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Mount Vernon Fire Insurance Corp. v. Oxnard Hospitality Enterprise, Inc.

In Mount Vernon Fire Ins. Corp. v. Oxnard Hospitality Enterprise, Inc., 219 Cal.App.4th 876 (September 16, 2013), the California Second District Court of Appeal affirmed the trial court’s entry of summary judgment in favor of Mount Vernon Fire Insurance Corporation. (“Mount Vernon”) based on application of an assault and battery exclusion to bar coverage of an underlying judgment arising out of a lawsuit brought by a dancer employed by Oxnard Hospitality Enterprise, Inc. (“Oxnard”) at a nightclub.  The dancer suffered bodily injury on Oxnard’s premises shortly after she had completed her shift when a patron of the nightclub threw flammable liquid on her and then set her on fire.  Her assailant was later convicted of aggravated mayhem and torture.  Thereafter, the dancer sued Oxnard and others for negligent failure to provide adequate security.  While this action was pending, Mount Vernon filed an action for declaratory relief.  Based on the argument that the assault and battery exclusion in its liability policy issued to Oxnard applied to bar coverage of the underlying lawsuit.  The Court of Appeal referred to the exclusion as follows:

. . . insurer relied on the "Assault or Battery” exclusion in the liability policy issued to Oxnard. That endorsement excluded coverage for "all 'bodily injury' . . . arising out of 'assault' or `battery'. . . including but not limited to 'assault' or 'battery' arising out of or caused in whole or in part by negligence. . . 'Battery’ means negligent or intentional wrongful physical contact; with another without consent that results in physical or emotional injury."

While Mount Vernon’s declaratory relief action was pending, the underlying lawsuit was settled based on a stipulated judgment in the amount of $10 million dollars and an assignment of rights by Oxnard to the plaintiff against Mount Vernon.

Subsequently, Mt. Vernon filed a motion for summary judgment in its declaratory relief action against the assignee plaintiff in the underlying action.  Thereafter, the trial court agreed with Mount Vernon and entered summary judgment in its favor.

In affirming the trial court’s decision, the Court of Appeal held as follows:

We have no trouble concluding that the exclusion at issue is free from ambiguity. The following principles govern our interpretation of the term "physical contact."  "Insurance policies are contracts and, therefore, are governed in the first instance by the rules of construction applicable to contracts. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs its interpretation. If the meaning a layperson would ascribe to the language of a contract of insurance is clear and unambiguous, a court will apply that meaning. [Citations]." (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 666-667.)"‘Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists.’ [Citation.]" (Alameda County Flood Control Water Conservation Dist. v. Department of Water Resources (2013) 213 Cal.App.4th 1163, 1180.) We seek a common sense interpretation which avoids absurd results. (Cold Creek Compost, Inc. v. State Farm Fire & Casualty Co. (2007) 156 Cal.App.4th 1469, 1479.)

“The principal rule of contract interpretation is to give effect to the parties’ intent as expressed in the terms of the contract. (Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co. (1993) 5 Cal.4th 854, 867.) Insurance policy terms are treated no differently and will be given the ‘objectively reasonable’ meaning a lay person would ascribe to them. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822.) Moreover, the context in which a term appears is critical.” ‘important are the requirements of reasonableness and context.' (Bay Cities Paving, supra, 5 Cal.4th at p. 867, italics added.)" (Century Transit,supra, 42 Cal.App.4th at p. 126.)

Applying those principles to this case leaves no question that the policy's definition of battery extends to the intentional attack made on Busby. Had her assailant struck Busby with a closed fist, there could be no argument that such a striking was not a “battery” under Oxnard’s policy. Could the answer be any different if that fist contained a glass container that was used to strike Busby? Certainly no reasonable person would make such an argument. How, then, could or should the result be any different if the glass container were filled, as in this case, with a flammable substance used to set Busby afire? As we pointed out in Century Transit, “reasonableness and context” are important. Neither Oxnard, nor its assignee Busby, could have had reasonable expectations to the contrary.

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