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Nautilus Insurance Co. v. Sunset Strip, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

July 28, 2015

NAUTILUS INSURANCE COMPANY, Plaintiff,
v.
SUNSET STRIP, INC., ANDRE HOLT, Defendants.

ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

MARK J. DINSMORE, Magistrate Judge.

Andre Holt ("Holt") was injured when he was shot in the face while on the premises of Sunset Strip ("Sunset"), an adult cabaret in Indianapolis, Indiana. Holt filed suit against Sunset in Indiana state court, and Sunset sought coverage for the suit through an insurance policy issued by Nautilus Insurance Company ("Nautilus" or "Plaintiff"). Nautilus then filed the current action, in which Nautilus seeks a declaratory judgment stating that Nautilus has no duty to defend or indemnify Sunset for any claim arising out Holt's injury. Plaintiff moved for summary judgment on May 1, 2015, [Dkt. 55], and after reviewing the parties' briefs and the designated evidence, the Court GRANTS Plaintiff's motion.

I. Legal Standard

Federal Rule of Civil Procedure 56(a) provides that a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The moving party "always bears the initial responsibility" to show, through the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, " that there exists no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the party moving for summary judgment would not bear the burden of proving a certain element of a claim or defense at trial, then the nonmoving party has the burden to prove the existence of that essential element or the existence of a genuine issue of material fact related to that element. Id. at 323-24.

In ruling on a motion for summary judgment, the court must construe all evidence in the light most favorable to the nonmoving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 601 (1986), and the Court must draw all reasonable factual inferences in favor of that party. Chmiel v. JC Penney Life Ins. Co., 158 F.3d 966, 968 (7th Cir. 1998). The Court does not make credibility determinations, weigh the evidence, or choose which inference to draw from the facts; instead, these duties are reserved for the factfinder. Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003). When the complete record, as presented in favor of the nonmoving party, could lead no rational juror to find for the nonmoving party, "there is no genuine issue for trial, " and summary judgment is therefore appropriate. Matsushita, 475 U.S. at 599.

II. Factual Background

Sunset Strip, Inc. ("Sunset") is an adult cabaret owned by brothers Tim and John Logan. [Dkt. 56-2 at 1-4 (John Logan Dep., 5:1-7:25, April 22, 2015).] The establishment derives up to 93% of its revenues from liquor sales. [Dkt. 62-4 at 11 (Curtis Chalmers Dep., 81:6-82-20, March 31, 2015.).] The remainder of Sunset's revenue comes from sources such as the sale of food prepared at Sunset's on-site kitchen. [ See Dkt. 56-2 at 14.]

Sunset also offers live entertainment in the form of nude or semi-nude dancing. [Dkt. 60-1 at 2 (Aff. of John Logan).] Sunset's owner described the dancers as independent contractors who receive compensation not from Sunset itself but from tips from Sunset's patrons. [ Id. ] To increase their compensation, the dancers "seek constant interaction" with each of Sunset's patrons "in order to gain attention and tips." [ Id. ] The dancers thus "react and alter their performances based on the patrons' decision to provide his/her attention or turn his/her attention away from the performance of a particular dancer." [ Id. ]

John Logan also testified about the history of Sunset's insurance coverage. He stated that Sunset obtained insurance by working with insurance agent Chris Dant. [Dkt. 56-2 at 6.] Mr. Dant explained that he had assisted Sunset with its coverage for approximately 15 years, [Dkt. 56-3 at 22 (Chris Dant Dep., 22:5-9, April 8, 2015)], and that until 2008, Sunset had been covered under a general commercial liability insurance policy issued by USF. [ Id. at 20.] At that time, Mr. Dant advised Sunset to seek a new insurance carrier for its general commercial liability policy. [Dkt. 60-1 at 3.]

Based on Sunset's high percentage of alcohol-based revenue, and based on the presence of live entertainment on Sunset's premises, Mr. Dant determined that Sunset faced risks and liabilities that were greater than those typically faced by other persons or businesses. He accordingly contacted J.M. Wilson Corporation ("J.M. Wilson"), which is a managing general agent that receives insurance coverage requests from such relatively high-risk entities. [Dkt. 62-6 at 3-4 (Sandra Fritz Dep., April 16, 2015).] J.M. Wilson, in turn, contacted Nautilus in order to obtain a quote for Sunset's requested coverage. [Dkt. 61-1 at 8-9.]

Nautilus reviewed Sunset's application for insurance and considered factors such as the nature of Sunset's business and the percentage of alcohol-based revenue in order to determine the price at which Nautilus would offer Sunset an insurance policy. [ Id. at 11-13.] Nautilus then prepared a quote and included a range of different rates for different types of coverage. [ See Dkt. 56-3 at 12-13.] As is relevant here, Nautilus indicated that it could provide a policy that would include both "liquor liability coverage" and "assault and battery" coverage. [ Id. at 12.] Mr. Dant then received these quotes, relayed them to Sunset, and discussed them with Sunset's owners. [ Id. ]

Sunset's owners then decided on the scope of coverage to purchase. [ See id.; see also Dkt. 60-1 at 3.] Mr. Dant testified, [Dkt. 56-3 at 12], and John Logan agreed, [Dkt. 56-2 at 25; Dkt. 60-1 at 3], that Sunset decided to forgo complete "liquor liability coverage" because this coverage was too expensive. Mr. Dant also testified that Sunset decided to forgo "assault and battery" coverage because this coverage was also considered too expensive. [Dkt. 56-3 at 12.] Mr. Logan, however, disagreed: he testified that he could not recall discussing "assault and battery" coverage with Mr. Dant, [Dkt. 56-2 at 12], and he submitted an affidavit indicating that he believed he purchased coverage that included liability arising from "assault and battery" incidents. [Dkt. 60-1 at 3.]

Regardless of this disagreement, Sunset ultimately purchased a general commercial liability insurance policy from Nautilus. The period of coverage began in November 2009, and Sunset renewed the policy for several years. [Dkt. 60 at 3.]

The parties agree that the policy was in effect on April 27, 2012. [ See Dkt. 56 at 2-3; Dkt. 60 at 4.] On that date, Andre Holt ("Holt") was shot in the face while in the Sunset parking lot. [Dkt. 56 at 1.] Approximately two years later, Holt filed suit against Sunset in Marion County Superior Court, alleging that Sunset had negligently failed to ensure that its premises were safe for its patrons. [ See Dkt. 1-1 (State Court Complaint).]

Shortly after the shooting, Sunset's owners contacted Mr. Dant and provided details of the incident. [Dkt 60-1.] Mr. Dant did not indicate that a claim resulting from the incident would not be covered by Sunset's insurance policy, [ see id. ], but Nautilus ultimately denied coverage for Holt's lawsuit. [ See Dkt. 60 at 5.] Nautilus then filed the current declaratory judgment action against Sunset and Holt (collectively "Defendants"), seeking confirmation that Nautilus owes no duty to defend or indemnify Sunset for Holt's state court claims. [Dkt. 1.]

The insurance policy at issue includes three general areas of coverage: "Coverage A" includes coverage for "bodily injury" and "property damage" [Dkt. 1-2 at 9]; "Coverage B" includes coverage for "personal and advertising injury" [ id. at 13]; and "Coverage C" includes coverage for certain medical payments. [ Id. at 15.] The policy, however, also contains numerous exclusions. First, the policy's "Assault or Battery" exclusion provides as follows:

Regardless of culpability or intent of any person, this insurance does not apply to "bodily injury", "property damage", "personal and advertising injury" or medical payments arising out of any:
1. Actual or alleged assault or battery;
2. Physical altercation; or
3. Any act or omission in connection with the prevention or suppression of such acts, including the alleged failure to provide adequate security.
...

This exclusion applies to:

1. All causes of action arising out of any assault or battery, or out of a physical altercation including, but not limited to, allegations of negligent hiring, placement, training, or supervision, or to any act, error, or omission relating to such an assault or battery, or physical altercation;
2. Any claims or "suits" brought by any other person, firm or organization asserting rights derived from, contingent upon, or arising out of an assault or battery, or a physical altercation[.]
...
[Nautilus] will have no duty to defend or indemnify any insured in any action or proceeding alleging damages arising out of any assault or battery, or physical altercation.

[Dkt. 1-2 at 31.] The policy then includes a separate exclusion for "Weapons":

This insurance does not apply to "bodily injury", "property damage", "personal and advertising injury" or medical payments arising out of: 1. The disposal, distribution, importation, maintenance, manufacture, marketing, ownership, packaging, repair, sale, storage, or use of any "weapon."
...
Weapons include, but are not limited to: 1. Firearms as defined in the Gun Control Act... including, but not limited to, any pistol, revolver, shotgun, rifle, [or] machine gun[.]

[Dkt. 1-2 at 38.] Plaintiff argues that the "Assault or Battery" and "Weapons" exclusions bar coverage for Holt's state law claims against Sunset, [ see Dkt. 56], but Defendants assert that additional exclusions are also relevant to Plaintiff's current motion. First, the policy includes a "Participants" exclusion, which provides as follows:

EXCLUSION - PARTICIPANTS
...
This insurance does not apply to bodily injury", "personal and advertising injury" or medical payments arising out of injury to any "participant" while in the "activity area".
This exclusion applies to any resulting injury whether such injury occurs before, during, or after an "event" shown in the Schedule.
...
"Activity area" means the location where the "event" occurs including, but not limited to, the arena, chute, corral, course, field, infield, pit, ring, sideline, stage, track, or any site specifically set aside for the purpose of preparing for ...

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