Saturday, July 25, 2015

Argonaut Great Central Insurance Company v. Audrain County Joint Communications

Opinion handed down February 11, 2015
Argonaut Great Central Insurance Company (“Argonaut”) sued Audrain County Joint Communications (“Audrain”), claiming Audrain was negligent by failing to effectively monitor a security alarm panel, and thus caused or contributed to damages sustained to a grocery store building insured by Argonaut during a burglary and subsequent fire.[1]  Audrain filed for summary judgment claiming it was entitled to sovereign immunity because it was a Missouri state entity.[2]  The district court denied summary judgment determining Audrain waived its sovereign immunity when it purchased the insurance from Argonaut.[3]  Audrain then filed an interlocutory appeal challenging this order. The Eighth Circuit Court of Appeals dismissed the action in part for lack of jurisdiction, and affirmed otherwise.[4]

I.  Facts and Holding
Hickman Foods, Inc. (“Hickman”) was a grocery store in Mexico, Missouri, and originally contracted with Crow Security, Inc., for a security system.[5]  Q Security Solutions, L.L.C., (“Q Security”) bought Crow Security, Inc., in 2005, and the agreement provided that Q Security would take over the Hickman contract.[6]
The security alarm panels used by Q Security to protect Hickman were located at Audrain’s 911-call center.[7]  The process, if conducted properly, would alert Audrain employees with an audible alarm at the center and a light bulb that matched a particular location would illuminate, thus alerting the employee to the location of the security breach.[8]  In April of 2006, several Audrain employees tested the Q Security alarm system panels and learned that six bulbs, including the Hickman bulb, were not working properly.[9]  Audrain supervisors were alerted, but they never informed Q Security of the problem, and the issue was never fixed.[10]
On July 24, 2006, two burglars robbed Hickman and set fire to the building before fleeing the scene.[11]  The first audible alarm system sounded at the Audrain center when the burglars entered the store, but the employee was unable to tell which location the alarm was coming from.[12]  Thirty minutes later, a second alarm system sounded when the burglars set fire to Hickman, but again the dispatcher was unable to tell the location of the alarm.[13]  Argonaut asserts that Audrain ignored both alarms.[14]  Thirty minutes after the second alarm, and a full hour after the first alarm, a passerby noticed smoke coming from Hickman and called 911.[15]  The fire caused over $2 million in damage to Hickman.[16]
Argonaut provided insurance for Hickman, and after Argonaut paid Hickman for the damage, Hickman assigned to Argonaut the right to sue Audrain for the damage.[17]  Argonaut filed suit in May 2011 alleging Audrain was negligent in failing to effectively monitor the alarm panels, which in turn contributed to the burglary and fire damage.[18]  Argonaut claimed Audrain had waived its sovereign immunity when it sought and purchased insurance from American Alternative Insurance Corporation (“the Policy”).[19]
In addition, Argonaut claimed the broken light bulbs at the Audrain facility eliminated any sovereign immunity defense by Audrain due to the dangerous condition caused by the facilities inaction.[20]  Audrain then filed for summary judgment claiming that under the Policy an endorsement was added previously to specifically exclude coverage for any claims in which sovereign immunity would apply.[21]  The court denied Audrain’s motion.[22]
At trial, the district court determined the proper question to be determined was, “whether [Audrain] and its insurer had properly reformed the Policy to include and endorsement preserving the call center’s sovereign immunity.”[23]  The court determined Audrain failed to establish it had a pre-existing agreement under the Policy sustaining its sovereign immunity.[24]  In addition, the court concluded Audrain waived its common law sovereign immunity defense by purchasing the Policy.[25]
On appeal, Audrain challenged the district court’s ruling denying their sovereign immunity defense claim.[26]  Argonaut filed a motion claiming Audrain’s brief was not proper on the grounds of limited jurisdiction and also contends that the only issue the court has jurisdiction over is whether Audrain’s insurance policy waived both its common law and statutory sovereign immunity claims.[27] 
II.  Legal Background
The main issue dealt with by the court was whether jurisdiction was proper for an interlocutory appeal meant to determine whether Audrain waived its common law sovereign immunity defense by purchasing the Policy.  Specifically, the court noted:

Ordinarily, we lack jurisdiction over an interlocutory appeal challenging the denial of summary judgment, but an immediate appeal is appropriate where summary judgment is denied on the grounds of sovereign immunity . . . because immunity is effectively lost if a case is erroneously permitted to go to trial.[28]
The focus of the court’s jurisdiction centers on whether the immunity sought is “immunity from suit rather than a mere defense to liability.”[29]  If a state statute only provides immunity from liability for damages, and not complete immunity from suit, then interlocutory review is inappropriate.[30]
Next, the court addressed the collateral order doctrine.  The court determined the doctrine does not allow for an interlocutory appeal “where immunity from liability is involved [because] any error of the district court is effectively reviewable in an appeal from the final judgment.”[31]  The court also relied on Brown v. Grabowski,[32] noting “the right to an interlocutory appeal from the denial of a claim of . . . immunity under state law can only exist where the state has extended an underlying substantive right to be free from the burdens of litigation.”[33]
Section 537.600 of the Missouri Revised Statutes ordinarily preserves Missouri’s “sovereign immunity or governmental tort immunity as [it] existed at common law.”[34]  The statute does not merely grant immunity from damages, but also from the suit.  The Missouri legislature’s intention clearly extends to Audrain the right to not be burdened by litigation from the negligence claim brought by Argonaut, unless Audrain waived their immunity through some other action.[35]  Therefore, under Section 537.600, the court determined jurisdiction was proper for an interlocutory appeal to determine whether Audrain’s purchase of the Policy in effect waived its common law sovereign immunity defense.[36]
In Langley v. Curators of the University of Missouri,[37] it was determined that “a public entity does not waive its sovereign immunity by maintaining an insurance policy where that policy includes a provision stating that the policy is not meant to constitute a waiver of sovereign immunity.”[38]  In order to prove its claim, Audrain must present evidence that the pre-existing agreement it had with its insurer allowing them to attach a sovereign immunity endorsement to the Policy, and that both parties made a mutual mistake when they failed to attach it.[39]  With such a high burden of proof required by Audrain, “[t]he court can reform a written instrument only upon clear, cogent, and convincing evidence that leaves no room for reasonable doubt.”[40]
III.  Instant Decision
Ultimately, the court agreed with the district court and determined that Audrain could not meet the burden of proof required to show a pre-existing agreement.[41]  In fact, the testimony and evidence showed Audrain and their insurer never even discussed sovereign immunity when Audrain began seeking, and ultimately purchased, the insurance policy.[42]  Audrain even renewed the policy on numerous occasions with the opportunity to review and assess its terms, but failed to address the fact the policy did not mention anything regarding an endorsement preserving sovereign immunity.[43]
The court ultimately found no clear error in the district court’s ruling and determined no pre-existing relationship between Audrain and its insurer existed pertaining to a sovereign immunity endorsement in the original policy.[44]  The court affirmed the district court’s ruling that by purchasing insurance, Audrain waived its common law sovereign immunity under Section 537.600.[45]

IV.  Comment
The decision handed down in Argonaut Great Central Insurance Company v. Audrain County Joint Communications emphasizes the high burden of proof a state entity must show under Missouri law to establish a pre-existing agreement that was not formalized into writing as an endorsement under an insurance policy.  The court’s logic and reason was straightforward and decisive and illustrates that ignorance in regard to clarifying an insurance policy will not be tolerated.
Effectively, common law sovereign immunity is waived when a state entity fails to address the issue in purchasing an insurance policy.  In essence, the purchasing of the insurance policy directly goes against the principle of common law sovereign immunity.  The purchasing of the policy notifies the party that they are aware of the potential for harms and suits, directly conflicting with the foundational ideals of common law sovereign immunity protection for state entities.
- Nicholas Leslie

[1] Argonaut Great Cent. Ins. Co. v. Audrain Cnty. Joint Commc'ns, 781 F.3d 925, 927 (8th Cir. 2015).
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id. at 927-928.
[9] Id. at 928.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id
[20] Id.
[21] Id. at 929.
[22] Id.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
[27] Id.
[28] Van Wyhe v. Reisch, 581 F.3d 639, 647-648 (8th Cir. 2009).
[29] Mitchell v. Forsyth, 472 U.S. 511, 526 (1985).
[30] Liberal v. Estrada, 632 F.3d 1064, 1074 (9th Cir. 2011).
[31] Gray-Hopkins v. Prince George’s Cnty., 309 F.3d 224, 231 (4th Cir. 2002).
[32] Brown v. Grabowski, 922 F.2d 1097 (3 Cir. 1990).
[33] Id. at 1106-1107.
[34] Mo. Rev. Stat. § 537.600
[35] Argonaut Great Cent. Ins. Co. v. Audrain Cnty. Joint Commc'ns, 781 F.3d 925, 930 (8th Cir. 2015).
[36] Id.
[37] Langley v. Curators of the Univ. of Mo., 73 S.W.3d 808 (Mo. Ct. App. 2002)
[38] Id. at 811.
[39] Cardinal Partners, LLC v. Desco Inv. Co., 301 S.W.3d 104, 110 (Mo. Ct. App. 2010).
[40] Id.
[41] Argonaut Great Cent. Ins. Co. v. Audrain Cnty. Joint Commc'ns, 781 F.3d 925, 931 (8th Cir. 2015).
[42] Id.
[43] Id.
[44] Id.
[45] Id.