Church Mutual Insurance v. Maafu et al

Filing 98

MEMORANDUM DECISION granting 54 Motion for Summary Judgment. See Memorandum Decision for details. Signed by Judge David Sam on 8/5/15. (jmr)

UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

CHURCH MUTUAL INSURANCE,

Plaintiff,

MEMORANDUM DECISION

v.

ETIMANI MAAFU, AN INDIVIDUAL;
ROCKY MOUNTAIN CONFERENCE OF
2:13-CV-00672-DS
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
INDIVIDUAL;

Defendants.

I. INTRODUCTION
This is an insurance coverage dispute in which Church Mutual Insurance Company
(“Church Mutual”) has sought 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 applicable insurance policies. One is a professional liability policy issued to Rocky
Mountain Conference of the United Methodist Church (“RMC”) and its “affiliated
congregations,” 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 coverage issued to local United Methodist congregations within RMC’s jurisdictional
area (“Local Package Policy”). RMC pays the premiums for local package policies on behalf of
more than 250 affiliated congregations of the United Methodist Church within RMC’s area.
In this motion, Mr. Ma’Afu and RMC (“the United Methodist Defendants”) seek a ruling
that Church Mutual must provide a defense to Mr. Ma’Afu and RMC in connection with an
underlying state court consolidated lawsuit originally filed by a dissident faction (the “Free
Wesleyans”) against Mr. Ma’Afu and for which RMC was joined as a defendant. Church
Mutual argues that it has no duty to defend Mr. Ma’Afu and that there are no claims against the
Conference for which a duty to defend could exist. After careful consideration of the extensive
briefing, the Court hereby grants the United Methodist Defendants’ Motion for Partial Summary
Judgment on the Duty to Defend.
II. ANALYSIS
The State Court action relates to a schism between existing and former members of a Salt
Lake City congregation affiliated with the United Methodist church—The Tongan United
Methodist Church. Two factions emerged vying for control of church property and litigation
ensued. The dissident faction, the Salt Lake City Laumalie Ma’oni’oni Free Wesleyan Church of

Tonga clearly disaffiliated itself from RMC and the United Methodist Church. When the Free
Wesleyans allegedly amended the Articles of Incorporation (a copy of which are attached to the
Dissident Complaint), they removed all references to the United Methodist Church and its Book
of Discipline, and changed the purpose of the entity: “to conduct and operate a Christian church
and congregation.” Doc. #57-7 at 13, Article II. Their disaffiliation is also clear in the language
that future affiliation can be pursued by “seeking authorized affiliation with a larger
denomination as determined by the Corporation’s Board of Directors.” Id. This is crucial,
because the result of that alleged action was that the Free Wesleyans (whether incorporated or
not) were not “insureds” under the Professional Liability Policy as of December 7, 2012. The
policy expressly covers only religiously “affiliated congregations” of RMC.
The other faction, The Tongan United Methodist Church (“TUMC”) remains affiliated
with RMC. Both factions contend that they have control of the state law corporate charter.
Regardless of the status of the state law corporate charter, however, the congregation affiliated
with RMC and the United Methodist Church is the only “Insured” entity under the express terms
of the insurance policies issued by Church Mutual. Even if the state court decides that the Free
Wesleyans acquired TUMC’s corporate charter as of December 7, 2012, they are nonetheless
clearly not affiliated with RMC and therefore not an “Insured” religious entity even for the brief
period from December 7, 2012 until the policies expired on January 1, 2013.

I. The Duty to Defend Under Utah Law.
Utah law states that, “An insurer’s duty to defend is broader than its duty to indemnify.
Its defense duty arises when the insurer ascertains facts giving rise to potential liability under the

insurance policy.” 1 [I]nsurance policies should be construed liberally in favor of the insured and
their beneficiaries so as to promote and not defeat the purposes of insurance.” 2 Church Mutual
argues that under Utah law, the scope of an insurers’ duty to defend is determined first by
comparing the language of the insurance policy with the allegations of the complaint. 3 This is
the “eight-corners” rule. Church Mutual insists repeatedly that the general “eight-corners” rule is
controlling in this case. Utah law is clear, however, that the “eight-corners” rule is only a
general rule, and where underlying allegations are ambiguous or uncertain, “the insurer must
defend until those uncertainties can be resolved against coverage [by definitive evidence]. ‘When
in doubt defend.’” 4 Church Mutual’s response to this principle of Utah law, is that there is no
ambiguity in the Free Wesleyan’s allegations. This is clearly not true. Church Mutual claims
that there is no allegation in the Free Wesleyan Complaint that Mr. Ma’Afu was in any way
acting on behalf of the Corporation or that he had any authority for the Corporation with respect
to the allegations made against him, and therefore he is not entitled to coverage. The United
Methodist Defendants, on the other hand, argue that the Free Wesleyan Complaint, including
exhibits, alleges only that Mr. Ma’Afu had no authority to act for the Free Wesleyan
Corporation, not that he had no authority to act for the local affiliated United Methodist
congregation that Church Mutual insured; thus he is entitled to coverage.

1

Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 133 (Utah 1997)(citing Deseret
Fed. Sav. & Loan Assoc. v. United States Fidelity & Guar. Co., 714 P.2d 1143, 1146 (Utah
1986).
2

United States Fidelity & Guar. Co. v. Sandt, 854 P.2d 519, 521 (Utah 1993)(internal quotation
marks omitted); Farmers Ins. Exch. v. Versaw, 2004 UT 73, ¶ 24, 99 P.3d 796.
3

4

Employers Mutual Casualty Company v. Bartile Roofs, Inc.,618 F.3d 1153 (10th Cir. 2010).

Benjamin v. Amica Mut. Ins. Co. 2006 UT 37, ¶ 22, 140 P.3d 1210 (citing Appleman §
136.2[C] (2d ed. 2006)).

Church Mutual also argues that under the “eight-corners” rule, the exhibits to the Free
Wesleyan Complaint are not allegations and do not create any ambiguity. The exhibits,
however, are part of the Dissident Complaint under Utah law. “The rules are clear that
documents attached to a complaint are incorporated into the pleading for purposes of judicial
notice and are fair game for this court to consider in addition to the complaint’s averments.” 5
Church Mutual also argues that consideration of extrinsic evidence is not proper.
However, the principle that an insurance company must defend whenever it ascertains facts from
any source that might give rise to potential liability has long been the law of Utah. 6 In the
Equine case, the Utah Supreme Court cited Deseret that “an ‘insurer must make a good faith
determination based on all the facts known to it, or which by reasonable efforts could be
discovered by it,’ whether there is a duty to defend under the terms of an insurance policy.” 7
Because an insurance company must investigate the facts, it is clear Utah Law does not allow an
insurance company to read only a complaint’s allegations and disregard facts made available that
support coverage. Neither Bartile Roof, the case cited repeatedly by Church Mutual, nor any case
decided by the Utah Supreme Court, holds that an insurance company can ignore facts
demonstrating the existence of coverage, especially when underlying factual allegations are
silent, ambiguous, or simply wrong. A leading treatise states:
The logic behind the rule [that an insurance company must consider evidence
from whatever source when complaint allegations are silent, ambiguous, or
wrong] is unassailable. An insurer should not be able to escape its defense
5

Oakwood Village, LLC v. Albertsons, Inc., 104 P.3d 1226, 1231 (Utah 2004)(citing Utah R.
Civ. P. 10(c)); (“An exhibit to a paper is a part thereof for all purposes.”).
6

See Deseret Fed. Sav. & Loan Ass’n v. United States Fidelity & Grar. Co., 714 P.2d 1143,
1146 (Utah 1986).
7

Equine Assisted Growth and Learning Association v. Carolina Casualty Insurance Co., 2011
UT 49, ¶ 20, n. 22, 266 P.3d 733 (quoting Deseret)(emphasis added).

obligation by ignoring the true facts and relying on either erroneous allegations in
the complaint or the absence of certain material allegations in the complaint. 8

II. Mr. Ma’Afu is Entitled to a Defense Under the Local package Policy Based Upon
Allegations that Mr. Ma’Afu Wrongfully Evicted and Wrongfully Entered Real Property.
Mr. Ma’Afu is entitled to a defense under the Local Package Policy. Church Mutual has
admitted that Mr. Ma’Afu is entitled to some coverage as an insured “Trustee” under that policy.
See Dkt. #47 at 29-31; Dkt. #63 at 15; and Dkt. #64 at 44. Church Mutual argues that the
“personal injury” coverage does not apply because the Dissident complaint labels the Third
Cause of Action as one for “conversion,” and the tort of conversion is not one of the offenses
listed in the Local Package Policy. However, in Utah, the duty to defend is judged based upon a
plaintiff’s factual allegations, not the labels attached to a legal cause of action. 9 In this case, the
Local Package Policy expressly covers “[t]he wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room, dwelling, or premises that a person
occupies.” Dkt. #54 at 12-13 (¶ 16). The Free Wesleyans have alleged such conduct. Mr.
Ma’Afu is alleged to have improperly exercised “authority over corporate property, to grant
access for other persons to enter property and otherwise use, occupy, and enjoy its real property.”
Dkt. #54 at 15 (¶ 24). Church Mutual owes Mr. Ma’Afu a duty to defend under the Local
package policy, having already conceded that he is an insured “Trustee.”

8

9

See A. Windt, 1 Insurance Claims and Disputes § 4.3 (5th ed. 1015).

See Taylor v. Am. Fire & Ca. Co., 925 P.2d 1279, 1283 (Utah Ct. App. 1996)(“[c]overage does
not turn on the legal theory under which liability is asserted”).

III. Church Mutual Must Provide a Defense to Mr. Ma’Afu Under the Professional
Liability Policy.
Church Mutual also must provide a defense to Mr. Ma’Afu under the Professional
Liability Policy. The actual language of the Professional Liability Policy defines “Named
Insureds” not based upon state corporation law, but instead based upon whether a local church is
an affiliated congregation” of RMC and the United Methodist Church. See Dkt. #57 at 7-8 (¶ 3).
The policy also provides express coverage for the payment of defense expenses in connection
with either a “suit” or a “claim,” contrary to Church Mutual’s claim that it only provides
coverage for defense expenses related to a “suit,” defined with reference to “allegations.” Also
the definition of “Trustee” under the Professional Liability Policy is nearly identical to the
definition under the Local Package Policy, under which Church Mutual conceded at least some
coverage. Church Mutual has referred to Mr. Ma’Afu “formerly” having positions and authority
to act for the corporation. Dkt. #64 at 35. The Free Wesleyans do not allege that Mr. Ma’Afu’s
authority to act for the TUMC Local Affiliated Church ever changed, just that after December 7,
2012, Mr. Ma’Afu could not act for the Free Wesleyans under state corporate law after the
amended articles. The Court agrees with Mr. Ma’Afu that this allegation does not remove
Church Mutual’s obligation to defend Mr. Ma’Afu his “Trustee” actions as a leader of a religious
organization, which were always within the scope of his actual authority.
Church Mutual has referenced two exclusions to support its refusal to defend, but neither
exclusion defeat’s Church Mutual’s duty. First, Church Mutual has referenced the “Insured
versus insured” exclusion in the Professional Liability Policy. The language of the policy
excludes a claim “which is brought by or on behalf of [an] insured.” The language is the same as
the language interpreted in Equine excluding “any Claim made against an Insured . . . by, on

behalf of, or in the right of [the named insured].” 10 The Utah Supreme Court considered this
same issue and held that “when an insurance policy conditions the duty to defend on something
outside of the complaint, extrinsic evidence is necessary to determine whether the duty has been
triggered.” 11 In Equine, the independent fact outside the complaint was whether the claims were
“actually” brought by an insured. On its face, Church Mutual’s exclusion, just like the operative
language in Equine, does not depend on allegations; it depends on objective facts that determine
whether a claim is actually brought at the time of filing by the “organization” or any other
insured. Here the Free Wesleyans and their Board are not “Insureds” because the entity
“Insureds” are RMC and its “affiliated congregations” and the only individual “Insureds” are
“Trustees” who act “for” the “Named Insureds.”
Similarly, the “personal profit” exclusion that Church Mutual cites contains express
language that allegations are irrelevant. Only establishment of actual receipt of an illegal
personal profit triggers this exclusionary language. Courts regularly find that such past tense
language has no application 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. 12 Finally, Church Mutual

10

Equine , 2011 UT 49, ¶ 15.

11

Id. ¶ 22.

12

See Wintermute v. Kansas Bankers Surety Co., 630 F.3d 1063, 1071-72 (8th Cir. 2011)
(insurance company cannot rely upon personal profit exclusion to "deny a defense based solely
on the allegations in the Complaint unless the facts are uncontested [and] [w]hether an insured in
fact gained a personal profit is a fact issue that must be decided by a trier of fact if the relevant
evidence is disputed"); Fed. Ins. Co. v Cintas Corp., 2006WL 1476206 * 7 (S.D. Ohio May 25,
2006) (insurer must defend lawsuit and potential application of personal profit exclusion must
await resolution of underlying litigation); PMI Mortgage Ins. Co. v. Am. Internat'l Specialty
Lines Inc. Co., 2006 WL 825266 *6-7 (W.D. Cal. March 29, 2006) (to rely on personal profit
exclusion insurer must prove actual receipt of personal profit through final underlying
adjudication or other proper evidence); Am. Chem. Soc. v. Leadscope, Inc. 2005 WL 1220746
*11-12 (Ohio Ct App. May 24, 2005) (personal profit exclusion "requires a final determination
that an act of conversion has taken place resulting in the gaining of a profit or an advantage");

argues that the Dissident complaint allegations that Mr. Ma’Afu could not act for the Free
Wesleyans’ alleged corporation means that he was not an “insured” under the Professional
Liability policy before and after December 6, 2012. Church Mutual’s argument is contrary to
policy language and objective facts. It is undisputed that at all relevant times, Mr. Ma’Afu acted
for and on behalf of RMC and its affiliated local congregation and within the scope of his duties
as a trustee for the affiliated local church.

IV. Church Mutual Must Provide a Defense to RMC Under the Professional Liability
Policy.
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.” 13 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
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.

St. Paul Mercury Ins. Co. v. Foster, 268 F.Supp.2d 1035, 1045 (C.D. Ill 2003) (insurance
company position that "mere allegations that any insured gained a personal profit to which he
was not legally entitled . . . void[s] coverage [is] untenable").
13

Berlant v. McAllister, 25 Utah 2d 237, 239, 480 P.2d 126 (1972)

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.” 14 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.” 15
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
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

14

Hartford Fire Ins. Co. v. Vita Craft Corp., 911 F.Supp.2d 1164, 1183 (D. Kan. 2012)(citing
cases).
15

Id. (quoting Great West Cas. Co. v. Marathon Oil Co., 315 F.Supp.2d 879, 881, 883 (N.D. Ill.
2003).

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.

III. CONCLUSION
For the reasons stated above, the Court hereby grants United Methodist Defendants’
Motion for Partial Summary Judgment on the Duty to Defend (Doc. #54) and directs Church
Mutual to defend Mr. Ma’Afu in the state court consolidated lawsuit, and to pay the legal fees of
the Rocky Mountain Conference of the United Methodist Church.

DATED this 5th day of August, 2015.

BY THE COURT:

JUDGE DAVID SAM
United States District Judge