Harvard Drug Group, L.L.C., The v. Twin City Fire Insurance Co.
Filing
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OPINION AND ORDER denying 7 Motion to Dismiss and Granting Summary Judgment to Plaintiff. Signed by District Judge Marianne O. Battani. (BThe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
THE HARVARD DRUG GROUP, LLC,
CASE NO. 11-10066
Plaintiff,
v.
HON. MARIANNE O. BATTANI
TWIN CITY FIRE INSURANCE CO.,
Defendant.
/
OPINION AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS
AND GRANTING PLAINTIFF SUMMARY JUDGMENT
Before the Court is Defendant Twin City Fire Insurance Co.’s (“Twin City”) Motion
to Dismiss (Doc. No. 7). Plaintiff, Harvard Drug Group LLC (“Harvard Drug”) responded
to the motion and requested that the Court award it summary judgment (Doc. No. 10). The
Court heard oral argument on May 12, 2011, and at the conclusion of the hearing took this
matter under advisement. For the reasons that follow, Defendant’s motion is DENIED and
the Court awards summary judgment to Plaintiff.
I. FACTS
Twin City issued Private Choice Encore! Insurance Policy No. KB KB 0239225-08
(“Policy”), to Plaintiff Harvard Drug for the period of February 1, 2008, through November
1, 2008. In 2008, Plaintiff’s employee, Nancy Carlson, who worked as Vice President of
Sales, filed suit against Harvard Drug, alleging that she had been subject to harassment
and discrimination at work. Harvard Drug gave written notice of the 2008 claim to Twin
City. Twin City and Plaintiff subsequently entered into a Settlement Agreement and Mutual
Release (“Release”) dated June 5, 2009.
In July 2010, Plaintiff terminated Carlson and forty-one other employees as part of
a reduction in force. (Compl., Ex. E.) The following month, Carlson’s attorney sent a letter
to Harvard Drug alleging that her termination was in retaliation for her earlier lawsuit. On
September 8, 2010, Harvard Drug gave notice of Carlson’s claim to Twin City. (Compl. at
¶ 25.) In October 2010, Plaintiff paid Carlson $100,000 to settle the 2010 Claim, and
sought indemnification for the settlement from Twin City.
According to Plaintiff, the 2010 Claim was covered under the Policy as part of the
single claim as defined in the Policy. Twin City agreed, but asserted that the 2010 Carlson
Claim was interrelated to the 2008 Claim, and, therefore, was released on June 5, 2009,
with the 2008 claim. (See Compl., Ex. E.) Therefore, Twin City denied the claim.
II. STANDARD OF REVIEW
To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), the
plaintiff must show that his complaint alleges facts which, if proven, would entitle him to
relief. First Am. Title Co. v. DeVaugh, 480 F.3d 438, 443 (6th Cir. 2007). “A complaint
must contain either direct or inferential allegations with respect to all material elements
necessary to sustain a recovery under some viable legal theory.” Weiner v. Klais & Co.,
108 F.3d 86, 88 (6th Cir. 1997). When reviewing a motion to dismiss, the Court “must
construe the complaint in the light most favorable to the plaintiff, accept all factual
allegations as true, and determine whether the complaint contains ‘enough facts to state
a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombley, 550 U.S. 544,
570 (2007). Although the federal procedural rules do not require that the facts alleged in
the complaint be detailed, “‘a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement
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to relief’ requires more than labels and conclusions, and a formulaic recitation of a cause
of action's elements will not do.' ” Twombley, 550 U.S. at 555; Ashcroft v. Iqbal, 129 S.Ct.
1937,1949 (2009) (“Threadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.”).
Federal Rule of Civil Procedure 56(a) authorizes a court to grant summary judgment
if “the movant shows there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” There is no genuine issue of material fact if
there is no factual dispute that could affect the legal outcome on the issue. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether to grant summary
judgment, this Court “must construe the evidence and draw all reasonable inferences in
favor of the nonmoving party.” Hawkins v. Anheuser-Busch, Inc., 517 F.3d 321, 332 (6th
Cir. 2008). However, the nonmoving party “cannot rely merely on allegations but must set
out specific facts showing a genuine issue for trial.” Chappell v. City of Cleveland, 585
F.3d 901, 906 (6th Cir. 2009).
III. ANALYSIS
The parties advance two issues for the Court to decide: does the Policy cover the
retaliation claim, and if so, was the claim released. Before those matters are addressed
the Court must decide what standard to apply to Defendant’s motion.
Rule 12(d) of the Federal Rules of Civil Procedure provides that if “matters outside
the pleadings are presented to and not excluded by the court, the motion must be treated
as one for summary judgment under Rule 56.” FED. R. CIV. P. 12(d). When a motion is
converted, “all parties must be given a reasonable opportunity to present all the material
that is pertinent to the motion.” FED. R. CIV. P. 12(d). Here, Defendant has presented the
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Release, which has been considered by the Court. Therefore, the issues are analyzed
under the summary judgment standard.
Further, although Plaintiff did not file a motion for summary judgment, it asks the
Court to award it summary judgment under Rule 56(f). The rule authorizes a court to grant
summary judgment to the nonmoving party, but only after providing the movant with notice
and a reasonable time to respond. FED. R. CIV. P. 56(f). When a court reviews crossmotions for summary judgment, it applies the same standard, evaluating each motion on
its own merits. Beck v. City of Cleveland, 390 F.3d 912, 917 (6th Cir. 2004). With these
standards in mind, the Court directs its attention to the first issue.
A. Is the 2010 Claim Covered by the Policy?
A district court, sitting in diversity, must apply the law of the forum state. Therefore,
Michigan law applies. Erie R.R. v. Tompkins, 304 U.S. 64 (1938); Atl. Richfield Co. v.
Monarch Leasing Co., 84 F.3d 204, 205 (6th Cir. 1996).
Under Michigan law, insurance policies are contractual agreements and subject to
the same rules of contract interpretation that apply to contracts in general. Rory v.
Continental Ins. Co., 703 N.W.2d 23, 26 (Mich. 2005). A court must construe and apply
unambiguous insurance policy provisions as written. Auto-Owners Ins. Co. v. Churchman,
489 N.W.2d 431, 433-34 (Mich. 1992). An insurance policy is read as a whole, and
ordinary and plain meaning should be attributed to all terms. Royal Prop. Group, LLC v.
Prime Ins. Syndicate, Inc., 706 N.W.2d 426, 432 (Mich. Ct. App. 2005).
With these guiding principles in mind, the Court turns its attention to the Policy itself.
Under the Declarations, coverage applies only to a claim first made against the Insureds
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during the Policy Period. . . . (Doc. No. 7, Ex. 1, Declarations.) Here, the retaliation claim
arose in 2010, long after the Policy expired; however, other provisions in the Policy impact
the issue of coverage.
Notably, the Policy includes Employment Practices Liability Coverage, which
provides that Twin City “shall pay Loss on behalf of the Insured resulting from an
Employment Practice Claim first made against the Insured during the Policy Period. . .for
an Employment Practices Wrongful Act by the Insured.” (Doc. No. 7, Ex. 1, § I.A.)
The Policy defines Employment Practice Wrongful Act as a wrongful act involving
the following:
(1) wrongful dismissal, discharge or termination of Employment. . ., wrongful
failure or refusal to employ or promote, wrongful discipline or demotion,
failure to grant tenure, negligent Employment evaluation, or wrongful
deprivation of career opportunity;
(2) sexual or other workplace harassment, including quid pro quo and hostile
work environment;
*
*
*
*
(5) Retaliation.
(Doc. No. 7, Ex. 1, Employment Practices Liability Coverage Part § II(D). Without question
the 2010 retaliation falls within the definition of Wrongful Act.
In addition the Policy defines Interrelated Wrongful Acts as “Wrongful Acts that have
“as a common nexus any fact, circumstance, situation, event, transaction, cause or series
of causally connected facts, circumstances, situations, events, transactions or causes.”
(Doc. No. 7, Ex. 1,§ II,(L).) Under the definition, the retaliation alleged by Carlson in 2010,
which shares a common nexus with the 2009 harassment, is an Interrelated Wrongful Act.
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Finally, Section X of the Policy, which sets forth a section governing Interrelationship
of Claims, is relevant to the issue of coverage. It reads in part:
All Claims based upon, arising from or in any way related to the same
Wrongful Act or Interrelated Wrongful Acts shall be deemed to be a single
Claim first made on the earliest date that:
(A) any of such Claims was first made, regardless of whether such
date is before or during the Policy Period;
(Doc. No. 7, Ex. 1, Sect. X.) Because the two incidents are Interrelated Wrongful Acts,
they are deemed to be a “single Claim” under the Policy, first made in 2008.
Twin City concedes that under the Policy the retaliation claim is part and parcel of
a single Claim, with a claims made date of April 9, 2008. Nevertheless, Twin City
concludes that the 2010 retaliation claim was released in the 2009 settlement.
Accordingly, the Court directs its attention to the language in the release.
B. Does the Release Waive the 2010 Claim?
The interpretation of a release is a matter for the court to decide.
If it is
unambiguous, the court must interpret it. Cole v. Ladbroke Racing Michigan, Inc. 164
N.W. 2d 169, 176 (Mich. Ct. App. 2000). Meaning must be given to every word, clause,
and phrase, and ambiguity cannot be created by reading portions of the release out of
context. Green v. Consumers Power Co., No. 199992, 1998 WL 2016545, *5 (Mich. Ct.
App. Mar. 20, 1998).
It is undisputed that the parties entered into a Release of the 2008 claim. (Doc. No.
7, Ex. 2.) The Release includes language pertinent to the resolution of the dispute. First
and foremost, the parties agreed that “Harvard [Drug] and Twin City are desirous of
achieving a resolution of such claims and questions existing between them regarding
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Harvard [Drug’s] request for coverage under the Policy in connection with the [2008]
Lawsuit. . . .” Therefore, they agreed to release
Twin City and any of its present, former or future parent companies. . .from
any and all claims, suits, debt liens, contracts, agreements promises,
liabilities, claims, demands, damages, including (1) all rights and claims
which the Insured has under the policy, . . .whether known or
unknown, suspected or unsuspected, fixed or contingent, which the
insured now has or may have, through and including the date hereof,
that arise out of, are upon, or in any way involve, or relate to: (k) the Lawsuit;
and (ii) the matters alleged or which could have been alleged in the lawsuit
by Carlson (hereinafter, the “Released Matters”). . . .
(Doc. No. 7, Ex. 2, ¶ 2 A.) (Emphasis added).
Twin City’s position it that this language in the Release specifically included all
claims related to the 2008 Carlson claim, including the 2010 claim, and that the Release
therefore bars Plaintiff’s claim. Under the Policy, the new matter is a single Claim with a
claims made date of April 9, 2008. Under the Release, Harvard Drug expressly waived
all of its rights regarding the Carlson Claim, including damages, expenses, and loses
known and unknown. This claims made policy limits the relevant inquiry: the question is
not when the conduct occurred, but when the claim including related or Interrelated
Wrongful Acts was first reported. The report occurred in April 2008. The retaliation, which
gives rise to the 2010 Carlson Claim, is an Interrelated Wrongful Act. Therefore, the claim
was contemplated by the parties when they executed the Release, and Plaintiff waived
coverage.
In the alternative, Twin City reasons that it is of no import if the Wrongful Act is
deemed not to have occurred until after the Release, because in that case, it would have
occurred outside the policy period. Simply put, Twin City reasons that unless the 2010
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claim is deemed an Interrelated Wrongful Act, first reported in 2008, no coverage exists.
If it was covered under the Policy, it was released.
According to Defendant, on the date the parties executed the Release, any and all
other claims that could have been made under the “claims made and reported” Policy had
expired. This is inaccurate given the Policy Provision governing the Interrelationship of
Claims. It creates a means to exclude claims first reported during the Policy Period that
were related to an earlier Wrongful Act that occurred before the Policy Period. It also
provided a means by which conduct that occurred outside the Policy Period could be
brought in.
The Court cannot credit either position advanced by Defendant. The Court does
agree with Twin City’s first contention, that the 2010 claim is piggybacked and accorded
single Claim status under the Policy. Nevertheless, the Court declines to read the
Release in conjunction with the Policy because the Policy terms are not incorporated into
the Release. Nor did the Release incorporate the definition of “single Claim” in the Policy.
Here, the Release is the entire agreement between the Insured and Twin City relative to
the 2008 Carlson settlement. The language of the Release, if unambiguous, is dispositive.
Second, Twin City’s reading renders the phrase, “including the date hereof,” superfluous.
If the parties intended to release any and all claims that arose in the future, there would
be no need to limit the Release to claims “which the Insured now has or may have,
through and including the date hereof.” Nor would the limiting date be necessary given
that the parties entered into the release seven months after the expiration of the Policy
Period if all claims expired when the Policy Period ended. Third, the language in the
Release contains no reference to claims not yet in existence. Had the parties intended
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to release future claims, they would have included language releasing claims that may
arise hereinafter. Finally, the Recitals in the Release address only the 2008 Lawsuit, and
the parties’ desire to resolve that lawsuit.
This interpretation is consistent with Paragraph 2B. of the Release, wherein
Harvard Drug acknowledges that
(a) it may have sustained damages, expenses and losses in connection with
the subject matter of the claims released hereunder which are presently
unknown or not suspected and that such damages, expenses and losses,
if any, may give rise to additional damages, expenses and losses in the
future which are not now anticipated by them, and (b) that this Agreement
and the foregoing release have been negotiated and agreed upon despite
this realization and, being fully advised, expressly waive any and all rights
it may have with respect the to Released matters. . . .
(Doc. No. 7, Ex. 2, ¶ 2 B.) (Emphasis added). Again this language does not encompass
claims that have not yet arisen. It serves to release damages, expenses, and losses
arising out of the 2008 claims, which were unknown or even related damages that had not
come to fruition.
Next, the Release requires Harvard Drug to waive any rights under any statute,
including California Civil Code § 1542, which “would limit the effect of the foregoing
release to those claims actually known or suspected to exist at the time of the
effectiveness of the foregoing release.” Simply put, Harvard Drug is precluded from
raising any claim it did “not know or suspect to exist in [its] favor at the time of executing
the release[ ].” (Id.) Again, this provision does not release claims not yet in existence.
A dispute between the parties as to the meaning of a release does not render it
ambiguous. Adell v. Sommers, Schwartz, Silver & Schwartz, P.C., 428 N.W.2d 26 (Mich.
Ct. App. 1988) (citations omitted). The assessment turns on whether the “language is
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reasonably susceptible to more than one interpretation. If the terms of the release are
unambiguous, contradictory inferences become “subjective, and irrelevant”, and the legal
effect of the language is a question of law to be resolved summarily.” Gortney v. Norfolk
& Western R. Co., 549 N.W.2d 612, 614-15 (Mich. Ct. App. 1996) (citations omitted).
The Court finds that the language in the Release is not reasonably susceptible to
more than one interpretation. It does not cover a claim that was not yet existing at the time
of the release. In this case, the parties agreed to release any and all claims known or
unknown, but there is no release of nonexisting claims. Harvard Drug advances case law
supporting its position that had the parties intended to release claims not yet in existence,
such language would have been used in the release. Its position is supported by Michigan
law holding that a release is limited to a claim that could have been in existence at the time
of execution. Rosenbaum v. Davis Iron Works, Inc., 669 F. Supp. 813, 818 (E. D. Mich.
1987), aff’d in part 871 F.2d 1088 (6th Cir. 1989).
IV.
CONCLUSION
For the reasons stated above, the Court DENIES Defendant's motion and GRANTS
summary judgment to Plaintiff. Plaintiff may submit a supplemental brief addressing the
availability of statutory interest, attorney fees and costs, and provide supporting
documentation on or before August 17, 2011. Defendant may file a response on or before
August 26, 2011.
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IT IS SO ORDERED.
s/Marianne O. Battani
MARIANNE O. BATTANI
UNITED STATES DISTRICT JUDGE
Date: August 5, 2011
CERTIFICATE OF SERVICE
Copies of this Opinion and Order were mailed and/or electronically filed to counsel of record
on this date.
s/Bernadette M. Thebolt
Case Manager
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