First Bancshares, Inc. v. St. Paul Mercury Insurance Company et al
ORDER granting 41 Motion for Summary Judgment. (Schroeppel, Kerry)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
FIRST BANCSHARES, INC., and
FIRST HOME SAVINGS BANK,
ST. PAUL MERCURY INSURANCE
VICKY J. DOOMS,
Case No. 10-3370-CV-S-RED
Before the Court is St. Paul Mercury Insurance Company's Motion for Summary Judgment
and Suggestions in Support (Doc. 41). Defendant/Third-Party Plaintiff St. Paul Mercury Insurance
Company ("St. Paul") requests the Court enter summary judgment in its favor which would dispose
of all claims asserted by First Bancshares, Inc. and First Home Savings Bank (collectively the
"Plaintiffs") against it. For the reasons below, the Court GRANTS the Motion for Summary
St. Paul is an insurance company that issued an insurance policy ("Policy") to First
Banchares, Inc. ("First Banchsares"). First Home Savings Bank ("First Home"), a subsidiary of First
Bancshares, was an insured under the Policy. Part of the coverage under the Policy was to insure
Plaintiffs against any claim of an 'Employment Practices Act,' which includes a claim of wrongful
discharge by a former employee. Under the terms of the policy, coverage was not to extend to "any
claim arising from any such fact, circumstance, or situation to the extent the claim is against an
Insured who knew of such fact, circumstance or situation prior to issuance of the proposed policy.”
(Ex. C-1 p. 5 Doc. 41-4). Plaintiffs were asked to provide "any knowledge or information of any
fact, circumstance or situation related to any coverage that is available under this policy which could
reasonably give rise to a claim against them.” Id. Coverage under the policy extended between July
1, 2007 to July 1, 2010.
Vicky Dooms ("Dooms"), a former employee of First Home, was terminated by First Home
on April 12, 2007. On April 29, 2007 Dooms filed an application for unemployment benefits with
the Missouri Division of Employment Security ("Division"). Dooms lost on her initial application
and filed an appeal on May 21, 2007, which she again lost. On October 14, 2009 Dooms filed a
lawsuit against Plaintiffs seeking damages for what she claims was a wrongful discharge of her
After Dooms' suit was filed, Plaintiffs sought coverage under the Policy and eventually St.
Paul sent a letter to Plaintiffs notifying Plaintiffs that coverage would not extend to Dooms' lawsuit.
In response, Plaintiffs filed this lawsuit against St. Paul in state court. Plaintiffs assert two claims
against St. Paul. First, Plaintiffs seek a declaratory judgment against St. Paul indicating that the
Policy covers Dooms' lawsuit asserted against them and second, Plaintiffs seek a recovery of
damages incurred for having to defend Dooms' lawsuit. St. Paul removed the state court action to
federal court and added Dooms as a third-party defendant so that any determination concerning
coverage of Dooms' claim under the Policy will be binding on Dooms as well as Plaintiffs.
Now St. Paul moves for summary judgment on the basis that under the terms of the Prior
Knowledge1 provision of the Policy, Dooms' wrongful discharge claim against Plaintiffs is not
covered under the policy and therefore, summary judgment should be entered in St. Paul's favor on
On a motion for summary judgment, a court must view the record in a light most favorably
to the nonmoving party. Taylor v. St. Louis Cnty. Bd. of Election Comm’rs, 625 F.3d 1025, 1026-27
(8th Cir. 2010). Summary judgment is appropriate where "there are no genuine issues of material
fact and the moving party is entitled to judgment as a matter of law. Id.
The sole basis on which St. Paul asserts it is entitled to summary judgment is because the
Prior Knowledge provision of the Policy excludes coverage. The provision, as noted above,
provides that "any claim arising from any such fact, circumstance, or situation to the extent the claim
is against an Insured who knew of such fact, circumstance or situation prior to issuance of the
proposed policy” is not covered under the Policy. (Ex. C-1 p. 5 Doc. 41-4). The provision describes
what constitutes 'prior knowledge' as "any knowledge or information of any fact, circumstance or
situation related to any coverage that is available under this policy which could reasonably give rise
to a claim against [the Insureds].” Id. St. Paul claims that a determination of whether the
proceedings before the Division satisfies the Prior Knowledge provision consists of two elements.
First is whether Plaintiffs knew of facts, circumstances, or situations which could reasonably give
rise to a claim and second, whether Dooms' state suit against Plaintiffs arises from facts,
The term 'prior knowledge,' used to describe the provision at issue, is not specifically used
in the Policy.
circumstances or situations known to Plaintiffs. St. Paul's position is that the proceedings before the
Division in which Dooms' applied for unemployment benefits constituted prior knowledge under
the provision because in Dooms' initial application and again on appeal, she claimed she was
retaliated against for being a 'whistleblower' with respect to two chief executive officers she alleged
engaged in unethical conduct.
Plaintiffs do not dispute the second requirement, namely that Dooms' lawsuit alleging she
was unlawfully discharged 'arises from' facts, circumstances or situations encompassing the
proceedings before the Division. As St. Paul notes, under Missouri law the phrase 'arising out of'
is interpreted broadly, requiring only a "simple causal relationship" as opposed to a proximate cause
standard. Capitol Indem. Corp. v. 1405 Assocs., 340 F.3d 547, 550 (8th Cir. 2003). Both the state
lawsuit and the application for unemployment benefits concern Dooms' alleged unlawful termination
for what she considered to be retaliation for being a 'whistleblower.' Plaintiffs also do not dispute
that they were aware of the proceedings in front of the Division before entering into the insurance
contract with St. Paul.
Therefore, the issue becomes whether the proceedings before the Division encompass facts,
circumstances, or situations which could have reasonably given rise to a claim. In response,
Plaintiffs argue that the proceedings before the Division do not meet the requirements of the Prior
Knowledge provision. Plaintiffs argue that the proceedings in front of the Division, which resolved
in their favor, and the fact that Dooms never gave any indication of any threat of a lawsuit after the
proceedings concluded and before her lawsuit against Plaintiffs was filed demonstrate that the
requirements of the Prior Knowledge provision are not met.
St. Paul alleges that a reasonable person standard should control the determination of
whether the proceedings before the Division satisfies the requirements of the Prior Knowledge
provision and cites to authority to support its position, although none of the cases apply Missouri
law. However, in addition to the cases relied upon by St. Paul, the Missouri Supreme Court seems
to agree with their contention, at least from the standpoint that Plaintiffs' subjective intent should
not control the analysis of whether the proceedings before the Division are sufficient. See Wittner,
Poger, Rosenblum & Spewak v. Bar Plan Mut. Ins. Co., 969 S.W.2d 749, 754 (Mo. 1998) (en banc)
(determining that a contract provision providing coverage for acts occurring before the policy period
as long as the "Insured had no basis to believe that the Insured" had committed an act giving rise to
liability was "not the subjective belief of the insured" but rather derived from the language in the
In Wittner, the Missouri Supreme Court upheld a determination that a law firm sued for
malpractice was not covered under their malpractice insurance policy. Id. at 755. The policy at
issue provided coverage for acts occurring before the policy coverage period as long as the law firm
"had no basis to believe" that it had committed an act subjecting it to liability. Id. at 754. The Court
ultimately determined that there was a basis to believe the law firm, through its attorneys, committed
an act subjecting it to liability where a default decree was entered against one of its clients because
an attorney failed to timely respond to a divorce petition. That same client later sent two letters to
the firm complaining of the default decree entered against her. Id. at 750-51. The first letter
indicated that the client was upset with the firm's negligence and the second letter indicated that
there was a strong possibility she may file a lawsuit against the firm. Id.
The facts are not as strong in St. Paul's favor as those in Wittner; however, from an objective
perspective, the facts in the record demonstrate that the facts, circumstances or situations
surrounding the proceedings in the Division could reasonably give rise to a claim, which is the
language utilized in the Policy. Although the proceedings before the Division ended in a
determination in Plaintiffs' favor, the basis for the proceedings was Dooms' termination. Throughout
the proceedings Dooms claimed she was terminated as retaliation for informing on certain practices
of First Bank, which is the same factual basis of her state lawsuit against Plaintiffs. Moreover, even
though there is no evidence in the record to suggest that Dooms directly threatened Plaintiffs with
a lawsuit, the nature of her allegations during the proceedings could reasonably give rise to a claim.
See City of Brentwood, Mo. v. Northland Ins. Co., 397 F. Supp. 2d 1143, 1146-47 (E.D. Mo. 2005)
(finding a condition precedent provision excluded coverage where the insured knew of a former
employee's charges of discrimination before the MCHR and EEOC2 and the insured "could have
reasonably foreseen that a claim might be made arising from those charges3"). For these reasons the
Court finds that knowledge of the proceedings before the Division was sufficient to satisfy the Prior
Knowledge provision excluding coverage under the Policy.
Plaintiffs also raise additional arguments in an attempt to demonstrate that summary
judgment in St. Paul's favor is not warranted. First, Plaintiffs note that the application for insurance
coverage submitted to St. Paul indicated that Plaintiffs were aware of facts, circumstances or
situations that arise under the Prior Knowledge provision. Plaintiffs seem to argue that St. Paul was
put on notice that Plaintiffs "had been involved in legal proceedings and had more information to
MCHR and EEOC are acronyms for the Missouri Commission on Human Rights and the
Equal Employment Opportunity Commission.
The policies provided that coverage would not extend if the insured "had any knowledge
of any circumstance likely to result in or give rise to a 'claim' nor could have reasonably foreseen
that a 'claim' might be made." Id.
provide the Insurer about those proceedings." (Opposition Doc. 46 p. 5-6). It is not clear exactly
what Plaintiffs' argument is with respect to indicating on the application that they were aware of
legal proceedings that could reasonably give rise to a claim. There is no provision in the Policy or
application which provides coverage for any such pre-policy period potential claims that are
disclosed by the insured. The Prior Knowledge provision is applicable regardless of whether or not
the matter is disclosed in the application. This is a non-issue. On the other hand, if there is any
inference to be drawn from these facts it is that Plaintiffs' affirmative response by checking "yes"
regarding potential legal claims and the argument herein that this was regarding the Dooms' claim
raises the inference that Plaintiffs did, in fact, consider that this claim "could reasonably give rise
to a claim against them." (Ex. C-1 p. 5 Doc. 41-4).
Plaintiffs' final argument in opposition to summary judgment is that two provisions in the
policy, the Prior Knowledge provision and an exclusion under the Employment Practices Liability
Insuring Agreement, render the Policy ambiguous. Their position is that the two clauses are in
contradiction with each other. The exclusion at issue provides that:
The insurer shall not be liable for Loss on account of any Claim made against any
Insured ... based upon, arising out of, or attributable to any prior or pending written
demand for monetary damages or non-monetary relief, administrative, regulatory or
arbitration proceeding or civil or criminal litigation against any Insured as of the
applicable Prior Litigation Date set forth in the Declarations, or the same or
substantially the same facts, circumstances or situations underlying or alleged therein
(Ex. A Doc. 41-1 p. 39).
St. Paul responds by arguing that the two policies do not contradict each other but are in fact
different provisions that operate to exclude coverage. St. Paul's position is that the Prior Knowledge
provision excludes coverage based upon the knowledge of facts, situations or circumstances known
to Plaintiffs at the time the Policy was entered into, whereas the exclusion operates to deny
"coverage for any claim based upon the same facts asserted in an actual claim made before the Prior
Litigation Date." (Reply Doc. 50 p. 9).
A contract is ambiguous when " 'there is duplicity, indistinctness, or uncertainty in the
meaning of the language in the policy.' " Jones v. Mid-Century Ins. Co., 287 S.W.3d 687, 690 (Mo.
2009) (en banc) (quoting Seeck v. Geico Gen. Ins. Co., 212 S.W.3d 129, 132 (Mo. 2007) (en banc)).
Furthermore, " 'language is ambiguous if it is reasonably open to different constructions.' " Id. The
Missouri Supreme Court has determined that where a contract contains a promise of something in
one provision but a different provision negates what is promised, the contract is ambiguous. Id.
The Court finds Plaintiffs' argument to be without merit for two reasons. First, it has not
been shown how the two separate provisions which operate to deny coverage contradict each other,
given that both provisions operate only to exclude coverage and neither provision provides coverage
that is later negated. Second, even if the Court were to assume the provisions were in contradiction
and therefore the Policy was ambiguous, Plaintiffs' own resolution of the ambiguity undermines their
position. Plaintiffs go on to argue that the provisions "may be reconciled ... by finding the Policy
provides coverage for claims arising out of facts or circumstances that were the subject of previous
litigation where the claims were not anticipated at the time of the Application." (Opposition Doc.
46 p. 11). This appears to be the same standard the Court previously applied in determining that
coverage was excluded. See Northland, 397 at 1147 (finding an ambiguity argument to be a 'red
herring' where the insurance contract interpreted in the insured's favor still operated to deny
coverage). Plaintiffs then contend that because Dooms lost on the proceedings before the Division,
did not appeal that determination and never threatened to later sue Plaintiffs, Plaintiffs could not
anticipate the current lawsuit asserted against them by Dooms. Notably, this is the same exact
argument Plaintiffs used in response to the argument that the Prior Knowledge provision denied
coverage. The Court has already found the proceedings before the Division were sufficient to deny
coverage under the Policy. As such, Plaintiffs' final argument is without merit.
For the above reasons, the Court GRANTS the Motion for Summary Judgment. Judgment
is hereby entered in favor of St. Paul and against Plaintiffs on Counts I and II.
IT IS SO ORDERED.
September 16, 2011
/s/ Richard E. Dorr
RICHARD E. DORR, JUDGE
UNITED STATES DISTRICT COURT
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