Bird in Hand Better than Two in Bush

Bird in Hand Better than Two in Bush

Angela and Rodney Gilpin were murdered inside an apartment building owned and operated by Dennis and Sandra Prenger (collectively, the “Prengers”). Plaintiffs, survivors of the victims, obtained wrongful death judgments against the Prengers in state court. The state court found that the Prengers breached their landlord-tenant duty to provide security to their tenant (Angela) and her guest (Rodney) and awarded Plaintiffs $4 million in total damages. The plaintiffs in Eichholz v. Secura Supreme Insurance Co., 12-3170, 12-4032 (8th Cir. 11/14/2013) [enhanced version available to lexis.com subscribers], sought recovery from the Prengers’ insurers rather than the assets of the Prengers.

The district court ruled that Plaintiffs were entitled to collect $1 million in insurance proceeds from the insurer.

Background

When Angela and Rodney Gilpin were shot and killed by David Hosier inside the Prengers’ apartment building, the Prengers did not live at the apartment building. The Prengers operated the apartment building as a business endeavor by collecting rents from individual tenants like Angela.

The Prengers had hired Hosier to perform occasional maintenance work at the building and provided him keys. Angela notified the Prengers about one month before her death that she was afraid of Hosier and that she was concerned for her safety because he had keys to her building. She wrote a letter to the Prengers one week before she was killed, again expressing concerns for her safety and notifying the Prengers that she was seeking a restraining order against Hosier.

In the wrongful death action the trial court found that the Prengers owed a duty to provide security to Angela because of the existence of a landlord-tenant relationship and that they owed a similar duty to Rodney because he was Angela’s guest. The court determined that the Prengers negligently failed to conduct a background check of Hosier before giving him the keys to the building. The court found that the Prengers were also negligent in failing to change the exterior locks to Angela’s apartment building after learning that Hosier was a convicted felon and that Angela feared him. The court ruled that the Prengers’ negligence was a contributing cause of the Gilpins’ deaths and awarded Plaintiffs $4 million in damages.

On the same day the state court entered the judgments, Plaintiffs and the Prengers entered into an agreement which allows injured parties and tortfeasors to contract to limit recovery to specific assets such as insurance proceeds. Specifically, Plaintiffs promised to limit satisfaction of the $4 million wrongful death damages to the proceeds of two insurance policies the Prengers held at the time of the killings, even though the Prengers owned at least one valuable asset, the apartment building.

The Prengers possessed a general commercial liability insurance policy from Farm Bureau Town & Country Insurance Company of Missouri (“Farm Bureau”) with a $500,000 limit. Farm Bureau provided a defense to the Prengers in the wrongful death suits and later paid its coverage limit to Plaintiffs. The Prengers also held a personal property and liability insurance policy through Secura Supreme Insurance Company (“Secura”). The policy included “umbrella coverage” with a $1 million limit intended to cover liabilities above the limits of the Prengers’ other insurance.

The trial court found that Plaintiffs were entitled to recover $1 million in insurance proceeds from Secura. Secura appealed the district court’s grant of summary judgment in favor of Plaintiffs.

DISCUSSION

When reviewing insurance policy terms, a Missouri court applies the meaning which would be attached by an ordinary person of average understanding if purchasing insurance, and resolves ambiguities in favor of the insured.

The two exclusions in the Secura policy read as follows:

“We do not cover:

“7. Business pursuits of an insured unless covered by Personal Liability primary insurance described in the Declarations. Our coverage is no broader than the primary insurance except for our liability limit.

“8. Damages resulting from the ownership, maintenance or use of business property of an insured. This exclusion does not apply to:

“a. an office, school or studio occupancy located on the insured’s residence premises if covered by primary insurance described in the Declarations; or

“b. a one- to four- family dwelling rented or held for rental to any person if covered by primary insurance described in the Declarations.”

The parties agree that the building at issue had more than four units, that the Prengers owned the apartment building as a “business property,” and that the Prengers operated the apartment building as a “business pursuit.”

Plaintiffs argue that the business pursuit exclusion only applies when damages are caused by dangerous or defective conditions of the business property, but that the exclusion does not bar coverage for the Prengers’ personal tortious conduct in failing to conduct a background check on Hosier and in failing to retrieve the master keys from him or change the locks after learning of his felony conviction and of the potential danger he posed to Angela.

Secura’s business property exclusion is broad. It precludes coverage for damages “resulting from the ownership, maintenance or use of business property.” The language of Secura’s policy, by its terms, contemplates damages resulting not just from the business property itself, but from various uses of that property as well. In the wrongful death judgments, the state court found that the Prengers breached a legal duty to provide security to Angela and Rodney. In other words, absent ownership of the building, the Prengers would have owed no duty to provide security to Angela and Rodney and thus would not have been liable for their deaths.

Plaintiffs’ damages also resulted from the Prengers’ maintenance of the business property. In this case, the state court found that the Prengers had hired Hosier to perform maintenance tasks at the apartment building (i.e., the business property). As part of Hosier’s responsibilities, the Prengers provided him keys. Thus, damages in the underlying wrongful death judgments resulted from the Prengers’ negligent maintenance of the business property itself—in failing to conduct a background check of Hosier (a maintenance worker), and in failing to retrieve the keys from Hosier or to change the locks after learning that Hosier posed a threat to Angela.

The Eighth Circuit concluded that the only correct inquiry to be resolved by the court was whether the wrongful death damages were a natural and probable consequence of the negligent ownership, maintenance or use of the apartment building. Importantly, the murders themselves did not have to be foreseeable. It was the existence of a landlord-tenant relationship, and the corresponding legal duty to provide security, that was foreseeable to the Prengers. Breaching this foreseeable duty created the damages. Finally, the business property exclusion is not ambiguous. The tortious conduct of the Prengers was more than tangentially related to the business property, the conduct resulted from the Prengers’ negligent ownership and maintenance of the apartment building.

Concluding that the business property exclusion unambiguously precluded coverage of the wrongful death judgments Plaintiffs obtained against the Prengers the Eighth Circuit reversed the trial court’s decision and ordered the trial court to enter judgment for the defendant, Secura Supreme Insurance Company.

ZALMA OPINION

Although greed may be good in the movie “Wall Street” it is not good in tort litigation and the desire to obtain money from an insurer rather than the tortfeasor. It was clear that the Prengers had some assets to pay a judgment since they owned the apartment building where the murders took place. To give up those assets to file a new, and potentially losing lawsuit, seems a bad investment.

The business pursuits exclusion was clear and unambiguous and fit exactly the facts that led up to the murders. The Prengers did wrong. They were negligent in the operation of the apartment building that was their business. They were fortunate because the plaintiffs, rather than go after the personal assets of the Prengers, gave up that right and went after the insurer and lost the right to collect the $4 million verdict.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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