Universal Underwriters Insurance Company v. Lallier, et al
Filing
44
ORDER granting in part and denying in part 32 Motion for Judgment on the Pleadings; granting 34 Motion for Judgment on the Pleadings; granting 36 Motion for Judgment on the Pleadings. The parties shall engage in a court-hosted mediation with United States Magistrate Judge James E. Gates. Signed by Chief Judge James C. Dever III on 8/10/2018. (Sellers, N.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
No. 7:17-CV-30-D
)
)
)
Plaintiff,
)
)
v.
)
)
MICHAEL G. LALLIER, RLC, et al.,
)
)
Defendants. )
UNIVERSAL UNDERWRITERS
INSURANCE COMPANY,
ORDER
On February 16, 2017, Universal Underwriters Insurance Co. ("Universal" or "plaintiff") filed
a complaint against Michael G. Lallier ("Lallier"), RLC, LLC, d/b/a Reed Lallier Chevrolet ("Reed
Lallier Chevrolet"), GRJ, Inc., MGL Inc., Gene Reed, Jr. {"Reed"), and John Quinn ("Quinn")
seeking a declaratory judgment [D .E. 1]. Universal seeks a declaration concerning its duties to defend
and indemnify defendants Lallier, Reed, and Reed Lallier Chevrolet in a lawsuit that Quinn filed (the
"Quinn Action"). See id.; [D.E. 1-2]. On June 16, 2017, defendants Lallier, Reed Lallier Chevrolet,
MJL, Inc., GRJ, Inc., and Gene Reed, Jr. answered and counterclaimed for (1) a declaratory judgment
concerning Universal's duty to defend and indemnify, (2) breach of contract for failure to indemnify,
(3) bad faith and punitive damages, and (4) unfair and deceptive trade practices in violation ofN.C.
Gen. Stat.§ 75-1.1 [D.E. 21].
On December 8, 2017, Universal moved for judgment on the pleadings [D.E. 32] and filed
a memorandum in support [D.E. 33], Lallier and MGL, Inc. moved for partial judgment on the
pleadings [D.E. 34] and filed a memorandum in support [D.E. 35], and Reed, Reed Lallier Chevrolet,
and GRJ, Inc. moved for partial judgment on the pleadings [D.E. 36] and filed a memorandum in
support [D.E. 37]. On December 29,2017, each of the parties responded in opposition to the cross-
motions [D.E. 38, 39, 40]. On January 12, 2018, each of the parties replied [D.E. 41, 42, 43]. As
explained below, plaintiff's motion for a judgment on the pleadings is granted in part and denied in
. part, and defendants' motions for a partial judgment on the pleadings is granted.
I.
Universal issued an insurance policy covering garage operations to defendants Lallier, Reed,
andReedLallierChevrolet(the"policy"). See Compl. [D.E.1] 4; [D.E. 1-2]; [D.E. 1-3]. On January
27, 2017, Quinn, a former employee of Reed Lallier Chevrolet, filed a complaint against Reed Lallier
Chevrolet, Michael Lallier, MGL, Inc., Gene Reed, Jr., and GRJ, Inc. alleging ten causes of action
for (1) wrongful ternlination, (2) interference with free speech rights under the North Carolina
Constitution, (3) abuse of process,. (4) obstruction ofjustice, (5) unfair and deceptive trade practices
.
in violation of N.C. Gen Stat. § 75.01, (6) negligent hiring and retention, (7) civil conspiracy, (8)
vicarious liability, (9) punitive damages, and (10) declaratory judgment. See [D.E. 1-1]. Quinn
contends that he was fired from his job at Reed Lallier Chevrolet for assisting law enforcement with
the investigation of a heinous crime that Lallier committed against a minor. See id. at 2-5. ·Quinn
also contends that defendant Reed knew about Lallier's prior sexual misconduct, and that Lallier and
Reed used their business to pay off Lallier's victims. See id. at 8-10.
Universal agreed to defend the Quinn Action under a reservation of rights. See [D.E. 21] 23.
In its reservation ofrights letter, Universal stated that there would likely be no coverage for the claims
in the Quinn Action because the claims would be excluded by either the "International Acts"
exclusion, the "Public Policy" exclusion, or the "Dishonest Acts" exclusion. ld.
The policy provides that Universal ''will pay those sums the INSURED legally must pay as
DAMAGES because of INJURY to which this insurance applies ... caused by an OCCURRENCE
arising out of YOUR GARAGE OPERATIONS or AUTO HAZARD." [D.E. 1-3] 1. The policy
divides the covered injuries into various groups. See id. at 6-7. Group 1 includes "bodily injury,
2
sickness, disease or disability (including death resulting from any of these)." Id. Group 3 includes,
among other injuries, "malicious prosecution" and "abuse of process." Id. Group 6 includes
"discrimination" and ''wrongful employment practices." ld. at 7. "Wrongful employment practices"
includes ''wrongful termination" and "retaliation."
Id. at 9. · The policy defines ''wrongful
termination" as ''the termination of any employment relationship in a manner which is against the
law." ld. The policy defines "retaliation" as "adverse employment actions against employees for
exercising or attempting to exercise their rights under law, where RETALIATION is insurable by
law." ld. at 8. The policy defines "Occurrence" as
1. with respect to COVERED POLLUTION DAMAGES and INJURY Groups 1 and
2, an accident, including continuous or repeated exposure to conditions which result
in such INJURY or COVERED POLLUTION DAMAGES neither intended nor
expected from the standpoint of a reasonably prudent person;
2. with respect to INJURY Groups 3, 4, 5 and 6, acts or offenses of the mSURED
which result in such INJURY;
3. with respect to INJURY Group 6, when INJURY arises out of a series of related
and continuous acts.or offenses, the last injurious act or offense committed in the last
coverage part period insured by US.
Id. at 8.
The policy also includes a "dishonest acts" exclusionary provision and an "intent to cause
harm" exclusionary provision. Id. at 11-12. The "dishonest acts" provision excludes from coverage
an OCCURRENCE, SUIT or claim arising out of any dishonest, fraudulent or
criminal acts committed by any INSURED.
However, with respect to INJURY Group 6, this exclusion does not apply to YOU if
such act was committed by YOUR employee (other than a partner, director, or
executive officer) without YOUR direction or YOUR knowledge.
Id. at 11. The "intent to cause harm" provision excludes from coverage "any act committed by or at
the direction of the INSURED with intent to cause harm. This exclusion does not apply if INJURY
arises solely from the intentional use of reasonable force for the purpose of protecting persons or
property." Id. at 12.
3
Universal moves for judgment on the pleadings and asks the court to declare that it has no
duty to defend or indemnify the defendants against the claims in the Quinn Action. Universal argues
that it has no duty to defend because: (1) the facts alleged in the Quinn Action do not constitute an
occurrence under the policy; (2) the dishonest acts provision excludes all claims in the Quinn Action;
and (3) the intent to cause harm provision also excludes several claims in the Quinn Action. See
Compl. at4-7; [D.E. 33] 9-16. Universal also argues that it is entitled to judgment on the pleadings
concerning defendants' breach of contract, bad faith, and unfair claims settlement practices
("UDTPA") counterclaims. See [D.E. 33] 16-21.
Defendants Lallier and MGL, Inc. seek partial judgment on the pleadings and argue that ·
Universal has a duty to defend them in the Quinn Action. See [D.E. 34, 35]. Similarly, defendants
Reed Lallier Chevrolet, GRJ, Inc., and Gene Reed seek partial judgment on the pleadings and contend
that Universal has a duty to defend them in the Quinn Action. See [D.E. 36, 37].
II.
Federal Ru1e of Civil Procedure 12(c) permits a party to move for judgment on the pleadings
"[a]fter the pleadings are closed-but early enough not to delay trial." A court ru1ing on a Ru1e 12(c).
motion for judgment on the pleadings applies the same standard as when deciding a Ru1e 12(b)(6)
motion to dismiss. See Mayfield v. Nat'l Ass'n for Stock Car Auto Racing. Inc., 674 F.3d 369, 375
(4th Cir. 2012). Thus, the court assumes the facts alleged in the complaint are true and draws all
reasonable factual inferences in plaintiffs' favor. See Burbach Broad. Co. of Delaware v. Elkins
Radio Com., 278 F.3d 401, 406 (4th Cir. 2002). As when ru1ing on a Ru1e 12(b)(6) motion to
dismiss, the court can consider documents relied on by the parties in their briefing ifthey are integral
. to and explicitly relied on in the complaint, and their authenticity is undisputed. See Occupy
Columbia v. Haley, 738 F.3d 107, 117 n.7 (4th Cir. 2013).
4
The cross-motions for judgment on the pleadings require the court to consider the parties'
state-law claims and defenses, and the parties agree that North Carolln.a law applies. Accordingly,
this court must predict how the Supreme Court of North Carolina would rule on any disputed statelaw issue. See Twin City Fire Ins. Co. v. BenAmold-Sunbelt Beverage Co. of S.C., 433 F.3d 365;
369 (4th Cir. 2005). In doing so, the court must look first to opinions of the Supreme Court ofNorth
Carolina. See Stahle v. CTS Corp., 817 F.3d 96, 100 (4th Cir. 2016). If there are no governing
opinions from that court, this court may consider the opinions of North Carolina Court of Appeals,
treatises, and ''the practices of other states." Twin City Fire Ins. Co., 433- F.3d at 369 (quotation and·
citation omitted). 1 In doing so, thi$ court "should not create or expand a [s]tate's public policy."
Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp., 506
F .3d 304, 314 (4th Cir. 2007) (alteration and quotation omitted); see Wade v. Danek Med .. Inc., 182
F .3d 281, 286 (4th Cir. 1999). Moreover, in predicting how the highest court of a state would address
an issue that it has not yet resolved, this court must "follow the decision of an intermediate state
appellate court unless there is persuasive data that the highest court would decide differently."
Toloczko, 728 F.3d at 398(quotation omitted).
A.
Under North Carolina law, interpreting a written contract is a question oflaw for the court.
See Briggs v. Am. & Efud Mills. Inc., 251 N.C. 642, 644, 111 S.E.2d 841, 843 (1960); N.C. Farm
Bureau Mut. Ins. Co. v. Mizell, 138 N.C. App. 530, 532, 530 S.E.2d 93, 95 (2000). When
interpreting a written insurance policy
[T]he goal of construction is to arrive at the intent of the parties when the policy was
issued. Where a policy defines a term, that definition is to be used. If no definition
is given, non-technical words are to be given their meaning in ordinary speech, unless
the context clearly indicates another meaning was intended. The various terms of the
1
North Carolina does not have a "mechanism ... to certify questions of state law to its
Supreme Court." Town ofNags Head v. Toloczk:o, 728 F.3d 391, 397-98 (4th Cir. 2013).
5
policy are to be harmoniously construed, and if possible, every word and every
provision is to be given effect. ...
Gaston Czy. Dyeing Mach. Co. v. Northfield Ins. Co., 351 N.C. 293, 299-JO, 524 S.E.2d 558, 563
(2000) (quotation omitted); see Plum Props .. LLC v. N.C. Farm Bureau Mut. Ins. Co., 802 S.E.2d
173, 175 (N.C. App. 2017); Mizell, 138 N.C. App. at 532, 530 S.E.2d at 95. A court may engage in
judicial construction only where the language in the policy is ambiguous. See Mizell, 138 N.C. App.
at 532, 530 S.E.2d at 95. Ambiguities should be construed against the insurer and in favor of the
insured. See id. Similarly, coverage clauses are interpreted broadly and exclusionary coverages are
construed narrowly. See Plum Props., 802 S.E.2d at 175-76. Language is not ambiguous, however,
"simply because the parties contend for differing meanings to be given to the language." Mizell, 138
N.C. App. at 532, 530 S.E.2d at 95
In determining whether an insurer has a duty to defend, courts in North Carolina "apply the
'comparison test' which requires that the insured's policy and the complaint be read side-by-side to
determine whether the events alleged are covered or excluded by the policy." Plum Props., 802
S.E.2d at 175; see Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield. L.L.C., 364 N.C. 1, 7, 692
S.E.2d605, 611 (2010); WasteMgmt. ofCarolinas.Jnc. v. Peerless Ins. Co., 315N.C. 688,693,340
S.E.2d 374, 377 (1986). An insurer has a duty to defend if the facts, as alleged, are covered by the
terms of insurance policy. SeeHarleysvilleMut. Ins., 364 N.C. at 7, 692 S.E.2dat611; Plum Props.,
802 S.E.2d at 175. "Any doubt as to coverage is to be resolved in favor of the insured." Waste
Mgmt.. of Carolinas. Inc., 315 N.C. at 693, 340 S.E.2d at 377; see Allstate Ins. Co. v. Lahoud, 167
N.C. App. 205,208, 605 S.E.2d 180, 182 (2004). Furthermore, when a complaint alleges multiple
claims, some of which are covered and some of which are not, "an insurer is obligated to defend its
insured against all claims made iii the lawsuit." State Auto Prop. & Cas. Ins. Co. v. Travelers Jndem.
Co., 343 F.3d249, 255 (4thCir. 2003); seeKubitv. MAG Mut. Ins .. Co., 210N.C. App. 273,277-78,
. 708 S.E.2d 138, 144-45 (2011).
6
Universal argues that the "dishonest acts" provision bars all claims in the Quinn Action
because the claims arise from Lallier's criminal acts. See [D.E. 33] 9-12. Universal also argues that
the "intent to cause harm" provision bars the obstruction of justice, wrongful termination, abuse of ·
process, civil conspiracy, and unfair and deceptive trade practices claims because these claims arose
from intentional acts of the insured. See id. at 9-16.
Defendants respond that Universal had a duty to defend at least the abuse of process and
wrongful termination ·claims. See [D.E.35] 4-7; [D.E. 37] 12-22. In support, defendants cite the
policy's affirmative grant of coverage for abuse of process and wrongful termination. See [D.E. 37]
12, 18; [D.E. 1-3] 6-7.
1.
As for Universal's argument that the "dishonest acts" provision bars all claims in the Quinn
Action, the dishonest acts provision provides that the policy does not apply to "an OCCURRENCE,
SUIT or claim arising out of any dishonest, fraudulent or criminal acts committed by any INSURED."
[D.E. 1-3] 11. Universal argues that, although the Quinn Action includes various claims (both
intentional and negligent), all claims in the Quinn Action arose from Lallier's criminal acts.
The court rejects Universal's argument. The claims in the Quinn Action are one step removed
from Lallier's criminal acts because Quinn's injuries were directly caused by Reed Lallier Chevrolet's
decision to fire Quinn, not by Lallier's criminal acts. In reaching this conclusion, the court recognizes
that courts frequently have held that claims "arise from" or "out of' acts included in an exclusionary
provision when the alleged harm directly resulted from the acts described in the provision, regardless
ofhowtheclaimsareframed.
See,~, WestAm.Ins.Co. v.Embry,No.Civ.A.3:04CV-47-H,2005
WL 1026185, at *3-5 (W.D. Ky. Apr. 25, 2005) (unpublished); Allstate Ins. Co. v. Bates, 185 F.
Supp. 2d 607,612-13 (E.D.N.C. 2000); Builders Mut. Ins. Co. v. North Main Constr. Ltd., 361 N.C.
85, 89, 637 S.E.2d 528, 530-31 (2006); Continental Cas. Co. v. H.S.I. Fin. Servs., 266 Ga. 260, 262
7
466 S.E.2d4, 6 (1996); cf. GulfUnderwrtiers Ins. Co. v. KSI Servs .. Inc., 233 F. App'x239, 240-41
(4th Cir. 2007) (unpublished). For example, in Great Divide Insurance Company v. Midnight Rodeo.
Inc., Great Divide Insurance obtained a declaratory judgment that it had no duty to defend its insured,
Midnight Rodeo, in an action alleging that a Midnight Rodeo bouncer used excessive force against
a patron which resulted in the patron's death. See Great Divide Ins. Co. v. Midnight Rodeo. Inc., No.
S:08-CV-204-F, 2010 WL 2077162, at *1 (E.D.N.C. May 24, 2010) (unpublished).
The
admfuistratrix ofthe.deceased patron's estate brought the action and sought damages from Midnight
Rodeo for "negligence and wrongful death." See id. at* 1, 4. The policy at issue included an "assault
and battery" exclusionary provision that excluded from insurance coverage any claims for bodily
·injury arising out of any alleged assault or battery. See id. at *3. Midnight Rodeo argued that
"allegations of negligence do not encompass the intent necessary to assert an assault or battery claim
and furthermore, do not trigger the assault and battery exclusion provision in the Policy." ld. at *4
(alteration omitted). The court disagreed and held that although plaintiff framed· the underlying.
claims in terms of negligence, an insurer has no duty to defend when "an assault or battery exclusion
exists, and the plaintiffs claims of negligence would not arise but for the underlying assault and
battery." ld. at *6.
Under North Carolina law, exclusionary provisions in insurance contracts are disfavored, and
courts strictly construe ambiguous provisions against the insurer. See State Capital Ins. Co. v.
Nationwide Mut. Ins. Co., 318 N.C. 534, 546-47, 350 S.E.2d 66, 73 (1986). Consistent with that
principle, the Supreme Court of North Carolina, in interpreting an exclusionary provision under a
homeowners policy, held that ''the sources ofliability which are excluded ... must be the sole cause
of the injury in order to exclude coverage under the policy." State Capital Ins. Co .. 318 N.C. at 546,
350 S.E.2d at 73; see also Nationwide Mut. Fire Ins. Co. v. Nmm, 114 N.C. App. 604, 601, 442
S.E.2d 340, 343 (1994). In Great Divide, the bouncer's assault and battery was the sole cause of the
8
injuries alleged. By contrast, in this case, Lallier's alleged criminal acts were not the sole cause of
Quinn's injuries. Rather, Quinn's termination caused his alleged injuries.2 Accordingly, the
"dishonest acts" provision does not relieve Universal of its duty to defend the claims in the Quinn .
Action.
2.
As for the "intent to cause harm" provision, Universal argues that the "intent to cause harm"
provision bars the obstruction ofjustice, wrongful termination, abuse ofprocess, civil conspiracy, and
unfair and deceptive trade practices claims in the Quinn Action. In opposition, defendants argue that
''the Policy provides affirmative coverage for abuse of process [aild wrongful termination] and, if
[Universal] is correct about the exclusion, it would make the coverage afforded illusory." [D.E. 39]
4-5. Defendants also argue that Quinn's abuse of process claim entitles him to coverage without any
proof of an intent to cause harm. See id. 5.
Universal has a duty to defend the wrongful termination claim because the policy's affirmative
grant of coverage for wrongful termination claims and the "intent to cause harm" provision creates
I
an ambiguity that the court resolves in favor of the insured.
2
See,~'
Graham, 84 N.C. App. at 431,
Universal cites J.W. v. Johnston Cty Bd. of Educ., No. 5:11-CV-707-D, 2012 WL
4425439, at *11 (E.D.N.C. Sept. 24, 20 12) (unpublished), in support of its argument that it has no
duty to defend the wrongful terminationandnegligenthiring/retentionclaims. See [D.E. 33] 10-15.
Universal, however, misunderstands J.W. In J.W., the policy at issue provided an exclusion for
claims "arising out of or in connection with, in whole or in part, ... dishonest, fraudulent, malicious,
wanton, willful, intentional or criminal acts." J. W., 2012 WL 4425439, at *11. As for the claims
concerning negligent hiring and retention, Universal states that ''the Court found that the school
board had no coverage for the wrongful termination, negligent hiring and negligent supervision
claims as they, 'arose out of,' in whole or in part, a criminal act, despite the fact that no criminal act
had been committed by the teacher bringing the claims against the school for wrongful termination."
[D.E. 33] 11. Universal's statement is incorrect. In J.W., the court held that the Board did not have
excess coverage for the negligent supervision claim because the policy explicitly excluded from
coverage claims for "negligent hiring, negligent training, negligent reporting, negligent investigation,
negligent retention and/or negligent supervision." J.W., 2012 WL 4425439, at *ll; see also No.
5:11-CV-707-D, [D.E. 18~1] (E.D.N.C. Mar. 15, 2012) (copy of insurance policy).
9
352 S.E.2d at 881; Stanback v. Westchester Fire Ins. Co., 68 N.C. App. 107, 115, 314 S.E.2d 775,
779 (1984).
The policy defines ''wrongful termination" as ''termination of any employment
relationship in a manner which is against the law." [D.E. 1-3]-9. Under North Carolina law, a
plaintiff may bring a wrongful termination claim ''upon the theory ofa violation of public policy."
McQueen v. City ofHamlet, 208 N.C. App. 282, 702 S.E.2d 555, 2010 WL 5135546, at *4 (2010)
(unpublished table decision). In order to allege a wrongful termination claim a plaintiff must allege
"specific conduct by defendant that violated ... [North Carolina's] public policy." Considine
V;
Compass Grp. USA. Inc., 145 N.C. App. 314, 321, 551 S.E.2d 179, 184, aff'd, 354 N.C. 568, 557
S.E.2d 528 (2001). In such a wrongful termination claim, ''the termination itself must be motivated ·
by an unlawful reason or purpose that is against public policy," which "contemplates a degree of
intent or willfulness on the part ofthe employer." Garner v. Rentenbach Constructors. Inc., 350 N.C.
567, 572, 515 S.E.2d 438, 441 (1999); Coman v. Thomas Mfg. Co., 325 N.C. 172, 176--78, 381
S.E.2d445,447-48 (1989);Lenzyv. Flaherty, 106N.C.App. 496,500,514--15,418 S.E.2d276,279,
287 (1992). "The narrow exceptions to [the employment-at-will doctrine] have been grounded in
considerations of public policy designed either to prohibit status-based discrimination or to insure the
integrity of the judicial process or the enforcement of the law." Kurtzman v. Applied Analytical
Indus .. Inc., 347 N.C. 329, 333-34, 493 S.E.2d 420, 423 (1997). In light of the facts alleged and the
policy's ambiguity concerning wrongful termination claims and the intent to cause harm exclusion,
Universal has a duty to defend the wrongful termination claim. See, e.g., Mizell, 138 N.C. App. at
532, 530 S.E.2d at 95.
As for the abuse of process claim, the elements of an abuse of process claim are: "(1) a prior
proceeding [] initiated by defendant to achieve an ulterior motive or purpose; and (2) once that
proceeding was initiated, some willful act not proper in the regular prosecution ofthe proceeding was
committed." Franklin v. Yancey Cty., No. 1:09cv199, 2010 WL 317804, at *5 (W.D.N.C. Jan. 19,
10
2010) (unpublished) (emphasis added); see Semones v. S. Bell Tel. & Tel. Co., 106 N.C. App. 334,
341, 416 S.E.2d 909, 913 (1992).
The ulterior motive requirement is satisfied when the plaintiff alleges that the
prior action was initiated by the defendant or used by him to achieve a purpose not
within the intended scope of the process used. The act requirement is satisfied when
the plaintiff alleges that during the course of the prior proceeding, the defendant
committed some wilful act whereby he sought to use the proceeding as a vehicle to
gain advantage of the plaintiff in respect to some collateral matter.
Hewes v. Wolfe, 74 N.C. App. 610, 614, 330 S.E.2d 16, 19 (1985) (citation omitted); see Stanback
v. Stanback,.297 N.C. 181, 200, 254 S.E.2d 611, 624 (1979) disapproved of on other grounds by
Dickens v. Puzyear, 302 N.C. 437, 446,276 S.E.2d 325, 331 (1981).
The court questions whether abuse of process can be committed without an intent to cause
harm.
See,~'
Beroth Oil Co. v. Whiteheart, 173 N.C. App~ 89, 100, 618 S.E.2d 739,747 (2005).
Nonetheless, the court need not decide the issue at this time. Because Universal had a duty to defend
the wrongful termination claim, it has a duty to defend all claims in the Quinri. Action. See, e.g.,
State Auto Prop. & Cas. Ins. Co., 343 F.3d at 255. Accordingly, the court grants defendants' motion
for a partial judgment on the pleadings concerning Universal's duty to defend.
3.
As for Universal's argument concerning public policy, courts may refuse to enforce a contract
where the enforcement would violate public policy.
See,~'
St. Paul Mercuzy Ins~ Co. v. Duke
Univ., 849 F.2d 133, 135 (4th Cir. 1988).
The power to refuse to enforce contracts on the ground of public policy is ... limited
to occasions where the contract would violate some explicit public policy that is well
defmed and dominant, and which is to be ascertained by reference to the laws and
legal precedents and not from general considerations of supposed public interests.
Id. (quotation and alteration omitted).
InShewv. SouthemFire&CasualzyCo., 307N.C. 438,2~8 S.E.2d380 (1983), the Supreme
Court ofNorth Carolina held that it violated public policy for an insurer to pay an award of restitution
11
that was imposed as part of a criminal judgment. See id. at 444, 298 S.E.2d at 384. In so holding,
the Supreme Court ofNorth Carolina stated:
As an insurer has no legal obligation to defend a criminal proceeding brought against
an insured arising out of the operation of an automobile cau.Sing injury or damages,
so no obligation arises from the disposition of the criminal proceeding. Moreover, it
is a basic proposition of public policy, requiring no citation of supporting authority,
that an insured is not allowed to profit from his own wrongdoing. To require the
[insurer] to reimburse plaintiffs for the amount ordered as restitution or to hold that
the [insurer] was legally obligated to pay ... would be tantamount to condoning
insurance against the results and penalties of one's own criminal acts.
ld., 298 S.E.2d at 384 (citation omitted). Although Universal suggests that providing insurance
coverage in this case is tantamount to "condoning insurance against the results" of Lallier's criminal
acts, this court disagrees. Tellingly, in Shew, the Supreme Court ofNorth Carolina emphasized the
differences between criminal and civil judgments. See Shew, 307 N.C. at 441-44, 298 S.E.2d at
382-84; cf. Nationwide Mut. Ins. Co. v. Roberts, 261 N.C. 285, 291-93, 134 S.E.2d 654, 660 (1964);
Graham v. James F. Jackson Assocs .. Inc., 84 N.C. App. 427, 431-32, 352 S.E.2d 878,
881-8~
(1987). Here, although Lallier allegedly committed heinous criminal acts, the Quinn Action involves
civil claims that arose after Lallier's criminal conduct. Notably, in Mazza v. Medical Mutual
Insurance Co., 311 N.C. 621,319 S.E.2d217 (1984), the Supreme CourtofNorth Carolina held that
it is not against public policy to enforce an insurance policy that provides coverage for punitive
damages arising from wanton or grossly negligent conduct. ld. at 626, 319 S.E.2d at 220; see also
St. Paul Mercury Ins. 849 F.2d at 135-37 (holding that North Carolina public policy would allow
indemnification for punitive damages arising from the intentional conduct of the insured).
Accordingly, the court rejects Universal's public policy argument.
4.
To the extent Universal contends that all claims in the Quinn Action are not an occurrence
under the policy, the court rejects the argument. The abuse of process and wrongful termination
claims are occurrences under the policy. Under the policy, "occurrence" means ''with respect to
12
INJURY Groups 3, 4, 5, and 6, acts or offenses of the INSURED which result in such INJURY[.]"
[D.E. 1-3] 8. The policy lists both abuse of process and wrongful termination as injuries. See id. at
6-7, 9 .. Thus, both abuse of process and wrongful termination are occurrences if they resulted from
acts or offenses of the insured. Quinn's abuse of process and wrongful termination claims resulted
from defendants' decision to fire him. Accordingly, the abuse of process and wrongful termination·
claims are "occurrences" under the policy.
5.
To the extent Universal seeks a:judgment on the pleadings that it had no duty to indemnify,
this motion is denied. An insurer's duty to indemnify cannot be determined solely by the pleadings
if material facts are in dispute. See Waste Mgmt., 315 N.C. at 691, 340 S.E.2d at 377; Fed. Ins. Co.
v. S. Lithoplate. Inc., 7 F. Supp. 3d 579, 589 (E.D.N.C. 2014); Montgomery Mut. Ins. Co. v. Citadel
Mgmt.. LLC, No. 3:12--CV-00797-FDW, 2013 WL 6147778, at *6 (W.D.N.C. Nov. 22, 2013)
(unpublished). In determining an insurer's duty to indemnify, a court typically compares the facts as
determined at trial to the insurance policy's language. See Harleysville Mut. Ins. Co. v. Hartford Cas.
Ins. Co., 90 F. Supp. 3d 526, 539-40 (E.D.N.C. 2015). Where litigation settles before trial, "[a]
judicial assessment ofpost-settlement coverage disputes generally turns on the types ofthe underlying
claims that have been settled." ABT Bldg. Prods. Corp. v. Nat'l Union Fire Ins. Co., 472 F.3d 99,
120 n.29 (4th Cir. 2016); see Hartford Cas. Ins. Co., 90 F. Supp. 3d at 539-40.
Here, material facts are in dispute. ·Accordingly, the court cannot resolve issues concerning
indemnification at this time.
Ill.
'
Universal seeks judgment on the pleadings concerning defendants' bad faith counterclaim.
To state claim for bad faith in the insurance context, a plaintiff must allege: "1) a refusal to pay after
recognition of a valid claim; 2) bad faith; and 3) aggravating or outrageous co~duct." Blis Day Spa.
13
LLC v. Hartford Ins. G:r,p., 427 F. Supp. 2d 621, 631 (W.D.N.C. 2006) (quotation omitted). "Bad
faith means not based on a legitimate, honest disagreement as to the yalidity of the claim." Id.
(quotation omitted). "Aggravated conduct [is] defined to include fraud, malice, gross negligence,
insult, willfully, or under circumstances of rudeness or oppression, or in a manner which evinces a
reckless and wanton disregard of the plaintiffs rights." ld. (quotation and ellipsis omitted); see
Topsail ReefHomeowners Ass'n v. Zurich Specialties London. Ltd., 11 F. App'x 225,237-39 (4th
Cir. 2001) (per curiam) (unpublished); LRP Hotels of Carolina. LLC v. Westfield Ins. Co., No.
'
4:13--CV-94--D, 2014 WL 5581049, at *4 (E.D.N.C. Oct. 31, 2014) (unpublished); Schaffner v.
USAA Cas. Ins. Co., 172 N.C. App. 592, 616 S.E.2d 692, 2005 WL 1949877, at *4 (2005)
(unpublished). When an insurer denies a claim that is reasonably in dispute and based on a legitimate
disagreement, the plaintiff cannot establish bad faith or aggravating conduct. See Topsail Reef
Homeowners Ass'!!, 11 F. App'x at 239; Blis Day Sp~ 427 F. Supp. 2d at 632.
Defendants allege that Universal acted in bad faith by: (1) failing to act fairly and in. good
faith, (2) wrongfully refusing to fulfill its coverage obligations, (3) misrepresenting provisions ofthe
policy by failing to inform defendants that the policy provided coverage for abuse of process and
wrongful employment practices and failing to inform. defendants about the separation of insureds
provision, (4) wrongfully denying coverage, (5) wrongfully refusing to indemnify the .defendants, and
(6) forcing the defendants to pay the Quinn settlement from their own funds. See [D.E. 21] 27-28. ·
Even viewing the claim in the light most favorable to the defendants, defendants fail to
plausibly allege the requisite elements of a bad faith claim under North Carolina law. Specifically,
defendants have failed to plausibly allege that Uirlversal refused to pay the settlement after
recognizing a valid claim. See, e.g., Huang v. State Farm Fire & Cas. Co., No. 5: 14--CV-00069-RN,
2015 WL 1433553, at *3--4 (E.D.N.C. Mar.. 27, 2015) (unpublished) (''None of the facts alleged in
the Complaint render it plausible to infer that [the insurer] recognized the [plaintiff's] claim as valid
14
but refused to pay them."); Barnett v. State Farm Auto Prop & Cas. Ins., No. 2:14cv34, 2015 WL
276512, at *3 (W.D.N.C. Jan. 22, 2015) (unpublished); Lenoir Mall. LLC v. State Farm Fire & Cas.
Co., No.
5:10~v-40,
2011 WL 3682794, at *2 (W.D.N.C. Aug. 23, 2011) (unpublished); Blis Day
Sp~ 427 F. Supp. 2d at 632. Accordingly, the court grants Universal's judgment on the pleadings
concerning defendants' bad faith counterclaim.
IV.
As for Universal's motion for judgment on the pleadings concerning defendants' UDTPA
counterclaim, defendants' UDTPA claim cites numerous unfair claims settlement practices identified
in N.C. Gen. Stat.§ 58-63-15(11) as the basis for the alleged UDTPA violation. See [D.E. 21] 29.
Specifically, defendants contend that Universal violated N.C. Gen. Stat.§ 58-63-15(11) by:
a. Misrepresenting pertinent facts or insurance policy provisions relating to coverages
at issue;
d. Refusing to pay claims without conducting a reasonable investigation based upon
all available information; ...
f. Not attempting in good faith to effectuate prompt, fair and equitable settlements of
claims in which liability has become reasonably clear;
g. Compelling [the] insured to institute litigation to recover amounts due under an
insurance policy by offering substantially less than the amounts ultimately recovered
in actions brought by such insured;
N.C. Gen. Stat.§ 58-63-15(11); see [D.E. 21] 29.
Although N.C. Gen. Stat. § 58-63-1 5(11) does not include a private cause of action, a plaintiff
may obtain relief for violations of N.C. Gen. Stat..§ 58-63-lS(ll) under N.C. Gen. Stat. § 75-1.1.
See,~,
Elliott v. Am. States Ins. Co., 883 F.3d 384, 396 (4th Cir. 2018) ("[T]he remedy for a
violation of section 58-63-15 is the filing of a section 75-1.1 claim." (quotation omitted); Burch v.
Lititz Mut. Ins. Co., No. 7:12-CV-107-FL, 2013 WL 6080191, at *8-9 (E.D.N.C. Nov. 19, 2013)
(unpublished). In order to establish a prima facie case. under the UDTPA, a plaintiff must show: "(1)
an unfair or deceptive act or practice, (2) in or affecting commerce, and (3) which proximately caused
15
injury to plaintiffs." Gray v. N.C. Ins. Underwriting Ass'n, 352 N.C. 61, 68, 529 S.E.2d 676, 681
(2000); see Kellyv. Georgia-Pacific LLC, 671 F. Supp. 2d 785,798-99 (E.D.N.C. 2009) (collecting
cases); N.C. Gen. Stat.§ 75-1.1. "[W]hether an act or practice is an unfair or deceptive practice ..
. is a question oflaw for the court." Gray, 352 N.C. at 68, 529 S.E.2d at 681. Conduct that violates
N.C. Gen. Stat. § 58-63-15(11) is an unfair and deceptive act or practice under the UDTPA because
"such conduct is inherently unfair, unscrupulous, immoral, and injurious to consumers." Id. at 71, ·
529 S.E.2d at 683; Country Club of Johnston Cty.. Inc. v. U.S. Fid. & Guar. Co.; 150 N.C. App. 231,
246, 563 S.E.2d 269, 279 (2002). Moreover, although N.C. Gen. Stat. § 58-63-15(11) requires a
showing of a "frequency indicating a 'general business practice,'" a claim brought under the UDTPA
does not require a frequency showing. Gray, 3 52 N.C. at 71, 529 S.E.2d at 683; see Westchester Fire
Ins. Co. v. Johnson, 221 F. Supp. 2d 637,643-44 (M.D.N.C. 2002). Thus, N.C. Gen. Stat.§ 58-6315(11) provides "examples of conduct [supporting] a finding of unfair or deceptive acts or practices."
Johnson, 221 F. Supp. 2d at 644 (quotation omitted). ·
As for subsection (a), defendants contend that Universal misrepresented pertinent insurance
policy provisions by failing to identify the grant of coverage for wrongful employment practices and
abuse of process and failing to identify the separation of insureds provision in the policy. See [D.E.
21] 28. Defendants' claim fails, however, because they did not plausibly allege that they suffered
damages as a result of the omission.
See,~'
Burrell v. Sparkkles Reconstruction Co., 189 N.C.
App. 104, 111-13, 657 S.E.2d 712, 717-18 (holding that damages are
a required element of a.
UDTP~claim). 3 Indeed, defendapts admit that they were aware ofthe grant of coverage for wrongful.
employment practices. See [D.E. 21] 20. Thus, defendants have not plausibly alleged any damages
3
It is unclear under North Carolina law whether "conduct that violates § 58-63-15(11) is a
per se violation of§ 75-1.1, or instead whether that conduct satisfies § 75-1.1 's conduct requirement
of an unfair or deceptive act or practice, still requiring the complainant to show that the act or
practice was in or affecting commerce and proximately caused injury to the plaintiff before finding
a violation of§ 75-1.1." Elliott, 883 F.3d at 396 n.7.
16
resulting from any misstatement or omission.
As for subsection (d), defendants fail to plausibly allege that Universal refused to pay claims
without conducting a reasonable investigation. Instead, defendants complaint demonstrates that
Universal did conduct a reasonable investigation by sending a lawyer to the January 27, 2017
mediation, and by defending the Quinn Action under a reservation of rights after the case failed to
settle at mediation. See [D.E. 25] 21, 23. Moreover, defendants' citation of N.C. Gen. Stat.§ 58-6315(11)(d) in their counterclaim is insufficient to survive a motion to dismiss.
See,~'
Ashcroft v.
Iqbal, 556U.S. 662,678-79 (2009); Mason v. Universal Underwriters Life Ins. Co., No. 1:06CV190,
2006 WL 2847288, at *7 (W.D.N.C. Oct. 4, 2006) (unpublished).
As for subsections (f) and (g), defendants are upset that Universal refused to indemnify them
for the full amount of the Quinn settlement. See [D.E. 25] 18, 24. Defendants have failed to
plausibly allege, however, that Universal's liability is "reasonably clear."
See,~' Elliott,
883 F.3d
at 398; Clear Creek Landing Home Owners' Ass'n. Inc. v. Travelers Indem. Co., No. 1:12cv157,
2012 WL 6641901, at *4 (W.D.N.C. Dec. 20, 2012) (unpublished) ("[T]he fact that Plaintiff may
disagree with the assessment of Defendant ... does not transform a run of the mill insurance dispute
into a tort cognizable unde~ Section 75-1.1."). Moreover, defendants have failed to plausibly allege
that Uruversal compelled defendants to litigate to recover amounts due. See, e.g;, Elliott, 883 F.3d
at 398. At best, defendants allegations amount to a breach of contract claim. See, e.g., id.; Davis v.
SateFarmLifelns. Co., 163 F. Supp. 3d299, 307--08 (E.D.N.C. 2016). Accordingly, the court grants
Universal's judgment on the pleadings concerning defendants' UDTPA counterclaim.
v.
As for Universal's motion for a judgment on the pleadings concerning defendants' breach of
contract counterclaim, Universal argues that it did not breach its duty to indemnify because it
voluntarily paid a portion of the settlement and that defendants knew they were being defended under
17
a reservation of rights. See [D.E. 33] 17-18.
In determining an insurer's duty to indemnify, a court typically compares the facts as
determined at trial to the inSurance policy's language. See Hartford Cas. Ins. Co., 90 F. Supp. 3d at
539-40; Buzz Off, 364 N.C. at 7, 692 S.E.2d at 11. Where the litigation settles before trial, "[a]
judicial assessment ofpost-settlement coverage disputes generally turns on the types ofthe underlying
claims that have been settled." ABT Bldg. Prods. Corp., 472 F.3d at 120 n.29; see Hartford Cas. Ins.
Co., 90 F. Supp. 3d at 539-40.
The court cannot. determine solely from the face of the pleadings which claims have been
settled, the value of the settled claims, or whether Universal indemnified the defendants for claims
covered by the policy. Accordingly, the court denies Universal's motion for judgment on the
pleadings for defendants' breach of contract counterclaim.
VI.
In sum, the court GRANTS in part and DENIES in part Universal's motion for a judgment
on the pleadings [D.E. 32], and GRANTS defendants' partial motion for a judgment on the pleadings
[D.E. 34, 36]. The parties shall engage in a court-hosted mediation with United States Magistrate
Judge James E. Gates.
SO ORDERED. This _16_ day of August 2018.
18
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?