In deciding which tower of insurance was triggered, the Eighth Circuit had to determine whether the action of one insured's employee in shooting into the direction of a lake and hitting a young girl constituted gross negligence. Federal Ins. Co. v. Great Am. Ins. Co., 893 F. 3d 1098 (8th Cir. 2018).
Whispering Lake Limited Partnership owned an apartment complex. Yarco Company, Inc. managed apartment complexes and contracted to do so for Whispering Lake. The contract between the two had cross indemnity provisions. Except for fraud, willful misconduct or gross negligence by Yarco, Whispering Lake was to hold harmless and defend Yarco against any claim against Yarco. On the other hand, Yarco was to hold harmless and defend Whispering Lake for any claim arising out of any fraud, gross negligence, or willful misconduct on the part of Yarco or any of its employees.
Whispering Lake and Yarco each acquired insurance policies covering commercial liability. Whispering Lake had a primary policy with Indian Harbor Insurance Company incurring $1 million in limits and an umbrella policy from Great American Insurance Company with $5 million in coverage. Yarco had a primary policy with Zurich with $1 million in coverage and an umbrella policy with Federal Insurance Company for $25 million in limits.
On Independence Day, Yarco's employee, Aaron Sullivan, worked at the apartment complex's pool as a "pool monitor." Sullivan had a handgun and celebrated Independence Day by shooting the hand gun. He also allowed others to shot the gun. He instructed others to shoot the gun away from the poll and in the general direction of a nearby lake. One of the bullets hit a young girl across the lake in the neck, shattering a cervical vertebra and damaging her spinal cord. The girl died the next day.
Sullivan was charged and pleaded guilty to Involuntary Manslaughter. A wrongful death suit was filed against Sullivan and Yarco. The insurers stepped in based upon their obligations to defend. The suit was settled and each of the insurers paid a part of the settlement, with each reserving rights against the others to litigate its respective obligations for the settlement.
Federal filed suit seeking a declaratory judgment determining the parties' obligations and any priority of coverage. The District Court granted motions for summary judgment in favor of Federal and Zurich. The court held that Great American was obligated to reimburse Federal and Zurich for amounts they contributed to the settlement because Sullivan was not grossly negligent.
On appeal, Great American argued that Sullivan's conduct qualified as "gross negligence" and that the indemnity clause exempted Whispering Lake from liability for claims arising out of gross negligence. Therefore, Great American argued, it did not have a duty to indemnify Zurich and Federal.
Neither of the indemnity clauses defined "gross negligence." Blacks Law Dictionary defined "criminal negligence" as "gross negligence so extreme that it is punishable as a crime." This definition described the incident here. Firing a handgun and allowing others to fire the gun, and encouraging them to shoot in the direction of the lake in a populated, residential area was grossly negligent. Sullivan's conviction, demonstrating "criminal negligence," further supported the court's conclusion that the conduct qualified as "gross negligence," as understood under the indemnity clause. Therefore, Whispering Lake did not have an obligation under the indemnity clause to indemnify Yarco or Sullivan for the settlement.
Still undecided was which entity was liable for the settlement. The District Court did not discuss whether the priority of coverage was governed by the insurance policies or the indemnity clause. Therefore, the case was remanded to the District Court to determine whether the insurers' priority of coverage was determined by the insurance policies terms or by the indemnity clause.
