An insurer has no duty to indemnify the owner of a strip club for a bouncer's assault (pdf) on a patron because the policy's assault-and-battery exclusion was triggered by the bouncer's conviction on a criminal assault charge, the 3rd U.S. Circuit Court of Appeals has ruled.
The decision in Essex Insurance Co. v. RMJC Inc. was authored by 3rd Circuit Chief Judge Anthony J. Scirica and joined by Judge Marjorie O. Rendell and former U.S. Supreme Court Justice Sandra Day O'Connor, sitting on the 3rd Circuit by invitation.
The ruling upholds a November 2007 decision by Chief U.S. District Judge Harvey Bartle III that said the insurer was entitled to restitution of more than $410,000 it paid to satisfy the judgment from a jury's verdict against the club.
Bartle had previously ruled in favor of the club, declaring that a state court jury's finding of negligence on the part of the club owner meant that the incident was covered under the policy and the insurer must indemnify the club for the jury's $350,000 award.
But in the first appeal, the 3rd Circuit reversed, finding that Bartle had erred by relying entirely on the civil jury's negligence finding when making his ruling on the indemnity issue.
On remand, after holding a non-jury trial, Bartle reversed himself and ruled that the insurer has no duty to cover the verdict because the evidence clearly showed that an assault occurred.
According to court papers, Mark Jaworski attended his brother-in-law's bachelor party at the Show and Tel Show Bar in March 2000 and was involved in an altercation with a bouncer, Terrence Benson.
Benson was later convicted of simple assault after a non-jury trial in the Philadelphia Common Pleas Court. Jaworski then filed a civil suit against RMJC, alleging that Benson had attacked him inside the club, dragged him out a side exit and threw him down the stairs, causing serious injuries to his wrist.
In the suit, Jaworski pursued only negligence claims and did not seek recovery on an assault and battery theory.
Soon after the suit was filed, Essex went to federal court and filed a declaratory judgment action, seeking a ruling that it had no duty to defend or indemnify RMJC in Jaworski's suit because his injuries were caused by an assault.
After losing the first round of the federal litigation, Essex has been winning ever since. The latest ruling is a victory for attorneys Phillip J. Meyer of Salmon Ricchezza Singer & Turchi and Richard W. Yost of Yost & Tretta.
In the second appeal, RMJC's lawyer, Joel E. Oshtry, argued that Bartle erred by misconstruing the policy's term "arising out of" to "but for" causation rather than proximate causation.
The difference was significant, Oshtry argued, because a policy excluding from coverage only those injuries that are proximately caused by assaults will indemnify more broadly than a policy excluding from coverage any injury for which an assault is a "but for" cause.
Scirica disagreed, saying "the flaw in RMJC's argument is that 'arising out of' is not an ambiguous term ... . RMJC does not identify a single case in which 'arising out of' has been interpreted in terms of proximate causation."
Instead, Scirica said, courts applying Pennsylvania law have held the phrase denotes "but for" causation both where it defines what is included in coverage and where it delineates exclusions.
Oshtry also argued that Bartle improperly relied on Benson's state court conviction because the evidence showed that Jaworski's injuries occurred when he fell down the stairs, whereas Benson was convicted for earlier conduct inside the premises.
But Scirica said the evidence showed that Jaworski was thrown down the stairs and that Benson's conviction was not the only evidence Bartle relied on.
"On the basis of testimony from several witnesses, the district court determined Jaworski was assaulted both inside the club and on the stairway. It did not find -- nor, given the language of the policy exclusion, did it need to find -- that Benson himself committed the assault on the stairway," Scirica wrote.
Scirica also rejected Oshtry's argument that Bartle erred by not identifying the specific assailant who caused Jaworski's injuries.
"The applicability of the exclusion does not depend on the identity of the assailant. The exclusion applies as long as an assault was a 'but for' cause of Jaworski's injuries," Scirica wrote.
VOLUNTARY PAYMENT DOCTRINE
Finally, Scirica rejected Oshtry's argument that Essex was not entitled to reimbursement of the money it voluntarily paid to satisfy the state court judgment.
Although the Pennsylvania courts have never decided whether the voluntary payment doctrine precludes recovery of insurance indemnity payments, Scirica predicted they would not.
In 1989, Scirica noted, the 3rd Circuit predicted that the Pennsylvania Supreme Court would not allow an insurer to recover the cost of defending an insured if it was later determined the insurer had no duty to do so.
But the duty to defend and the duty to indemnify implicate different policy considerations, Scirica noted.
"Allowing restitution for an insurer's defense or settlement costs risks altering the incentives the law has created for insurers to provide vigorous and effective defenses," Scirica wrote.
By contrast, Scirica said, "this incentive structure would not be disrupted by permitting an insurer exhaustively to defend its insured under a reservation of rights, pay a resultant judgment, and then litigate its duty to indemnify."
Essex's satisfaction of the state-court judgment "protected the interests of all relevant parties," Scirica wrote, by ensuring that Jaworski suffered no further delay in being paid and by ensuring that neither Essex nor RMJC would have to pay any additional post-judgment interest that would have accrued.
"RMJC appears to miss the irony that it reaped this very benefit in this case, but would not have under the rule it urges. Under its proposed rule, Essex would almost certainly have declined to pay the judgment for fear of foreclosing its ability to seek restitution. RMJC would then have been saddled with a significantly larger debt to Jaworski once Essex was adjudged to have no duty of indemnification," Scirica wrote.
Oshtry could not be reached for comment.