Western Cas. & Sur. Co. v. International Spas of Arizona, Inc.

• Decision Date: 16 June 1981
• Docket Number: CA-CIV,No. 1,1
• Citation: 130 Ariz. 76,634 P.2d 3
• Parties: WESTERN CASUALTY & SURETY COMPANY, a Kansas Corporation, Plaintiff-Appellee, v. INTERNATIONAL SPAS OF ARIZONA, INC., an Arizona Corporation, Defendant-Appellant. 4862.
• Court: Arizona Court of Appeals

Page 3

634 P.2d 3

130 Ariz. 76

WESTERN CASUALTY & SURETY COMPANY, a Kansas Corporation, Plaintiff-Appellee, v. INTERNATIONAL SPAS OF ARIZONA, INC., an Arizona Corporation, Defendant-Appellant.

No. 1 CA-CIV 4862.

Court of Appeals of Arizona, Division 1, Department B.

June 16, 1981.

Jones, Teilborg, Sanders, Haga & Parks by David S. Shughart, II, Frank A. Parks, Phoenix, for plaintiff-appellee

Fogel & Lamber by Dennis M. Lamber, Phoenix, for defendant-appellant.

OPINION

O'CONNOR, Judge.

This is an appeal from the granting of a summary judgment in favor of appellee, the plaintiff in the trial court, and from the denial of appellant's motion for new trial. The sole issue is whether the appellee, Western Casualty & Surety Company (Western), has a duty to defend appellant, International Spas of Arizona (International Spas), pursuant to a general liability insurance policy issued by Western, in a lawsuit filed against International Spas by a lessee, Neil David McLaughlin (McLaughlin). We hold there is a duty to defend the lawsuit and reverse the summary judgment.

McLaughlin's complaint against International Spas alleges four claims arising out of a termination by International Spas of a lease to McLaughlin of a portion of its premises for operation of a beverage service by McLaughlin in the spas. The first count of the complaint is for the breach of the lease; the second is for conversion of personal property belonging to McLaughlin; the third is for conspiracy to interfere with business and contractual relations; and the fourth is for imposition of a constructive trust. International Spas requested Western to defend it under its general liability insurance policy. Western filed an answer on behalf of International Spas, but filed a separate declaratory judgment action against International Spas seeking a declaration that there was no coverage in its insurance policy for the matters alleged in McLaughlin's complaint.

Cross motions for summary judgment were filed in the declaratory judgment action. Western's motion for summary judgment was granted, and the court determined that no policy coverage existed. International Spas' motion for new trial was denied, and this appeal followed.

The general liability insurance policy contains a personal injury liability insurance endorsement which provides in part that:

1. COVERAGE AGREEMENT

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury (herein called "personal injury") sustained by any person or organization and arising out of one or more of the following offenses committed in the conduct of the named insured's business:

C. wrongful entry or eviction, or other invasion of the right of private occupancy; ....

Exclusions

This insurance does not apply:

(a) to liability assumed by the insured under any contract or agreement; ....

Appellee contends that the personal injury endorsement of the policy was intended to protect the insured from alleged wrongful actions toward its customers, such as the wrongful eviction by International Spas of a patron. Appellee originally also contended that coverage was precluded by another policy provision excluding personal injuries sustained by employees. Appellee now concedes, however, that McLaughlin was not an employee of appellant and that the exclusion is inapplicable.

Appellant, on the other hand, contends that McLaughlin's complaint seeks recovery of damages for personal injury sustained by him arising out of his wrongful eviction by the insured, International Spas, for conversion of some of his property in the course of his eviction, and for interference with his business when International Spas allegedly "unlawfully and wrongfully caused (McLaughlin) to be excluded from all of his business premises."

The trial court in granting Western's motion for summary judgment stated in its minute order that:

It is further noted that unless the personal injury was committed in the conduct of the Spas' business there is no coverage, and if the personal injury was sustained as a result of an offense indirectly related to the employment of such person there is no coverage.

In short, if the juice bar is an essential part of the conduct of the Spas' business, personal injury to McLaughlin is excluded. If the juice bar is not a part of the Spas' business the alleged breach of McLaughlin's lease did not occur as part of the conduct of the business and is, therefore, not covered.

Clearly, the trial court was in error in concluding that the events alleged in McLaughlin's complaint did not occur in the conduct of the insured's business. International Spas admittedly conducted business by providing opportunities for recreation and exercise by its patrons, and by making it possible for its patrons to purchase beverages on the premises by virtue of the lease agreement with McLaughlin. Appellee has conceded in oral argument that McLaughlin was not appellant's employee. Moreover, there is nothing in the language of the policy which limits the liability to customers or patrons of the insured, as argued by Western. The endorsement refers to injury "sustained by any person or...