### The Honorable Andrew W. Bogue, United States District Judge 1 

### for the District of South Dakota, sitting by designation. No. 95-3733

Transamerica Insurance * Company, * * Plaintiff-Appellee, * * v. * * International Broadcasting * Corporation; Island Fun * Appeal from the United States Corporation, doing business * District Court for the as Fantasy Island, * District of Minnesota. * Defendants, * * Michael Murach, * * Defendant-Appellant, * * John Murach, * * Defendant. *

Submitted: June 13, 1996 Filed: September 9, 1996

Before BOWMAN and HEANEY, Circuit Judges, and BOGUE, Distric t 1 Judge.

HEANEY, Circuit Judge.

Transamer ica Insurance Company (Transamerica) brought a declaratory judg ment action seeking a determination that Michael Murach's acciden t during a comedic diving performance was not covered by the insurance polic y of Transamerica's policy holder,

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the amusement park in which the accident occurred. Holding that the polic y excluded coverage and that Murach was precluded from invoking principles of waiver and estoppel, the United States District Court for Minnesot a granted summary judgment in favor of Transameric a. We reverse and remand.

BACKGROUND
Michael Murach was employed by Maxwe ll Associates, Inc. (Maxwell) to perform in a comedic diving show at amusement parks owned and operated by Fant asy Island, an affiliate of International Broadcasting Corporatio n (IBC). This suit arises out of an accident described by Murach as follows :
One June 23, 1990, Murach was performing in one of IBC's shows a t Fantasy Island amusement park in Grand Island , New York. M urach was dressed in ordinary street clothes an d was seated in the audience, another performe r exp lained part of the performance to the audience

. Duri ng this explanation, Murach began to heckle th e performer an d was called onto stage. He came out of the aud ience, still dressed in street clothes, and wa s invite d to join the other performer on a 20 foo t platform. A s part of the comedic performance, he was to fall from the platform into a tank of water while stil l we aring his street clothes. As he was standing on th e pla tformwith the other performer, he fell from th e platform, su staining severe injuries which have rendered him a quadriplegic. He is now unable t o move any part of his body below his neck. (Murach's Mem. in Opp'n to Pl.'s Motion at 3.)

In Octobe r 1990, Murach initiated suit against the Island of Bob-Lo Company d/b/a Fantasy Island Amusement Parks. I BC, as the parent company,
was later added as a defendant (hereinafter the defendants will be referre d to collectively as IBC). Murach's suit alleged that his injury was caused by IBC's failure to maintain the platform. It a lso alleged a violation of New York's Arts and C ultural Affairs Law which requires the sponsor of an artistic or

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cultural event to provide performers with adequate safety equipment.

IBC tendered its defense to its insu rance carrier, Transamerica. On November 13, 1990, Transamerica's agent wrote Fantasy Island:

Pursuant to this law suit and the terms of the polic y with Transamerica Insurance Company, please be advise d that Tom Liptak of Saperston & Day has been retained t o re present Fantasy Island. Therefore, please see to i t that Mr. Lip tak receives the full cooperation of Fantasy Isla nd in the defense of this law suit. Also, you wil l note th at the plaintiff seeks $20,000,000 in damages i n the complain t. Since the total liability limits of your po licies with Transamerica Insurance Company, ar e $11,000,000, $1,000,000-Basic and $10,000,000-Excess , plea se be advised that any judgment in excess o f $11,000,000 will be the responsibility of Fantasy Island.
(Appellant App. 12.) Transamerica issued two insurance policies to IBC an d its affiliates, one primary and one excess. The primary policy provided that Transamerica would pay sums up to one million dollars that the insure d became leg ally obligated to pay because of bodily injury caused by a n "occurrence." The policy also contained the following endorsement:
With respect to any operations shown in the Schedule , this i nsurance does not apply to "bodily injury" to an y pers on while practicing for or participating in an y sp orts or athletic contest or exhibition that yo u sponsor. (Appellee App. 29.) The excess policy provided ten million dollar s coverag e and a slightly different "sports participant" exclusion tha t provided:

The ins urance does not apply to bodily injury, propert y damage, pers onal injury to any of your employees, or any pers on while practicing for or participating in an y co ntest or exhibition of any athletic or sports natur e sponsored, conducted, directed or parti cipated in by you.

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( Id . at 75.)

On August 30, 1991, IBC and its affiliates filed for bankruptc y prot ection in the United States Bankruptcy Court for the District o f Minnesota

. Murach asserted his claims against the IBC estate. IB C objected to the claims:

To the extent Debtor is ultimately determined to b e liabl e on the [Murach] personal injury claim . . . suc h claim i s covered by Debtor's insurance policy in effec t at th e time of the alleged injury, except to the exten t of the applicable deductible amount.
(Appell ant App. 42.) In response to Murach's inquiries regarding th e extent of IBC's insurance coverage, the defense attorneys retained b y Transamerica on behalf of IBC wrote that "insura nce coverage applicable to the above-referenced incident exists in the amou nt of $1 million aggregate with excess coverage in the amount of $10 million." ( Id . at 73.) Murach alleges that based on his belief that insurance coverage was available to satisfy any judgment against IBC, he signed a st ipulation on September 15, 1993, whereby he limi ted his claim against IBC's bankruptcy estate to the amount of IBC's deductible on its insurance poli cy, $10,000. ( Id. at 92.)
Pursuant to the contract between IBC and Maxwell, which provide d that Maxwell would defend and indemnify IBC for all claims arising out of the Maxwell performances, the defense of the Murach suit was then tendered to Maxwell's insurer, Utah Home Insurance (Utah). Utah disclaimed coverage and defense both because of late notice and because of a sports participan t endorsement. After receiving Utah's response, T ransamerica advised IBC on October 15, 1993 that it would disclaim coverage for the Murach suit.

On June 6, 1994, Transamerica commen ced this action for declaratory judgment that the endorsements in questions excluded

### Continental , 400 N.W.2d 199 (Minn. Ct. 2 

### Pedersen v. United Servs. Auto. Ass'n , 383 N.W.2d 427 Ct. App. 1986); Malakowsky v. Johannsen 6 (Minn. Ct. App. 1985); Nat'l Mut. Ins. Co. , 372 N.W.2d 763 (Minn. Ct. App.), or rev. denied Twin City Hide v. Transamerica Ins. Co. 358 N.W.2d 90 (Minn. Ct. App. 1984); & Casualty , 347 N.W.2d 848 (Minn. Ct. App.), pet for rev. denied , (Minn. Dec. 20, 1984).
5 coverage of the accident. The United States District Court for th e

ANALYSIS
Summary judgment is appropriate only of material fact and one party is entitled to ju dgment as a matter of law. Fed. R. Civ. P. 56(c). We review the grant of summary judgment d novo, . See Matsushita Electric Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 58 (1986).

A.

Murach argues that the endorsements in question are ambiguous an must be construed in his favor so as not to exclude coverage. For th
reasons discussed in the district court's that Murach's comedic diving routine falls withi n the common understanding the term "athletic exhibition" and thus, is excluded from coverage unde the Transamerica policy.

B.
In the alternative, Murach argues that Transamerica either waiv ed its ped from doing so. Citing the Shannon v. Great American Insurance Co. (Minn. 1979), and its progeny, the

### It is only when the general rule is considered within th e 3 

### context of no prejudice to the claimant that this principal of law can be reconciled with another principle of law considered by the district court: an insurer who assumes the defense of the insured without reservation is estopped from denying coverage, se e discussion infra

. -6- district court held that the principle of estoppel cannot be used to expan d the scope of coverage available under an insurance policy. Although this represents the general rule under Minnesota law, the rule does not preclud e claims of estoppel against insurance companies in all instances. See , e.g. , Anderson v. Minnesota Ins. Guar. Ass'n , 520 N.W.2d 155, 160-61 (Minn

. Ct. App. 1994) (holding that insurer may be estopped from assertin g coverage restriction clause). In Northwest Airl ines, Inc. v. Federal Ins. Co. , 32 F.3d 349 (8th Cir. 1994), another case cited by the district court , this court examined the role of waiver within the context of insuranc e coverage under Minnesota law. While recognizing that "[i]n general, waive r cannot be used to bring within the coverage of an insurance policy risks not covered by its te rms," we took note that an insurer might be estopped where a party is prejudiced by its ac tions. See id. at 356 (citing Faber 3

v. Roelofs , 250 N.W.2d 817 (1977)); see generally Couch on Insurance 2 d (Rev. ed.) § 71:40 (1983) (hereinafter Couch) ("Equitable estoppel i s
ava ilable, under appropriate circumstances, to bring within insuranc e coverage risks or perils which are not provided for in the policy or which
are expressly excluded."). Accordingly, the basis for our rejection of th e appellant's claim of waiver in Northwest was that the appellant did "not argue that it was prejudiced or that the [appellee] controlled the [ ] litigation." Id. Each of the cases cited by th e district court presented occasions in which there was no prejudice to the party asserting estoppel. See Shannon , 276 N.W .2d at 78 (in face of unambiguous policy limit, oral statem ents not reasonably relied on); Bergquist , 400 N.W.2d at 201-0 2 (policy date adequate ly pled); Pedersen , 383 N.W.2d at 430-31 (accidental overpayment of

### t v. Millers Mut. Ins. Ass'n , 362 F.2d 619, 622 (8t 4 

### Cir. St. Paul Sch. Dist. v. Columbia Trasit Corp. , 32 N.W.2d 41, 47 (Minn. 1982).
-7- ben efits); Malakowsky , 374 N.W.2d at 818 (no showing of prejudice wher party against whom es toppel was asserted failed to raise exclusions early litigation); , 372 N.W.2d at 767-68 (n o

reliance where party seeking estoppel knew relevant facts) Twin City Hide , 358 N.W.2d at 93 (alleged repres after Rudzinski , 34 N.W.2d at e cases, Murach alleges two bases of prejudice: 1) IBC's a representations y stipulation.

verage because IBC's defense without reserving its rights, Mutual Serv

. , 474 N.W.2d 365 (Mi nn. Ct. App. 1991) (citing , 232 N.W.2d 790 (Minn. 1930) ;
v. Liberty Mut. Ins. Co. N.W.2d 564 (Minn. Ct. App. 1990), pet. for

, (Minn. Mar. 15, 1991); Gamble-Skogm Indem. Co. , 64 N.W.2d established d parties, see , 390 N.W.2d at 472, Murach argues that, as a result of bankruptcy action, he stands in the position of IBC and may asser t interest in precluding Transamerica from denying coverage. Citing nnesota law requiring a showing of prejudice by the insured, e 4 court found that although the denial of coverage was tardy, IBC

establish the requisite prejudice because the action had not proceeded to final judgment or settlement. Accepting

### The district court cited the following st ate court decisions: 5 

### Royal In s. Co. v. Western Casualty Ins. Co. , 444 N.W.2d 846, 84 8 (Minn. Ct. App. 1989); Quam v. Wulfekuhle , 390 N.W.2d 472, 47 4 (Minn. Ct. App.), pet. for rev. denied , (Minn. Sept. 24, 1986 ) (citing Malakowsky v. Johannsen
-8- C's interest to Murach, we affirm respect to the prejudice to IBC and therefore, focus on Murach's personal claims of prejudice.

response to Murach's claim of prejudice arising out of th representations made prior to his signing the bankruptcy stipulation, the w precluding a stranger to
an rance contract from asserting estoppel against an insurer. Thi 5 principl is inapplicable to the present case. Cf. 0 (discussing case law not in

. Alt typically an injured third party will not be able to rely o n n insurer from denying coverage, this observation is merely the result of third party claims that he or
some See Couch § 71:20. The cases cited by the district court ar distinguishable from the present case on this ba sis: each involved insurer

that prejudiced

. See Royal Ins. Co. , 444 N.W.2d at 84 (allegation that insurer failed to provide of termination to ins ured); , 390 N.W.2d at 472 (insurer's defense of insured as basis for estoppel only open to insured); Malakowsky d at 816 (insurer altered the basis upon which it denied coverage o f

Thus, third parties are not precluded from relying on principle of e prejudiced in some way because of the insurer's acts.

### -9- Equ itable estoppel may be asserted where (1) there has been a misrepresentation of material fact, (2) the party to be estopped knew of
or should have known that the representation was false, (3) the party to be estopped intended the representation to be acted upon, (4) the part y asserting equitable estoppel lacked the knowledge of the true facts, and (5 ) the party asserting the estoppel did, in fact, rely upon th e misrepresentation to his or her detriment. See Transamerica Ins. Group v. Paul , 267 N.W.2d 180, 183 (Minn. 1978). The district court's order o f summary judgment rejected Murach's claim of equi table estoppel as a matter of law; our decision today merely holds that Murach is not precluded from asserting estoppel ag ainst Transamerica. We do not decide whether he has demonstrated the five elements of estoppel, an issue for a trier of fact. Specif ically, we do not pass judgment upon the relationship betwee n Transam erica and the attorneys it hired to defend IBC, whether Murac h
reason ably relied on the answers by those attorneys regarding th e applicability of the coverage, or whether Murach suffered any detriment by signing the bankruptcy stipulation. Therefore, we remand this case to the district court for proceedings consistent with this opinion.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.