United States District Court, M.D. North Carolina
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is a declaratory judgment action by insurer Arch Specialty Insurance Company ("Arch") against its insured, Talley Restaurants, Inc., d/b/a Inferno, and Travis Hedrick, Inferno's patron. Several motions are before the court, but the principal questions arise from the cross-motions for summary judgment by Arch and Hedrick. (Docs. 23, 33.) The heart of the disagreement is whether Hedrick's injuries and damages stemming from his physical expulsion from Inferno by its security employees fall within the applicable limits of the assault and battery endorsement to the club's insurance policy with Arch. For the reasons set forth below, the court finds that they do. Consequently, Arch's motion for summary judgment will be granted, Hedrick's motion will be denied, and the remaining motions will be denied as moot.
The undisputed facts are as follows:
A. The Incident
Around midnight on April 22, 2009, Hedrick and his companion, Phillip Westmoreland, were patrons of Inferno, a nightclub in Greensboro, North Carolina. (Doc. 1-8, "Underlying Judgment, " at 2.) Inferno at that time was owned and operated by Defendant Talley Restaurants, Inc. (Id.) Westmoreland got involved in a "fist fight, " and he and Hedrick were ejected from the club by Inferno employees. (Id.) While ejecting Hedrick, one employee put him in a headlock and eventually dropped him to the cement floor, which Hedrick's head hit. (Id.) Inferno staff then dragged Hedrick out of the nightclub and apparently left him outside, where he was found by a passerby who called for emergency aid. (Id.) The actions of the Inferno employees caused Hedrick
life-threatening injuries, including a major concussion, bleeding of the brain resulting in head surgery (twice), being in an extended coma, large medical bills, pain and suffering, loss of income, and permanent injury including having seizures to which he is subject to for life as well as speech problems, loss of motor mechanical ability, numbness on the surface of the skin, and permanent scarring together with other major permanent medical complications.
(Id. at 3.)
B. The Insurance Policy
Prior to this incident, Inferno had purchased a commercial general liability insurance policy from Arch. (Doc. 1-1 ("Ins. Policy").) In the policy, Arch promised to defend Inferno against and indemnify it for lawsuits seeking damages for bodily injury:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
(Id. at 6.) "Bodily injury" must be "caused by an occurrence' that takes place in the coverage territory.'" (Id.) An "occurrence" means "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Id. at 19.) The general policy coverage provides up to $1 million per occurrence and up to $2 million aggregate coverage for claims falling within these coverage provisions. (Id. at 4.)
These duties to defend and indemnify are subject to the following limitations:
(1) The amount we will pay for damages is limited as described in Section III - Limits Of Insurance; and
(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgment or settlements under Coverages A or B or medical expenses under Coverage C.
(Id.) Further, an endorsement (00ML0207001103) provided that payments made for attorneys' fees in defense of claims and settlements will reduce the applicable limits of insurance. (Id. at 34.) This endorsement rendered the insurance policy one commonly referred to as an "eroding limits" or "self-consuming" policy. See generally James M. Fischer, Insurer or Policyholder Control of the Defense and the Duty to Fund Settlements, 2 Nev. L.J. 1, 7 n.15 (2002).
As part of the policy, Arch and Inferno also agreed to an assault and battery coverage endorsement, which limits the amount that Arch could be required to pay under the policy for damages "arising out of or resulting from" an assault or battery:
A. The following provision is added to SECTION III - LIMITS OF INSURANCE of both the LIQUOR LIABILITY and the COMMERCIAL GENERAL LIABILITY COVERAGE FORMS:
The Assault and Battery Aggregate Limit is the most we will pay for all:
1. "injury" arising out of "assault and/or battery" as the result of the selling, servicing or furnishing of alcoholic beverages; and/or
2. damages because of "bodily injury" or "property damage" and medical expenses attendant thereto, arising out of "assault and/or battery" as ...