Country Mut. Ins. Co. v. Lawson

Decision Date31 March 2017
Docket NumberNo. 2 CA-CV 2016-0154,2 CA-CV 2016-0154
CourtCourt of Appeals of Arizona



See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f).

Appeal from the Superior Court in Graham County

No. CV201500004

The Honorable D. Corey Sanders, Judge Pro Tempore



Goering, Roberts, Rubin, Brogna, Enos & Treadwill-Rubin, P.C., Tucson

By Kristin A. Green and Chris Enos

Counsel for Plaintiff/Appellee

Torgenson Law, Phoenix

By John P. Torgenson and Paul M. Benson

Counsel for Defendants/Appellants


Presiding Judge Staring authored the decision of the Court, in which Judge Miller and Judge Espinosa concurred.

STARING, Presiding Judge:

¶1 Melissa Lawson appeals from a declaratory judgment that the injuries she suffered during an exercise class at a local fitness club were not covered by the instructor's homeowner's insurance policy.1 For the reasons that follow, we affirm.

Factual and Procedural Background

¶2 We view the facts in the light most favorable to sustaining the trial court's judgment. Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, ¶ 51, 200 P.3d 977, 989 (App. 2008). In January 2013, Lawson suffered a stroke during an exercise class taught by Maria Kouts at a Safford, Arizona fitness club. In July 2014, Lawson filed a lawsuit against Maria and her spouse Jason Kouts for damages resulting from her injuries, and the Koutses submitted a claim for liability coverage under their homeowner's insurance policy. The insurer, Country Mutual Insurance Company ("Country Mutual"), subsequently brought an action seeking a declaratory judgment that the Koutses' homeowner's policy did not provide coverage for Lawson's claims because, at the time of the incident, Kouts was engaged in business activity expressly excluded from coverage.2

¶3 The factual issues in the declaratory judgment action were tried to a jury in May 2016.3 Kouts testified she was a lifelong fitness enthusiast, and began attending classes for Zumba, a dance-based fitness program, in 2011. She became close friends with the club's co-owner Cami Warren, and by August 2011 she was teaching a one-hour Zumba class three days per week for $10 per hour in bartered compensation. This arrangement continued until Kouts injured her knee in December 2011 and stopped teaching for seven months.

¶4 In 2012, the Koutses borrowed $40,000 and loaned the proceeds to the club, in what they characterized as an interest-free loan with flexible repayment terms. Also, using their own funds and resources, the Koutses purchased new Zumba equipment, and Jason Kouts used his personal expertise and the resources of his construction business to make improvements to the club, including painting, moving walls, and building new bathrooms, an office, and a "Zumba room."

¶5 As of the date of Lawson's injury, Kouts taught two one-hour classes at the club each week, issued checks for payroll and other club expenses, and spent six hours at the club five days per week, serving as a familiar face to encourage people to keep returning to the club. She received no regular compensation when she resumed teaching and assumed additional responsibilities inJuly 2012.4 She testified she had reluctantly agreed to an informal one-year partnership with Warren when Warren moved out of state because she was passionate about Zumba, did not want the club to close, and Warren was her best friend. Kouts also confirmed she did not take compensation because of Warren's promise to make her a partner, and believed her unpaid work entitled her to an ownership interest in the club. Additionally, she represented herself online as the club's co-owner at some point after March 2013.

¶6 The jury found Kouts's activity at the club constituted "a trade, profession, or occupation," and as a result the trial court entered judgment that Country Mutual's policy excluded coverage for Lawson's claims. Lawson filed a motion for new trial and a renewed motion for judgment as a matter of law. See Ariz. R. Civ. P. 50, 59.5 The court denied both motions, and entered a signed judgment on July 1, 2016, which lacked the language required by Rule 54(c), Ariz. R. Civ. P., but was later amended pursuant to our order temporarily revesting jurisdiction in the court. See Ariz. R. Civ. App. P. 3(b) (authority to revest). This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-2101(A)(1) and 12-2102(B).6


¶7 On appeal, Lawson challenges the trial court's judgment that the Koutses' homeowner's policy excludes coverage for her injury because it arose in connection with business activity subject to an express exclusion. She disputes the court's interpretation of policy language and challenges the jury's finding that Kouts was engaged in a "trade, profession or occupation."

¶8 The interpretation of insurance policy language is a matter of law that we review de novo. First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, ¶ 8, 187 P.3d 1107, 1110 (2008). We view the evidence in the light most favorable to sustaining the jury verdict, and will affirm "if any substantial evidence exists" to support it. Hutcherson v. City of Phoenix, 192 Ariz. 51, ¶ 13, 961 P.2d 449, 451 (1998); see also Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, ¶ 51, 200 P.3d 977, 989 (App. 2008). We review a ruling on a motion for new trial for an abuse of discretion. McBride v. Kieckhefer Assocs., Inc., 228 Ariz. 262, ¶ 16, 265 P.3d 1061, 1065 (App. 2011). A court abuses its discretion when its discretionary action involves an error of law, failure to consider the evidence, or factual findings not supported by "substantial evidence." Grant v. Ariz. Pub. Serv. Co., 133 Ariz. 434, 455-56, 652 P.2d 507, 528-29 (1982).

Policy Language

¶9 At issue are two related policy provisions. First, coverage is excluded for:

"Bodily injury" . . . arising out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured" whether or not the "business" is owned or operated by an "insured" or employs an "insured".

The policy defines "Business" as follows in relevant part:

a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or
b. Any other activity engaged in for financial compensation, other compensation, or other professional purposes, except the following:
(1) Activities for which no "insured" receives more than $2,000 in total compensation for the 12 months before the "occurrence".

¶10 Lawson asserts that the plain language of the policy "provides a safe-harbor for business activity where the insured earned less than $2,000 in the previous year." She argues in the alternative that the policy definition is ambiguous and should be construed to find coverage.

¶11 Our goal in interpreting an insurance policy is to give effect to the parties' intent. Potter v. U.S. Specialty Ins. Co., 209 Ariz. 122, ¶ 7, 98 P.3d 557, 559 (App. 2004). In doing so, we look first to the plain language of the policy "in view of all the circumstances." Smith v. Melson, Inc., 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983);see also United Cal. Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 259, 681 P.2d 390, 411 (App. 1983) (court ascertains parties' intent by considering plain language "as viewed in the context of the contract as a whole").

¶12 Our interpretation of the policy also includes a de novo determination of any claimed ambiguity. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App. 1992). "An ambiguity exists when the language of the policy is unclear and can be reasonably construed in more than one sense." Potter, 209 Ariz. 122, ¶ 8, 98 P.3d at 559. In determining the existence of ambiguity, we examine the policy "from the standpoint of a person not trained in law or in the insurance business." Thomas, 173 Ariz. at 325, 842 P.2d at 1338. We will not, however, invent ambiguity in order to expand coverage when the policy language is clear. Sec. Ins. Co. of Hartford v. Andersen, 158 Ariz. 426, 428, 763 P.2d 246, 248 (1988); Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 95-96, 804 P.2d 822, 824-25 (App. 1990).

¶13 Here, applying plain-language analysis to the policy leads us to reject Lawson's assertion that the $2,000 exception in Subsection 1 to Part b applies to all business activity. The very placement of the exception in a subsection under Part b makes clear that it applies to "other activity engaged in for financial compensation, other compensation, or other professional purposes" as described in Part b. It plainly does not apply to the "trade, profession or occupation" activity found in Part a, a fact made doubly clear by the inclusion of the disjunctive "or" at the end of Part a. No specialized training or knowledge is required to reach this conclusion.

¶14 Lawson also argues the business definition is ambiguous. She first claims there is ambiguity because the definition "use[s] a semicolon and the coordinating conjunction 'or'" instead of a period to separate Parts a and b, creating ambiguity about whether the $2,000 exception found in Part b applies to all business activity. The policy is not reasonably susceptible to this strained interpretation. The use of the semicolon and "or" between the two parts of the definition plainly indicates a "business" can be whatever is described in either Part a or Part b. But there is nosupport for the assertion that an exception found only in a subsection of Part b also applies to Part a.7 Millar, 167 Ariz. at 96, 804 P.2d at 825 ("A policy term is not ambiguous . . . merely because one party assigns a different meaning to it in accordance with his or her own interest.").

¶15 Lawson also contends the...

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