United States District Court, E.D. Arkansas, Jonesboro Division
PENN-STAR INSURANCE COMPANY, a Pennsylvania Corporation PLAINTIFF/ COUNTER-DEFENDANT
NEW EDITION EARLY LEARNING ACADEMY, LLC, an Arkansas Limited Liability Company; JACQUELINE STANBACK, an Individual; and MONICA CERVANTES, Individually and as Parent and Next Friend of Jonathan Cervantes, a Minor DEFENDANTS MONICA CERVANTES, Individually and as Parent and Next Friend of Jonathan Cervantes, a Minor COUNTER-CLAIMANT
Marshall Jr. United States District Judge.
declaratory judgment action hinges on whether a professional
services exclusion to liability insurance applies to a bad
accident at a day care. On 27 January 2013 Monica Cervantes
arrived to pick up her four-year-old son, Jonathan, and his
sister from New Edition Early Learning Academy. Cervantes
signed Jonathan out for the day, but she and her husband hung
around talking with others inside. Meanwhile Jonathan had his
eye on some pine cones on the shelf of a TV cart. During the
conversation, a day care employee, as well as Cervantes and
her husband, told Jonathan to stay away from the pine cones
and cart. But, as little boys will do, he went for them
anyway. The cart and heavy tube television sitting on top of
it tumped over on Jonathan, severely injuring him.
has sued New Edition and its owner, Jacqueline Stanback, in
state court. Her complaint focuses on the day care facility:
the allegedly dangerous nature of the premises, the failure
to remove objects and devices that are dangerous to children,
and the failure to employ sufficient staff trained to
supervise children and remove dangerous conditions.
No 2-2. New Edition's liability insurer,
Perm-Star Insurance Company, is defending in the state case,
and has filed this declaratory judgment action to determine
the coverage limit. Cervantes counterclaimed for the same
purpose. Although not all the factual details matter in the
coverage dispute, it's important to note at the threshold
what Cervantes alleged happened to her son that day.
Edition's insurance policy with Perm-Star covers sums New
Edition must pay as damages because of bodily injury. It has
an aggregate limit of $600, 000, with $300, 000 of coverage
per occurrence. This commercial general liability insurance
excludes coverage for certain professional services, though
it's disputed whether the exclusion was part of the
policy when the accident happened. New Edition's policy
also has professional liability coverage of $100, 000 for
day-care-related risks. The key language of these provisions
is in the margin.
admits the injury triggered the CGL coverage, but argues the
professional services exclusion applies. And Penn-Star
concedes the professional liability insurance covers the
accident, so there's $100, 000 in coverage. Cervantes
argues the professional services exclusion wasn't part of
the policy when the accident happened. But even if it was,
she continues, it doesn't apply because New Edition
doesn't provide professional services - so the CGL limit
applies to the injury. Penn-Star and Cervantes both seek
summary judgment on these points.
Edition's policy excluded professional services from the
CGL insurance, and added professional liability coverage of
$100, 000 for day care related risks. The object of the whole
policy was for Perm-Star to insure New Edition against
various liabilities. Continental Casualty Company v.
Davidson, 250 Ark. 35, 41-42, 463 S.W.2d 652, 655
(1971). Under a reasonable and practical reading of the
entire policy, and considering the provisions in connection
with each other, the parties agreed to exclude injuries from
professional services from the CGL coverage. Ibid.',
First Financial Insurance Company v. National Indemnity
Company, 49 Ark.App. 115, 117, 898 S.W.2d 63, 64 (1995).
New Edition's separate coverage for professional services
underscores this conclusion. First Financial, 49
Ark.App. at 118, 898 S.W.2d at 65.
unclear why professional services are defined slightly
differently in the exclusion than in the coverage. But the
exclusion is clear: It exempts injuries from an act, error,
or omission in the use or failure to use special skills,
experience, and knowledge. These terms are unambiguous, so,
like all unambiguous contract terms, they aren't
construed against Perm-Star. McGrew v. Farm Bureau Mutual
Insurance Company of Arkansas, Inc., 371 Ark. 567,
570-71, 268 S.W.3d 890, 894-95 (2007); compare State Farm
Fire and Casualty Co. v. Midgett, 319 Ark. 435, 438, 892
S.W.2d 469, 471 (1995), with Smith v. Shelter Mutual
Insurance Co., 327 Ark. 208, 210, 937 S.W.2d 180, 181-82
(1997). Injuries arising from professional services -here,
day care operations - are plainly excluded from the CGL
coverage. Smith, 327 Ark. at 210, 937 S.W.2d at
181-82. To conclude otherwise would make the professional
liability coverage superfluous. Continental
Casualty, 250 Ark. at 41, 463 S.W.2d at 655.
trial is needed on exactly what happened on the day of the
accident, or exactly who was at fault, to answer the coverage
question. The premise for any recovery by Cervantes is
negligence in New Edition's operations - a lack of due
care in arranging the cart and TV, securing play things,
maintaining the facility, and hiring and training the
caregivers. All these things are an important part of running
a safe place for parents to take their children each day.
Capitol Indemnity Corporation v. Especially for Children,
Inc., 2002 WL 31002849, at *6 (D. Minn. 29 August 2002).
Decisions about them involve professional judgment about day
care operations, and require the skills, experience, and
knowledge of running that business. All the allegedly
negligent acts and omissions are reasonably embraced by the
exclusion's definition of professional services. For
these reasons, this exclusion-if it was in place-limits
coverage for Jonathan's accident to $100, 000.
There's a genuine factual dispute, though, about whether
the professional services exclusion was in New Edition's
policy when the cart fell on Jonathan. Penn-Star offers a
copy of the certified policy that includes the endorsement
adding the exclusion. No 27-4 at 3. Penn-Star also
offers an affidavit from Laura Moore (the underwriter), who
says the endorsement was part of the policy all along.
(Cervantes moves to strike this affidavit, but her arguments
lack merit: Moore has personal knowledge because she reviewed
the file; and Penn-Star disclosed Moore's involvement
Cervantes points to the endorsement itself: It's dated
almost a month after Jonathan's accident. No 27-4 at
20. Stanback's copy of the policy, moreover, lists
the professional services exclusion and professional
liability coverage on the covering schedule, but the
exclusion itself is missing. No 36-5 at 4. And in
Perm-Star's records, No 47-3, Moore first said
the exclusion form was missing, and added it after the
accident, before concluding that she'd made a mistake and
it was there after all. No 34-1. All this creates a
material dispute of fact: Either the exclusion was part of
New Edition's policy on 27 January 2013 or it wasn't.
A jury must decide. And that decision will make a $200, 000
difference in coverage.
few final points. Cervantes argues the professional services
exclusion doesn't exclude all alleged damages because the
general liability coverage is for "damages because of
'bodily injury/" whereas the exclusion is for
"bodily injury." This difference in words makes no
legal difference. The exclusion merely excluded one type of
bodily injury from the general liability coverage for
"damages because of bodily injury." Cervantes's
argument about the child-abuse coverage also lacks merit. The
underlying allegations of negligence aren't
"abuse" under the policy terms, No 36-4 at
79, or in the plain, ordinary, and popular sense of that
word. CNA Insurance Company v. McGinnis, 282 Ark.
90, 92, 666 S.W.2d 689, 691 (1984). Jonathan had an accident
involving the pine cones, the cart, and the old TV. Finally,
Penn-Star has conceded that the professional liability
coverage of $100, 000 applies. No 2 at ¶¶
24-25. But the insurer is right the policy excludes punitive
damages. No 35-4 at 76.
to strike Moore's affidavit, No 40, denied.
Perm-Star's motion for summary judgment, No 26,
granted in part and denied in part. Cervantes's cross
motion, No 28, denied. An Amended Final Scheduling
Order will issue.