By Andrew N. Bourne and Jonathan A. Zakheim
Policyholders in the sports and entertainment industries are often issued comprehensive general liability insurance (CGL) policies purporting to contain provisions excluding coverage for injuries to a wide variety of people involved in event production. Now, owing to a recent New York Court of Appeals decision endorsing an expansive interpretation of such a “Participant in Athletic or Entertainment Events” exclusion, Dzielski v. Essex Insurance Co., 969 N.E.2d 1162 (N.Y. 2012), sports and entertainment industry policyholders must reevaluate whether their coverage is right for their operations.
“Participation in Athletic or Entertainment” exclusions usually include such language as:
The coverage under this policy does not apply to “bodily injury,” “property damage,” “personal injury,” “advertising injury,” or any injury, loss or damage arising out of:
1. Injury to any entertainer, stage hand, crew, independent contractor, or spectator, patron or customer who participates in or is a part of any athletic event, demonstration, show, competition or contest …
Kirk A. Pasich, Cassandra S. Franklin, Sandra Smith Thayer, Shaun H. Crosner, Julia K. Holt, and Andrew N. Bourne, New Appleman Sports and Entertainment Insurance Law & Practice Guide § 7.10[8] (2011). In the past, Courts found that this exclusion barred coverage for injuries sustained by athletes and performers during competitions or events. See, e.g., Giocomelli v. Scottsdale Ins. Co., 221 P.2d 666, 673 (Mont. 2009) (finding exclusion barred coverage for injuries suffered by jockeys during horserace); National Fire & Marine Ins. Co. v. Adoreable Promotions, Inc., 451 F. Supp. 2d 1301 (M.D. Fla. 2008) (finding exclusion barred coverage for the death and injuries suffered by contestants in Toughman contests promoted by policyholders). But Courts also found this exclusion had limits, holding that it was ambiguous as to injured parties that could not be readily categorized as “participants” in a specific activity. See, e.g., Garcia v. St. Bernard Parish School Bd., 576 So. 2d 975, 977 (La. 1991) (finding exclusion ambiguous as to cheerleader’s injuries sustained while performing during high school football game because cheerleaders were not participants in the football game).
The New York Court of Appeals’ novel and seemingly expansive definition of “participant” in Dzielski could have a disruptive and detrimental effect on this previously settled area of insurance law. In Dzielski, the policyholder was the proprietor of a nightclub who sought coverage for injuries sustained by a sound technician who “fell from a loading dock after exiting the rear door” of the club with equipment that had been used during an earlier musical performance. Dzielski v. Essex Ins. Co., 935 N.Y.S.2d 402, 403 (App. Div. 2011). Dzielski, the technician, asserted in his action against the club that his injuries were cased by defects in the loading dock. Id.
Essex disclaimed the policyholder’s request for coverage, contending that its “stagehand” exclusion applied. Id. The exclusion stated:
[t]he coverage under this policy does not apply to ‘bodily injury,’ . . . or any injury, loss or damage arising out of . . . [i]njury to any entertainer, stage hand, crew, independent contractor or spectator, patron or customer who participates in or is part of any athletic event, demonstration, show, competition or contest . . .
Id. (alterations in original). Ultimately, the trial court found that the exclusion did not apply and held in favor of the policyholder. Id.
The Appellate Division affirmed this decision on appeal. Id. In its opinion, the court noted that while the “policy language may be read broadly to encompass all persons who performed tasks in connection with the show, including loading and unloading sound equipment, it may also reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show.” Id. Finding the policy language ambiguous on this basis, the court construed the exclusion against Essex and found it did not apply since the accidence occurred after the show. Id.The court further found that the phrase “arising out of” in the exclusion did not militate against coverage. It reasoned that if the phrase was interpreted to mean ‘originating from, incident to, or having connection with,’” coverage would be excluded “only if an accident originates from, is incident to or has connection with a person’s ‘participat[ion]’ in a ‘show.’” Id. (citation omitted). The court concluded that such a reading would be of no help to Essex because there was “no ambiguity concerning whether the accident arose out of plaintiff’s participation in a show, which in fact had ended before the accident occurred.” Id.
The Appellate Division’s decision and holding was in line with similar cases, and, if left intact, would have allowed sports and entertainment policyholders to breath easier over the breadth of their coverage. Like courts throughout the country, the Appellate Division interpreted the exclusion narrowly to find that a person injured in an accident tangentially related to a performance could not be considered a participant in that performance. The Appellate Division’s decision, however, was not unanimous. Id.
The Dzielski dissent argued that the phrase “‘participates in or is part of any . . . show’ [was] not ambiguous, and that [Dzielski] f[e]ll[] squarely within that language.” Id. at 405. The dissenting Justices found the conclusion supported by the occurrence of two conditions they derived from the language of the exclusion: “(1) the injured party is an entertainer, stage hand, crew member, independent contractor, spectator, patron or customer who ‘participates in or is a part of’ an athletic event, demonstration, show, competition or contest; and (2) the injury ‘arises out of’ such participation.” Id. According to this reasoning, coverage should have been denied because Dzielski fell “squarely within” the exclusion’s implicit parameters; he had been “hired by the band to provide sound reinforcement services for the show, and thus there is no question that he ‘participate[d] in or [wa]s part of” the show on the night of his accident.” Id. (alterations in original). The majority read the exclusion too narrowly for the dissent, by limiting the scope of its language to those persons who “actually performed” in the show. Offering an alternative and expansive interpretation, the dissent suggested that if the exclusion could fairly be applied to spectators, patrons and customers, it could not be limited by its terms to only actual performers. Id.
The dissent also compared the exclusion it was analyzing to other insurance policy provisions that contained some temporal limitation, and found no such limiting language in the “Participants in Athletic or Entertainment Events” exclusion at issue:
For example, the policy’s medical payments coverage provision specifically excludes expenses for bodily injury “[t]o a person injured while taking part in athletics” (emphasis added). Similarly, the policy’s “combination endorsement” excludes expenses for bodily injury or personal injury to any person “ while practicing for or participating in any event or function of a sporting or athletic nature” (emphasis added). Here, by contrast, the absence of such limiting language in the exclusion in question reflects an intent to provide a broad exclusion for all injuries arising from participation in shows or other special events
Id. (citation omitted).
Finally, the dissent disagreed with the majority’s opinion on the impact of the “arising out of” language. Id. According to the dissent, the “process of packing up and removing sound equipment at the conclusion of a show necessarily ‘originat[es] from, [is] incident to, or ha[s] connection with,” the show.” Id. The dissent found that the minimal causal relationship existed, and therefore would have excluded coverage. Id. at 405-06.
Pursuant to New York Civil Practice Law and Rules § 5601(a), Essex had an automatic right to appeal to the New York Court of Appeals. In June 2012, the New York Court of Appeals reversed the Appellate Division’s judgment “for the reasons stated in the dissenting memorandum of the Appellate Division.” Dzielski, 969 N.E.2d at 1162. The Court of Appeals thus found that the “Participant in Athletic or Entertainment Events” exclusion unambiguously applied to exclude coverage for Dzielski’s injuries. This decision upsets a previously settled area of insurance law, and while its impact cannot yet be fully measured, Dzielski could have serious and far-reaching ramifications for policyholders in the sports and entertainment industries.
Given the fact that different insurance companies utilize different policy language, it is impossible to predict how strictly New York courts will adhere to the reasoning proffered by Dzielski’s Appellate Division dissent. Sports- and entertainment-industry insureds should not await further clarity and are instead encouraged to take proactive steps to avoid coverage denials for similarly attenuated injuries and losses. At the least, Dzielski demonstrates the need for a company’s risk managers and attorneys to be familiar with the coverage the company purchases, and to consider its policies in light of the company’s specific line of work. Policyholders involved in the production of public events should take special care to review the language in their insurance contracts, and determine whether any exclusions or limitations on coverage are susceptible to the expansive reading imputed to the exclusion in Dzielski. The Dzielski decision could pose a restriction on policyholders’ rights. Accordingly, policyholders must understand their insurance contracts in order to align them with the risks posed by their actual operations and thereby ensure that coverage remains in place.
Andrew N. Bourne is a New York-based associate in Dickstein Shapiro’s insurance coverage practice and is a member of the practice’s Entertainment and Sports Insurance Initiative. Mr. Bourne is also an editor of LexisNexis’s New Appleman Sports and Entertainment Insurance Law & Practice Guide (2011). Jonathan A. Zakheim is also a New York-based associate in Dickstein Shapiro’s insurance coverage practice who represents corporate policyholders in complex insurance disputes.
