Cairo Marine Services, Inc. v. Homeland Insurance Company of New York et al

Filing 112

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that plaintiff's motion to add defendant Charles L. Crane Agency Company [#85] is DENIED. IT IS FURTHER ORDERED that defendants motion for summary judgment [#88] is granted as to plaintiffs claim of bad faith and denied in all other respects. IT IS FURTHER ORDERED that plaintiff's motion for partial summaryjudgment [#91] is GRANTED. The Court declares that Homeland Insurance owes Cairo Marine a duty to defend under the terms of their insurance contract for the claims brought against Cairo Marine in the underlying state proceeding. IT IS FURTHER ORDERED that defendants motion to file its statementof additional uncontroverted material facts [#104] is DENIED as moot. Signed by Honorable Catherine D. Perry on May 10, 2011. (MCB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
CAIRO MARINE SERVICE, INC.,
Plaintiff,
vs.
HOMELAND INSURANCE
COMPANY OF NEW YORK, et al.,
Defendants.

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Case No. 4:09CV1492 CDP

MEMORANDUM AND ORDER
The parties have filed motions seeking to join additional parties, to remand
to state court, to dismiss due to parallel state proceedings, and for summary
judgment on various claims and counterclaims. In this litigation, plaintiff Cairo
Marine Service, Inc. and defendant Homeland Insurance Company of New York
dispute whether the parties’ insurance policy provides coverage for the claims
against Cairo in an underlying state case. Both parties have moved for summary
judgment on the issue of whether Homeland owes Cairo a duty to defend in the
underlying state suit. Cairo has also filed a motion to add a defendant, to remand,
and to dismiss this case, while Homeland moves for summary judgment on Cairo’s
claim of bad faith and seeks to file an additional statement of material facts. For
the reasons stated below, I will deny plaintiff’s motion to add a defendant in this

case because the party Cairo wishes to join is not an indispensable party. I will
deny Cairo’s motions to remand and to dismiss because there is no parallel state
action. I will grant Cairo’s motion for partial summary judgment because the
claims against Cairo in the underlying state suit are potentially covered by the
parties’ insurance policy, and so Homeland owes Cairo a duty to defend.
Conversely, I will deny Homeland’s motion on the same issue. Finally, I will deny
defendant’s motion for leave to file an amended statement of material facts as
moot.1
Background
Cairo Marine inspects construction equipment. In September of 2007, Cairo
inspected and certified a crane in Louisiana. Approximately five months after
Cairo’s inspection, the crane’s counterweight collapsed, crushing a man’s legs and
pinning him beneath another counterweight. In a separate action, not before this
Court, the injured man brought suit against the owner of the crane and against
Cairo Marine claiming that the structure of the crane had been altered before
Cairo’s inspection, that this alteration made the crane unsafe, and that Cairo’s

1

The plaintiff in the underlying state case amended his complaint during the pendency of
the parties’ briefing. After a round of supplemental briefing, both parties agreed that their
motions should be considered with respect to the plaintiff in the state case’s amended complaint.
As a result, all arguments directed to the complaint in the underlying state case refer to the
plaintiff’s recently filed fourth amended complaint.

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inspection should have detected the danger.
The injured man was severely injured by the counterweight. He states that
he has “undergone more than a dozen surgeries” including a partial amputation of
his foot and that it is “reasonable” that his right leg will be amputated. In Section
XXVII, he also states that he “has been diagnosed with post-traumatic stress
disorder, anxiety and depression.”2 As a result, he seeks compensation for “severe
and permanent injuries to his body and mind” including:
(1)
(2)
(3)
(4)
(5)
(6)
(7)

Past, present and future physical pain and suffering;
Past, present and future mental anguish and emotional distress;
Past, present and future medical expenses;
Permanent disability;
Disfigurement;
Lost wages and loss of earning capacity; and
Loss of enjoyment of life.

In response to the claims against it, Cairo contacted it’s insurer, Homeland.
Cairo notified Homeland of the litigation, asserted that the claims against it fell
within the coverage of the policy, and requested that Homeland defend and
indemnify it in the crane-injury litigation. Homeland denied coverage and refused
to defend or indemnify Cairo.

2

The injured man’s wife also asserts a claim against Cairo for loss of consortium “as a
result of [her husband’s] injuries.” However, the parties agree that the wife’s claim qualifies as a
“related claim” under the policy and, if the injured man’s claims are not covered, the wife’s
claims will also not be covered, and vice versa.

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Homeland denied coverage based on an exclusion in the policy for “bodily
injuries.” The Homeland policy is a “Miscellaneous Professional Liability Policy”
and states that Homeland will indemnify Cairo for claims against it arising out of
“Wrongful Acts,” which include “any actual or alleged act, error or omission in
the performance of, or any failure to perform, Professional Services,” or services
performed for a fee. Cairo states that its inspection of the crane was a professional
service and Homeland admits that, under the general agreement, the policy would
provide coverage for the claims against Cairo in the crane-injury case. However,
the policy includes an amended exclusion of claims “for bodily injury, sickness,
disease or death of any person, or damages to or destruction of any property,
including the loss of use thereof.” The amended exclusion is narrower than the
original provision, which is listed in the main body of the policy. The original
exclusion disclaims coverage for claims “based upon, arising out of, directly or
indirectly resulting from . . . or in any way involving bodily injury . . . .” At the
time of Cairo’s initial request for coverage, Homeland cited the language of the
amended exclusion as its basis for its refusal to defend. The policy is stamped on
the cover as being “procured and developed under Missouri Surplus Lines Law.”
Cairo’s insurance broker is the Charles L. Crane Agency Company, a
Missouri corporation. Cairo claims that it hired the Crane Agency to obtain full
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insurance coverage on its behalf. Consequently, the Crane Agency negotiated and
obtained an insurance policy from Homeland.
Homeland removed this action from state court in September of 2009.
Cairo attempted to remand the case in October of 2009, but did not give notice that
it intended to join the Crane Agency as a party until October of 2010, more than a
year later. Cairo now moves to assert a claim against the Crane Agency for
negligence and breach of fiduciary duty for failing to obtain full coverage, if this
Court finds that Cairo’s policy with Homeland does not cover the claims against
Cairo in the underlying state suit.
The injured man recently joined Homeland as Cairo’s insurer in the
crane-injury suit. However, the complaint does not seek a declaratory judgment
that Homeland owes Cairo a duty to defend or indemnify and it does not address
any claims between Cairo and Homeland, such as Cairo’s claim that Homeland
denied coverage in bad faith. The only mention of Homeland in the complaint
simply states that “[a]t all times relevant to the events of this lawsuit, defendant
Homeland Insurance Company was defendant Cairo Marine Service, Inc.’s
professional liability insurer.” The crane-injury litigation is ongoing and, at
present, there has been no determination of Cairo’s liability in the matter.

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Analysis
On a motion for summary judgment, the facts and inferences are viewed in
the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The moving party has the
burden to establish both the absence of a genuine issue of material fact and that it
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986).
1.

Joinder, Remand, and Dismissal

Cairo seeks the dismissal or remand of this case on a variety of grounds. It
claims that this Court should abstain from hearing this case due to a parallel state
proceeding and, alternatively, Cairo seeks to join a non-diverse party that would
require dismissal or remand, if allowed. For the reasons stated below, remand and
dismissal are not appropriate in this case because there is no parallel state
proceeding and joinder of the non-diverse party is not appropriate because the
party that Cairo seeks to join is not necessary or indispensable.
This is the second time that Cairo has argued that this Court should abstain
from hearing this case due to a parallel state proceeding. I denied Cairo’s first
motion on this issue because there was no parallel state proceeding and there were
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no other factors indicating that abstention was appropriate. Cairo asks that the
Court reconsider its previous order because the crane-injury case now qualifies as
a parallel state proceeding. When determining whether parallel state action exists,
courts consider whether there is parallel state action at the time when the
declaratory judgment action was filed. Fru-Con Const. Corp. v. Controlled Air,
Inc., 574 F.3d 527, 537-38 (8th Cir. 2009); Continental Cas. Co. v. Advance
Terrazzo & Tile Co., Inc., 462 F.3d 1002, 1006 (8th Cir. 2006); Scottsdale Ins.
Co. v. Detco Industries, Inc., 426 F.3d 994, 997 (8th Cir. 2005); but see Royal
Indem. Co. v. Apex Oil Co., 511 F.3d 788, 794 (8th Cir. 2008). Since there was no
parallel action when the declaratory judgment action was filed the first time Cairo
raised this issue, it is unnecessary to reconsider my previous decision on this issue,
whether or not the crane-injury case has now become parallel.
In addition, the crane-injury case is not a parallel state proceeding, despite
Cairo’s argument to the contrary. Suits “are parallel if substantially the same
parties litigate substantially the same issues in different forums.”3 Scottsdale, 426
F.3d at 997; see also Fru-Con, 574 F.3d at 535 (stating that “a substantial

3

Under Eighth Circuit precedent, this case would be characterized as a case for
declaratory judgment when determining whether abstention is appropriate, even though Cairo
also asserts a claim of bad faith. See Royal Indem. Co. v. Apex Oil Co., 511 F.3d 788, 794 (8th
Cir. 2008); Cedar Rapids Cellular Tel., L.P. v. Miller, 280 F.3d 874, 878-79 (8th Cir. 2002).

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similarity must exist between the state and federal proceedings, which similarity
occurs when there is a substantial likelihood that the state proceeding will fully
dispose of the claims . . . . This analysis focuses on matters as they currently exist,
not as they could be modified.”). Here, the crane-injury litigation will determine
Cairo’s liability for a man’s physical and emotional injuries, while this litigation
will determine whether Homeland must defend Cairo in that suit and whether
Homeland denied coverage in bad faith. Despite the fact that Homeland is now a
party in the crane-injury case, neither of the claims being litigated in this case are
currently at issue in the crane-injury case. In the state suit, there are no declaratory
judgment claims against Homeland and no party currently asserts that Homeland
owes Cairo a duty to defend and no party asserts a claim against Homeland for bad
faith refusal to pay. As a result, there is not a substantial likelihood that the
proceedings in the crane-injury case will fully dispose of the claims in this Court.
Abstention is not inappropriate.
Cairo also seeks remand of this case as a result of its motion to join the
Crane Agency under 28 U.S.C. § 1447(e) and Federal Rule of Civil Procedure 19.
These issues are closely related and require the application of similar standards.
Section 1447(e) states that if “after removal the plaintiff seeks to join additional
defendants whose joinder would destroy subject matter jurisdiction, the court may
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deny joinder, or permit joinder and remand the action to the State court.” 28
U.S.C.A. § 1447(e). Under § 1447(e), a district court should scrutinize an
amendment to add a party under Rule 15 that would destroy jurisdiction more
closely than an ordinary amendment. Bailey v. Bayer CropScience LP, 563 F.3d
302, 309 (8th Cir. 2009). “[T]he Court is required to consider 1) the extent to
which the joinder of the nondiverse party is sought to defeat federal jurisdiction,
2) whether [the] plaintiff has been dilatory in asking for amendment, and 3)
whether [the] plaintiff will be significantly injured if amendment is not allowed.”
Id. (quotations omitted). Joinder is required under Rule 19 if the new party is
indispensable to a full resolution of the case. Bailey, 563 F.3d at 308. Rule 19(a)
states that a party is necessary if “in that person’s absence, the court cannot accord
complete relief among existing parties,” or if the absent party’s interests will be
impaired if they are not joined, or the absent party will be subject to double or
inconsistent obligations if they are not joined. Fed. R. Civ. P. 19(a) (West 2010).
Under Rule 19 a party is not indispensable “‘[w]hen a person is not a party to the
contract in litigation and has no rights or obligations under that contract.” Casas
Office Machines, Inc. v. Mita Copystar America, Inc., 42 F.3d 668, 676 (1st
Cir.1994) (quoting 7 Charles A. Wright, Federal Practice and Procedure § 1613
(1986).
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Based on these standards, it is not appropriate to join the Crane Agency
under § 1447 and the Crane Agency is not a necessary or indispensable party.
Cairo knew of the facts giving rise to its claims against the Crane Agency before
this litigation began, yet waited more than a year after filing to attempt joinder.
The Crane Agency is not a party to the contract at issue and, at best, has a
peripheral interest in the outcome of this litigation. In addition, Cairo can
completely recover against Homeland without the Crane Agency’s involvement
and it will be able to recover from the Crane Agency in a separate suit without
Homeland’s involvement. Therefore, I will deny Cairo’s motions on this issue.
2.

Duty to Defend

Both parties seek to determine whether Homeland owes Cairo a duty to
defend and indemnify it in the underlying state litigation. “The duty to defend is
determined by comparing the language of the insurance policy with the allegations
in the complaint.” McCormack Baron Mgmt. Serv., Inc. v. Am. Guar. & Liab. Ins.
Co., 989 S.W.2d 168, 170 (Mo. 1999). “If the complaint merely alleges facts that
give rise to a claim potentially within the policy’s coverage, the insurer has a duty
to defend.” Id. at 170-71. “This is true even if the petition contains other claims
that would not be covered.” Penn-Star Ins. Co. v. Griffey, 306 S.W.3d 591, 597
(Mo. Ct. App. 2010). “In general, an insurance policy is a contract to afford
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protection to an insured and will be interpreted, if reasonably possible, to provide
coverage.” Haulers Ins. Co., Inc. v. Pounds, 272 S.W.3d 902, 905 (Mo. Ct. App.
2008). “[P]rovisions limiting or cutting down, or avoiding liability in the
coverage made in the policy are construed most strongly against the insurer.”
Crossman v. Yacubovich, 290 S.W.3d 775, 779 (Mo. Ct. App. 2009). A court
“strictly construes exclusionary clauses against the drafter, who also bears the
burden of showing the exclusion applies.” Burns v. Smith, 303 S.W.3d 505, 509
(Mo. 2010).
Under prevailing Missouri law, the man’s claim for emotional injuries does
not fall within the meaning of “bodily injury, sickness, disease or death.” The
complaint in the crane-injury case states two separate claims – one for a physical
injury and one for an emotional injury. The policy only excludes coverage for
claims “for bodily injury, sickness, disease or death.” This exclusion originally
excluded “any claim: based upon, arising out of, directly or indirectly resulting
from . . . or in any way involving bodily injury, sickness, disease or death.” The
policy does not define any of the terms “bodily injury,” “sickness,” “disease,” or
“death” and none of them unequivocally encompass emotional injuries such as

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those suffered by the man in the crane-injury case.4 Even if the term “bodily” does
not modify all of the terms following it in the exclusion, without more, it is at best
merely possible that the terms “sickness” and “disease” could be construed to
include mental injuries, such as post-traumatic stress disorder. However, given the
plain meaning of the terms, it is at least equally probable that they do not.
Therefore, reading the policy consistently with a presumption in favor of coverage
and the intent demonstrated by the relatively drastic narrowing of the exclusion in
the policy’s amendment, I find that Homeland has not shown that the bodily injury
exclusion removes the injured man’s separate claim for his emotional injures from
coverage.
However, Homeland argues that Missouri courts have found that, as a
matter of law, a provision referring to “bodily injury, sickness, disease, or death”
necessarily includes emotional harms arising from a physical injury. Specifically
Homeland relies on Derousse v. State Farm Mut. Auto. Ins. Co., 298 S.W.3d 891

4

In a different context, the Missouri Supreme Court has recently found that the “plain
meaning” of these words are:
“bodily”: “of or relating to the body”
“injury”: “hurt, damage, or loss sustained”
“sickness”: “the condition of being ill ... a disordered, weakened, or unsound
condition ... a form of disease”
“disease”: “an impairment of the normal state of the living animal ... sickness,
illness ... a cause of discomfort or harm”
Derousse v. State Farm Mut. Auto. Ins. Co., 298 S.W.3d 891, 895 (Mo. 2009).

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(Mo. 2009). In Derousse, a woman witnessed a traffic accident that caused her
significant emotional injures, but no physical harm. Id. at 892-95. She sought
coverage from her insurance company for her emotional harm, but her insurance
company denied coverage because it claimed that her policy only provided
coverage for physical injuries. Id. The court found that the insurance policy was
deficient under Missouri law and reformed the contract according to the applicable
statute. Id. The court then used methods of statutory interpretation to determine
that the legislature intended the relevant provision of the Missouri Code to include
coverage for both bodily and mental injuries, sicknesses, and diseases. Id. As a
result, the court found that the woman’s emotional injuries were covered by the
reformed insurance policy. Id.
Derousse does not demand the outcome in this case that Homeland urges.
The court in Derousse interpreted a statute, using methods of statutory
interpretation, according to the intent of the legislature to determine whether the
phrase “bodily injury, sickness or disease, including death” covered emotional
injuries. See Derousse, 298 S.W.3d at 893-95. Here, the policy must be construed
in favor of coverage and according the intent of the parties using methods of
contract interpretation. In addition, a majority of courts, including Missouri
courts, find that, when considered in the context of an insurance contract, the
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provision considered in Derousse does not cover separate claims for emotional
injuries. See Citizens Ins. Co. of America v. Leiendecker, 962 S.W.2d 446, 452-53
(Mo. Ct. App. 1998); 9 Lee R. Russ, Couch on Insurance § 126:33 (3d ed. 2010).
Furthermore, the phrase interpreted in Derousse is broader than the phrase
in this case. The court in Derousse found that there were three types of injury
listed in the provision – bodily injury, sickness, and disease. Id. at 895. The court
found that this provision covered emotional injuries, in part, because the types of
injuries listed became broader throughout the sequence from “bodily injury,”
which is relatively narrow, to “disease,” which could refer to a variety of mental or
physical ailments. Id. Notably, the court did not include death as a type of injury
in the provision, as it is listed only as an example of a possible result of a bodily
injury, sickness, or a disease. See id. Here, however, death is included in the
direct sequence of the types of injuries that are excluded. In the parties’ policy,
the terms sickness and disease are listed in a direct sequence between bodily injury
and death, indicating that the sickness and disease listed in the exclusion refer to
those that could cause death. Therefore the sequence does not become less
specific throughout the sequence, but instead is bound from beginning to end by
injuries that begin with physical harm and end in death. Emotional injuries such
as post-traumatic disorder and depression do not cause death, without additional
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harmful interference. Therefore, even without the presumption in favor of
coverage, the context of the exclusion indicates that the parties intended to limit
the exclusion to physical injuries and ailments. As a result, Homeland owes Cairo
a duty to defend in the crane-injury suit.5
3.

Bad Faith

Homeland moves for summary judgment on Cairo’s claim that Homeland
refused to defend and indemnify Cairo in bad faith. Cairo does not oppose
Homeland’s motion. Generally, an insurer may insist on a judicial determination
of an open question of law or fact without being subject to a claim for bad faith
denial of coverage. Columbia Mut. Ins. Co. v. Epstein, 236 S.W.3d 667, 675 (Mo.
Ct. App. 2007). However, if there is evidence that “the insurer’s attitude was
vexatious and recalcitrant,” it may be subject to a bad faith claim, regardless of
whether there is an open question of law or fact. Id.
The dispute over whether the injured man’s claims were excluded by the
bodily injury endorsement provided an open question of law, therefore, Homeland
is only subject to a claim for bad faith if there is some evidence that its attitude
was vexatious and recalcitrant. According to the parties’ submissions, Homeland

5

As stated in my order dated January 10, 2011, the issue of Homeland’s duty to indemnify
will be addressed after further factual development.

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responded to Cairo’s request for coverage and other communications promptly,
usually within a week or two, and it explained its reasoning for denying coverage
thoroughly in each correspondence. Cairo has not provided any evidence other
than Homeland’s refusal to provide coverage indicating that Homeland’s actions
were recalcitrant or vexatious. As a result, I will grant summary judgment to
Homeland on Cairo’s bad faith claim.
4.

Leave to File An Additional Statement of Undisputed Facts

Homeland seeks leave to file an additional statement of undisputed facts
that deals specifically with the claims that Cairo seeks to assert against the Crane
Agency. Because I have determined that the Crane Agency should not be joined
in this case, I will deny Homeland’s motion as moot
Accordingly,
IT IS HEREBY ORDERED that plaintiff’s motion to add defendant
Charles L. Crane Agency Company [#85] is DENIED.
IT IS FURTHER ORDERED that defendant’s motion for summary
judgment [#88] is granted as to plaintiff’s claim of bad faith and denied in all other
respects.
IT IS FURTHER ORDERED that plaintiff’s motion for partial summary
judgment [#91] is GRANTED. The Court declares that Homeland Insurance owes
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Cairo Marine a duty to defend under the terms of their insurance contract for the
claims brought against Cairo Marine in the underlying state proceeding.
IT IS FURTHER ORDERED that defendant’s motion to file its statement
of additional uncontroverted material facts [#104] is DENIED as moot.

__________________________________
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE

Dated this 10th day of May, 2011.

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