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Kmart Corporation, A Michigan Corporation v. Footstar

May 1, 2012

KMART CORPORATION, A MICHIGAN CORPORATION, PLAINTIFF,
v.
FOOTSTAR, INC., A DELAWARE CORPORATION, LIBERTY MUTUAL FIRE INSURANCE COMPANY, A WISCONSIN CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Susan E. Cox

MEMORANDUM OPINION AND ORDER*fn1

Kmart Corporation ("Kmart") has filed a Motion for Clarification and/or Reconsideration [dkt. 261] of our March 30, 2012 ruling*fn2 that partially granted Kmart's motion for summary judgment*fn3 and denied the cross-motions of Liberty Mutual Fire Insurance Company ("Liberty") and Footstar, Inc. ("Footstar").*fn4 Kmart raises three arguments: (1) that the Court must either clarify that Liberty is required to indemnify Kmart for the full $310,000.00 settlement amount or reconsider any decision to the contrary; (2) that Liberty has failed to dispute Kmart's bad faith argument and, thus, summary judgment should be granted for Kmart on this issue, and; (3) that the Court must reconsider its decision to award Kmart defense costs beginning on January 24, 2008, as opposed to in June 2007. We deny Kmart's motion on all three grounds.

A. Indemnification

Kmart argues that the Court's analysis of Liberty's indemnification obligation is limited to its statement that "[t]he indemnification obligation of Footstar and Liberty depends on a factual determination of the relative fault of Footstar in causing the Patrick Injury." In fact, the Court repeatedly cited the contractual language bearing on Liberty's indemnification obligation and thoroughly treated Kmart's argument that Liberty should be equitably estopped from denying coverage for indemnification. Ultimately, the Court reached the conclusion that, because the Master Agreement did not indemnify Kmart for its own negligence (and Liberty was not estopped from disclaiming coverage), genuine issues remained as to both Footstar's and Liberty's indemnification obligations because Footstar's relative fault in causing the Patrick injury had not been determined. This conclusion is in accord with the limiting language of the Policy, referenced throughout the Court's Order, which states that Liberty's additional insured coverage of Kmart "applies only to coverage and the limits of insurance required by the [Master Agreement]." Because of this limitation we found that Liberty would not be obligated to indemnify Kmart for Kmart's own negligence. And contrary to its assertions, Kmart never explicitly argued that Liberty was independently required by the terms of the Policy to indemnify Kmart for its own negligence.

Kmart does not dispute that a trial would be necessary to determine Footstar's relative fault--and therefore indemnification obligation--under the Master Agreement. However, Kmart now argues that the Court erred in failing to hold that Liberty must indemnify Kmart for the entire settlement amount.

Section 18.1 of the Master Agreement, the provision that required Footstar to indemnify Kmart for personal injury claims arising out of "[Footstar's] performance or failure to perform," also required Footstar to purchase insurance for Footstar and Kmart for "personal injury (including death) and property damage arising out of or relating to the goods and services provided pursuant to this Agreement . . ."*fn5 The Court held that "services," as used here, was not a defined term limited to Footstar's operation of the Footwear Department. The Court observed that Liberty's Blanket Additional Insured Amendment, which governed who was an additional insured and the limitations of coverage, stated:

Section II - WHO IS AN INSURED is amended to include as an insured any person, organization, state or other political subdivision, trustee or estate for whom you have agreed in writing to provide liability insurance. But:

The insurance provided by this amendment:

1: Applies only to "personal injury" or "property damage" arising out of (a) "your work" or (b) premises or other property owned by or rented by you; 2: Applies only to coverage and limits of insurance required by the written agreement, but in no event either exceeds the scope of coverage or the limits of insurance provided by this policy; and 3: Does not apply to any person, organization, state or other political subdivision, trustee or estate for whom you have acquired separate liability insurance while such insurance is in effect, regardless of whether the scope of coverage or limits of insurance of this policy exceed those of such other insurer or whether such insurance is valid or collectable.

Kmart claims to have argued that the language of the Policy indemnifies Kmart for its own negligence. An examination of Kmart's briefs, however, does not support this conclusion. Kmart argues that it "made the point in its summary judgment motion that Liberty Mutual was obligated to indemnify Kmart fully without regard to Footstar's fault or liability."*fn6 Yet, what Kmart actually stated in its memorandum was simply that because Judy Patrick's injuries "arose out of Footstar's work," "Kmart [did] not need to prove it actually was liable to plaintiffs or the true amount of their damages" to recover the settlement amount. This is not the same as arguing that Liberty must fully indemnify Kmart under the Policy even if Kmart caused the injury, and regardless of Foostar's fault.

Kmart's argument that Liberty "did not dispute" that it was required to indemnify Kmart's own negligence is also unpersuasive.*fn7 Liberty expressly stated that the Policy's additional insured amendment "applies only to coverage required by the written agreement (between Kmart and Footstar),"*fn8 which would limit coverage to injuries arising out of Footstar's "goods and services."*fn9 In its reply, Liberty reinforced its position that Kmart's coverage was limited to "the scope required in the written contract,"*fn10 and thus,"the Master Agreement required Liberty to indemnify and provide additional insured coverage for Kmart only for Footstar's own conduct. . . . "*fn11 Kmart's reply brief offered no response to Liberty's assertion on this point. Kmart now states, perhaps in explanation of its silence, that "no further argument was necessary" because Liberty had already "conceded the point." Our review finds that Kmart did not expressly argue in its briefs that Liberty was required to indemnify Kmart for its own negligence under the Policy. At the same time, as Kmart observes, Liberty did not expressly argue that its duty to indemnify Kmart was "coextensive" with Footstar's. (We note, however, that the arguments in Liberty's briefs were often difficult to follow).

Kmart now argues that the Policy and New Jersey Law require Liberty to wholly indemnify Kmart because "the Court found [that the] suit involved 'personal injury' 'arising out of' Footstar's 'work.'" It is important to note here that the Court did not so find. At page 35 of our analysis of the duty to defend, we found that the Patrick injury potentially arose out of Footstar's work, thereby triggering the duty to defend. Given the differing accounts of the Patrick incident, it remains unclear whether the Patrick injury actually arose out of Footstar's work; Judy and Tina Patrick argue that Footstar employee, Alex Sehat, pulled down the stroller containing the unsecured carrier which struck Mrs. Patrick, while Mr. Sehat and Kmart employee, Mirabel Hohney, claim that a seemingly inebriated Judy Patrick pulled down the stroller and injured herself. The case was settled out of Court and the cause of the injury remains in dispute, which is why the Court ruled that genuine issues of fact remain.

To fully address Kmart's argument that Liberty should be required to fully indemnify Kmart, regardless of whether Footstar is later determined to be without fault, we take a moment to address the cases that Kmart cites. First, Kmart relies on Federal Home Loan Mortgage Corp. v. Scottsdale Ins. Co.*fn12 for the proposition that a "fact-intensive" inquiry would be unnecessary to determining the scope of additional insured coverage. However, Federal Home Loan is not instructive. There, the District Court had already found that the insurer was estopped from denying its duty to indemnify because its wrongful refusal to defend had prejudiced the insured.*fn13 Under such circumstances, the Court reasoned that "it is irrelevant whether the insurer would have been liable under the policy . . . ."*fn14

Kmart also relies on Krastanov v. K. Hovnanian/Shore Acquisitions, LLC.*fn15 In Krastanov, an employee of plumbing subcontractor F&W drowned while swimming in a man-made lake on Hovanian's construction site.*fn16 Hovnanian sued F&W and its insurer, PNMC, for indemnification in connection with the resultant wrongful death claim, arguing that Hovnanian was entitled to indemnification under its subcontracting agreement with F&W.*fn17 A trial court denied coverage under the theory that Krastanov's claims against Hovanian were for "Hovnian's own negligence in creating a dangerous condition on the property," which was not covered by the subcontracting agreement.*fn18 Hovanian later learned it was an additional insured on F&W's policy with PNMC, prompting the Court to examine ...


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