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We typically try to give you the highs and lows out of the Tenth Circuit Court of Appeals to lighten the load on your required reading list. Today, we’re recommending that you actually read at least a few pages of this escape clause insurance dispute because it is clear that Judge Neil Gorsuch had fun writing it.
Insurance disputes? Fun? How is that possible?
Maybe because it’s because the litigants are arguing over who should pay when a haunted house worker falls down an elevator shaft. (So ironic, it’s scary.)
Tyler Hodges was working the twilight hours checking tickets at the Bricktown Haunted House in Oklahoma City when his flashlight died. He ventured inside the house to find a replacement, using his cell phone to light his path. When an actor complained that the light dampened the "otherworldly atmosphere," Hodges turned off his phone and stumbled along as best he could.
When Hodges reached the freight elevator, where the spare flashlights were stored, he failed to see that the elevator was on the floor above him, and fell down the elevator shaft into the otherworldly atmospheric darkness.
Hodges sued Brewer Entertainment, the haunted house's operator, for various torts. Brewer, which had two separate insurance policies with Western World Insurance Company and Markel American Insurance Company, turned to its insurers to defend the lawsuit and ultimately pay any award.
Though Western World had excluded a number of spooky elements from its haunted house coverage, ("any claim arising from chutes, ladders ... naked hangman nooses ... trap doors ... or electric shocks"), it hadn't thought to exclude blind falls down elevator shafts. (An oversight, no doubt, since corrected).
Western World admitted coverage and proceeded to defend Brewer. Markel, however, refused to defend or pay any claim.
Western World sued to compel Markel to fork over its half of the Hodges settlement. At summary judgment before the district court, Western World pointed out that Markel's policy covers Brewer for its haunted house operation and the sort of accident at issue. Markel responded that it was permitted to elude liability through an escape clause. The district court agreed with Markel, and entered summary judgment in Markel's favor.
The only issue in this appeal is whether the escape clause lets Markel escape liability.
The escape clause does not appear in Markel's general commercial liability policy. Instead, the clause was added by a later endorsement, and even then the terms were ambiguous.
When an escape clause is "less a clearly-marked exit than it is a hidden trap door," the reasonable expectations of the insured supplies the rule of decision. Plain language always controls, but when the terms of the contract are unclear, or when the contract is susceptible to two reasonable interpretations, it is the expectations of the insured that control.
Here, the court found that Brewer reasonably expected coverage from Markel.
The lesson? Draft your escape clauses carefully, or you could end up falling down the legal elevator shaft to indemnity.