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Federal Insurance Co. v. Great American Insurance Co.

United States Court of Appeals, Eighth Circuit

June 28, 2018

Federal Insurance Company; Zurich American Insurance Company Plaintiffs - Appellees
v.
Great American Insurance Company Defendant-Appellant

          Submitted: January 9, 2018

          Appeal from United States District Court for the Eastern District of Missouri - St. Louis

          Before GRUENDER, MELLOY, and SHEPHERD, Circuit Judges.

          MELLOY, Circuit Judge.

         This case arises from a tragic, yet avoidable, incident. At this juncture, however, there is only one dispositive legal question: Does repeatedly shooting, and encouraging others to shoot, a handgun "in the general direction" of a small lake in a residential area of Kansas City, Missouri, which results in a young child's death, qualify as "gross negligence"? We believe it does. For this reason, we vacate the judgment of the district court and remand for further consideration.

         Whispering Lake Limited Partnership owned an apartment complex in a residential area of Kansas City, Missouri. Yarco Company, Inc., managed apartment complexes for others. Whispering Lake and Yarco entered into a contract, the "Management Agreement," where Yarco agreed to manage Whispering Lake's apartment complex.

         Under the Management Agreement, Whispering Lake appointed Yarco as the "exclusive agent for the management of the [apartment complex]." The agreement also included indemnity provisions (the "Indemnity Clause"), allocating liability between Whispering Lake and Yarco depending on the type of liability:

(a) Except for fraud, willful misconduct or gross negligence on the part of [Yarco], [Whispering Lake] shall hold and save [Yarco] (and [Yarco]'s directors, officers, employees, shareholders, partners and affiliates) free and harmless from any claim, cause, proceeding, or suit arising out of, or in connection with, any actions by [Yarco] in accordance with this Agreement or acting under the express or implied direction of [Whispering Lake]. Subject to the same exceptions, [Whispering Lake] shall reimburse [Yarco], upon demand, for all costs and expenses (including reasonable attorneys' fees) and for any monies which [Yarco] is required to pay in connection therewith or shall, if requested in writing by [Yarco], defend promptly and diligently, at the sole expense of [Whispering Lake], any claim, action or proceeding against [Yarco] which arises out of, or in connection with, the foregoing.
(b) [Yarco] shall assume sole responsibility for and hold and save [Whispering Lake] free and harmless from any claim, cause or proceeding or suit and any costs or expenses incurred by [Whispering Lake] arising out of, or in connection with, any fraud, gross negligence or willful misconduct on the part of [Yarco] or any of its employees or affiliates. [Yarco] shall reimburse [Whispering Lake] upon demand for all costs and expenses (including reasonable attorneys' fees) and for any monies which [Whispering Lake] is required to pay in connection therewith or shall, if requested in writing by [Whispering Lake], defend promptly and diligently, at the sole expense of [Yarco], any claim, action or proceeding against [Whispering Lake] which arises out of, or in connection with, the foregoing.

         Whispering Lake and Yarco each acquired insurance policies covering commercial liability. Each acquired a "primary" policy and an "excess" or "umbrella" policy, extending coverage to itself and certain others. Whispering Lake acquired a primary insurance policy with Indian Harbor Insurance Co. and an umbrella policy with Great American Insurance Co. The Indian Harbor policy provided $1 million in coverage, [1] and the Great American policy provided $10 million in coverage. Similarly, Yarco acquired a primary policy with Zurich American Insurance Co. and an umbrella policy with Federal Insurance Co. The Zurich policy provided $1 million in coverage, and the Federal policy provided $25 million in coverage.

         The incident giving rise to this case occurred on Independence Day, July 4, 2011. On that day, Yarco's employee, Aaron Sullivan, worked at the apartment complex's pool as a "pool monitor." In this role, Sullivan had a "responsibility to watch over the pool area and to take steps to keep a peaceful area around the pool." During his shift, Sullivan retrieved a handgun. To supposedly "celebrate" Independence Day, Sullivan proceeded to shoot the handgun an unknown number of times. He also allowed other individuals to shoot the handgun numerous times. Sullivan instructed those individuals to direct their shots "away from the pool [and] in the general direction of [a] lake" bordering the apartment complex's property. This property, again, was located in a residential area of Kansas City. One of the bullets traveled across the lake and struck an eleven-year-old girl in the neck, shattering a cervical vertebra and damaging her spinal cord. The girl died the next day.

         The State of Missouri later charged Sullivan (but not the others) for the incident. Sullivan pleaded guilty to Involuntary Manslaughter in the First Degree (Reckless Killing), Mo. Rev. Stat. § 565.024.

         The girl's mother brought a wrongful-death lawsuit against Sullivan and Yarco. The insurers stepped in, based on their duties to defend their insureds. The parties eventually settled the suit for a confidential amount. Each of the insurers paid a part of the settlement, but each reserved its rights to litigate its respective obligation for the settlement.

         Federal then filed this action in federal district court, seeking a declaratory judgment determining the parties' obligations and any priority of coverage. Zurich filed a claim as well, and the court eventually realigned the parties (with Federal and Zurich as plaintiffs and Great American as the defendant). Federal and Zurich filed motions for summary judgment on their claims against Great American. Great American filed cross-motions for summary judgment on Federal's and Zurich's claims. The district court entered an order (and then a judgment), granting Federal's and Zurich's motions and denying Great American's cross-motions. The court held that Great American was obligated to reimburse Federal and Zurich for the amounts they contributed to ...


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