GREG KAYS, Chief Judge.
This declaratory judgment action concerns insurance coverage for a class action lawsuit filed by Defendant/Counterclaim Plaintiff Fun Services of Kansas City, Inc. ("Fun Services") against Defendant Parrish Love d/b/a Asphalt Wizards ("Asphalt Wizards") in the Circuit Court of Jackson County, Missouri. Fun Services is suing Asphalt Wizards for allegedly sending unsolicited faxes in violation of the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, and Missouri common law. Fun Services seeks to satisfy any judgment in the Jackson County case with the proceeds from insurance policies issued to Asphalt Wizards by Plaintiff/Counterclaim Defendant Western Heritage Insurance Company ("Western Heritage").
Western Heritage filed suit in this Court seeking a declaration that it has no duty to defend or indemnify Asphalt Wizards in the underlying lawsuit, and Western Heritage named both Asphalt Wizards and Fun Services as defendants. Fun Services responds that Western Heritage has a duty both to defend and indemnify, and it also asserts counterclaims for "Supplementary Payments" and "Vexatious Refusal to Pay and Attorneys' Fees."
Now before the Court are Western Heritage's and Fun Services' cross-motions for summary judgment (Docs. 66 and 83, respectively). Western Heritage moves for an order on its claim that it owes no duty to indemnify based on various provisions in
For the reasons set forth below, the Court finds: (1) Fun Services lacks standing to assert any counterclaims against Western Heritage; (2) Western Heritage waived any coverage defenses by failing to issue a timely reservation of rights letter to Asphalt Wizards; (3) the policies $1,000 deductible applies on a per-claim and per-person basis; (4) this deductible exceeds the amount of damages that could possibly be awarded to a single class member in the underlying suit, thus Western Heritage owes no duty to indemnify; but (5) the policies require Western Heritage to defend Asphalt Wizards in the underlying lawsuit irrespective of whether the deductible can be met.
Accordingly, the motions are GRANTED IN PART and DENIED IN PART.
A moving party is entitled to summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The movant bears the initial responsibility of informing the court of the basis for its motion, and it must identify those portions of the record which demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir.2011). If the movant does so, then the nonmovant must respond by submitting evidence demonstrating that there is a genuine issue for trial. Id. The court views any factual disputes in the light most favorable to the nonmoving party. Id. Decisions concerning credibility determinations, how to weigh the evidence, and what inferences to draw from the evidence, are decisions reserved for the jury, not the judge. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).
To establish a genuine issue of fact sufficient to warrant trial, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The nonmoving party must set forth specific facts showing there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). But the nonmoving party "cannot create sham issues of fact in an effort to defeat summary judgment." RSBI Aerospace, Inc. v. Affiliated FM Ins. Co., 49 F.3d 399, 402 (8th Cir.1995) (citation omitted). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Ricci v. DeStefano, 557 U.S. 557, 585, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009).
For purposes of resolving the pending summary judgment motions, the Court finds the relevant undisputed facts to be as follows.
Defendant Asphalt Wizards provides asphalt and paving services in the Kansas City metropolitan area. Plaintiff Western Heritage is an insurance company that
The Policies cover amounts the insured becomes legally obligated to pay as a result of "property damage" caused by an "occurrence" as defined in the policies. They define "occurrence" to include "continuous or repeated exposure to substantially the same general harmful conditions." The Policies also state that "[w]e will pay those sums that the insured becomes legally obligated to pay as damages because of `personal and advertising injury' to which this insurance applies." The Policies contain a $1 million per occurrence limit and a $2 million general aggregate limit.
Each of the Policies contain a deductible liability insurance endorsement fixing a $1,000 "per-claim" deductible for "property damage" and "advertising injury" claims which "applies to all damages sustained by one person or organization as the result of any one claim." Each endorsement states that "[t]he Company's obligations under the coverages afforded by this policy to pay damages on behalf of the Insured apply only to the amount of damages in excess of the deductible amount stated above." They provide that, "[t]he terms of the policy, including those with respect to the Company's rights and duties with respect to the defense of suits ... apply irrespective of the application of the deductible amount." They also state that the deductible amount is comprised of "all damages sustained by one person or organization as the result of any one claim" and "investigation" and "legal expenses incurred in the handling and investigation of each claim...."
In 2005, Asphalt Wizards hired a company called Profax to fax a one-page advertisement for asphalt and paving services to companies in the Kansas City metropolitan area. Asphalt Wizards provided Profax with an Excel list containing the fax numbers to which it wanted Profax to send the ad.
According to Profax's invoices, Profax successfully sent 33,073 faxes on Asphalt Wizards behalf, including one to Fun Services, while the Policies were in effect.
On January 7, 2008, Fun Services filed a class action lawsuit in the Circuit Court of Jackson County, Missouri alleging two claims. Count I asserts Asphalt Wizards violated the TCPA by sending unsolicited faxes; Count II asserts it committed common-law conversion by commandeering the class members fax machines in the course of sending unsolicited faxes. For the TCPA violations, the class seeks statutory damages in the amount of $500 for each fax sent.
Asphalt Wizards notified Western Heritage of the lawsuit on or about May 1, 2008. On June 26, 2008, Western Heritage mailed Asphalt Wizards a letter acknowledging receipt of the lawsuit. The letter's heading includes a claim number, policy number SCP 0553453, the caption of the Jackson County lawsuit, and a date of loss. The body of the letter states:
After sending the letter, Western Heritage appointed the law firm of Brown & James to defend the Fun Services action.
On October 29, 2012, outside counsel for Western Heritage, Selman and Breitman, sent Asphalt Wizards a twelve-page letter by certified mail, return receipt requested. The letter's introduction states:
(Emphasis added.) Section I of the letter, titled "FACTUAL BACKGROUND," summarized the allegations and procedural history of the underlying lawsuit. Section II of the letter, titled "POLICY INFORMATION," identifies each policy and notes that "The policy limits of the ... policies are $1 million per occurrence with a general aggregate limit of $2 million subject to a $1,000 per claim deductible for personal and advertising injury and a $1,000 per claim deductible for property damage liability." It then quotes large portions of the policies' relevant coverage language.
Section III of the letter, titled "WESTERN HERITAGE'S COVERAGE POSITION," contains a lengthy, detailed explanation of the insurer's coverage position. Among other things, it states:
(Emphasis in original.)
On January 14, 2013, Western Heritage filed this declaratory judgment action seeking a determination that it owed no duty to defend or indemnify Asphalt Wizards. Neither Defendant asked the Court to exercise its discretion to refrain from hearing this case.
On March 11, 2013, at the parties' request, the Jackson County Circuit Court stayed the underlying litigation pending the outcome of this declaratory judgment action.
As an initial matter, the Court notes that the federal Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, governs this case.
First, Western Heritage argues that Fun Services is a "stranger" to the policies (that is, it is neither a party to the insurance contracts or an intended third party beneficiary), and so lacks standing to enforce the policies or bring any counterclaims seeking a declaration that Western Heritage has a duty to indemnify Asphalt Wizards in the underlying case.
"A party has standing to bring a claim if it has suffered some actual or threatened injury." Cnty. of Mille Lacs v. Benjamin, 361 F.3d 460, 463 (8th Cir. 2004). In a diversity case such as this one, a party bringing claims must establishes standing under both Article III of the United States Constitution and the relevant state law. Wolfe v. Gilmour Mfg. Co., 143 F.3d 1122, 1126 (8th Cir.1998).
Although some caselaw suggests Fun Services possesses standing under Article III to bring its counterclaims, see, e.g., O'Bannon v. Friedman's Inc., 437 F.Supp.2d 490, 494 (D.Md.2006), Fun Services clearly lacks standing under Missouri law to bring its counterclaims. Under Missouri law, a tort-claimant lacks standing to sue a tort-feasor's insurance company to declare the tort-claimant's rights under a policy until it has obtained a judgment against the insured. Evanston Ins. Co. v. Harris Med. Assocs., LLC, No. 4:12CV1646 JCH, 2013 WL 4505298, at *2-3 (E.D.Mo. July 10, 2013); Farmers Ins. Co. v. Miller, 926 S.W.2d 104 (Mo.Ct. App.1996). It is undisputed here that Fun Services has not obtained any judgment against Asphalt Wizards or established any other possible basis on which it could pursue its counterclaims against Western Heritage in this declaratory judgment action. Accordingly, all of Fun Services' remaining counterclaims are dismissed without prejudice.
First, the parties seek summary judgment on whether Western Heritage owes a duty to indemnify.
Fun Services argues that Western Heritage has waived its coverage defenses in the underlying litigation by undertaking Asphalt Wizards' defense without any reservation of rights.
Western Heritage responds there was no waiver because it "referenced" the $1,000 per-claim deductible in the 2008 letter, and it later supplemented this "reservation" by raising the TCPA and prior publication exclusions in the 2012 letter. Western Heritage contends that even if there had been a waiver, under Missouri law waiver and estoppel may not be used to bring risks within the coverage of an insurance policy that are otherwise excluded from the policy. Finally, it argues that any waiver is irrelevant because Asphalt Wizards did not challenge the reservation of rights invoked in the 2012 letter and so continued to accept Western Heritage's defense under a reservation of rights.
A reservation of rights letter is a means by which, when coverage is in doubt, the insurer offers to defend the insured while reserving some or all of its policy defenses in case the insured is found liable. City of Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1060 (8th Cir. 1979). By notifying the insured of its reservation of rights prior to any determination of liability, the insurer suspends the operation of waiver and estoppel. Id. The purpose of a reservation of rights letter is to enable an insured to make an informed decision as to whether it should, because of a possible conflict of interest between itself and its insurer, take some action in order to protect its interest. Allan D. Windt, Insurance Claims & Disputes: Representation of Insurance Companies and Insureds § 2.14 (5th ed.2011). If the insurer decides to defend the insured subject to a reservation of rights, the insured may elect to allow the insurer to defend it, or it may refuse to allow a defense under a reservation of rights, instead retaining its own attorney to defend it and perhaps sue the insurer later. Safeco Ins. Co. of Am. v. Rogers, 968 S.W.2d 256, 258 (Mo.Ct.App. 1998).
A typical reservation of rights letter does most, if not all, of the following: (1) identifies the policy at issue; (2) quotes, or at least refers to, the relevant policy provisions and identify any terms, conditions, or exclusions which may bar coverage; (3) refers to specific, relevant allegations in the complaint; (4) identifies which claims may not be covered; (5) explains in detail the basis for the insurer's coverage position; (6) sets forth the proposed arrangement for providing a defense and, depending on the law of the jurisdiction, advises the insured of its right to independent defense counsel; (7) advises the insured of any actual or potential conflicts of interest between the insurer and
Under Missouri law, where an insurer fails to provide timely notice to the insured that its defense of the action is subject to a reservation of rights, it is precluded from later denying coverage. Kinnaman-Carson v. Westport Ins. Corp., 283 S.W.3d 761, 765 (Mo.2009); Brooner & Associates v. Western Casualty, 760 S.W.2d 445, 447 (Mo.Ct.App.1988) (noting reservation of rights must be "timely").
The Court holds that Western Heritage waived its coverage defenses by failing to issue a timely reservation of rights letter to Asphalt Wizards. To begin, the Court finds the 2008 letter to Asphalt Services is not a reservation of rights letter. Although it identifies one of the relevant policies at issue and restates the allegations in the state court petition, it does not provide any other information from which Asphalt Wizards could infer that Western Heritage was defending subject to a reservation of rights. On the other hand, the 2012 letter is a reservation of rights letter because it bears almost all of the indicia of a typical reservation of rights letter. See 1 Martinez, et al., at § 11.11[2][b]; 14 Plitt, et al., at § 202:47. This letter was ineffective, however, because it was untimely. Western Heritage had notice of the lawsuit in May of 2008, but did not notify Asphalt Wizards of its reservation of rights until the fall of 2012. Since Western Heritage knew, or should have known, from reading the state court petition in May of 2008 that it possessed applicable coverage defenses and yet waited four years before sending a reservation of rights letter, it waived its ability to deny coverage under the Policies. Accordingly, it waived: (1) any express exclusion of coverage for TCPA violations in the 2006-07 policy; (2) any "prior publication" exclusion precluding any "advertising injury" under any of the Policies; (3) any defense that Fun Services faxes did not constitute a "products-completed operations" risk under the Policies; (4) any defense that the class members did not suffer "property damage" or an "advertising injury" as defined by the Policies; and (5) any other coverage defense.
The Court finds no merit to Western Heritage's contention that even if it had waived its coverage defenses by not timely asserting them, it would not matter because the doctrine of waiver is "not available to bring risks within the coverage of an insurance policy that are not covered by its terms or are excluded from that policy." Holland Corp. v. Maryland Cas. Co., 775 S.W.2d 531, 535 (Mo.Ct.App.1989). Although Western Heritage has accurately described this rule, this rule is completely inapplicable to the present case. The rationale behind the rule is that "neither the doctrines of waiver or estoppel may be used to create a new contract for the parties." Id. (emphasis added). The rule applies where a party is seeking literally to create a contract between the parties out
The Court also finds no merit to the suggestion that Asphalt Wizards acquiesced to a defense under a reservation of rights because it did not object after Western Heritage sent the 2012 letter. The record is silent as to what, if anything, Asphalt Wizards did or did not do after it received this letter, so there is no factual basis for the Court to find Asphalt Wizards did not object. Additionally, the cases cited by Western Heritage to support its position, Brooner & Associates v. Western Casualty, 760 S.W.2d 445 (Mo.Ct. App.1988) and Jacore Systems, Inc. v. Central Mutual Ins. Co., 194 Ga.App. 512, 390 S.E.2d 876 (1990), are not factually analogous. In both of these cases the court found that the insurer had sent a timely reservation of rights letter, which Western Heritage failed to do here.
While Western Heritage waived its right to assert any coverage defense or exclusion under the Policies, it did not waive the deductible endorsement. A deductible is "the portion of the loss to be borne by the insured before the insurer becomes liable for payment." Black's Law Dictionary 444 (8th ed.2004). A deductible endorsement is not a coverage defense or exclusion; it is a means of shifting a portion of the risk from the insurer to the insured. Even where, as here, an insurer assumes an insured's defense unconditionally, the insurer does not waive the deductible endorsement. See Pav-Lak Indus., Inc. v. Arch Ins. Co., 56 A.D.3d 287, 288, 866 N.Y.S.2d 671 (N.Y.App.Div.2008) (holding insurer which had waived an exclusion had not waived the deductible endorsement because the deductible endorsement did not bar coverage or implicate policy exclusions); cf. 14 Plitt, et al., at § 202:74 ("While the defense of the action by an insurer without reservation of rights as to its defenses may constitute a waiver of the insurer's defenses, it does not rewrite the policy so as to remove the maximum on the coverage provided.")
Next, the Court considers how the deductible endorsement applies to a class member's claim.
The Policies' deductible endorsements set a $1,000 "per-claim" deductible for "property damage" and "advertising injury" claims
The Court also holds that Western Heritage has no duty to indemnify Asphalt Wizards until the $1,000 per-person, per-claim deductible has been reached. The deductible endorsement states that "[t]he Company's obligations under the coverages afforded by this policy to pay damages on behalf of the Insured apply only to the amount of damages in excess of the deductible amount stated above." (Emphasis added.) Thus, in order for Western Heritage to owe a duty to indemnify Asphalt Wizards in the underlying case, a class member will have to have more than $1,000 in damages for each individual fax sent.
The Court finds no merit to Fun Services' assertion that Western Heritage must pay up to its policy limits in satisfaction of any judgment, regardless of whether the deductible is reached or not. Fun Services contends that while the deductible reflects an allocation of ultimate responsibility between the insurer and the insured, the endorsement places the risk of collecting the deductible on the insurer. Thus, the argument goes, Western Heritage must pay any judgment, subject to a right to recoup the deductible amount from Asphalt Wizards later. If Asphalt Wizards is insolvent, then Western Heritage must bear the entire loss regardless of whether the deductible amount is reached.
While the general rule may be that an insurer owes first-dollar coverage under a deductible, that is irrelevant because the express language of the policy provides otherwise. The deductible endorsement states that the insurer is only obligated to pay amounts "in excess" of the deductible: "The Company's obligations ... apply only to the amount of damages in excess of the deductible amount...." This means that if a class member has a $1,300 claim against Asphalt Wizards for a covered loss, then Western Heritage must pay $300. If Asphalt Wizards cannot pay some or all of the $1,000 deductible, then Western Heritage still owes only $300.
The Court also rejects the suggestion that this endorsement is somehow ambiguous because the Policies do not define "claim" or explicitly discuss how it applies to class actions. Under Missouri law, "[a]n insurance policy is ambiguous if its provisions are duplicitous or difficult to understand." Trainwreck W. Inc. v. Burlington
The Court now turns to whether Western Heritage owes a duty to indemnify on the facts of this particular case. As a threshold matter, a decision on the duty to indemnify is not premature. Although a trial or settlement is often needed in the underlying case to resolve disputed questions of fact relevant to indemnification, such as the exact amount of damages, Missouri law recognizes that these facts can be established by other means, including summary judgment. McCormack Baron Mgmt. Servs., Inc. v. Am. Guar. Liab. Ins. Co., 989 S.W.2d 168, 173 (Mo.1999). Here the record clearly demonstrates that whatever the precise amount of damages per-claim may be, no class members' claim will exceed $1,000, thus Western Heritage has no duty to indemnify.
Under the deductible endorsement, whether the deductible amount is reached is determined by adding the indemnity amounts (that is, damages in the underlying case) and the cost of defense. Under the TCPA, each unsolicited fax sent constitutes a separate violation. 47 U.S.C. § 227(b)(3)(B). For Count I, Fun Services seeks statutory damages under the TCPA of $500 per fax. For Count II, the conversion claim, it seeks the actual damages resulting from receipt of the unsolicited fax. These actual damages would consist of the value of the recipient's fax paper, toner, ink, equipment, and personnel time. And no rational trier of fact could find that the actual damage from receiving a single unsolicited fax exceeded $100. See Missouri v. Am. Blast Fax, 323 F.3d 649, 655 (8th Cir.2003) (noting a Congressional subcommittee estimated the yearly cost of all unsolicited faxes sent to a single recipient to be approximately $100). Thus, a class member's total damages from receiving a single unsolicited fax could be no more than $600. With respect to defense costs, assuming Western Heritage paid $100,000 to defend the underlying lawsuit and there were 33,073 faxes sent — estimates Fun Services does not dispute — the cost of defense would be about $3.02 for each class member's claim.
Finally, the Court considers whether Western Heritage owes a duty to defend the underlying lawsuit. Although Fun Services lacks standing to bring any counterclaims in this case, as a defendant in this lawsuit, it may still move for summary judgment on Western Heritage's affirmative claim that it owes no duty to
An insurer has a duty to defend if, "at the outset of the case" (that is, from reading the allegations in the petition), there is a "potential or possible liability" to pay. McCormack Baron Mgmt. Servs., 989 S.W.2d at 170. The duty to defend is not based on the probable liability to pay based on the facts as later ascertained through trial or summary judgment. Id. At the outset of the case, before Fun Services elected to limit the class members' recovery to $500 per statutory violation,
Consequently, although Western Heritage owes no duty to indemnify in the underlying action, it owes a duty to defend.
For the foregoing reasons, the parties' cross-motions for summary judgment (Docs. 66 and 83) are GRANTED IN PART and DENIED IN PART. In sum, the Court holds: (1) Fun Services lacks standing to assert any counterclaims against Western Heritage; (2) Western Heritage waived its coverage defenses by failing to issue a timely reservation of rights letter to Asphalt Wizards; (3) the Policies' $1,000 deductible applies on a per-claim and per-person basis; (4) this deductible exceeds the amount of damages that could possibly be awarded to a single class member in the underlying suit, thus Western Heritage owes no duty to indemnify; but (5) Western Heritage owes a duty to defend the underlying lawsuit.
The Policies all contain a "prior publication" exclusion negating coverage for "`personal and advertising injury' arising out of oral or written publication of material whose first publication took place before the beginning of the policy period." The Policies define "advertisement," in pertinent part, as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters."
The Policies define the "products-completed operations hazard" to include "property damage" occurring away from the insured's premises and arising out of the insured's "product" or "work" as the policy defines those terms, as long as such work has been "completed." The Policies define "product" to mean, in pertinent part: "any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by: (a) You; (b) Others trading under your name; or (c) A person or organization whose business or assets you have acquired; and (2) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products. Includes (1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of `your product'; and (2) The providing of or failure to provide warnings or instructions." The Policies define "work" to mean: "(1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations. Includes (1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of `your work', and (2) The providing of or failure to provide warnings and instructions."