Hanover American Insurance Company v. Saul et al
Filing
67
ORDER granting 46 plaintiff's motion for summary judgment as to both its claim and defendant Balfour's counterclaims...motion is also granted as to Dr. Debora K. Balfour Chiropractic, PC which confessed it...plaintiff's claim against Saul, who was never served is dismissed without prejudice. Signed by Honorable Joe Heaton on 08/27/2013. (lam)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
HANOVER AMERICAN INSURANCE
COMPANY, on behalf of all others
similarly situated,
)
)
)
)
Plaintiff,
)
vs.
)
)
GREGORY A. SAUL, et al.,
)
)
Defendants.
)
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DEBORA K. BALFOUR and DR.
)
DEBORA K. BALFOUR
)
CHIROPRACTIC, P.C.,
)
)
Third-Party Plaintiffs, )
vs.
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NCMIC INSURANCE COMPANY,
)
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Third-Party Defendant. )
NO. CIV-12-0922-HE
ORDER
Hanover American Insurance Company (“Hanover”) filed this declaratory judgment
action against Gregory A. Saul, his former spouse, Debora K. Balfour, her business, Dr.
Debora K. Balfour Chiropractic, P.C. (“DKBC”) and Matthew A. Briner, individually and
as next friend of his ward, A.A. Hanover seeks a declaration of its obligations under a
businessowner’s policy it issued to “Gregory & Debora Saul D.C.”1 Briner sued Saul,
Balfour and DKBC in state court (“the Briner lawsuit”) to recover damages he and A.A.
1
Balfour states that her legal name is Debora K. Saul and her professional name, which she
currently goes by, is Balfour. The title “DC” refers to a Doctor of Chiropractic.
allegedly sustained as the result of Saul and Balfour’s tortious acts. Balfour and DKBC
asked Hanover to defend them, as their insurer, in that lawsuit. It has provided a defense,
pursuant to a reservation of its rights to withdraw the defense and refuse to defend or pay any
judgment that is rendered in the case against either of them. Here, Hanover asserts it is not
obligated to defend and indemnify Balfour and DKBC in the Briner lawsuit. Balfour has
counterclaimed, seeking a declaration that Hanover is required under the policy terms to
provide her with a defense and indemnification. She also seeks an order requiring Hanover
to provide her with counsel of her own choosing to represent her in the Briner action.2
Hanover has filed a motion for summary judgment, on both its claim and defendant
Balfour’s counterclaims for declaratory and injunctive relief.3 Summary judgment is
appropriate only “if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A genuine
dispute as to a material fact ‘exists when the evidence, construed in the light most favorable
to the non-moving party, is such that a reasonable jury could return a verdict for the
non-moving party.’” Carter v. Pathfinder Energy Services, Inc., 662 F.3d 1134, 1141 (10th
Cir. 2011) (quoting Zwygart v. Bd. of Cnty. Comm'rs, 483 F.3d 1086, 1090 (10th Cir.2007)).
DKBC did not respond to Hanover’s motion and thereby confessed it. LCvR7.1(g). Having
2
Balfour and DKBC filed a third party complaint against NCMIC Insurance Company
(“NCMIC”), based on a professional liability insurance policy NCMIC issued Balfour and DKBC.
Those claims were dismissed.
3
Hanover states that its motion does not apply to Saul because he has not been served.
2
considered the submissions of Hanover, Balfour and Briner4 in light of this standard, the
court concludes Hanover’s motion should be granted.
Background
Balfour is a licensed chiropractor, who conducts her chiropractic practice through
DKBC, a professional corporation.
Balfour is DKBC’s sole shareholder.
Balfour,
individually, owns the commercial building where the chiropractic clinic is located. The
address of that building (Building #1) is 8501 S. Penn. Avenue, Oklahoma City, Oklahoma.
While they were married, Balfour and Saul purchased property at 8505 S. Penn. Avenue as
joint tenants (Building #2). Balfour sued Saul for divorce in August 2010 and the marriage
ended on March 7, 2011. Balfour was awarded both the 8501 and 8505 properties. The 8505
property is currently owned by KROW, LLC, a limited liability company Balfour organized
in 2009.5
Balfour claims she notified Hanover’s agent of the divorce proceeding before
Hanover issued the renewal insurance policy that is at issue in this litigation. Hanover issued
that policy – Businessowners Policy No. OZT2535464 – to Gregory and Debora Saul D.C.,
as the named insureds. The business type specified on the declarations page is “partnership,”
and “office” is the designated “business of the named insured.” While 8505 S. Penn Avenue
is listed as the address of the named insured, both the 8501 and 8505 addresses are included
4
As Briner adopts Balfour’s response to Hanover’s motion, Doc. #54, the court will simply
refer to Balfour’s arguments.
5
Under the terms of the divorce decree, Saul was to continue to receive rent from one rental
unit at the 8505 property.
3
as the “described premises.” The declaration page also lists a General Liability Broadening
Endorsement for a “chiropractors office.” Doc. #46-3, p. 12.
On February 23, 2012, Saul was charged by information in Cleveland County with
multiple counts of raping A.A. and other crimes. Additional charges were added at the
conclusion of Saul’s 2013 preliminary hearing and he was bound over for trial. A.A. testified
that the sexual assaults occurred at her school, where Saul was her teacher, at Saul’s house
and, in October 2011, in Building #1 at 8501 S. Penn Avenue. On March 5, 2012. Briner
sued Saul, Balfour and Debora K. Balfour Chiropractic, P.C. in state court. He alleges that
during September and October of 2011, A.A. was a patient of Debora K. Balfour
Chiropractic, P.C. and Debora K. Balfour, having been referred to the practice by Saul.
Briner claims Saul sexually assaulted A.A., and that one of the assaults and attempted
assaults occurred in the office building where Balfour’s clinic is located. Balfour is alleged
to have been negligent and provided substandard care by failing to warn her minor patient
of Saul’s “history and propensity to sexually molest under age females” and allowing Saul
to have unfettered access to the clinic building. Doc. #46-16, ¶17.6 Her actions and inactions,
which Briner also attributes to the clinic, are alleged to have facilitated “Saul’s tortious
actions against A.A., causing A.A. to suffer physical and mental pain, and immediate and
future medical expense.” Id. Balfour and DKBC notified Hanover when the Briner lawsuit
was filed and asked it to defend them, which it has done, under a reservation of rights.
6
Page references for briefs and exhibits are to the CM/ECF document and page number.
For example, Exhibit 16 to plaintiff’s motion for summary judgment is referred to as Doc. #46-16.
4
Analysis
The court’s task is to construe the businessowners’ policy, applying Oklahoma law.7
It must determine whether Hanover owed Balfour and DKBC a contractual duty to defend
and indemnify them with respect to the negligence claims asserted against them by Briner.
Hanover asserts its policy does not provide coverage for three reasons: Balfour and DKBC
are not insureds under the business liability coverage provisions of the policy, the “bodily
injuries” for which damages are sought on behalf of A.A. were not caused by an
“occurrence,” as that term is defined in the policy and the claims asserted on behalf of A.A.
do not seek damages because of “personal and advertising injuries,” as that phrase is defined
by the policy. Balfour responds that she can reasonably be regarded as a named insured and
that, because the Briner lawsuit asserts a “humiliation” injury claim against her, she is
insured under the policy’s general liability coverage.
The pertinent legal principles are well established. Under Oklahoma law, insurance
contracts are interpreted “in accordance with principles applicable to all contracts.” Mansur
v. PFL Life Ins. Co.,589 F.3d 1315, 1319 (10th Cir. 2009). The contract is “construed
according to the plain meaning of its language,” and, if unambiguous, the court “interprets
the contract as a matter of law.” Id. “When an insurance contract is susceptible of two
meanings ... words of inclusion are liberally construed in favor of the insured and words of
exclusion strictly construed against the insurer.” Phillips v. Estate of Greenfield, 859 P.2d
7
As this action was removed on the basis of diversity jurisdiction, state law applies. The
parties appear to agree that Oklahoma law governs the dispute.
5
1101, 1104 (Okla. 1993). “I[t] is the expectations of the insured that control” when “the
terms of the contract are unclear, or when the contract is susceptible to two reasonable
interpretations.” Western World Ins. Co. v. Markel American Ins. Co., 677 F.3d 1266, 1271
(10th Cir. 2012); accord Mansur, 589 F.3d at 1319 (Because “[a]n insurance policy is
considered a contract of adhesion in Oklahoma,” if the contract is ambiguous, it is “construed
in favor of the insured.”).
A liability insurance policy, such as the policy issued by Hanover, “generally
contains two basic duties – the duty to defend and the duty to indemnify its insured.” First
Bank of Turley v. Fid. & Deposit Ins. Co. of Md., 928 P.2d 298, 302-03 (Okla.1996). The
insurer’s duty to defend is broader than the duty to indemnify, and arises whenever the
insurer “ascertains the presence of facts that give rise to the potential of liability under the
policy.” Id. at 303 (footnote omitted). “[T]here need not be a probability of recovery.” Id.
at 303 n.14. “[T]he insurer’s duty to defend its insured arises whenever the allegations in a
complaint state a cause of action that gives rise to the possibility of a recovery under the
policy.” Id.
The businessowners policy provides coverage for both property damage (Section I)
and business liability (Section II). The parties’ dispute centers on the provisions pertaining
to business liability, which obligate Hanover to “pay those sums that the insured becomes
legally obligated to pay as damages because of ‘bodily injury,’‘property damage’ or personal
and advertising injury’ to which this insurance applies,” and “to defend the insured against
any ‘suit’ seeking those damages.” Doc. #46-3, p. 59. The insurance applies to “bodily
6
injury” and “property damage” if it occurs during the policy period and is caused by an
“‘occurrence’ that takes place in the ‘coverage territory.’” Id. It also applies to “‘personal
and advertising injury’ caused by an offense arising out of [the insured’s] business, but only
if the offense was committed in the ‘coverage territory’ during the policy period.” Id. at p.
60.
Hanover initially argues that Balfour and DKBC are not insureds under the policy’s
business liability coverage. The policy provides that “[t]hroughout this Coverage Form the
words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations. . . . In Section
II-Liability, the word ‘insured’ means any person or organization qualifying as such under
Paragraph C-Who is an Insured.” Id. at p. 16. Paragraph C states
1. If you are designated in the Declarations as:
a. An individual, you and your spouse are insureds, but only with
respect to the conduct of a business of which you are the sole owner.
b. A partnership or joint venture, you are an insured. Your members,
your partners and their spouses are also insureds, but only with respect
to the conduct of your business.
Id. at pp. 69-70.
Hanover argues that because the “Gregory & Debora Saul D.C.” are the named
insureds and the business type is identified as a “partnership,” “the partnership of ‘Gregory
and Debora Saul D.C.’ is the ‘you’ in the [policy].” Doc. #47, p. 20. It claims the
declarations designation of the insured’s business -- “office” -- and the listed address of the
named insured – the 8505 S. Penn. property, which Balfour and Saul owned jointly –
7
substantiate its position that the policy insured the Saul-Balfour partnership that owned the
office building at 8505 S. Penn, not Balfour, individually, or the corporation DKBC.
Balfour denies that she ever formed any business partnership with Saul. She claims
Hanover unilaterally selected that classification and that “partnership” refers to her joint
ownership of Building #2 with Saul, as Hanover’s agent knew the couple jointly owned that
building and were both supposed to be insureds with respect to property coverage for it.
Balfour asserts that “office” refers to the ownership of two commercial office buildings and
not to her chiropractor’s office, which is separately insured and described in the policy’s
general liability coverage. She contends that she is a “named insured” in her individual
capacity and “the only ‘Named Insured’ for purposes of the general liability coverage for the
chiropractic office.” Doc. #53, p. 21.
The principal problem with Hanover’s position is that the policy identifies individuals,
not a partnership, as the named insureds.8 As Balfour notes, the “Declarations undisputedly
does not identify the business name of any partnership or business entity to be insured.”
Doc. #53, p. 17 n.3. No partnership or business entity is referred to anywhere on the
declarations page. Hanover’s own cases reflect the distinction. In Milazo v. Gulf Ins. Co.,
224 Cal.App.3d 1528 (Cal.App.2d 1990), the named insured on the policy was “‘M.H.
8
As there is no evidence that Saul and Balfour were ever engaged in any type of partnership,
if Hanover’s argument that the Named Insured was a partnership was accepted, it would, as Balfour
points out, “render all coverage under the Policy entirely illusory.” Doc. #53, p. 23.
8
Pingle, M. Miloza [sic] & Millard Ellis dba: Alexander's Choice Meats.’”9 Id. at 1535
(emphasis added). In Jones v. Harper, 408 P.2d 56 (N.M. 1965), the insurance company
“had in force a policy of insurance with defendant Alfred Harper and Frank H. Derrick Jr.,
d/b/a Consolidated Music Company.” Id. at 57 (emphasis added). Here there is no “dba.”
There are other problems with Hanover’s argument. It asserts that the business of the
claimed Saul-Balfour partnership was the 8505 office or building, yet the “described
premises” on the declarations page include both the 8501 property and the 8505 property, the
latter being property that Hanover admits Balfour owned individually. The declarations page
also refers to “chiropractors office” in conjunction with additional liability coverage. Finally,
Hanover admitted in its answer that “Debora K. Balfour, an individual, is a named insured
and thus a ‘you’ as defined in the Hanover policy.” Doc. #20, ¶13. The court agrees with
Balfour that the policy “can be reasonably interpreted to include Balfour as a “Named
Insured” in her capacity as the sole proprietor of the chiropractic office.” Doc. #53, p. 16.
Having concluded that Balfour is a Named Insured, the next question is whether the
claims asserted in the Briner lawsuit “give[] rise to the possibility of a recovery under the
policy.” First Bank of Turley, 928 P.2d at 303 n.14. The pertinent policy provision [Doc.
#46-3,
pp. 59-60, 74-75] states :
A. Coverages
9
The renewal policy had different individual names but included “‘dba Alexanders [sic]
Choice Meats.’” Milazo, 224 Cal.App.3d at 1535.
9
1. Business Liability
a. We will pay those sums that the insured becomes legally obligated
to pay as damages because of “bodily injury”, “property damage” or
“personal and advertising injury” to which this insurance applies. We
will have the right and duty to defend the insured against any ‘suit’
seeking those damages. However, we will have no duty to defend the
insured against any “suit” seeking damages for “bodily injury”,
“property damage” or “personal and advertising injury”, to which this
insurance does not apply ....
....
b. This insurance applies:
....
(2) To “personal and advertising injury” caused by an offense arising
out of your business, but only if the offense was committed in the
“coverage territory” during the policy period.
....
15. “Personal and advertising injury” means injury, including
consequential “bodily injury”, arising out of one or more of the
following offenses:
a. False arrest. detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful
entry into, or invasion of the right of
private occupancy of a room, dwelling
or premises that a person occupies,
committed by or on behalf of its owner,
landlord or lessor;
d. Oral or written publication, in any
manner, of material that slanders or
libels a person or organization or
disparages a person's or organization's
goods, products or services;
e. Oral or written publication, in any
manner, of material that violates a
10
person's right of privacy;
f. The use of another's advertising idea in
your ‘advertisement”; or
g., Infringing upon another's copyright,
trade dress or slogan in your
“advertisement”.
The policy’s “special broadening endorsement” [Doc. #46-3, pp. 88-92] adds the
following paragraph (“h”) to the definition of “personal and advertising injury.”
h. Discrimination or humiliation (unless
insurance thereof is prohibited by law) that
results in injury to the feelings or reputation
of a natural person, but only if such
discrimination or humiliation is;
(1) Not done intentionally by or at the
direction of:
(a) The insured; or
(b) Any officer of the corporation.
director, stockholder, partner or
member of the insured; and
(2) Not directly or indirectly related to an
“employee”, nor to the employment.
prospective employment or termination of
any person or persons by an insured.
Doc. #46-3, p. 90.10
Balfour contends the Briner lawsuit “potentially includes a claim for ‘personal and
advertising injury’ against her in her capacity as the sole proprietor of the chiropractic office”
because it includes “a humiliation injury claim.”11 She asserts that the petition in the
10
Even the “broadened” endorsement does not delete the requirement that the injury must
arise “out of your business . . . .” Doc. #46-3, p. 60.
11
Balfour does not contest Hanover’s assertion that the policy does not provide coverage for
any bodily injures A.A. suffered because they were not “caused by an ‘occurrence’” as required
by the policy. Doc. #46-3, p. 59 (Section II(A)(1)(b.)(1)(a)).
11
underlying case
alleges that as a result of Balfour’s negligence, Briner’s minor suffered injuries arising out
of the disgusting and objectively humiliating things that Saul allegedly did to her while inside
Balfour’s chiropractic office. There is no question that the Underlying Suit fairly alleges an
injury to the feelings or reputation of Briner’s minor. Therefore the Underlying Suit plainly
seeks relief for an injury arising out of humiliation (a “humiliation injury” claim) within the
meaning of the Policy’s coverage for “personal and advertising injury.”
Doc. #53, p. 27.
Balfour’s argument fails for several reasons. For there to be coverage under the
personal injury provision, the offense of “humiliation” must have arisen out of her
chiropractic business. (“This insurance applies . . . to ‘personal and advertising injury’
caused by an offense arising out of your business . . . .” [Doc. #46-3, pp. 59-60, Section
II.A.1(b)(2)]). Briner does not allege in the state court petition that Balfour personally
committed the claimed offense, in other words, that she humiliated A.A.,12 nor does he allege
that the offense was committed by an employee in the conduct of Balfour’s business. The
critical actor was Saul, who had a relationship with Balfour, but not with her business. The
court agrees with Hanover that neither Balfour’s alleged “‘failure to prevent access’” to the
8501 S. Penn property nor her failure to warn A.A. of Saul’s asserted history and propensities
was “a part of [or arose] out of the conduct of the named insured partnership’s business.”
Doc. #47, pp.25-26.
However, a more fundamental problem with Balfour’s position exists -- Briner sued
12
Such a claim would, though, be excluded from coverage as the policy does not apply to
intentional discrimination or humiliation committed by the insured or at the insured’s direction.
12
her for negligence, not humiliation.13 Doc. #5-2. ¶17 (“Said actions and inactions [of
Balfour] amounted to negligence and substandard care . . .”). See Vermont Mut. Ins. Co. v.
Parsons Hill P'ship, 1 A.3d 1016, 1023 (Vt. 2010) (“Because an ‘offense’ means a tort as
enumerated in the specific list, it does not include a breach of contract.”). As the court
explained in Liggett Group, Inc. v. Ace Prop. and Cas. Ins. Co., 798 A.2d 1024 (Del.2002),
when construing a similar personal injury clause:
The policies at issue clearly do not extend coverage to negligence claims. The
“injury to feelings” of “any person” language, upon which Liggett relies, must
be read in context. Gaston County Dyeing Mach. Co. v. Northfield Ins. Co.,
351 N.C. 293, 524 S.E.2d 558, 563 (2000) (noting that the various terms of an
insurance policy are to be “harmoniously construed”). In this case, it must be
read with the preceding list of torts encompassing, broadly, libel, slander, and
defamation. It cannot be read as an independent extension of coverage to all
mental anguish allegations in products liability, or negligence, actions.
Id. at 1032.
The policy’s use of the term “personal injury” is somewhat misleading. The coverage
provided, while “labeled as coverage for personal injury damages ... is really coverage
based on underlying claims of liability involving certain defined offenses.” Vermont Mut.
Ins. Co., 1 A.3d at 1022. “‘[P]ersonal injury liability is a theory-based insurance coverage.
It defines its coverage in terms of offenses, or theories of liability, not in terms of the injury
sustained by the plaintiff.’” Id. at 1022-23 (quoting Great N. Nekoosa Corp. v. Aetna Cas.
13
Hanover correctly notes that the Briner petition does not specifically refer to humiliation.
See generally Air Line Pilots Ass’n v. Twin City Fire Ins. Co., 803 A.2d 1001, 1006 (D.C. 2002)
(“[T]he boiler plate language in the ad damnum clause requesting damages for humiliation is
insufficient under the pleading standards of Virginia law to give rise to an obligation under the
insurance policy to defend against an offense of ‘discrimination or humiliation.’”).
13
& Sur. Co., 921 F.Supp. 401, 416 (N.D.Miss.1996)); Liggett Group, 798 A.2d at 1032
(“Under North Carolina law, ‘personal injury’ coverage under a Commercial General
Liability policy is limited to coverage for those torts specifically enumerated in the policy
itself.”). Because Balfour was not sued for one of the enumerated offenses, she is not entitled
to either a defense or indemnification under the policy.14 See generally Air Line Pilots
Ass’n v. Twin City Fire Ins. Co., 803 A.2d 1001, 1006 (D.C. 2002) (“Our interpretation that
the complaint's mention of humiliation was a description of injuries suffered, as opposed to
a recognized tort claim, may appear to render the coverage provision for humiliation a
nullity. Admittedly, the contract provision that states ‘discrimination or humiliation,’ and not
‘discrimination and humiliation,’ does cause some confusion. We think, however, that a
common sense reading of the language in the contract makes sense when humiliation, which
is not a known tort, is read in the context of discrimination, which can be pled as a
substantive claim.”).
The duty to defend is broad, but there are limits to an insurer’s responsibilities set by
the policy’s language. The court concludes on the record before it that there is no basis for
recovery under the policy for the claims asserted against Balfour or DKBC in the Briner
lawsuit, or for concluding that Hanover has a duty to defend or indemnify either defendant
in the state court action. Hanover is therefore entitled to summary judgment, on both its
claim for declaratory relief and defendant Balfour’s counterclaims for declaratory and
14
Balfour does not cite any case demonstrating coverage under similar or even somewhat
similar circumstances. The court does, though, recognize the lack of authority on point.
14
injunctive relief.
Accordingly, Hanover’s motion for summary judgment [Doc. #46] is GRANTED as
to both its claim and defendant Balfour’s counterclaims. The motion is also GRANTED as
to Dr. Debora K. Balfour Chiropractic, P.C., which confessed it. Plaintiff’s claim against
Saul, who was never served, will be DISMISSED without PREJUDICE.
IT IS SO ORDERED.
Dated this 27th day of August, 2013.
15
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