Church Mutual Insurance v. Maafu et al
MEMORANDUM DECISION- denying 47 Motion for Summary Judgment ; denying 56 Motion for Summary Judgment Rule 56(d) Motion on the United Methodist Dfts' Second Counterclaim. See Memorandum Decision for details. Signed by Judge David Sam on 6/11/15. (jmr) Modified on 6/17/2015 to clarify text(jmr).
UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
CHURCH MUTUAL INSURANCE,
ETIMANI MAAFU, AN INDIVIDUAL;
ROCKY MOUNTAIN CONFERENCE OF
THE UNITED METHODIST CHURCH, A
COLORADO NON-PROFIT CORPORATION;
SALT LAKE CITY LAUMALIE MAONIONI
FREE WESLEYAN CHURCH OF TONGA, A Judge David Sam
UTAH NON-PROFIT CORPORATION;
VILIAMI HOSEA, AN INDIVIDUAL; HAVILI
MONE, AN INDIVIDUAL; MANASE
VAILEA, AN INDIVIDUAL; AISEA NAI, AN
INDIVIDUAL; SIOSAIA HAUKINIMA, AN
INDIVIDUAL; LYNDON LAUHINGOA, AN
INDIVIDUAL; AND MELANIE NGAUE, AN
This is an insurance coverage dispute in which Church Mutual seeks a declaration that it
does not have a duty to defend or indemnify either of two factions in a battle for control over the
governance and property of a local church, formerly known as the Tongan United Methodist
Church of Salt Lake City. Church Mutual issued two insurance policies. One is a professional
liability policy issued to RMC and its affiliated congregations of the United Methodist Church,
including “Trustees of RMC and its affiliated congregations.” (“Professional Liability Policy”).
The second relevant policy is a package policy that includes general liability and other coverages
issued to United Methodist congregations within RMC’s jurisdictional area (“Local Package
Church Mutual has moved for summary judgment under Fed. F. Civ. P. 56 and DUCivR
7-1 and 56-1 seeking the following declaration:
A. With respect to the Conference’s Directors, Officers, and Trustees (“DOT”) coverage:
a. Church Mutual Has no duty to defend or indemnify Etimani Ma’afu in the
Free Wesleyan faction lawsuit;
b. Church Mutual has no obligation to pay for the Conference’s prosecution of
claims as an intervenor-counterclaimant in the suit against Ma’afu or as a
plaintiff in the lawsuit against the Free Wesleyan faction and its directors;
c. Church Mutual has no duty to defend or indemnify the Free Wesleyan faction
or its individual directors for the claims against them in both lawsuits.
B. With respect to the Church’s Legal Defense coverage:
a. One $20,000 Each Defensible Incident limit is the maximum amount of
Church Mutual’s coverage under the Church policy with respect to the
underlying disputes and is subject to allocation among those parties claiming
coverage as the Court directs.
C. With respect to the Conference Defendants’ Counterclaim:
a. Church Mutual has not breached its duty of good faith and fair dealing as a
matter of law.
For the following reasons, the Court hereby denies Plaintiff Church Mutual’s Motion for
Summary Judgment, and therefore does not make the above declarations.
A. Church Mutual is not entitled to summary judgment with respect to the Conferences’
a. Church Mutual may have a duty to defend or indemnify Etimani Ma’afu in the Free
Wesleyan faction lawsuit.
In most situations, Utah follows an “eight-corners” rule, in which the duty to defend is
based on the complaint and policy language alone. There is no duty to defend where the
allegations, if proven, are not covered by the policy. Extrinsic evidence is not permitted. In this
case the DOT coverage provides coverage to “Directors, Officers and Trustees” for “loss” caused
by a “wrongful act.” “Directors, Officers and Trustees” is defined as past or present directors,
officers and trustees “while acting within the scope of their duties solely and exclusively for the
operations and premises of the Named Insured.” Church Mutual argues that The Free Wesleyan
Complaint does not allege that Ma’afu is a past or present officer, director or trustee of the
Church (or Conference), much less that he was acting solely and exclusively in his capacity as
such with respect to the acts at issue. Church Mutual contends that the allegations in the Free
Wesleyan Complaint, if proven to be true, do not establish that Ma’afu was a Director, Officer,
or Trustee (and, thus, an “insured” under the duty-to-defend provision) or that he was acting
solely and exclusively in his capacity as such with respect to the wrongdoing, as required for
there to be coverage. Plaintiff concludes that because the complaint does not allege that Ma’afu
was a past or present officer, director or trustee of the Church (or Conference), under the eightcorners rule, there is no duty to defend. While this might be true under a strict eight-corners rule,
Utah courts recognize exceptions to the rule.
First, no one disputes that the United Methodists controlled the state law charter prior to
December 7, 2012, and that Mr. Ma’Afu was an “Insured” “Trustee” prior to that date. All of the
allegedly “wrongful” conduct by Mr. Ma’Afu as a “Trustee” occurred prior to December 7,
2012. Mr. Ma’Afu allegedly engaged in improper activities from October 2012 until the
Dissident Complaint was filed on December 7, 2012, so the allegations of actionable conduct
predate the complaint. UM SOF ¶ 24. Second, it is undisputed that on December 7, 2012 the
Free Wesleyans’ entity (incorporated or not) became distinct from the religious entity affiliated
with the United Methodist Church. There is a strong argument to be made that the entity
“Insured” under the policy continued to be the affiliated religious entity loyal to the United
Methodist Church because Church Mutual defined Insured status by religious affiliation, not by
state corporate law. UM SOF ¶¶ 3-4. Similarly, “Insured” status as a “Trustee” requires acting
for the “Named Insured,” and if the “affiliated congregation” is the Named Insured, then Mr.
Ma’Afu would be the trustee.
In addition, Utah courts recognize an exception to the eight corners rule when a question
cannot be answered through an inspection of the complaint alone. In that case, the court’s
examination must go on to develop the facts relevant to answer the inquiry. In Equine Assisted
Growth & Learning Ass’n v. Carolina Cas. Ins., the Utah Supreme Court stated,
In light of the language defining the scope of the exclusion, an analysis limited to
the ‘eight corners’ of the policy and the complaint is incomplete and fails to
resolve the central inquiry: Was the claim brought ‘by, on behalf of, or in the
right of [EAGALA]’? . Accordingly, the court of appeals correctly concluded
that the district court erred when it discontinued its analysis and limited its
examination to the ‘eight corners’ of the policy and complaint. 1
When policy language references objective reality, the Court is required to look at all available
evidence to see if there exists the possibility of a covered loss, not just allegations. In this case,
the three coverage issues that Church Mutual raises—the insured verses insured exclusion, the
2001 UT 49, ¶ 3, 266 P.3d 733, 738 (emphasis added).
personal profit exclusion, and the scope of duty requirement—must all be considered based upon
objective reality, not merely allegations.
1. When considered based on objective reality, the insured versus insured
exclusion does not necessarily eliminate Church Mutual’s duty to defend.
In Equine the Utah Supreme Court held that insured versus insured language almost
identical to that in this case required a determination “based on objective facts that are not
apparent from the face of the complaint, [and] the district court erred when it refused to consider
extrinsic evidence. . . .” 2 In the case before the court, the language of the policy indicates that
Church Mutual insures local affiliated congregations of RMC irrespective of a corporate charter,
including insuring some local church entities that have no state law corporate charter at all (for
instance, Tooele United Methodist Church). The TUMC Local Affiliate Church will remain a
local church until RMC decides its denominational affiliation should be discontinued. This is a
religious decision, constitutionally reserved to RMC and the Professional Liability Policy seems
to expressly embrace this reality.
2. The “personal profit” exclusion does not apply to the duty to defend.
The personal profit exclusion excludes “personal profit . . . to which [the Trustee was] not
legally entitled”). Courts routinely find such past tense language does not apply to the duty to
defend and applies, if at all, only in the event that legal liability is found based upon a ‘personal
profit’ actually received. Such receipt must be proven in connection with the underlying case or
upon the presentation of extrinsic evidence, not allegations.
Alstrin v. St. Paul Mercury Ins. Co, 179 F.Supp.2d 376, 398-99.
3. Mr. Ma’Afu was “acting within the scope of his duties”
The language of the Professional Liability Policy that provides coverage to Mr. Ma’Afu
“while acting within the scope of [his] duties,” requires evidence of an objective reality, not mere
allegations. This is made clear because the Professional Liability policy expressly provides
coverage for “Wrongful act[s],” defined as any “actual or alleged” conduct. Thus the
Professional Liability Policy covers Mr. Ma’Afu for his conduct as a “Trustee” if such conduct is
either alleged, or if Mr. Ma’Afu actually acted as a trustee. It is undisputed that at all times Mr.
Ma’Afu acted within the scope of his duties for RMC and its “affiliated congregations” as a
“Trustee” of the TUMC Affiliated Local Church. The Free Wesleyans do not allege to the
contrary, but instead merely claim that under Utah corporate law, Mr. Ma’Afu had no authority
after December 7, 2012 to act for the Free Wesleyans or their alleged state law “corporation.”
Providing liability insurance for the acts and omissions of Trustees would be illusory if the
policy were interpreted, as Church Mutual now proposes, to eliminate coverage every time an
underlying plaintiff alleged that a Trustee did something he should not have done as a Trustee.
b. Church Mutual may have a duty to pay Rocky Mountain Conference’s defense costs
under the professional liability policy, and therefore is not entitled to summary judgment.
Church Mutual notes that by its clear and unambiguous terms, the language of the DOT
coverage applies only to the defense of the insured against a lawsuit seeking payment from the
insured for “loss.” The Utah Supreme Court has specifically noted that liability insurance
policies “do not provide for any representation of its insured in an action against another
party.” 3 Church Mutual states that RMC is not a defendant in either action, and therefore,
Church Mutual DOT coverage does not apply. Church Mutual also notes that Exclusion h
provides that this insurance does not apply to “Any claim which is brought by or on behalf of the
Berlant v. McAllister, 25 Utah 2d 237, 239, 480 P.2d 126 (1972)
organization or any insured.” Church Mutual asserts that the Conference’s Counterclaim against
the Free Wesleyan faction in the lawsuit against Ma’Afu and its Complaint against the Free
Wesleyan faction in its separate action, are claims “brought by or on behalf of the organization
or any insured.” The insured organization here is the conference.
Defendant Rocky Mountain Conference (RMC) points out, however, that applicable case
law recognizes that the assertion of claims designed to defensively resolve issues of ownership
and control of property fall within the duty to defend. The Court in Hartford Fire Ins. Co. v.
Vita Craft Corp. stated that, “an insurer must pay the insured for defense of its counterclaims
when either (1) the counterclaims reach the same or similar issues as the underlying plaintiff’s
claims so that the claims are intertwined; or (2) the counterclaims are part of the insured’s
defensive strategy to reduce its liability.” 4 In fact, “[t]he authority appears virtually uniform in
holding that there is a class of affirmative claims which, if successful, have the effect of reducing
or eliminating the insured’s liability and [such claims] . . . are encompassed in an insurer’s duty
to defend.” 5
In this case, RMC intervened as a defendant. RMC is the first named insured under the
professional liability policy. The third district court ordered that RMC could intervene as a
“matter of right,” finding that RMC had “a sufficient interest [under] Rule 24(a)” in the personal
and real property that is the subject of the Free Wesleyan complaint. RMC’s claims seek to
defensively diminish liability to the Free Wesleyans related to their claim of ownership and
control of property held in trust for the United Methodist Church. It was necessary for RMC to
defensively refute the Free Wesleyans’ allegations of ownership and control of church property
because property rights do not reside with individuals (Mr. Ma’Afu), but instead are
Hartford Fire Ins. Co. v. Vita Craft Corp., 911 F.Supp.2d 1164, 1183 (D. Kan. 2012)(citing cases).
Id. (quoting Great West Cas. Co. v. Marathon Oil Co., 315 F.Supp.2d 879, 881, 883 (N.D. Ill. 2003).
constitutionally protected from efforts to break away based on the existence of a trust for the
benefit of the entire United Methodist Denomination. RMC became a defendant because the
Free Wesleyans improperly sought to strategically claim ownership of property held in trust by
suing only an individual. If RMC is properly a defendant, the assertion of “claims” designed to
defensively resolve issues of ownership and control of property, fall within the duty to defend.
The Free Wesleyan complaint and RMC’s claims address the same fundamental issue of
ownership and control of church property. If RMC prevails, the Free Wesleyans’ claim for
damages related to possession and control will be eliminated. Therefore, Church Mutual is not
entitled to summary judgment on the issue of whether it has the obligation to pay for the
Conference’s prosecution of claims as an intervenor-counterclaimant.
B. Church Mutual is not entitled to a declaration that Mr. Ma’Afu’s coverage under the
Local Package Policy is limited to a single $20,000 “Each Defensible Incident Limit.”
At a minimum, there exists a question of fact as to whether potential coverage exists
under the “Personal injury” coverage part of the Local Package Policy, which applies to the Free
Wesleyan’s allegations that Mr. Ma’Afu improperly controlled property by allowing use by
faithful United Methodists, and by excluding use by Free Wesleyans. UM SOF ¶ 16. These
allegations would constitute a classic covered “offense” under this coverage subpart. Therefore,
summary judgment is not appropriate here.
C. Church Mutual is not entitled to a declaration that it has not breached its duty of good
faith and fair dealing as a matter of law.
Once again, the facts of this case demonstrate, at a minimum, that there exists a question
of fact with respect to whether Church Mutual has complied with its good faith and fiduciary
responsibilities. Therefore summary judgment is not appropriate.
For the reasons stated above, the Court hereby denies Church Mutual’s Motion for
Summary Judgment (Doc. #47) in its entirety. This denial makes United Methodist’s Rule 56(d)
motion moot (Doc. #56).
DATED this 11th day of June, 2015.
BY THE COURT:
JUDGE DAVID SAM
United States District Judge
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