Am. Empire Surplus Lines Ins. Co. v. Chabad House of North Dade Inc.

• Decision Date: 21 March 2011
• Docket Number: Case No. 10–20872–CIV.
• Citation: 771 F.Supp.2d 1336
• Parties: AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, Plaintiffs,v.CHABAD HOUSE OF NORTH DADE, INC., John Doe and Jane Joe, Defendants.
• Court: U.S. District Court — Southern District of Florida

771 F.Supp.2d 1336

AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, Plaintiffs,

v.CHABAD HOUSE OF NORTH DADE, INC., John Doe and Jane Joe, Defendants.

Case No. 10–20872–CIV.

United States District Court, S.D. Florida.

March 21, 2011.

Rory Eric Jurman, Fowler White Burnett, Fort Lauderdale, FL, Yelena Shneyderman, Miami, FL, for Plaintiffs.David H. Gold, Law Offices of David H. Gold, P.A., Boca Raton, FL, Ruben Victor Chavez, Gold Chavez & Gold PA, Coral Gables, FL, Gary Devenow Fox, Stewart Tilghman Fox & Bianchi, Miami, FL, for Defendants.

ORDER ADOPTING IN PART AND OVERRULING IN PART REPORT OF MAGISTRATE JUDGE (D.E. 50) AND GRANTING DEFENDANT AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY'S MOTION TO FOR SUMMARY JUDGMENT (D.E. 36)

JOAN A. LENARD, District Judge.

THIS CAUSE is before the Court on the Report and Recommendation of Magistrate Judge Jonathan Goodman (“Report,” D.E. 50), issued on October 4, 2011, recommending that Plaintiff American Empire Surplus Lines Insurance Company's (“American Empire”) Motion for Summary Judgement (D.E. 36) be granted. On October 20, 2011, Defendants John and Jane Doe (the “Does”) filed objections to the Report (“Objections,” D.E. 51) which were subsequently adopted by Defendant Chabad House of North Dade, Inc. (collectively, “Defendants”).¹ American Empire filed its Response to the Objections (“Response,” D.E. 56) on November 1, 2011.² Upon de novo review of the Report, Objections, Response and the record, the Court finds as follows.

I. Factual and Procedural Background

This case involves the interpretation of an insurance policy issued by American Empire to Defendant Chabad House of North Dade, Inc. (“Chabad House”). The underlying state court claim that gives rise to American Empire's action for declaratory judgment involves troubling allegations of abuse. ³

Defendant Does are the parents of a special needs child, “J.D.,” who lives with them. Through a program called Friendship Circle, Chabad House sent two of its teenage members, Soloman Gicherman and Ariel Levy, to the Does' home in order to “motivate, befriend and enrich” J.D. while providing his parents with brief respite from caring for his everyday needs.

Rather than motivate, befriend or enrich the eleven-year old J.D., the teenagers tormented him physically and emotionally. They restrained him against his will, taped his mouth shut, locked him in a bathroom, touched and slapped J.D.'s penis, sprayed bug spray on his body and penis and instructed him to perform lewd acts. They also told J.D. that his mother had been diagnosed with breast cancer and would soon die. To keep their torture a secret, the teenagers threatened J.D. with physical violence and death if he told anyone.

The Does sued Chabad House for negligence in state court. They claim that Chabad House was negligent in selecting and training the Friendship Circle volunteers. They also claim that Chabad House negligently misrepresented that its volunteers were properly trained to deal with special needs children and failed to warn the Does that the teenage volunteers lacked training or supervision.

American Empire filed the instant action on March 22, 2010, seeking declaratory judgment that no coverage exists under its policy for the claims asserted by the Does against Chabad House and that American Empire has no duty to defend or indemnify Chabad House in the state court action. (See Compl. ¶¶ 29–34.) American Empire bases its claim on two clauses in the insurance contract: the abuse or molestation exclusion and the limitation of coverage to designated premises or project. (Id. ¶¶ 25–28.) ⁴ The parties agree that the facts of this case are not in dispute. (See Corrected Mot. for Summary J. at 2–7, D.E. 36; Defs.' Opp. at 2, D.E. 37.) Rather, the parties acknowledge the only dispute is over the legal import of the terms of American Empire's insurance policy. (Defs.' Opp. at 2.)

A. The Report

In his Report, Magistrate Judge Goodman finds that both the abuse or molestation exclusion and the limitation to designated premises endorsement bar American Empire's coverage of the state court negligence claims against Chabad House and recommends granting summary judgment in favor of the insurer. (Report at 12.)

The Report construes the Does' claims as “arising out of” the teenagers' actual or threatened abuse or molestation. ( Id. at 5, citing Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So.2d 528 (Fla.2005).) It does so by examining the conduct which gave rise to J.D.'s injuries, notwithstanding the Does' attempt to plead their claims against Chabad House in negligence. ( Id., citing Miami Beach Entm't v. First Oak Brook Corp. Syndicate, 682 So.2d 161 (Fla. 3d DCA 1996).) The Report dismisses the Does' argument that some of the teenagers' alleged intentional torts did not clearly constitute abuse or molestation. ( See id. at 7–8.) The Magistrate Judge also declines to adopt the Does' interpretation of the abuse or molestation clause in which paragraph 2 but not paragraph 1 would apply to their negligent misrepresentation and failure to warn claim. ( See id. at 8–10.)

As to the designated premises endorsement, the Report finds the language “operations necessary or incidental to the premises” is not ambiguous and does not include operations necessary or incidental to Chabad House's business. ( See id. at 10.) The Report follows Union American Insurance Co. v. Haitian Refugee Center/Sant, Inc., 858 So.2d 1076 (Fla. 3d DCA 2003), where the state court dealing with similar language in an insurance contract refused to substitute “business” for “premises.” ( Id., citing Union American Ins. Co., 858 So.2d at 1078.) The Report distinguishes the Does' preferred authority, Southeast Farms v. Auto–Owners Insurance Co., 714 So.2d 509 (Fla. 5th DCA 1998), where the policy in dispute was a general liability policy—unlike the premises liability policy here—and the insurance company “surprisingly” conceded that “premises” meant “business.” ( Id., citing Southeast Farms, 714 So.2d at 511 n. 3, 512.)

B. Defendants' Objections

Defendants take issue with the Magistrate Judge's findings and recommendations and urge this Court to decline to follow the Report, instead requiring American Empire to defend Chabad House in the state court action.⁵

Among their main contentions, Defendants argue that the language “arising out of” creates ambiguity via its interaction with other policy language. (Objections at 3, citing Taurus Holdings, 913 So.2d at 533.) Specifically, the interplay of paragraphs 1 and 2 of the abuse or molestation exclusion creates ambiguity. (See id.) Defendants continue this argument by citing rules of insurance policy construction: (1) each provision of the policy must be construed in relation to the whole and (2) where policy language has two or more reasonable interpretations, it is ambiguous and must be construed in favor of coverage. ( See id. at 4, citing Dahl–Eimers v. Mutual of Omaha Life Ins. Co., 986 F.2d 1379, 1381 (11th Cir.1993) and Taurus Holdings, 913 So.2d at 532.) Defendants claim that these rules of construction were misapplied in the Report and that another reasonable interpretation of the abuse or molestation exclusion is that paragraph 1 applies when the claim is based on the abuse itself or vicarious liability, while paragraph 2 applies when the claim is based on enabling negligence, such as negligent hiring or retention. ( See id. at 5.) Multiple viable interpretations create the ambiguity which in turn requires this Court to construe the policy in favor of coverage. (See id.) Furthermore, Defendants cite a third rule of construction: exclusions to coverage must be construed more strictly against the insured than other policy provisions. (See id. at 6, citing Auto–Owners Ins. Co. v. Anderson, 756 So.2d 29, 34 (Fla.2000.))

Second, Defendants object to the Report's finding that the designated premises endorsement bars coverage. (See id. at 6–9.) They argue that the policy at issue is a general commercial liability policy and not merely a premises liability policy. (See id. at 6.) This is evidenced by its coverage territory (United States, Puerto Rico and Canada), coverage for bodily injury “occurring away from the premises

[Chabad

House] own[s] or rent [s],” and coverage for torts such as libel and slander that are not tied to the premises. (Id. at 7 (citations omitted).)

Per the Defendants' analysis, the Magistrate Judge erroneously followed Union American Insurance Co. instead of Southeast Farms. ( See id. at 8–9 (citations omitted).) Southeast Farms contained a designated premises provision in what appeared to be a general commercial policy. ( See id. at 9. (citation omitted).) This provision would have nullified coverage in the policy for “advertising injury,” and therefore was found to create an ambiguity. ( See id. (citation omitted).) In light of this ambiguity, the Florida appellate court in Southeast Farms construed the disputed policy to find coverage, just Defendants entreat the Court to do in the instant case. ⁶

II. Discussion

Under Florida law, interpretation of an insurance contract, including determination and resolution of ambiguity, is a matter of law. Sproles v. American States Ins. Co., 578 So.2d 482, 484 (Fla. 5th DCA 1991); Gulf Tampa Drydock Co. v. Great Atl. Ins. Co., 757 F.2d 1172, 1174 (11th Cir.1985). The parties agree that the underlying facts in this action are not in dispute, therefore this case is ripe for resolution at the summary judgment stage. See Fed.R.Civ.P. 56(c) (summary judgment can be entered on a claim only if it is shown “that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law”); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Fed.R.Civ.P. 56(f) (non-movant may be awarded summary judgment upon the Court's own initiative provided the Court gives the parties...