Evanston Insurance Company v. Mellors et al
Filing
97
ORDER denying 71 Motion for Summary Judgment. This case will proceed to trial. Signed by Judge William T. Moore, Jr on 9/30/15. (wwp)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
EVANSTON INSURANCE COMPANY,
Plaintiff,
V
CASE NO. CV413-136
.
WILLIAM MELLORS; JOEY HERREN and
SHARON HERREN; GREGORY PAUL
SUCHER; NONSTOP FITNESS, INC.;
CLUB MANAGEMENT SERVICES, INC.,
f/k/a Nonstop Fitness, Inc.;
CURTIS HtJFFNAN; LIKEN
ENTERPRISES d/b/a Active
Nutrition Corporation; and
BARRIN INNOVATIONS, LLC;
Defendants.
)
).
)
)7-
)
)
)
ORDER
I
Before the Court is Plaintiff's Motion for Summar Judgment
(Doc. 71) to which Defendants Joey Herren, Sharon Herren,
William Mellors and Curtis Huffman filed responses (Doc. 81;
Doc. 64; Doc. 85). For the following reasons, Plaintiff's motion
is DENIED. This case will proceed to trial.
BACKGROUND
This case arises out of a dispute regarding the insurance
coverage offered by Plaintiff Evanston Insurance Company to June
& Johnny, LLC ("J&J" or "insured"), a mixer and seller of
athletic supplements. One of the supplements, RAGE, is alleged
to have caused a stroke that Mr. Herren suffered in August,
1
2009.
(Doe. 71 at 12.) Plaintiff is currently seeking a
declaratory judgment from this Court that it is not obligated to
defend William Mellors, a purported owner and manager of J&J,
from the claims brought against him by the Herren's. (Doc. 67.)
Mr. Mellors has a history of involvement in the mixing,
development, and sale of athletic supplements. In 2007, Mr.
Mellors was engaged in a partnership known as S&W Enterprises,
which worked with Liken Enterprises d/b/a Active Nutrition
Company ("ANC") to manufacture and sell supplements. (Doc. 81 at
2.) S&W later acquired possession of mixing equipment owned by
another company named Barrin Innovations, LLC. (Id. at 2-3.)
Around February 23, 2009, Mr. Mellors gave notice that he was
dissolving S&W's partnership, although he continued operating
S&W as usual. (Id. at 3.) In February 2009, J&J was registered
with its listed owner as Shala Stephenson, Mr. Mellors's wife.
While Mrs. Stephenson is listed as J&J owner, there is some
dispute as to her actual role in the company. (Doe. 71 at 4;
Doe. 81 at 4.) On February 25, 2009, Mr. Mellors purchased' the
assets Mr. Barnard owned in both Rockhard Formulations, LLC and
Barrin Innovations,
LLC. (Doc.
71, Attach. 4 at 2; Doc. 81 at
3.) The purchase agreement required the buyer to indemnify the
seller from any liability "arising from the actions of the
1
The purchase agreement defines Mr. Mellors as the owner of SWE,
LLC.J&J often did business as
SWE, LLC.
2
business including but not limited to liabilities incurred,
outstanding debts, harm caused by products and/or machinery
owned or produced by the businesses." (Doc. 71, Attach. 4 at 3.)
Among the products that Barrin blended was RAGE. After this
purchase, J&J began blending RAGE independently. (Doc. 81 at 4.)
As early as 2008, the Drug Enforcement Agency ("DEA") began
receiving public comments about whether a RAGE ingredient,
Phera-Plex, should be classified as a controlled substance.
(Doc. 71, Attach. 3 at 40.) At that time, Mr. Mellors was aware
that the DEA was asking for these comments. (Id.) As part of an
ongoing criminal investigation the Food and Drug Administration
('FDA") conducted a September 24, 2009 raid of a
Bodybuilding.com2 warehouse that contained RAGE products. (Id. at
16.) Among the ingredients targeted was Phera-Plex. 3 (Doc. 71,
Attach. 6.) At that time, the FDA notified Bodybuilding.com that
the ingredients were or should be classified as steroids. (Id.)
Mr. Mellors knew of the raid when it occurred, and in 2011
learned that RAGE contained one or more of the ingredients
targeted by the FDA. (Doc. 71, Attach. 3 at 16-17.) On January
4, 2010, the FDA banned Phera-Plex. (Id. at 31, 34, 35.) J&J did
not sell RAGE after the ban. (Id.)
2
Bodybuilding. corn was an online retailer of RAGE.
Phera-Plex is also known as 'Madol." (Doc. 71, Attach. 3 at
31.)
3
On March 23, 2009, J&J applied for insurance with
Plaintiff. (Doc. 71, Attach. 7.) Mr. Mellors signed the
application stating that he was the president of J&J. (Id.) Mr.
Mellors also stated that J&J had been in business for one year.
(Id.) A conditional quote was issued, and Plaintiff received a
final typed application on July 8, 2009. (Doc. 71, Attach. 8.)
Plaintiff received a renewal application on May 11, 2010. (Doc.
71, Attach. 9.) Both of these applications were incomplete as
Mr. Mellors had failed to answer several questions. (Doc. 81 at
9.) There is no evidence that the Plaintiff sought a complete
application before issuing these insurance policies.
In August 2009, Mr. Herren suffered a stroke after taking
RAGE. There is a dispute as to when the RAGE Mr. Herren took was
compounded. Plaintiff argues that the RAGE was blended in 2008,
prior to J&J's existence. (Doc. 71, Attach. 22, 23 (showing 1t
BI01-054 sold to ANC on 5/72008 and 10/31/2008).) Defendants
maintain that these purchasing orders may have been doctored.
(Doc. 71, Attach. 3 at 33.)
In May 2011 Mr. Mellors sent Plaintiff another incomplete
renewal application for insurance, which is the subject of the
current dispute. Like the previous applications, this renewal
application was incomplete. However, this time Plaintiff
conditionally issued the policy pending a complete application.
(Doc. 71, Attach. 11.) On June 13, 2011 Plaintiff threatened the
4
cancelation of the policy if Plaintiff did not receive a
complete application from J&J. (Doc. 71, Attach. 12.) A
completed application was received on June 13, 2011. (Doc. 71,
Attach. 13.) The application included three questions that were
answered in the negative by Mr. Mellors. The first was '[iJs
(are) any person(s) or organization(s) proposed for this
insurance aware of any fact, incident, circumstance, situation,
condition, defect or suspected defect which may result in a
Product Liability claim, such that would fall under the proposed
insurance." (Doc. 71, Attach. 14 at 12) The second asked if
"[d]o any products or ingredients or components thereof,
originate from outside the United States." (Id. at 11.) The
third inquired whether 'any of the Applicant's products or
ingredients or components thereof, ever been the subject of any
investigation, enforcement action, or notice of violation of any
kind by any governmental, quasi-governmental, administrative,
regulatory or oversight body" (Id.)
The application also stated that
[n]o
fact,
incident,
circumstance,
situation,
condition, defect or suspected defect indicating the
probability of a claim or action for which coverage
may be afforded by the proposed insurance is now known
by any person(s) or organization(s) proposed for this
Insurance other than that which is disclosed in this
application. It is agreed by all concerned that if
there is knowledge of any such fact, incident,
circumstance, situation, condition, defect or
suspected defect any claim subsequently emanating
5
therefrom shall be excluded from coverage under the
proposed insurance.
(Id.
at 12.)
After receiving the completed application,
Plaintiff issued the policy providing coverage for any claim
brought between May 15, 2011 and May 15, 2012, so long as the
occurrence giving rise to the claim occurred on or after the
retroactive date of May 12, 2009. (Id. at 14.)
Following the stroke, the Herren's filed a number of
complaints in an effort to recover damages, finally naming SWE
and others in a Second Amended and Recast Complaint. (Doc. 67 91
21.) Plaintiff agreed to provide Mr. Mellors with a defense to
the underlying action subject to a reservation of rights. (Id.
at 91 3.)
ANALYSIS
I.
SUMMARY JUDGMENT STANDARD
According to Fed. R. Civ. P. 56(a),
"[a] party may move for
summary judgment, identifying each claim or defense—or the part
of each claim of defense—on which summary judgment is sought."
Such a motion must be granted "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." Id. The "purpose of
summary judgment is to 'pierce the pleadings and to assess the
proof in order to see whether there is a genuine need for
trial.' " Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (quoting Fed. R. Civ. P. 56 advisory committee
notes).
Summary judgment is appropriate when the nonmovant "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 Corp. v.
Catrett, 477 U.S. 317, 322 (196) . The substantive law governing
the action determines whether an element is essential. DeLong
Equip. Co. v. Wash. Mills Abrasive Co., 887 F.2d 1499, 1505
(11th Cir. 1989)
As the Supreme Court explained:
[A] party seeking summary judgment always bears the
initial responsibility of informing the district
court of the basis for its motion, and identifying
those portions of the pleadings, depositions,
answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it
believes demonstrate the absence of a genuine issue
of material fact.
Celotex, 477 U.S. at 323. The burden then shifts to the
nonmovant to establish, by going beyond the pleadings, that
there is a genuine issue as to facts material to the nonmovant's
case. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.
1991)
The Court must review the evidence and all reasonable
factual inferences arising from it in the light most favorable
to the nonmovant. Matsushita, 475 U.S. at 587-88. However, the
7
nonmoving party "must do more than simply show that there is
some metaphysical doubt as to the material facts." Id. at 586. A
mere "scintilla" of evidence, or simply conclusory allegations,
will not suffice. See, e.g., Tidwell v. Carter Prods., 135 F.3d
1422, 1425 (11th Cir. 1998) . Nevertheless, where a reasonable
fact finder may "draw more than one inference from the facts,
and that inference creates a genuine issue of material fact,
then the Court should refuse to grant summary judgment."
Barfield v. Brierton, 883 F.2d 923, 933-34 (11th Cir. 1989)
II.
CHOICE OF LAW
Plaintiff asserts, and Defendants have not disagreed, that
for purposes of this dispute, Texas law will apply to the issue
of misrepresentation in an insurance application, while Georgia
law will apply to all other issues including who and what is
insured under the contract, and which policy exclusions apply.
(Doc. 71 at 14-15.)
III. MOTION FOR SUMMARY JUDGMENT
A.
Race As A Covered Product Under the Polic
Plaintiff first argues that the policy does not cover
claims arising out of Mr. Herren's use of RAGE because liability
under the policy only applies to "dietary supplements". (Doc. 71
at 2; Doc. 71, Attach. 14 at 14.) Plaintiff reasons that because
the RAGE ingredient Phera-Plex was banned in January of 2010,
prior to issuance of the current insurance policy, RAGE cannot
be labeled as a dietary supplement. (Doc. 88 at 9.) As a result,
Plaintiff maintains that it is not required to defend Mr.
Mellors because the Herren's claim arises from the use of a noncovered product. Defendants argue that because RAGE did not
become a controlled substance until after Mr. Herren suffered
his stroke in January of 2010, RAGE is subject to coverage under
the policy because it was a "dietary supplement" at the time of
its sale and use. (Doc. 81 at 17.)
"When a contract is unambiguous and capable of only one
reasonable interpretation, it is a matter for the court." Roland
v. Ga. Farm Bureau Nut. Ins. Co., 265 Ga. 776, 777, 462 S.E.2d
623, 625 (1995). When this occurs, a policy's "plain terms must
be given full effect even though they are beneficial to the
insurer and detrimental to the insured." Serrni Prods., Inc. v.
Ins. Co. of Penn., 201 Ga. App. 414, 415, 411 S.E.2d 305, 306
(1991) (citing Woodmen of the World Life Ins. Soc'y
V.
Etheridge, 223 Ga. 231, 235, 154 S.E.2d 369, 372 (1967)).
However, insurance policies "are to be construed strictly in
favor of the insured and against the insurer." Sovereign Camp,
W.O.W.v. Heflin, 188 Ga. 234, 234, 3 S.E.2d 559, 560 (1939).
In this case, the policy states that "the coverage afforded
by this policy is limited to liability for only those Claims
that are first made against the Insured during the Policy
Period, or the Extended Reporting Period." (Doc. 71, Attach. 14
at 14.) The policy includes a Retroactive Date of May 12, 2009
allowing recovery for claims made during the Policy Period if
the entirety of [the] bodily injury or property damage and
occurrence happens . . . on or after the Retroactive Date." (Id.
at 14, 27.) In this case, the bodily injury happened on
September 29, 2009, within the Retroactive Date of the policy,
and the claim was made during the Policy Period. As a result, at
least to timing, Mr. Herren's lawsuit falls within the policy.
It also appears that RAGE was considered a dietary
supplement at the time of Mr. Herren's August 2009 stroke. For
example, during a November 3, 2009 voluntary recall
Bodybuilding. com placed a notification on the FDA's website
classifying the recalled items, including RAGE, as 'dietary
supplement[s]." (Doc. 71, Attach. 6 at
2.)
Nor was the RAGE
ingredient Phera-Flex subject to an FDA ban when Mr. Herren used
it. What is left then, is to determine whether the policy
excludes from coverage claims for injury caused by dietary
supplements where those supplements were subsequently banned by
the FDA.
Plaintiff's policy is governed by multiple exclusions.
These exclusions includes prohibitions for coverage on claims
relating to mold (Doc. 71, Attach. 14 at 17), asbestos (id. at
18), terrorism (id. at 19), and certain ingredients (id. at 24)
However, Plaintiff did not exclude former nutrition supplements
10
that had subsequently been banned or include a definition for
the term 'dietary supplement." While Plaintiff may have intended
for the policy to cover only products that were legal at the
time the insurance contract was made, there is no evidence
pointing to such an exclusion. That Plaintiff failed to include
such an exclusion, to its detriment, is not a sufficient reason
to deny coverage.
Mr. Herren's claim was made during the policy period, and
his stroke occurred in 2009, within the retroactive period. The
evidence indicates that RAGE was considered a dietary supplement
at the time Mr. Herren suffered his stroke. A plain reading of
the policy finds that it includes coverage for claims made
during the policy period, with the underlying occurrence for the
claim occurring during the retroactive period, and involving
dietary supplements. Such an event occurred here. As a result,
Plaintiff's Motion for Summary Judgment with respect to whether
RAGE is a covered product is denied.
B.
Mellors As An Insured
Plaintiff next alleges that Plaintiff is not required to
provide coverage because Mr. Mellors is not an insured" under
the Policy. (Doc. 71 at 16-17.) Plaintiff notes that the term
"insured" under the contract is defined as,
the limited liability company so named, any manager
thereof, but only with respect to their duties as
manager of the limited liability company and any
11
member thereof, but only with respect to the conduct
of the business of the limited liability company.
(Doc. 71, Attach. 14 at 26.) The policy named June and Johnny,
LLC, as the named insured. (Doc. 71 at 17; Doc. 71, Attach. 14
at 14.) Plaintiff argues that because Mr. Mellors did not hold
any official title with the named insured, he was at best an
agent of the insured- 4 (Doc. 71 at 17.) Plaintiff also notes that
Mr. Mellors "self-assigned all titles of 'owner' and 'president'
in the Insured's applications." (Doc. 71, Attach. 3 at 26; Doc.
88 at 12.)
Defendants disagree. They cite to a document written by Mr.
Mellors's wife that states "I Shala Stephenson owner of June &
Johnny LLC (dba SWE) through this document allow William Mellors
to handle all business matters concerning June & Johnny LLC,
(dba SWE) from this point forward." (Doc. 71, Attach. 5 at 2.)
Defendants allege that this document designated Mr. Mellors as
manager of J&J. (Doc. 81 at 20.)
Plaintiff goes on to argue that M.E.N. Technologies, LLC is not
an insured and that the Vendors Endorsement in the Policy does
not cover Mr. Mellors. As Defendants did not respond to these
arguments, any defenses are waived. See Hamilton v. Southland
Christian Sch., Inc., 680 F.3d 1316, 1319 (11th Cir. 2012) ("A
passing reference to an issue in a brief is not enough, and the
failure to make arguments and cite authorities in support of an
issue waives it."); see also Singh v. U.S. Att'y Gen., 561 F.3d
1275, 1278 (11th Cir. 2009) (per curiam) ("[S]imply stating that
an issue exists, without further argument or discussion,
constitutes abandonment of that issue and precludes our
considering the issue on appeal.").
12
Defendants have put forward no evidence that Mr. Mellors is
a "member" of J&J beyond the bald assertion that Mr. Mellors
identified himself as the 'owner". Nothing currently in evidence
shows that Mr. Mellors was admitted as a member of J&J at the
time of its formation, or that his membership was otherwise
reflected in J&J's business records. O.C.G.A. § 14-11-505;
accord. Tex. Bus. Orgs. Code Ann. § 101.103. Furthermore, Mr.
Mellors admitted that all titles he used were "self-assigned."
(Doc. 71, Attach. 3 at 26.) It is evident then that Mr. Mellors
is not granted coverage under the policy by virtue of being a
member.
What is left is an evaluation of whether Mr. Mellors was a
"manger" of J&J based on his wife's delegation of authority, or
whether the same delegation merely made Mr. Mellors an agent.
The Texas Business Organizations Code defines manager as "a
person designated as a manager of a limited liability company
that is not managed by the members of the company." § 1.002(51).
Similarly, under Georgia law a manager is "a person in whom
management is vested in accordance with subsection (b) of
[O.C.G.A. § 14-11-3043." OC.G.A. § 14-11-101(15). Georgia law
provides that, unless otherwise stated in the articles of
organization or a written operating agreement 5 , a manager
Both parties neither argue that J&J is not a manager-managed
LLC nor put forth evidence of an operating agreement. Had either
13
elected,
appointed,
(1)
[s]hall
be
designated,
removed, or replaced by the approval of more than one
half by number of the members;
(2) [n]eed not be members of the limited liability
company or natural persons; and
(3) [u]nless they have been earlier removed or have
earlier resigned, shall hold office until their
successors shall have been elected and qualified.
O.C.G.A. § 14-11-304(b). In Georgia,
[m]embers of an LLC are
statutorily empowered to make all decisions in managing the LLC
subject to the operating agreement." In re Global Ship Sys.,
LLC, 391 B.R. 193, 204 (Bankr. S.D. Ga. 2007) (emphasis in
original) (citing O.C.G.A. § 14-11-304(a)).
It is evident that under both of these statutory
provisions, Mr. Mellors qualifies as a manager of J&J. He was
designated by his wife, the sole member of the LLC (Doc. 71 at
3) as an individual entitled to handle "all business matters"
(Doc. 71, Attach. 5 at 2) . Plaintiff has not provided any
evidence that Mr. Mellors was removed from his position. As a
result, Hr. Mellors fulfills the predicate requirements of a
"manager" according to both Georgia and Texas law. See, e.g.,
party made such an argument the outcome may have been different,
as requirements imposed by LLC operating agreements define the
terms of management. Denim N. Am. Holdings, LLC v. Swift
Textiles, LLC, 532 F. App'x. 853, 863 (11th Cir. 2013). As a
result, this Court is unable to determine whether the operating
agreement, or other appropriate documentation, barred the
members from appointing non-member managers, or whether Ms.
Stephenson's method of appointing a manager was appropriate. In
any event, the argument is waived due to the failure of either
party to raise this issue.
14
Inland Atl. Old Nat. Phase I, LLC v. 6425 Old Nat., LLC, 329 Ga.
App. 671, 675, 766 S.E,2d 86, 91 (2014) (holding a member could
be a manager even where "not expressly defined as a manager
under the Joint Venture agreement"); see contra Zeising v.
Shelton, 2014 WL 3571276,
*6 (W.D. La. July 18, 2014) (holding
because designation was oral, "designation of manager status is
without effect since Georgia law clearly insists that an LLC
identify any members and managers in writing"). Plaintiff's
argument that Mr. Mellors is not an "employee" of J&J, is
likewise unavailing as there is no statutory requirement that a
manager also receive a salary. As a result, Plaintiff's motion
for summary judgment based on Mr. Mellors not being a covered
individual under the policy is denied.
C.
Material Misrepresentation
Plaintiff next argues that misrepresentations in the
insurance application bar coverage. (Doc. 71 at 19.) Plaintiff
alleges that the insured misrepresented three facts in its
application. First, Plaintiff alleges that the insured made a
material misrepresentation when it answered no to the question
asking whether "any of the Applicant's products or ingredients
or components thereof, ever been the subject of any
investigation, enforcement action, or notice of violation of any
kind by any governmental, quasi-governmental, administrative,
regulatory or oversight body." (Doc. 71, Attach. 14 at 11.)
15
Second, Plaintiff contends that the insured made a material
misrepresentation when it answered no to the question of whether
there was "any person(s) or organization(s) proposed for this
insurance aware of any fact, incident, circumstance, situation,
condition, defect or suspected defect which may result in a
Product Liability claim, such that would fall under this
proposed insurance." (Id. at 12.) Finally, Plaintiff maintains
that the insured made a material misrepresentation when it
answered no to the question of whether "any products or
ingredients or components thereof, originate from outside the
United States." (Id. at 11.)
A Texas statute governs whether a false statement in an
insurance policy can make the policy void or voidable. Tex. Ins.
Code Ann. § 705.003. 6 For an insurer to void a policy under this
6
According to Tex. Ins. Code. Ann. § 705.003,
(a) An insurance policy provision that states that a
misrepresentation, including a false statement, made
in a proof of loss or death makes the policy void or
voidable:
(1) has no effect; and
(2) is not a defense in a suit brought on the
policy.
(b) Subsection (a) does not apply if it is shown at
trial that the misrepresentation:
(1) was fraudulently made;
(2) misrepresented a fact material to the
question of the insurer's liability under the
policy; and
(3) misled the insurer and caused the insurer to
waive or lose a valid defense to the policy.
statute, the following five elements must be pled and proved:
"(l) the making of the representation; (2) the falsity of the
representation; (3) reliance thereon by the insurer; (4) the
intent to deceive on the part of the insured in making same; and
(5) the materiality of the representation." Mayes v. Mass. Mut.
Life Ins. Co., 608 S.W.2d 612, 616 (Tex. 1980)
Where "an application for insurance is attached to and made
a part of the policy and is accepted and retained by the
insured, the insured is conclusively presumed to have knowledge
of its contents and to have ratified any false statements
therein." Odom v. Ins. Co. of State of Pa., 455 S.W.2d 195, 199
(Tex. 1970) Where application terms are at issue, however, it
is necessary to make a determination of whether the insured had
the necessary intent to deceive. Washington v. Reliable Life
Ins. Co., 581 S.W.2d 153, 160 (Tex. 1979) . As a result, "false
statements which are made negligently, carelessly or by mistake
are not sufficient to avoid a[n] . . . insurance policy where
the defense is based upon the insured's misrepresentation of a
material fact." Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882,
892 (5th Cir. 1991) (citing Soto v. S. Life & Health Ins. Co.,
776 S.W.2d 752, 756 (Tex. App. 1989)). Furthermore, a
misrepresentation is not shown by proving that the applicant
"should have known" of the falsity of the representation. Allen
V.
Am. Nat. Ins. Co., 380 S.W.2d 604, 608 (Tex. 1964).
17
Nevertheless, it is possible to prove intent to deceive with
circumstantial evidence. Sharp v. Lincoln Am. Life Ins. Co., 752
S.W.2d 673, 676 (Tex. App. 1988).
When assessing the materiality of the misrepresentation it
is not enough for the insurance company to state that it would
have charged a higher premium for the policy if it had known the
truth. A misrepresentation is only material if "it actually
induced the insurance company to assume the risk." Harrington v.
Aetna Cas. & Sur. Co., 489 S.W.2d 171, 177-78 (Tex. Civ. App.
1972); (see also Home v. Charter Nat. Ins. Co., 614 S.W.2d 182,
185 (Tex. Civ. App. 1981) (holding that court could not conclude
"as a matter of law" misrepresentation was material to risk
because insurance company represented it "would have charged a
higher premium to bind the coverage")) . Likewise, "only the
insurer's actual knowledge of the misrepresentation[] [will] (1
destroy[] its defense of fraud." KoraiL Indus.
V.
Sec.-Conn. Life
Ins. Co., 802 S.W.2d 650 1 651 (Tex. 1990).
The record in this case fails to establish that any
misrepresentation7 was material. Plaintiff stated in its Motion
This Court is inclined to agree that the insured engaged in
willful misrepresentations to Plaintiff as to the investigation
by a governmental body. Mr. Nellors, who signed the insurance
application on behalf of the insured, stated that he knew the
FDA banned a RAGE ingredient in January 2010. (Doc. 71, Attach.
3 at 34.) He also stated that he knew of the raid on
Bodybuilding. com on the same day that it happened in September
2009. (Id.) Likewise, Mr. Mellors testified that J&J ceased
In
for Summary Judgment that, had "the [Plaintiff] [] known there
was an ongoing governmental investigation of RAGE and/or its
ingredients[,] [Plaintiff] in good faith would either not have
issued the Policy or would not have issued the Policy at the
same premium rate and/or with the same
terms and conditions." °
(Doc. 71 at 21 (emphasis added) .) In making such a statement,
Plaintiff has created a triable issue of fact as to whether it
would have affirmatively denied coverage as a result of the
misrepresentations, which would result in a finding of material
misrepresentation sufficient to void the policy, or would have
instead merely issued the policy at a higher premium, which is
insufficient under Texas law to show that the misrepresentation
was material. As a result, Plaintiff's motion for summary
judgment due to misrepresentations in the application must be
denied.
selling the banned product after December 2009. (Id. at 35.) Mr.
Mellors also knew that certain ingredients in RAGE were
classified as 'prohormones" and that these "prohormones" could
be converted to hormones by the human body and result in
substantial physical side effects. (Id. at 37) Finally, Mr.
Mellors stated that he was aware in November 2008 that the DEA
was investigating three prohormones, including Phera-Plex. (Id..
at 40-41.) These facts indicate that Mr. Mellors, and through him
J&J, was aware that the government had investigated the RAGE
ingredients and determined that they were not appropriate to be
sold to the general public.
8
Similarly, the Plaintiff States that had "the Insured disclosed
the FDA ban, [Plaintiff] would not have issued the Policy, or
would not have issued it on the same terms and conditions."
(Doc. 71 at 21 (emphasis added).)
19
D.
Prior Knowledge
Plaintiff next contends that the insured's prior knowledge
of the FDA ban and labeling of the RAGE ingredient as an
anabolic steroid operates to exclude coverage under the policy.
(Doc. 71 at 22.) The application, states that
no fact incident, circumstance, situation, condition,
defect or suspected defect indicating the probability
of a claim or action for which coverage may be
afforded by the proposed insurance is now known by any
person(s) or organization(s) proposed for this
insurance other than that which is disclosed in the
application. It is agreed by all concerned that if
there is knowledge of any such fact, incident,
circumstance, situation, condition, defect or
suspected defect any claim subsequently emanating
therefrom shall be excluded from coverage under the
proposed insurance.
(Doc. 71, Attach. 14 at 12.) Under both Georgia and Texas law
such exclusions are enforceable. C. Inqrarn Co.
V.
Phila. Indemn.
Ins. Co., 303 Ga. App. 548, 550-51, 694 S.E.2d 181, 184 (2010);
Westport Ins. Corp. v. Cotton Schmidt, LLP, 605 F. Supp. 2d 796,
806 (N.D. Tex. 2009) . However, Defendants argue that that Mr.
Mellors's knowledge was too attenuated to support summary
judgment. (Doc. 81 at 29.)
Mr. Mellors admitted that he knew that the FDA had
classified Phera-Plex as an anabolic steroid in December 2009.
(Id. at 31, 34, 35.) Mr. Mellors also admitted that he
understood "RAGE has the same complications and side effects as
anabolic steroids, including weight gain, strength gain, acne,
NK
hair loss, gynecomastia, and lowered testosterone levels." (Doc.
71, Attach. 1 at 37; Doc. 82 at 5.) Additionally, J&J ceased
producing RAGE in response to this ban. Furthermore, Defendants'
admission that Mr. Mellors engaged in certain acts and omissions
such as
'fail[ing] to take any action to warn purchasers of
dangers associated with [RAGE] or recall that product,"
indicates that Mr. Mellors had knowledge of potential claims. 9
(Doc. 81 at 30.)
However, this Court cannot find that these admissions, as a
matter of law, show that Mr. Mellors or the insured had the
requisite knowledge to trigger the exclusion. While this
evidence shows that Mr. Mellors knew that the continued
production of RAGE was illegal under the regulatory scheme and
that there was the possibility for harm as a result of using the
product, it does not show knowledge of Mr. Herren's stroke, the
probability of a RAGE related stroke, or the likelihood of a
lawsuit. As a result, Plaintiff's Motion for Summary Judgment
because of prior knowledge is denied.
E.
Exclusion for Liability Assumed in a Contract
Plaintiff next argues that the policy excludes from
coverage claims for bodily injury that the insured is required
Mr. Mellors incorporated and adopted by reference, in toto,
Defendants Joey Herren and Sharon Herren's Brief in Opposition
to Plaintiff's Motion for Summary Judgment. (Doc. 84 at 1-2.)
21
to pay due to an assumption of liability. (Doc. 71 at 23.) The
policy states that,
any Claim based upon or arising out of Bodily Injury
or Property Damage for which the Insured is obligated
to pay Damages because of the assumption of liability
in any contract or agreement [are excluded from
coverage]; provided, however, this exclusion shall not
apply to liability for damages: (i) that the Insured
would have in the absence of the contract or
agreement; or (ii) assumed in a contract or agreement
that is an Insured Contract, provided, the Bodily
Injury and Property Damage occurs subsequent to the
execution of the Insured Contract.
(Doc. 71, Attach. 14 at 32.) The policy defines an insured
contract as "that part of any other contract or agreement
pertaining to the Named Insured's business under which the Named
Insured assumes the tort liability of another party to pay for
Bodily Injury or Property Damage to a third party." (Id. at 30.)
While there is some confusion, the facts alleged in
Plaintiff's Motion for Summary Judgment include that Barrin
blended the Rage ingested by Herren. (Doc. 71 at 23.) The
insured purchased Barrin's assets and assumed its liabilities.
(Id. at 23.) The Purchase Agreement may be considered an
"Insured Contract" as to the insured, as the insured assumed
Barrin's liability in that contract. (Id. at 24.) Mr. Mellors
did not personally assume liability for Barrin's tort liability,
but signed on behalf of SWE. (Id. at 24.) Defendants argue that
because Mr. Mellors entered into the contract individually as a
22
buyer, he undertook the liability personally and should thus be
covered. (Doc. 81 at 30.)
As noted above, "when a contract is unambiguous and
capable of only one reasonable interpretation, it is a matter
for the court." Roland,
265
Ga. at 777, 462 S.E.2d at 625.
However, "where two or more constructions are possible, even if
they are logical, the contract is ambiguous and must be
construed against the insurer." Lunceford v. Peachtree Cas. Ins.
Co., 230 Ga. App. 4, 7, 495 S.E.2d 88, 91 (1997) (citing
Greenwood Cemetery, Inc. v. Travelers Indem. Co., 238 Ga. 313,
316, 232 S.E.2d 910, 913 (1977)).
In this Court's opinion a plain reading of the policy
states that in order for an "insured contract" to exist, the
"Named Insured" must assume liability. (Doc. 71, Attach. 14 at
30.) The "Named Insured" under the Policy is "June & Johnny, LLC
DBA: SWE MD Ment, MEN Technologies." (Id. at 14.) Here, it
appears evident from an examination of the Purchase Agreement
that Mr. Mellors signed individually" as "owner of SWE." Thus,
the Purchase Agreement cannot be an "insured contract" because
the "Named Insured" did not assume liability.
10
Defendants allege that there was a subsequent agreement that
was made between J&J and Barrin, that Mr. Mellors' wife signed
at his request. (Doc. 71, Attach. 3 at 23-24.) However, that
document has not been entered into evidence.
23
However, this is not what either party argued. Plaintiff
contends that the named insured assumed liability and the terms
of the exclusion require Mr. Mellors to personally assume
liability in order for the exclusion to apply. (Doc. 88 at 28.)
In response, Defendants maintain that because Mr. Mellors did
personally assume liability under the contract and individually
signed the agreement, the exclusion does not apply. (Doc. 81 at
30.) Given the confusion created by the parties, their
disagreement as to the correct interpretation of the language in
the policy, and the questions regarding whether the proffered
document is the final version of the contract, this Court
determines the provision at issue is ambiguous and must be
construed against the insurer. Lunceford, 230 Ga. App. at 7, 495
S.E.2d at 91 (citing Greenwood Cemetery, 238 Ga. at 316, 232
S.E.2d at 913). Thus, the determination of whether that
provision allows for recovery depends on whether Mr. Mellors
assumed liability individually under the contract. As a question
of fact exists as to whether Mr. Mellors signed the document
personally, or in the place of J&J, Plaintiff's Motion for
Summary Judgment as to this provision is denied.
F.
Punitive Damages
Finally, Plaintiff argues that it is not required to
provide coverage for any punitive damages. (Doc. 71 at 24.) The
policy limits recovery to damages, which is defined as
24
the monetary portion of any judgment, award or
settlement; provided, however, that Damages shall not
include: (1) multiplied portions of damages in excess
of actual damages, including trebling of damages; (2)
taxes, criminal or civil fines, or penalties imposed
by law; (3) sanctions; (4) matters which are
uninsurable under the law pursuant to which this
policy shall be construed; or (5) the return of or
restitution of fees, profits or charges for services
rendered.
(Doc. 71, Attach. 14 at 29.) Plaintiff reasons that because
punitive damages are defined as "additional damages" under
O.C.G.A. § .51-l2-5.1(a), then they are "in excess of actual
damages" and should be excluded from coverage. (Doc. 88 at 30.)
As explained above, "where two or more constructions [of an
insurance policy] are possible, even if they are logical, the
contract is ambiguous and must be construed against the
insurer." Lunceford, 230 Ga. App. at 7, 495 S.E.2d at 91 (citing
Greenwood Cemetery, 238 Ga. at 316, 232 S.E.2d at 913) . Here,
Plaintiff's argument might pass muster had the policy excluded
only damages "in excess of actual damages." However, the quoted
provision is prefaced by "multiplied portions of damages in
excess of actual damages." (Doc. 71, Attach. 4 at 29.) An
equally plausible interpretation of this provision, therefore,
is that it was meant to exclude from coverage statutory damages
available in certain actions like violations of the Clayton
Antitrust Act, 15 U.S.C. § 15, and Racketeer Influenced and
Corrupt Organizations violations, 18 U.S.C. § 1964(c). These
25
types of damages, while punitive in nature, are not traditional
punitive damages." See Time Warner Entm't. Co. v. Six Flags
Over Ga., LLC, 254 Ga. App. 598, 607, 563 S.E.2d 178, 186 (2002)
(treating statutory multiple damages and punitive damages as
distinct when determining whether punitive damage award violated
appellants due process rights) . The four remaining provisions of
the damages exclusion in the policy fail to support Plaintiff's
motion for the same reason. There is no plausible way to read
"taxes, criminal or civil fines, or penalties imposed by law; []
sanctions; [1 matters which are uninsurable under law pursuant
to which the policy shall be construed; or [] the return of or
the restitution of fees, profits or charges for services
rendered" to mean punitive damages. As a result, Plaintiff's
Motion for Summary Judgment as to punitive damages is denied.
CONCLUSION
For the foregoing reasons, Plaintiff's Motion for Summary
Judgment (Doc. 71) is DENIED. This case will proceed to trial.
SO ORDERED thisday of September 2015.
WILLIAM T. MOORE,
UNITED STATES DIS RICT COURT
SOUTHERN DISTRICT OF GEORGIA
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