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Liberty Corporate Capital, Ltd. v. California Tau Chapter of Sigma Alpha Epsilon Fraternity At California

December 3, 2012

LIBERTY CORPORATE CAPITAL, LTD. PLAINTIFF,
v.
CALIFORNIA TAU CHAPTER OF SIGMA ALPHA EPSILON FRATERNITY AT CALIFORNIA POLYTECHNIC STATE UNIVERSITY, SAN LUIS OBISPO; SAN LUIS OBISPO; ADAM MARSZAL; JAMIE MERKLER; CHRISTOPHER PERKINS; MATT SILVA; HAITHEM IBRAHIM; MATTHEW FAULKNER; H SCOTT STARKEY AND JULIA STARKEY, INDIVIDUALLY AND AS CO-ADMINISTRATORS OF THE ESTATE OF CARSON L. STARKEY, DEFENDANTS. ALLIED PROPERTY & CASUALTY INSURANCE CO.; AMCO INSURANCE CO., PLAINTIFFS-IN-INTERVENTION,
v.
LIBERTY CORPORATE CAPITAL, LTD.; NOVAE SYNDICATES, LTD.; R J KILN & CO., LTD.; OMEGA UNDERWRITING AGENTS, LTD.; BRIT SYNDICATES, LTD; CATLIN INSURANCE CO. (UK), LTD., DEFENDANTS-IN- INTERVENTION.



The opinion of the court was delivered by: Otis D. Wright, II United States District Judge

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT [121] AND GRANTING PLAINTIFFS-IN-INTERVENTION'S MOTION FOR PARTIAL SUMMARY JUDGMENT [129], [164]

I.INTRODUCTION

This case stems from an unfortunate event: on December 2, 2008, college freshman Carson L. Starkey died as a result of acute alcohol poisoning after he was hazed at a Sigma Alpha Epsilon, Cal Tau chapter pledge event. (Catlin Compl. Intervention ¶¶ 1--2.) In their Motion for Summary Judgment, Plaintiffs Liberty Corporate Capital, Ltd. and Catlin Insurance Co. (UK), Ltd. ask the Court to declare that they owe no insurance coverage to the fraternity members involved in the incident. (Liberty Mot. 3.) Likewise, Liberty and Catlin posit that Allied Property and Casualty Insurance Co. and AMCO Insurance Co.-Plaintiffs-in-Intervention and the fraternity members' homeowners insurance companies-are not entitled to contribution. (Id. at 4.) Allied and AMCO argue-and filed their own Motion for Partial Summary Judgment-that Liberty is obligated to defend the fraternity members and must pay its equitable share of defense costs. (Allied Opp'n 2; Allied Mot. 1.) For the reasons below, the Court DENIES Liberty and Catlin's Motion and GRANTS Allied and AMCO's Motion.*fn1

II.FACTUAL BACKGROUND

Sigma Alpha Epsilon Fraternity, Inc. ("National") obtained a general liability Fraternity/Sorority Insurance Policy from Certain Underwriters at Lloyd's, London. (Catlin Compl. Intervention ¶¶ 1, 29, Ex. A.) Several underwriters subscribed to this policy, with Liberty acting as the lead underwriter. (Allied Compl. Intervention ¶ 6.) National was the named insured; fraternity chapters and undergraduate members could only qualify as insureds if they met a four-part test in the policy's "Who Is Insured" section. (Catlin Compl. Intervention ¶¶ 31--32.) Under this test, chapters and undergraduate members would be insured:

(a) only while acting in accordance with the "First Named Insured's" policies and procedures[;] and (b) only while acting in their official capacity[;] and (c) only while acting within the scope of their duties[;] and (d) only with respect to their liability for activities performed by them on behalf of the "Named Insureds", or of insured "Chapters", "Colonies", "Housing Organizations", or "Alumni Organizations." (Id. ¶ 32, Ex. A at 32.)

The policy also included two special endorsements that excluded coverage based on hazing and violations of National's alcohol policy. (Id. ¶¶ 33--34, Ex. A at 62, 65.) Specifically, the policy's alcohol exclusion stated that chapters, colonies, and undergraduate insureds would not be covered "for any claim arising out of, in any way related to, or in any way resulting from any 'Violation' of 'Fraternity Alcohol Policy.'" (Id. ¶ 33, Ex. A at 65.) The hazing exclusion stated that the policy did "not apply to any insured that directs others to participate, and/or participates in hazing," with hazing being defined as:

[a]ny act or situation created by any insured, with or without the consent of another party, including punishment, harassment, disturbance, embarrassment, intimidation, ill-treatment, discomfort, personal abuse, persistent torment, criticism, or ridicule, of a physical or mental nature, which is imposed upon any person via the execution upon them, their subjection to, or the extraction from them of any unnecessary, needless, unpleasant, disagreeable, difficult, absurd, offensive, or ridiculous, tricks or tasks, including those of a foolish, deceptive, or fraudulent nature. (Id. ¶ 34, Ex. A at 62.)

Additionally, Catlin issued to National an excess general liability insurance policy on top of the Lloyd's policy. (Id. ¶ 35, Ex. B.) The terms described above equally applied to the excess policy. (Id. ¶ 35.)

Prior to the incident, National had written polices and procedures in place. (Supp. Ginocchio Decl. ¶¶ 3--5.) These rules, found in National's The Fraternity Laws and its risk management guide entitled Minerva's Shield, prohibited hazing, illegal alcohol use, and general alcohol use during the pledge process. (Liberty Mot. 7.)

The California Tau chapter also had its own risk management guide, which contained the same prohibitions against alcohol. (Burkhouse Decl. Ex. N.)

On December 1, 2008, the California Tau chapter of SAE held a "Brown Bag Night" during which Carson Starkey and other pledges were hazed and forced to drink alcohol given to them by their fraternity big brothers. (Catlin Compl. Intervention ¶¶ 2, 17.) Starkey died from acute alcohol poisoning as a result of this event. (Id. ¶ 1.)

After Starkey's death, Liberty and Catlin denied coverage to the fraternity members and did not defend them in a wrongful death and survival action filed by Starkey's parents. (Catlin Compl. Intervention Ex. B; Liberty Mot. 8, 11--12.) This denial was based on a determination that the members did not qualify as insureds under the policy. (Catlin Compl. Intervention ¶ 3.) Specifically, Liberty and Catlin denied coverage because the fraternity members violated National's rules regarding alcohol and hazing. (Id. ¶ 3.)

Instead, Allied and AMCO defended four of the individual defendants in the underlying wrongful death suit-under the individual defendants' parents' homeowners insurance-and settled the claims for a sum of $1,450,000. (Allied Compl. Intervention ΒΆΒΆ 30--32.) Further, Allied and AMCO ...


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