Travelers Cas. & Sur. v. Rage Admin. & Marketing

Decision Date08 January 1999
Docket NumberCivil Action No. 98-2243-KHV.
Citation42 F.Supp.2d 1159
PartiesTRAVELERS CASUALTY AND SURETY COMPANY OF ILLINOIS, Plaintiff, v. RAGE ADMINISTRATIVE AND MARKETING SERVICES, INC., f/k/a Rage, Inc., Mid-Atlantic Pizza Huts, Inc., and Pizza Hut of Hickory No. 2, Inc., Defendants.
CourtU.S. District Court — District of Kansas

David W. Hauber, Boddington & Brown, Chtd., Kansas City, KS, for plaintiff.

John J. Jurcyk Jr., Douglas M. Greenwald, McAnany, Van Cleave & Phillips, Kansas City, KS, for defendants.

MEMORANDUM AND ORDER

VRATIL, District Judge.

Travelers Casualty and Surety Company of Illinois seeks a declaratory judgment that it has no duty to defend or indemnify certain insureds in a civil action brought against them in the United States District Court for the Western District of North Carolina. The matter now comes before the Court on Plaintiff's Motion For Judgment On The Pleadings And/Or For Summary Judgment (Doc. # 19) filed September 28, 1998, and defendants' Cross Motion For Summary Judgment (Doc. # 25) filed November 9, 1998. For reasons stated more fully below, the Court finds that plaintiff's motion should be sustained and that defendants' motion should be overruled.

Summary Judgment Standards

Summary judgment is appropriate 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. Fed. R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vitkus v Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. A "genuine" factual dispute requires more than a mere scintilla of evidence. Id. at 252, 106 S.Ct. 2505.

The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Securities, Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on its pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.

"[W]e must view the record in the light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). Summary judgment may be granted if the nonmoving party's evidence is merely colorable or is not significantly probative. Anderson, 477 U.S. at 250-51, 106 S.Ct. 2505. "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, at 251-52, 106 S.Ct. 2505.

Undisputed Facts1

Rage Administrative and Marketing Services, Inc. ("Rage"), formerly known as Rage, Inc., is a Kansas corporation. Atlantic Pizza Huts, Inc. ("Pizza Hut") is a North Carolina corporation. Rage and Pizza Hut operate several Pizza Hut restaurants, including one in Cary, North Carolina.

Rage has a company-wide policy against racial discrimination in customer relations and public accommodation, and its employees are not authorized to discriminate against customers based on race or color. As part of its training regimen, Rage informs all new restaurant managers of the nondiscrimination policy and directs them to enforce it with all employees.

Travelers Casualty and Surety Company of Illinois ("Travelers") issued a commercial general liability policy which covered defendants' restaurant operations between June 30, 1996 and June 30, 1997. Travelers issued and delivered the policy in Kansas, and defendants paid premiums for the policy in Kansas. The relevant policy provisions provide as follows:

SECTION I — COVERAGES

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement.

a. We 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. We will have the right and duty to defend any "suit" seeking those damages. ...

* * * * * * b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and

(2) The "bodily injury" or "property damage" occurs during the policy period.

2. Exclusions.

This Insurance does not apply to:

a. Expected or Intended Injury

"Bodily injury" or "property damage" expected or intended from the standpoint of the "insured."

* * * * * *

SECTION IV — COMMERCIAL GENERAL LIABILITY CONDITIONS

* * * * * *

7. Separation Of Insureds.

.... this insurance applies:

a. As if each Named Insured were the only Named Insured; and

b. Separately to each "insured" against whom claim is made or "suit" is brought.

* * * * * *

SECTION V — DEFINITIONS

* * * * * *

3. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these [at any time].

* * * * * *

9. "Occurrence" means [an] accident, including continuous or repeated exposure to substantially the same general harmful conditions.

The policy's definition of "insured" includes both the named insured organization and "your employees ... but only for acts within the scope of their employment by you."

The policy also contains a supplemental Personal and Advertising Injury Liability provision. That provision provides coverage for damages for "`[p]ersonal injury' caused by an offense arising out of your business," which the policy defines as injury, arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. [Wrongful eviction];

d. Oral or written publication of material that slanders or libels a person or organization ...; or

e. Oral or written publication of material that violates a person's right of privacy.

The policy does not expressly cover or exclude coverage for claims of civil rights discrimination or public accommodation discrimination by clients, customers or business invitees.

On March 2, 1998, the so-called Bobbitt plaintiffs sued Rage and Pizza Hut in the United States District Court for the Western District of North Carolina, on account of events which occurred on November 23, 1996, at the Pizza Hut in Cary, North Carolina. In that suit the Bobbitt plaintiffs — who are African-American — claimed that because of their race, defendants had denied their right to make and enforce contracts and refused to provide equal treatment or access to a public accommodation in violation of 42 U.S.C. §§ 1981 and 2000a. More specifically, the Bobbitt plaintiffs alleged that a white waitress refused to serve their group, rudely ignored them and took orders from white customers who arrived after them. The Bobbitt plaintiffs alleged that after they received their pizzas, they complained to the manager about the lack of pizza sauce. The manager allegedly argued that the pizza had sufficient sauce and used his finger to lift up the cheese to prove his point.

The Bobbitt plaintiffs further alleged that Pizza Hut management had known about and accommodated the discriminatory attitudes of the waitress, and that the manager's conduct was within the scope of his employment. They also alleged that the discriminatory practices occurred under defendants' authority, control and supervision, and within the scope of the employees' employment. They further alleged that defendants "ratified" the waitress' conduct, in that (1) the manager was on notice that the waitress did not like to serve black people, and/or (2) defendants were aware of unlawful conduct by the manager of a Pizza Hut in Hickory, North Carolina, on March 3, 1995,2 and (3) defendants failed to take remedial measures to educate, train or discipline their employees to prevent this incident. Bobbitt, et. al. v. Rage, Inc., et. al, Civil No. 5:98cv19-McK, Complaint For Declaratory Judgment, Permanent Injunctive Relief, And Damages (Doc. # 1) (W.D.N.C. filed March 2, 1998), ¶ 31 ("Bobbitt Complaint"). The Bobbitt plaintiffs finally alleged that "[t]hrough the actions of [their] employees, agents and/or representatives ... defendants acted intentionally, maliciously, and with willful, callous, wanton and reckless disregard for plaintiffs' federally protected rights." Id. at ¶ 33.

The Bobbitt plaintiffs sought compensatory damages for their alleged injuries, which included "economic loss, humiliation, embarrassment, emotional distress, mental anguish, and a deprivation of rights to make and enforce contracts on the same basis as whites." Id. at ¶ 34. They further claimed that one named plaintiff was "extremely upset and humiliated." Id. at ¶ 28.

By letter dated February 6, 1998, Travelers denied coverage for the claims in the Bobbitt suit. It contended that the Bobbitt plaintiffs asserted no claim for bodily injury, personal injury or property...

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