Lampliter Dinner Theater, Inc. v. Liberty Mut. Ins. Co.

Decision Date30 June 1986
Docket NumberNo. 85-7400,85-7400
Citation792 F.2d 1036
PartiesLAMPLITER DINNER THEATER, INC., an Alabama Corporation doing business in Montgomery County, Alabama, Plaintiff-Appellant, Cross-Appellee, v. LIBERTY MUTUAL INSURANCE CO. and Liberty Mutual Fire Insurance Co., Defendants- Appellees, Cross-Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

J. Richard Piel, Piel & Lynn, Montgomery, Ala., for plaintiff-appellant, cross-appellee.

John F. Whitaker, Sadler, Sullivan, Sharp & Stutts, Charles E. Sharp, Birmingham, Ala., William I. Hill, II, Montgomery, Ala., for defendants-appellees, cross-appellants.

Appeals from the United States District Court for the Middle District of Alabama.

Before KRAVITCH and HATCHETT, Circuit Judges, and MORGAN, Senior Circuit Judge.

KRAVITCH, Circuit Judge:

In an interlocutory appeal and cross-appeal by the Lampliter Dinner Theater (Lampliter) and the Liberty Mutual Insurance Company (Liberty), Lampliter, plaintiff below, appeals the district court's dismissal of ten counts of a twelve count complaint. Lampliter also appeals the dismissal of L.K. Mocabee as an individual plaintiff. Liberty cross-appeals and claims that the remaining two counts of Lampliter's complaint also should have been dismissed. We conclude that the district court's actions were correct and remand for further proceedings on Lampliter's two remaining claims.

I. BACKGROUND

On February 20, 1983, two teenage boys, Andrew Hickman and Joel Bass, died in an automobile accident after imbibing alcoholic beverages at the Lampliter. On May 18, 1983, Hickman's father filed a complaint in state court, as did Bass' parents on June 21, 1983, alleging wrongful death due to Lampliter's serving alcoholic beverages to minors in violation of state law. At the time of the accident, Lampliter maintained an insurance policy which it had purchased from Liberty Mutual in 1981. Lampliter notified Liberty of the initial suit on May 20, 1983. On May 25, 1983, Lampliter purchased from Liberty Mutual additional coverage consisting of liquor liability coverage insurance. On June 9, 1983, Lampliter submitted a letter to Liberty that was signed by Rick Sharples, a former employee of Liberty who had sold Lampliter coverage in 1978. Sharples' letter states that he and Lampliter had intended that the 1978 policy cover liability resulting from the sale of alcoholic beverages. Lampliter contends that Sharples told it that the policy would cover such liability. Sharples, however, did not sell Lampliter the 1981 policy in effect at the time of the accident. That policy was sold to Lampliter by Charles Wells, who stated in deposition that he offered Lampliter liquor liability coverage which Lampliter declined.

Liberty reviewed Lampliter's claim at its home office in Massachusetts and denied coverage on June 27, 1983. Liberty relied on the following two clauses from the Lampliter insurance policy. First, exclusion (h) provides that the policy shall not apply "to bodily injury or property damage for which the insured or his indemnitee may be liable (1) as a person or organization engaged in the business of manufacturing, distributing, selling, or serving alcoholic beverages." Second, the scope of exclusion (h) is limited solely by the following clause:

IV. HOST LIQUOR LAW LIABILITY COVERAGE. Exclusion (h) does not apply with respect to liability of the insured or his indemnitee arising out of the giving or serving of alcoholic beverages at functions incidental to the named insured's business, provided the named insured is not engaged in the business of manufacturing, distributing, selling or serving alcoholic beverages.

At the time of the accident, Lampliter had a liquor license and a substantial amount of its income was derived from the sale of alcoholic beverages. Accordingly, Liberty determined that Lampliter's policy did not cover Lampliter's liability for liquor related injuries.

The Hickman and Bass wrongful death cases went to trial against Lampliter and resulted in jury awards totaling ten million dollars. On June 21, 1984, after the jury awards, Lampliter filed this action in state court against Liberty. Shortly thereafter Liberty removed the case to federal court and filed a third party complaint against the Hickman and Bass parents seeking declaratory judgment that the policy it had provided Lampliter did not cover the jury verdicts.

In August, 1984, Lampliter amended its complaint to add, as party plaintiff, L.K. Mocabee who was president and chief stockholder of Lampliter, owner of the property on which the Lampliter was located, and a named insured in the Liberty policy. Four subsequent amendments to the complaint brought the total of counts to twelve. 1 The district court issued an opinion on January 15, 1985, dismissing all claims except for counts I, II, and III as to Lampliter, and count I as to Mocabee.

On February 8, 1985, the court dismissed the Hickman and Bass parents as third party defendants and granted their motion to intervene as party plaintiffs. The parents' motion was accompanied by a document signed by Lampliter and Mocabee, which states that they and the parents "feel that Liberty Mutual is responsible for the jury verdicts" and that Lampliter assigns to the parents all rights and claims against Liberty Mutual up to the amount of the verdicts. In consideration for the assignment, the parents agreed not to enforce the state judgment against Lampliter. Lampliter and Mocabee, however, "specifically reserve[d] their claims against Liberty Mutual arising from damages suffered in excess of the jury verdicts as alleged in [the instant action] including, but not limited to, attorneys' fees, damage to business reputation, lost profits and punitive damages."

On March 1, 1985, the court reconsidered its January 15th order and struck all counts except counts VI and X, and dismissed Mocabee as a party plaintiff. 2 Liberty subsequently settled the Hickman and Bass claims for $225,000 each and on March 26, 1985, the parents' claims were dismissed with prejudice pursuant to a joint stipulation between them and Liberty Mutual. Liberty then moved the court to dismiss the entire case, arguing that Lampliter had assigned all its claims to the parents, or in the alternative that the case should be tried and Liberty held responsible only to the extent that a judgment exceeded the ten million dollar verdicts. By order of April 18, 1985, the court opined that Lampliter had not assigned the parents its claims for attorneys' fees, damage to business reputation, lost profits, or punitive damages. The court struck the claim for punitive damages, however, holding that the unassigned claims, which arose out of an oral agreement and sought an equitable reformation of the insurance policy, could not support such a claim. The court further authorized this interlocutory appeal of any of its orders by either party.

II. ANALYSIS
A. Breach of Written Contract

Lampliter argues that the district court erred in dismissing count I of the complaint. That count alleged that Liberty had breached the terms of its written insurance contract with Lampliter by wrongfully denying coverage and refusing to defend Lampliter in the Hickman and Bass suits. The district court determined that the terms of the insurance contract were not ambiguous; as written, the policy did not cover Lampliter's liquor liability and therefore Liberty was not liable for breaching the explicit terms of the agreement. See Turner v. United States Fidelity & Guaranty Co., 440 So.2d 1026 (Ala.1983) (where insurance contract is unambiguous, contract must be enforced as written).

Lampliter argues that its policy was ambiguous as to whether it provided liability for liquor related injuries. All parties agree that the relevant portions are Exclusion (h) and the Host Liquor Law Liability Coverage clause. Exclusion (h) expressly states that the policy does not cover injuries where the insured's liability is predicated on its status as a business engaged in selling or serving alcoholic beverages. The Host Liquor Law Liability clause states that exclusion (h) does not deny coverage where an insured's liability arises from serving alcohol at a function incidental to its business provided that the insured is not regularly engaged in the business of selling liquor. Lampliter cannot credibly argue that it was not in the business of selling and serving alcohol: it held a liquor license and in 1983, the year of the accident, approximately fifteen per cent ($90,000) of its sales revenue was from the sale of liquor.

Lampliter does not specify which sections of the contract are ambiguous. It argues instead that its breach of written contract claim should have been tried because there is a dispute as to how Exclusion (h) and the Host Liability clause should be interpreted. Lampliter correctly points out that ambiguous language in insurance contracts must be construed in favor of the insured, Turner, supra, and that ambiguity is shown where language would appear ambiguous to the average person. Smith v. Horace Mann Insurance Co., 713 F.2d 674 (11th Cir.1983) (per curiam). Lampliter contends that it has shown ambiguity because both it and Sharples, the Liberty agent who sold Lampliter its original policy, believed the policy covered liquor liability. Liberty counters that Sharples' understanding of the 1978 policy is immaterial to the interpretation of the 1981 policy at issue here. Liberty also cites several state court cases that have held that Exclusion (h) and the Host Liability clause (or its analogs used by other companies) are not ambiguous. See Heritage Insurance Co. v. Cilano, 433 So.2d 1334 (Fla.Dist.Ct.App.1983); Morrison v. Miller, 452 So.2d 390 (La.Ct.App.1984); New Hampshire Insurance Co. v. Hillwinds Inn, Inc., 117 N.H. 350, 373 A.2d 354 (1977).

At oral argument, Lampliter asserted that Kelmo Enterprises, Inc. v. Commercial Union Insurance Co., 285 Pa.Super. 13, 426 A.2d 680...

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