ATAIN SPECIALTY INSURANCE COMPANY v. KARANS LLC KMK KNK (2024)

ORDER

I. SUMMARY

Plaintiff Atain Specialty Insurance Company (“Atain”) sued Defendants Karans, LLC d/b/a/ Happy Dayze Cigar & Smoke (“Happy Dayze”), Paul A. Valente, individually and as the Special Administrator to the Estate of Michelle Valente (“Valente”), and Michael R. Kich, as parent and natural guardian of minors KMK and KNK (“Kich”), for declaratory judgement or, in the alternative rescission of its insurance contract with Happy Dayze. (ECF No. 20.) Before the Court is Plaintiff's motion for summary judgment. (ECF No. 34 (“Motion”).)¹ As explained below, the Court will grant the Motion because the insurance contract unambiguously precludes coverage.

II. BACKGROUND 2

A. Michelle Valente Death and Lawsuit

Valente and Kich allege that, on January 8, 2022, Michelle Valente died from overdosing on kratom powder “manufactured, distributed, marketed and sold” by Happy Dayze. (ECF No. 34 at 4.) On that day, Michelle Valente reported to her job and at approximately 1:00 pm, a passerby found her laying in the snow next to her car. (Id. at 4-5.) She was later pronounced dead from acute mitragynine toxicity. (Id. at 5.) Mitragynine is the active ingredient in kratom. (Id.) Valente and Kich further allege that, despite the illegality of selling and marketing kratom as a drug or dietary supplement, Happy Dayze advertised and sold kratom as a product to treat “pain, anxiety, and other health problems.” (Id.) They also assert Happy Dayze did not warn Michelle Valente of kratom's risks. (Id.)

Based on these allegations, on October 19, 2022, Valente and Kich sued Happy Dayze in the Second Judicial District Court of the State of Nevada for wrongful death, negligence, negligent misrepresentation, breach of implied warranty, and product liability (“Valente lawsuit”). (ECF No. 1-2 at 5-16.) The Valente lawsuit is ongoing. (ECF No. 34 at 4.)

B. Insurance Policy

From November 20, 2021, to November 20, 2022, Atain insured Happy Dayze with a policy (“Policy”) that included commercial general liability coverage subject to a $1,000,000 limit per occurrence, a $2,000,000 aggregate limit of insurance, and a $500 deductible per claim. (ECF No. 34 at 8.) The Policy provided bodily injury and property damage liability coverage but included an endorsement for a products-completed operations hazard exclusion (“PCOH exclusion”), which modified the Policy to not apply to bodily injury or property damage within the products-completed operations hazard risk category.³ (Id. at 11.)

On April 18, 2023, Atain filed this action seeking declaratory judgment as to a lack of coverage under the Policy over the Valente lawsuit. (ECF No. 1.) In the first amended complaint (“FAC”), Atain asserts that it “does not have any obligation to defend or indemnify Happy Dayze in connection with the [Valente lawsuit] because Products / Completed Operations are excluded by the Policy pursuant to the Products Completed Operations Hazard Exclusion.” (ECF No. 20 at 9.)

III. DISCUSSION

Plaintiff moves for summary judgement on the grounds that the PCOH exclusion, the fraud and misrepresentation endorsement, and Happy Dayze's alleged material misrepresentations to Plaintiff preclude coverage of the Valente lawsuit.⁴ (ECF No. 34 at 1-2.) Because the Court finds it persuasive, the Court only addresses Plaintiff's first argument that there is no genuine issue of material fact that Michelle Valente's injuries are excluded from coverage under the policy's PCOH exclusion. (ECF No. 34 at 19-22.)

To support its argument, Plaintiff proffers the insurance contract attached to its FAC (ECF No. 20-1) and argues that there is no dispute that Michelle Valente's injuries fall within the products-completed operations hazard—and therefore Happy Dayze cannot receive coverage under the PCOH exclusion. (Id. at 20.) Plaintiff further contends that the Policy is unambiguous because, while the declarations include a $2,000,000 products-completed operations aggregate limit, the PCOH exclusion modifies this grant of coverage. (Id.) Defendants counter that the Policy is ambiguous because the $2,000,000 aggregate limit conflicts with the PCOH exclusion. (ECF No. 41 at 4-5.) As noted, the Court agrees with Plaintiff.

The interpretation of an insurance contract is a question of law. See Farmers Ins. Exch. v. Neal, 119 Nev. 62, 64 P.3d 472, 473 (2003). Interpretation must come “from the perspective of one not trained in law or in insurance, with the terms of the contract viewed in their plain, ordinary and popular sense.” Century Sur. Co. v. Casino W., Inc., 130 Nev. 395, 329 P.3d 614, 616 (2014) (citation omitted). “When reading a provision of an insurance policy, the court's interpretation ‘must include reference to the entire policy[,which will] [sic] be read as a whole in order to give reasonable and harmonious meaning to the entire policy.’ ” Zurich Am. Ins. Co. v. Ironshore Specialty Ins. Co., 137 Nev. 651, 497 P.3d 625, 628 (2021) (quoting Siggelkow v. Phoenix Ins. Co., 109 Nev. 42, 846 P.2d 303, 304 (1993)).

“A contract is ambiguous when it is subject to more than one reasonable interpretation.” Anvui, Ltd. Liab. Co. v. G.L. Dragon, Ltd. Liab. Co., 123 Nev. 212, 163 P.3d 405, 407 (2007) (citation omitted). To determine if the Policy is ambiguous, the Court must assess whether the Policy creates “reasonable expectations of coverage as drafted.” Powell v. Liberty Mut. Fire Ins. Co., 127 Nev. 156, 252 P.3d 668, 672 (2011) (citation omitted). Ambiguity is interpreted against the insurance company. See id. Policy coverage is interpreted broadly to grant the most possible coverage to the insured and clauses excluding coverage are interpreted narrowly against the insurer. See id. (citing Nat'l Union Fire Ins. Co. v. Reno's Exec. Air, 100 Nev. 360, 682 P.2d 1380, 1383 (1984)).

Defendants’ ambiguity argument rests solely on the contrast between the declarations page, which suggests coverage, and the endorsement, which explicitly denies it. (ECF No. 41 at 4-6.) However, the Policy is not ambiguous because, when read as a whole, the endorsement tells the reader that it “modifies insurance provided.” (ECF No. 20-1 at 128.) The endorsement is hard to miss; in large, bold letters it clearly dictates that “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” (Id.) This appearance on the page, in addition to simple and understandable language, is conspicuous enough to inform the reader of changes to the Policy. See Crusader Ins. Co. v. Burlington Ins. Co., No. cv-19-5371-PSG-PLAX, 2020 WL 4919387, at *9 (C.D. Cal. June 12, 2020). Moreover, the declarations page itself directs the reader to this endorsement and says that the endorsements are part of the complete policy. (ECF No. 20-1 at 74.) Cf. Scottsdale Ins. Co. v. Hudson Specialty Ins. Co., 738 F. App'x 402, 403 (9th Cir. 2018) (citation omitted) (holding that, when policy language, including endorsements, appears to conflict with a declarations page, the policy language controls, and the ambiguity is resolved). Therefore, when read as a whole, the Policy unambiguously incorporates the endorsement—precluding coverage.

The language of the Policy itself is also clear and unambiguous: “this insurance does not apply to ‘bodily injury’ or ‘property damage’ included within the ‘products-completed operation hazard.’ ” (ECF No. 20-1 at 128.) Moreover, Defendants do not dispute that the Valente lawsuit falls within the products-completed operation hazard. (ECF No. 41 at 4-6.)

The Court concludes as a matter of law that the Policy does not cover the Valente lawsuit against Happy Dayze. And because the Court finds no genuine dispute in the record that the insurance contract was unambiguous, it further grants summary judgment to Plaintiff.

IV. CONCLUSION

The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the Motion before the Court.

It is therefore ordered that Plaintiff's motion for summary judgment (ECF No. 34) is granted as specified herein.

FOOTNOTES

1.   Defendants responded (ECF No. 41) and Plaintiff replied (ECF No. 42).

3.   Atain's policy defines “product-completed operation hazard” to include all “ ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work.’ ” (ECF No. 34 at 3.) Atain mandates PCOH exclusions for policies issued to tobacco, cigar, smoke, and vape shops. (Id. at 12.)

4.   In seeking summary judgment, the moving party bears the burden of showing that there is no genuine issue as to any material fact. See Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party satisfies Rule 56’s requirements, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

MIRANDA M. DU, UNITED STATES DISTRICT JUDGE