Opinion
Civil Action No. 02-2241-KHV
February 10, 2003.
MEMORANDUM AND ORDER
Atlantic Mutual Companies ("Atlantic Mutual") brought suit against Home Depot U.S.A., Inc. ("Home Depot"), Stephanie Meadows and Deputy Christopher Meadows. Atlantic Mutual sought a declaratory judgment that an insurance policy which it issued to Larson Manufacturing Company did not require it to defend and indemnify Home Depot for certain claims which the Meadows asserted in separate litigation against Home Depot. On January 27, 2003, the Court ruled that as a matter of law, Atlantic Mutual must defend and indemnify Home Depot for the Meadows' claims. See Memorandum And Order (Doc. #75). On February 4, 2003, the Court held a hearing on Home Depot's request for the attorneys' fees which it incurred in this action. For reasons stated below, the Court overrules Home Depot's request.
Findings Of Fact
Stephanie and Christopher Meadows sued Home Depot and Larson Manufacturing Company ("Larson") for injuries which Mrs. Meadows sustained while looking at a storm door display at the Home Depot store in Merriam, Kansas. See Meadows v. Home Depot U.S.A., Inc., Larson Mfg. Co. Leeman Constr. Co., D. Kan. No. 01-2005-JAR (the "Meadows action"). Atlantic Mutual defended Larson under a Commercial General Liability ("CGL") policy which it had issued to Larson effective January 1, 1999 to January 1, 2000. Margarita Rankin, a claims adjustor for Atlantic Mutual, oversaw the handling of Larson's defense in the Meadows action. See Stipulation 1.
Deputy and Mrs. Meadows originally filed suit in state court, but on June 28, 2000, Home Depot removed the case to the United States District Court for the Western District of Missouri. See Notice Of Removal Of Civil Action (Doc. #1) filed June 28, 2000 in D. Kan. Case No. 01-2005-JAR. On January 3, 2001, the Meadows action was transferred to the District of Kansas. See Transfer Order filed in D. Kan. Case No. 01-2005-JAR.
On April 2, 2002, believing that it was an additional insured under Larson's CGL policy, Home Depot asked Larson whether it had tendered to Atlantic Mutual the Home Depot defense in the Meadows action. See Exhibit 407. At 3:55 p.m. the following day, April 3, 2002, Larson forwarded Home Depot's letter to Ms. Rankin. See id. The very next day, April 4, 2002, Ms. Rankin sent Home Depot a letter which denied any duty to defend or indemnify because Home Depot did not qualify as an insured under any policy or endorsement. See Exhibit 408. In issuing the denial, Ms. Rankin did not rely on the advice of counsel or discussions with anyone else. Ms. Rankin did not inspect the door or door display which injured Mrs. Meadows, and to this date Ms. Rankin has never seen them. Ms. Rankin reviewed only the amended complaint, a vendors buying agreement between Larson and Home Depot, the CGL policy and the umbrella policy. In her deposition, Ms. Rankin explained that in denying coverage, she assumed that Home Depot did not sell the door within the display system because it was essentially a used item. See Exhibit 412: Rankin Depo. at 19-20.
On April 10, 2002, Deputy and Mrs. Meadows, Home Depot and Atlantic Mutual mediated the Meadows action. See Stipulation 2. Ms. Rankin attended on behalf of Atlantic Mutual.
On April 23, 2002, Home Depot sent Ms. Rankin a letter which again requested a defense in Meadows under Larson's policy. Home Depot stated that it qualified as an insured under either the vendors endorsement or the designated organization endorsement. On May 1, 2002, Atlantic Mutual again denied Home Depot's tender.
On May 24, 2002, Atlantic Mutual filed this action, seeking a declaration that it did not owe Home Depot a duty to defend or indemnify in Meadows. The Court previously found that Atlantic Mutual must defend and indemnify Home Depot under the vendors endorsement of the CGL policy issued to Larson. See Memorandum And Order (Doc. #75) filed January 27, 2003.
The Court denied coverage under the designated organization endorsement. Accordingly, for purposes of Home Depot's request for attorneys' fees, the Court does not consider Atlantic Mutual's coverage position on the designated organization endorsement.
Conclusions Of Law
Home Depot seeks attorneys' fees which it incurred in defending this declaratory judgment action. Section 58-12-3, S.D. Codified Laws provides:
In all actions or proceedings hereafter commenced against any employer who is self-insured, or insurance company, including any reciprocal or interinsurance exchange, on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company or exchange has refused to pay the full amount of such loss, and that such refusal is vexatious or without reasonable cause, the Department of Labor, the trial court and the appellate court, shall, if judgment or an award is rendered for plaintiff, allow the plaintiff a reasonable sum as an attorney's fee to be recovered and collected as a part of the costs[.]
Even though Home Depot is a defendant in this action, the statute also applies to an insured's defense of a declaratory judgment action and prosecution of a counterclaim for declaratory relief. See All Nation Mut. Ins. Co. v. Brown, 344 N.W.2d 493, 494 (S.D. 1984).
Home Depot has not shown that Atlantic Mutual's refusal to pay was "vexatious or without reasonable cause." Atlantic Mutual initially denied coverage under the vendors endorsement because it believed that any injury to Mrs. Meadows "arose out of the display which housed the doors, which Home Depot did not distribute or sell in its business." Exhibit 408: April 4, 2002 Letter at 3. Approximately three weeks later, Home Depot asked Atlantic Mutual to reconsider its coverage decision. See Exhibit 409: April 23, 2002 Letter. Home Depot did not specifically deny that Mrs. Meadows' injuries arose out of a display which Home Depot did not distribute or sell in its business, but it argued that it had coverage under the vendors endorsement because the door display was a Larson product. See id. The Court ultimately rejected Atlantic Mutual's narrow reading of the policy, but the reasonableness of Atlantic Mutual's position is suggested by the fact that Home Depot — after review by counsel — did not claim that it distributed or sold the display.
Home Depot argues that Atlantic Mutual's decision to deny coverage was particularly vexing because Ms. Rankin did so less than 24 hours after Home Depot tendered the claim and without consulting counsel. The Court disagrees. Ms. Rankin was familiar with the Meadows action because she was overseeing Larson's defense in that action. Ms. Rankin's letter of April 4, 2002 is more than three pages and includes quotations of the relevant policy provisions and an explanation why she did not believe that Home Depot was covered. See Exhibit 408. In the letter, Atlantic Mutual reasonably (though incorrectly, in the Court's opinion) denied coverage under the vendors endorsement because Home Depot did not distribute or sell the door display. Moreover, shortly after the letter, Atlantic Mutual participated in mediation of the Meadows action and it promptly responded to Home Depot's request for reconsideration of the coverage decision. After Home Depot refused to withdraw its tender of the claim, Atlantic Mutual quickly sought a court declaration to resolve the dispute. Such actions do not constitute a vexatious or unreasonable refusal to pay under the policy. See, e.g., North Star Ins. Co. v. Kneen, 484 N.W.2d 908, 913 (S.D. 1992); Tri-State Co. of Minn. v. Bollinger, 476 N.W.2d 697, 702 (S.D. 1991); Am. Family Mut. Ins. Co. v. Merrill, 454 N.W.2d 555, 560 (S.D. 1990). Accordingly, the Court denies Home Depot's request for the attorneys' fees which it incurred in this action. IT IS THEREFORE ORDERED that Home Depot's request for attorneys' fees under Section 58-12-3, S.D. Codified Laws be and hereby is OVERRULED.
The actions of Atlantic Mutual are in stark contrast to those of insurers in cases where courts have found a vexatious or unreasonable refusal to pay. See Biegler v. Am. Family Mut. Ins. Co., 621 N.W.2d 592 (S.D. 2001) (insurer determined that insured was covered but delayed six months, until claims had been settled to inform insured of fact of coverage); Brooks v. Milbank Ins. Co., 605 N.W.2d 173, 175-76, 178-79 (S.D. 2000) (insurer hired private investigator who coerced insured to admit that he committed arson and never made offer to settle case); Isaac v. State Farm Mut. Auto. Ins. Co., 522 N.W.2d 752, 754-55, 763 (S.D. 1994) (insurer delayed investigation, settlement and evaluation for years, failed to inform insured of valid uninsured motorist coverage and eventually conditioned policy payment on dismissal of bad faith claim).
At the hearing on February 4, 2003, the Court took under advisement Counterclaim Defendant Atlantic Mutual's Motion For Judgment As A Matter Of Law At The Close Of Home Depot's Evidence (Doc. #84) and Counterclaim Defendant Atlantic Mutual's Motion For Judgment As A Matter Of Law At The Close Of All Evidence (Doc. #85). Because both motions were filed before the Court received any evidence, the Court overrules them. In addition, Home Depot's evidence, though sparse, was sufficient for the Court to adversely resolve the attorneys' fee issue as a factual matter.
IT IS FURTHER ORDERED that Counterclaim Defendant Atlantic Mutual's Motion For Judgment As A Matter Of Law At The Close Of Home Depot's Evidence (Doc. #84) filed February 4, 2003 be and hereby is OVERRULED.
IT IS FURTHER ORDERED that Counterclaim Defendant Atlantic Mutual's Motion For Judgment As A Matter Of Law At The Close Of All Evidence (Doc. #85) filed February 4, 2003 be and hereby is OVERRULED.