Kmart Corp. v. Footstar, Inc.

• Decision Date: 12 November 2012
• Docket Number: No. 09 CV 3607,09 CV 3607
• Parties: KMART CORPORATION, a Michigan corporation, Plaintiff, v. FOOTSTAR, INC., a Delaware corporation, LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Wisconsin corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

KMART CORPORATION, a Michigan corporation, Plaintiff,

v. FOOTSTAR, INC., a Delaware corporation,LIBERTY MUTUAL FIRE INSURANCE COMPANY,a Wisconsin corporation, Defendants.

No. 09 CV 3607

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS

Date: November 12, 2012

Magistrate Judge Cox (Consent)

KMART CORPORATION'S MOTION FOR ENTRY OF JUDGMENT AGAINST

LIBERTY MUTUAL FIRE INSURANCE COMPANY FOR $310,000

PLUS DEFENSE COSTS AND PRE-JUDGMENT INTEREST

NOW COMES Plaintiff Kmart Corporation ("Kmart"), by and through its attorneys Reed Smith LLP, and moves this court to enter judgment against Liberty Mutual Fire Insurance Company ("Liberty Mutual") for $310,000 plus defense costs and pre-judgment interest. In support of its motion, Kmart states as follows:

INTRODUCTION

The Court's Memorandum Opinion And Order dated March 30, 2012 (Dckt # 260) ("March 2012 Order") and its Memorandum Opinion And Order dated May 1, 2012 (Dckt # 265) ("May 2012 Order") identified two unanswered questions regarding Liberty Mutual's duty to indemnify Kmart: (1) whether Judy Patrick's injuries actually arose out of Footstar's work, goods and/or services; and (2) if they did, whether Liberty Mutual is obligated to indemnify Kmart for the entire settlement payment. With respect to the first question, a jury definitively found on November 7, 2012, that Footstar proximately caused Mrs. Patrick's injuries. In light of this finding, it now is clear that Mrs. Patrick's injuries actually arose out of Footstar's work,goods, and/or services under the Master Agreement. With respect to the second question, under New Jersey law an additional insured is entitled to full coverage unless the policy explicitly limits coverage to the named insured's negligence. Any limitation on coverage must be clear and explicit. Neither the Policy nor the Master Agreement limit Liberty's obligation to insure Kmart to Footstar's negligence. Liberty Mutual has never argued otherwise. Therefore, in light of the jury's finding of November 7, 2012 that Mrs. Patrick's injuries actually arose out of Footstar's work, goods, and/or services, Liberty Mutual must indemnify Kmart for the full $310,000 settlement of the Patrick Lawsuit and pay Kmart's defense costs and pre-judgment interest.

ARGUMENT

I. CONTRACTUAL PROVISIONS CONCERNING INSURANCE COVERAGE

The Master Agreement's insurance provision states as follows:

[Footstar] agrees to obtain and keep in force ... appropriate insurance for claims against [Kmart and Footstar] for personal injury (including death) and property damage arising out of or relating to the goods and services provided pursuant to this Agreement ... with the same limits ... as agreed to above by Kmart.

(Exhibit 7 (Amended and Restated Master Agreement) at § 18.1, Kmart Corporation's Appendix Of Exhibits In Support Of Kmart's Motion For Summary Judgment On Counts One Through Five Of Its Second Amended Complaint And Defendants' Affirmative Defenses ("Appendix") (Dckt # 215).)

The Blanket Additional Insured Amendment states as follows:

Section II - WHO IS AN INSURED is amended to include as an insured any person, organization, state or other political subdivision, trustee or estate for whom you have agreed in writing to provide liability insurance. But:

The insurance provided by this amendment:

1: Applies only to 'personal injury' or 'property damage' arising out of (a) 'your work' or (b) premises or other property owned by or rented by you;

2: Applies only to coverage and limits of insurance required by the written agreement, but in no event either exceeds the scope of coverage or the limits of insurance provided by this policy; and

3: Does not apply to any person, organization, state or other political subdivision, trustee or estate for whom you have acquired separate liability insurance while such insurance is in effect, regardless of whether the scope of coverage or limits of insurance of this policy exceed those of such other insurer or whether such insurance is valid or collectable.

(Exhibit 8 (Liberty Mutual Policy) at p. 11 of 13 of General Amendatory Endorsement, Appendix.)

II. JUDY PATRICK'S INJURIES ACTUALLY AROSE OUT OF FOOTSTAR'S WORK, GOODS, AND/OR SERVICES UNDER THE MASTER AGREEMENT

The Master Agreement obligated Footstar to purchase insurance coverage for Kmart for bodily injury "arising out of or relating to the goods and services provided pursuant to this Agreement." The Court already has interpreted the term "services" broadly, and rejected Liberty Mutual's argument that "services" is restricted to the definition of the capitalized term "Services" in the Master Agreement. (March 2012 Order at p. 34.) Similarly, coverage under the Blanket Additional Insured Amendment applies to personal injury "arising out of" Footstar's "work." The Court has held that "arising out of" "must be interpreted in a comprehensive sense to mean conduct 'originating from,' 'growing out of,' or 'connected with' the activity in question." (Id. at p. 34). Prior to the jury's verdict on November 7, 2012, the Court stated that a question as to how Judy Patrick was injured hindered "the Court's ability to determine whether Mrs. Patrick's injury actually - rather than merely potentially - arose out of Footstar's work, goods, or services under the Master Agreement." (May 2012 Order at p. 8). In light of the jury's verdict that Footstar, through the actions of Alex Sehat, proximately caused Judy Patrick'sinjury, it now is clear that Mrs. Patrick's injury actually arose of Footstar's work, goods, and/or services.

It is well established under New Jersey law that "arising out of" insurance policy language only requires a "substantial nexus" between the named insured's work and the injury. New Jersey courts have found additional insured coverage under the same "arising out of language in circumstances where the named insureds connections with the underlying incident were far more remote than in the instant case. See, e.g., County of Hudson v. Selective Ins. Co., 752 A.2d 849 (N.J. App. Div. 2000) (subcontractor's employee fell on courthouse steps while gathering information for bid on general contractor's work; county covered for employee's injuries as additional insured under general contractor's policy); Krastantov v. K. Hovnanian/Shore Acquisitions, LLC, 2008 WL 2986475 (N.J. App. Div. Aug. 6, 2008) (named insured's employee drowned while swimming in man-made lake on constructions site; additional insured covered under named insured policy, even though not entitled to indemnification under terms of contract).

In contrast to the extraordinarily broad reading of "arising out of" adopted in County of Hudson and Krastanov, and the very limited relationship of the facts of the injury to the services being provided by the named insured, the jury in the instant case has found that Footstar's employee actually caused injury to Judy Patrick while Footstar's employee was at work, on the job, as an invitee in Kmart's store, during normal business hours, and providing goods and services. These facts and the jury's finding also demonstrate a conclusive nexus between Mrs. Patrick's injuries and the "work" and "goods or services" provided by Footstar. Thus, with respect to the first unanswered question identified by the Court, Kmart has shown that Mrs. Patrick's injuries actually arose out of Footstar's work, goods, and/or services.

III. BECAUSE JUDY PATRICK'S INJURIES ACTUALLY AROSE OUT OF FOOTSTAR'S WORK, GOODS AND/OR SERVICES UNDER THE MASTER AGREEMENT, LIBERTY MUTUAL MUST INDEMNIFY KMART FOR THE FULL SETTLEMENT OF THE PATRICK LAWSUIT

A. Absent Explicit Language Restricting Coverage To The Named Insured's Negligence, Coverage For An Additional Insured Is Not Limited

With respect to the second unanswered question identified by the Court, now that the jury has found that Judy Patrick's injuries actually arose out of Footstar's work, goods and/or services, Liberty Mutual is obligated to indemnify Kmart for the entire amount Kmart paid to settle the Patrick Lawsuit. Courts throughout the country repeatedly have supported the conclusion that an additional insured is entitled to complete indemnification where the policy language does not explicitly limit coverage to the extent of the named insured's negligence.¹ None of the New Jersey cases cited by the parties and the Court restrict an insurer's indemnity obligation to an additional insured to only that share of the fault of the named insured. Instead, those cases require complete indemnification of the additional insured regardless of fault. See, e.g., Fed. Home Loan Mortgage Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 444-45 (3d Cir. 2003) (rejecting insurer's contention that "fact-intensive inquiry" regarding named insured's fault was necessary to determine scope of coverage for additional insured); Krastanov, LLC, 2008 WL at *8 ("the wording of the endorsement makes clear that coverage is not contingent on whether the [named insured] had liability for the accident"); County of Hudson v. Selective Ins. Co., 752 A.2d 849, 853-54 (N.J. App. Div. 2000); Harrah's Atlantic City, 671 A.2d at 1125 ("It is also clear that by wording the endorsement as it did, the insurer did not make coverage contingent on whether the [named insured] had any liability for the accident. Therefore, the finding of liability against the [named insured] . . . was not a factor in determining the scope of the [additional insured's] coverage.").

Moreover, under New Jersey law, limitations on coverage are interpreted strictly against the insurer. Estate of Mini v. Metro Supply & Service, Inc., No. A-3976-02T2, 2004 WL 1284173, at *3 (N.J. Super. A.D. 2004). Provisions that purport to restrict coverage must be clear and unequivocal. Id. Thus, full coverage for the insured is the default rule, which only can be supplanted by clear language stating otherwise. The Policy and the Master Agreement are silent as to any restriction on Liberty Mutual's duty to indemnify Kmart. Had either...