Clark v. Sputniks, LLC

• Decision Date: 30 May 2012
• Docket Number: Nos. M2010–02163–SC–R11–CV, M2010–02145–SC–R11–CV.,s. M2010–02163–SC–R11–CV, M2010–02145–SC–R11–CV.
• Citation: 368 S.W.3d 431
• Parties: Donna CLARK v. SPUTNIKS, LLC et al. and Leonard Gamble v. Sputniks, LLC et al.
• Court: Tennessee Supreme Court

368 S.W.3d 431

Donna CLARK

v.SPUTNIKS, LLC et al.andLeonard Gamble

v.Sputniks, LLC et al.

Nos. M2010–02163–SC–R11–CV, M2010–02145–SC–R11–CV.

Supreme Court of Tennessee.

Feb. 16, 2012 Session at Nashville.

May 30, 2012.

Russell E. Reviere and Jonathan D. Stewart, Jackson, Tennessee, for the appellant, QBE Insurance Company.

William B. Jakes, III, and Mary Martin Schaffner (at trial) Nashville, Tennessee; Joe Dalton, Jr., Hendersonville, Tennessee, for the appellees, Donna Clark and Leonard Gamble.

OPINION

SHARON G. LEE, J., delivered the opinion of the Court, in which CORNELIA A. CLARK, C.J., JANICE M. HOLDER, GARY R. WADE, and WILLIAM C. KOCH, JR., JJ., joined.

SHARON G. LEE, J.

In these consolidated cases, the primary issue is whether there is liability insurance coverage for the plaintiffs' injuries resulting from an altercation on the premises of the insured's bar and restaurant. The insurer denied coverage and declined to defend the insured based on its determination that there was no coverage under the terms of the policy. We hold that based on the clear terms of the policy agreement, there is no liability coverage because the incident arose from an assault and battery, which was an excluded cause, and because there is no nonexcluded concurrent cause to provide coverage. We further hold that estoppel by judgment does not apply to collaterally estop the insurer from arguing the lack of coverage. The judgment of the trial court is reversed.

I.

On September 20, 2007, decedent Samuel Clark, plaintiff Leonard Gamble, and David Smotherman were patrons at Sputniks, a bar and restaurant in Hendersonville. While at Sputniks, Mr. Smotherman assaulted Mr. Clark “by hitting his head repeatedly on a table until he killed him.” Mr. Gamble tried to intervene and was allegedly injured in the attempt.¹

Ms. Clark and Mr. Gamble brought separate tort actions against Sputniks, LLC, and Cristie Phillips, individually and doing business as Sputniks, LLC (“the defendants”).² The plaintiffs alleged that the defendants engaged in a pattern of conduct encouraging inebriation of Sputniks' patrons and failed to take reasonable steps to protect customers from foreseeable criminal attacks. Neither Sputniks nor Ms. Phillips defended the actions.

At the time of the bar fight, Sputniks was insured by QBE Insurance Corporation (“Insurer”) under a liability insurance policy. After Sputniks timely notified Insurer of the lawsuits, Insurer denied coverage and declined to defend the actions. On November 17, 2008, the trial court entered identical orders in both cases stating that “default judgment on the issue of liability is hereby granted to the plaintiff in this cause and the matter shall proceed on the issue of damages, reserved for further hearing.” After hearings on February 11 and 18, 2008, the trial court entered final judgments against the defendants, awarding Mr. Gamble $275,000 and Ms. Clark $2,500,000 in compensatory damages.

In an effort to collect the judgments, the plaintiffs brought declaratory actions against Insurer seeking a ruling that Insurer's liability insurance policy provided coverage for the tort judgments and also filed a writ of non-wage garnishment against Insurer. Insurer denied there was any insurance coverage under the policy for the plaintiffs' injuries and denied that it owed the plaintiffs any money. Following a hearing, the trial court entered an order on August 24, 2010, finding that the altercation at Sputniks was covered under both the commercial general liability and liquor liability provisions of the policy. The trial court held Insurer liable for satisfaction of the non-wage garnishment writs in the amount of the underlying tort judgments.

Insurer appealed. The Court of Appeals ruled that the liquor liability coverage agreement provided coverage for the judgments but that the commercial general liability agreement provided no coverage. Clark v. Sputniks, LLC, No. M2010–02163–COA–R3–CV, 2011 WL 2135407, at *1 (Tenn.Ct.App. May 25, 2011); Gamble v. Sputniks, LLC, No. M2010–02145–COA–R3–CV, 2011 WL 2135438, at *1 (Tenn.Ct.App. May 25, 2011). We granted Insurer's applications for permission to appeal, ordered the two actions consolidated for purposes of this appeal, and now address two issues: (1) whether Insurer is collaterally estopped by operation of the doctrine of estoppel by judgment from arguing that there is no insurance coverage because of the previously entered default judgments against the defendants in the underlying tort actions, and (2) if Insurer is not collaterally estopped from asserting the coverage issue, whether the policy issued by Insurer to Sputniks provides coverage for the plaintiffs' injuries in the tort actions.

II.

By allowing default judgments to be entered against them, the defendants impliedly admitted as true all the material factual allegations contained in the complaints, except the amount of the plaintiffs' unliquidated damages. Patterson v. Rockwell Int'l, 665 S.W.2d 96, 101 (Tenn.1984); Adkisson v. Huffman, 225 Tenn. 362, 469 S.W.2d 368, 375 (1971); Warren v. Kennedy, 48 Tenn. (1 Heisk.) 437, 439 (1870). Because the factual allegations of the complaints were conclusively established by the trial court's default judgments, Insurer cannot attack or challenge the facts in a later action. See Home Ins. Co. v. Leinart, 698 S.W.2d 335, 336 (Tenn.1985); Kelly v. Cherokee Ins. Co., 574 S.W.2d 735, 737–38 (Tenn.1978); Adkisson, 469 S.W.2d at 375.

The relevant allegations from Ms. Clark's complaint,³ which are taken as true, are:

That ... there was inadequate security or no security at all in Sputniks to prevent or stop the assault on Samuel Clark.

That Cristie Phillips, dba Sputniks, has engaged in a pattern of conduct which encourages inebriation of its patrons, thereby establishing constructive notice of dangerous conditions or potentially dangerous conditions on the premises.

That the failure of Cristie Phillips, dba Sputniks, to provide security exacerbates the potential for dangerous conditions resulting from instances of inebriation of its patrons and, therefore, imposes premises liability for such conditions upon the property occupier and/or owners thereof.

That the defendant Cristie Phillips, dba Sputniks, breached the duty to take reasonable steps to remedy commonly occurring dangerous conditions such as that which came to exist on September 30, 2007, when the decedent was assaulted and beaten to death by defendant David Smotherman.

That the defendant Cristie Phillips, dba Sputniks, breached the duty upon business owners to take reasonable measures to protect customers from foreseeable criminal attacks.

That the defendant Cristie Phillips, dba Sputniks, had actual or constructive notice of such dangerous conditions or the potential for dangerous conditions based upon prior and recurring incidents of the same nature.

That as a proximate result of the negligence of the defendants Cristie M. Phillips, dba Sputniks, LLC, for its [sic] failure to take reasonable steps to protect its customers from foreseeable dangerous conditions, the plaintiff's husband, Samuel Clark[,] was killed.

(Numbering in original omitted).

These facts must be considered in relation to the following provisions of the commercial general liability policy and the liquor liability agreement issued to Sputniks:

Commercial General Provisions:

A. This insurance does not apply to actions and proceedings to recover damages for “bodily injury,” “property damage” or “personal and advertising injury” arising from the following and the Company is under no duty to defend or to indemnify an insured in any action or proceeding alleging such damages:

1. Assault and Battery or any act or omission in connection with the prevention or suppression of such acts; or

2. Harmful or offensive contact between or among two or more persons; or

3. Apprehension of harmful or offensive contact between or among two or more persons; or

4. Threats by words or deeds.

B. This exclusion applies regardless of the degree of culpability or intent and without regard to:

1. Whether the acts are alleged to be by or at the instruction or at the direction of the insured, his officers, employees, agents or servants; or by any other person lawfully or otherwise on, at or near the premises owned or occupied by the insured; or by any other person;

2. The alleged failure of the insured or his officers, employees, agents or servants in the hiring, supervision, retention or control of any person, whether or not an officer, employee, agent or servant of the insured;

3. The alleged failure of the insured or his officers, employees, agents or servants to attempt to prevent, bar or halt any such conduct.

(Emphasis added).

Liquor liability agreement provisions:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “injury” to which this insurance applies if liability for such “injury” is imposed on the insured by reason of the selling, serving or furnishing of any alcoholic beverage. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “injury” to which this insurance does not apply.

(Emphasis added).

The trial court ruled that based on the facts alleged in the complaint there was coverage under the general and liquor portions of the policy. Since the determination of the scope of insurance coverage is a question of law, U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381, 386 (Tenn.2009), our review is de novo with no presumption of correctness. Harman v. Univ. of Tenn., 353 S.W.3d 734, 736–37 (Tenn.2011).

III.

We must first resolve the issue of whether, after the entry of the default judgments against the defendants, Insurer can argue that there is no insurance coverage available to indemnify the plaintiffs. The plaintiffs contend that Insurer is collaterally...