American Casualty Co. v. Krieger

• Decision Date: 08 December 1998
• Docket Number: No. 97-55926,97-55926
• Citation: 181 F.3d 1113
• Parties: (9th Cir. 1999) AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Plaintiff-Appellee, v. GEORGE KRIEGER, Defendant, and PLAYSCOOL PRODUCTIONS; TODD ZWEIG PRODUCTIONS, Defendants-Appellants, TODD ZWEIG, individually dba Playscool Productions, Defendant-counterclaim-3d-party-plaintiff-Appellant. CNA/AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Counter-defendant-Appellee, v. ASSICURAZIONI GENERALI S.P.A.; ROYAL SURPLUS LINES; ALLIED SPECIALTY INSURANCE; SAN DIEGO ENTERTAINMENT, INC., Third-party-defendants-Appellees. ASSICURAZIONI GENERALI, Intervenor-Appellee. Argued and Submitted:
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1113

181 F.3d 1113 (9th Cir. 1999)

AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Plaintiff-Appellee, v. GEORGE KRIEGER, Defendant and PLAYSCOOL PRODUCTIONS; TODD ZWEIG PRODUCTIONS, Defendants-Appellants, TODD ZWEIG, individually dba Playscool Productions, Defendant-counterclaim-3d-party-plaintiff-Appellant.

CNA/AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Counter-defendant-Appellee, v. ASSICURAZIONI GENERALI S.P.A.; ROYAL SURPLUS LINES; ALLIED SPECIALTY INSURANCE; SAN DIEGO ENTERTAINMENT, INC., Third-party-defendants-Appellees.

ASSICURAZIONI GENERALI, Intervenor-Appellee.

No. 97-55926

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted: December 8, 1998

Decided: June 29, 1999

David W. Baumgarten, San Diego, California, for the defendants-appellants.

Laura E. Hogan, Hawkins, Schnabel, Lindahl & Beck, Los Angeles, California, for the plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California. Judith M. Keep, Chief District Judge, Presiding. D.C. No. CV-94-00478-JNK/LSP.

Before: Robert Boochever, A. Wallace Tashima and Kim McLane Wardlaw, Circuit Judges.

BOOCHEVER, Circuit Judge:

Todd Zweig appeals the district court's entry of summary judgment in a declaratory judgment action brought by American Casualty Company. The district court held that the insurance company had no duty to indemnify or defend Zweig in a tort action stemming from a bungee jumping accident. We affirm in part and reverse in part.

FACTS

Todd Zweig ("Zweig") did business as Playscool Productions, which promoted and produced "roaming nightclub" events in San Diego County, including an annual major event known as "Playscool" and held at the San Diego Sports Arena. Live bands, disc jockeys, fashion shows and other entertainment appeared at Playscool.

In 1992, George Krieger ("Krieger"), who promoted and staged bungee jumping demonstrations, contacted Zweig about performing at the Sixth Annual Playscool. Zweig agreed on the condition that he be named as an "additional insured" under Krieger's insurance policy.

Krieger was insured by American Casualty Company of Reading, Pennsylvania ("American Casualty") under a general liability policy. Krieger's insurance broker, Charles Morton, president of Sports and Entertainment Insurance Services ("SEIS"), procured insurance through American Casualty's underwriters, AON Entertainment, Ltd. ("AON"), for a number of bungee jumper clients, including Krieger. Krieger contacted Morton/SEIS and asked for additional certificates of insurance. Morton/SEIS prepared and gave to Krieger two separate forms entitled "Certificate of Insurance." Both forms named Krieger as the insured. In a "Special Items " category, one listed the City of San Diego and the Sports Arena ("San Diego") as "Additional Insureds." The other certificate, in issue in this appeal, listed (among others) Todd Zweig and Playscool Productions as additional insureds in the "Special Items" category. Krieger gave the certificate to Zweig.

On October 2, 1992, while rehearsing for the Playscool event, two of Krieger's bungee jumpers, Anthony Forcier ("Forcier") and Lisa Machado ("Machado"), got their bungee cords tangled following a "tandem jump." When Krieger attempted to untangle them, the two jumpers fell forty feet to the floor of the Sports Arena and were seriously injured.

On June 15, 1993, Forcier and Machado filed suit in San Diego Superior Court to recover for their injuries against Zweig, Krieger, San Diego, and others. Zweig tendered his defense to San Diego's insurer, Assicurazioni Generali, SPA ("Generali"), as well as to American Casualty, contending he was an "additional insured" under Krieger's liability policy.

American Casualty denied coverage in a letter dated September 13, 1993, stating:

Please be advised that neither Mr. Zweig nor Playskool [sic] Productions is listed as an additional insured on the policy which Mr. Krieger carried with CNA/American Casualty of Reading, PA for the period of this loss. In addition, we have already advised our insured that there is no coverage for him for this loss. His policy contained an endorsement specifically excluding coverage for injuries to any person while rehearsing or practicing for, participating in or traveling to or from any sport or athletic event that the insured conducts, produces, promotes or sponsors. We have also notified the attorney representing the plaintiffs that there is no coverage for this loss.

Zweig then sent American Casualty a copy of the certificate of insurance naming him as an "additional insured." On September 30, 1993, American Casualty again wrote that Krieger's policy did not cover injuries to any person rehearsing or practicing for a sport or athletic event, and added:

For the same reason that there is no coverage for the Named Insured, there is, likewise, no coverage for any additional insured, added by certificate or any person or entity who claims coverage under an "insured contract."

Krieger did not respond to the state court complaint, and in April 1994 a default judgment was entered against him in the amount of $ 6.4 million. The state suit against Zweig and the other defendants went to trial in February 1995. In March 1995, a jury returned a special verdict finding (1) Krieger was reckless; (2) Zweig was not negligent; but (3) the bungee jumping came under the "peculiar risk" doctrine, as it was "likely to create a special risk of bodily harm to others unless special precautions were taken," and Zweig should have recognized that it was likely to create such a risk. On May 19, 1995, the state court entered judgment in favor of Forcier and Machado against Zweig only, for approximately $ 4.2 million, holding that no recovery could be had against San Diego.

PROCEDURE

In addition to his appeal of the district court's grant of summary judgment holding that Zweig was not an "additional insured," Zweig argues that the district court abused its discretion in exercising jurisdiction over American Casualty's declaratory judgment suit. We therefore set forth in some detail the procedure followed in the district court.

On March 28, 1994, before the state court suit went to trial, American Casualty filed the federal suit that is the basis for this appeal: a diversity action (American Casualty is a Pennsylvania corporation) for declaratory relief against Krieger, Forcier, Machado, Zweig and others in the United States District Court for the Southern District of California. The complaint requested a declaratory judgment that American Casualty had no duty to defend or indemnify any defendant for the bungee jumping injuries.

On April 12, 1994, Zweig filed a state court suit against American Casualty, Generali, and San Diego in San Diego Superior Court, alleging breach of contract and breach of the implied covenant of good faith and fair dealing against the insurers, and breach of contract against San Diego. Zweig also requested declaratory relief.

The complaint in the federal action was not served on Zweig until May 21, 1994, after Zweig had filed his state court action. Zweig answered and filed counterclaims against American Casualty, for breach of contract and breach of the implied covenant of good faith and fair dealing. At the same time, Zweig dismissed his state court action. Forcier and Machado answered the complaint and filed counterclaims against American Casualty, and also filed a motion to dismiss and/or stay the action, which the district court denied as moot.

In December 1994, American Casualty filed a motion for summary judgment on the ground that an endorsement to the policy explicitly excluded coverage for injury to "any person while rehearsing or practicing for, participating in, or traveling to or from any sport or athletic contest/event that you [Krieger] conduct, produce, promote, or sponsor." Zweig and the other defendants opposed the motion, arguing that the bungee jumping demonstration was not a "sport or athletic contest/event." The district court denied the motion, because "the policy terms are ambiguous as they pertain to bungee jumping," leaving triable issues of material fact regarding whether the policy covered the event in which Forcier and Machado were injured. The court did, however, grant summary judgment to American Casualty regarding the bad faith counterclaims, because the company's interpretation of the policy was not arbitrary or unreasonable and therefore not made in bad faith.

In February 1995, Forcier, Machado, and Krieger filed a motion for summary judgment on the ground that American Casualty owed them a duty to defend, as the district court had determined that there were factual issues regarding the coverage of American Casualty's policy. Zweig attempted to join this motion in March 1995, but the court denied his motion for joinder as untimely under a local rule.

In March 1995, Krieger, Forcier, and Machado moved for reconsideration of the district court's order granting American Casualty summary judgment on the bad faith counterclaims. American Casualty moved for summary adjudication of the counter-claimants' prayers for punitive damages.

The court denied Krieger, Forcier, and Machado's motion for reconsideration, and also denied their motion for summary judgment on the duty to defend. The court held that "the potential for liability does not turn on disputed facts, but rather on the legal question of whether the undisputed facts fall under the 'sports participant exclusion' of American Casualty's policy."

In May 1995, more than a year after American Casualty filed the declaratory relief action in the district court, defendants Forcier, Machado, and Krieger filed a motion to dismiss the action for lack of jurisdiction. The court denied the motion in July 1995, and denied a renewed motion in February 1996. The court decided to continue to exercise its discretionary jurisdiction under the Declaratory Judgment...