The Lalas purchased the Foothill Avenue property for investment purposes. The farmhouse was furnished, but no one lived there. Mr. Lala hosted occasional business and public service events there.

The Lalas also used the farmhouse and farmland for recreation, including hunting, fishing, target shooting, riding all-terrain vehicles (“ATVs”) and dirt bikes, running their dogs, and swimming.

On April 22, 2012, the Lalas' teenage son Nick and friends went to the Foothill Avenue property to ride dirt bikes and ATVs. Mr. Lala also was at the property that day. He left shortly before the teenagers departed; before leaving, he told Nick to lock up the house.

While Nick was locking up, he noticed that one of the Lalas' firearms, a .22 caliber Ithaca lever action rifle, had been left on a bed in one of the bedrooms. Nick picked up the rifle and the weapon accidentally discharged. The bullet struck his 17-year-old friend Hunter in the abdomen, and he died from the gunshot wound.

In January 2014, Metropolitan Property and Casualty Insurance Company, which had issued a personal insurance policy that covered the Lalas, reached a settlement with Hunter's parents under which Metropolitan agreed to pay $900,000 in exchange for a release of all claims and potential claims against the Lalas, Parker House, Metropolitan, and Auto-Owners Mutual Insurance Company, from which Parker House had purchased a “Tailored Protection” insurance policy that included commercial general liability (“CGL”) coverage with a $1,000,000 each occurrence liability limit.

In June 2014, Metropolitan filed an action seeking subrogation from Auto-Owners.

Auto-Owners moved for summary judgment, arguing that its policy did not cover the shooting because it was unrelated to Parker House's business. The trial court denied the motion and the case proceeded to a bench trial.

The trial court entered judgment against Auto-Owners and in favor of Metropolitan for $450,000.

The dispute reached the Iowa Supreme Court, where Auto-Owners argued that its policy did not afford coverage because (1) Nick was not acting on behalf of Parker House and, therefore, was not an insured under Auto-Owners' policy at the time of the accident, and (2) Parker House itself lacked potential liability under a premises liability theory.

The Auto-Owners Policy

The Auto-Owners policy provided:

1. If you are designated in the Declarations as: . . . .
2. A limited liability company, you are an insured.

Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers. . . .

2. Each of the following is also an insured:
3. Your “employees”, other than either your “executive officers” (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business, or your “volunteer workers” only while performing duties related to the conduct of your business. However, none of these “employees” or “volunteer workers” are insureds for “bodily injury”, “personal injury” or “advertising injury”

(1) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-”employee” while in the course of his or her employment or performing duties related to the conduct of your business, or to your other “volunteer workers” while performing duties related to the conduct of your business;

(2) To the spouse, child, parent, brother or sister of that co-”employee” or “volunteer worker” . . . .

The Iowa Supreme Court's Decision

The court affirmed.

In its decision, the court explained that Nick was covered under the Auto-Owners policy if he was acting for Parker House, while Parker House itself was covered for premises liability.

The court pointed out that Parker House, as an LLC, only could act through its members, managers, employees, and agents. The court added that Nick had been asked by Mr. Lala, the LLC's manager, to secure the house. “Securing the property,” the court observed, was “a business purpose – to protect the unoccupied farmhouse against vandals and burglars.”

The court added that securing the property was “more than just locking the outside doors” but also included “unloading and properly storing firearms.” In the court's opinion, that business purpose was “not defeated by the fact the farmhouse was also used for recreation.” Nick could “wear two hats,” according to the court, “and his acts at the farmhouse may be undertaken for both business and personal reasons.”

It ruled that substantial evidence supported the conclusion that “Nick was engaged in conduct for the business of Parker House at the time he accidentally shot Hunter.”

The court then pointed out that the Auto-Owners policy provided premises liability coverage to Auto-Owners – and did not limit that coverage to acts taken “in the conduct of [its] business.” That coverage limitation, the court found, expressly applied to the LLC's members individually or its employees individually, not the entity itself.

Accordingly, the court ruled, the Auto-Owners policy covered a premises liability claim against the LLC without regard to whether the accidental injury on the insured property had occurred during business activities.

The court concluded that Auto-Owners as a coinsurer of the farmhouse property was obligated to indemnify Metropolitan for half of the $900,000 settlement.

The case is Metropolitan Property and Casualty Ins. Co. d/b/a Metlife Auto & Home v. Auto Owners Mutual Ins. Co., No. 18-0129 (Iowa March 8, 2019). Attorneys involved include: Matthew T. Nelson of Warner Norcross & Judd, Grand Rapids, Michigan; John J. Bursch of Bursch Law PLLC, Caledonia, Michigan; and Timothy W. Hamann and Joshua L. Christensen of Clark, Butler, Walsh & Hamann, Waterloo, for appellant. Michael S. Jones of Patterson Law Firm, L.L.P., Des Moines, for appellees.