American Reliable Insurance Company v. Lockard et al
Filing
24
ORDER denying 14 Motion for Summary Judgment. Signed by Judge Dana L. Christensen on 1/2/2018. (ASG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
FILED
JAN 0 2 2018
Cle~. U.s
..
°:1ct
llAisaoutantana
Dtatr;ct Of
AMERICAN RELIABLE INSURANCE
COMPANY,
Plaintiff,
Court
CV 17-04-M-DLC
ORDER
vs.
LAWRENCE LOCKARD, and KAREN
JANE NELSON,
Defendants.
Before the Court is Plaintiff American Reliable Insurance Company's
("American Reliable") motion for summary judgment. For the reasons explained
below, the Court denies the motion.
BACKGROUND AND PROCEDURAL HISTORY
Lawrence Lockard ("Lockard") was employed by the United States Fish and
Wildlife Service ("USFWS") as a Regional Field Dive Officer. Karen Jane Nelson
("Nelson") also worked for the USFWS. On September 8, 2015, Nelson
accompanied Lockard into Quartz Lake in Glacier National Park to collect
information regarding lake trout. The trip entailed an overnight stay in a remote
USFWS cabin, and Lockard and Nelson slept in the same room in separate but
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adjacent beds. Nelson alleged that Lockard knew she had taken sleep medication,
waited for her to fall asleep, and then sexually assaulted her. Nelson claims that
the assault caused her damages, including anxiety, embarrassment, humiliation,
insomnia, nightmares, and emotional trauma.
On September 9, 2015, Nelson filed a civil Complaint (hereafter
"Underlying Complaint") against Lockard alleging that he negligently proceeded
with a sexual advance without her permission. Lockard tendered the Underlying
Complaint to American Reliable and requested a defense and indemnification.
During the relevant period of his employment with USFWS, Lockard was insured
by American Reliable, policy No. LOG000313-7 (the "Policy"). The Policy is a
standard "occurrence" based homeowner' s policy which provides coverage for
bodily injury and property damage. American Reliable filed this declaratory
action and now seeks summary judgment arguing that the policy precludes
coverage because the conduct alleged does not qualify as an "occurrence" under
the Policy, and that five Policy exclusions further preclude coverage:
1.
"Expected or Intended Injury Exclusion";
2.
"Business Exclusion" which excludes coverage for bodily injury;
3.
"Sexual Molestation, Corporal Punishment or Mental Abuse
Exclusion"·
'
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4.
"Assault and Battery Exclusion"; and
5.
"Punitive Damages Exclusion."
The bench trial in this matter is currently set for May 21, 2018.
LEGAL STANDARD
A party is entitled to summary judgment if it can demonstrate 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). Summary judgment is warranted where
the documentary evidence produced by the parties permits only one conclusion.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over
facts that might affect the outcome of the lawsuit will preclude entry of summary
judgment; factual disputes that are irrelevant or unnecessary to the outcome are
not considered. Id. at 248. In ruling on a motion for summary judgment, a court
must view the evidence "in the light most favorable to the opposing party." Tolan
v. Cotton, 134 S. Ct. 1861, 1866 (2014) (quoting Adickes v. S.H Kress & Co., 398
U.S. 144, 157 (1970)). "[T]he evidence of the nonmovant is to be believed, and
all justifiable inferences are to be drawn in his favor." Id. at 1863 (quoting
Anderson, 477 U.S. at 255). "[A]t the summary judgment stage the judge's
function is not himself to weigh the evidence and determine the truth of the matter
but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at
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249.
DISCUSSION
The interpretation of an insurance contract is a question of law for the
Court. Babcockv. Farmers Ins. Exchange, 999 P.2d 347, 348 (Mont. 2000). The
Court will construe terms according to their usual, commonsense meaning. Natl.
Farmers Union Property & Casualty Co. v. George, 963 P.2d 1259, 1261 (Mont.
1998). The interpretation should honor the objectively reasonable expectations of
the insured. Hanson v. Employers Mut. Cas. Co., 336 F. Supp. 2d 1070, 1075 (D.
Mont. 2004 ). Any ambiguities regarding coverage are construed against the
insurer. Hanson, 336 F. Supp. 2d at 1073. "An ambiguity exists when a contract
taken as a whole is reasonably subject to two different interpretations." Id.
(citation omitted); see also Modroo v. Nationwide Mut. Fire Ins. Co., 191 P.3d
389, 395 (Mont. 2008). However, a policy provision is not ambiguous just
because the parties disagree as to its interpretation, and "courts will not distort
contractual language to create an ambiguity where none exists." Giacomelli v.
Scottsdale Ins. Co., 221P.3d666, 672 (Mont. 2009).
I.
An "Occurrence" under the policy
American Reliable initially contends that there is no coverage under the
Policy because the Underlying Complaint does not allege an "occurrence" which
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would trigger a duty to defend and indemnify. American Reliable relies on New
Hampshire Ins. Group v. Strecker, 798 P.2d 130 (Mont. 1990), for the proposition
that all acts of sexual assault and molestation are "not accidental." Nelson claims
that because the Underlying Complaint alleges negligence, it is covered under the
Policy. Further, Lockard contends that under the Montana Supreme Court's recent
holding in Emplrs. Mut. Cas. Co. v. Fisher Building, Inc., 371P.3d375 (Mont.
2016), an "accident" may include intentional acts so long as the consequences of
those acts are not objectively intended or expected from the standpoint of the
insured.
According to the policy, an "Occurrence" is defined as:
... an accident, including continuous or repeated exposure to
substantially the same harmful conditions, which results, during the
policy period, in:
a. "bodily injury"; or
b. "property damage".
(Doc. 1-1at16.) American Reliable claims that pursuant to Strecker, allegations
of negligence and "alleged theories of negligence in [the] underlying complaint,
both these theories are necessarily based upon the numerous acts of molestation
which cannot be deemed negligent acts." 798 P.2d at 132. Thus, while negligence
commonly triggers coverage under an insurance Policy, ifthe negligent act is
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based upon an inherently intentional act then coverage does not exist.
In response, Lockard contends that the Montana Supreme Court's holdings
in Fisher control the Court's analysis here. The Court agrees. In Fisher, the
Montana Supreme Court held that an "accident" may include intentional acts so
long as the consequences of those acts are not objectively intended or expected
from the standpoint of the insured. 371 P.3d at 378. In reaching that conclusion,
the Court instructs that an intentional act may nonetheless constitute an
"occurrence" under a policy because the subsequent consequences may not have
been intended or expected by the actor. Id. Thus, the following two-part test
should be utilized when determining whether the conduct in question constitutes
"an accident": "(1) whether the act itself was intentional; and (2) if so, whether the
consequences or resulting harm stemming from the act was intended or expected
from the actor's standpoint." Id. at 379 (citing Northwestern Nat. Casualty Co. v.
Phalen, 597 P.2d 720 (Mont. 1979).
The Ninth Circuit also recently relied upon Fisher in its decision in Walden
v. Maryland Cas. Co., 692 F. App'x 476, 477 (9th Cir. 2017). In Walden, the
Ninth Circuit found that the "intentional acts" exclusion under the insurance
policy did not preclude coverage because coverage may still exist if the intentional
acts caused unintended or unexpected consequences to the victim.
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In light of Fisher and Walden, the Court concludes that an "occurrence"
under the Policy may include intentional acts if those acts resulted in unintended
or unexpected consequences. Unlike in Strecker where the accused admitted to
sexually assaulting his daughter for approximately ten years and knew he had a
problem, here there is a factual dispute regarding whether Lockard's actions were
negligent or intentional. At trial, if the Court were to find that the act was
intentional, the Court must also weigh the evidence and determine whether
Lockard's intentional conduct produced unintended and unexpected consequences
to Nelson, and, if so, the extent of damages.
Therefore, the Underlying Complaint alleges an "occurrence" under the
Policy.
II.
"Expected or Intended Injury", "Assault and Battery" and "Sexual
Molestation, Corporal Punishment, or Physical or Mental Abuse
Exclusion" exclusions
American Reliable further contends that even if the allegations in the
Underlying Complaint constitute an "occurrence" under the Policy, coverage is
still precluded due to certain exclusions. However, the "Expected or Intended
injury", "Assault and Battery" and "Sexual Molestation, Corporal Punishment, or
Physical or Mental Abuse Exclusion" exclusions do not apply.
Pursuant to Fisher and Walden, the "Expected or Intended Injury" exclusion
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is not triggered if there is a possibility that the conduct had unintended and
unexpected consequences to the victim. Initially, the parties dispute whether
Lockard' s actions were negligent or intentional, which presents a question of fact
to be re so1ved at trial. (Docs. 17 at 9-10; 19 at 9-14.) If the Court finds the acts
to be intentional in nature, Nelson claims that the consequences or resulting harm
stemming from the actions could not have been intended or expected from
Lockard's standpoint and coverage would apply. (Doc. 17 at 9-10.) The Fisher
Court specified that intentional acts do not necessarily preclude coverage if there
were unintended and unexpected consequences of the intentional acts. Therefore,
because a question of fact exists regarding whether Lockard' s actions were
negligent or intentional and, if they were intentional, whether Lockard could have
expected or intended that Nelson would then be retaliated against or otherwise
subjected to a hostile work environment by her coworkers as a result of his
conduct, summary judgment is not proper.
Next, American Reliable contends that the Underlying Complaint also
alleges Lockard "assaulted" Nelson, which is precluded from coverage. (Docs. 15
at 18-19; Doc. 1-2 at 4.) The Assault and Battery Exclusion provides that
coverage does not apply to:
A.
actual, threatened or alleged assault and/or battery committed
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by any person, whether or not the actual or constructive
consent or participation of any insured.
B.
the failure of any insured or anyone else for whom an insured is
legally responsible to prevent or suppress any such actual or
threatened assault and/or batter; or
C.
the negligent selection, employment, training, supervision, or
retention of any person whose conduct is described in A and/or
B above.
Assault and/or battery regarding A, B, and C above is not an
"occurrence" as defined in this policy.
The Company shall have no duty to defend any claim or suit that
includes any of the above claims or allegations regardless of the
circumstances involved in the claim or suit, even though the
allegations may be groundless, false or fraudulent.
(Doc. 1-1 at 14.) It is undisputed that the Policy does not define either "Assault"
or "Battery." (Docs. 15 at 19; 17 at 15; 19 at 21.) Nelson contends that a plain
meaning interpretation of the terms from the perspective of a reasonable consumer
of insurance products includes that the acts be violent and successive. (Doc. 17 at
15-16.) Moreover, Lockard argues that even ifhis conduct qualified as an assault
it would only be a negligent assault because he believed the sexual encounter to be
consensual. Lockard also claims that because Nelson seeks recovery based on the
aftereffects of the alleged assault-when Lockard conveyed to others that the
interaction was consensual which caused Nelson to be subject to a hostile work
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environment and retaliation (Doc. 1-2 at 5}-Lockard's communications to others
within USFWS would be covered under the Policy because his statements are not
an "assault."
The Court finds that there is a genuine issue of material fact regarding
which acts-the sexual conduct and/or the statements made by Lockard to other
USFWS employees-caused Nelson damages. Specifically regarding the assault
exclusion, if the Court finds that the sexual conduct caused her damages, the Court
must determine whether Lockard' s conduct that evening was negligent or
intentional. Furthermore, in viewing the factual evidence in the light most
favorable to Nelson and Lockard, ifthe Court finds at trial that the sexual act was
an intentional assault, it would also need to determine if there were unintended or
unforeseen consequences of that intentional assault, and, if so, the extent of
damages.
Additionally, American Reliable asserts that the Sexual Molestation
exclusion applies because the Underlying Complaint alleges Lockard initiated a
sexual advance and sexually molested Nelson. (Doc. 1-2 at 4.) The Sexual
Molestation, Corporal Punishment or Physical or Mental Abuse Exclusion
provides that coverage does not apply to:
A.
the actual, threatened or alleged:
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1.
physical abuse or corporal punishment of any kind committed
by any person, whether or not with the actual or constructive
consent or participation of any "insured";
2.
emotional or mental abuse of any kind committed by any
person, whether or not with the actual or constructive consent
or participation of any "insured"; or
3.
sexual abuse; molestation; licentious, immoral or sexual
behavior of any kind committed by any person, whether or not
with the actual or constructive consent or participation of any
"insured"· or
'
(Doc. 1-1 at 6.) "Sexual abuse" and "sexual molestation" are not defined in the
Policy. Nelson argues that the sexual abuse exclusion is to be narrowly construed,
and that as a reasonable consumer of insurance, Lockard would not qualify his
actions as "sexual abuse" or "sexual molestation." (Doc. 17 at 17.) Further,
Nelson contends that "sexual abuse" or "sexual molestation" in their ordinary
meanings have an intent element, but that here the Underlying Complaint alleges
negligence. Similarly, Lockard argues that the Underlying Complaint includes
allegations that the alleged sexual advance was itself negligent, which would not
qualify as sexual molestation. Moreover, Lockard contends that the Underlying
Complaint references alleged statements or inferences conveyed by Lockard to
others regarding the consensual nature of Nelson and Lockard's interaction, which
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if proven at trial to be true, represent a risk covered by the Policy.
Similar to the Court's analysis above regarding the assault exclusion, the
Court finds that there is a genuine issue of material fact regarding whether
Lockard's conduct in the USFWS cabin was negligent or intentional, and whether
it qualifies as "sexual molestation" under the Policy. If it is found to be an
intentional sexual molestation, then this exclusion should be construed in
accordance with Fisher, and the Court would need to determine if there are
unintended or unexpected consequences.
Consequently, based on the allegations of the Underlying Complaint
questions of fact exist as to whether Lockard's actions were intentional or qualify
as an "assault" or "sexual molestation" under the Policy. Here, the evidence
produced by the parties permits many different conclusions. Thus, summary
judgment is not proper.
III.
"Business Exclusion"
Next, American Reliable alleges that Lockard was engaged in an occupation
at the time of the alleged conduct and the Policy specifically excludes coverage for
bodily injury arising out of or in connection with a business. (Doc. 15 at 16-1 7.)
Nelson argues that even though the conduct occurred during an overnight stay in a
USFWS cabin, Lockard' s actions that night had nothing to do with the dive trip or
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his capacity as a USFWS employee. (Doc. 17 at 11.) Lockard argues that
although the Underlying Complaint implies that the alleged assault occurred while
Lockard was acting within his trade or occupation, it is also states that the assault
did not occur until after a period of relaxation, dinner and after the parties had
retired to sleep, which would be covered under the Policy.
The Policy's Business Exclusion provides that coverage is excluded for:
2. "Business"
a. "Bodily injury" or "property damage" arising out of or in
connection with a "business" conducted from an "insured located" or
engaged in by an "insured", whether or not the "business" is owner 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, including a service or duty
rendered, promised, owed or implied to be provided because of the
nature of the "business."
(Doc. 1-1at31). "Business," is defined as, "[a] trade, profession, or occupation
engaged in on a full-time, part-time or occasional basis." (Id. at 15.)
American Reliable relies on Reliance Insurance Company v. Fisher, 521
P .2d 193 (Mont. 1974), for the proposition that the alleged conduct occurred when
Lockard was engaged in a profession. In Fisher, a teacher struck a fellow teacher
at school. Of significance, the parties stipulated that both teachers were working
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at the school within school hours at the time of the incident while the claimant was
disciplining a student from his class. Id. at 197. The Montana Supreme Court
found that the altercation was "clearly connected with and related to school
activities." Id. Thus, the business exclusion applied and there was no coverage
under the insurance policy.
To the contrary, Nelson contends that in Safeco Ins. v. Syth, No. DV-96171, 1998 Mont. Dist. LEXIS 685, *7 (Jan. 29, 1998) 1, Judge Prezeau of the
Montana Nineteenth Judicial District found that "'Business' is an activity, not the
physical location where an activity occurred." In Syth, two people operated a
saloon on their residential property. Id. at* 1-2. One evening, Mrs. Syth was
awakened by a noise transmitted over the intercom from the saloon, and Mr. Syth
got up out of bed and observed a figure moving around in the saloon. Id. Mr.
Syth then left the residence and proceeded toward the saloon with a rifle to
investigate, but forgot to put in his hearing aids which left him completely deaf.
In the meantime, Mrs. Syth called the police. When the officer arrived he saw Mr.
Syth standing outside the saloon with his rifle. Id. at *3. Due to Mr. Syth's
hearing difficulties, confusion occurred and the officer and Mr. Syth fired shots at
1
This is case unpublished and not controlling, but Nelson argues that is helpful to
provide the Court with a similar factual situation where the business exclusion did not apply.
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one another. Mr. Syth was killed. Based on these facts, Judge Prezeau found that
while the intruder inside the saloon was likely attracted to the building because of
the nature of its use, the Syth's activities that night had nothing to do with
operating the bar. Id. at *7-8. Thus, the business exclusion did not apply. Id. at
*8.
Here, issues of fact exist regarding whether Lockard was acting within the
course and scope of his employment during the time the alleged conduct occurred.
Because the alleged conduct occurred at night after a period of relaxation, a fact
finder could conclude that although the events occurred inside a USFWS cabin,
that Lockard was not engaged in his occupation at the time. However, this is a
fact intensive inquiry to be determined at trial. Therefore, summary judgment is
not proper.
IV.
Punitive Damages Exclusion
Finally, American Reliable contends that the Punitive Damages Exclusion
precludes coverage for any claim of punitive or exemplary damages in the
Underlying Complaint. The Punitive Damages Exclusion provides that:
This insurance does not apply to any claim of or Indemnification for
punitive or exemplary damages. If a suit seeking both compensatory
and punitive or exemplary damages has been brought again you for a
claim covered by this policy, we will provide defense for such action.
We will not have any obligation to pay for any costs, interest or
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damages attributable to punitive or exemplary damages. This
endorsement does not exclude wrongful death punitive damages.
(Doc. 1-1 at 3.) For support, American Reliable relies on Montana Code
Annotated § 33-15-317(1) which states that "[i]nsurance coverage does not
extend to punitive or exemplary damages unless expressly included by the contract
of insurance." (Doc. 15 at 22.) Lockard contends that even ifthe Policy does not
allow payment of punitive damages, if any portion of the Underlying Complaint
alleges facts which, if proven, would result in coverage, American Reliable has a
duty to defend the entire Underlying Complaint. (Doc. 19 at 26.)
The Court finds that the Policy excludes indemnification for punitive
damages. However, the Policy does require a defense for claims that may be
covered by the Policy. Because the Court has already found that there are claims
that qualify as an "occurrence," American Reliable has a duty to defend Lockard
in the Underlying Complaint.
CONCLUSION
Based on the analysis above, the Court finds that there exists many fact
issues most appropriately developed at trial.
Accordingly, IT IS ORDERED that Plaintiff American Reliable's Motion
for Summary Judgment (Doc. 14) is DENIED.
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Dated this
2 ~day of January, 2018
L.~
Dana L. Christensen, Chief Judge
United States District Court
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