State Farm Fire and Casualty Company v. Pettigrew et al
Filing
73
OPINION AND ORDER by Judge Claire V Eagan ; denying 30 Motion for Summary Judgment; denying 34 Joinder in Motion; granting 35 Motion for Summary Judgment; finding as moot 39 Motion in Limine; denying 52 Motion for Summary Judgment (Re: 2 Complaint, ) (RGG, Chambers)
UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
STATE FARM FIRE AND
CASUALTY COMPANY, an
Illinois Corporation,
Plaintiff,
v.
WAYNE PETTIGREW, individually
and d/b/a GROUP & PENSION
PLANNERS, INC.; FIRST TRINITY
FINANCIAL CORPORATION, an
Oklahoma corporation; GREGG
ZAHN, an individual,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 15-CV-0342-CVE-TLW
OPINION AND ORDER
Now before the Court is the Motion of First Trinity Financial Corporation and Gregg Zahn
for Summary Judgment Against State Farm Fire & Casualty Company (Dkt. # 30) and Pettigrew’s
joinder therein (Dkt. # 34), the Motion for Summary Judgment and Supporting Brief of Plaintiff
State Farm Fire and Casualty Company (Dkt. # 35), and Wayne Pettigrew’s motion for summary
judgment (Dkt. # 52). Defendants First Trinity Financial Corporation (FTFC) and Gregg Zahn move
for summary judgment on the ground that a personal liability umbrella policy issued by State Farm
Fire and Casualty Company (State Farm) to Wayne Pettigrew requires State Farm to defend and
indemnify Pettigrew in a state court action that FTFC and Zahn filed against Pettigrew after
Pettigrew made allegedly defamatory statements about Zahn’s leadership of FTFC. Dkt. # 30.
Pettigrew joined FTFC and Zahn’s motion (Dkt. # 34) and filed his own motion for summary
judgment (Dkt. # 52), arguing that State Farm is required to defend and indemnify Pettigrew in the
suit against him by FTFC and Zahn because the state court action is a covered loss under the
umbrella policy and no policy exclusions apply.1 State Farm filed a cross motion for summary
judgment, arguing that the umbrella policy does not provide coverage to Pettigrew, specifically
asserting that policy exclusions for business pursuits, professional services, and acts as a board
member preclude coverage. Dkt. # 35. The parties each ask the Court to find that they are entitled
to judgment as a matter of law and deny the opposing party’s motion.
I.
This insurance coverage dispute arises from a homeowner’s insurance policy and a personal
liability umbrella policy that State Farm issued to Pettigrew, under which Pettigrew seeks coverage
for a state court action against FTFC and Zahn. FTFC is a holding company for an Oklahoma
insurance company. Dkt. # 30-1, at 7. Zahn founded the company in 2004 and recruited Pettigrew,
who has over 30 years of experience as an insurance professional, both as an insurance broker and
insurance consultant, to serve as a founding board member. Dkt. # 35-2; Dkt. # 35-3, at 3; Dkt. #
43-2, at 5-6. Zahn serves FTFC’s president, chief executive officer (CEO), and chairman of the
board of directors. Dkt. # 2-6; Dkt # 35, at 11; Dkt. # 43, at 4. Pettigrew served as member of
FTFC’s board of directors from its inception in 2004 to 2013. Dkt. # 35, at 9; Dkt. # 43, at 3. As
an initial investment, Pettigrew purchased
1
40,000 shares in Southwest Security Financial
State Farm notes in its reply to Pettigrew’s motion for summary judgment that Pettigrew
filed his motion for summary judgment after the deadline for dispositive motions elapsed.
Dkt. # 53, at 1 n.1. Pursuant to this Court’s scheduling order, the deadline for dispositive
motions was January 28, 2016. Dkt. # 16. Pettigrew filed his motion for summary judgment
on February 8, 2016. Dkt. # 52. Although Pettigrew’s motion was untimely, the Court
declines to strike it because Pettigrew timely filed his joinder in FTFC and Zahn’s motion
and Pettigrew does not advance any arguments that materially differ from those presented
by FTFC and Zahn.
2
Corporation, later renamed FTFC. Dkt. # 35, at 9-10; Dkt. # 43, at 4. Pettigrew later purchased an
additional 2,000 shares and received 8,000 shares as dividends in 2009 and 2010. Dkt. # 35, at 10;
Dkt. # 43, at 4. Pettigrew currently owns 50,000 shares. Dkt. # 35, at 10; Dkt. # 43, at 4. Pettigrew
admits that he had a profit motive in becoming an FTFC shareholder. Dkt. # 35-3, at 4. Pettigrew
also received annual compensation for his service on the board, totaling $26,500 over the near
decade Pettigrew served on the board. Dkt. # 35, at 11; Dkt. # 43, at 4.
In 2009, Zahn was appointed CEO of FTFC. Dkt. # 35, at 11; Dkt. # 43, at 4. After Zahn
assumed this role, Pettigrew became increasingly concerned with Zahn’s leadership. Dkt. # 2-3.
Pettigrew’s stated reasons for concern were Zahn’s sale of stock to family members at a price of ten
cents per share, the company’s shift from marketing insurance to acquiring assets, Zahn’s
participation on both the compensation and nominating committees, the lack of separation between
company president and the chairman of the board, and issues related to Zahn’s prior business
dealings in Montana. Id.
At a March 14, 2013 FTFC board meeting, the board entertained nominations for the board
of directors. Dkt. # 35, at 12; Dkt. # 43, at 5. Pettigrew did not receive a nomination to continue
serving on the board after the expiration of his term on May 15, 2013. Dkt. # 35, at 12; Dkt. # 43,
at 5. Before the conclusion of his term, Pettigrew made an open records request to the Oklahoma
Insurance Department, seeking information related to his concerns about Zahn’s leadership. Dkt.
# 35, at 12; Dkt. # 43 at 5. Through the open records request, Pettigrew received information that,
prior to founding FTFC, Zahn entered into a deferred prosecution agreement in Montana relating
3
to Zahn’s actions as an officer in another corporation, AmWest Financial Network, Inc.2 Dkt. # 35,
at 12; Dkt. # 43, at 5. The deferred prosecution agreement related to charges of securities fraud.
Dkt. # 35, at 12; Dkt. # 43, at 5.
On April 8, 2013, Pettigrew sent a letter to Zahn notifying Zahn of Pettigrew’s resignation,
effective May 1, 2013.3 Dkt. # 2-3. The letter included Pettigrew’s stated reasons for his
resignation, which included lack of board oversight, failure to follow proper procedures, and
Pettigrew’s recent discovery of “previous charges and prosecutions against [Zahn] by other state
regulators[.]” Id. On the same day, Pettigrew sent a letter to a fellow board member, Tinker Owens,
advising Owens of his resignation and detailing the reasons for his departure. Dkt. # 35-11.
Pettigrew also sent a letter to Irving Faught, Commissioner of the Oklahoma Department of
2
The parties dispute whether Pettigrew had prior knowledge of the deferred prosecution
agreement. Although the parties dispute this fact, it does not create a genuine dispute of
material fact that would render summary judgment inappropriate. See Farthing v. City of
Shawnee, Kan., 39 F. 3d 1131, 1134-35 (10th Cir. 1994) (“A ‘material’ fact is one ‘that
might affect the outcome of the suit under the governing law,’ and a ‘genuine’ issue is one
where ‘the evidence is such that a reasonable jury could return a verdict for the nonmoving
party.’” (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986))). The parties
do not dispute that Pettigrew received this information through his open records request.
And whether Pettigrew had prior knowledge of the deferred prosecution agreement is
irrelevant to the question before the Court regarding policy coverage.
3
The parties dispute the date that Pettigrew’s resignation became effective. State Farm asserts
that Pettigrew’s letter of resignation stated that he intended to resign effective May 1, 2013.
Dkt. # 35, at 13. FTFC, Zahn, and Pettigrew assert that Pettigrew knew that his resignation
was effective the date it was tendered, April 8, 2013, regardless of the date contained in
Pettigrew’s letter. Dkt. # 30, at 3; Dkt. # 52, at 20-21. The defendants fail to acknowledge
that, in the state court petition, Zahn and FTFC stated that Pettigrew served as a board
member until May 1, 2013. Dkt. # 2-6, at 2. And, in any event, the date Pettigrew’s
resignation became effective is not a genuine dispute of material fact. For the reasons
discussed below, Pettigrew’s resignation date does not have an effect on whether the policy
exclusions preclude coverage for the underlying state court action. As such, this factual
dispute does not preclude summary judgment.
4
Securities, advising Faught of Pettigrew’s resignation and calling for an investigation of Zahn and
FTFC. Dkt. # 2-5.
On April 9, 2013, Pettigrew sent a letter to John Doak, Commissioner of the Oklahoma
Insurance Department, advising Doak of Pettigrew’s resignation and explaining the concerns that
lead to Pettigrew’s resignation. Dkt. # 2-4. Pettigrew signed the letter as “Wayne Pettigrew, Board
Member.” Id. Pettigrew also issued two press releases: one announcing his resignation, effective
May 1, 2013 and one announcing the resignation of another FTFC board member, Shannon Young.
Dkt. # 35-14; Dkt. # 35-15. The second press release stated that Pettigrew and Young were
requesting an investigation by the Oklahoma Department of Securities and detailed Zahn’s past
“issues with securities department violations.” Dkt. # 35-16. Pettigrew explained that he took these
actions because he had a fiduciary duty to protect the interests of FTFC stockholders. Dkt. # 35-3,
at 4.
On July 19, 2013, in response to Pettigrew’s letters and public statements, FTFC and Zahn
filed suit against Pettigrew in Tulsa County District Court alleging breach of fiduciary duty,
defamation, intentional interference with business relationships, intentional interference with
prospective business relationships, fraud and deceit, outrage, and seeking punitive damages. Dkt.
# 2-6. At the time, State Farm had issued two insurance policies to Pettigrew: a homeowners
insurance policy and a personal liability umbrella policy. Dkt. # 2-1; Dkt. # 2-2. Pettigrew made
demand on State Farm to defend and indemnify him in the state court action. Dkt. # 2-7. State Farm
agreed to defend Pettigrew, subject to a reservation of rights. Id. State Farm then filed this action,
seeking declaratory judgment that neither policy it issued to Pettigrew provides coverage for the loss
at issue and that it has no duty to defend or indemnify Pettigrew in the state court action. Dkt. # 2.
5
The parties have filed competing motions for summary judgment, each arguing that judgment as a
matter of law is appropriate. Defendants assert that, as a matter of law, the umbrella policy covers
the state court action and that no policy exclusions are applicable. Dkt. # 30, at 5; Dkt. # 52, at 2122. State Farm asserts that it has no duty to defend or indemnify Pettigrew in the state court action
because the umbrella policy exclusions preclude coverage as a matter of law. Dkt. # 35, at 33-36.
II.
Summary judgment pursuant to Fed. R. Civ. P. 56 is appropriate where there is no genuine
dispute as to any material fact and the moving party is entitled to judgment as a matter of law.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986); Kendall v. Watkins, 998 F.2d 848, 850 (10th Cir. 1993). The plain language of
Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon
motion, against a party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of proof at trial.
Celotex, 477 U.S. at 317. “Summary judgment procedure is properly regarded not as a disfavored
procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are
designed ‘to secure the just, speedy, and inexpensive determination of every action.’” Id. at 327
(quoting FED. R. CIV. P. 1).
“When the moving party has carried its burden under Rule 56(c), its opponent must do more
than simply show that there is some metaphysical doubt as to the material facts. Where the record
taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no
‘genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87
(1986) (citations omitted). “The mere existence of a scintilla of evidence in support of the plaintiff’s
6
position will be insufficient; there must be evidence on which the [trier of fact] could reasonably
find for the plaintiff.” Anderson, 477 U.S. at 252. In essence, the inquiry for the Court is “whether
the evidence presents a sufficient disagreement to require submission to a jury or whether it is so
one-sided that the party must prevail as a matter of law.” Id. at 251-52. In its review, the Court
construes the record in the light most favorable to the party opposing summary judgment. Garratt
v. Walker, 164 F.3d 1249, 1251 (10th Cir. 1998).
“The interpretation of an insurance contract is governed by state law and, sitting in diversity,
we look to the law of the forum state.” Houston Gen. Ins. Co. v. Am. Fence Co., Inc., 115 F.3d 805,
806 (10th Cir. 1997) (applying Oklahoma insurance law). In Oklahoma, interpretation of an
insurance contract is a matter of law. Max True Plastering CO. v. U.S. Fid. and Guar. Co., 912 P.2d
861, 869 (Okla. 1996). The insured has the burden of showing that his or her claim is covered
under the policy. See U.S. Fid. and Guar. Co. v. Briscoe, 239 P.2d 754, 756 (Okla. 1952) (noting
that “the contractor must bring himself within the terms of the policy, before he can establish
insurer’s liability thereon”); see also Pitman v. Blue Cross and Blue Shield of Okla., 217 F.3d 1291,
1298 (10th Cir. 2000) (explaining that, under Oklahoma law, “the insured has the burden of showing
that a covered loss occurred”). Once the insured establishes coverage, “the insurer has the burden
of showing that a loss falls within an exclusionary clause of the policy.” Pitman, 217 F.3d at 1298.
Therefore, summary judgment in favor of the insurer is proper when the undisputed facts show that
the insured has failed to establish a covered claim under its insurance policy. See, e.g., VBF, Inc.
v. Chubb Grp. of Ins. Cos., 263 F.3d 1226 (10th Cir. 2001) (affirming the district court’s grant of
summary judgment to the insurers where the undisputed facts established that, under Oklahoma law,
7
the insured’s claims were not covered). Conversely, summary judgment in favor of the insured is
proper when the undisputed facts show the insured has established a covered claim. See id.
III.
The parties do not dispute that the homeowner’s policy does not provide coverage for the
underlying state court action, instead acknowledging that the homeowner’s policy is relevant only
insofar as it is a valid underlying policy required for the umbrella policy to be in effect. Dkt. # 30,
at 9; Dkt. # 35, at 21; Dkt. # 52, at 11. Thus, the only question for the Court is whether the personal
liability umbrella policy provides coverage, requiring State Farm to defend and indemnify Pettigrew
in the underlying state court action. State Farm argues that the personal liability umbrella policy
does not provide coverage to Pettigrew because three independent policy exclusions--the business
pursuits exclusion, the professional services exclusion, and the acts a board member exclusion-preclude coverage. Dkt. # 35, at 33-35. FTFC, Zahn, and Pettigrew assert that the policy exclusions
do not apply because Pettigrew did not undertake his actions to further his business interests, he was
not providing any professional services at the relevant time, and he did not engage in the activity
while an active board member of FTFC. Dkt. # 30, at 5-7; Dkt. # 52, at 21-22.
In interpreting this policy, the Court applies the Oklahoma rules of construction. See VBF,
Inc., 263 F.3d at 1230. Under Oklahoma law, an insurance contract should be construed according
to the terms set out within the four corners of the document. First Am. Kickapoo Operations, L.L.C.
v. Multimedia Games, Inc., 412 F.3d 1166, 1173 (10th Cir. 2005); Redcorn v. State Farm Fire &
Cas. Co., 55 P.3d 1017, 1020 (Okla. 2002); London v. Farmers Ins. Co., Inc. 63 P.3d 552, 554 (Okla.
Civ. App. 2002). If the terms of the contract are “unambiguous, clear and consistent, they are to be
accepted in their ordinary sense and enforced to carry out the expressed intention of the parties.”
8
Roads West, Inc. v. Austin, 91 P.3d 81, 88 (Okla. Civ. App. 2003). Ambiguities in an insurance
contract are construed against the insurer. Max True, 912 P.2d at 865. A court should not create
an ambiguity in the policy by “using a forced or strained construction by taking a provision out of
context, or by narrowly focusing on a provision.” Wynn v. Avemco Ins. Co., 963 P.2d 572, 575
(Okla. 1998). A policy term will be considered ambiguous only if it can be interpreted as having
two different meanings. Equity Ins. Co. v. City of Jenks, 184 P.3d 541, 544 (Okla. 2008); Osprey
L.L.C. v. Kelly-Moore Paint Co., 984 P.2d 194, 199 (Okla. 1999). However, the Oklahoma courts
“will not impose coverage where the policy language clearly does not intend that a particular
individual or risk should be covered,” and neither a “split in authority over whether a certain term
is ambiguous,” nor “the fact that the parties disagree” alone is sufficient to establish an ambiguity.
BP Amer., Inc. v. State Auto Prop. & Cas. Ins. Co., 148 P.3d 832, 835-36 (Okla. 2005).
The relevant coverage provision of the umbrella policy provides as follows:
COVERAGE L - PERSONAL LIABILITY
If a claim is made or a suit is brought against an insured for damages because of a
loss for which the insured is legally liable and to which this policy applies, we will
pay on behalf of the insured, the damages that exceed the retained limit. The most
we will pay for such loss is the Coverage L Limit of Liability, as shown on the
declarations page, regardless of the number of insureds who may be liable, claims
made, or persons injured.
Dkt. # 2-2, at 10. The policy defines a “loss” as:
a. an accident, including accidental exposure to conditions, which first results in
bodily injury or property damage during the policy period. Repeated or
continuous exposure to the same general conditions is considered to be one loss; or
b. the commission of an offense which first results in personal injury during the
policy period. A series of similar or related offenses is considered to be one loss.
Id. at 6. “Bodily injury” means “physical injury, sickness, or disease to a person,” and “property
damage” means “physical damage to or destruction of tangible property, including loss of use of
9
such property.” Id. at 5, 7. “Personal injury” is defined as an “injury other than bodily injury
arising out of” in relevant part, “libel, slander, defamation of character . . . .” Id. at 6.
The relevant loss in the underlying state court action involves personal injury; FTFC and
Zahn assert a claim of defamation against Pettigrew. Dkt. # 2-6, at 6. Because the underlying state
court action makes no claim against Pettigrew for either bodily injury or property damage, the Court
considers only whether the umbrella policy provides Pettigrew coverage for FTFC and Zahn’s
defamation claim. The parties do not dispute whether defamation is a loss under the policy; instead
they dispute whether one of the policy exclusions applies. Dkt. # 30, at 10; Dkt. # 35, at 33; Dkt.
# 52, at 15. State Farm argues that three separate policy exclusions preclude coverage: the business
pursuits exclusion, the professional services exclusion, and the acts as a board member exclusion.
Dkt. # 35, at 33. FTFC, Zahn, and Pettigrew assert that the policy exclusions do not apply. Dkt. #
30, at 5-7; Dkt. # 52, at 21-23.
A.
State Farm first asserts that the business pursuits exclusion precludes coverage for the
underlying state court action and relieves State Farm of the obligation to either defend or indemnify
Pettigrew because Pettigrew’s service as an FTFC board member is a business pursuit and the state
court action arose from this pursuit. Dkt. # 35, at 24-29. The defendants argue that the business
pursuits exclusion does not apply because Pettigrew undertook his actions as an individual and for
his own purposes, not for purposes that would be beneficial to his business involvement with FTFC.
Dkt. # 30, at 12-13; Dkt. # 52, at 15-18.
10
The business pursuits exclusion dictates that the policy does not provide coverage for any
“loss arising out of any insured’s business property or business pursuits of any insured[.]”4 Dkt.
# 2-2, at 11.
farming.”
The policy defines “business” as “a trade, profession, or occupation, including
Id. at 6.
The general consensus, consistent with Oklahoma law, regarding the
interpretation of “arising out of” is that the phrase should be “given a broad reading such as
‘originating from’ or ‘growing out of’ or ‘flowing from’ or ‘done in connection with’—that is, it
requires some causal connection to the injuries suffered, but does not require proximate cause in the
legal sense.” Fed. Ins. Co. v. Tri-State Ins. Co., 157 F.3d 800, 804 (10th Cir. 1998). And, the
Oklahoma Supreme Court, in interpreting a similar business pursuits exclusion, explained that “the
word ‘pursuit,’ as used in the exclusion, has only its ordinary understood sense, i.e. to go after, seek,
chase, strive for or engage in an avocation, hobby or the like.” Wiley v. Travelers Ins. Co., 534 P.
2d 1293, 1294 (Okla. 1974). The court also explained that the “the addition of a profit motive to an
activity makes it a business pursuit.” Id. at 1295.
The issue in this case is not the truth or falsity of the Pettigrew statements; that is for the factfinder in the state court litigation. The only issue here is whether Pettigrew’s statements arose out
of Pettigrew’s business pursuits. The Court first concludes that Pettigrew’s service as an FTFC
4
The exclusion contains three exceptions, the first of which allows coverage when “the loss
does not involve any land motor vehicle or watercraft and []required underlying insurance
applies to the loss and provides coverage that pays for the loss in the amount shown as
Minimum Underlying Limits on the declarations page.” Dkt. # 2-2, at 11. As previously
discussed, the parties do not dispute that Pettigrew’s underlying homeowners insurance
policy does not apply and provide coverage for the loss at issue. Dkt. # 30, at 9; Dkt. # 35,
at 21; Dkt. # 52, at 11. As such, this exception is inapplicable. The remaining two
exceptions allow coverage for a “loss [that] involves a private automobile used for business
pursuits” or a “loss [that] involves a watercraft used for business pursuits.” The parties have
made no claims that either a private automobile or a watercraft is in any way involved in the
underlying action, rendering these exceptions similarly inapplicable.
11
board member constitutes a business pursuit. Pettigrew is an insurance professional with over 30
years of experience, served on FTFC’s board of directors for nearly a decade, owns shares in the
company, received compensation for his service on the board, and has admitted that his investment
in the company was at least partially profit-driven.
The Court concludes that Pettigrew’s
involvement with FTFC was a “business pursuit” because he engaged in this business venture, part
of his “trade, profession, or occupation,” with a profit motive.
The Court further concludes that Pettigrew’s statements arose out of this business pursuit.
Consistent with Oklahoma law, the Court gives “arising out of” a broad reading, under which the
Court concludes that Pettigrew’s statements arose out of his business pursuit, that is, his involvement
in FTFC. Pettigrew’s statements were not, as defendants suggest, motivated solely by his personal
desires. See Dkt. # 30, at 5. The content of Pettigrew’s letters make clear that he was resigning,
calling for an investigation, and detailing the reasons for his concerns that “originated from” or
“grew out of” his service on FTFC’s board; Pettigrew observed behaviors and actions as a board
member that motivated him to make the allegedly defamatory statements. With respect to
defendants’ argument that Pettigrew’s statements could not have arisen from a business pursuit
because his actions were detrimental to the business, this has no bearing on the broad definition
courts afford the phrase “arising out of.” Defendants provide no authority for their argument that
an action that could have a detrimental effect on a business pursuit cannot be said to arise out of the
business pursuit. Although a profit motive helps identify a business pursuit, an action that does not
earn a profit or, indeed, hinders such a profit, may still arise out of a business pursuit. See Wiley,
534 P. 2d at 1295. Pettigrew was engaged in a business pursuit with Zahn--the operation and
12
governance of FTFC–and the actions he took and statements he made regarding information he
received while a member of the board arose out of such business pursuit.
Although not decided under Oklahoma law, the Kansas Court of Appeals decided a case
involving a business pursuits exclusion under Kansas law. Relevant here, the court noted that
[a]n analysis . . . reveals that a reasonable man in the plaintiff’s shoes would have
understood the purposes of homeowners and excess insurance policies. The plaintiff
had been involved in the insurance business for many years. He had held positions
in virtually every phase of the business. He was aware that the insurance companies
sell director’s and officer’s liability insurance policies for the activities that he
engaged in here.
Krings v. Safeco Ins. Co. of America, 628 P.2d 1071, 1075 (Kan. App. 1981) (internal citations
omitted). Like the plaintiff in Krings, Pettigrew has over 30 years of experience in the insurance
industry, has held many positions in different phases of the business, and “would have understood
the purposes of homeowners and excess insurance policies.” See id. Pettigrew would have been
aware of the limit of a personal liability policy as it concerned business ventures, but now attempts
to evade that limit by arguing, joined by his business partner-turned-rival, that his actions stemming
from his professional obligations as a board member of FTFC do not involve a “business pursuit.”
This argument simply defies logic and common sense.
The ultimate irony in this case is that two former business rivals have bilaterally joined
forces in one final business pursuit--to argue that the claims in the underlying state court litigation
do not arise out of Pettigrew’s business pursuits. This final business pursuit meets the same end.
The Court concludes that Pettigrew’s statements “grew out of,” “originated from,” or were “done
in connection with” his “trade, profession, or occupation.” The policy exclusion for a loss arising
from the insured’s business pursuit excludes from coverage the underlying state court action.
13
B.
Although the Court concludes that the business pursuits exclusion applies and precludes
coverage, the Court also considers whether the professional services exclusion provides another,
independent basis upon which State Farm may deny Pettigrew coverage. State Farm asserts that the
professional services exclusion precludes from coverage FTFC and Zahn’s defamation action against
Pettigrew in state court because Pettigrew’s contribution of insurance knowledge, experience, and
training constituted a professional service. Dkt. # 35, at 31,34-35. FTFC and Zahn assert that “[i]t
is virtually axiomatic that a member of a board of directors who, without permission form the board
or its officers, defames the corporation and its Chairman, CEO and President, is not rendering a
professional service to the corporation.” Dkt. # 30, at 10. Pettigrew asserts that his call for an
investigation into Zahn’s leadership of FTFC was not a professional service and that he was
motivated by his “responsibility to be a good human being,” rather than by business concerns. Dkt.
# 52, at 19.
The professional services exclusion provides that a “loss arising out of any insured
providing or failing to provide a professional service” is not covered under the umbrella policy. Dkt.
# 2-2, at 11. The policy does not define professional services, and Oklahoma law provides minimal
guidance. The Oklahoma Court of Civil Appeals has, however, considered the definition of
professional services in the insurance context, and relied upon a Nebraska Supreme Court decision
that defined professional services as follows:
“The insurer’s liability is thus limited to the performing or rendering of
‘professional’ acts or services. Something more than an act flowing from mere
employment or vocation is essential. The act or service must be such as exact the use
or application of special learning or attainments of some kin[d]. The term
‘professional’ in the context used in the policy provision means something more than
mere proficiency in the performance of a task and implies intellectual skill as
14
contrasted with that used in an occupation for production or sale of commodities. A
‘professional’ act or service is one arising out of a vocation, calling, occupation, or
employment involving specialized knowledge, labor, or skill, and the labor or skill
involved is predominantly mental or intellectual, rather than physical or manual. In
determining whether a particular act is of a professional nature or a ‘professional
service’ we must look not to the title or character of the party performing the act, but
to the act itself.”
Mut. Assur. Adm’rs, Inc. v. U.S. Risk Underwriters, Inc., 993 P.2d 795, 798 (Okla. Civ. App. 1999)
(internal citations omitted) (quoting Marx v. Hartford Acc. and Indem. Co., 157 N.W.2d 870, 871-72
(1968)).
Under this definition, Pettigrew’s service as a member of the board of directors may fairly
be characterized as a professional service. Pettigrew has nearly thirty years of experience in the
insurance industry and his service as a board member, providing input and guidance in this field,
arises out of his “vocation, calling, occupation, or employment involving specialized knowledge.”
Pettigrew’s knowledge and experience in the insurance industry is “predominantly mental or
intellectual,” as is evidenced by Pettigrew’s decades of experience in the insurance industry,
including his work as both an insurance broker and an insurance consultant both of which required
training and advanced knowledge in a technical field. This is precisely the work that requires
specialized knowledge, distinct from work that is manual or physical in nature.
And, Pettigrew’s statements arose out of this professional service. Defendants’ argument that
Pettigrew was not providing a professional service when he made the allegedly defamatory
statements ignores or impermissibly narrows the phrase “arising out of” contained within the policy
exclusion. As discussed above, courts afford “arising out of” a broad reading to include anything
that “originates from,” “grows out of,” “flows from,” or is “done in connection with” the
professional services rendered. See Fed. Ins. Co., 157 F.3d at 804. Pettigrew provided a professional
15
service as an active member on the board and the loss at issue--Zahn and FTFC’s defamation claims
in the underlying state court lawsuit--“grew out of” or “arose from” this service. Pettigrew’s
concerns arose from his position and involvement with the board, and his statements “flowed from”
or were made “in connection with” his service as a board member. As such, the professional
services exclusion contained in the personal liability umbrella policy applies and precludes coverage
for the state court action.
C.
The Court also considers whether the policy exclusion for acts of a board member provides
yet another basis for State Farm to deny Pettigrew coverage. State Farm asserts that the exclusion
for losses arising from acts of a board member precludes coverage for the underlying state court
action, asserting that the alleged defamation at the center of the underlying action arouse out of
Pettigrew’s acts as a board member of FTFC. Dkt. # 35, at 35. FTFC, Zahn, and Pettigrew assert
that this policy exclusion does not apply because Pettigrew’s actions were undertaken without any
involvement of the FTFC board and Pettigrew admitted that he was not acting as a board member
when he committed the acts giving rise to the underlying suit. Dkt. # 30, at 11; Dkt. # 52, at 20.
The exclusion for losses arising from acts of a board member excludes from coverage any
“loss arising out of any insured’s act or omission as a member of a corporation’s board of directors.
This exclusion does not apply if: a. the corporation is a not-for-profit corporation; and b. the insured
is not an employee or officer of the corporation.”5 Dkt. # 2-2, at 11. As stated with respect to the
business pursuits and professional services exclusion, “arising out of” is a broad term that requires
5
The parties advance no argument that the exception to this exclusion applies and the Court
notes that the exception is inapplicable because, at the very least, FTFC is not a not-forprofit corporation. See Dkt. # 2-6, at 2.
16
some causal connection between Pettigrew’s service as a board member and the loss at issue, but
does not require proximate causation. See Fed. Ins. Co., 157 F.3d at 804.
Defendants’ argument that Pettigrew was not acting in his capacity as a board member when
he made the allegedly defamatory statements simply lacks merit. They assert that, because
Pettigrew was acting outside of his duties as a board member and took actions detrimental to the
corporation, “it would not be possible to claim that Mr. Pettigrew’s acts arose out of his service on
FTFC’s Board of Directors.” Dkt. # 30, at 11-12. This argument fails because Pettigrew admits that
he made an open records request, resigned, and made public statements pursuant to his fiduciary
duty to other FTFC shareholders. And defendants’ interpretation of the policy language would
impermissibly narrow the policy language to apply only to situations in which the loss arose from
an action that was beneficial to a corporation. No such limitation exists in either the language of the
policy or case law. Pettigrew was acting pursuant to his duties as a board member when he made
an open records request, resigned, and made public statements detailing his concerns with the
company’s leadership. The defamation claims in the state court action arose from such action.
Defendants also assert that Pettigrew could not have been acting in his capacity as a board
member when Pettigrew made the statements after he submitted his letter of resignation and
Pettigrew would have been aware that FTFC’s practice was for resignations to be effective
immediately. See Dkt. # 52, at 20. This argument would require the Court to conclude that an loss
may arise out of an action of a board member only when the board member remains an active
member of the board. The Court finds that this is too strict an interpretation and is inconsistent with
the policy language. The effective date of Pettigrew’s resignation from FTFC is immaterial because,
regardless of the effective date, Pettigrew’s statements “grew out of” or were “done in connection
17
with” his actions as a member of FTFC’s board of directors. See Fed. Ins. Co, 157 F.3d at 804. The
Court also notes that Pettigrew signed at least one of his letters as “Wayne Pettigrew, Board
Member,” which clearly demonstrates Pettigrew’s belief that he was acting in his capacity as a board
member and further underscores the Court’s conclusion that Pettigrew’s statements arose out of his
acts as an FTFC board member.
Pettigrew’s actions resulted from his service as an FTFC board member. The undisputed
facts demonstrate that a causal connection exists between his acts as a board member--his open
records request and subsequent resignation--and the statements he made regarding his action. The
Court concludes that Pettigrew’s statements arose from his acts as a board member of FTFC. The
exclusion for acts as a board member applies and excludes from coverage the underlying state court
action.
IV.
In closing, the Court notes that the defendants’ arguments regarding each exclusion do not
comport with the language of the policy, nor with common sense. The Court finds defendants’
arguments unpersuasive, particularly in light of the insurance industry experience of Zahn and
Pettigrew and the nature of FTFC’s business. “The construction of an insurance policy should be
a natural and reasonable one, fairly construed to effectuate its purpose, and viewed in light of
common sense so as not to bring about an absurd result.” Wiley, 534 P.2d at 1295. Adopting the
defendants’ argument would require the Court to abandon its common sense and would “bring about
an absurd result,” as Zahn and Pettigrew, insurance professionals themselves, are undoubtedly
aware.
18
Each of the policy exclusions--the business pursuits exclusion, professional services
exclusion, and acts as a board member exclusion--provides an independent basis for State Farm to
deny Pettigrew coverage. Because the policies State Farm issued to Pettigrew do not cover the loss,
State Farm has no duty to either defend or indemnify Pettigrew in the underlying suit. The Court
concludes that State Farm is entitled to summary judgment because, as a matter of law, the personal
umbrella liability policy does not provide coverage for FTFC and Zahn’s defamation action against
Pettigrew in state court. State Farm’s motion for summary judgment should thus be granted and
both Pettigrew’s and FTFC and Zahn’s motions for summary judgment should thus be denied.
IT IS THEREFORE ORDERED that the Motion for Summary Judgment and Supporting
Brief of Plaintiff State Farm Fire and Casualty Company (Dkt. # 35) is granted; the Motion of First
Trinity Financial Corporation and Gregg Zahn for Summary Judgment Against State Farm Fire &
Casualty Company (Dkt. # 30) and Pettigrew’s joinder (Dkt. #34) are denied; and Pettigrew’s
motion for summary judgment (Dkt. # 52) is denied. A separate judgment is entered herewith.
IT IS FURTHER ORDERED that the Motion in Limine of Plaintiff State Farm (Dkt. #39)
is moot.
DATED this 5th day of April, 2016.
19
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?