Hudson Specialty Ins. Co. v. Brash Tygr, LLC

Decision Date07 October 2014
Docket Number13–1742.,Nos. 13–1688,s. 13–1688
Citation769 F.3d 586
PartiesHUDSON SPECIALTY INSURANCE COMPANY, Plaintiff–Appellant/Cross–Appellee v. BRASH TYGR, LLC, et al., Defendants–Appellees/Cross–Appellants.
CourtU.S. Court of Appeals — Eighth Circuit

Dale Lee Beckerman, argued, Kansas City, MO (Meghan Lewis, Overland Park, KS, on the brief), for appellant.

Michael W. Blanton, argued, Evergreen, CO (Lawrence Benjamin Mook, Kansas City, MO, on the brief), for appellee.

Before LOKEN, BYE, and COLLOTON, Circuit Judges.

Opinion

LOKEN, Circuit Judge.

Hudson Specialty Insurance Company issued a Commercial Lines Master Policy to Sonic Insurance Advisory Trust providing commercial general liability and commercial property insurance to Sonic Restaurants, Inc. and to Sonic franchisees who were enrolled members of the Trust. One named insured was Brash Tygr, LLC, which owned and operated the Sonic Drive–In restaurant in Carrollton, Missouri. Lloyd and Nancy Miller sued Brash Tygr and its principals in Missouri state court to recover damages for substantial personal injuries suffered when a car driven by Tyler Roush, a Managing Member of Brash Tygr, struck Lloyd Miller, a pedestrian. Invoking diversity jurisdiction, Hudson filed this declaratory judgment action against the parties to the state court action seeking a declaration that the Hired and NonOwned Auto Liability endorsement to the policy's Commercial General Liability Coverage Form provides no coverage to any defendant in the underlying lawsuit. Hudson appeals the district court's ruling granting summary judgment to defendants on the coverage issue. We reverse that ruling. Defendants cross appeal the court's earlier ruling that Hudson is not collaterally estopped to contest coverage by the state court judgment in favor of the Millers in the underlying action, to which Hudson was not a party. We affirm that ruling.

I. Background

Hudson's Hired and Non–Owned Auto endorsement provided, as relevant here:

B. NON–OWNED AUTO LIABILITY
We will pay on behalf of the insured all sums that the insured shall become legally obligated to pay as damages because of “bodily injury” or “property damage” arising out of the use of a “non-owned auto” by any person other than you in the course of your business.

Tyler Roush was driving a car he jointly owned with his mother, Sharon Roush, when the accident occurred on August 3, 2009, while Hudson's policy was in effect. Hudson argues that undisputed facts establish that Tyler Roush was not using the car “in the course of [Brash Tygr's] business,” so the policy provided no coverage. Defendants argue that undisputed facts establish that Tyler was using the car in the course of Brash Tygr's business. Defendants have the burden of proof on this coverage issue. See J.E. Jones Constr. Co. v. Chubb & Sons, Inc., 486 F.3d 337, 340 (8th Cir.2007) (applying Missouri law). The following facts are undisputed.

The Accident. Sharon Roush asked Tyler to deposit her paycheck in her personal bank account and to deliver personal mail to the post office. Tyler first traveled from his parents' home, where he was staying, to the bank and deposited Sharon's check. Before Tyler left, a bank employee handed Tyler bank deposit bags that the Sonic Drive–In used to make cash deposits. Tyler did not work at the Drive–In and had not intended to pick up deposit bags. Other Brash Tygr representatives periodically retrieved deposit bags, which the bank used for advertising. Brash Tygr could make Sonic deposits without using the bags, and there is no evidence that a Brash Tygr representative ever made a special trip to the bank to pick up deposit bags. Tyler left the bank and put the deposit bags in his car, intending to take them to his parents' home so that one of them could take the bags to the Drive–In. After leaving the bank, Tyler drove toward the post office, away from the Drive–In but in the direction of his parents' home. While making a left turn, Tyler struck and severely injured Lloyd Miller in a pedestrian crosswalk.

The Brash Tygr Entity. Brash Tygr is a limited liability company (LLC), organized under Chapter 47 of the Revised Statutes of Missouri to provide its members and managers with the same immunity from personal liability for the liabilities of the LLC that is afforded the shareholders and employees of a business corporation. See Mo.Rev.Stat. § 347.057. The members of each LLC “shall adopt an operating agreement” containing provisions “relating to the conduct of the business and affairs of the [LLC] and the rights, powers and duties of its members, managers, agents or employees,” not unlike the Missouri General and Business Corporations Law provision that officers and agents of a corporation “shall have such authority and perform such duties ... as may be provided in the bylaws, or ... by resolution of the board of directors.” Compare Mo.Rev.Stat. § 347.081.1, with Mo.Rev.Stat. § 351.360.2.

At the time of the accident, Tyler held a five percent ownership interest in Brash Tygr. Roush Investments, owned by Tyler's parents, George and Sharon Roush, held a seventy percent interest in Brash Tygr, and Tyler's brother, Brandon Roush, owned five percent. The June 1994 Operation Agreement organizing Brash Tygr was signed by Roush Investments, Tyler, and Brandon, who were named the Original Managing Members. The Agreement provided, “Each Managing Member has the power, on behalf of the Company, to do all things necessary or convenient to carry out the business and affairs of the Company.” In August 2009, Tyler was still a Managing Member but had not worked at the Sonic Drive–In for nineteen years.

The Underlying Lawsuit. Lloyd and Nancy Miller's state court action asserted individual tort claims against Tyler, Sharon, and George Roush seeking compensatory and punitive damages for personal injury and loss of consortium. The Millers also sued Brash Tygr; Roush Investments, Inc.; Brandon Roush; and another Brash Tygr owner, alleging they were vicariously liable for Tyler's negligence because he acted on behalf of the Sonic franchise while at the bank. Hudson accepted Brash Tygr's tender of the defense of the action but reserved the right to contest its duty to indemnify any liability to the Millers. The state court defendants asserted that Tyler was not acting as anyone's agent at the time of the accident and moved for summary judgment on this question of vicarious liability.

With this motion pending, the parties unsuccessfully attempted to mediate. Hudson rejected plaintiffs' demand that defendants settle all claims against Brash Tygr and “the Sonic defendants for Hudson's policy limit of $1 million. Plaintiffs rejected Hudson's offer of a “high/low” settlement of $1 million or $300,000, which would depend on whether a jury determined that Tyler was acting “in the course and scope of Sonic's business.” When the Sonic defendants rejected Hudson's defense under a reservation of rights and withdrew their motion for summary judgment on the vicarious liability issue, Hudson filed this declaratory judgment action in federal court, naming all parties to the underlying action as defendants.

One week later, the Sonic defendants entered into a settlement agreement with the Millers pursuant to Mo.Rev.Stat. § 537.065.1 Consistent with that agreement, Brash Tygr and Tyler Roush then admitted each of plaintiffs' thirty-six Requests for Admission in the underlying lawsuit, including an admission “that by picking up the Sonic bank deposit bags that Tyler Roush was conducting the business of Brash Tygr, LLC.” The next day, the state court entered detailed findings of fact and conclusions of law. Citing Corp v. Joplin Cement Co.,

337 S.W.2d 252, 255 (Mo. banc 1960), as controlling authority, the court concluded that Tyler acted as agent of Brash Tygr when he “made a decision to collect the Sonic bank deposit bags while at the bank,” and that this “concurrent purpose” was an adequate basis to find that the trip was “in the course and scope of agency.” The following day, the court entered its Judgment, reciting that the action “was tried to this Court with all parties represented by counsel and awarding plaintiffs $5.3 million in compensatory damages against the Sonic defendants and $500,000 in punitive damages against Tyler and Brash Tygr.

II. Hudson's Appeal—Coverage

The district court granted summary judgment in favor of defendants on the coverage issue, concluding that Tyler Roush was using his car “in the course of [Brash Tygr's] business” at the time of the accident and therefore Brash Tygr's liability was covered by the Hired and Non–Owned Auto Liability endorsement in Hudson's policy. It is undisputed that Tyler was driving a “non-owned auto.” The dispositive question is whether the car was being used “in the course of [Brash Tygr's] business.” We review a district court's decision on cross-motions for summary judgment de novo.” Humphries v. Pulaski Cnty. Special Sch. Dist., 580 F.3d 688, 692 (8th Cir.2009). The parties agree that Missouri law governs this issue.

A . In resolving the coverage issue, it is essential to identify the district court's proper standard of review in determining the course-of-business question, which has been addressed in relevant Missouri cases in three distinct contexts. First, in the underlying action, the question was critical to whether Brash Tygr was vicariously liable to the Millers on their tort claims, which turned on agency law principles. As Hudson's settlement offer recognized, the issue if disputed would be a question of fact for a jury. Second, in Corp —the Supreme Court of Missouri decision on which the state court relied in concluding that Brash Tygr was vicariously liable—the Court resolved a claim for workers' compensation benefits, a statutory regime in which the initial decision-maker is an administrative agency. Consistent with principles of administrative law, Missouri courts review whether the agency's determination of this...

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