Pekin Insurance Company v. Kelly et al

Filing 48

ORDER that Plaintiff's 38 Motion for Judgment on the Pleadings is denied. Kelly's 46 Motion for Judgment on the Pleadings is granted. The Clerk of Court shall enter judgment dismissing Plaintiff's complaint with prejudice as to all three defendants. Signed by Judge H Russel Holland on 11/25/2014.(LFIG)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

PEKIN INSURANCE COMPANY,

)
)
Plaintiff,
)
)
vs.
)
)
MARIANNE S. KELLY, WILLIAM
)
BONNAMY; and JEAN GLASS,
)
)
Defendants.
)
__________________________________________)

No. 2:14-cv-0820-HRH

ORDER
Cross-Motions for Judgment on the Pleadings
Plaintiff moves for judgment on the pleadings.1 This motion is opposed and
defendant Kelly cross-moves for judgment on the pleadings.2 Oral argument was not
requested and is not deemed necessary.
Background
Plaintiff is Pekin Insurance Company. Defendants are Marianne S. Kelly, William
Bonnamy, and Jean Glass.3

1

Docket No. 38.

2

Docket No. 46.

3

Default has been entered against Bonnamy and Glass. Docket Nos. 25 & 32.
-1-

Plaintiff issued a homeowners’ liability policy, Policy No. EH0037583, to Kelly.4 The
policy provided homeowners’ insurance to Kelly for the period of July 20, 2013 to July 20,
2014.5
On March 21, 2014, defendant Bonnamy filed a suit in state court against Kelly and
others.6 Bonnamy asserted four claims: 1) defamation, 2) intentional infliction of emotional
distress, 3) invasion of privacy, and 4) false light. In his complaint, Bonnamy alleges that
he is the significant other of defendant Glass and that Glass was previously involved in a
romantic relationnship with David Hussy.7 Bonnamy alleges that “[b]eginning in early
March 2014, [Hussy and Kelly] began to send numerous defamatory emails and other
communications to various third-parties” about Glass and that these emails “were sent ...
in an attempt to damage Ms. Glass’ reputation and cause her emotional harm.”8 Bonnamy
further alleges that “[o]n March 6, 2014, Ms. Kelly sent a threatening and defamatory email
to Mr. Bonnamy making similar threats to ruin Ms. Glass’ reputation and accusing her of

4

Exhibit A, Amended Complaint for Declaratory Judgment, Docket No. 34.

5

Id. at 1.

6

Bonnamy Complaint, Exhibit B, Amended Complaint for Declaratory Judgment,
Docket No. 34.
7

Id. at 3, ¶¶ 24-25.

8

Id. at ¶¶ 29-30.
-2-

fraudulent and improper conduct in her dealings with Mr. Hussy.”9 Bonnamy also alleges
that Kelly “during ... an open house, ... entered Mr. Bonnamy’s and Ms. Glass’ residence
posing as an interested buyer, and ... took photographs of Ms. Glass’ personal belongings
and private papers belonging to Mr. Bonnamy.”10 Bonnamy also alleges that Kelly and
Hussy have “made ... false and defamatory statements about Mr. Bonnamy to other thirdparties” and that on March 10, 2014, Kelly sent another threatening email to Glass.11
In his defamation claim, Bonnamy alleges that Hussy and Kelly knew that the
statements they were making “were false” or that they made the statements “in reckless
disregard of their truth or falsity.”12 Bonnamy further alleges that Hussy and Kelly
“falsely, maliciously and wrongfully intended to injure Mr. Bonnamy’s good name and
reputation and expose him to public contempt, suspicion and financial injury.”13 In his
intentional infliction of emotional distress claim, Bonnamy alleges that Hussy and Kelly’s
“actions are and were done with the intent to harm or injure Mr. Bonnamy, or with

9

Id. at ¶ 31.

10

Id. at 4, ¶ 32.

11

Id. at ¶¶ 33 & 35.

12

Id. at 5, ¶ 39.

13

Id. at ¶ 40.
-3-

complete disregard for Mr. Bonnamy’s interests or welfare.”14 Bonnamy further alleges
that Hussy’s and Kelly’s “unjustified and intentional conduct was and is purposely
directed to injure and harass Mr. Bonnamy with the described accompanying and resulting
emotional distress and mental anguish suffered by Mr. Bonnamy.”15 In his false light claim,
Bonnamy alleges that Hussy and Kelly “either knew or acted in reckless disregard as to the
falsity of the matters made public about Mr. Bonnamy.”16 In all four claims, in connection
with his request for punitive damages, Bonnamy alleges that Hussy’s and Kelly’s “actions
were intentional, wanton and reckless and showed ill will and demonstrated a reckless
indifference disregard for the rights of and owed to Mr. Bonnamy....”17
On March 19, 2014, Glass filed a third-party complaint against Kelly and Jean
Eannacone in an action that Hussy had filed against Glass. Glass alleges that Kelly has sent
numerous defamatory emails about her (Glass) to third parties and that Kelly has sent a
threatening and defamatory email about Bonnamy to third parties.18 As did Bonnamy,
Glass alleges that Kelly entered Glass’ and Bonnamy’s home during the open house for

14

Id. at ¶ 45.

15

Id. at ¶ 46.

16

Id. at 7, ¶ 56.

17

Id. at 5, ¶ 42; 6, ¶¶ 48 & 52; & 7, ¶ 57.

18

Glass Third-Party Complaint at 4, ¶ 17; 5-6, ¶ ¶ 20 & 22; 7, ¶ 25; Exhibit C,
Amended Complaint for Declaratory Judgment, Docket No. 34.
-4-

improper purposes.19 Glass also alleges that Hussy and Kelly “sent email correspondence
directly to Ms. Glass stating that they will ruin her reputation and continue their smear
campaign against Ms. Glass’ reputation.”20 Glass asserts two claims in her third-party
complaint: 1) intentional infliction of emotional distress and 2) defamation. In her IIED
claim, Glass alleges that Kelly’s “actions are and were done with the intent to harm or
injure Ms. Glass, or with complete disregard for Ms. Glass’ interests or welfare.”21 Glass
further alleges that Kelly’s “unjustified and intentional conduct was and is purposely
directed to injure and harass Ms. Glass with the described accompanying and resulting
emotional distress and mental anguish suffered by Ms. Glass” and that “[b]ecause of”
Kelly’s “unjustifiable conduct and actions towards Ms. Glass, Ms. Glass has endured and
continues to suffer severe emotional distress, mental anguish and anxiety.”22
In her defamation claim, Glass alleges that Kelly “knew that the [alleged defamatory] statements were false, or proceeded to make such statements in reckless disregard of
their truth or falsity.”23

Glass further alleges that Kelly “falsely, maliciously and

wrongfully intended to injure Ms. Glass’ good name and reputation and expose her to
19

Id. at 6, ¶ 23.

20

Id. at 7, ¶ 26.

21

Id. at 8, ¶ 35.

22

Id. at ¶¶ 36-37.

23

Id. at 9, ¶ 41.
-5-

public contempt, suspicion and financial injury.”24 In connection with her request for
punitive damages, Glass alleges that Kelly’s “actions were intentional, wanton and reckless
and showed ill will and demonstrated a reckless indifference disregard for the rights of and
owed to Ms. Glass....”25
On May 12, 2014, Glass filed a direct action against Kelly and Eannacone.26 Glass
makes the same factual allegations as she did in her third-party complaint but she alleges
four claims against Kelly in the direct action complaint: 1) intentional infliction of
emotional distress, 2) defamation, 3) invasion of privacy, and false light. The IIED and
defamation claims are identical to those in Glass’ third-party complaint against Kelly as are
Glass’ punitive damages allegations. In her false light claim, Glass alleges that Kelly “either
knew or acted in reckless disregard as to the falsity of the matters made public about Ms.
Glass.”27
Kelly tendered her defense of all three lawsuits and plaintiff “has agreed to provide
Kelly with a defense” under a reservation of rights.28 The policy was endorsed to include
“personal injury coverage” which provides as follows:
24

Id. at ¶ 42.

25

Id. at ¶ 44.

26

Exhibit D, Amended Complaint for Declaratory Judgment, Docket No. 34.

27

Id. at 10, ¶ 52.

28

Amended Complaint for Declaratory Judgment at 4, ¶ 14, Docket No. 34.
-6-

If a claim is made or suit is brought against an “insured” for
damages resulting from an offense, defined under “personal
injury”, to which this coverage applies, we will:
1.

Pay up to our limit or liability for the damages
for which an “insured” is legally liable. Damages include prejudgment interest awarded
against an “insured”; and

2.

Provide a defense at our expense by counsel of
our choice, even if the suit is groundless, false or
fraudulent. We may investigate and settle any
claim or suit that we decide is appropriate. Our
duty to settle or defend ends when our limit of
liability for the offense has been exhausted by
payment of a judgment or settlement.[29]

The policy provides that
“Personal Injury” means injury arising out of one or more of
the following offenses, but only if the offense was committed
during the policy period:
A.

False arrest, detention or imprisonment;

B.

Malicious prosecution;

C.

The wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room,
dwelling or premises that a person occupies, committed
by or on behalf of its owner, landlord or lessor;

D.

Oral or written publication of material that slanders or
libels a person or organization or disparages a person’s
or organization’s goods, products or services; or

29

Policy No. EH0037583, Exhibit A at 11, Amended Complaint for Declaratory
Judgment, Docket No. 34.
-7-

E.

Oral or written publication of material that violates a
person’s right of privacy.[30]

The policy also provides:
This insurance does not apply to:
A.

“Personal Injury”:
1.

Caused by or at the direction of an “insured”
with the knowledge that the act would violate
the rights of another and would inflict “personal
injury”;

2.

Arising out of oral or written publication of
material, if done by or at the direction of an
“insured” with knowledge of its falsity[.31]

On April 18, 2014, plaintiff commenced this action. In Count I of its amended
complaint, plaintiff seeks a declaration that it has no duty to defend Kelly against the
Bonnamy complaint. In Count II, plaintiff seeks a declaration that it has no duty to defend
Kelly against Glass’ third-party complaint. And, in Count III, plaintiff seeks a declaration
that it has no duty to defend Kelly against Glass’ direct action complaint.
Plaintiff now moves for judgment on the pleadings as to all three counts.32 Kelly
cross-moves for judgment on the pleadings as to all three counts.

30

Id.

31

Id.

32

In its reply brief, plaintiff contends that Count II is moot because Glass’ third-party
complaint has been dismissed, but plaintiff continues to ask for relief as to Count II.
-8-

Discussion
“‘Judgment on the pleadings is properly granted when [, accepting all factual
allegations in the complaint as true,] there is no issue of material fact in dispute, and the
moving party is entitled to judgment as a matter of law.’” Chavez v. United States, 683
F.3d 1102, 1108 (9th Cir. 2012) (quoting Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir.
2009)). In this diversity case, the court applies Arizona law to the duty to defend issue.
Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).
Under Arizona law, “[i]t is well settled that a liability insurer’s duty to defend is
separate from, and broader than, the duty to indemnify.”33 Quihuis v. State Farm Mut.
Auto. Ins. Co., 334 P.3d 719, 727 (Ariz. 2014). “The duty to defend arises at the earliest
stages of litigation and generally exists regardless of whether the insured is ultimately
found liable.” INA Ins. Co. of N. Am. v. Valley Forge Ins. Co., 722 P.2d 975, 982 (Ariz. Ct.
App. 1986). “A liability insurer’s duty to defend generally arises ‘[i]f the complaint in the
action ... upon its face alleges facts which come within the coverage of the liability policy.’”
Quihuis, 334 P.3d at 727 (quoting Kepner v. W. Fire Ins. Co., 509 P.2d 222, 224 (Ariz. 1973)).
“The duty to defend may work to an insurer’s disadvantage” because “the insurer must
defend claims potentially not covered and those that are groundless, false, or fraudulent.”
United Services Auto. Ass’n v. Morris, 741 P.2d 246, 250 (Ariz. 1987). In addition, “[i]n
33

The issue of whether plaintiff has a duty to indemnify Kelly is not before the court.

-9-

Arizona, ‘if any claim alleged in the complaint is within the policy’s coverage, the insurer
has a duty to defend the entire suit, because it is impossible to determine the basis upon
which the plaintiff will recover (if any) until the action is completed.’” Lennar Corp. v.
Auto-Owners Ins. Co., 151 P.3d 538, 544 (Ariz. Ct. App. 2007) (quoting W. Cas. & Sur. Co.
v. Int’l Spas of Ariz., Inc., 634 P.2d 3, 6 (Ariz. Ct. App. 1981)). To the extent that a
determination of the duty to defend depends on the interpretation of the policy, the court
“interpret[s] an insurance policy according to its plain and ordinary meaning, examining
it from the viewpoint of an individual untrained in law or business.” Desert Mountain
Properties Ltd. Partnership v. Liberty Mut. Fire Ins. Co., 236 P.3d 421, 427 (Ariz. Ct. App.
2010).
Plaintiff argues that the claims asserted against Kelly do not come within the
coverage of the policy because Kelly is alleged to have engaged in intentional conduct and
the policy excludes coverage for intentional conduct. Plaintiff concedes that the “personal
injury coverage” extends to claims involving “[o]ral or written publication of material that
slanders or libels a person” but plaintiff argues that the claims asserted against Kelly fall
into one of two exclusions in the policy: either the exclusion for “personal injury”
“[c]aused by ... an insured with the knowledge that the act would violate the rights of
another and would inflict ‘personal injury’” or the exclusion for “personal injury” “[a]rising
out of oral or written publication of material, if done by ... an ‘insured’ with knowledge of

-10-

its falsity[.]”34 Plaintiff argues that in all three complaints, Kelly is alleged to have acted
intentionally and thus these exclusions apply.
“Intentional act policy exclusions impose restrictions on insurance companies’
contractual obligations not inconsistent with public policy.” Phoenix Control Systems, Inc.
v. Ins. Co. of North Amer., 796 P.2d 463, 467 (Ariz. 1990). “These exclusions are unique in
that they impose restrictions upon insurance companies as well as on insureds. Public
policy forbids indemnifying a person for his own wilful wrongdoing.” Id. “Determining
whether an insured acts intentionally for purposes of insurance law is different than for
purposes of tort law because there is no presumption in insurance law that a person
intends the ordinary consequences of his actions.” Id. “A two-prong inquiry is applied in
Arizona to determine an insured’s intent. First, intent is determined by looking at the
insured’s subjective desire to cause harm.” Id. “An act, even though intentional, must be
committed for the purpose of inflicting injury or harm[.]” Id. “Second, if the nature and
circumstances of the insured's intentional act were such that harm was substantially certain
to result, intent may be inferred as a matter of law.” Id. at 468.
Plaintiff argues that the complaints against Kelly are replete with allegations of
intentional conduct. As set out above, in the Bonnamy complaint, Bonnamy alleges that
Kelly’s actions were intentional, that she knew the statements she was making were false
34

Policy No. EH0037583, Exhibit A at 11, Amended Complaint for Declaratory
Judgment, Docket No. 34.
-11-

and that in making the statements she intended to cause Bonnamy harm. Similarly, in
Glass’ complaints, Glass alleges that Kelly’s conduct was intentional, that Kelly made
statements that she knew were false, and that she made such statements with the intent of
harming Glass. Plaintiff insists that these allegations are sufficient to bring the claims being
asserted against Kelly within the intentional conduct exclusion.
However, there are also allegations in all three complaints that suggest that Kelly’s
conduct fell outside the intentional act exclusion. Bonnamy alleges that Kelly made
statements “in reckless disregard of their truth or falsity”35 and he alleges that Kelly acted
either with the “intent to harm or injure” him or “with complete disregard for [his] interests
or welfare.”36 Similarly, in her complaints, Glass alleges that Kelly made allegedly
defamatory statements “in reckless disregard of their truth or falsity” and that Kelly acted
either with the “intent to harm or injure” Glass or “with complete disregard for Ms. Glass’
interests or welfare.”37 Reckless conduct, for purposes of an intentional act exclusion, is not
the same as intentional conduct.

35

Bonnamy Complaint at 5, ¶ 39, Exhibit B, Amended Complaint for Declaratory
Judgment, Docket No. 34.
36

Id. at ¶ 45.

37

Glass Third-Party Complaint at 8, ¶ 35 & 9, ¶ 41, Exhibit C; Glass Direct Action
Complaint at 7, ¶ 35; 8, ¶ 41; & 10, ¶ 52, Exhibit D; Amended Complaint for Declaratory
Judgment, Docket No. 34.
-12-

For example, in Mein ex rel. Mein v. Cook, 193 P.3d 790, 792 (Ariz. Ct. App. 2008),
the Meins filed negligence claims against the drivers of the two cars that were involved in
an illegal drag race. Mr. Mein was a passenger in one of the cars and was injured when one
of the cars crashed. Id. One of the questions before the court was whether the drivers had
committed an intentional tort. Id. The court concluded that “the conduct of the drivers
did not, as a matter of law, rise to the level of intentional conduct....” Id. at 796. The court
explained that it had
no doubt that speeding on a public road after an evening of
drinking creates a substantial risk that harm may occur. But the
evidence in this record does not support a finding that significant harm was certain or substantially certain to occur. It is not
enough that there is a substantial risk of harm. To be deemed
an intentional act, there must be certainty or substantial
certainty that significant harm will result. Drag racing on a
public street while under the influence of alcohol may constitute gross negligence, recklessness, or even wanton misconduct. But negligence “in any of its degrees” does not constitute
intentional conduct.
Id. (internal citations omitted).
While plaintiff does not dispute that reckless conduct might be different from
intentional conduct for purposes of an intentional conduct exclusion, plaintiff argues that
Kelly has offered nothing that suggests that she acted with anything other than the intent
to cause Bonnamy and Glass harm. As the Phoenix Control Systems court explained:
“[I]f the insured can show facts which might establish that he
acted with privilege (as in a sports injury case, for instance) or
-13-

under claim of right recognized by law (as in self-defense), he
will be permitted to explain his subjective intent, and it will be
for the fact finder to determine whether he had an underlying
purpose to injure.”
796 P.2d at 467-68 (quoting Transamerica Ins. Group v. Meere, 694 P.2d 181, 188-89 (Ariz.
1984)). Plaintiff insists that because Kelly has not offered anything to rebut the allegations
of subjective intent to cause harm, the only possible conclusion here is that she intended
to cause harm.
The problem with plaintiff’s argument is that Kelly does not have to rebut the
allegations of subjective intent in this declaratory judgment action involving plaintiff’s duty
to defend. Plaintiff argues that Kelly cannot simply rely on the allegations in the
underlying complaints once the insurer has come forward and made a factual showing that
the suit is actually one for damages that do not fall within the policy’s terms. Assuming
that such a requirement exists, plaintiff has not made any factual showing that Kelly’s
conduct was intentional. All plaintiff has done is rely on the allegations in the underlying
complaints. And, those complaints allege that Kelly acted intentionally or recklessly.
Plaintiff next argues that intent should be inferred here, which is the second prong
of the intent analysis. This “prong, which presumes intent based upon the substantial
certainty that harm would occur, is known as the Steinmetz–Clark presumption.” Irvin v.
Lexington Ins. Co., Case No. 1 CA–CV 09–0270, 2010 WL 3450986, at *11 (Ariz. Ct. App.
Sept. 2, 2010). “The Steinmetz–Clark presumption applies ‘if the insured’s claim that he did
-14-

not intend or expect the injury flies in the face of all reason, common sense and experience.’“ Id. (quoting Western Agric. Ins. Co. v. Brown, 985 P.2d 530, 532 (Ariz. Ct. App.
1998)).
It seems to the court that it would fly in the face of all reason, common sense, and
experience to say that Kelly did not intend or expect the injury that Bonnamy and Glass are
alleged to have suffered. However, given that Arizona recognizes negligent defamation
as a cause of action, see Green Acres Trust v. London, 688 P.2d 617, 625 (Ariz. 1984), it is
possible that under the facts alleged in Bonnamy’s and Glass’ complaints, Kelly’s conduct
might be found to be negligent and not intentional. Because some of Kelly’s conduct may
prove to have been negligent, and not intentional, plaintiff has a duty to defend all of the
claims made against Kelly.
Conclusion
Based on the foregoing, plaintiff’s motion for judgment on the pleadings38 is denied.
Kelly’s motion for judgment on the pleadings39 is granted. The clerk of court shall enter
judgment dismissing plaintiff’s complaint with prejudice as to all three defendants. See In
re First T.D. & Inv., Inc., 253 F.3d 520, 532 (9th Cir. 2001) (“if an action against the

38

Docket No. 38.

39

Docket No. 46.
-15-

answering defendants is decided in their favor, then the action should be dismissed against
both answering and defaulting defendants”).
DATED at Anchorage, Alaska, this 25th day of November, 2014.
/s/ H. Russel Holland
United States District Judge

-16-