Space Unlimited LLC v. American Casualty Co of Reading, PA

Background

Space Unlimited, LLC owned commercial real estate at 1313 Chestnut Avenue in Minneapolis. It had purchased a 2016 insurance policy from American Casualty Company of Reading, Pennsylvania. The policy included commercial property and third-party commercial general liability coverage and covered the period from April 20, 2016, through April 20, 2017.

In an underlying Minnesota state-court lawsuit, Jeremy Stanbary and Epiphany Studios, LLC d/b/a Open Window Theater sued Space Unlimited and others. They alleged that Space Unlimited rented them property for theater use even though the property lacked a certificate of occupancy and could legally be used only as a warehouse. Their claims included declaratory judgment, breach of contract, fraudulent and negligent misrepresentation, promissory estoppel and unjust enrichment, failure to return a security deposit, civil theft, conversion, false advertising, consumer fraud, and deceptive trade practices. They sought damages, a declaration that the leases were void, and injunctive relief.

Space Unlimited tendered the underlying lawsuit to American Casualty and requested a defense and indemnity. American Casualty declined coverage, including because 1313 Chestnut Avenue was not listed in the policy’s designated-premises endorsement. Space Unlimited also had insurance from Travelers, but the ruling addressed only American Casualty’s motion.

Motion and Coverage Provisions

American Casualty moved for judgment on the pleadings or, alternatively, summary judgment. Judgment on the pleadings asks whether, based on the pleadings and permitted related materials, the moving party is entitled to judgment as a matter of law. The court considered the insurance policies, the underlying complaint, and public records incorporated into or properly considered with the pleadings.

The policy’s designated-premises endorsement limited coverage to bodily injury, property damage, personal and advertising injury, and medical expenses arising from ownership, maintenance, or use of the premises listed in the policy, or from operations necessary or incidental to those premises. The policy listed only 2406 Stevens Avenue South and 2929-2922 Bryant Avenue South, both in Minneapolis. It did not list 1313 Chestnut Avenue.

Court’s Analysis

The court held that none of the underlying claims related to the ownership, maintenance, or use of either designated premises. Space Unlimited did not argue that the conduct alleged in the underlying lawsuit originated at one of those listed locations. The court therefore rejected coverage under the designated-premises endorsement.

The court also rejected Space Unlimited’s argument that the policy’s interpretation would make the coverage illusory, meaning effectively nonexistent. The court noted that the policy provided coverage for liability connected to the two listed premises and named additional insured limited liability companies connected to those buildings. The court stated that Space Unlimited had waived the illusory-coverage argument by not presenting it in its opposition brief.

The court rejected Space Unlimited’s argument that the underlying complaint alleged personal and advertising injury. Even if that type of injury were alleged, the endorsement limited such coverage to injury arising from the scheduled premises, and 1313 Chestnut Avenue was not scheduled.

The court also addressed the policy’s employee-dishonesty coverage. Space Unlimited did not argue in its opposition brief that this coverage applied, so the court deemed that argument waived. In addition, the court concluded that the endorsement did not apply because there was no allegation of direct physical loss of or damage to covered property at a scheduled premises. The court further explained that the employee-dishonesty coverage was first-party coverage—coverage paid directly to the insured for a covered loss—not third-party liability coverage for lawsuits brought by others.

Under Minnesota law, an insurer’s duty to defend is broader than its duty to indemnify, which means paying a covered liability after the insured is found responsible. Because the court found no duty to defend, it also found no duty to indemnify.

Disposition

The court granted American Casualty’s Motion for Judgment on the Pleadings, or in the Alternative, for Summary Judgment. It dismissed with prejudice all claims against American Casualty Company of Reading, Pennsylvania. The order did not state a disposition for Space Unlimited’s claims against Travelers Casualty Insurance Company of America.