Summary
In American States Insurance Co. v. Fishes Hot Dog Huntington, Inc., No. 3:98-0165 (S.D.W. Va. Jan. 22, 1999), the district court stated that "Leeber rejects such line-drawing."
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Civil Action No. 3:98-0165
January 21, 1999
ORDER
Plaintiff American States Insurance Company seeks a declaration that it does not have a duty under a business owner's policy to defend or indemnify defendants Fishes Hot Dog Huntington, Inc. or William H. Fish in a civil action alleging sexual harassment. The Court concludes that American States has no duty to defend or indemnify the defendants. Accordingly, the Court GRANTS the plaintiff's motion for summary judgment.
I. Background
Four former employees of defendant Fishes Hot Dog Huntington, Inc. instituted a civil action against the defendants in state court alleging sexual harassment. In their state court complaint, the former employees claim that William Fish "subjected [them] to repeated and continual sexual harassment, including, but not limited to, repeated and continual physical and/or verbal and/or lewd gestures of sexual harassment in the workplace and in other places." (¶ 15) Count 1 alleges sexual harassment by William Fish; Count 2 alleges constructive discharge by William Fish; Count 3 alleges intentional infliction of emotional distress by William Fish; Count 4 appears to allege willful, wanton, or malicious conduct by William Fish sufficient to justify a punitive damage award; and Count 5 alleges the vicarious liability of Fishes Hot Dog Huntington, Inc.
Defendants Fishes Hot Dog Huntington, Inc. and William Fish assert that American States has a duty to defend and indemnify them in the state court action under a business owner's policy that was in effect during the time of the alleged harassment. Under the policy, American States agrees to
pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury", "property damage", "personal injury" or "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages.
The policy goes on to exclude from coverage "`bodily injury' or `property damage' expected or intended from the standpoint of the insured." (Emphasis added.)
II. Discussion
The Court has subject matter jurisdiction over this case because there is diversity of citizenship and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332. The Court exercises its discretion to decide this declaratory judgment action because a ruling will serve the useful purpose of clarifying and settling the legal relations of the parties and will not unduly interfere with the state court proceeding. See 28 U.S.C. § 2201. The Court reviews the plaintiff's motion for summary judgment to determine whether there is any genuine issue as to any material fact and whether the plaintiff is entitled to judgment as a matter of law. See Fed R. Civ. P. 56(c).
American States makes two arguments in support of its claim that it has no duty to defend or indemnify the defendant. First, American States argues that the allegations in the state court complaint do not constitute "bodily injury." Second, American States argues that the intentional injury exclusion applies. The Court finds it necessary to address only the second issue.
American States' briefs contain an extensive discussion of relevant cases from other jurisdictions. The Court, however, believes that the West Virginia Supreme Court of Appeals' decision in Horace Mann Insurance Co. v. Leeber, 376 S.E.2d 581 (W.Va. 1988), addresses most of the issues raised in this declaratory judgment action. In Leeber, the State Supreme Court adopted the following syllabus point:
There is neither a duty to defend an insured in an action for, nor a duty to pay for, damages allegedly caused by the sexual misconduct of an insured, when the liability insurance policy contains a so-called "intentional injury" exclusion. In such a case the intent of an insured to cause some injury will be inferred as a matter of law.Id. at 582. In this case, the state court plaintiff's seek damages allegedly caused by William Fish's sexual misconduct, and the insurance policy contains an intentional injury exclusion. Accordingly, American States owes no duty to defend or indemnify the defendants.
While American States discussed Leeber at length in its brief, American States apparently feared that Leeber might be distinguishable on the ground that it involved an actual sexual assault, while this case does not. The Court believes that Leeber rejects such line-drawing. First, Leeber's holding explicitly applies to allegations of "sexual misconduct," not just sexual assault. Second, the State Supreme Court noted in Leeber that the majority view, which it adopted, rejects such linedrawing: drawing:
Under the majority view, a liability insurer would have no duty to defend a civil action against the insured based upon alleged sexual misconduct because, as seen, there is, under such a view, definitely, as a matter of law, no duty to pay. As seen from the great variety of sexual contacts involved in the cases following the majority rule, . . . the application of the majority rule rejecting an alleged duty to defend or to pay in sexual misconduct liability insurance cases is not restricted to those cases involving "violence," or penetration or a lengthy period of time during which the sexual contacts have occurred.Id. at 585-86.
The defendants raise a number of arguments in support of their claim that American States should defend and indemnify them. The Court will address those arguments that merit discussion.
First, the defendants argue that American States had a duty to investigate the allegations in the state court complaint or, alternatively, that a ruling is premature because discovery in the state court action is incomplete. The defendants misapprehend the applicable standard. "[A]n insurer's duty to defend is normally tested by whether the allegations in the complaint against the insured are reasonably susceptible of an interpretation that the claim may be covered by the terms of the insurance policy." Id. at 584; see also Bruceton Bank v. United States Fidelity Guaranty Insurance Co., 486 S.E.2d 19, 25-26 (W.Va. 1997). The State Supreme Court has ruled as a matter of law that sexual misconduct claims are not covered when an insurance policy contains an intentional injury exclusion. Regardless of the results of any additional investigation or discovery, the claims set forth in the state court complaint would not be covered by the insurance policy.
Second, the defendants argue that the state court complaint alleges not only an intentional tort, but also negligence. In Leeber and in Bruceton Bank, the State Supreme Court concluded that the mere use of the term "negligent" in a complaint does not trigger an insurer's duty to defend. Leeber, 376 S.E.2d at 587; Bruceton Bank, 486 S.E.2d at 25. Rather, the State Supreme Court examined the nature of the claims being alleged in those cases (i.e., sexual harassment in Leeber and breach of contract in Bruceton Bank). Having examined the nature of the claims alleged in the state court plaintiffs' complaint in this case, the Court concludes that they are in the nature of sexual harassment, not negligence.
Third, the defendants argue that the "personal injury" provision, to which the intentional injury exclusion does not apply, offers coverage. The defendants point out that personal injury, as defined in the policy, includes "[o]ral or written publication of material that violates a person's right to privacy." The state court complaint is grounded in sexual harassment, not invasion of privacy. The state court complaint contains no allegation of invasion of privacy, and sexually harassing comments directed at a victim of harassment would not qualify as such anyway. See Cornhill Insurance, PLC v. Valsamis, Inc., 106 F.3d 80, 85 (5th Cir. 1997).
Fourth, the defendants argue that an employers contingent liability endorsement offers coverage. The endorsement modifies the insurance policy to provide coverage for bodily injury that "arises out of and in the course of the injured employee's employment by the insured." The endorsement, however, does not eliminate the intentional injury exclusion, which applies with equal force to this type of bodily injury.
III. Conclusion
Finding that there are no disputed issues of material fact and that the plaintiff is entitled to judgment as a matter of law, the Court GRANTS the plaintiff's motion for summary judgment.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record.
JUDGMENT ORDER
In accordance with the accompanying Order granting plaintiff's motion for summary judgment, the Court ORDERS that declaratory judgment be entered in favor of plaintiff American States Insurance Company and that this case be dismissed and stricken from the docket of this Court.
The Court DIRECTS the Clerk to send a certified copy of this Judgment Order to counsel of record and any unrepresented parties.