Livonia Public Schools et al v. Selective Insurance Company of the Southeast

Filing 102

OPINION AND ORDER:(1) GRANTING 92 DEFENDANTS MOTION TO CONFIRM SATISFACTION OF DEFENSE OBLIGATIONS AND DISMISS COUNTS VII AND VIII OF PLAINTIFFS AMENDED COMPLAINT AS MOOT, and(2) DENYING 94 PLAINTIFFS MOTION TO APPORTION ALL OF THE DOE LAWSUIT DEFENSE EXPENSES TO THE 2011-2012 POLICY PERIOD AND FOR JUDGMENT ON THE SPECIFIC AND AGGREGATE EXCESS LOSS CLAIMS. Signed by District Judge Paul D. Borman. (DTof)

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LIVONIA PUBLIC SCHOOLS, &
METROPOLITAN ASSOCIATION FOR
IMPROVED SCHOOL LEGISLATION,

Case No. 16-cv-10324
Paul D. Borman
United States District Judge

Plaintiffs,
v.
SELECTIVE INSURANCE COMPANY
OF THE SOUTHEAST
Defendant.
______________________________/

OPINION AND ORDER:
(1) GRANTING DEFENDANT’S MOTION TO CONFIRM SATISFACTION OF
DEFENSE OBLIGATIONS AND DISMISS COUNTS VII AND VIII OF
PLAINTIFFS’ AMENDED COMPLAINT AS MOOT (ECF NO. 92), and
(2) DENYING PLAINTIFFS’ MOTION TO APPORTION ALL OF THE DOE
LAWSUIT DEFENSE EXPENSES TO THE 2011-2012 POLICY PERIOD AND
FOR JUDGMENT ON THE SPECIFIC AND AGGREGATE EXCESS LOSS
CLAIMS (ECF NO. 94)
INTRODUCTION
In this long-standing insurance coverage suit, both parties agree that it is time
for a final judgment—the underlying lawsuits have been settled and the total defense
costs have been tallied up—but they disagree over who owes what to whom.
Defendant Selective Insurance Company of the Southeast (Selective) says that it has
paid all of the defense costs that it is obligated to pay under its policies and this
Court’s prior rulings on the application of those policies to the claims alleged in the
underlying lawsuits (ECF No. 92), and, in fact, argues that it overpaid by $6,405.92

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(ECF No. 98). Plaintiffs Livonia Public Schools (LPS) and Metropolitan Association
for Improved School Legislation (MAISL) say that all of the defense costs associated
with the underlying lawsuit, Doe v. Livonia Public Schools, No. 13-cv-11687 (E.D.
Mich.), should be apportioned to the 2011-2012 policy period, rather than split
equally between the 2010-2011 policy period and the 2011-2012 policy period,
resulting in Selective owing LPS and MAISL an additional $935,609.76, plus 12%
interest. (ECF No. 94.) For the reasons explained below, the Court agrees with
Defendant, and finds that Selective has fully satisfied its defense obligations under
the relevant policies and must be reimbursed for its $6,405.92 overpayment.
BACKGROUND
The Court described the background of this case in detail in its two prior
Opinions and Orders. (ECF No. 76, O&O I, PgID 3350–97; ECF No. 93, O&O II,
PgID 3937–44.) Essentially, this case is a dispute over the extent to which Selective
owes LPS and MAISL, under certain insurance policies, the duty to defend several
lawsuits filed on behalf of physically and/or mentally disabled children against LPS,
LPS employees, and members of the LPS school board, for alleged physical, verbal,
and emotional abuse perpetrated by Sharon Turbiak, a special-needs teacher at
Webster Elementary School, and Nancy Respondek, a classroom aide in Turbiak’s
classroom,. (ECF No. 76, O&O I, PgID 3367–71.) All of the underlying lawsuits

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have been dismissed or settled, and this Court has resolved most of the legal
questions in its two prior Opinions and Orders. (ECF Nos. 76 & 93.)
First, on August 24, 2018, the Court ruled on the parties’ cross-motions for
summary judgment. (ECF No. 76.) The Court found that the claims in the underlying
lawsuits constituted one “occurrence” per plaintiff per policy period, including three
occurrences, one per plaintiff in the Doe case, in the 2010-2011 policy period. (Id.
at PgID 3406–07.) This meant two things: (1) coverage under the insurance policies
was triggered so that Selective owed Plaintiffs the duty to defend the underlying
lawsuits and pay any damages arising from those suits; and (2) Selective’s obligation
to pay damages and defense costs, under the terms of the policies, would arise only
after the insureds, LPS and MAISL, exhausted one $500,000 self-insured retention
(SIR) per plaintiff per policy period. (Id. at PgID 3405, 3449.) The Court reasoned
that “[t]he allegations in the Doe lawsuit, even if unspecific, are sufficient to impose
a duty to defend on Selective, which in turn justifies Selective’s position that there
were occurrences in the 2010-2011 policy period.” (Id. at PgID 3406–07.)1
Second, on February 13, 2020, the Court declined to modify its prior holding
that, for the purposes of Selective’s duty to defend and Plaintiffs’ obligation to
exhaust one SIR per occurrence, there were three occurrences alleged in the 2010-

1

The Court also made several other findings, only one of which is relevant:
there is a question of fact as to whether Selective is estopped from denying defense
or indemnity costs under separate umbrella policies. (Id. at PgID 3442–43.)
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2011 policy year, one per Doe plaintiff. (ECF No. 93, O&O II, PgID 3948–62.) The
Court found that the Doe complaint, which alleged that Turbiak and Respondek
committed acts of physical and emotional abuse against the three plaintiffs “on
multiple occasions in the 2010-2011 and/or 2011-2012 school year(s),” (ECF No. 110, Doe Federal Complaint, PgID 464), arguably alleged that each Doe plaintiff
suffered bodily injury from the alleged abuse in both school years. (ECF No. 93,
O&O II, PgID 3960–61.) Therefore, the Doe Complaint alleged three occurrences
in the 2010-2011 school year, and three in the 2011-2012 school year. The Court
emphasized that the fact that “[e]vidence of specific incidents in the 2010-2011
school year did not emerge during discovery” did not change the number of
occurrences for Selective’s duty to defend and Plaintiffs’ obligation to exhaust one
SIR per occurrence. (Id. at PgID 3961.)
On February 7, 2020, Selective filed its Motion to Confirm Satisfaction of
Defense Obligations and Dismiss Counts VII and VIII of Plaintiffs’ Amended
Complaint as Moot. (ECF No. 92.) On February 20, 2020, Plaintiffs responded to
Selective’s Motion with a motion of their own, Motion to Apportion All of the Doe
Lawsuit Defense Expenses to the 2011-2012 Policy Period and for Judgment on the
Specific and Aggregate Excess Loss Claims (ECF No. 94), and a brief intended to
both respond to Selective’s Motion and provide the legal argument for their Motion
(ECF No. 95.) Both motions seek a final judgment resolving the last legal issue in
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the case—whether to apportion the defense costs associated with the Doe case
equally between the 2010-2011 and 2011-2012 policies or whether to apportion all
of the costs to the 2011-2012 policy.
III.

ANALYSIS

There is no dispute that, as of January 31, 2020, Selective had paid
$1,759,847.95 to Plaintiffs for the defense of the three underlying lawsuits. (ECF
No. 95-3, Plaintiff Risx-Facs Report, PgID 3987; ECF No. 98-3 Defendant RisxFacs Report, PgID 4015.) The question before the Court is whether that was more
than Selective owed to Plaintiffs, or less.
Selective asserts, in its Motion, that, under this Court’s interpretation of the
policies, it overpaid Plaintiffs by $6,405.92. (ECF No. 98, Reply, PgID 3998.)
Selective calculated the amount that it owed Plaintiff by apportioning half of the cost
of defending the Doe lawsuit to the 2010-2011 policy, and half to the 2011-2012
policy. (See ECF No. 98-3 Defendant Risx-Facs Report, PgID 4015 (detailing
calculation).) It did so based on its understanding that “Michigan law requires that
defenses [sic] costs for each Doe plaintiff be allocated equally between the 20102011 and 2011-2012 primary policies.” (ECF No. 92, Motion for Final Judgment,
PgID 3910.) Accordingly, Selective seeks a final judgment declaring that it has
satisfied its defense obligations and is entitled to a $6,405.92 reimbursement from
Plaintiffs. (ECF Nos. 92, 98.)
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Plaintiffs, in their Motion and Response, ask the Court to apportion all of the
Doe defense expenses to the 2011-2012 policy year and thereby find that Selective
still owes $935,609.76 in defense costs. (ECF Nos. 94, 95.) They argue that this is
the correct method of apportionment because, in the Doe case, no specific act of
misconduct was alleged or proven during the 2010-2011 school year, so no
occurrence actually happened during that year, and it is therefore unreasonable to
apportion any defense costs to that policy year. (See id.) Plaintiffs argument is based
on a misreading of the case law and this Court’s prior decisions.
Michigan law is clear that, when coverage is triggered under multiple
successive insurance policies by injuries occurring over multiple policy years,
coverage should be apportioned according to the “time-on-the-risk” approach. Arco
Indus. Corp. v. American Motorists Ins. Co., 232 Mich. App. 146, 159–64 (1998).
“Under this method, insurers are responsible for the portion of the underlying injury
that occurred during their policy period; the effect is to prorate coverage for
continuous damage across each period that the damage occurred.” Id. at 161.
Generally, the time-on-the-risk method of apportionment is used for claims
involving continuous, indivisible injuries, such as asbestosis from long-term
asbestos exposure, e.g. Ins. Co. of North America v. Forty-Eight Insulations, Inc.,
633 F.2d 1212, 1224–25 (6th Cir. 1980), or environmental damage from long-term
pollution, e.g. Arco, 232 Mich. App. at 159–64. But, it has also been applied in other
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contexts, such as in City of Sterling Heights v. United Nat’l Ins. Co., where the
underlying lawsuits involved defamation claims that occurred over a period of three
years and caused indivisible injuries. 319 F. App’x 357 (6th Cir. 2009). This
approach is an administrable way to ensure that insurers are required to provide
coverage for only the portion of the injury that occurred during the bargained-for
policy period, and so should be applied whenever an alleged injury or set of injuries
spans multiple policy periods. See Arco, 232 Mich. App. at 162 (“[Defendant] must
provide coverage for damage sustained ‘during the policy period,’ but not for the
years outside the policy period.”).
The time-on-the-risk method of allocation applies to both indemnity costs and
defense costs. See Forty-Eight Insulations, 633 F.2d at 1224–25 (rejecting argument
that breadth of duty to defend requires insurers to pay total costs of defense even if
part of the underlying lawsuit concerned events outside of the policy period). The
rationale for this is simple: “[t]he insurer has not contracted to pay defense costs for
occurrences which took place outside the policy period,” so, if there is a reasonable
way to apportion the defense costs, such as the time-on-the-risk method, the defense
costs must be apportioned. Id. The only difference between defense costs and
indemnity costs, as explained in the prior Opinion and Order, is that an insurer owes
defense costs whenever the allegations in the underlying case arguably allege that
an injury occurred during the policy period, whereas an insurer owes indemnity costs
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only after the insured’s liability for an injury during the policy period has been
conceded or proved. (See ECF No. 93, O&O II, PgID 3960.)
In this case, the Doe plaintiffs alleged that they were exposed to a “pattern of
abuse” which included physical, verbal, and emotional abuse “on multiple occasions
in the 2010-2011 and/or 2011-2012 school year(s).” (ECF No. 1-10, Doe Federal
Complaint, PgID 464, 472.) The Court has twice held that these allegations trigger
defense coverage under the 2010-2011 policy and the 2011-2012 policy because
they arguably allege that each Doe plaintiff suffered bodily injuries during each
policy year. (ECF No 76, O&O I, PgID 3961; ECF No. 93, O&O II, PgID 3405–07,
3449.) Further, the litigants and the Court have consistently treated the injuries
alleged by the Doe plaintiffs as continuous and indivisible—no party has argued that
each individual act of abuse constituted its own occurrence, suggesting that each
alleged act of abuse contributed to a continuous injury to each child, just as each
exposure to asbestos contributed to the continuous injury of asbestosis in FortyEight Insulations. 633 F.2d 1212. Therefore, it is appropriate to use the time-on-therisk method of apportionment here.
Applying the time-on-the-risk method to the defense costs of the Doe lawsuit
is straightforward. The Doe complaint alleged three occurrences in the 2010-2011
policy period and three occurrences in the 2011-2012 policy period. In other words,
the Doe plaintiffs alleged that each of them suffered bodily injury over the course of
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two policy years. Consequently, the defense costs related to these alleged injuries
must be apportioned equally between the two policy years.
It is irrelevant to the proper allocation of defense costs that evidence of
misconduct and bodily injury during the 2010-2011 policy period never emerged in
the underlying lawsuits for the exact same reason that evidence of bodily injury was
not needed to trigger the duty to defend in the first place—the duty to defend is
broad, “includes groundless and frivolous claims,” and cannot be determined with
the benefit of hindsight. American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 452
Mich. 440, 455 (1996). It follows, then, that an insurer cannot argue, as Plaintiffs do
here, that time-on-the-risk apportionment of defense costs is inappropriate when the
plaintiffs in the underlying lawsuit fail to unearth sufficient evidence to support their
original claims of bodily injury during one of the policy periods.
Based on this analysis, the Court agrees with Selective—Michigan law and
the Court’s prior holdings in this case require the defense costs for each Doe plaintiff
to be allocated equally between the 2010-2011 and 2011-2012 policies. (See ECF
No. 92, Motion for Final Judgment, PgID 3910.) Under this calculation, Selective
overpaid Plaintiffs by $6,405.92 and is entitled to reimbursement. (See ECF No. 98,
Reply, PgID 3998.)
Finally, Selective, in its Motion, also asserts that “any question as to whether
coverage could be owed under the umbrella policies is now moot” because the
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underlying lawsuits were defended and settled within the limits of the primary
policies. (ECF No. 92, Motion for Final Judgment, PgID 3912.) Plaintiffs did not
respond to this claim, and so have waived any objection to it. See McPherson v.
Kelsey, 125 F.3d 989, 995 (6th Cir. 1997) (“[I]ssues adverted to in a perfunctory
manner, unaccompanied by some effort at developed argumentation, are deemed
waived.”) The Court therefore finds that Counts VII and VIII of Plaintiffs’
Complaint are moot.
V.

CONCLUSION

For those reasons, the Court GRANTS Defendant’s Motion to Confirm
Satisfaction of Defense Obligations and Dismiss Counts VII and VIII of Plaintiffs’
Amended Complaint as Moot (ECF No. 92), and DENIES Plaintiffs’ Motion to
Apportion All of the Doe Lawsuit Defense Expenses to the 2011-2012 Policy Period
and for Judgment on the Specific and Aggregate Excess Loss Claims (ECF No. 94).
Therefore, Plaintiffs are ordered to reimburse Defendant $6,405.92.
There are no remaining legal or factual disputes to be resolved, so the Court
orders the case to be closed on the docket.
IT IS SO ORDERED.

Dated: July 17, 2020

s/Paul D. Borman
Paul D. Borman
United States District Judge

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