A child’s death caused by an apartment management company employee shooting — and encouraging others to shoot — a handgun was the result of gross negligence, said a federal appeals court, in overturning a lower court decision and ruling in favor of Great American Insurance Co. in a coverage dispute with Chubb Ltd. and Zurich Insurance Group Ltd. units.

“Does repeatedly shooting and encouraging others to shoot a handgun ‘in the general direction’ of small lake in a residential area of Kansas City, Missouri, which results in a young child’s death, qualify as ‘gross negligence’? We believe it does,” says Thursday’s ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Federal Insurance Co.; Zurich American Insurance Co. v. Great American Insurance Co.

According to the ruling, Kansas City-based Whispering Lake L.P., which owned an apartment complex in a residential area of Kansas City, entered into a contract with Kansas City-based Yarco Co. Inc., which manages complexes for others. The agreement between Whispering Lake and Yarco included an indemnity provision that exempted Whispering Lake form claims arising out of gross negligence.

Whispering Lake had a primary policy with Stamford, Connecticut-based Indian Harbor Insurance Co., a unit of XL Group Ltd., that provided $1 million in coverage and a policy providing $10 million in umbrella coverage with Cincinnati-based Great American Insurance Co.

Yarco’s primary policy with Schaumburg, Illinois-based Zurich American Insurance Co. provided for $1 million in coverage, while an umbrella policy with Chubb Ltd. unit Federal Insurance Co., based in Warren, Connecticut, provided $25 million in coverage, according to the ruling.

On July 4, 2011, Yarco employee Aaron Sullivan, who worked at the apartment complex’s pool as a “pool monitor,” retrieved a handgun during his shift. He proceeded to shoot the gun a number of times to “celebrate” Independence Day, and allowed other individuals to shoot the gun as well, while directing them to fire their shots away from the pool and in the general direction of a lake bordering the apartment complex’s property.

One of the bullets traveled across the lake and struck an 11-year-old girl in the neck, shattering a cervical vertebra and damaging her spinal cord. The girl died the next day. Mr. Sullivan later pleaded guilty to involuntary manslaughter in the first degree.

The girl’s mother filed a wrongful death lawsuit against Mr. Sullivan and Yarco, and a confidential settlement was eventually reached, with each of the insurers paying a part of the settlement but reserving their rights to litigate their respective obligation under the settlement, according to the ruling.

The insurers filed suit in U.S. District Court in St. Louis seeking a declaratory judgment determining the parties’ obligations and any priority of coverage. The court held Great American was obligated to reimburse Chubb and Zurich for the amounts they contributed to the settlement because Yarco’s employee was not grossly negligent.

The ruling was overturned by a unanimous-three judge panel of the 8th Circuit.

“Sullivan’s conduct constituted gross negligence,” said the ruling. “Based on Sullivan’s decision and actions, a bullet struck and killed an eleven-year-old child.”

“Federal and Zurich contend that Sullivan’s act of directing the others to shoot the handgun ‘away from the pool (and) in the general direction of the lake’ was conduct ‘promoting safety’ (as they describe it) rather than conduct of gross negligence. This contention is wholly without merit,” said the ruling, in overturning the lower court’s judgment.

The case was remanded to the lower court to decide whether the insurers’ priority of coverage is determined by the insurance policies’ terms or by the indemnity clause.