Court Resolves Question over Athletic Exclusion in Coverage Case

May 22, 2009

A federal judge from the District of Hawaii has denied an insurance company’s motion for summary judgment in a case where the family of a man, who drowned while participating in an organized recreation outing, sued the recreation company that staged the event.
North American Capacity (NAC) had claimed that it did not have a duty to defend Hawaiian Isle Adventures, Inc.(HIA) in the lawsuit. But the court found that the terms of the exclusions that NAC based its decision not to defend on were “ambiguous.”
The incident that led to the litigation occurred on July 15, 2004, when Lee Townes drowned while participating in a snorkeling trip that was “offered, recommended, advertised, maintained, arranged, controlled, operated, sold, managed and supervised” by HIA. On May 8, 2006, Carolyn Townes sued HIA for the wrongful death of her husband, alleging specifically that the drowning “was caused by the defendants’ negligence and/or gross negligence, and was in violation of the duty of reasonable care owed by those providing recreational activities to the public.”
HIA then tendered the suit to NAC for a defense and indemnification. NAC, however, declined to provide a defense and has denied coverage, directing the court toward exclusions that it claims preclude coverage.
First, NAC points to the exclusion for Designated Work. That section states that the insurance policy does not apply to bodily injury arising out of “your work” shown in the schedule. The schedule describes “your work” as “Waterfall Hiking, Snorkeling, Boogie Boarding & Surfing.”
NAC also relies on the exclusion for “Athletic or Sports Participants” (Athletic Exclusion). That exclusion also includes a schedule that describes HIA’s operations as “Waterfall Hiking, Snorkeling, Boogie Boarding & Surfing.” The Policy then states, “With respect to any operations shown in the Schedule, this insurance does not apply to ‘bodily injury’ to any person while practicing for or participating in any sports or athletic contest or exhibition that you sponsor.” Characterizing snorkeling as a “sport,” NAC contends that injuries sustained by customers while snorkeling are not covered.
Lastly, NAC points to the language in the quotation issued by NAC through Golden Bear on May 26, 2004, and the binder issued on May 27, 2004. Both documents state that the “Designated Operations Limitation exclusion will apply excluding: All Sporting Events, Trail Hikes, Snorkeling, Boogie Boarding, and Surfing Activities.” Since HIA accepted the terms of the Quotation and the Binder when seeking insurance coverage, NAC claims that these documents” indicate the parties’ clear intent to exclude injuries sustained by HIA’s clients’ while snorkeling.”
In its analysis, the court found that “reading the policy as a whole, … the Designated Work Exclusion is ambiguous. NAC asserts that the exclusion for injuries “arising out of ‘your work’ shown in the schedule” clearly refers to injuries that customers sustain while participating in the designated activities of waterfall hiking, snorkeling, boogie boarding, and surfing. NAC says that, by contrast, an injury sustained while traveling to a snorkeling site or while trying on a snorkeling mask away from any water would not fall within the Designated Work Exclusion.
“HIA counters that the Designated Work Exclusion only precludes coverage to employees, who, in the scope of their employment, engage in waterfall hiking, snorkeling, boogie boarding, and surfing. HIA notes that such an exclusion for injuries to employees is logical, given the availability of workers’ compensation insurance, disability insurance, or medical insurance, all of which HIA purchased separately for its employees.”
The court continued, noting that it was “struck by what appears to be the insurer’s deliberate decision to have the Designated Work Exclusion apply to a different version of ‘your work’ from what is defined as ‘your work’ in the Policy’s Definitions section. The exclusion’s reference to ‘your work’ as consisting of specific activities such as snorkeling may well be an attempt to exclude injuries arising from an employee’s act of snorkeling, not a customer’s act of snorkeling. Thus, for example, the exclusion could apply to an injury sustained by an employee while the employee was snorkeling. Arguably, the exclusion could apply to an injury to a customer caused by an employee while the employee, as part of the employee’s work, was snorkeling. Suppose, for example, an HIA employee was demonstrating snorkeling in the water, and accidentally kicked a customer in the process. This would be an injury arising from the ‘work’ of snorkeling.”
The court went on to summarize its position that “NAC does not establish that the state-court action is actually based on negligence in the very act of snorkeling. At best, the Designated Work Exclusion is ambiguous.”
Next, the court turned to NAC’s argument that the Athletics Exclusion, which excludes any injury arising out of “any sports or athletic contest or exhibition that you sponsor,” applies.
“NAC reads this as excluding injuries resulting from (1) sports, (2) athletic contests, and (3) exhibitions. NAC’s reading would clearly be correct if the exclusion referred to ‘any sport, athletic contest, or exhibition.’ However, as written, the exclusion may reasonably be read to refer to ‘contests or exhibitions,’ of an athletic or sports nature. The absence of a comma after sports and the use of the word sports rather than sport suggest that the word ‘sports’ functions as an adjective, modifying ‘contest’ (and possibly ‘exhibition’), in the same way ‘athletic’ does, rather than as a noun with the same status as ‘contest,’ or ‘exhibition.’ Indeed, in Zurich Reinsurance (London) Ltd. v. Westville Riding Club, Inc., 82 F. Supp. 2d 1254, 1256 (E.D. Okla. 1999), aff’d, 203 F.3d 837 (10th Cir. 2000), the court, considering the language in the exclusion to be unambiguous, read ‘sports’ as an adjective. See also Garcia v. St. Bernard Parish Sch. Bd., 576 So. 2d 975, 976 (La. 1991).
“The Athletics Exclusion is a common feature in policies, sometimes written in different formulations. Despite how common this kind of exclusion is, NAC cites no case that reads any version of the Athletics Exclusion as applicable to sports in general, even without a contest or exhibition. See generally Tracy A. Bateman, Annotation, Construction and Application of Provision in Liability Insurance Policy Excluding Coverage for Injuries Sustained During Athletic or Sports Contest or Exhibition, 35 A.L.R.5th 731 (1996). NAC appears to concede that snorkeling is not properly considered a contest or exhibition within the meaning of this exclusion; snorkeling involves neither competition nor performance and is rather a recreational activity. Thus, if ‘sports’ is an adjective modifying ‘contest’ and/or ‘exhibition,’ the Athletic Exclusion is clearly inapplicable.
“Even if ‘sports’ functions as a noun, as urged by NAC, it is not clear that snorkeling falls within the plain meaning of ‘sports,’ Sport is defined by Webster’s as ‘an activity [that gives enjoyment or recreation], especially when competitive, requiring more or less vigorous bodily exertion and carried on, sometimes as a profession, according to some traditional form or set of rules;’ Webster’s New World College Dictionary 1297 (3d ed. 1997). Sport is defined by The American Heritage Dictionary as ‘physical activity that is governed by a set of rules or customs and often engaged in competitively.’ The American Heritage Dictionary 1680 (4th ed. 2006). NAC does not even suggest that snorkeling is governed by any traditional set of rules or customs, as provided by the dictionary definitions.”
Hawaiian Isle Adventures, INC. v. North American Capacity Insurance Company, et al.,; D. Haw.; CIVIL NO. 08-00574 SOM/KSC, 2009 U.S. Dist. LEXIS 33795; 4/20/09
Attorneys of records: (for plaintiff) Mitchell S. Wong, LEAD ATTORNEY, Law Offices of Mitchell S. Wong, Honolulu, HI. (for defendants) Keith K. Hiraoka, LEAD ATTORNEY, Roeca Louie & Hiraoka LLP, Davies Pacific Center, Honolulu, HI; and Karen M. Winter, Lissa H. Andrews, LEAD ATTORNEYS, Devon I. Peterson, Rush Moore LLP A Limited Liability Law Partnership, Honolulu, HI.


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