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Scottsdale obligated to indemnify owner of nightclub shooting site

Posted On: Oct. 29, 2018 1:36 PM CST

Scottsdale obligated to indemnify owner of nightclub shooting site

A state appeals court has overturned a lower court ruling and held Scottsdale Insurance Co. is obligated to indemnify the owner of a nightclub site for the property’s $923,078 loss in value following a fatal nightclub shooting.

Thee Sombrero Inc. obtained a conditional use permit to operate a nightclub called El Sombrero in Colton, California, according to the Oct. 25 ruling by the California Court of Appeals in Riverside in Thee Sombrero Inc. v. Scottsdale Insurance Co.

One of the conditions of the permit was the city had to approve the floor plan for the property and that it could not be modified without its approval.

Crime Enforcement Services, which provided security guard services at the club, had a corporate general liability policy issued by Scottsdale, Arizona-based Scottsdale Insurance Co. that covered its liability for “property damage” caused by an “occurrence.”

Property damage was defined in the policy, in part, as the loss “of use of tangible property that is not physically injured.”

In June 2007, an El Sombrero patron shot and killed another patron. Sombrero learned after the shooting that CES had converted a storage area into a “VIP’ entrance to the club that had no metal detector, which is how the gun used in the shooting got into the club.

As a result of the shooting, Colton revoked the club’s permit, although it managed to negotiate a modified permit that allowed it to operate the property as a banquet hall.

In May 2009, Sombrero sued Crime Enforcement Services for breach of contract and negligence, alleging its failure to frisk the shooter was the cause of its nightclub permit’s revocation, which lowered the property’s value.

In May 2012, Sombrero obtained a default judgment against the security firm on the basis the property went from being valued at $2.8 million to $1.8 million, with a difference in value of $923,078.

Sombrero filed suit against Scottsdale in February 2015, alleging breach of the insurance policy. Scottsdale sought summary judgment in the case, arguing the permit’s loss was not a loss of the use of tangible property. 

The trial court in San Bernardino granted Scottsdale’s motion for summary judgment, which the state appeals court overturned. “The loss of the ability to use the property as a nightclub is, by definition, a ‘loss of use’ of ‘tangible property.’ It defies common sense to argue otherwise, said a unanimous three-judge panel, in ruling in Sombrero’s favor.

In 2017, a federal appeals court ruled a nightclub waitress who was shot when armed gunmen entered the premises and began shooting at patrons and employees cannot recover from Nautilus Insurance Co., the insurer for the club’s security firm.