IMT INSURANCE, RO N D. SMITH and MYONG S. SMITH, Plaintiffs-Appellants, vs. WEST BEND MUTUAL INSURANCE COMPANY, Defendant-Appellee.
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IN THE COURT OF APPEALS OF IOWA
No. 7-618 / 07-0161
Filed November 29, 2007
IMT INSURANCE, RON D. SMITH and
MYONG S. SMITH,
Plaintiffs-Appellants,
vs.
WEST BEND MUTUAL INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Webster County, Kurt L. Wilke,
Judge.
Plaintiff landlords and their insurer appeal from district court’s adverse
ruling on summary judgment. REVERSED AND REMANDED.
William Larson and Brian L. Yung of Klass Law Firm, L.L.P., Sioux City,
for appellant.
Michael A. Carmoney of Grefe & Sidney, P.L.C., Des Moines, for appellee.
Heard by Sackett, C.J., and Miller and Baker, JJ.
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BAKER, J.
In this appeal, we are asked to decide whether a tenant’s insurer has a
duty to defend the landlord in a negligence action where the landlord is named as
an additional insured under the tenant’s liability policy, which limits liability to
incidents arising out of the ownership, maintenance, or use of the leased
premises. We conclude the district court erred in granting the insurer’s motion
for summary judgment because the injuries appear to have arisen from the
operation and use of the leased premises, and because potential liability exists
for the club based on the specifications of negligence in the petition.
I. Background and Facts
On January 12, 2004, Martha Doyle slipped and fell on an ice-covered
sidewalk as she was entering Club Fitness, a gym located in Fort Dodge. The
sidewalk was located between the parking lot and entrance to the club. Doyle
and her husband filed a lawsuit against Club Fitness and Ron and Myong Smith,
the building owners, alleging the sidewalk was slippery due to an accumulation of
ice.
The Smiths lease a portion of the building in which Club Fitness is located
to Dave Pearson and William Shirbroun, who operate the club. Pursuant to the
lease between the Smiths and Club Fitness, the Smiths leased to the club the
building space “and the joint use of the parking facilities . . . and all rights,
easements and appurtenances thereto belonging.” The Smiths were responsible
for maintenance of the parking lot, roof, and gutter system.
The lease also
provided that Club Fitness was to pay the Smiths for a portion of the snow
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removal for the parking lot and adjoining sidewalks under which they would
contract for snow removal. The lease does not otherwise mention the sidewalk.
The Smiths carried general commercial liability insurance coverage with
IMT Insurance Company. Ron Smith was also named as an additional insured
under the club’s liability policy with West Bend Mutual Insurance Company.
Pursuant to the insurance policy between Club Fitness and West Bend, Smith
was insured “only with respect to liability arising out of the ownership,
maintenance or use of that part of the premises leased to” the club.
Following service of the Doyles’ lawsuit, the Smiths made a timely claim
with IMT, who undertook their legal defense pursuant to the terms of the policy.
Club Fitness notified West Bend, who provided the club with legal defense.
While the Doyles’ action was pending, IMT issued a formal tender to West Bend,
requesting West Bend defend and indemnify the Smiths. West Bend denied the
tender of defense because Smith was an additional insured “only with respect to
liability arising out of . . . the premises leased to” the club. According to West
Bend, because the lease did not include the sidewalk as part of the leased
premises, and “the liability sought to be imposed upon Mr. Smith does not arise
out of the leased premises to Club Fitness,” the lawsuit was beyond the coverage
provided by West Bend.
IMT and Smith filed a declaratory judgment action to determine the rights
and responsibilities of the parties relating to insurance coverage and the duty to
defend.
IMT filed a motion for summary judgment, and West Bend filed a
resistance and cross-motion for summary judgment. On January 11, 2007, the
district court issued an order denying IMT’s motion and sustaining West Bend’s
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motion for summary judgment, finding West Bend had no obligation to indemnify
or duty to defend the Smiths. The Smiths and IMT appeal only that portion of the
court’s order concerning West Bend’s duty to defend.
II. Merits
We review the interpretation of the language of an insurance policy for
correction of errors at law. Otterberg v. Farm Bureau Mut. Ins. Co., 696 N.W.2d
24, 27 (Iowa 2005). We also review a ruling on a motion for summary judgment
for correction of errors at law. Id. Summary judgment is proper only where,
viewing the evidence in the light most favorable to the nonmoving party, the
record shows 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. Id.
In resolving duty to defend issues, we look to the insurance policy, the
pleadings filed in the underlying lawsuit, and any other admissible and relevant
facts in the record. McAndrews v. Farm Bureau Mut. Ins. Co., 349 N.W.2d 117,
119 (Iowa 1984).
If after construing both the policy in question, and the
pleadings and facts, it appears the claim is not covered by the insurance
contract, the insurer has no duty to defend. Id.
The insurer’s duty to defend the insured is broader than its obligation to
pay damages incurred by events covered by a particular policy. Essex Ins. Co.
v. Fieldhouse, Inc., 506 N.W.2d 772, 775 (Iowa 1993). The duty arises
whenever there is potential or possible liability to indemnify the
insured based on the facts appearing at the outset of the case. In
other words, the duty to defend rests solely on whether the petition
contains any allegations that arguably or potentially bring the action
within the policy coverage. If any claim alleged against the insured
can rationally be said to fall within such coverage, the insurer must
defend the entire action. In case of doubt as to whether the petition
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alleges a claim that is covered by the policy, the doubt is resolved
in favor of the insured.
Employers Mut. Cas. Co. v. Cedar Rapids Television Co., 552 N.W.2d 639, 641
(Iowa 1996) (internal citations and quotations omitted).
A.
The Policy
We first consider the insurance policy to determine whether there is a duty
to defend. McAndrews, 349 N.W.2d at 119. The insurance policy between Club
Fitness and West Bend named Smith as an additional insured “only with respect
to liability arising out of the ownership, maintenance or use of that part of the
premises leased to” the club. The propriety of granting summary judgment to
West Bend, therefore, depends on whether Doyle’s injury arose out of the
“ownership, maintenance or use” of those premises leased to the club. See Md.
Cas. Co. v. Chicago and Nw. Transp. Co., 466 N.E.2d 1091, 1094 (Ill. App. Ct.
1984); see also Talen v. Employers Mut. Cas. Co., 703 N.W.2d 395, 407 (Iowa
2005) (“Insurance policies are contracts between the insurer and the insured and
must be interpreted like other contracts, the objects being to ascertain the intent
of the parties.”).
The phrase “arising out of the ownership, maintenance or use” of the
leased premises is not defined in the insurance policy. “When words are not
defined in the policy, we give them their ordinary meaning.” Kalell v. Mut. Fire &
Auto. Ins. Co., 471 N.W.2d 865, 867 (Iowa 1991). We understand “arising out of
. . . to mean originating from, growing out of, or flowing from, and require only
that there be some causal relationship between injury and risk for which
coverage is provided.” Id. (citations omitted).
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West Bend asserts that the incident must occur on the actual premises
leased to the tenant in order to trigger coverage. See, e.g., U.S. Fid. & Guar. v.
Drazic, 877 S.W.2d 140, 142-43 (Mo. Ct. App. 1994) (holding landlord was not
covered as additional insured under policy, which limited coverage “to liability
arising out of the ownership, maintenance or use of” the leased property because
such coverage “applies only after an act by the tenant causes injury on the actual
premises leased to the tenant for which the landlord can be held vicariously
liable”).
IMT argues for a “substantial nexus” test.
At least one court has
determined that a duty to defend exists if there was a “substantial nexus between
the occurrence and the use of the leased premises.” Franklin Mut. Ins. Co. v.
Sec. Indem. Ins. Co., 646 A.2d 443, 446 (N.J. 1994). While Iowa has not directly
addressed this issue, our Supreme Court refused to apply the Franklin holding
where an additional insured endorsement limited coverage to “designated
premises being insured by this policy, which are directly connected,” because of
“substantial differences” in the language in that endorsement and the “arising out
of” language found in the Franklin policy. City of Cedar Rapids v. Ins. Co. of N.
Am., 562 N.W.2d 156, 158 (Iowa 1997). In this case, however, it is unnecessary
to determine which test applies. Under either test, we find that a potential for
liability exists.
Doyle was walking into Club Fitness from the parking lot when she fell on
the sidewalk between the parking lot and the club’s entrance. If we construe the
policy liberally in favor of the Smiths, Doyle’s injuries “appear to have arisen from
the operation and use of the leased premises, since they would not have been
sustained ‘but for’” her plan to enter the club. Md. Cas. Co., 466 N.E.2d at 1094
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(holding victim’s presence on premises “was not a fortuitous happenstance, but a
regular and foreseeable occurrence,” and the insurance “policy, therefore,
reasonably must be construed to cover any risks attendant upon” the victim’s
presence); see also Kalell, 471 N.W.2d at 867 (“If an insurance policy provision is
ambiguous, we construe it in the light most favorable to the insured.”).
An issue further exists as to whether the sidewalk is part of the leased
premises. The lease provides that “appurtenances” are included. Although an
open question, the sidewalk may be deemed to be an appurtenance. See State
v. Pace, 602 N.W.2d 764, 770 (Iowa 1999) (noting an adjoining sidewalk is an
appurtenance to a house). We hold, therefore, that the district court erred in
granting summary judgment to West Bend because Doyle’s injury potentially
arose out of the premises leased to the club.
B.
The Petition
The district court also concluded that West Bend has no obligation to defend
or indemnify the Smiths with regard to the Doyles’ lawsuit because (1) the
Doyles’ allegation of negligence in piling melting snow from the parking lot
against the northeastern corner of the building was insufficient to trigger
coverage under West Bend’s additional insured endorsement, and (2) the
sidewalk was not part of the lease agreement. IMT argues the district court did
not engage in the proper analysis in coming to that conclusion, and the court
should have reviewed the contents of the lawsuit “to determine whether there
was potential or possible liability to indemnify Smith based on the facts appearing
at the outset of the case.” West Bend similarly asserts that the “real issue in this
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case is whether the Doyles’ lawsuit included any claims against Ron and Myong
Smith which were potentially covered under the West Bend policy.”
To determine whether the insurer has a duty to defend, we look to the
petition for the facts of the case. First Newton Nat’l Bank v. Gen. Cas. Co. of
Wis., 426 N.W.2d 618, 623 (Iowa 1988); see also Essex, 506 N.W.2d at 775
(1993) (noting the allegations contained in the petition are the starting point in
analyzing an insurer’s potential duty to defend). “When necessary we expand
our scope of inquiry to any other admissible and relevant facts in the record.” Id.
According to the Doyles’ petition, the defendants were negligent:
a. In constructing the downspouts so that they caused water to
flow onto the sidewalk resulting in the water freezing to ice;
b. In failing to repair said sidewalk so that water would not pool
on it resulting in the water freezing and creating a sheet of
ice;
c. In piling snow immediately adjacent to the defective sidewalk
resulting in the snow melting and pooling on the sidewalk;
d. In failing to timely and adequately remove the ice from the
sidewalk . . . ;
e. In failing to remove ice from the sidewalk within 24 hours of
the ice formation contrary to Fort Dodge Municipal
Ordinance 12.40.012;
f. In failing to remove ice from the sidewalk within a reasonable
amount of time contrary to I.C.A. § 364.12(2)(b);
g. In failing to timely and adequately sand or chemically treat
the ice on the sidewalk in front of the building . . . ;
h. In failing to warn the plaintiff, Martha Doyle, of the danger
created by the ice covered and slippery sidewalk; and
i. In failing to act as a reasonable person under the conditions
then and there existing.
Smith and IMT contend that Smith is entitled to a defense from West Bend
based upon the allegations in the Doyles’ petition because, “if even the possibility
of coverage existed under the policy for these allegations, West Bend was
obligated to undertake a defense of Smith.” They also contend that Smith is
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entitled to a defense from West Bend because “there was at least a factual
dispute” relating to whether the sidewalk was covered by the lease.
“[A] possessor of land is subject to liability to its invitees if its premises are
not in a reasonably safe condition whether the possessor maintained the
premises itself or hired an independent contractor to do so.” Kragel v. Wal-Mart
Stores, Inc., 537 N.W.2d 699, 704 (Iowa 1995).
Under Kragel, the duty to
maintain the premises is nondelegable. Therefore, Club Fitness cannot absolve
itself of liability by contracting with either the Smiths or a subcontractor for the
snow removal if it had responsibility for the sidewalks. Because Club Fitness
was responsible for a portion of the costs of snow removal, and because the
issue of who was the possessor of the sidewalk is still an open question,
potential liability exists for Club Fitness under the portion of the policy regarding
“arising out of the . . . maintenance” of the leased premises.
West Bend has failed to establish the absence of any possible basis on
which it could be obligated to indemnify the Smiths against liability for Doyle’s
injuries. Therefore, based upon the specifications of negligence in the Doyles’
petition, the possibility of coverage for the Smiths as an additional insured exists
under the policy, and West Bend has a duty to defend. See Petito v. Beaver
Concrete Breaking Co., Inc., 613 N.Y.S.2d 523, 527 (N.Y. Civ. Ct. 1994) (holding
insurer obligated to defend additional insured where insurer “failed to establish
that there is no possible factual or legal basis on which they might eventually be
obligated to indemnify [additional insured] against liability”); see also First
Newton Nat’l Bank, 426 N.W.2d at 629 (holding insurer has a duty to defend
because insured has potential liability under the policy). We do not, however,
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decide which carrier is primary or whether West Bend has a duty to indemnify
IMT for any loss in connection with the lawsuit.
III. Conclusion
We hold that, with regard to West Bend’s duty to defend the Smiths only,
the district court erred in denying IMT and the Smiths’ motion for summary
judgment and in granting summary judgment in favor of West Bend. Accordingly,
we reverse the district court’s ruling granting West Bend’s motion and remand to
the district court for entry of summary judgment in favor of IMT and the Smiths on
that issue.
REVERSED AND REMANDED.
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