the parties to be included in the policy at issue. There is no genuine issue of material fact remaining to be determined by a factfinder; the evidence here is so one sided that Northfield must prevail as a matter of law in this regard. See Fed.R.Civ.P. 56(c); Quick, 90 F.3d at 1376 (citation omitted). Thus, Northfield's request for reformation is hereby GRANTED, and the assault or battery exclusion endorsement, form S23-CG(R3/92), is deemed included in the insurance policy, Number CPP221740.
E. Declaration of Insurer's Obligation
Next, Northfield requests that the Court declare that there is no duty owed by Northfield to defend nor indemnify the Berger defendants for the claims alleged in the Torpy state complaint. The assault or battery exclusion, form S23-CG(R3/92), provides in pertinent part as follows:
This insurance does not apply to "bodily injury," "property damage," "personal injury," "advertising injury," or medical expense arising out of assault and battery or out of any act or omission in connection with the prevention or suppression of such acts, whether caused by or at the instigation or direction of the insured, his employees, patrons or any other person.See Ex. D, Attach. Pl.'s Req. Admis. Supp. Pl.'s Mot. Summ. J.(emphasis added).
Here, the negligence based claims by Torpy against the Berger defendants, e.g., failing to maintain a safe place of business, failing to aid, stop or prevent the assault, clearly arise out of and/or are connected to the alleged assault and/or battery of Torpy by Schanzenbach a/k/a Knapp. The claims come within the unambiguous assault and battery exclusion and are clearly excluded by the terms of the insurance policy at issue here as reformed by the Court. See Essex Ins. Co. v. Paasch, A3-93-73 (D.N.D. Dec. 20, 1993) (J. Benson) (interpreting similar exclusionary language and finding insurer had no duty to indemnify or defend insured against underlying personal injury action arising from an assault and battery). The Court views the other cases cited by Northfield discussing and applying similar or identical exclusionary language in analogous situations persuasive as well. See Pl. Br. Supp. Mot. Summ. J. at 19-24; e.g.,Stiglich v. Tracks, D.C., Inc., 721 F. Supp. 1386 (D.D.C. 1989).
The plaintiff's motion for summary judgment, (docket # 26), is hereby GRANTED. The Court hereby declares that there is no duty owed by Northfield to defend nor indemnify the Berger defendants for the claims alleged in the Torpy state complaint.
III. CONCLUSION
Northfield's request for reformation is GRANTED and the assault or battery exclusion endorsement, form S23-CG(R3/92), is deemed included in the insurance policy, Number CPP221740. The Court DECLARES that there is no duty owed by Northfield to defend nor indemnify the Berger defendants for the claims alleged in the Torpy state complaint. The plaintiff's motion for summary judgment, (docket # 26), is GRANTED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
IT IS SO ORDERED.