Stafford v. Scottsdale Ins Co ( 2010 )


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  •                                                                  NOT PRECEDENTIAL
    
                           UNITED STATES COURT OF APPEALS
                                FOR THE THIRD CIRCUIT
    
                                         _____________
    
                                          No. 10-1397
                                         _____________
    
                               CHARLES STAFFORD, Appellant
    
                                                 v.
    
                           SCOTTSDALE INSURANCE COMPANY
                                  __________________
    
                         On appeal from the United States District Court
                                 for the District of New Jersey
                                (D.C Civil No. 2-08-cv-03629)
                             District Judge: Hon. Peter G. Sheridan
                                      __________________
    
                           Submitted Under Third Circuit LAR 34.1(a)
                                      November 17, 2010
    
                Before: BARRY, CHAGARES, and VANASKIE, Circuit Judges.
    
                                    (Filed: December 3, 2010)
    
                                          ____________
    
                                            OPINION
                                          ____________
    
    
    CHAGARES, Circuit Judge.
    
           Plaintiff, Charles Stafford, seeks a declaration that a homeowner’s insurance
    
    policy issued by defendant, Scottsdale Insurance Company (“Scottsdale”), provided
    
    personal liability coverage for injuries sustained in a dog attack. The District Court
    granted summary judgment to Scottsdale. Because we agree with the District Court that,
    
    as a matter of law, the insurance policy at issue excluded coverage for personal liability
    
    arising out of injuries caused by an animal, we will affirm.
    
                                                  I.
    
           As we write solely for the benefit of the parties, we will only briefly recite the
    
    essential facts. On June 2, 2005, while walking on the sidewalk near his Maplewood,
    
    New Jersey home, Charles Stafford was attacked by Oliver Kennedy’s dog, a pit-bull mix
    
    named Tank. Tank’s attack on Stafford caused him severe injuries, which required seven
    
    surgeries to repair. Having incurred substantial medical expenses, Stafford sued
    
    Kennedy in the Superior Court of New Jersey for negligent supervision of his dog, as
    
    well as a strict liability violation of New Jersey’s Dog Bite Act. Stafford ultimately
    
    decided not to pursue the strict liability claim, but he won a $1,107,500 default judgment
    
    stemming from Kennedy’s negligence. In its judgment, the Superior Court made several
    
    findings of fact regarding Kennedy’s negligent conduct. Of particular relevance to this
    
    action is the Superior Court’s factual finding that Tank’s attack on Stafford was
    
    proximately caused by Kennedy’s negligent failures to (1) contain Tank within a fence,
    
    despite a prior attack, (2) properly train Tank, and (3) provide Tank with adequate
    
    exercise. Based on these findings, the Superior Court concluded that Kennedy was liable
    
    to Stafford for negligent supervision of his dog.
    
           Kennedy kept Tank on the property of his sister, Natalie Kennedy, with whom he
    
    lived at the time. Natalie Kennedy held a homeowner’s insurance policy issued by
    
    Scottsdale (the “Policy”), which was in effect at the time of the attack and which
    
                                                  2
    provided personal liability coverage to the insured for “bodily injury” arising from an
    
    “occurrence,” subject to a $300,000 limit. 1 Appendix (“App.”) at 47. Importantly,
    
    however, the Policy also contained an exclusion, marked conspicuously with the heading
    
    “THIS ENDORSEMENT CHANGES THE POLICY,” that denied coverage for “‘bodily
    
    injury’… caused by any animal, whether owned or not owned by any ‘insured’” (the
    
    “Animal Exclusion”). App. at 114. Pursuant to this Animal Exclusion, Scottsdale
    
    refused to defend Kennedy in Stafford’s personal injury lawsuit and similarly declined to
    
    indemnify Kennedy for the subsequent judgment against him.
    
           After the Superior Court entered judgment, Kennedy assigned his claim for
    
    coverage under the Policy to Stafford, who then brought this action seeking a declaration
    
    that the Policy provided personal liability coverage for the negligence claim that arose
    
    out of Tank’s attack. The District Court granted Scottsdale’s motion for summary
    
    judgment, finding that the Animal Exclusion unambiguously precluded coverage for
    
    Stafford’s injuries and that Scottsdale, therefore, had not acted in bad faith when it
    
    refused to defend against the negligence claim arising from those injuries.
    
                                                 II.
    
           The District Court had diversity jurisdiction over this action pursuant to 28 U.S.C.
    
    § 1332. We exercise appellate jurisdiction pursuant to 28 U.SC. § 1291.
    
    
    
    
    1
     Oliver Kennedy has alleged that he is an additional insured under the policy issued to
    Natalie Kennedy. For purposes of this action, Scottsdale has assumed that Oliver
    Kennedy qualifies as an insured under the policy issued to his sister, while reserving the
    right to contest his insured status.
                                                  3
             “We subject the District Court’s grant of summary judgment to plenary review,
    
    and we apply the same standard that the lower court should have applied.” Smathers v.
    
    Multi-Tool, Inc., 
    298 F.3d 191
    , 194 (3d Cir. 2002). By that standard, summary judgment
    
    is appropriate “if the pleadings, the discovery and disclosure materials on file, and any
    
    affidavits 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.” Fed. R. Civ. P. 56(c). In making this
    
    determination, we must “view the facts in the light most favorable to the nonmoving
    
    party and draw all inferences in that party's favor.” Farrell v. Planters Lifesavers Co.,
    
    
    206 F.3d 271
    , 278 (3d Cir. 2000). A district court’s interpretation of state law and its
    
    findings as to the legal operation of an insurance policy are conclusions of law which we
    
    review de novo. Royal Ins. Co. of Am. v. KSI Trading Corp., 
    563 F.3d 68
    , 73 (3d Cir.
    
    2009).
    
             Because this case comes before us pursuant to diversity jurisdiction, we apply the
    
    substantive law as decided by the highest court of New Jersey, the state whose law
    
    governs this action. See Orson, Inc. v. Miramax Film Corp., 
    79 F.3d 1358
    , 1373 n.15 (3d
    
    Cir. 1996) (citation omitted). 2
    
                                                 III.
    
    2
     “When the state's highest court has not addressed the precise question presented, [we]
    must predict how the state's highest court would resolve the issue,” Orson, 79 F.3d at
    1373 n.15, and to do so, “we must consider relevant state precedents, analogous
    decisions, considered dicta, scholarly works, and any other reliable data tending
    convincingly to show how the highest court in the state would decide the issue at hand,”
    Covington v. Cont'l Gen. Tire, Inc., 
    381 F.3d 216
    , 218 (3d Cir. 2004) (quotation omitted).
    Most significantly, the “decisions of state intermediate appellate courts should be
    accorded significant weight in the absence of an indication that the highest state court
    would rule otherwise.” Orson, 79 F.3d at 1373 n.15.
                                                  4
             “[C]onstruction of an insurance policy must be approached with a well settled
    
    doctrine in mind. If the controlling language will support two meanings, one favorable to
    
    the insurer, and the other favorable to the insured, the interpretation sustaining coverage
    
    must be applied. Courts are bound to protect the insured to the full extent that any fair
    
    interpretation will allow.” Mazzilli v. Accident & Cas. Ins. Co. of Winterthur, Switz.,
    
    
    170 A.2d 800
    , 803 (N.J. 1961); see also Flomerfelt v. Cardiello, 
    997 A.2d 991
    , 996 (N.J.
    
    2010). Still, the law “will not make a better contract for parties than they themselves
    
    have seen fit to enter into, or alter it for the benefit of one party and to the detriment of
    
    the other. The judicial function of a court of law is to enforce the contract as it is
    
    written.” James v. Fed. Ins. Co., 
    73 A.2d 720
    , 721 (1950) (quotation omitted); see also
    
    Flomerfelt, 997 A.2d at 996. In other words, when an insurance policy’s language is
    
    clear and unambiguous, the court is bound to enforce it according to its plain and
    
    ordinary meaning. Voorhees v. Preferred Mut. Ins. Co., 
    607 A.2d 1255
    , 1260 (N.J.
    
    1992).
    
             In keeping with the general principles outlined above, New Jersey law dictates
    
    that, “if the clause in question is one of exclusion or exception, designed to limit the
    
    protection [provided by an insurance policy], a strict interpretation is applied.” Mazzilli,
    
    170 A.2d at 804; see also Flomerfelt, 997 A.2d at 996. A court will enforce an
    
    exclusionary clause only if it is “specific, plain, clear, prominent, and not contrary to
    
    public policy.” Princeton Ins. Co. v. Chunmuang, 
    698 A.2d 9
    , 17 (N.J. 1997) (quotation
    
    omitted). But, as with all contract language, if the language of an exclusionary clause is
    
    clear and unambiguous, “a court should not engage in a strained construction to support
    
                                                   5
    the imposition of liability.” Flomerfelt, 997 A.2d at 996 (quoting Longobardi v. Chubb
    
    Ins. Co., 
    582 A.2d 1257
    , 1260 (N.J. 1990)).
    
           Applying these well-established principles of interpretation to the exclusionary
    
    clause at issue here, we agree with the District Court that the Policy’s language could not
    
    be clearer. The Policy provided its insured with personal liability coverage for “bodily
    
    injury” arising from an “occurrence”, subject to a $300,000 limit. App. at 47. But the
    
    Animal Exclusion explicitly denied such coverage for “‘bodily injury’… caused by any
    
    animal….” App. at 48, 114. Read in accordance with its plain and ordinary meaning,
    
    this contractual language could only lead a reasonable person to conclude that the Policy
    
    does not provide personal liability coverage for bodily injuries sustained in the course of
    
    an animal attack, such as those that Tank inflicted on Stafford.
    
           Nonetheless, Stafford argues that the Animal Exclusion does not preclude personal
    
    liability coverage under the circumstances because Kennedy’s negligence in supervising
    
    Tank was a concurrent source of his liability, independent of Tank’s attack, for which the
    
    Policy provides coverage. In support of this argument, Stafford relies on the concurrent
    
    causation doctrine set forth in Salem Group v. Oliver, 
    607 A.2d 138
     (N.J. 1992). In
    
    Salem Group, the New Jersey Supreme Court held that an insurance policy provided
    
    personal liability coverage for an accident involving a minor’s use of the insured’s motor
    
    vehicle, despite a motor vehicle exclusion, because the fact that the insured also served
    
    alcohol to the minor was a concurrent cause of the accident, for which the policy at issue
    
    provided personal liability coverage. Id. at 140. In reaching its decision, the court
    
    emphasized that “the serving of alcohol to a minor does not depend on the insured’s
    
                                                  6
    ownership of a motor vehicle or its entrustment to another.” Id. Indeed, if the minor
    
    claimant, having been served alcohol by the insured, had suffered injuries utterly
    
    unrelated to the use of a motor vehicle, the insured would still have been exposed to
    
    liability as a social host, which was covered by the relevant insurance policy.
    
    Accordingly, the court found that the insurer could not avoid its obligation to defend its
    
    insured on the social host claim merely because a separate excluded risk — the operation
    
    of a vehicle — constituted an additional discrete act of negligence causing the claimant’s
    
    injuries. Id.
    
           Despite Stafford’s lengthy arguments to the contrary, we agree with the District
    
    Court that this case is readily distinguishable from Salem Group. Unlike the situation
    
    presented by that case, which involved two entirely distinct negligence claims upon
    
    which to premise liability for the claimant’s injuries, one of which was covered by the
    
    policy and one of which was not, Kennedy’s liability for Stafford’s injuries flows from
    
    his allegedly negligent supervision of Tank. And Kennedy’s negligent supervision of
    
    Tank simply cannot be considered a cause of Stafford’s injuries, separate and apart from
    
    Tank’s attack. 3 See Owens v. Prudential Prop. & Cas. Ins. Co. of N.J., 
    763 A.2d 792
    ,
    
    795 (N.J. Super. Ct. App. Div. 2000) (holding that a motor vehicle exclusion precluded
    
    coverage for a negligent entrustment of a motor vehicle claim against the insured
    
    because, “[u]nlike the facts in Salem, we are not dealing here with an independent,
    
    3
     Kennedy’s reliance on Flomerfelt v. Cardiello, 
    997 A.2d 991
    , 996 (N.J. 2010), is
    similarly misplaced. Like Salem Group, Flomerfelt addresses the application of the
    concurrent causation doctrine to a injury for which there were two distinct negligence
    claims on which to premise liability, one of which was covered by the relevant policy and
    one of which was not.
                                                 7
    discrete act of negligence (such as service of alcohol to a minor) unrelated to the use or
    
    operation of a motor vehicle”).
    
           As New Jersey law makes clear, liability for negligent supervision is grounded in
    
    the insured’s failure to protect the plaintiff from injury in a situation where the insured
    
    bore the legal obligation to do so. See Robert W. Hayman, Inc. v. Acme Carriers, Inc.,
    
    
    696 A.2d 1125
    , 1128 (N.J. Super. App. Div. 1997). Viewed in such a light, it is readily
    
    apparent that an insured’s negligence in supervising the cause of the harm cannot, as a
    
    matter of logic, be considered a source of liability that is isolable from the harm itself.
    
    To the contrary, the two are inextricably intertwined; there is no liability, but for the
    
    harm. See, e.g., Robert W. Hayman, 696 A.2d at 1128-29 (holding that a theft exclusion
    
    precluded personal liability coverage for a negligent supervision claim against an insured
    
    that arose out of the theft of the plaintiff’s property because “the negligent supervision is
    
    premised on [the defendant’s] failure to protect the plaintiff’s property and is intertwined
    
    with the theft…”). Indeed, in this case, the breach of duty upon which the Superior Court
    
    premised its finding of negligence was Kennedy’s failure to restrain his dog from causing
    
    harm to others. Absent Tank’s injury-causing attack, Kennedy’s conduct could not have
    
    been deemed negligent at all. 4
    
    
    4
      Stafford argues, in this regard, that the District Court failed to give full faith and credit
    to the Superior Court’s findings of fact that Kennedy was negligent in failing to contain
    Tank within a fence and failing to properly train Tank. This is simply not true. The
    District Court faithfully abided by the Superior Court’s factual findings in the underlying
    negligence action, but concluded, as a matter of law, that Kennedy’s negligence in
    supervising was not a tortious wrong independent of the harm that Tank caused to
    Stafford. Rather Kennedy’s failures with regard to Tank’s supervision were only wrongs
    against Stafford because those failures were responsible for Tank’s injury-causing attack.
                                                   8
           In short, Kennedy’s negligence in supervising Tank was the cause of Stafford’s
    
    bodily injuries, and the Animal Exclusion precludes personal liability coverage for the
    
    lawsuit stemming therefrom. To hold otherwise would require us to engage in precisely
    
    the type of “strained construction” of the Policy that New Jersey law prohibits. See
    
    Flomerfelt, 997 A.2d at 996 (quotation omitted).
    
                                                 IV.
    
           Stafford next argues that Scottsdale acted in bad faith when it refused to defend
    
    Kennedy against Stafford’s negligence claim.
    
           [T]he duty to defend comes into being when the complaint states a claim
           constituting a risk insured against. Whether an insurer has a duty to defend is
           determined by comparing the allegations in the complaint with the language of the
           policy. When the two correspond, the duty to defend arises, irrespective of the
           claim’s actual merit. If the complaint is ambiguous, doubts should be resolved in
           favor of the insured and thus in favor of coverage.
    
    Voorhees, 607 A.2d at 1259 (quotations and citations omitted). To succeed in his claim
    
    that Scottsdale acted in bad faith when it refused to defend its insured, Stafford must
    
    demonstrate that, comparing the Policy language to the allegations in the complaint, there
    
    existed no “fairly debatable” reason for denying coverage. See Hudson Universal, Ltd. v.
    
    Aetna Ins. Co., 
    987 F. Supp. 337
    , 341 (D.N.J. 1997) (citing Pickett v. Lloyd’s (A
    
    Syndicate of Underwriting Members), 
    621 A.2d 445
    , 453 (N.J. 1993)). This Stafford
    
    cannot do. Having concluded that the Animal Exclusion clearly and unambiguously
    
    precludes personal liability coverage for the injuries caused by Tank’s attack, we must
    
    also conclude that, at the very least, there existed a fairly debatable reason for Scottsdale
    
    
    
    
                                                  9
    to refuse to defend against Stafford’s claim for negligent supervision of the offending
    
    animal in the first instance. 5
    
                                                 V.
    
           For these reasons, we will affirm the judgment of the District Court.
    
    
    
    
    5
     Stafford asserts, without explanation, that “Plaintiff’s expert’s report creates a question
    of fact.” See Stafford Br. at 28. By this we assume that Stafford means to raise a
    question of fact with regard to whether Scottsdale had a duty to defend the underlying
    action. But this question is one of law that the court must answer based on a comparison
    of the allegations in the complaint with the policy language. See, e.g., Robert W.
    Hayman, 696 A.2d at 1127.
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