By James Moss
The event organizer purchased an insurance policy for his event, the Extreme Rampage. He contacted an insurance agent he had used to purchase a policy for a similar race six months earlier. The application was submitted to insurance intermediaries who submitted the application to Capitol Specialty Insurance Corporation.
While discussing the policy with the agent, the event organizer specifically stated he needed coverage for participants in the race. The agent asked the organizer how many participants there would be. However, when completing the application, the agent left the question blank on whether athletic participation coverage was requested.
The event organizer accepted the proposal from Capitol. When the organizer arrived at the insurance office, he paid $477 for the policy and signed a subjectivities page, which stated the policy was subject to the following verifications:
No events involving the following: abortion rights, pro-choice or right-to-life rallies/parades or gatherings, air shows or ballooning events, auto racing regardless of vehicle size (including go-karts, motorcycles and snowmobiles), cattle drives, events involving inherently dangerous or stunting activities, events with water rides/slides etc., political demonstrations or protest rallies by groups with a history of violent incidents, [n]o events with fireworks displays. AND [*9] — Spectators must be a safe distance (100 feet minimum) from the obstacle course.
The organizer never saw the actual policy and was never informed there were exclusions in the policy. When the policy arrived, it contained two exclusions in addition to the ones stated in the subjectivities page. The court identified the first exclusion as the “sponsor exclusion:”
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY
EXCLUSION — ATHLETIC OR SPORTS PARTICIPANTS
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART.
SCHEDULE
Description of Operations:
Special event — 5K run with obstacles.
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.
The court labeled the second exclusion the “participant exclusion” provided as follows:
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY EXCLUSION — PARTICIPANTS
(SPECIFIED ACTIVITIES/OPERATIONS)
SCHEDULE
Descriptions of Activity/Operations
Mud Runs and Tough Guy Races
This insurance does not apply to “bodily injury,” “property damage,” “personal or advertising injury” or medical expense arising out of any preparation for or participation in any of the activities or operations shown in the schedule above.
During the event, one of the participants died. His surviving spouse sued various defendants, including the event organizer. The organizer submitted a claim, and Capitol denied coverage. Capitol then filed a declaratory judgment complaint stating it had “no duty to defend or indemnify” because of the policy exclusions.
The organizer and the spouse filed suits claiming, “negligence; violation of the Kentucky Consumer Protection Act and the Unfair Claims Settlement Practices Act; fraud; and breach of contract.” The two actions were consolidated, and all parties filed motions for summary judgment.
The trial court granted Capitol’s motion for summary judgment holding the policy issued by Capitol excluded the coverage the organizer needed, which was to defend or pay the underlying claims of the spouse. The organizer and the spouse appealed.
The court shot down the first argument because the organizer was mailed the policy prior to the event. Pleading ignorance of the terms of the policy is not a defense. Insureds are charged with knowing the contents of their insurance policy. No evidence was introduced to show that the policy was different from what he had anticipated. By signing the policy and accepting it, that claim was not at issue.
The agent argument was struck down lacking any real evidence. Under Kentucky law, an agent’s authority arises from a direct granting of authority by the principal. Although Kentucky has a specific statute stating agents acting for an insurer are agents of the insurer, there was no evidence that Capitol had granted any authority to the agent or the Insurance Intermediaries.
The court found no apparent authority either. Kentucky defines apparent authority as authority the principals as being possessed by the agents. Apparent authority is a matter of appearances.
The third argument was how the sponsor exclusion was interpreted. The trial court held the organizer was a sponsor as defined by the policy. If the policy was ambiguous then any dispute in the policy was to be held in favor of the policy holders. The organizer claimed he was not a sponsor but the owner and organizer of the event.
Exclusions in contracts are to be narrowly construed, yet not so construed as to render the policy ineffective. Any doubts about the coverage are to be ruled in favor of the policyholder.
To be ambiguous, a term must have multiple definitions or subject to more than one interpretation. The court seemed to find that the organizer was not a sponsor, but never stated that specifically. Nevertheless, the court agreed with the trial court and found the first exclusion; the sponsor exclusion applied and denied coverage to the organizer.
The organizer argued also that the two exclusions, sponsor exclusion and the participant exclusion created an ambiguity in the policy when read with the coverage endorsements. The two coverage endorsements provided unfettered coverage while the two exclusions limited coverage.
Insurance policies are written one of two ways. They are either named peril polices, which provide coverage only for the risks specifically listed in the policy. If the risk is not listed there is no coverage. Most commercial policies were written as named peril policies at one point. The second type of policy is an all risk policy. These polices say everything is going to be covered and then lists exclusions for those things not covered. Most personal insurance policies such as a homeowner’s policies are written this way.
This policy seems to be written as an all risk policy. However, the court took a different approach. The court did not review the issue arguing that the information was not before it to decide. Even though the record indicated the issue had been argued at the trial court, an incomplete recording was made of that hearing, and the appellate court did not have the complete recording. Thus, the appellate court refused to rule on the issue.
The final argument made by the organizer was Capitol should not have been dismissed from the proceedings because he had additional allegations against Capitol of consumer protection, unfair claim’s settlement and fraud. The organizer did not provide any additional information to the appellate court about these allegations, so the court found so the court did not need to rule on them. The sponsor exclusion was enough to deny coverage anyway.
The insured bought a policy that did not provide any protection arising from claims for participants or spectators of his event.
Johnson v. Capitol Specialty Ins. Corp., 2018 Ky. App. Unpub. LEXIS 447
