Travelers Casualty and Surety Company, et al. v. Jacob Assail Schur, et al.
Filing
48
MEMORANDUM OPINION (Cross Motions for Summary Judgment). Read Opinion for complete details. Signed by District Judge Henry E. Hudson on 11/24/2015. (ccol, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division
TRAVELERS CASUALTY AND
SURETY COMPANY, et ai.
Plaintiffs,
Civil Action No. 3:15CV60-HEH
V.
JACOB ASSAIL SCHUR, et ai,
Defendants.
MEMORANDUM OPINION
(Cross Motions for Summary Judgment)
THIS MATTER is presently before the Court on the parties' cross motions for
summaryjudgment (ECF Nos. 31, 33). On November 18, 2015, the Court held oral
argument on the motions. For the reasons set forth below, the Court will deny Plaintiffs'
Motion for Summary Judgement (ECF No. 31) and will grant Defendant Jacob Assail
Schur's Motion for Summary Judgment (ECF No. 33).'
I.
BACKGROUND
This insurance coverage dispute stems from the formation of a limited liability
company and subsequent litigation between Defendant Jacob Assail Schur ("Schur") and
Defendant Mark D. Sprenkle ("Sprenkle"). On December 12, 2014, Sprenkle brought
suit in Henrico County Circuit Court alleging defamation per se against Schur for
comments he made to a third party. Schur timely notified his insurance carriers.
' On September 11,2015, the Clerk entered default against Defendant Mark Sprenkle for failing
to appear or otherwise defend in this action. (Entry of Default, ECF No. 30.)
Plaintiffs Travelers Casualty and Surety Company and the Automobile Insurance
Company of Hartford (collectively "Travelers"), and sought coverage from the lawsuit.
Invoking this Court's diversity jurisdiction, Travelers now seeks a declaration that it has
no duty to defend Schur in the Henrico County suit.
The Court has reviewed each party's statement of undisputed facts, including the
extensive supporting documentation filed in support of the respective positions. The
Court has concluded that the following narrative represents the facts for purposes of
resolving the cross motions for summary judgment.
Travelers issued to Schur two separate insurance policies: a Homeowners
Insurance Policy ("Primary Policy," ECF Nos. 32-3, 35-1) and a Personal Liability
Umbrella Policy ("Umbrella Policy," ECF Nos. 32-4, 35-2). Each policy covers an
"insured" for "occurrences" of "personal injury" with certain exclusions to coverage.
The policies define "personal injury" as liability occurring from oral, written, or
electronic publication of material that slanders or libels another person.
The Primary Policy contains an Enhanced Home Package addendum that excludes
personal injury "[ajrising out of or in connection with a 'business'... engaged in by an
'insured.'" (Primary Policy, HO-84 VA (06-11), at 5.) The Primary Policy defines
"business" as "[a] trade, profession, or occupation engaged in on a full-time, part-time or
^Travelers originally brought suit seeking a declaration that Travelers had neither a duty to
defend nor a duty to indemnify Schur in the Henrico County suit. (Compl. ^ 28, ECF No. 1.)
The parties subsequently filed a Stipulation agreeing that submission of the question of
indemnification would be premature and the scope of the insurance declaratory judgment before
the Court should be limited to only the question of whether Travelers has any duty to defend.
1-2, ECF No. 28.) Accordingly, the Court only addresses Travelers' duty to
(Stipulation
defend.
occasional basis," as well as "[a]ny other activity engaged in for money or other
compensation." (Primary Policy, HO-4 VA (07-08), at 1.) Similar to the Primary Policy,
the Umbrella Policy excludes coverage for personal injury "arising out of 'business'
pursuits or 'business' property of an 'insured.'" (Umbrella Policy, Plus PI (03-99), at 3.)
The Umbrella Policy states that "'[bjusiness' includes trade, profession or occupation."
{Id. at 1.) The Primary Policy contains an additional exclusion for personal injury
"[ajrising out of oral, written or electronic publication of material, if done by or at the
direction of an 'insured' with knowledge of its falsity." (Primary Policy, HO-84 VA (0611), at 5.)
In his Henrico County complaint, Sprenkle alleges that he servesas the principal
of Sprenkle and Company, LLC, which is involved in the contracting and construction
business. {Sprenkle v. Schur Compl. ("Underlying Compl.") H1, ECFNos. 32-1, 35-3.)
In addition to Sprenkle and Company, he has been involved with the music business in
various ways over the past twenty years. {Id. ^ 4.) In the summerand fall of 2008,
Sprenkle and Schur formed a limited liability company named Black Water Management,
LLC ("BWM") to promote and manage musical artists. {Id. 16.)
Since October 2010, however, Sprenkle and Schur have engaged in litigation in
the City of Richmond Circuit Court involving BWM as detailed in case numbers CLIO4495 and CL12-2597. {Id. ^ 7.) Although case number CLlO-4495 was dismissed in
part and nonsuited in part, case number CL12-2597 remained pendingin the Richmond
Circuit Court. {Id.) In Sprenkle's answer to Schur's request for production of documents
in the case pending in Richmond Circuit Court, Sprenkle made various materials
available for inspection at Black Iris Music, LLC in Richmond, Virginia. {Id. ^ 34.)
Black Iris was a client of Sprenkle and Company, which oversaw the construction and
renovation of Black Iris' offices. {Id. ^ 35.)
On or about June 18, 2014, Schur contacted David Jackson, an owner of Black
Iris, by telephone. {Id. ^ 36.) Schur told Jackson that Sprenkle was both a "con artist"
and "professional con artist." {Id.) Schur also stated that Sprenkle was "a liar and a
fraud and a con artist" who "spen[t] his time scamming people, promising things that
don't exist." {Id.) Schur told Jackson that Schur wanted to warn Jackson about Sprenkle
and that Schur was "telling everyone he could" to avoid Sprenkle because he was a "con
artist." {Id. 137.)
In Count III, ^the Underlying Complaint alleges that Schur's statements that
Sprenkle was a "con artist," "professional con artist," "a liar and a fraud," and spent his
time "scamming people, promising things that don't exist" constituted defamationper se.
{Id. ^ 39.) Further, Schur's "defamatory statements were made maliciously, with a
conscious disregard for the truth and the facts available to him at the time the statements
were made, in order to damage Sprenkle's reputation, personally and professionally.
Schur knew that his defamatory statements were false when he made them." {Id. ^ 40.)
The parties agree that Schur constitutes an "insured" under the policies.
(Travelers' Mem. Supp. Mot. Summ. J. ("Travelers' Mem.") 5, 8, ECF No. 32; Schur's
Mem. Supp. Mot. Summ. J. ("Schur's Mem.") 3, 5, ECF No. 34.) Absent some
^The Underlying Complaint originally contained three counts of defamation per se\ however.
Counts I and II were dismissed with prejudice on April 28, 2015. Count III is the only remaining
count. Additionally, Count III only incorporates by reference the first seven paragraphs of the
Underlying Complaint. (Underlying Compl. 33.)
exception, any liability for Schur from the defamation suit would suffice as an
"occurrence" of"personal injury" under the policies.** The parties, therefore, only debate
the application of the business exclusions and the knowledge of falsity exclusion.
II.
STANDARD OF REVIEW
Summary judgment is appropriate where the record demonstrates "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). Because the construction of insurance contracts
constitutes a legal question, resolution of the instant matter through summary judgment is
"especially appropriate." W. Am. Ins. Co. v. Johns Bros., Inc., 435 P. Supp. 2d 511,
513-14 (E.D. Va. 2006) (quoting Clark v. Metro. Life Ins. Co., 369 F. Supp. 2d 770, 774
(E.D. Va. 2005)).
When deciding cross motions for summary judgment, a court mustreview the
motions separately on theirown merits "to determine whether either of the parties
deserves judgment as a matter of law." Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th
Cir. 2003) (quoting Philip MorrisInc. v. Harshbarger, 122 F.3d 58, 62 n.4 (1st. Cir
1997)). When considering the individual motions, a court must"resolve all factual
disputes and any competing, rational inferences in the light most favorable" to the party
opposing that particular motion. Id. (quoting Wightman v. Springfield Terminal Ry. Co.,
100 F.3d 228,230 (1st Cir. 1996)). Further, a court should "rule upon each party's
motion separately and determine whether summary judgment is appropriate as to each
** Because the parties focus onthe application of exclusions of anoccurrence, a necessary
prerequisitewould be an actual occurrence under the policies.
under the [Federal Rule of Civil Procedure] 56 standard." NorfolkS. Ry. Co. v. Cityof
Alexandria, 608 F.3d 150, 156 (4th Cir. 2010) (alteration in original) (quoting
Monumental Paving & Excavating, Inc. v. Pa. Mfrs. 'Ass 'n Ins. Co., 176 F,3d 794, 797
(4th Cir. 1999)).
III.
DISCUSSION
Because the Court exercises its diversityjurisdiction, the Court applies the choice
of law rules of Virginia as the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(1937); Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95, 100 (4th Cir.
2013) (citing Seabulk Offshore, Ltd. v. Am. Home Assurance Co., 377 F.3d 408,418—19
(4th Cir. 2004)). For choice of lawpurposes, "Virginia insurance law applies the law of
the place where the insurance contract is written and delivered." CACIInt'l, Inc. v. St.
Paul Fire & Marine Ins. Co., 566 F.3d 150, 154 (4th Cir. 2009) (quoting Buchanan v.
Doe, 246 Va. 67, 70-71 (1993)) (internal quotation marks omitted) (applying Virginia
law). As the parties agree. Travelers issued and delivered the policies in Virginia, and
Virginia law applies.
In Virginia, "it is a well-established principle ... that only the allegations in the
complaint and the provisions of the insurance policy are to be considered in deciding
whether there is a duty on the part of the insurer to defend ... the insured." AES Corp. v.
Steadfast Ins. Co., 283 Va. 609, 616-17 (2012). "This principle is commonly known as
the 'eight comers rale' because the determination is made by comparing the 'four
comers' of the underlying complaint with the 'four comers' of the policy, to determine
whether the allegations in the underlying complaint come within the coverage provided
by the policy." Id.
Further, the duty to defend "is broader than [the] obligation to pay, and arises
whenever the complaint alleges facts and circumstances, some ofwhich would, ifproved,
fall within the risk covered by the policy." Va. Elec. & Power Co. v. Northbrook Prop.
& Gas. Ins. Co., 252 Va. 265,265 (1996) (alteration in original) (quoting Lerner v.
Safeco, 219 Va. 101,104 (1978)). Known as the potentiality rule, "any possibility that a
judgment against the insured will be covered under the insurance policy" triggers an
insurance company's duty to defend an insured. CACIInt'l, Inc., 566 F.3d at 155
(quoting Bohreer v. Erie Ins. Grp., 475 F. Supp. 2d 578, 584 (E.D. Va. 2007)).
Additionally, courts construe exclusionary language against the insurer, and the
burden rests on the insurer to prove any exclusion applies. Am. Reliance Ins. Co. v.
Mitchell, 238 Va. 543, 547 (1989). To be effective, exclusionary language must "clearly
and unambiguously bring the particular act of omission within its scope." Floydv. N.
NeckIns. Co., 245 Va. 153, 158 (1993). Doubtful or ambiguous language within a policy
should be interpreted in favor of coverage, rather than withholding it. Am. RelianceIns.
Co., 238 Va. at 547. "However, if it appears clearly that the insurer would not be liable
under its contract for any judgment based upon the allegations, it has no duty even to
defend." Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189 (1990) (quoting
Travelers Indem. Co. v. Obenshain, 219 Va. 44,46 (1978)) (internal quotation marks
omitted).
A. Business Exclusions
Travelers contends that the business exclusions contained within the policies
preclude a duty to defend Schur from the Underlying Complaint. (Travelers' Mem.
11-13.)^ Relying on BWM as the business. Travelers asserts Schur's alleged statements
in the Underlying Complaint undoubtedly fall under the business exclusions because the
Underlying Complaint claims the litigation involved BWM. Accordingly, Travelers
believes that it has no duty to defend Schur.
On the other hand, Schur asserts that the mere formation of BWM as detailed in
the Underlying Complaint fails to meet the definition of business under the policies, and
the Underlying Complaint fails to show the litigation involving BWM arose from
BWM's operation as a business. (Schur Mem. 18-23.) Because the Underlying
Complaint fails on both points, the business exclusions cannot apply.
The Primary Policy excludes personal injury "[ajrising out of or in connection
with a 'business'... engaged in by an 'insured.'" (Primary Policy, HO-84 VA (06-11), at
5.) Similar to the Primary Policy, the Umbrella Policy excludes coverage for personal
injury "arising out of'business' pursuits or 'business' property of an 'insured.'"
(Umbrella Policy, Plus PI (03-99), at 3.)
The Primary Policy defines business as a "[a] trade, profession, or occupation
engaged in on a full-time, part-time or occasional basis," as well as "[a]ny other activity
engaged in for money or other compensation." (Primary Policy, HO-4 VA (07-08), at 1.)
^The policies each contain business exclusions with differing language ofsimilar import. Given
the striking similarity in definitions, however, for purposes of resolving Travelers' duty to
defend, the analysis applies equally to each, and the Court addresses them jointly.
The Umbrella Policy defines business as including "trade, profession or occupation."
(Umbrella Policy, Plus PI (03-99), at 1.) Virginia common law similarly looks to
continuity and profit motive in determining whether an endeavor constitutes a business
pursuit. See Va. Mut. Ins. Co. v. Hagy, 232 Va. 472, 475-76 (1987).
The Underlying Complaint alleges that in 2008, Schur and Sprenkle "formed a
Virginia limited liability company named Blackwater Management, LLC ... to manage
and promote musical artists." (Underlying Compl. TI6.) Since 2010, the two "have been
involved in contentious litigation in the City of Richmond Circuit Court involving
Blackwater Management as detailed in Case Numbers CLlO-4495 and CL12-2597." {Id.
^7.) The Underlying Complaint then asserts that, related to discovery in case number CL
12-2597, Schur contacted Jackson and allegedly made the defamatory statements. {Id.
34-38.)
The only references to BWM as an entity contained within the Underlying
Complaint indicate that Sprenkleand Schur formed the limited liability company and that
® Underlying Complaint does not particularize the allegations in case number CL12-2597,
The
and, therefore, those allegations are not before the Court for resolution of the instant motions. In
an attempt to bolster its argument, however, Travelers attached the complaints from case
numbers CLl 0-4495 and CL 12-2597 to its summary judgment pleadings. In briefing on a
separate Motion to Strike (EOF No. 43), Travelers ac^owledged that Virginia courts "do not
appear to have had to the opportunity to address" whether in applying an eight comer analysis a
court may look to attachments to any underlying complaint or to other documents referenced
therein. (Travelers' Opp'n Schur's Mot. Strike 5, ECF No. 45.) As the Virginia Supreme Court
has stated, a court considers "only the allegations in the complaint and the provisions of the
insurance policy... in deciding whether there is a duty on the part of the insurer to defend."
AES Corp., 283 Va. at 616-17 (emphasis added). Travelers provided no authority persuading
this Court to depart from Virginia's long-standing rule. Accordingly, as other courts have, this
Court declines to look beyond the allegations of the Underlying Complaint and provisions of the
insurance policies. See, e.g.. Nautilus Ins. Co. v. Strongwell Corp., 968 F. Supp. 2d 807,
813-815 (W.D. Va. 2013).
the two engaged in contentious litigation "involving" BWM. The Underlying Complaint
lacks any basis showing that BWM even operated or existed as a business. The
Underlying Complaint alleges nothing linking Schur to BWM as his trade, profession, or
occupation. Nor does the Underlying Complaint speakto anything about the continuity
or profit motive of BWM. Even if BWM were operating as a business, other than the
litigation "involving" BWM, the Underlying Complaint alleges nothing showing that the
litigation arose from or in connection with BWM as a business.
Travelers indicated at oral argument that the Court should simply make the
extrapolative inference that Sprenkle and Schur engaged in litigation that arose from
BWM operating as a business. As Schur rejoined, the Court could just as easily draw the
reasonable inference that the litigation was the resultof BWM foundering at its inception.
The Underlying Complaint's silence on the specifics of BWM and the litigation allows
for the existence of equally plausible alternative reasons for the litigation "involving"
BWM—not just Travelers' proffered rationale. SeeFuisz v. Selective Ins. Co. ofAm., 6\
F.3d 238, 246 (4th Cir. 1995) (noting that business exclusion not clearly and
unambiguously applicable to statements made by insured where "claims le[ft] open the
significant possibility that [insured] made the statements for purely personal, nonmonetary reasons").
The lacuna in the controlling documents before this Court is any critical linkage
between the agreement to form a business association, the present litigation between
Sprenkle and Schur, and the comments made to Jackson. A clear connection requires
firmer footing. Travelers cannot show that the business exclusion clearly and
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unambiguously applies to the allegations in the Underlying Complaint. Accordingly, the
business exclusion does not preclude Travelers' duty to defend. See Floyd, 245 Va. at
158; Brenner, 240 Va. at 189.
B. Knowledge of Falsity Exclusion
Travelers avers that a second, independent exclusion applies barring coverage in
this case, namely the Primary Policy's knowledge of falsity exclusion. (Travelers' Mem.
13-14.) According to Travelers, this exclusion applies because in Count III, the
Underlying Complaintalleges in part that Schur "knew that his defamatory statements
were false when he made them." (Underlying Compl. If 40.) Travelers believes that this
phrase alone clearly relieves its obligation to defend.
On the other hand, Schur maintains that the potentiality rule applies to the
allegations related to the knowledge of falsity exclusion. (Schur Mem. 14-18.)
According to Schur, although the Underlying Complaint pleads Schur"knew his
defamatory statements were false," immediately preceding that assertion, the Underlying
Complaint contends"Schur's defamatory statements were made maliciously, with
conscious disregard for the truth and the facts available to him." (Underlying Compl. If
40.) Schur avers this additional allegation of"conscious disregard" amounts to a claim of
defamation based on less than actual knowledge, thereby pleading an alternative theory
of liability covered under the Primary Policy. (Schur Mem. 16.)
The Primary Policy excludes coverage for personal injury "[ajrising out of oral,
written or electronic publication of material, if done by or at the direction of an 'insured'
with knowledge of its falsity." (Primary Policy, HO-84 VA (06-11), at 5.) As pleaded,
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the Underlying Complaint premises liability on alternative fronts: first, that Schur made
the defamatory statements with "conscious disregard for the truth," and second, that
Schur "knew that his defamatory statements were false." (Underlying Compl. ^ 40.)
Here, even if Schur escapes liability for defaming Sprenkle with actual knowledge, he
potentially still faces liability for defaming Sprenkle for conscious disregard of the
truth—a standard more akin to recklessness or negligence.
As Travelers acknowledged at oral argument, under Virginia law, knowing
defamation subsumes negligent defamation. A jury in the Henrico County proceeding
potentially could be instructed on Schur's knowing defamation or his reckless or
negligent defamation, subjecting Schur to alternative theories of liability. See Fuisz, 61
F.3d at 244 ("If the evidence at trial fails to establish that Fuisz intentionally harmed
Terex, the complaint permits Terex nonetheless to prevail on its claims by proving Fuisz
... acted with reckless disregard for the falsity of his statements."). Accordingly,
because Schur potentially faces liabilityon alternative theories of defamation—at least
one of which would fall within the risk covered by the policy—the knowledge of falsity
exclusion does not clearly and unambiguously apply in this case. See CACIInt'l, Inc.,
566 F.3d at 155; Va. Elec. &Power Co., 252 Va. at 265. ®
' The Fuisz court also discussed "the possibility that the complaint could beread to state a claim
of negligent defamation despite the fact that Terex does not specificallyallege that Fuisz acted
negligently." 61 F.3d at 244 n.3. The court went on to state that on several occasions, the
Supreme Court of Virginia had "held that negligent defamation [was] subsumed in proof of
intentional discrimination." Id.
*The Umbrella Policy additionally excludes coverage for '"personal injury' for which you or
your 'primary insurance' provider, or both, have been released from legal liability in lull or in
part." (Umbrella Policy, Plus PI (03-99), at 6.) As argued by Travelers and conceded by Schur
at oral argument, any finding that Travelers had no duty to defend based upon the Primary
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IV.
CONCLUSION
Although Travelers asserts that two specific exclusions preclude any duty to
defend, constrained by Virginia's eight corners rule, Travelers cannot showthat either
exclusion clearly and unambiguously applies to the allegations in the Underlying
Complaint. Travelers, therefore, has a duty to defend Schur in the pending Henrico
County suit. Accordingly, the Court will deny Plaintiffs' Motion for Summary Judgment
(EOF No. 31) and will grant DefendantJacob Schur's Motion for Summary Judgment
(ECF No. 33).
An appropriate Order will accompany this Memorandum Opinion.
/s/
Henry E. Hudson
United States District Judge
Date:
Richmond, Virginia
Policy's knowledge of falsity exclusion would have trigged the Umbrella Policy's release from
legal liability exclusion. Because the Court has found to the contrary, this additional exclusion
in the Umbrella Policy does not apply.
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