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, District

1

Judge.

 

HEANEY, Circuit Judge.

Transamerica Insurance Company (Transamerica) brought a declaratory

judgment action seeking a determination that Michael Murach's accident

during a comedic diving performance was not covered by the insurance policy

of Transamerica's policy holder,
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the amusement park in which the accident occurred. Holding that the policy

excluded coverage and that Murach was precluded from invoking principles

of waiver and estoppel, the United States District Court for Minnesota

granted summary judgment in favor of Transamerica. We reverse and remand.

BACKGROUND

Michael Murach was employed by Maxwell Associates, Inc. (Maxwell) to

perform in a comedic diving show at amusement parks owned and operated by

Fantasy Island, an affiliate of International Broadcasting Corporation

(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 at Fantasy Island amusement park in Grand Island,

New York. Murach was dressed in ordinary street clothes

and was seated in the audience, another performer

explained part of the performance to the audience.

During this explanation, Murach began to heckle the

performer and was called onto stage. He came out of the

audience, still dressed in street clothes, and was

invited to join the other performer on a 20 foot

platform. As part of the comedic performance, he was to

fall from the platform into a tank of water while still

wearing his street clothes. As he was standing on the

platform with the other performer, he fell from the

platform, sustaining severe injuries which have rendered

him a quadriplegic. He is now unable to move any part of

his body below his neck.

(Murach's Mem. in Opp'n to Pl.'s Motion at 3.)

In October 1990, Murach initiated suit against the Island of Bob-Lo

Company d/b/a Fantasy Island Amusement Parks. IBC, as the parent company,

was later added as a defendant (hereinafter the defendants will be referred

to collectively as IBC). Murach's suit alleged that his injury was caused

by IBC's failure to maintain the platform. It also alleged a violation of

New York's Arts and Cultural 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 insurance carrier, Transamerica. On

November 13, 1990, Transamerica's agent wrote Fantasy Island:

Pursuant to this law suit and the terms of the policy

with Transamerica Insurance Company, please be advised

that Tom Liptak of Saperston & Day has been retained to

represent Fantasy Island. Therefore, please see to it

that Mr. Liptak receives the full cooperation of Fantasy

Island in the defense of this law suit. Also, you will

note that the plaintiff seeks $20,000,000 in damages in

the complaint. Since the total liability limits of your

policies with Transamerica Insurance Company, are

$11,000,000, $1,000,000-Basic and $10,000,000-Excess,

please be advised that any judgment in excess of

$11,000,000 will be the responsibility of Fantasy Island.

(Appellant App. 12.) Transamerica issued two insurance policies to IBC and

its affiliates, one primary and one excess. The primary policy provided

that Transamerica would pay sums up to one million dollars that the insured

became legally obligated to pay because of bodily injury caused by an

"occurrence." The policy also contained the following endorsement:

With respect to any operations shown in the Schedule,

this insurance does not apply to "bodily injury" to any

person while practicing for or participating in any

sports or athletic contest or exhibition that you

sponsor.

(Appellee App. 29.) The excess policy provided ten million dollars

coverage and a slightly different "sports participant" exclusion that

provided:

The insurance does not apply to bodily injury, property

damage, personal injury to any of your employees, or any

person while practicing for or participating in any

contest or exhibition of any athletic or sports nature

sponsored, conducted, directed or participated in by you.
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(Id. at 75.)

On August 30, 1991, IBC and its affiliates filed for bankruptcy

protection in the United States Bankruptcy Court for the District of

Minnesota. Murach asserted his claims against the IBC estate. IBC

objected to the claims:

To the extent Debtor is ultimately determined to be

liable on the [Murach] personal injury claim . . . such

claim is covered by Debtor's insurance policy in effect

at the time of the alleged injury, except to the extent

of the applicable deductible amount.

(Appellant App. 42.) In response to Murach's inquiries regarding the

extent of IBC's insurance coverage, the defense attorneys retained by

Transamerica on behalf of IBC wrote that "insurance coverage applicable to

the above-referenced incident exists in the amount 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 stipulation on September 15,

1993, whereby he limited his claim against IBC's bankruptcy estate to the

amount of IBC's deductible on its insurance policy, $10,000. (Id. at 92.)

Pursuant to the contract between IBC and Maxwell, which provided 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 participant

endorsement. After receiving Utah's response, Transamerica advised IBC on

October 15, 1993 that it would disclaim coverage for the Murach suit.

On June 6, 1994, Transamerica commenced 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 the

ANALYSIS

Summary judgment is appropriate only

of material fact and one party is entitled to judgment 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 within 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 waived 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 the

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, see

discussion infra.

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district court held that the principle of estoppel cannot be used to expand

the scope of coverage available under an insurance policy. Although this

represents the general rule under Minnesota law, the rule does not preclude

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 asserting

coverage restriction clause). In Northwest Airlines, 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 insurance

coverage under Minnesota law. While recognizing that "[i]n general, waiver

cannot be used to bring within the coverage of an insurance policy risks

not covered by its terms," we took note that an insurer might be estopped

where a party is prejudiced by its actions. See id. at 356 (citing Faber 3

v. Roelofs, 250 N.W.2d 817 (1977)); see generally Couch on Insurance 2d

(Rev. ed.) § 71:40 (1983) (hereinafter Couch) ("Equitable estoppel is

available, under appropriate circumstances, to bring within insurance

coverage risks or perils which are not provided for in the policy or which

are expressly excluded."). Accordingly, the basis for our rejection of the

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 the 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

statements not reasonably relied on); Bergquist, 400 N.W.2d at 201-02

(policy date adequately 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).

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benefits); Malakowsky, 374 N.W.2d at 818 (no showing of prejudice wher

party against whom estoppel was asserted failed to raise exclusions early

litigation); , 372 N.W.2d at 767-68 (no

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 (Minn. 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 assert

 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 state court decisions: 5

Royal Ins. Co. v. Western Casualty Ins. Co., 444 N.W.2d 846, 848

(Minn. Ct. App. 1989); Quam v. Wulfekuhle, 390 N.W.2d 472, 474

(Minn. Ct. App.), pet. for rev. denied, (Minn. Sept. 24, 1986)

(citing Malakowsky v. Johannsen

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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 on

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 basis: each involved insurer

that prejudiced . See Royal Ins. Co., 444 N.W.2d at 84

(allegation that insurer failed to provide 

of termination to insured); , 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 of

 Thus, third parties are not precluded from relying on principle

of e

prejudiced in some way because of the insurer's acts.
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Equitable 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 party

asserting equitable estoppel lacked the knowledge of the true facts, and

(5) the party asserting the estoppel did, in fact, rely upon the

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 of

summary judgment rejected Murach's claim of equitable estoppel as a matter

of law; our decision today merely holds that Murach is not precluded from

asserting estoppel against Transamerica. We do not decide whether he has

demonstrated the five elements of estoppel, an issue for a trier of fact.

Specifically, we do not pass judgment upon the relationship between

Transamerica and the attorneys it hired to defend IBC, whether Murach

reasonably relied on the answers by those attorneys regarding the

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.