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Vol. 9 - Issue 2
February 26, 2020

 

First It’s Candy – Then It’s Gum: Is There Coverage For A Case Of Razzles Falling On Your Head?

 

 

 


 

 
 

When policyholders are denied a defense, because the standard is “four corners,” it can be a frustrating outcome for them.  Consider this.  The allegations in the complaint dictate that there is no potential for coverage.  So there is no duty to defend.  But the policyholder can point to other information, so-called “extrinsic evidence,” that, if considered, would trigger a duty to defend.  The policyholder can see the duty to defend.  It is in its grasp.  But, alas, it can’t reach it because the court is constrained by the four corners of the complaint.

This frustration was on display in The Candy Cavity v. Lollipop Risk Retention Group, No. 20-1579 (Wis. Cir. Ct., Milwaukee Cty., Jan. 7, 2020).  The Candy Cavity is a nook of a candy store located in the lobby of an office building in downtown Milwaukee.  The store is quite small and storage is at a premium.  Boxes of candy are piled haphazardly and precariously all throughout the store. 

This proved to be detrimental for Lars Johansson, an architect who worked in the office building where The Candy Cavity was located.  Johansson stopped into the store one day, as he often did, to pick up some Swedish fish.  As a native of Stockholm, Johansson was often homesick and found that eating a quarter pound of Swedish fish was a pick-me-up.

Unfortunately for Johansson, while he was filling a bag with his favorite candy, a case of Razzles fell upon his head.  It had been at the top of twelve stacked and wobbly boxes.  Johansson was knocked to the ground.  He suffered a concussion and a fractured bone in his neck.  The injuries were serious, but could have been far worse.

Johansson filed suit against The Candy Cavity.  The candy store sought coverage from its liability insurer, Lollipop Risk Retention Group.  However, Lollipop RRG disclaimed coverage for a defense, citing the policy’s “gum exclusion,” which provided: “This insurance does not provide coverage for bodily injury caused by, arising out of or resulting from gum.”      

All of Lollipop’s policies contained a “gum exclusion,” as the Risk Retention Group had been saddled with claims for damage to dental work caused by gum chewing.  The complaint alleged that injury was caused by “Johansson being struck by a case of Razzles gum.”  Lollipop RRG disclaimed coverage for a defense, stating that the claim fell squarely within the “gum exclusion.”

The Candy Cavity undertook its own defense.  But, faced with being put out of business by the suit, the store, after chewing over its options, settled the claim with Johansson for $150,000.  The settlement included an assignment of its rights under the Lollipop policy and a covenant not to execute.

Johansson filed suit against Lollipop RRG, alleging that the insurer improperly disclaimed coverage and did so in bad faith.  Lollipop filed a motion for judgment on the pleadings, stating that the “gum exclusion” barred coverage.  Johannson responded that the “gum exclusion” was not applicable, at least for a defense, because Razzles are not simply gum.  Rather, as the Razzles package clearly proclaims: “First its candy.  Then its gum.”

Thus, Johansson argued that a defense was owed, as there was a possibility that Razzles are candy, and, thus, outside the scope of the “gum exclusion.”  Johansson acknowledged that, for purposes of indemnity, it would be up to a trier of fact to determine if Razzles are candy or gum.  That would determine if the “gum exclusion” applied.   
  
The court granted Lollipop’s motion for judgment on the pleadings, explaining its decision as follows: “Of course Razzles are first candy and then gum.  Everyone, including this court, knows that.  But, for purposes of determining if Lollipop had a duty to defend the Candy Cavity, for the Johannson suit, the court is not permitted to consider Razzles’s dual identity as set out on its package.  Rather, based on this state’s strict “four corners” test, for determining if a defense is owed, as set out in Water Well Solutions Serv. Group Inc. v. Consol. Ins. Co., 881 N.W.2d 285 (Wis. 2016), the court is only permitted to consider the allegations in the complaint.  The pleading unambiguously alleged that Razzles are gum.  Therefore, Lollipop’s determination, that it had no duty to defend the Candy Cavity, was correct.  A sticky situation indeed.  But the duty to defend is based on what the complaint says -- and not what the court knows.”  The Candy Cavity v. Lollipop Risk Retention Group at 7.  
          

 

That’s my time. I’m Randy Spencer. Contact Randy Spencer at

Randy.Spencer@coverageopinions.info
 
 
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