Low v. Insurance Co. of North America

• Decision Date: 15 December 2005
• Docket Number: No. CA 05-181.,CA 05-181.
• Parties: Andrew Baxter LOW, Gary L. Low and Merrily Low, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, International Insurance Company, Industrial Indemnity Company, Lexington Insurance Company (AIG), and Niagara Fire Insurance Company, Appellees.
• Court: Arkansas Supreme Court

220 S.W.3d 670

Andrew Baxter LOW, Gary L. Low and Merrily Low, Appellants, v. INSURANCE COMPANY OF NORTH AMERICA, International Insurance Company, Industrial Indemnity Company, Lexington Insurance Company (AIG), and Niagara Fire Insurance Company, Appellees.

No. CA 05-181.

Supreme Court of Arkansas.

December 15, 2005.

Wilson, Engstrom, Corum & Coulter, by: Gary D. Corum and Nate Coulter, Little Rock, for appellants/ cross-appellees Andrew Baxter Low, Gary L. Low and Merrily Low.

Watts, Donovan & Tilley, by: Richard N. Watts, Debbie S. Denton, and Staci Dumas Carson, Little Rock, for appellees Insurance Company of North America, International Insurance Company, and Industrial Indemnity Company.

Barber, McCaskill, Jones & Hale, P.A., by: Glenn W. Jones and Cynthia W. Kolb, Little Rock, for appellee Niagara Fire Insurance Company.

Bridges, Young, Matthews & Drake PLC, by: Stephen A. Matthews, Pine Bluff, for appellee/cross-appellant Lexington Insurance Company.

ANNABELLE CLINTON IMBER, Justice.

On October 5, 1991, Appellant Andrew Low was attending a Fall Camporee with the Quapaw Area Council Boy Scouts of America (the Boy Scouts) when he fell approximately thirty feet from a bluff located adjacent to the campsite area. As a result of the fall, Andrew suffered severe lacerations, a fractured skull, compression fractures of his spine, cracked ribs, a collapsed lung, neurological, ophthalmological, and glandular damage, and various other physical injuries. On October 4, 1994, Andrew and his parents, Appellants Gary and Merrily Low, sued the Boy Scouts. The Boy Scouts moved for summary judgment, arguing that it was a charitable organization and immune from tort liability. This motion was granted at a hearing on February 2, 1999, and an order was entered on March 25, 1999.

Prior to the entry of summary judgment in favor of the Boy Scouts, Appellants propounded interrogatories and discovery requests on August 5, 1998, aimed at discovering any insurance coverage the Boy Scouts might have. Appellants then filed an amended and substituted complaint on March 23, 1999, for the sole purpose of naming the Boy Scouts' liability insurance carrier, Insurance Company of North America (INA), pursuant to the direct-action statute, Ark.Code Ann. § 23-79-210 (Repl.2004).¹ Appellants alleged that INA was directly liable for Andrew's injuries as a result of the Boy Scouts' negligence, to the extent of its coverage under the policy. On July 19, 2000, the circuit court dismissed the claims of Andrew's parents because their claims were filed after the statute of limitations had expired. Andrew's claims survived dismissal because he did not reach the age of majority until March 2, 1997, and had three years to bring the suit under Ark.Code Ann. § 16-56-116(a) (Supp.2005).

On July 24, 2001, Appellants named the following excess-liability insurance carriers as additional defendants: International Insurance Company (International), Industrial Indemnity Company (Industrial), Lexington Insurance Company (Lexington), Niagara Fire Insurance Company (Niagara), Planet Insurance Company (Planet), Federal Insurance Company (Federal), National Surety Insurance Company (National), and Gulf Insurance Company (Gulf). Planet, Federal, National and Gulf were eventually dismissed from the suit.

On August 5, 2004, INA, International, and Industrial filed a motion to dismiss, arguing that, pursuant to this court's decisions in Clayborn v. Bankers Standard Ins. Co., 348 Ark. 557, 75 S.W.3d 174 (2002), and Scamardo v. Jaggers, 356 Ark. 236, 149 S.W.3d 311 (2004), the Boy Scouts were never immune from suit and thus a direct action against the insurers was not proper. Shortly thereafter, Niagara and Lexington filed similar motions. On October 25, 2004, the circuit court entered a final order dismissing all the remaining insurers with prejudice. Appellants now appeal the final dismissal order. This case was certified to our court by the Arkansas Court of Appeals as a case involving issues of statutory interpretation and overruling of precedent. Ark. R. Sup.Ct. 1-2(b)(5), (6) (2005).

For their primary point on appeal, Appellants request that we overrule our decision in Scamardo v. Jaggers, 356 Ark. 236, 149 S.W.3d 311 (2004). As a general rule, we are bound to follow prior case law under the doctrine of stare decisis, a policy designed to lend predictability and stability to the law. Scamardo v. Jaggers, supra; Aka v. Jefferson Hosp. Ass'n, Inc., 344 Ark. 627, 42 S.W.3d 508 (2001). Indeed, it is well settled that "precedent governs until it gives a result so patently wrong, so manifestly unjust, that a break becomes unavoidable." Scamardo v. Jaggers, supra (citing State Office of Child Support Enforcem't v. Mitchell, 330 Ark. 338, 954 S.W.2d 907 (1997)). Our test is whether adherence to the rule would result in "great injury or injustice." Id. (citing Aka v. Jefferson, supra). In the instant case, Appellants argue "[t]hat test is met and exceeded by the calamity visited on Appellants by the trial court's dutiful application of this Court's recent pronouncements in Scamardo v. Jaggers, 356 Ark. 236, 149 S.W.3d 311 (2004)." Specifically, Appellants' claims against the Boy Scouts were first dismissed based on the circuit court's understanding of the charitable-immunity doctrine. Then, after our court's decisions in Clayborn v. Bankers Standard Ins. Co., 348 Ark. 557, 75 S.W.3d 174 (2002), and Scamardo v. Jaggers, supra, the circuit court also dismissed Appellants' direct-action claims against the Boy Scouts' liability insurance carriers on the basis that the Boy Scouts were only immune from liability, not from suit. According to Appellants, this result "[left] the Low family with no remedy at all-through no fault of theirs or of their counsel."

In dismissing Appellants' claims against the insurance companies, the circuit court relied on rationale from two recent decisions by this court stating that charitable organizations are not necessarily immune from suit. The first case to expressly note that not all charitable organizations were immune from suit, and consequently not subject to the direct-action statute, was Clayborn v. Bankers Standard Ins. Co., supra. Two years later, in 2004, we formally adopted the Clayborn rationale in Scamardo v. Jaggers, supra. However, the language delineating the scope and impact of the charitable-immunity doctrine has been developing for over a century. An analysis of our case law reveals that, over time, subtle changes in the language used to explain the charitable-immunity doctrine have eventually resulted in drastically different treatment of charitable organizations.

In Fordyce v. Woman's Christian Nat. Library Ass'n, 79 Ark. 550, 96 S.W. 155 (1906), our court discussed the policy underlying the charitable-immunity doctrine. After determining that the appellee library was a charitable organization, the court stated, "We are of opinion that in this state the property of a charity cannot be sold under execution issued on a judgment rendered for the nonfeasance, misfeasance, or malfeasance of its agents or trustees." Id. at 559, 96 S.W. at 158. In support of this conclusion, the court noted that the agents and trustees of charities have a duty to the public to protect the charity and its funds and explained:

The immunity of the property of a charity from sale under execution rests on special grounds. The property of a corporation organized solely for charitable purposes is exclusively dedicated to public uses, as much so as the streets and alleys of a town or city; for this purpose the corporation is a mere trustee. It is of primary importance to the public that the trust shall be perpetuated. The trustees of the corporation are usually unsalaried agents, devoting their time and labor to the use and benefit of the public. For their own wrongs and misdeeds they are personally answerable. . . . If the doctrine of respondeat superior is applied to them, it follows that along with their other powers, they possess an implied power to destroy, by a willful violation of their duties, by collusion, or by negligence, the public interests that they are selected to preserve. Any conclusion that tends to support that view must leave out of consideration the public; that is to say, the party most deeply interested. To say that the trustees may by their negligence destroy the charity is simply to say that they may do indirectly and by inadvertence what they cannot do directly.

Id. at 561-562, 96 S.W. at 159-160.

Fifty years later, the United States District Court for the Western District of Arkansas was asked to determine whether a plaintiff had a right to file a direct action against a liability insurance carrier under Ark. Stats.1947, Sec. 66-517 (prior version of the direct-action statute, now codified at Ark.Code Ann. § 23-79-210). Michael v. St. Paul Mercury Indemnity Co., 92 F.Supp. 140 (Ark.W.D.1950). Judge John E. Miller concluded, based on our court's statements in the Fordyce case, that "under the law of Arkansas, a charitable organization is `not subject to suit for tort' within the contemplation of Sec. 66-517 . . . ." Id. at 144. Judge Miller further noted:

It is true that the [Fordyce] court did not hold that the charitable association could not be sued in the first instance. The facts of the case did not require a decision of that question. The trustees were then and are now personally answerable for their own torts, as are their employees. But, a charitable corporation . . . is operated on a non-profit basis, and all of its funds are committed to the operation and furtherance of its charitable purpose. There is no fund set aside or available for the payment of tort damages. If it were otherwise the corporation could not qualify as charitable. . . . And, to say that although the trust fund of the corporation cannot be reached on execution, and therefore, absolutely nothing realized from a judgment for tort,...