Nationwide Affinity Insurance Company v. Laderoute et al
ORDER granting 10 motion for summary judgment. Signed on December 7, 2017, by Chief District Judge Greg Kays. (Law clerk)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
ST. JOSEPH DIVISION
NATIONWIDE AFFINITY INSURANCE
Plaintiff and Counter-claim Defendant, )
SCOTT LADEROUTE and
PORTERS BUILDING CENTERS, INC.,
ORDER GRANTING SUMMARY JUDGMENT
This declaratory judgment action concerns insurance coverage for a lawsuit filed by
Defendant Porters Building Centers Inc. (“Porters”) against Defendant Scott Laderoute
(“Laderourte”) in the United States District Court for the Western District of Missouri, Case No.
16-cf-6055 (“the underlying suit”). The underlying suit alleges Laderoute conspired with several
of Porters’ employees to steal proprietary information from Porters, and then used the
information to solicit business for Laderoute’s business, Sprint Lumber.
Plaintiff Nationwide Affinity Insurance Company (“Nationwide”) provided Laderoute’s
home owner’s insurance during the relevant time.
Nationwide provided a defense in the
underlying suit to Laderoute under a reservation of rights.
It filed this lawsuit seeking a
declaration that Laderoute is not entitled to coverage or indemnification in the underlying suit.
Now before the Court is Nationwide’s Motion for Summary Judgment (Doc. 10). The
Court GRANTS the motion because the “business pursuits” exclusion in Nationwide’s policy
denies coverage, and Laderoute’s proffered affirmative defenses fail as a matter of law.
Summary Judgment Standard
A moving party is entitled to summary judgment “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.” Fed. R. Civ. P. 56(a). The nonmoving party may resist summary judgment by asserting
affirmative defenses, but it must support these defenses with specific facts. Hiland Partners GP
Holdings, LLC v. Nat’l Union Fire Ins. Co., 847 F.3d 594, 601 (8th Cir. 2017).
The facts here are not in dispute.
Chronology of Events
Nationwide issued homeowners policy number HOA 0050277429 (the “Policy”) to
Laderoute. The Policy was in effect from December 17, 2015, to December 17, 2016.
On May 9, 2016, Porters filed the underlying suit against Laderoute. On August 10,
2016, Nationwide sent what it purports is a reservation of rights letter to Laderoute’s attorney.
Nationwide’s six-page letter accurately summarized the allegations made in Porters’ initial
Petition as follows:
The Complaint includes claims for (1) violation of the Computer
Fraud and Abuse Act, 18 U.S.C. § 1030; (2) violation of the
Sherman Antitrust Act, (3) computer tampering (4) violation of the
Missouri Uniform Trade Secrets Act; (5) breach of restrictive
covenants (6) breach of the duty of loyalty; (7) tortious
interference with a business expectancy; (8) trespass; and (9) civil
The Complaint alleges that former employees of Porters Building
Centers, Inc. resigned to work for a competitor, Sprint Lumber.
(Plf.s’ Compl. ¶¶ 26, 27). The Complaint alleges that the former
employees had planned to begin working for Spring Lumber
months prior to resigning their positions at Porters. (Plf.’s Compl.
¶¶ 28). During these months the former employees were allegedly
directly competing against Porters while employed with Porters.
(Plf.’s Compl. ¶¶ 28).
In addition to naming the former employees as defendants, the suit
also names your client as a defendant. The Complaint contains the
following allegations against your client:
Defendants solicited business of Porters’ customers on
behalf of Sprint Lumber. (Plf.’s Compl. ¶¶ 46, 54).
Trespass by Defendant Downer, on behalf of Defendant
Laderoute and Sprint Lumber, where Mr. Downer entered
the Porters store located in Elwood, Kansas, and accessed a
file cabinet containing customer files. (Plf.’s Compl. ¶ 56).
Defendants attempted to form a monopoly that puts Porters
out of business (Plf.’s Compl. ¶¶ 36–38, 40).
Defendant Reynolds prepared and Defendant Downey sent
Defendant Laderoute confidential information to Sprint
Lumber about Porters’ operations, including current
employee salaries, rental costs, and business structure.
(Plf.’s Compl. ¶ 39).
Defendant Laderoute affirmatively pressed the former
employees to bring their customers to Sprint Lumber.
(Plf.’s Compl. ¶ 43, 44).
Sprint Lumber agreed to set up Sprint e-mail accounts, cell
phones, and business cards for the former employees.
(Plf.’s Compl. ¶ 44).
Defendants planned to copy Porters’ protected trade secrets
and confidential information. (Plf.’s Compl. ¶ 47).
Defendant Downey sent Defendant Laderoute an email
with detailed information about Porters’ inventory, its
delivery operation, and strategies for serving various
localities. (Plf.’s Compl. ¶ 52).
Defendants Sprint Lumber and Defendant Laderoute
knowingly conspired with Defendant Downy and Higdon
to access Porters’ computers and mobile devices, delete
Porters’ proprietary information, and take Porters’
proprietary information. (Plf.’s Compl. ¶ 84).
Defendants disclosed and used Porters’ trade secrets
without consent and used trade secrets to compete against
Porters. (Plf.’s Compl. ¶ 90).
Defendants intentionally interfered with Porters’ business
expectancy by undercutting Porters’ business and
destroying Porters’ information pertaining to its customers.
(Plf.’s Compl. ¶ 110).
Defendants coordinated and agreed to engage in a course of
conduct in violation of statutory and common-law duties.
(Plf.’s Compl. ¶121).
Letter at 4-5 (Doc. 11-4). After stating that the damages claimed in the underlying suit were not
covered under the policy, the letter also identified “multiple applicable exclusions.” Id. at 5. For
First, the policy excludes from coverage any damages which arise
out of or in connection with a “business” conducted by your client,
Scott Laderoute. From the Complaint, it appears that all of the
damages either arise out of or in connection with Sprint Lumber,
which is owned by Mr. Laderoute. Accordingly, this exclusion
bars coverage for such damages.
Id. at 5-6.
Nationwide began providing Laderoute with a defense after it received the initial Petition,
and it is still providing him with a defense.
On October 3, 2016, Porters filed its Second Amended Petition (“the Amended
Petition”). The Amended Petition was very similar to the initial Petition, but brought one less
count. It alleged claims for violating the Computer Fraud and Abuse Act (Count I), Computer
Tampering (Count II), violating the Missouri Uniform Trade Secrets Act (Count III), Breach of
Restrictive Covenants (Count IV), Breach of the Duty of Loyalty (Count V), Tortious
Interference with Business Expectancy (Count VI), and Civil Conspiracy (Count VII). It also
claimed damages of lost revenue, cost to replace and recover destroyed data, lost good-will, and
damaged customer relationships.
On February 8, 2017, Nationwide filed this declaratory judgment action. On March 3,
2017, Laderoute filed his answer and a counterclaim alleging he is entitled to coverage under the
The Policy is organized into different parts, with no index or table of contents. Each part
is organized into different segments, and the different segments are organized in the fashion of
an outline with different capital lettered sections, numbered subsections, and lower-case lettered
sub-subsections. The Policy, including endorsements, is about fifty pages long.
The primary portion of the Policy is twenty-eight pages long. It consists of various
EXCLUSIONS,” “SECTION I – CONDITIONS,” “SECTION II – LIABILITY COVERAGES,”
“SECTION II – EXCLUSIONS,” “SECTION II – ADDITIONAL COVERAGES,” “SECTION
II – CONDITIONS,” and finally “SECTIONS I AND II – CONDITIONS.” Following the
primary portion of the Policy are approximately nine endorsements of various lengths.
The following Policy language is relevant to this dispute. The “DEFINITIONS” section
of the Policy states:
In addition, certain words and phrases are defined as follows:
“Bodily Injury” means bodily harm, sickness or disease,
including required care, loss of services and death that
A trade, profession or occupation engaged in on a
full-time, part-time, or occasional basis; or
Any other activity engaged in for money or other
Under Section II “Occurrence” means an accident,
including continuous or repeated exposure to substantially
the same general harmful conditions, which results, during
the policy period, in:
“Bodily injury”; or
Under Section II, “Property damage” means physical injury
to, destruction of, or loss of use of tangible property.
Policy at 1-2, ECF at 5-6 (emphasis added). 1
Twenty pages later, in the “SECTION II – EXCLUSIONS” portion of the Policy, it
COVERAGE E – Personal Liability and COVERAGE F –
Medical Payments to Others
Coverages E and F do not apply to the following:
Expected or Intended Injury
“Bodily Injury” or “property damage” which is expected or
intended by an “insured” even if the resulting “bodily
injury” or “property damage”;
Is of a different kind, quality or degree than initially
expected or intended; or
Throughout this order, the first set of page numbers refers to the page numbers found in the lower-right hand
corner of the Policy or endorsement, the second set of numbers refer to the page numbers automatically given to the
page by the ECF system in ECF document 1-1.
Is sustained by a different person, entity, real or
personal property, than initially expected or
“Bodily injury” or “property damage” arising out of
or in connection with a “business” conducted from
an “insured location” or engaged in by an “insured”,
whether or not the “business” is owned or operated
by an “insured” or employs an “insured”.
This Exclusion E.2. applies but is not limited to an
act or omission, regardless of its nature or
circumstance, involving a service or duty rendered,
promised, owed, or implied to be provided because
of the nature of the “business”.
Policy at 21, ECF at 25. This section is followed by a section “F. COVERAGE E – Personal
Liability” and a section “G. COVERAGE F – Medical Payments to Others”.
Most importantly, the Policy contains a four page endorsement titled “PREMIER
HOMEOWNERS ENDORSEMENT.” Above this caption, it states, “THIS ENDORSEMENT
CHANGES THE POLICY. PLEASE READY IT CAREFULLY.” Below the caption it states:
The following definition is added:
“Personal injury” means injury arising out of one or more of the
following offenses during the policy period:
false arrest, detention or imprisonment, or malicious
libel, slander or defamation of character; or
invasion of privacy, wrongful eviction or wrongful entry.
SECTION II – LIABILITY COVERAGES
COVERAGE E – Personal Liability is deleted and replaced by
COVERAGE E – Personal Liability
If a claim is made or a suit is brought against an “insured” for damages
because of “bodily injury” or “property damage” caused by an
“occurrence” or “personal injury” to which this coverage applies, we will:
Pay up to our limit of liability for the damages for which an
“insured” is legally liable; and
Provide a defense at our expense by counsel of our choice, even if
the suit is groundless, false, or fraudulent. We may investigate an
settle any claim or suit that we decide is appropriate. Our duty to
settle or defend ends when the amount we pay for damages
resulting from the “occurrence” has been exhausted by payment of
a judgment or settlement.
SECTION II – EXCLUSIONS in paragraphs E.,F., and G. do not apply
to “personal injury”.
“Personal injury” coverage does not apply to:
injury arising out of the “business” pursuits of an “insured”;
Premier Homeowners Endorsement at 1, 3-4, ECF 39, 41-42 (emphasis added).
Nationwide owes no duty to defend or indemnify Laderoute because the “business
pursuits” exclusion applies to the injuries claimed in the underlying suit.
Nationwide argues it is entitled to summary judgment for several reasons, the first being
that the “business pursuits” exclusion in the Premier Homeowners endorsement denies coverage.
Because the Court agrees and this argument is dispositive, the Court will not address
Nationwide’s other arguments in favor of summary judgment.
The “business pursuits” exclusion applies.
The underlying suit asserts a variety of economic and business tort claims. It seeks
damages for lost revenue, cost to replace and recover destroyed data, lost good-will, and
damaged customer relationships. These damages are plainly injuries arising out of Laderoute’s
business pursuits with Sprint Lumber, hence they are excluded under the Policy.
The Policy is not ambiguous
Laderoute does not deny this exclusion exists; rather, he claims it is inconsistent with the
clause preceding it, that is, the clause that reads “SECTION II—EXCLUSIONS in paragraphs
E., F., and G. do not apply to ‘personal injury’.” Laderoute argues the policy is ambiguous
because it grants coverage in one place and then takes it away in another. Laderoute also
contends the endorsement uses the phrase “deleted and replaced by” in a confusing way and adds
to the Policy’s ambiguity.
Under Missouri law, an insurance contract is ambiguous “when there is duplicity,
indistinctness, or uncertainty in the meaning of the language in the policy.
ambiguous if it is reasonably open to different constructions.” Owners Ins. Co. v. Craig, 514
S.W.3d 614, 617 (Mo. 2017). It is also ambiguous if “one section of an insurance policy
promises coverage and another takes it away.”
But Missouri law recognizes that,
“[i]nsurance policies are read as a whole, and the risk insured against is made up of both the
general insuring agreement as well as the exclusions and definitions.” Id. And “[a]n insured
cannot create an ambiguity by reading only a part of the policy and claiming that, read in
isolation, that portion of the policy suggests a level of coverage greater than the policy actually
provides when read as a whole.” Id. A policy “must be construed as a whole and every clause
must be given some meaning if it is reasonably possible to do so.” Brugioni v. Maryland Cas.
Co., 382 S.W. 707, 712 (Mo. 1964).
In construing the terms of an insurance policy, a court applies the meaning which an
ordinary person of average understanding who is purchasing insurance would attach to the
language, and resolves ambiguities in favor of the insured. Burns v. Smith, 303 S.W.3d 505, 509
(Mo. 2010). Finally, Missouri law “strictly construes exclusionary clauses against the drafter,
who also bears the burden of showing the exclusion applies.” Id. at 510.
After carefully reading the entire Policy, the Court finds that an ordinary person shopping
for insurance would understand that the Premier Homeowners Endorsement excluded personal
liability coverage for the claims raised in the underlying lawsuit. Granted, the Policy could be
written more clearly and organized in a way that is easier to follow, but it is still clear that the
Premier Homeowners Endorsement changes the Policy by excluding personal liability coverage
for acts taken while running a business such as the Sprint Lumber company. The Policy is not
ambiguous; it cannot be reasonably read as extending personal liability coverage to business torts
committed by Laderoute with the Sprint Lumber company.
Nationwide did not waive this coverage defense.
Laderoute also claims that Nationwide is not entitled to summary judgment because it
waived any coverage defenses.
Laderoute suggests that whether a party’s conduct can be
construed as a waiver is question of fact. He contends the reservation of rights letter Nationwide
sent him does not qualify as a reservation of rights letter under Missouri law because it did not
clearly and unambiguously explain how the allegations in the initial Petition created coverage
issues. Alternately, even if it was a valid reservation of rights letter, Nationwide waived any
coverage defenses by not sending another reservation of rights letter after Porter filed the
These arguments are unavailing. As a threshold matter, a court may decide as a matter of
law that a defense of waiver is not applicable, and so enter summary judgment. See, e.g., Safeco
Ins. Co. of Am. v. Rogers, 968 S.W.2d 256, 258 (Mo. App. 1998) (holding an insurer did not
waive its coverage defenses under the policy by initially declining to provide coverage and then
challenging coverage in a declaratory judgment action). And the record here shows Nationwide
has not waived its defense that coverage is precluded by the “business pursuits” exclusion.
The letter was a valid reservation of rights letter.
A reservation of rights letter is a means by which, when coverage is in doubt, the insurer
offers to defend the insured while reserving some or all of its policy defenses in case the insured
is found liable. City of Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1060 (8th Cir.
1979). By notifying the insured of its reservation of rights prior to any determination of liability,
the insurer suspends the operation of waiver and estoppel. Id. The purpose of a reservation of
rights letter is to enable an insured to make an informed decision as to whether he should take
some action in order to protect his interest, such as retaining an attorney, because of a possible
conflict of interest between himself and his insurer. Allan D. Windt, Insurance Claims &
Disputes: Representation of Insurance Companies and Insureds § 2.14 (5th ed. 2011). If the
insurer decides to defend the insured subject to a reservation of rights, the insured may elect to
allow the insurer to defend him, or he may refuse to allow a defense under a reservation of rights,
instead retaining his own attorney to defend himself and perhaps sue the insurer later. Safeco
Ins. Co. of Am., 968 S.W.2d at 258.
A typical reservation of rights letter does most, if not all, of the following: (1) identifies
the policy at issue; (2) quotes, or at least refers to, the relevant policy provisions and identifies
any terms, conditions, or exclusions which may bar coverage; (3) refers to specific, relevant
allegations in the complaint; (4) identifies which claims may not be covered; (5) explains in
detail the basis for the insurer’s coverage position; (6) sets forth the proposed arrangement for
providing a defense and, depending on the law of the jurisdiction, advises the insured of its right
to independent defense counsel; (7) advises the insured of any actual or potential conflicts of
interest between the insurer and the insured; (8) reserves the right to withdraw from the defense;
(9) contains a general reservation of rights, including the right to assert other defenses the insurer
may subsequently learn to exist during further investigation; and (10) uses the words
“reservation of rights.” 1 Leo Martinez, Marc S. Mayerson & Douglas R. Richmond, New
Appleman Insurance Law Practice Guide § 11.11[b] (2012); 14 Steven Plitt, Daniel
Maldonado, Joshua D. Rogers & Jordan R. Plitt, Couch on Insurance § 202:47 (3d ed. 2013).
Nationwide’s August 10, 2016, letter does all of these things. In particular, it clearly and
unambiguously explains how the allegations in the underlying suit create coverage issues. It
identifies the relevant Policy provisions, recounts the allegations in the underlying suit
implicating these provisions, links these provision to the allegations with sufficient detail, and
then states a clear conclusion. It states: “[T]he policy excludes from coverage any damages
which arise out of or in connection with a ‘business’ . . . [I]t appears that all of the damages
either arise out of or in connection with Sprint Lumber, which is owned by Mr. Laderoute.
Accordingly, this exclusion bars coverage for such damages.” This was sufficient to make a
valid reservation of rights of the “business pursuits” exclusion.
Nationwide did not have to send a second reservation of rights letter.
Finally, Laderoute contends that by initially providing him with a defense under a
reservation of rights, continuing that defense after Porters filed the Amended Petition without
sending another reservation of rights letter, and then not filing this declaratory judgment action
until February 8, 2017, a question of fact has somehow arisen concerning whether Nationwide
impliedly waived its right to coverage defenses which prevents the entry of summary judgment.
This argument is without merit. As the nonmoving party, Laderoute may resist summary
judgment by asserting an affirmative defense such as waiver, but he must support it with specific
facts. See Hiland Partners GP Holdings, LLC, 847 F.3d at 601. Waiver is the intentional
relinquishment of a known right. Smith v. Maryland Casualty Co., 500 S.W.3d 244, 250 (Mo.
App. 2015). And if a waiver is alleged to be implied from a party’s conduct, “the conduct must
clearly and unequivocally show a purpose to relinquish the right.” Brown v. State Farm Mut.
Auto Ins. Co., 776 S.W.2d 384, 386-87 (Mo. 1989). The Court does not see how the facts
identified above—providing a defense under a reservation of rights, continuing that defense after
an amended petition is filed without sending an additional reservation of rights letter, and then
filing a declaratory judgment action—support an inference that Nationwide impliedly waived its
coverage defenses. Laderoute has not identified any analogous cases suggesting that it does, 2
nor can the Court find any. Consequently, the Court holds Laderoute has not identified facts
capable of supporting an implied waiver affirmative defense, and Nationwide is entitled to
summary judgment on its declaratory judgment claim.
Laderoute has cited one case, Smith v. Maryland Casualty Company, 500 S.W.3d 244 (Mo. App. 2015), but that
case does not support his position. Smith concerned two separate lawsuits. In the first lawsuit, the insurer defended
the insured pursuant to a reservation of rights. 500 S.W.3d at 246. The trial court then dismissed the case for failure
to prosecute. Id. at 247. The plaintiff later filed a second lawsuit. Id. The insurer did not send a second reservation
of rights letter to the insured, but continued its defense as if it were a continuation of the same lawsuit. Id. The
insured then entered an agreement with the plaintiff under Mo. Rev. Stat. § 537.065 and informed the insurer he
would no longer accept a defense under a reservation of rights. Id. at 247-48. In the subsequent equitable
garnishment action, the trial court granted summary judgment against the insurer, holding it had waived its coverage
defenses because it had not notified the insured it was defending the second lawsuit under a reservation of rights. Id.
at 248. The court of appeals, however, reversed, holding the plaintiff had not demonstrated it was entitled to
judgment as a matter of law. Id. at 250. The Court does not see how Smith supports Laderoute’s position.
For the foregoing reasons, Nationwide’s Motion for Summary Judgment (Doc. 10) is
GRANTED. In light of this ruling, the Court also grants Nationwide summary judgment on
Defendant Laderoute’s counterclaim for declaratory judgment.
IT IS SO ORDERED.
Date: December 7, 2017
/s/ Greg Kays
GREG KAYS, CHIEF JUDGE
UNITED STATES DISTRICT COURT
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