A Minnesota federal court recently held a project-location endorsement precluded coverage under a business risk policy. In Capitol Indemnity Corp. v. Ashanti, 12-CV-1401 PJS/JJG (D. Minn. June 26, 2014), Capitol Indemnity sought a declaration that its policy to Ashanti did not cover claims to Marlene Adams, who was shot in the arm.
Ashanti operated a licensed daycare out of a portion of her basement. Occasionally Adams would help with the daycare. When a family emergency required Ashanti to be away from the daycare, Adams filled in. While in the kitchen, Adams was shot. Ashanti’s son had accidentally fired a gun while in a basement bedroom that was not part of the daycare.
Adams claimed coverage under the policy’s “Business Liability” and “Medical Expenses” sections. The business liability section is an occurrence-based policy covering “bodily injury” within the coverage territory. The medical expenses part covered “medical expenses” form a “bodily injury” caused by an accident on the insured premises.
Capitol argued the “Limitation of Coverage to Designated Premises or Project” endorsement excluded coverage for Adams’ injuries. The endorsement provided “bodily injury” and medical expenses coverage “arising out of” the daycare “project.” However, the “premises” portion was left blank.
U.S. District Court Judge Patrick Schiltz ruled the endorsement unambiguously precluded coverage, even though the “premises” line was left blank. The Court found it was the very purpose of the endorsement to limit coverage to injuries “arising out of” the daycare project. The daycare project endorsement is intended to provide possible coverage away from Ashanti’s home, but limit coverage to injuries arising out of the daycare project. Judge Schiltz reasoned a “contrary interpretation would unreasonably make the policy cover the numerous and varied liabilities that Ashanti may incur as a homeowner—liabilities that are completely unrelated to Ashanti’s business.”
Judge Schiltz also found Adams’ injuries did not “arise out of” the daycare project. Although noted Minnesota broadly interpret “arise out of” to require only “but-for” causation, he noted “Minnesota courts have been clear that something more than literal but-for causation is necessary to find that an injury ‘arose out of’ a particular event or circumstance.” The Court reasoned a “mere situs” connection between the accident and location is insufficient to establish an injury “arose out of” an insured risk. As such, Adams’ injury had no relation to the daycare as a business. The daycare was the “mere situs” of the injury.
This case is significant for its application of the business project-location endorsements and clarification of “arising out of” policy language. The holding clarifies the limitations Minnesota courts have imposed on “arising out of” causation. We will monitor this case on appeal and other decisions impacting insurance coverage. If you have any questions about this, or any other matter, please contact us.