State Farm Fire & Casualty Company v. Sparks, No. W2006-01036-COA-R3-CV (Tenn. App. 12/7/2007)
| Decision Date | 07 December 2007 |
| Docket Number | No. W2006-01036-COA-R3-CV.,W2006-01036-COA-R3-CV. |
| Court | Tennessee Court of Appeals |
| Parties | STATE FARM FIRE & CASUALTY COMPANY v. DARRELL SPARKS, ET AL. |
Richard W. Wackerfuss, Matthew S. Russell, Memphis, TN, for Appellant
Louis J. Miller, Memphis, TN, for Appellees Darrell Sparks and Randy Cook
Raymond L. Niblock, Pendente Pro Hac Vice, Fayetteville, AR, for Appellee Sharon Bennett
John Appman, Jamestown, TN, Local Counsel for Raymond L. Niblock
OPINION
This appeal arises out of an action for declaratory judgment brought by an insurer. The insurer asked the court to determine whether its homeowners' and personal liability umbrella policies afforded coverage and required defense of a tort action filed against its insured. The tort action involved an accident that occurred at the site of an oil well, which was owned and operated by a partnership in which the insured parties were partners. The insureds' insurance policies excluded coverage for losses arising out of their "business pursuits." The trial court granted partial summary judgment to the insureds and ordered the insurer to defend and indemnify the insureds in the underlying tort action. For the following reasons, we reverse.
In October of 1985, Darrell Sparks and Randy Cook invested in T & A Oil, a partnership organized by their friend and co-worker, Melvin Thompson, Jr. The three men were employed full-time in an unrelated business, Tri-State Delta Chemicals, where Mr. Sparks worked in the accounting department and Mr. Cook was a manager and later president of the company. Mr. Sparks and Mr. Cook executed identical partnership agreements with T & A Oil that provided, in part:
T & A Oil, a partnership composed of Melvin Thompson, Jr., . . . hereinafter referred to as "Agent" and each of the other undersigned persons, hereinafter referred to as "Owners", hereby enter into a joint adventure for the purpose of acquiring and holding oil, gas and other mineral lease-hold interest[s] (hereinafter referred to as "working interest["]) and exploring for oil, gas and other minerals thereon, on terms of agreement as follows:
1. The purpose of this agreement is to provide a means whereby the Owner may engage in, and spread his participation over one oil and gas drilling ventures [sic], and for the administration, supervision and accounting of his investment by Agent. T & A Oil will act as agent for each Owner in the acquisition, testing, development and operation of working interest within Union County, Arkansas, and will administer, supervise and account to Owner for his investment, leasehold interest and income and expense.
2. (a) Owner hereby subscribes to this joint venture in the amount indicated below his signature on the last page hereof representing 18 units, with each unit being in the sum of $1,000.00.
. . .
(c) The business of theis [sic] Agreement shall commence at such time as the amount of the total of all subscriptions received equals the sum of $50,000.00.
Mr. Sparks and Mr. Cook each invested $18,000, representing eighteen units, in the partnership. The agreement further provided that upon the completion of a producing well, an "Operating Agreement" would be executed to govern the well's operation. The Operating Agreement was to provide for "insurance in sufficient amounts to cover bodily injury, death and property damage," and summaries of the insurance would be furnished to Owners upon request.
T & A Oil subsequently began operating a single oil well in Smackover, Arkansas, known as "Bennett No. 1 Well." Mr. Sparks and Mr. Cook traveled to the site of the well for a groundbreaking party. They did not visit the well site on any other occasion, and they were not involved with the day-to-day operations of the well. Mr. Sparks and Mr. Cook received periodic profit distributions from T & A Oil, and every year since 1985, they received a "Form K-1" to file with their income tax returns reflecting their share of the partnership's income, credits, and deductions. In addition, Mr. Sparks maintained a T & A Oil checkbook, which he used to pay some of the partnership's monthly bills. He estimated that he spent ten to fifteen minutes per month paying these bills and communicating with T & A Oil's accountant, and he paid himself $50 per month for this service. Mr. Sparks invested in one other oil well in Oklahoma that was not owned by T & A Oil, and Mr. Cook invested in "a couple others" that were also unrelated to T &A Oil.
The T & A Oil well operated without interruption until July 4, 1997, when an accident occurred. The man in charge of pumping the well called Mr. Sparks and explained that two boys had climbed up an oil collection tank and thrown fireworks into it, causing it to explode. One of the boys was seriously injured, and the other was killed. Sharon Bennett subsequently filed a complaint on behalf of the two boys in the Circuit Court of Union County, Arkansas, against numerous defendants, including Mr. Sparks and Mr. Cook, individually and d/b/a T & A Oil Company ("the Arkansas litigation").
T & A Oil did not maintain an insurance policy covering bodily injury, death or property damage.1 For defense of the Arkansas litigation, Mr. Sparks and Mr. Cook submitted the action to State Farm Fire & Casualty Company, the carrier of their homeowner's and personal liability umbrella insurance policies. State Farm conditionally accepted their defense request subject to a reservation of rights because of certain exclusions in the policies. The text of the respective policies was identical with the exception of the policy limits and their attached applications. The homeowner's policies issued to Mr. Sparks and Mr. Cook provided under "Exclusions," in relevant part:
1. Coverage L [Personal Liability] and Coverage M [Medical Payments to Others] do not apply to:
. . .
b. bodily injury or property damage arising out of business pursuits of any insured or the rental or holding for rental of any part of any premises by any insured. This exclusion does not apply: (1) to activities which are ordinarily incident to non-business pursuits;. . .
(emphasis added). The policies defined "business" as The personal liability umbrella policies similarly provided the following exclusion:
We will not provide insurance:
. . .
6. for any loss caused by your business pursuits or arising out of business property:
a. unless:
(1) the underlying insurance listed on the Declarations provides coverage for the loss; and
(2) the loss does not involve an automobile, recreational motor vehicle, or watercraft.
. . .
(emphasis added). Again, "business" was defined as "a trade, profession or occupation."
State Farm has paid all attorneys' fees incurred thus far in the insureds' liability defense of the Arkansas litigation, but it filed this action seeking a declaratory judgment that it has no duty to defend or indemnify Mr. Sparks and Mr. Cook due to the "business pursuits" exclusions in their policies.2 Mr. Sparks and Mr. Cook filed an answer and also sought a declaratory judgment, requesting a determination that State Farm was liable to defend and indemnify them in the Arkansas litigation pursuant to the coverage in their policies. They also filed a counterclaim against State Farm alleging violations of the Tennessee Consumer Protection Act and alternatively seeking attorney's fees pursuant to Tenn. Code Ann. § 23-79-209.3
Mr. Sparks and Mr. Cook subsequently moved for partial summary judgment as to State Farm's duty to defend and indemnify according to the policies. State Farm also filed a motion for summary judgment regarding the coverage issue. Mr. Sparks, Mr. Cook, and State Farm filed extensive stipulations of fact with respect to their cross motions for summary judgment, detailing the extent of the insureds' involvement in T & A Oil, the accident, and the events surrounding the Arkansas litigation. They also filed stipulated exhibits that included the relevant insurance policies, the T & A Oil partnership agreements, letters from State Farm regarding coverage, and a transcript of Mr. Sparks's statement to State Farm about the accident.
Following a hearing, the trial court entered an order on the cross motions, granting summary judgment in favor of State Farm and denying the partial summary judgment motion filed by Mr. Sparks and Mr. Cook. The court declared that State Farm had no obligation to defend and indemnify the insureds for any claims arising out of the accident, including but not limited to those in the Arkansas litigation.
Mr. Sparks and Mr. Cook filed a motion to alter or amend the judgment, and Sharon Bennett filed a separate motion to alter or amend and a brief in support of her motion. Following another hearing, the trial court amended its final order to deny State Farm's motion for summary judgment and to grant partial summary judgment to Mr. Sparks and Mr. Cook. The court's order states, in part:
Defendants Sparks and Cook had such a lack of involvement in the oil business at issue that it did not constitute a customary engagement or stated occupation, such that, under Allstate Insur. Co. v. Godsey, 1991 WL 261873 (Tenn. App. 1991) , it did not rise to the level of or constitute a business pursuit so as to be excluded from coverage under the subject State Farm policies . .. .
Accordingly, the court ordered State Farm to defend and indemnify the insureds and their interests in the Arkansas litigation. The order was made final pursuant to Tenn. R. Civ. P. 54.02, and State Farm filed a timely notice...
To continue reading
Request your trial