Republic Ins. Co. v. Piper, Civ. A. No. 80-W-4.

• Decision Date: 01 July 1981
• Docket Number: Civ. A. No. 80-W-4.
• Citation: 517 F. Supp. 1103
• Parties: REPUBLIC INSURANCE COMPANY, a Texas corporation, Plaintiff, v. Ina PIPER, Frank Piper, Krystal Ervin, Marylyn Ervin and William Ervin, Defendants.
• Court: U.S. District Court — District of Colorado

517 F. Supp. 1103

REPUBLIC INSURANCE COMPANY, a Texas corporation, Plaintiff, v. Ina PIPER, Frank Piper, Krystal Ervin, Marylyn Ervin and William Ervin, Defendants.

Civ. A. No. 80-W-4.

United States District Court, D. Colorado.

July 1, 1981.

White & Steele by Walter A. Steele and Michael L. O'Donnell, Denver, Colo., for plaintiff.

Robert M. Vockrodt, Aurora, Colo., for defendants Piper.

Robert G. Cale and Bradford Pelton, Colorado Springs, Colo., for defendants Ervin.

MEMORANDUM OPINION

WINNER, Chief Judge.

This memorandum opinion is intended to constitute the findings of fact and conclusions of law required by Rule 52. The case is a declaratory judgment action in which diversity jurisdiction is admitted. Plaintiff asks a determination as to whether a homeowners insurance policy issued by it to Ina and Frank Piper affords coverage for injuries suffered by Krystal Ervin, a minor child of Marylyn and William Ervin. The policy in question is a typical homeowners policy, and it excludes coverage of injuries:—

"... intended by the insured (or)

"... arising out of the business pursuits of any insured. This exclusion does not apply to (1) activities which are ordinarily incident to non-business pursuits."

Plaintiff says that the injuries are not covered because they were intended by Ina Piper and because they arose out of the conduct of a business by her. Additionally, plaintiff says that the injuries did not result from activities which are "ordinarily incident to non-business pursuits."

Krystal Ervin is a beautiful, alert, well-mannered child who on December 5, 1978, when she was a little over a year old, suffered tragic burns of both her hands and who has been required to undergo surgery to try to repair the serious damage she sustained. Her hands were burned while she was under the care of and was in the home of Ina Piper, and they were burned when her hands were immersed in water later tested at a temperature of over 140°F. A lawsuit has been filed in state court on Krystal's behalf by her parents. That complaint alleges negligent supervision of Krystal while she was under the care of defendant Ina Piper, and damages of more than $1,000,000 for permanent disability are requested as are punitive damages. Republic Insurance Company is defending the state court case under a reservation of rights pending the outcome of this case.

The Child Care Act of the State of Colorado requires that all day care and foster homes be licensed. Ina Piper and Frank Piper applied for a day care license on March 1, 1978, and the license issued as of April 24, 1978. Its issuance followed an investigation by the Department of Social Services and the Department licensed the operation of a Family Care or Day Care home at the Piper's residence in Thornton, Colorado. During the investigation, representatives of the Department of Social Services talked to Mrs. Piper and explained all of the requirements for the operation of such homes. Mrs. Riley, a Department representative, told Mrs. Piper that she would be conducting a business and that ordinarily homeowners insurance policies do not cover day care homes. She told Mrs. Piper that a voluntary association of licensed day care home operators had arranged for a group policy, and it was explained how contact could be made with that association. Mrs. Piper attended an orientation meeting put on by the association at which it was again emphasized that homeowners policies don't cover day care homes and it was again mentioned that the association had available a group policy which would be much cheaper than an individual rider on a homeowners policy assuming such a rider could be obtained. Mrs. Piper joined the association, and during the year newsletters were mailed to all members. Some of these newsletters reminded the recipients of the need for insurance and of the fact that homeowners policies don't usually cover injuries sustained by children in the care of a licensed day care home. Mr. Piper did not attend the orientation meeting, but he is a former insurance salesman who had been employed by a general line insurance company, and he had himself sold homeowners policies. Nevertheless, the Pipers did not elect to obtain coverage under the association group policy nor did they attempt to obtain a rider to their homeowners policy. Accordingly, if Krystal Ervin is to be compensated for her injuries from any known insurance coverage, she must be paid from the Pipers' homeowners policy.

Plaintiff's officers and lawyers cannot be governed by sympathy any more than can a judge or jury, and they owe the duty to their stockholders to question whether there is coverage to pay for Krystal's injuries under the language of the policy. That is one reason they filed this lawsuit, and another reason is that insurance premiums are based on actuarial evaluations of covered risks, and if they were to be sympathetic extensions of the evaluated risks, all insureds would be prejudiced.

Of course, Krystal can't tell us what happened, nor can any of the other children being cared for by Mrs. Piper that day because all of them were too young. Mrs. Piper's separate stories to the criminal investigator who looked into the case were not consistent, but seemingly, after being given a mid-morning snack, the children two of whom were Mrs. Piper's children were supposed to go to the bathroom to wash their hands. It was there that Krystal's hands were so severely burned. Mrs. Piper says that Krystal crawled up on a hamper and somehow stopped the flow of water from the sink in which she had voluntarily placed her hands. According to Mrs. Piper, when she came into the bathroom, Krystal's hands weren't red or swollen, and she wasn't crying. Mrs. Piper says that the telephone rang about that time and when she finished her telephone conversation, Krystal's hands were red and she was whimpering. She called the parents, and Mr. Ervin picked up the child and took her to the medical clinic where Krystal's pediatrician practiced. Mrs. Piper testified that she found the child to be somewhat retarded and she postulated that Krystal is insensitive to pain. This story differed in part from that which was told the police officer during the child abuse criminal investigation.

Any suggestion that the burns resulted from momentary inadvertent placing of the child's hands in hot water was destroyed by the testimony of Dr. Boshen, the pediatrician. He said that although understandably enough no one has experimented with putting small childrens' hands in scalding water, based upon his training and experience, it was his opinion that if a child mistakenly put her hands in water of 140°F., the hands wouldn't remain there more than two tenths of a second; that the burns Krystal sustained meant that her hands were in the water at least three seconds and perhaps six seconds. Additionally, although there was not a scintilla of credible evidence that the child is insensitive to pain or that she is in any way retarded or slow witted, Dr. Boshen testified that he had performed all customary neurological tests on her, and that she is an intelligent, normal little girl. He, and other witnesses, testified that when she was taken from the Piper home to the clinic, in addition to the burns on her hands and wrists, she had somehow received a bruise on her nose which was belatedly said by Mrs. Piper to have resulted from a fall. The nature and location of the burns were such that, according to the doctor, it is highly unlikely that they were accidental, and I find from a preponderance of all the evidence that the burns were the result of an intentional act. The only person present in the home physically capable of that act was Mrs. Piper.

I come now to the question of whether these injuries arose out of a business pursuit of the insured and, if so, whether they arose out of activities which are ordinarily incident to non-business pursuits. Counsel have found and I have found surprisingly few cases discussing whether day care homes are or are not encompassed within the standard business pursuits clause of homeowners insurance policies, and it is arguable that there is conflict among those decisions, although it is also arguable that the cases differ in result because of different facts. At the outset, I mention that although its draftsmanship may be open to criticism, I do not think that the policy is ambiguous, and I think it can and must be read to mean just exactly what it says. Security Mutual Casualty Co. v. Century Casualty Co. (1976) 10 Cir., 531 F.2d 974; Resort Rental Car System, Inc. v. Chuck Ruwart Chevrolet, Inc. (1975) 519 F.2d 317, Quad Const., Inc. v. Wm. A. Smith Contracting Co., Inc. (1976) 10 Cir., 534 F.2d 1391, and Griffin v. United Bank of Denver (1979) Colo., 599 P.2d 866.¹

The contract says that subject to the exception which I shall discuss presently, accidents arising out of business pursuits are not covered by the policy. There is more than just a little bit of evidence to show that Mrs. Piper was in the day care center business. She was told at the time of the interview by the Social Services representatives that day care homes were businesses. She was told this at the time of the orientation meeting. She filed a formal application with the State of Colorado for a license to operate a day care home. She received a license from the Department of Social Services of the State of Colorado...