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"stt_transcript": "The Honorable Judges of the United States Court of Appeals and the 47th Judicial Circuit. Good morning everyone. Our first case for oral argument this morning is Grinnell Mutual Reinsurance Company v. Shermar Oil. Ms. Steele, whenever you're ready. May it please the Court. My name is Miranda Steele and I represent the appellant, Shermar Oil. I've reserved three minutes for rebuttal time. Shermar Oil is owned by an Indiana family that's been serving the community of Indianapolis for over 20 years. In its operation of a gas station and convenience store downtown Indianapolis, Shermar Oil maintains an occurrence-based commercial general insurance policy with Grinnell Mutual. This appeal is taken from the Southern District of Indiana, an entry of summary judgment in favor of Grinnell Mutual, finding it has no duty to defend or indemnify Shermar Oil for claims arising out of the conduct of one of its employees. Shermar Oil is asking this Court to reverse the judgment entered on both defense and indemnity and to enter Shermar Oil's cross-motion for summary judgment. At minimum, we are asking this Court to reverse the judgment as to Grinnell's duty to defend, as this alone is triggered by the direct negligence claims as alleging harm caused by accidental conduct, according to the Indiana Supreme Court in Frankenmuth v. Williams. This case is a matter of contract interpretation. This is a bargain for exchange between Shermar Oil, who agreed to pay premiums to Grinnell Mutual in exchange for insurance coverage as expressly stated in their policy. Ms. Hill, you are disputing that an occurrence under the policy requires an accident, are you? No, Your Honor. So you're not disputing that if the conduct was intentional, it wouldn't fall within occurrence? No, Your Honor, but it does need to be analyzed separately for each potential... I understand that. You're not disputing that the District Court's determination that, based on the video, that Mr. Paul's actions were intentional? No, Your Honor. We don't dispute that. And do you agree that in order to prevail here, we would have to find that the separation of insured provision requires us to analyze your client's conduct, or to analyze the intent or accident from your client's view as opposed to the employee? Yes, correct. So in other words, if separation of insured provision were not in the contract, you agree that you would not be able to prevail? No, I don't agree with that. I think the Indiana Supreme Court has already said that even when there's not a separation of insured provision... I'm sorry, this was the Northern District of Indiana commenting on Indiana Supreme Court precedent from Frankenmuth, saying that that case supports the notion that courts should look to each co-insured's conduct separately, even without a separation of insured provision. Did you argue this in your briefs? Because your briefs really focused on the separation of insured provision. Yes. In our first appellant's brief, we, of course, cited the cases that analyzed this exact language, but then we also included American Family Mutual Insurance v. McCowan, which doesn't have a separation of insured, but still says, you know, because policies are interpreted from the standpoint of the insured. So if the insured is reading a policy, they understand to have coverage unless the policy says that they don't. This policy clearly defines Shermart Oil as uninsured, and defines as a potential other insured, its employees, but while acting within the scope of their employment. There has not even been a finding that Mr. Paul, the shooter, was acting in the scope of his employment. But you don't need a finding. You just need the allegation in the underlying complaint, which is clearly there. Correct. But when interpreting the policy, the policy says maybe there's a co-insured with Shermart Oil, but Shermart Oil is definitely an insured. It's a separate insured. It's to be treated as if the named insured were the only named insured, and to apply separately to each insured who might have a possible claim against it. It's expressly separating those insured so that their conduct can't implicate another. But it's a vicarious liability theory. None of the cases that you rely on involved vicarious liability. They all involved direct liability. The question before this court is not whether Shermart Oil is ultimately liable for vicarious liability. And I'm not suggesting it is, but we do look at what the underlying complaint in state court alleges, and that alleges a theory of vicarious liability, not a direct liability. So when assessing coverage, we have to look at the claims and what the claims are alleging. Yes, the district court used just the allegation of vicarious liability to impute this person's criminal intent as a matter of law, even though agency hasn't been shown. The only issue before this court is if there's any allegations that could possibly fall within the scope of coverage, which is any allegations of harm arising from accidental conduct. And even notwithstanding a finding of agency, agency doesn't override Grinnell's contract. It contracted to provide insurance unless we intended or expected the harm. Well, that's not exactly the case, right? I mean, the definition of occurrence in some of the cases that you rely on, definition of occurrence makes it clear that it's whether the bottle-injured property damage is expected or neither expected or intended from the standpoint of the insured. But in this policy, the definition of occurrence doesn't have that particular provision, right, with regard to whose standpoint. I mean, I think your argument would be, you know, much stronger if it did. And I'm wondering whether it makes a difference that the definition of occurrence in the policy at issue here does not have that provision. Your Honor, I think one of the mistakes the district court made here was not reading the policy as a whole because when you get to the exclusions, Grinnell specifically excluded intentional conduct, but only from the standpoint of the insured. That language is in there. They tell us whose standpoint must intend the harm. It's just not in the same place. But doesn't it first, I mean, I think the point that Grinnell makes is that before you get to the exclusions, you have to first determine whether or not the claim falls within the coverage, right? And that question comes down to whether or not it falls within definition of occurrence. Yes, but you can't decide. You can't not read the whole policy in order to decide the meaning of one part. You have to read the entire contract to understand the meaning of the contract. And here the insureds are separate, and the policy specifically includes or excludes intentional conduct resulting in bodily injury intended or expected from the insured. Indiana Supreme Court has already been very clear about what that language means. When an insurer excludes any insured, that can implicate multiple insureds. This is holiday hospitality. Just as Steve and David said, the result is completely different when they say the insured because that refers to one person as any average insured would read that language. And when it excludes any insured, that can implicate multiple insureds. Here Grinnell defines Shermart Oil as the insured. It says other people could potentially be insured, but you are the insured. You are the only insured. You are treated separately under the policy, and bodily injury is only excluded if intended or expected by the insured. But again, I guess my question is how do we get there? In order to get there, we have to first determine that it's an occurrence under the policy. And so why is this an occurrence as defined under the policy? Why does it fall within the coverage the policy provides? Because there is no evidence, there is no allegation, that Shermart Oil expected or intended the bodily harm. But then you're taking the language from the exclusion and then you're applying it to the policy. Aside from the exclusion, I'm trying to just focus on the language of the coverage itself. Sure. The coverage grant, like most occurrence-based policies, occurrence is defined as an unexpected happening without intention or design. And if the question is who has to intend or design the harm, the policy tells you. But you have to look to the underlying complaint and the theory of liability to determine if there's a duty to defend. And the underlying complaint does not, say, base its liability on Shermart Oil's intent. It's not a direct liability claim. It's a vicarious liability claim. There are two claims. There's a vicarious liability claim, and then there are other claims for negligent hiring, retention. So the negligence is a separate issue. But negligence alone is a distinct harm caused by accidental conduct. That alone triggers defense under the policy. But the case law is clear. You don't just look at the label of negligence. You look at what the allegations are. And the allegations against Shermart Oil, at most, was that it was negligent. Well, maybe that's for the direct liability. But, again, the vicarious liability is based on the conduct of the employee. So after acknowledging that Shermart Oil was entitled to separate analysis under the policy, the district court used the allegation to impute the employee's criminal intent as a matter of law around the express policy language. But the law is clear that the separate provision, a separate consideration, doesn't expand the scope of coverage. We're not asking to expand the scope of coverage at all. We're asking for the policy grant that it's given. Again, vicarious liability is a legal theory based in agency. That's not proven yet, but it doesn't have to be proven. It's alleged. But the Indiana Supreme Court has already rejected categorical exclusions before you get to the policy. It has already said negligent hiring and retention is not a categorical initial bar to coverage, like the district court says here. It strikes me as kind of odd, though, that you're arguing your theory for why it's covered is that the claim is meritless. You're saying that vicarious liability, as Judge St. Eve said, kind of by law imputes, says the employer is liable for all of the acts of the employee. Right, if proven. And you're saying, well, sure, if proven, you can impute the intent. But if it's not proven, then we have coverage. Isn't that basically what you're saying? Well, I would say there's two separate issues. The duty to defend is separately triggered by the negligence claims. When it comes to vicarious liability, it never serves as an exception to a contract. Could I ask you about the negligent hiring and retention? How do we deal with triage? Triage and American painting are the same category of case. They involve professional service that went awry. A person hired a painting company to do painting. Is it professional service or is it commercial service? It's either a product or a service. The reason I ask is because there is some language in American painting as well as triage that what we're dealing with is a commercial relationship, not necessarily a professional one. Either way, we don't have that here. We don't have a contractual relationship. We don't have a professional relationship. You don't think that there's a commercial relationship between the store and its customers? Business risk has to do with a guarantee of work performance, a guarantee of a product. That's not what happened here. This was accidental harm on the premises. Isn't that what American painting was dealing with? Because American painting, we all know the facts. That wasn't focused on whether or not the painting job was good. That was focused on what seems to be beyond the scope actions of the painter who was hired. Although we agree that American painting hasn't been overturned, it's been significantly narrowed since it happened. Hold on for a second. Triage, though, cites American painting with approval. We're trying to, whether or not, putting aside the question whether or not I think it's right as a matter of law, the Indiana Supreme Court has cited American painting with approval. What we're bound to do is try to figure out what the Indiana Supreme Court would do with this case. Just help me here. How do I get around it? How do we deal with it? The business risk? Well, triage involved defective performance, just like American painting. It was failure of the very security services that it sold, the kind that it probably contracted to provide. Shermar Oil didn't sell a service. It's not asking for a guarantee of a contractual performance or something that would be better covered by an errors and omissions policy. That's what the business risk doctrine is. It's after the initial grant of coverage, which also already contradicts what the district court said about an intentional hiring never being able to produce an accident. Because in order to get to the business risk doctrine, there has to be the initial grant. And the business risk doctrine is an outshoot of the exclusions that Grinnell chose to include, things that would have covered Shermar Oil's business, like the liquor liability exclusion. They specifically excluded negligent hiring, retention, and supervision for liquor liability, other professional services, but nothing that applies to this case. If Grinnell wanted to implicate one insured with the other insured's conduct, if Grinnell wanted to say we're not going to cover vicarious liability, we're not going to cover criminal acts of employees, they had every right to put any of that in their policy. So is your argument with regard to American Painting that the contractual relationship between the painting company and the homeowner is somehow different in kind than the relationship that the store had with its customers here? Yes. And I think the district court... And what is that rule? I'm going to ask defense counsel this exact question. What is that rule that distinguishes the customer from the homeowner that hired the painting company? What is the difference between the relationship between the customer and the store? I think if the customer came in and bought a product and then wanted to sue Shermar Oil for a faulty product, that would be something that would be kind of a contractual relationship. But the business risk doctrine, the district court used this for its language that hiring is an intentional act so therefore it can't produce an occurrence. But this case doesn't say that because later the Supreme Court in Harvey says an intentional act is not the same thing as an intentional injury within the meaning of the policy. So even if we intended to hire the employee, even if we intended to even... even if we knew he kept the gun on the premises, which is not a fact, but that wouldn't show intent to cause bodily harm within the meaning of the policy. They have to show that they're insured, did something to take it outside of the policy, and they haven't done that. There's no facts that show that. Thank you. Thank you. Thank you, Mr. Steele. Mr. Jones. May it please the court. Tyler Jones on behalf of the FLE Grinnell Mutual Reinsurance Company. Today we ask that the court affirm Judge Hanlon's decision granting motion for summary judgment for one ultimate reason, and that is because the shooting issue was not an accident and thus not an occurrence under the plain, ordinary meaning of the policy. This is buttressed by three key points that I'll reemphasize to you today. First, that all parties agree, and you just heard it today from my colleague, that Mr. Paul's acts were not accidental as a matter of Indiana law. Two, the Indiana Supreme Court's decision in triage has held that poor business decisions aren't converted into occurrences, that is accidents, simply because the ultimate harm may not have been intended. So, Mr. Jones, what is it seems to me then that if we take that rule to its logical conclusion, right, then whenever a store owner hires anyone to do anything with regard to the store and it leads to some sort of accident, that would never fall under the CGL policy. Is that your interpretation of it? So, for example, let's say a sign falls, okay, and hits someone, and the store owner goes, well, I hired the sign company, right? Can the insurer say, oh, the hiring of that sign company was intentional, and, therefore, that incident is not going to be covered under the policy? And then, say, a customer, you know, let's say a customer was walking down the hall or walking down one of the aisles, and a shelf falls on the customer. And the store owner goes, I hired a contractor to put up those shelves, and my hiring of the contractor is intentional, so that's not covered either. So then what is covered? Where is that line? Of course. Thank you for the question, Judge Lee. I think that the line ultimately we start again, and this is something that Judge St. Eve was getting at earlier, which is we start with the allegations themselves. A coverage decision is not a merits determination. We look at the language and policy. We look at the allegations. No, no, I understand that. I guess I'm trying to figure out what is the scope of triage, right? How broadly does that rule go? How broadly do you want to interpret that rule? Because our job, right, not only is to try to figure out what the Indiana Supreme Court would do on this issue, but it's to announce a rule that the district courts in our circuit can follow. So what is that rule? I think the rule is what triage reaffirmed in Harvey, Your Honor, or as triage summarized Harvey, which is that it distinguishes between instances of specific physical, personal conduct that caused the harm versus allegations of commercial or professional conduct that caused the harm. So in this case, of course, we have an individual. So a store owner that hires a third party do everything, right? Any accident that comes out of that store, then, would not be covered under the CGL policy because insurer will always argue, you know, hiring that contractor, the painter, the garbage collector, the sign maker, the shelf installer, you know, those are all third parties. And so, therefore, none of those incidents can be accidental because the hiring was intentional. I mean, that's what I think the logical conclusion of the rule that you're asking us to adopt would be. And it seems to me a bit broad. And so I'm trying to figure out is that right or am I missing something? I think in this case, Your Honor, the business risk application here by Judge Hanlon pertains to these specific facts and the direct liability theories of the negligent retention supervision. And those are, if you want to call them guardrails, this is not, as Your Honor suggests, a cart launch any time someone alleges intentional conduct by their own employees to get out of jail, free card. I think ultimately the – It isn't? It isn't for negligent hiring claims? It seems like it is. I'm sorry, Your Honor? It seems like it is for negligent hiring claims. It's a get out of jail card, right? I think – And so what is the difference between this case and, say, the owner hiring someone to install the shelves that falls on a customer? In this case, Your Honor, we have – Would that be covered? The hypothetical of a customer walking down the aisle and a shelf falling on the customer? It would ultimately depend on what the customer's allegations were under the complaint, Your Honor. I can only – So let's say the customer alleges that the store owner negligently hired the installer because the store owner used their cousin, who had no experience doing it. Would that claim be covered? Could Your Honor repeat the hypothetical again? Sure. So let's say a store owner wants to install the shelving, okay, and his cousin is unemployed, right, and his cousin was previously, let's say, a plumber, right, has no experience installing shelves. And the store owner hires him to install the shelves. The shelves fall on a customer, and the customer determines, well, you know what, you negligently hired your cousin because he had no idea how to put these shelves up, and so you're negligent on a negligently hired theory. Would that claim be covered under triage? Your Honor, I don't think under triage that claim would necessarily be covered only because it would ultimately turn on whether or not – the store is alleged to have controlled or even supervised, I think, the employee here in this case. Let's say there's no allegation of that. Let's just say it's purely a negligent hiring case. Because my concern is that if we announce that rule, then a store owner would just hire everyone to do everything in the store and wouldn't even have to consider whether or not that particular contractor was qualified, wouldn't have to do anything because the hiring was intentional. That seems overbroad. I think, Your Honor, the ultimate analysis, and this is what Judge Hanlon ultimately got to in his opinion, is that you take these allegations and these negligent hiring claims in the context of the policy language. In this case, there has to be an occurrence. There has to be an accident. The decision, poor as it might have been in your hypothetical, to hire the unemployed cousin to do that, it wasn't an accident. You didn't accidentally hire your cousin. It may have been that the ultimate harm was not intended. You didn't intend to hire him and have the store shelves fall over, of course, hopefully not. But in this case, the coverage grant, which is the initial question of is there coverage in the first instance, which is Shermar's burden under Indiana law to establish, the coverage grant requires an occurrence, which is defined under the policy as an accident, and that's not there in this instance in the negligent hiring because the decisions, and this is what Judge Hanlon ultimately noted, the decisions with supervision, hiring, retention, these are ultimately intentional decisions, even though the ultimate act of retention, the harm might not have been intended. Thank you, Mr. Jones. Your Honors, I would. Mr. Jones, would you please address the argument of Shermar Oil with respect to the express exclusions and that if negligent, there are express exclusions for negligent hiring, and if they're in the exclusions, doesn't that suggest they would be covered under occurrence? So there is a distinction between the coverage grant, which is the initial question of is there coverage, and then when you get to the exclusions, and then if there's an exclusion, whether or not there's an exception. I'd highly recommend for any law clerks in the room to review the Sheehan decision from the Indiana Supreme Court in which Justice Rutger, who used to be Insurance Defense Counsel, goes through in great detail kind of how insurance policies are structured and written and ultimately analyzed. In this case, we don't even get to the exclusions. That's our principal argument because there is no grant of coverage in the first place. What about the argument that you have to read the contract as a whole? You have to read the insurance policy as a whole. That's right. Reading the contract as a whole means that we look at the entire contract when we're interpreting it, of course. So we read from page 1 of 10 to page 10 of 10 and see is there anywhere in there in page 10, is there a footnote that redefines what an occurrence means. There's nothing in the exclusion language or in the separation of insured provision that modifies the coverage grant language, which simply says, again, this insurance applies to bodily injury only if the bodily injury is caused by an occurrence full stop. That's Appendix A023. And it also expressly says on that same page that Grinnell has no duty to defend against a suit that's seeking damages for bodily injury to which this insurance does not apply. Your Honors, just at the risk of making sure I don't forget this point, I would note there was a request for certification at the end of the appellant's brief. We would just note that certification of the Indiana Supreme Court isn't necessary here. Well-established Indiana principles on interpreting CGL policies and insurance contracts establish how this court can interpret the initial question of if there's coverage to begin with, and then the well-established and most recent decisions in both triage but also EBERT guide this court on how to handle the direct theories of liability. So barring any further questions from this court, I will sit down. Okay. Thank you. Thank you, Your Honors. Ms. Steele, you used all of your time, but I'll give you one additional minute if you have rebuttal. Your Honor, Grinnell agrees that this contract has to be read from start to finish to understand it, and if there's any question about who has to intend the bodily harm to make it fall outside of coverage, the policy tells us the insured Shermera Oil had to intend the harm, and if Grinnell didn't exclude this type of harm, it's otherwise covered. The district court confused the intent to hire with the intent to cause bodily injury. The policy doesn't exclude every injury that can be traced to an intentional act. In fact, Indiana courts and the Northern District agree that this is too confusing and tenuous of a standard for an average insured to understand. That's Verk Boys and the Wayne case. Only those acts which are intended and expected to cause harm are excluded. The Northern District in Verk Boys made that practical plain when they said no employer would intend to hire an employee who goes off on a criminal rampage, for example. Okay. Thank you, Ms. Steele. Thank you. Thanks to both counsel. In the case, the court will take the case under advisement."
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