FREDERICK P. STAMP, Jr., District Judge.
On March 24, 2009, Jane Doe filed a complaint against Orion Development RA
USF Insurance Company ("USF") initiated this declaratory judgment action on October 9, 2009, seeking confirmation that it does not have any coverage obligations relative to Orion with respect to the underlying lawsuit. According to the plaintiff's complaint: (1) Valecko was not an employee or a "special employee" of Orion; (2) Valecko was not in the course and scope of any employment with Orion at the time of the alleged sexual assaults; (3) Orion did not have any control or supervision over Valecko at the time of the alleged sexual assaults; (4) Valecko was not an "insured" under Orion's commercial general liability insurance policy issued by USF ("Policy");
On August 30, 2010, both parties filed motions for summary judgment. The plaintiff's motion argues that the Policy does not provide coverage for intentional conduct, non-bodily injury, or punitive damages; therefore, USF has no duty to defend or indemnify Orion with respect to the underlying lawsuit. More specifically, USF contends: (1) because the underlying lawsuit relates to sexual misconduct, which is inherently non-accidental in nature, the underlying lawsuit does not allege an "occurrence" for the purposes of a commercial general liability insurance policy; (2) the underlying lawsuit alleges intentional conduct on the part of Orion; (3) the underlying lawsuit does not allege "bodily injury" under the Policy; and (4) the Policy does not provide coverage for any award of punitive damages in connection with the underlying lawsuit.
The defendants' motion for summary judgment requests that this Court enter an order declaring that USF does have a duty to provide the defendants coverage for both the defense of, and indemnification for, the claims in the underlying lawsuit. In support of their motion, the defendants argue the following: (1) the underlying lawsuit alleges an "occurrence" so as to trigger coverage; (2) the underlying lawsuit alleges "bodily injury" so as to trigger coverage; and (3) the expected or intended injury exclusion does not apply.
On September 16, 2010, both parties filed responses to the cross motions for summary judgment. The plaintiff's response countered that: (1) West Virginia courts have applied the rationale of Smith
Finally, both parties filed replies on September 28, 2010 reiterating their previous arguments. The plaintiff's reply also emphasizes that Orion has acknowledged that USF does not have a duty to provide coverage for any award of punitive damages in the underlying lawsuit. This Court held oral argument on the cross motions for summary judgment on October 12, 2010.
The complaint in the underlying lawsuit consists of five counts. However, only two of those five counts are directed towards Orion, both of which sound in negligence. Count IV of the complaint alleges that the sexual assault and resulting injuries suffered by the John Doe plaintiffs were caused or contributed to by "the negligence, carelessness, recklessness and other liability-producing conduct of Defendants Orion and/or RITE AID." (Compl. Ex. A ¶ 74.) Specifically, the complaint alleges that Orion, as the owner of the premises, was negligent in failing to prevent Valecko from exploiting the plaintiffs. Count V alleges that because the wrongful acts of Valecko occurred on premises owned or in the possession of Orion and/or Rite Aid, such entities knew or should have known that they had the responsibility to exercise control over Valecko. (Compl. Ex. A ¶¶ 80-84.) As a result of Valecko's abusive actions, the plaintiffs claim to have sustained severe physical and psychological injuries. (Compl. Ex. A ¶¶ 53-55.) In addition to compensatory damages, the underlying complaint also sets forth a claim for punitive damages. The underlying lawsuit is still pending against Orion in Pennsylvania.
This Court has reviewed the parties' pleadings and the relevant law and believes that a decision on the merits on each of the motions for summary judgment is warranted.
Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together
However, as the United States Supreme Court noted in Anderson, "Rule 56(e) itself provides that a party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505. "The inquiry performed is the threshold inquiry of determining whether there is the need for a trial—whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. 2505; see also Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir.1979) (Summary judgment "should be granted only in those cases where it is perfectly clear that no issue of fact is involved and inquiry into the facts is not desirable to clarify the application of the law." (citing Stevens v. Howard D. Johnson Co., 181 F.2d 390, 394 (4th Cir.1950))).
In Celotex, the Court stated that "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. 2548. Summary judgment is not appropriate until after the non-moving party has had sufficient opportunity for discovery. See Oksanen v. Page Mem'l Hosp., 912 F.2d 73, 78 (4th Cir. 1990), cert. denied, 502 U.S. 1074, 112 S.Ct. 973, 117 L.Ed.2d 137 (1992). In reviewing the supported underlying facts, all inferences must be viewed in the light most favorable to the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
In this diversity action, state law controls the Court's construction of the insurance policy. In re Nantahala Village, Inc., 976 F.2d 876, 880-81 (4th Cir. 1992) ("A federal court sitting in diversity must apply the forum state's choice-of-law rules."). "As a general rule, an insurer's duty to defend is tested by whether the allegations in the plaintiff's complaint are reasonably susceptible of an interpretation that the claim may be covered by the terms of the insurance policy." Aetna Cas. & Sur. Co. v. Pitrolo, 176 W.Va. 190, 342 S.E.2d 156, 160 (1986). In making this determination, the Court need not adjudicate the underlying facts. West Virginia Fire & Cas. Co. v. Stanley, 216 W.Va. 40, 602 S.E.2d 483, 490 (2004). Significantly, "an insurer has a duty to defend an action against its insured only if the claim stated in the underlying complaint could, without amendment, impose liability for risks the policy covers." State Auto. Mut. Ins. Co. v. Alpha Eng'g Services Inc., 208 W.Va. 713, 542 S.E.2d 876, 879 (2000). It is likewise established that "an insurer's duty
The insuring clause for the bodily injury and property damage liability portion of the Policy states:
(Def.'s Mot. Summ. J. Ex. B at 1.) The Policy's insuring agreement requires that USF defend any action seeking damages for "bodily injury." But according to the plaintiff, the allegations of the underlying lawsuit involve purported damages that fail to satisfy the definition of "bodily injury" under the Policy because they relate to purely emotional and non-physical injuries. The plaintiff acknowledges that the underlying lawsuit contains allegations of physical contact, but argues that the case law makes it clear that mere physical contact does not necessarily amount to physical injury for the purposes of bodily injury liability coverage.
In support of this argument, the plaintiff relies heavily on the decision of the Supreme Court of Appeals of West Virginia in Animal Urgent Care, in which the court held that allegations of purely emotional injuries are excluded from the category of "bodily injury" for liability insurance purposes. 542 S.E.2d at 831 (relying on the rationale set forth in Citizens Ins. Co. v. Leiendecker, 962 S.W.2d 446 (Mo.Ct.App. 1998)). Animal Urgent Care arose out of a civil sexual harassment lawsuit filed by the plaintiff, a former employee of Animal Urgent Care, against both Animal Urgent Care and one of its veterinarians. The former employee's complaint alleged that during the period that she and the veterinarian both worked at Animal Urgent Care, the veterinarian engaged in various acts for the purpose of harassing, degrading, and embarrassing her through unwelcome sexual advances and exploitation.
In discussing the rationale for excluding purely emotional injuries from the category of bodily injury, the court explained that "in insurance law `bodily injury' is considered to be a narrower concept than `personal injury' which covers mental or emotional injury." Id. (quoting Leiendecker, 962 S.W.2d at 453). The Animal Urgent Care court stated:
Id.
The Supreme Court of Appeals of West Virginia further extended the holding of Animal Urgent Care in Tackett v. American Motorists Ins. Co., 213 W.Va. 524, 584 S.E.2d 158 (2003). In Tackett, the court held that the bodily injury portion of the insurance policy did not afford coverage because the complaint did not contain averments that bodily injury resulted from Mr. Tackett's sexual conduct. 584 S.E.2d at 166. Instead, the complaint only alleged that Miss L. sustained "great embarrassment, consternation, mental pain and anguish, and emotional upset." Id. The plaintiff compares the allegations at issue in Animal Urgent Care and Tackett to the allegations of the underlying lawsuit in this case.
The defendants contend that the underlying lawsuit does, in fact, allege bodily injury so as to trigger coverage under the Policy. Distinguishing Animal Urgent Care from the case at hand, the defendants argue that the underlying complaint against Orion is not "devoid of all allegations that [the plaintiffs] suffered any physical symptoms as a result of the alleged harassment." Animal Urgent Care, 542 S.E.2d at n. 11. Rather, the defendants submit that the plaintiffs did suffer injuries as a result of the sexual molestation that manifested themselves physically. Specifically, the underlying complaint alleges that the plaintiffs experienced physical distress, depression, and PTSD. Emphasizing that the Policy defines bodily injury as: "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time," the defendants contend that these injuries are forms of illness or disease. Although "sickness" and "disease" are not defined within the Policy, the defendants argue that these terms should be given their plain, ordinary meaning. The plain and ordinary meaning of the words "sickness" and "disease" would arguably include at least some of the plaintiff's alleged injuries in the underlying complaint, meaning that these injuries fall within the Policy's definition of "bodily injury."
The underlying lawsuit in this case alleges a long list of emotional and psychological damages, including humiliation, mental stress, and PTSD. However, this Court finds that none of the damage claims relate to a physical manifestation of any
In addition to arguing that the defendants failed to allege bodily injury so as to trigger coverage under the Policy, the plaintiff contends that because the underlying lawsuit relates to sexual misconduct and is inherently non-accidental in nature, the underlying lawsuit does not allege an "occurrence" for the purposes of a commercial general liability policy under West Virginia law. Although the issue of USF's duty to defend or indemnify the defendants with respect to the underlying lawsuit can be decided on the "bodily injury" provision alone, this Court finds that a discussion of whether or not the allegations of the underlying lawsuit establish an "occurrence" is necessary.
Whether the sexual misconduct of Valecko alleged in the underlying lawsuit constitutes an "occurrence" for the purposes of the Policy is a close question. An occurrence is defined in the Policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Compl. Ex. B at 12.) The Supreme Court of Appeals of West Virginia has elaborated that, for an event to be an accident, "both the means and the result must be unforeseen, involuntary, unexpected, and unusual." Stanley, 602 S.E.2d at 492 (citing State Bancorp, Inc. v. United States Fid. and Guar. Ins. Co., 199 W.Va. 99, 483 S.E.2d 228, 234 (1997)). In reviewing the case law, this Court notes that the answer to this question hinges upon the specific facts of the case.
In support of its argument that Valecko's actions do not establish an "occurrence," USF again relies on Smith v. Animal
In response, the defendants direct the Court's attention to the more recent case of J.H. v. West Virginia Div. of Rehab. Services, 224 W.Va. 147, 680 S.E.2d 392 (2009), in which the court found that sexual molestation of a resident by another resident was an "occurrence" from the standpoint of the insured residential rehabilitation facility that housed both individuals. In J.H., a resident of a state rehabilitation center filed a negligence action against the Division of Rehabilitation Services ("DRS") after he was allegedly sexually molested by another resident. To determine whether under a liability insurance policy an occurrence was or was not an "accident," the court stated that "primary consideration, relevance, and weight should ordinarily be given to the perspective or standpoint of the insured whose coverage under the policy is at issue." J.H., 680 S.E.2d at 400 (quoting Westfield, 617 S.E.2d at 797). In reviewing the allegations from the standpoint of the insured, the J.H. court held that "it is undeniable that from the viewpoint of the insured . . . the alleged molestation . . . was not expected or intended by [the insured]." Id. at 401. As such, the J.H. court concluded that the alleged conduct forming the basis for the underlying action fell within the policy's definition of "occurrence."
Similarly, in Westfield, the Supreme Court of Appeals of West Virginia held that the suicide deaths of inmates were accidents, and thus constituted "occurrences" under the policy language of the liability insurance policy issued to the county commission. Westfield, 617 S.E.2d at 801. The court stated that from the standpoint of the county commission, the suicide of a jail inmate "can be reasonably seen as an accident, if the commission did not have a desire, plan, expectation, or intent that the death would occur." Id. at 799. But see State Bancorp, Inc. v. United States Fid. & Guar. Ins. Co., 199 W.Va. 99, 483 S.E.2d 228, 235-36 (1997) ("[T]he definition of an `occurrence' does not include actions which are intended by the insured.").
After careful review of the pleadings, this Court finds that the facts in this case are comparable to those in J.H. Thus, this Court finds that the alleged conduct in the underlying lawsuit constitutes an "occurrence." The defendants highlighted many of the similarities between this case and J.H. in their response to the plaintiff's motion for summary judgment, including: (1) the insured in J.H. and Orion both owned the property upon which the sexual misconduct took place; (2) like the plaintiff in J.H., the plaintiffs in the underlying lawsuit directed two counts against Orion, both sounding in negligence; and (3) like the allegations in J.H., the allegations in the underlying lawsuit against Orion are based on Orion's negligent failure to prevent the sexual assault. (Compl. ¶ 74.)
The case relied upon by USF, Animal Urgent Care, is further distinguishable because unlike Orion in the present case, Animal Urgent Care was the employer of the alleged wrongdoer; therefore, Animal Urgent Care had a greater degree of control. In the case before this Court, Valecko's relationship to the defendants at the time the sexual misconduct occurred is unclear.
While the Court finds that the allegations of the underlying lawsuit constitute an "occurrence," this determination does not impact the holding that the plaintiff has no duty to defend or indemnify the defendants with respect to the underlying lawsuit because the purported damages fail to satisfy the definition of "bodily injury" under the Policy.
The exclusions of the Policy provide the following, in pertinent part:
This insurance does not apply to:
(Compl. Ex. B at 1.) In its motion for summary judgment, the plaintiff argues that because the underlying lawsuit alleges that the defendants engaged in intentional conduct through a "failure to investigate" and a "failure to take action," the expected or intended injury exclusion is triggered. Again, the plaintiff relies on Animal Urgent Care, comparing it to the allegations in this case: the defendants knew or should have known of Valecko's history of
The defendants counter that because Orion did not intend or expect the injury sustained by the three minor plaintiffs, the expected or intended injury exclusion does not operate to enable USF to avoid coverage. The defendants rely on the opinion of the West Virginia Supreme Court in Farmers and Mechanics Mut. Ins. Co. of West Virginia v. Cook, which held that "under an intentional acts exclusion, a policyholder may be denied coverage only if the policyholder (1) committed an intentional act and (2) expected or intended the specific resulting injury or damage." 210 W.Va. 394, 557 S.E.2d 801, 807 (2001). Further, the Cook court held that "[w]hen an intentional acts exclusion uses language to the effect that insurance coverage is voided when the loss was `expected or intended by the insured,' courts must use a subjective rather than objective standard for determining the policyholder's intent." Id.
Because this Court finds that the allegations of the underlying lawsuit do constitute an "occurrence," which is defined as an accident, the expected or intended injury exclusion cannot apply. The establishment of an occurrence eliminates the applicability of the expected or intended injury exclusion because Orion could not have intended or expected any injury deemed to be accidental.
The underlying lawsuit seeks both compensatory and punitive damages against the defendants; however, the Policy contains a punitive or exemplary damages exclusion that provides: "In consideration of the premium charged, it is hereby understood and agreed that this insurance does not apply to punitive or exemplary damages, fines or penalties." (Compl. Ex. B.) The plaintiff contends that it does not have a duty to provide coverage for punitive damages pursuant to the plain language of the Policy, and the defendants did not contest this position in their pleadings. This Court agrees that to the extent that the underlying lawsuit results in an award of punitive damages against the defendants, USF does not have a duty to provide coverage.
For the foregoing reasons, this Court concludes that USF Insurance Company is entitled to summary judgment. Accordingly, this Court grants the relief sought in the complaint for declaratory judgment. Specifically:
The Court hereby GRANTS the plaintiff's motion for summary judgment and DENIES the defendants' motion for summary judgment. Accordingly, it is ORDERED that this case be DISMISSED and STRICKEN from the active docket of this Court.
IT IS SO ORDERED.
The Clerk is directed to transmit a copy of this memorandum opinion and order to counsel of record herein. Pursuant to Federal Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment on this matter.
