Silverball Amusement v. Utah Home Fire Ins., 93-2043.

• Decision Date: 24 January 1994
• Docket Number: No. 93-2043.,93-2043.
• Citation: 842 F. Supp. 1151
• Parties: SILVERBALL AMUSEMENT, INC., Plaintiff, v. UTAH HOME FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Arkansas

842 F. Supp. 1151

SILVERBALL AMUSEMENT, INC., Plaintiff, v. UTAH HOME FIRE INSURANCE COMPANY, Defendant.

No. 93-2043.

United States District Court, W.D. Arkansas, Fort Smith Division.

January 24, 1994.

Gregory G. Smith of Pryor, Barry, Smith, Karber & Alford, Fort Smith, AR, for plaintiff.

Randolph Jackson of Jones, Gilbreath, Jackson & Moll, Fort Smith, AR, and John W. Anderson of Hall, Estill, Hardwick, Gable, Golden, Nelson, Tulsa, OK, for defendant.

MEMORANDUM OPINION AND ORDER

WILSON, District Judge.

INTRODUCTION

This case involves issues that have been hotly debated throughout the country, and courts have arrived at divergent conclusions regarding some of the relevant questions. The case deals with issues of negligent hiring and supervision, sexual abuse, and insurance law principles. Given the controversies surrounding some of these matters, the court will provide an analysis of the pertinent issues.

                SYLLABUS
                  I. FACTS ..........................................................  2
                 II. SUMMARY JUDGMENT ...............................................  4
                III. COVERAGE OF THE INSURANCE POLICY ...............................  5
                 IV. POLICY'S PROVISION CONCERNING VIOLATION OF CRIMINAL
                     STATUTES ....................................................... 14
                  V. THE SPLIT IN THE AUTHORITIES CONCERNING NEGLIGENT HIRING
                     CASES .......................................................... 17
                 VI. CONCLUSION ..................................................... 31
                VII. PUNITIVE DAMAGES, ATTORNEY'S FEES, AND THE STATUTORY
                     PENALTY ........................................................ 31
                VII. JUDGMENT ....................................................... 33
                

I. FACTS

Currently before the court are summary judgment motions filed by the plaintiff, Silverball Amusement, Inc., and the defendant, Utah Home Fire Insurance Company (Utah Home) in a declaratory judgment action regarding an insurance policy. The following facts are not in dispute:

Plaintiff is an Arkansas corporation with its principal place of business in Fort Smith, and defendant is a Utah corporation that has contracted to insure persons, property and risk located in Arkansas. Defendant issued to plaintiff a commercial liability policy that provided coverage from Dec. 26, 1990 to Dec. 26, 1991. The policy provided that Utah "will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies.... This insurance applies only to `bodily injury' or `property damage' which occurs during the policy period. The bodily injury or property damage must be caused by an occurrence." The policy defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general and harmful conditions." The policy provided that "we will have the right and duty to defend any `suit' for those damages," but it excluded coverage for injury or damage "expected or intended from the standpoint of the insured."

On Feb. 14, 1991, during the policy's coverage period, Wesley Emerson, an employee of Silverball, molested Jessica Dawn Cole, 9, on the plaintiff's business premises. This incident took place while Emerson was engaged in his work for Silverball. Based on this incident, a lawsuit was filed against Silverball on Dec. 9, 1992 in the Circuit Court of Sebastian County, Arkansas by Sandra J. Cole, as guardian, custodial parent and next friend of Jessica Dawn Cole; Cole alleged in her complaint that Silverball knew or should have known at the time it hired Emerson that he had several felony convictions for burglary, armed robbery, robbery by assault, and other violent crimes, and therefore should not have been employed at a video store where children frequently came to play the machines. An officer of Silverball named Kenneth Mahaffey hired Emerson, who is Mahaffey's brother-in-law. In a criminal case arising out of the incident, Emerson subsequently entered a guilty plea to a charge of First Degree Sexual Abuse, and he was sentenced to prison.

Ms. Cole's complaint in the civil case against Silverball alleged that "Had it not been for the negligence of Silverball Amusement, Inc. in employing Wesley S. Emerson, the harm to and damages of Jessica Dawn Cole for which the plaintiff claims herein would not have been incurred." Plaintiff alleged damages exceeding $50,000. The complaint does not allege that Silverball committed any intentional conduct, and it does not allege that Silverball is liable under a theory of respondeat superior. Silverball does not seek coverage for Emerson, but is seeking coverage only for itself regarding Ms. Cole's claim that Silverball was negligent in hiring Mr. Emerson.

Utah Home eventually informed Silverball that it was denying coverage under the policy and based its denial on the exclusion for intentional acts by the insured, emphasizing that Emerson's act of molestation was intentional as a matter of Arkansas law. Silverball responded by bringing this action in state court, requesting a declaratory judgment that Cole's claim is covered by the policy Utah issued to Silverball, and that the defendant is required to provide a defense to that lawsuit. Silverball also prays for attorney's fees and costs incurred in defending Ms. Cole's lawsuit and for any amount in either a judgment or a settlement in that lawsuit; and it asks for the statutory penalty and attorney's fees authorized under A.C.A. XX-XX-XXX (discussed, infra.) Utah Home then removed the action to this court on the basis of diversity of citizenship. As stated above, both parties seek summary judgment.

II. SUMMARY JUDGMENT

Summary judgment is appropriate only when there is no genuine issue of material fact, so that the dispute may be decided solely on legal grounds. Holloway v. Lockhart, 813 F.2d 874 (8th Cir.1987); Fed. R.Civ.P. 56. The Supreme Court has established guidelines to assist trial courts in determining whether this standard has been met:

The inquiry performed is the threshold inquiry of determining whether there is a need for trial — whether, in other words, there are genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The Eighth Circuit has set out the burdens of the parties in connection with a summary judgment motion in Counts v. M.K. Ferguson Co., 862 F.2d 1338 (8th Cir.1988):

The burden on the party moving for summary judgment is only to demonstrate, i.e., "to point out to the District Court," that the record does not disclose a genuine dispute on a material fact. It is enough for the movant to bring up the fact that the record does not contain such an issue and to identify that part of the record which bears out his assertion. Once this is done, his burden is discharged, and if the record in fact bears out the claim that no genuine dispute exists on any material fact, it is then the respondent's burden to set forth affirmative evidence, specific facts, showing that there is a genuine dispute on that issue. If the respondent fails to carry that burden, summary judgment should be granted. Id. at 1339 (quoting City of Mt. Pleasant v. Associated Elec. Coop., 838 F.2d 268, 273-274 (8th Cir. 1988)).

Rule 56(c) of the Federal Rules of Civil Procedure states that summary judgment shall be rendered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The Supreme Court has emphasized that Rule 56 must be construed with due regard not only for the rights of people asserting claims and defenses "that are adequately based in fact to have those claims and defenses tried to a jury, but also for the rights of persons opposing such claims and defenses to demonstrate in the manner provided by the rule, prior to trial, that the claims and defenses have no factual basis." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

III. COVERAGE OF THE INSURANCE POLICY

Under the policy, Utah Home agreed to pay the sums that the plaintiff became legally obligated to pay as damages resulting from injuries sustained by a third party on Silverball's business premises; defendant also agreed to provide a legal defense to lawsuits seeking damages as a result of the injuries. The insurance would apply only if the injuries were caused by an "occurrence" — basically defined as an "accident," as noted supra — taking place on the covered territory during the coverage period. There is no coverage for injuries or damages "expected or intended from the standpoint of the insured." It is undisputed that the molestation was committed by a Silverball employee during the covered period on Silverball's premises. Thus, it becomes crucial to focus on the exclusionary clause for intentional acts.

It is clear that sexual molestation is an intentional act as a matter of Arkansas law. CNA Insurance Company v. McGinnis, 282 Ark. 90, 666 S.W.2d 689 (1984). Defendant contends that McGinnis entitles Utah Home to a summary judgment in its favor. McGinnis, however, involved different issues. In McGinnis, a stepfather had sexually abused his stepdaughter for 10 years until he was arrested, convicted, and sent to the penitentiary. Id. at 92, 666 S.W.2d 689. The stepfather, McGinnis, contended that he had not intended any harm to his stepdaughter, and a psychologist testified that males who are involved in such relationships do not expect or intend that the females will suffer any injury. Id. McGinnis' homeowners' insurance policy obligated CNA to defend personal injury suits against McGinnis and pay any judgment against him, but an exception excluded coverage for injuries ...