Opinion
Civil Action No: 97-2757 Section: "J"(3)
June 2, 2000
MINUTE ENTRY
In its minute entry dated March 3, 2000, the Court summarily denied plaintiffs John Musmeci et al (collectively "Musmeci") and defendants John Schwegmann and the Schwegmann business entities' (collectively "SGSM") Motions for Summary Judgment (Rec. Docs. 108 and 110) and summarily granted in part and denied in part defendant United States Fidelity and Guaranty's ("USFG") Motion for Summary Judgment (Rec. Doc. 109), deferring a more reasoned explanation until a later date. Pursuant to its ruling, the Court found that USFG does not have a duty to defend SGSM and that factual issues preclude summary judgment on whether the USFG policy extends coverage for any of plaintiffs' claims. This minute entry constitutes the Court's reasons for its prior ruling. DATE OF ENTRY
BACKGROUND
Only a brief recitation of the facts are necessary to address the issues presented in the motions. The dispute in this litigation center upon a food voucher plan created by SGSM to benefit those who retired from SGSM. Pursuant to the food voucher plan, retirees would receive approximately $216.00 per month in grocery vouchers. However, when John Schwegmann sold SGSM in 1997, the vouchers stopped being sent to the approximately 40 recipients.
In September of 1997, plaintiffs brought this suit, alleging that the food voucher plan was, in effect, an ERISA protected retirement plan, and claiming that they are vested in SGSM's retirement benefit plan by effect of federal and state law and under the terms of the benefit plan and are entitled to receive the vouchers or their equivalent for life. In the alternative, plaintiffs allege breach of contract under La. Civ. Code art. 1927 and La. Rev. Stat. 23:634, which makes any contract forfeiting wages unlawful.
Pursuant to this Court's instruction, the parties filed cross-motions for summary judgment addressing USFG's duty to defend SGSM under its Employee Benefits Liability Coverage policy. SGSM is self-insured up to $250,000, where USFG's excess liability policy covers claims arising under the policy up to one million. SGSM paid USFG $25,000 for the policy. The general provision of this insuring agreement states: "We will pay `ultimate net loss' in excess of the `self insured retention' because of injury to any `employee,' or to the dependants or beneficiaries of any `employee,' caused by an `employee benefits incident' to which this insurance applies."
Cross Motions for Summary Judgment
USFG's motion goes further than what the Court instructed and not only argues that it does not have a duty to defend SGSM but also that the policy issued to USFG does not provide coverage for the harm alleged in this suit.
USFG also argues from a third position, namely, that this Court does not have subject matter jurisdiction because the food voucher plan is not an ERISA plan. If the food voucher plan is not an ERISA plan, the case's only basis for federal jurisdiction, then the court would be precluded from ruling on the duty to defend. The argument, however, fails to consider that this Court denied plaintiffs' earlier Motion for Summary Judgment of which a central issue was whether the food voucher plan was an ERISA plan. See Minute Entry August 20, 1999. Further, whether a particular plan falls within the statutory definition of an `employee benefit plan' is a question of fact. See Meredith v. Time Ins. Co., 980 F.2d 352, 353 (5th Cir. 1993). Lastly, unless an allegation of ERISA coverage is frivolous on its face, as the Court finds is not the case here, then the district court has subject matter jurisdiction. See Murphy v. Inexco Oil Co., 611 F.2d 570, 573 (5th Cir. 1980).
In arguing that the policy does not cover SGSM, USFG argues from three grounds: (1) the policy contains specific language excluding coverage for claims arising out of fiduciary responsibility under an ERISA plan; (2) each individual claim does not exceed the self-insured retention limit of $250,000 per claim and, as an excess insurance policy, could not possibly exceed the SIR; and (3) the deliberate act by Mr. Schwegmann in selling SGSM is not a negligent act, error or omission, a necessary prerequisite for "Employee Benefits Liability Coverage."
Under the second part of its motion, USFG argues that it does not have a duty to defend SGSM because the policy language unambiguously places the duty to defend upon SGSM and the duty to defend does not apply to an excess liability insurer such as USFG.
In their motions, both SGSM and Musmeci argue that USFG has a duty to defend SGSM. Their arguments center upon the general principles that the duty to defend is broader than the duty to provide coverage and pay losses and that, in determining an insurer's duty to defend, the allegations of plaintiffs' petition are interpreted liberally to determine whether they set forth grounds that bring the claims within the scope of the insurer's duty to defend the suit.
DISCUSSION
As stated in the March 3, 2000 minute entry, the Court finds that genuine issues of fact exist as to whether USFG's policy covers the harm alleged by Musmeci but, regardless, that USFG does not have a duty to defend SGSM.
A. Whether USFG's Policy Covers Plaintiffs' Alleged Harm
Although USFG's argument that the policy contains language specifically excluding ERISA claims is correct, for the limited purpose of this motion, it is largely inapposite. The duty to defend is broader than the duty to provide coverage under the policy. See American Home Assurance Co. v. Czarniecki, 230 So.2d 253, 259 (La. 1969); Rio Rouge Development Corp. v. Security First National Bank, 610 So.2d 172, 174 (3d Cir. 1992). Furthermore, in determining an insurer's duty to defend, the allegations of plaintiffs' petition are interpreted liberally to determine whether they set forth grounds that bring the claims within the scope of the insurer's duty to defend the suit. See Rio Rouge, 610 So.2d at 176. Here, plaintiffs have alleged a state law claim for breach of contract premised on the same set of facts, the cessation of the food voucher program. This clearly is a dispute arising under the employee benefits section of the policy and, if plaintiffs are successful under the state claim, USFG's policy may arguably cover such claims.
USFG's second argument, that the Court should rule that the policy would not cover Musmeci's claims in this suit because the SIR cannot be met, is similarly unavailing. USFG is again correct that it is unlikely that a single plaintiff's cause of action could exceed the $250,000 SIR.
However, the Court finds the policy is unclear as to whether a common claim arising from a single employee benefits incident and asserted by employees as a class action in a single suit, is a single "claim" within the meaning of this policy. The insurance policy does not define "claim" although it defines "suit" and "employee." The incident which gave rise to the claim could be interpreted as a single incident, the selling of SGSM. "Sometimes the term "claim" has been interpreted to mean, depending on the context, a claim for indemnification by the insured against the insurer instead of a claim for damages by an injured party against the insured." Clemtex, Inc. v. Southeastern Fidelity Ins., 807 F.2d 1271, 1276 n. 7 (5th Cir. 1987). Under this interpretation, the "claim" would be the aggregate amount of all claims of plaintiffs brought against SGSM as a self-insurer and, in turn, against USFG as an excess insurer. In other words, SGSM makes a "claim" against USFG's policy based on all the plaintiffs' claims as a single claim for payment above the SIR.
Lastly, USFG argues that Mr. Schwegmann's unilateral, intentional act of selling SGSM does not constitute a negligent act under the policy and, therefore, is not covered. The policy covers SGSM for claims resulting from an employee benefits incident. The policy defines "Employee Benefits Incident" as simply "an act, error, or omission." The plain language of the policy does not include the adjective "negligent." USFG also misstates the act which gave rise to Musmeci's claim. It was not the selling of SGSM that created the alleged harm but the selling of SGSM without developing a means of maintaining the benefits. As such, Mr. Schwegmann's failure to create a program is certainly an "an act, error, or omission" as contemplated by the policy definition of an employee benefits incident.
B. Whether USFG has a duty to defend SGSM.
In its motion, USFG argues that as a matter of law it does not have a duty to defend SGSM. USFG first argues that the language of the policy specifically places the duty to defend on SGSM. Second, USFG argues that the policy issued by USFG is an excess liability policy and there is no duty on the part of the excess insurer to defend.
The policy states:
We will not be obligated to assume charge of the investigation, defense or settlement of any claim or "suit" against the insured, but we will have the right and be given the opportunity to associate with the insured or its claim administrator or both, in the investigation, defense or settlement of any claim or "suit" that, in our opinion, involves or appears reasonably likely to involve us.
This provision in unequivocal terms contractually places the duty to defend upon SGSM while allowing USFG to protect itself by having a say in the settlement negotiations. Any unfairness that may result is tempered by another provision in the policy which provides that USFG will pay claim expenses in proportion to the amount it is forced to pay above the SIR. In other words, USFG need not provide a defense now, but may need to pay a proportional share of the defense costs if plaintiffs are successful and their claims exceed the SIR. The duty to defend has thus been converted into an indemnity provision. Cf Federal Insurance Co. v. St. Paul Fire Marine Ins. Co., 638 So.2d 1132 (La.App. 1st Cir. 1994) (holding that because the policy was an indemnity policy and not a liability policy, there was not duty to defend but only a right to indemnify after judgment). Because the Court finds that the plain language of the policy places the duty to defend upon SGSM, the Court pretermits USFG's other argument that by virtue of being an excess insurer USFG does not owe a duty to defend.
In sum, the Court finds that (1) genuine issues of material facts exist as to whether USFG's policy covers SGSM for plaintiffs' claim, and (2) USFG does not have a duty to