Commerce Bancshares, Inc. v. American Family Insurance Company

Filing 46

MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that Plaintiff Commerce Bancshares, Inc.s Motion for Summary Judgment (ECF No. 36 ) is GRANTED in part, and judgment is entered in Commerces favor on Count I of its Complaint. Judgment is entered in Def endant American Familys favor on Count II of the Complaint. IT IS FURTHER ORDERED that Defendant American Family Mutual Insurance Companys Motion for Summary Judgment (ECF No. 31 ) is DENIED. IT IS FURTHER ORDERED that the parties are granted until Friday, April 1, 2016, within which to brief their respective positions on the appropriate amount of attorneys fees and expenses to be awarded to Commerce. Signed by District Judge Jean C. Hamilton on 3/23/16. (KJS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
COMMERCE BANCSHARES, INC.,
Plaintiff,
v.
AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,

)
)
)
)
)
)
)

No. 4:14CV1562 JCH

)
)

Defendant.

MEMORANDUM AND ORDER
This matter is before the Court on Defendant American Family Mutual Insurance
Company’s (“American Family”) Motion for Summary Judgment, and Plaintiff Commerce
Bancshares, Inc.’s (“Commerce”) Motion for Summary Judgment, both filed January 15, 2016.
(ECF Nos. 31, 36). The motions are fully briefed and ready for disposition.
BACKGROUND
Commerce operates bank branches throughout the state of Missouri, including on Jeffco
Boulevard in Arnold, Missouri.

(Amended Complaint for Breach of Contract (hereinafter

“Complaint” or “Compl.”), ¶ 6). On or about August 12, 2008, Commerce, through its wholly
owned subsidiary, Commerce Bank, entered into a contract with Action Landscaping, Inc.
(“Action”).

(Id., ¶ 7, and Agreement for Services (“Contract”), attached to Commerce’s

Complaint as Exh. A). In the Contract, effective September, 2008, through March, 2011, Action
agreed to provide the necessary labor, materials and equipment to perform for Commerce at its
Arnold location certain landscaping services, as delineated in the Specifications attached to the
Contract. (Contract, P. 1). As relevant here, the Specifications provided as follows:

Commerce’s Expectations:
Commerce Bank is looking to partner with landscape providers who will
provide full service, professional landscape services at our branch locations.
We expect you will take full responsibility and “ownership” of the branch,
ensuring that it looks well maintained at all times.
I.

Scope of Work
Furnish all supervision, labor, material, equipment and
transportation required to maintain the Commerce Bank branch
landscaping in an attractive, well maintained condition throughout
the year, as specified below….

VII.

Tree and Shrub Care

Contracted services: Maintain trees….in a healthy, growing condition by
performing all necessary operations, including the following:…
B.

Pruning
(1) Trees….
Evergreen trees shall be thinned out and shaped when necessary to
prevent wind and storm damage. The primary pruning of deciduous
trees shall be done during the dormant season. Damaged trees or
those that constitute health or safety hazards shall be pruned at any
time of the year as required.

(Specifications, PP. 1, 3-4). Taken together, the Contract and Specifications required Action to
visit the site weekly to perform clean up, and to “maintain a regular systematic inspection routine
of the premises to the end that the Services enumerated [in the Specifications] herein shall be
performed in a good and workmanlike manner and with all due safety precautions at all times.”
(See Contract, P. 1; Specifications, P. 2).
Pursuant to the Contract, Action agreed to provide “Workman’s Compensation,
Unemployment Insurance, Public Liability, and Automobile Insurance to limits required by
Commerce and other insurance insuring against such risks as shall adequately protect Commerce
as set forth herein and/or cover any potential liability arising from the performance of its duties

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hereunder.” (Contract, P. 2). The procured insurance policy was to list Commerce as an
additional insured, and was to be primary and non-contributory. (Id.). Finally, the Contract
provided as follows with respect to liability for damages: “[Action] agrees to indemnify and
hold Commerce harmless from and against any and all claims, damages, liabilities, losses and
expenses (including reasonable attorneys’ fees, costs and expenses), however caused, and which
arise from the commission of a willful or negligent act, or the willful or negligent failure to act,
in connection with the performance of its duties hereunder.” (Id.).
Defendant American Family issued a Business Key Policy (“Policy”), No. 24-X1756216, with effective dates of September 26, 2008, to September 26, 2009, to Action. (Defendant ‘s
Statement of Uncontested Material Facts (“Defendant’s Facts”), ¶ 7 and Policy, attached to
Defendant’s Facts as Exh. 5). The Commercial General Liability Coverage Form in the Policy
provided that “the words ‘you’ and ‘your’ refer to the Named Insured1 shown in the
Declarations, and any other person or organization qualifying as a Named Insured under this
policy….The word ‘insured’ means any person or organization qualifying as such under Section
II—Who is An Insured.” (Policy, P. 19). With respect to coverage, the Policy provided in
relevant part as follows:
We will pay those sums that the insured becomes legally obligated to pay as
damages because of “bodily injury” or “property damage” to which this insurance
applies. We will have the right and duty to defend the insured against any “suit”
seeking those damages….
This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory”; [and]
(2) The “bodily injury” or “property damage” occurs during the policy
period.

1

Action is the named insured under the Policy. (Policy, P. 11).
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(Id.).
The Policy was endorsed with forms IL 75 37 10 00 and CG 20 10 07 04, to add
Commerce Bank as an additional insured effective September 26, 2008. (Policy, P. 9). The
additional insured endorsement provided as follows:
A.

Section II—Who is An Insured is amended to include as an additional insured the
person(s) or organization(s) shown in the Schedule, but only with respect to liability
for “bodily injury”, “property damage” or “personal and advertising injury” caused,
in whole or in part, by
1

Your acts or omissions, or

2

The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured(s) at the
location(s) designated above.
B.

With respect to the insurance afforded to these additional insureds, the following
additional exclusions apply:
This insurance does not apply to “bodily injury” or “property damage” occurring
after
All work, including materials, parts or equipment furnished in connection with
such work, on the project (other than service, maintenance or repairs) to be
performed by or on behalf of the additional insured(s) at the location of the
covered operations has been completed.

(Policy, PP. 46-47).
On or about September 4, 2009, Deborah Borgetti filed a lawsuit in the Circuit Court of
Jefferson County, Missouri, against Commerce and other entities.

(Lawsuit, attached to

Defendant’s Facts as Exh. 3). In her suit, Ms. Borgetti alleged that on or about September 27,
2008, she was a passenger riding on the back of a motorcycle traveling north on Jeffco
Boulevard, when a vehicle operated by Janet Young turned left from a Taco Bell parking lot near
Commerce’s branch into traffic on Jeffco Boulevard. (Id., ¶¶ 3, 4, 6). Ms. Borgetti alleged that
Ms. Young pulled into the path of the motorcycle, causing it to strike the vehicle driven by Ms.

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Young. (Id., ¶ 7). As a result, Ms. Borgetti allegedly was thrown from the motorcycle, and
suffered serious, severe and permanent injuries. (Id.). With respect to Commerce, Ms. Borgetti
alleged that the property of Commerce’s bank branch sits adjacent to a curve in the road on
Jeffco Boulevard; that on or about September 27, 2008, there existed a large tree on Commerce’s
property, that blocked the view of both those traveling northbound around the curve and those
exiting the Taco Bell restaurant; that Commerce failed to trim the tree’s vegetation which grew
too close to the adjoining highway, thereby creating a dangerous condition for the traveling
public; that Commerce had a duty to the public passing on Jeffco Boulevard to maintain its
property in a reasonably safe condition; that Commerce’s failure to trim the vegetation was an
unreasonable interference with the common community rights such as public safety and health;
that Commerce either created the dangerous condition, or allowed the dangerous condition
created by third persons to exist after Commerce knew or should have known about it; and that
Commerce’s actions resulted in injury to Ms. Borgetti.

(Id., ¶¶ 8-14).

Based on these

allegations, Ms. Borgetti lodged claims for nuisance and negligence against Commerce. (Id., ¶¶
1-19). Commerce tendered the lawsuit to its own liability carrier, Zurich American Insurance
Company (“Zurich”), who undertook the defense on or about June 21, 2010.

(American

Family’s Suggestions in Support of Motion for Summary Judgment (“American Family’s Memo
in Support”), PP. 2-3).
On February 11, 2013, Commerce, through Zurich, tendered its defense of the Borgetti
lawsuit to American Family. (Defendant’s Facts, ¶ 10). In a letter dated March 13, 2013, Mr.
Roy D. Mueller, Jr., an attorney for American Family, acknowledged that Commerce was an
additional insured under the Policy, but refused the tender and declined to provide a defense and

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indemnification to Commerce. (Id., ¶ 11; Mueller letter, attached to Defendant’s Facts, as Exh.
4).
In June, 2013, Commerce settled Ms. Borgetti’s claims against it for $100,000.
(Defendant’s Facts, ¶ 12).2 The settlement was paid by Zurich, who now seeks reimbursement of
the settlement money, plus attorneys’ fees and costs.
Commerce filed its original Complaint for Breach of Contract in this matter on
September 11, 2014. (ECF No. 1). In the instant Complaint, Commerce alleges American
Family’s denial of coverage and refusal to defend Commerce in the Borgetti lawsuit amounted to
a breach of contract, and further was without justification in the Policy and thus constituted bad
faith and a vexatious refusal to pay. (ECF No. 7). As relief, Commerce seeks reimbursement of
the sums paid in settlement of the Borgetti lawsuit, together with attorneys’ fees, costs, expenses
and penalties. (Id.).
As noted above, the parties filed competing Motions for Summary Judgment on January
15, 2016, with both sides asserting there exist no genuine issues of material fact and they are
entitled to judgment as a matter of law.
SUMMARY JUDGMENT STANDARD
The Court may grant a motion for summary judgment if, “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The substantive law determines which facts are critical and which are irrelevant. Only disputes
over facts that might affect the outcome will properly preclude summary judgment. Anderson v.
2

The parties have stipulated that the $100,000 payment in settlement of Ms. Borgetti’s claims
was reasonable. (Plaintiff’s Statement of Undisputed Material Facts, ¶ 27).
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Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment is not proper if the evidence
is such that a reasonable jury could return a verdict for the nonmoving party. Id.
A moving party always bears the burden of informing the Court of the basis of its motion.
Celotex, 477 U.S. at 323. Once the moving party discharges this burden, the nonmoving party
must set forth specific facts demonstrating that there is a dispute as to a genuine issue of material
fact, not the “mere existence of some alleged factual dispute.” Fed. R. Civ. P. 56(e); Anderson,
477 U.S. at 247. The nonmoving party may not rest upon mere allegations or denials of its
pleadings. Anderson, 477 U.S. at 256.
In passing on a motion for summary judgment, the Court must view the facts in the light
most favorable to the nonmoving party, and all justifiable inferences are to be drawn in its favor.
Anderson, 477 U.S. at 255. The Court’s function is not to weigh the evidence, but to determine
whether there is a genuine issue for trial. Id. at 249.
DISCUSSION
American Family’s Motion For Summary Judgment

I.

In its motion, American Family presents four reasons why it should not be held liable for
the Borgetti settlement under the Policy. The Court will address American Family’s assertions
in turn.
A. Additional Insured Status—“Ongoing Operations”
American Family first asserts that Commerce is not entitled to coverage under the Policy
because Action was not engaged in “ongoing operations” at the time of Ms. Borgetti’s accident.
(American Family’s Memo in Support, PP. 4-6).3 As support for this position, American Family
notes the additional insured endorsement provided as follows:
3

The parties agree that the phrase “ongoing operations” is not defined in the Policy. (Plaintiff’s
Statement of Undisputed Material Facts, ¶ 18).
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A.
Section II—Who is An Insured is amended to include as an additional
insured the person(s) or organization(s) shown in the Schedule, but only with
respect to liability for “bodily injury”, “property damage” or “personal and
advertising injury” caused, in whole or in part, by
1

Your acts or omissions, or

2

The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured(s) at the
location(s) designated above.
B.
With respect to the insurance afforded to these additional insureds, the following
additional exclusions apply:
This insurance does not apply to “bodily injury” or “property damage” occurring
after
All work, including materials, parts or equipment furnished in connection with
such work, on the project (other than service, maintenance or repairs) to be
performed by or on behalf of the additional insured(s) at the location of the
covered operations has been completed.
(Id.). Based on these provisions, American Family posits that Commerce was an additional
insured only when Action was on the premises and doing actual work on behalf of Commerce,
not during the entire two and a half year duration of the Contract. (Id.).4
Under Missouri law, “where a policy is ambiguous it must be construed in favor of the
insured, ‘to the end that coverage is afforded ‘to the full extent that any fair interpretation will
allow.’’” Mendota Ins. Co. v. Ware, 348 S.W.3d 68, 74 (Mo. App. 2011), quoting Crossman v.
Yacubovich, 290 S.W.3d 775, 781 (Mo. App. 2009) (emphasis added; citation omitted).
Where there is ambiguity, insureds are entitled to a resolution of that ambiguity
consistent with their objective and reasonable expectations as to what coverage
would be provided. Not every ambiguity in an insurance policy is resolved
favorably to the insured, but only where a reasonable person in the position of the
adherent would have expected coverage.

4

There is no dispute that Action was not on Commerce’s premises at the time of the accident.
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Id. (internal quotation marks and citations omitted). Thus, “the question that must be answered
is whether [Commerce], by virtue of being an additional insured under [Action’s] insurance,
expected to be insured for [Ms. Borgetti’s] injuries.”

Employers Ins. Co. of Wausau v.

Harleysville Ins. Co. of New Jersey, 2008 WL 4066329, at *4 (D. N.J. Aug. 26, 2008).
Upon consideration the Court finds that American Family’s argument is unpersuasive,
because it improperly focuses on whether, at the time of the accident, Action actively was
providing landscaping services at Commerce’s bank location. Employers Ins. Co. of Wausau,
2008 WL 4066329, at *4. Instead, under the express terms of the Policy the Court finds the
proper focus is whether Ms. Borgetti’s bodily injury was caused by Action’s acts or omissions in
the performance of its ongoing operations for Commerce. Returning to the Contract, Action’s
duties included “maintain[ing] a regular systematic inspection routine of the premises to the end
that the Services enumerated [in the Specifications] herein shall be performed in a good and
workmanlike manner and with all due safety precautions at all times,” and pruning trees that
constituted health or safety hazards “at any time of the year as required.” (See Contract, P. 1;
Specifications, P. 4). Under these circumstances, it is clear that even though Ms. Borgetti’s
accident did not occur while Action was on the premises, it nevertheless arose out of Action’s
ongoing obligation to provide a safe environment with respect to tree trimming. Employers Ins.
Co. of Wausau, 2008 WL 4066329, at *5; see also Sabia Landscaping v. Merchants Mut. Ins.
Co., 2013 WL 6022129 (E.D. Pa. Nov. 6, 2013) (holding that because the snow removal contract
included ongoing and as-needed obligations, the plaintiff had not completed all the work called
for in the contract at the completion of its active snow removal). This portion of American
Family’s Motion for Summary Judgment must therefore be denied.
B.

Duty To Eliminate Traffic Obstructions

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American Family next asserts it may not be held liable, as the Contract did not require
Action to eliminate any potential traffic obstructions from Jeffco Boulevard.

(American

Family’s Memo in Support, P. 6). This assertion is easily disposed of, because as noted above
the Contract required Action to “maintain a regular systematic inspection routine of the premises
to the end that the Services enumerated [in the Specifications] herein shall be performed in a
good and workmanlike manner and with all due safety precautions at all times,” and to prune
trees that constituted health or safety hazards “at any time of the year as required.” (See
Contract, P. 1; Specifications, P. 4). These obligations were imposed without limitation, and
thus the Court finds Action’s duties included pruning trees that impaired motorists’ sightlines
along Jeffco Boulevard.5 This portion of American Family’s motion will therefore be denied.
C.

Duty To Defend

American Family next asserts the Contract imposed no obligation upon either itself or
Action to defend Commerce in the underlying litigation. (American Family’s Memo in Support,
PP. 6-7). While this may be true, it is the terms of the Policy that imposed the obligation. In
other words, because Commerce was an additional insured under the Policy, it was entitled to a
defense whenever a claim was made that potentially fell within the Policy’s coverage. (See
Policy, PP. 9, 19 (emphasis added) (“We will pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies. We will have the right and duty to defend the insured against any ‘suit’6
seeking those damages.”).

5

The Contract did not, as posited by American Family, merely require Action to maintain the
health and good looks of the landscaping for Commerce.
6
“Suit” is defined in the Policy as “a civil proceeding in which damages because of ‘bodily
injury’, ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies
are alleged.” (Policy, P. 29).
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D.

Excess Coverage

American Family finally asserts that because its coverage was excess over Zurich’s
liability coverage, it owed no duty to defend or indemnify Commerce until Zurich’s limit of
liability was exhausted. (American Family’s Memo in Support, PP. 7-8). As support for this
position, American Family notes the following provision in the Policy:
4.

Other Insurance
If other valid and collectible insurance is available to the insured for a loss
we cover under Coverages A or B of this Coverage Part, our obligations
are limited as follows:….
b.

Excess Insurance
This insurance is excess over….
Any other primary insurance available to you covering liability for
damages arising out of the premises or operations, or the products
and completed operations, for which you have been added as an
additional insured by attachment of an endorsement.

When this insurance is excess, we will have no duty under Coverages A or
B to defend the insured against any “suit” if any other insurer has a duty to
defend the insured against that “suit.”
(Id., quoting Policy, P. 26).
In response, Commerce points out that the above provision applies to Action, not to
Commerce. In other words, substituting “Action” for “you”, as appropriate (see Policy, P. 19),
the quoted provision reads as follows: “This insurance is excess over….Any other primary
insurance available to [Action] covering liability for damages arising out of the premises or
operations, or the products and completed operations, for which [Action] ha[s] been added as an
additional insured by attachment of an endorsement.” American Family makes no contention
that Action is named as an additional insured in the Zurich or any other policy, and thus the
applicable Policy provision states that in the absence of a listed exception, American Family’s

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insurance is primary. (See Policy, P. 26 (“This insurance is primary except when b. below
applies.”). This portion of American Family’s Motion for Summary Judgment will therefore be
denied.
2

Commerce’s Motion For Summary Judgment

A. Settlement And Attorneys’ Fees
In its motion, Commerce asserts that because American Family refused to defend and
indemnify Commerce per the terms of the Policy, it is entitled to damages equal to the sum it
paid to settle Ms. Borgetti’s claim, plus the attorneys’ fees and expenses that would have been
covered had American Family fulfilled its obligations. (Plaintiff’s Suggestions in Support of
Motion for Summary Judgment (“Commerce’s Memo in Support”), P. 13). American Family
counters that Commerce is only entitled to expenses and fees incurred after the tender.
(Defendant’s Suggestions in Opposition to Plaintiff’s Motion for Summary Judgment, PP. 3-5).7
Upon consideration, the Court agrees that Commerce is entitled to the settlement amount
it paid, plus the attorneys’ fees and expenses it incurred after Zurich tendered the defense of
Commerce to American Family. The Court will grant the parties until Friday, April 1, 2016,
within which to submit their respective positions with respect to the appropriate amount of fees
and expenses.
B. Vexatious Refusal To Pay
Commerce finally asserts that it is entitled to statutory penalties pursuant to Missouri
Revised Statute Section 375.420. (Commerce’s Memo in Support, P. 14). Section 375.420
provides as follows:

7

American Family also asserts Commerce is entitled to no attorneys’ fees because Zurich’s
counsel was in-house, but the Court rejects this assertion.
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In any action against any insurance company to recover the amount of any loss
under a policy of automobile, fire, cyclone, lightning, life, health, accident,
employers’ liability, burglary, theft, embezzlement, fidelity, indemnity, marine or
other insurance except automobile liability insurance, if it appears from the
evidence that such company has refused to pay such loss without reasonable cause
or excuse, the court or jury may, in addition to the amount thereof and interest,
allow the plaintiff damages not to exceed twenty percent of the first fifteen
hundred dollars of the loss, and ten percent of the amount of the loss in excess of
fifteen hundred dollars and a reasonable attorney’s fee; and the court shall enter
judgment for the aggregate sum found in the verdict.
Upon consideration, the Court does not find that American Family’s refusal to pay was without
reasonable cause or excuse, and so Commerce’s Motion for Summary Judgment on Count II of
its Complaint will be denied.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff Commerce Bancshares, Inc.’s Motion for
Summary Judgment (ECF No. 36) is GRANTED in part, and judgment is entered in
Commerce’s favor on Count I of its Complaint. Judgment is entered in Defendant American
Family’s favor on Count II of the Complaint.
IT IS FURTHER ORDERED that Defendant American Family Mutual Insurance
Company’s Motion for Summary Judgment (ECF No. 31) is DENIED.
IT IS FURTHER ORDERED that the parties are granted until Friday, April 1, 2016,
within which to brief their respective positions on the appropriate amount of attorneys’ fees and
expenses to be awarded to Commerce.
Dated this 23rd Day of March, 2016.

/s/ Jean C. Hamilton
UNITED STATES DISTRICT JUDGE

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