Aetna Cas. & Sur. Co. v. First Sec. Bank of Bozeman

• Decision Date: 17 June 1987
• Docket Number: No. CV-86-32-BU-WDM.,CV-86-32-BU-WDM.
• Citation: 662 F. Supp. 1126
• Court: U.S. District Court — District of Montana
• Parties: AETNA CASUALTY AND SURETY COMPANY, a corporation, Plaintiff, v. FIRST SECURITY BANK OF BOZEMAN, a Montana banking corporation; and Steven E. Wheeler, Defendants.

662 F. Supp. 1126

AETNA CASUALTY AND SURETY COMPANY, a corporation, Plaintiff, v. FIRST SECURITY BANK OF BOZEMAN, a Montana banking corporation; and Steven E. Wheeler, Defendants.

No. CV-86-32-BU-WDM.

United States District Court, D. Montana, Butte Division.

April 13, 1987.

On Motion for Reconsideration June 17, 1987.

Douglas A. Buxbaum of the law firm of Poore, Roth and Robinson, Butte, Mont., for plaintiff.

Lyman H. Bennett, III of the law firm of Morrow, Sedivy & Bennett, Bozeman, Mont., for defendants.

MEMORANDUM and ORDER

WILLIAM D. MURRAY, Senior District Judge.

This is a declaratory judgment action brought by Aetna Casualty and Surety Company (Aetna), a corporation engaged in the business of insurance. Aetna maintains its principal place of business in Connecticut.

Defendant First Security Bank of Bozeman (bank) is a Montana corporation. Defendant Steven E. Wheeler (Wheeler), an employee of the defendant bank, is a Montana resident and citizen.

Jurisdiction vests in this court pursuant to 28 U.S.C. § 1332 and 28 U.S.C. §§ 2201 and 2202.

This case is before the court on Aetna's motion for summary judgment. Having been fully briefed,¹ the motion is ripe for disposition.

BACKGROUND

The bank carries a liability insurance policy, issued by Aetna, which insures it and its officers and employees under certain circumstances. In the instant action, Aetna seeks a declaration that the liability insurance policy issued to the bank does not provide coverage for the damages sought against the bank and Wheeler by a former bank employee, Claudia Ervin, in a separate suit pending in state district court.

Ervin's suit arises out of the bank's termination of her employment with it. Ervin began working at the bank in December 1979. After four years, Ervin was promoted to the position of teller. She worked in that capacity until February 4, 1985, when Wheeler discharged her.

In the underlying state court tort action, Ervin seeks to recover damages for lost wages, diminished earning capacity, harm to her reputation and emotional distress. She also seeks punitive damages.

Aetna moves for summary judgment herein on the grounds that the damages and injuries alleged by Ervin do not fall within the policy definitions of "bodily injury," "property damage" or "occurrence." Aetna argues, therefore, that the policy in question does not provide coverage in this instance.

The parties raise no factual dispute as to the content of Ervin's pleadings in the underlying action or the insurance policy issued by Aetna to the bank. Accordingly, the court is confronted with a purely legal issue: proper interpretation of the relevant policy provisions.

In diversity actions such as the instant case, state law applies. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); St. Paul Fire and Marine Insurance Co. v. Weiner, 606 F.2d 864 (9th Cir.1979). Montana law controls the substantive rights and obligations of the parties to this action. Where it appears that the highest court of Montana has not squarely addressed a particular question, this court must forecast what the Montana Supreme Court would do were it confronted with the same question. Meredith v. Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9 (1943); Commercial Union Insurance Co. v. Ford Motor Co., 640 F.2d 210 (9th Cir.1981).

DISCUSSION

Under Montana law, the allegations in the complaint against the insured determine whether there is coverage under the policy. McAlear v. Saint Paul Insurance Co., 158 Mont. 452, 456, 493 P.2d 331, 334 (1972). Ordinarily, a liability insurer has no duty to defend an action against its insured when the claim or complaint clearly falls outside the scope of the policy's coverage. Id. Where the claim against the insured sets forth facts representing a risk covered by the terms of the policy, the insurer's duty to defend arises. Lindsay Drilling & Contracting v. United States Fidelity & Guaranty Co., ___ Mont. ___, 676 P.2d 203, 205 (1984).

The liability insurance policy issued by Aetna to the bank provides coverage for "all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage ... caused by an occurrence." (Emphasis added.) Upon review of the complaint filed against the bank, the court finds that Ervin states claims for breach of the implied covenant of good faith and fair dealing attendant contracts of employment and for wrongful termination. She seeks punitive damages and damages for lost wages, diminished earning capacity, harm to her reputation and emotional distress. In ruling on Aetna's motion for summary judgment, the court must determine whether Ervin alleges "bodily injury" or "property damage" caused by an "occurrence," within the meaning of the liability policy issued by Aetna to the bank.

1. Bodily Injury.

The policy defines "bodily injury" as "bodily injury, sickness or disease." Aetna contends that the term "bodily injury" requires that the underlying action against its insured include some allegation of physical injury, as opposed to emotional injury. The bank counters by urging the court to find that the phrase "bodily injury" includes emotional distress. Neither party has been able to identify any Montana authority on point.

While the Montana courts have not construed the term "bodily injury" as it is used in comprehensive general liability insurance policies, the courts that have interpreted such language have determined that it limits coverage to physical injury to the body. See, e.g., American and Foreign Insurance Co. v. Church Schools, Diocese of Virginia, 645 F.Supp. 628, 632-33 (E.D. Va.1986) (applying Virginia law to hold that "bodily injury" coverage does not extend to purely nonphysical or emotional harm); St. Paul Fire and Marine Insurance Co. v. Campbell County School District No. 1, 612 F.Supp. 285, 287 (D.Wyo.1985) (applying Wyoming law in holding that allegations of emotional suffering do not constitute "bodily injury"); and Rolette County v. Western Casualty & Surety Co., 452 F.Supp. 125, 129-30 (D.N.D.1978) (applying North Dakota law to hold that "bodily injury," defined in the policy in question as including "sickness and disease," did not extend coverage to damages for embarrassment, humiliation and emotional distress).

In tort actions alleging mental suffering, the Montana Supreme Court has distinguished mental and emotional harm from physical harm. See Johnson v. SuperSave Markets, Inc., ___ Mont. ___, 686 P.2d 209, 212 (1984) (allowing recovery for mental distress absent a showing of physical injury). In light of the Montana court's recognition that "there is a difference between (physical) injury and (mental) distress," Johnson, 686 P.2d at 212, it is likely the Montana Supreme Court would follow the lead of the above-cited decisions and hold that the term "bodily injury," as used in the liability insurance policy at issue, limits coverage to physical injury, sickness or disease. The court concludes, therefore, that Ervin's allegations of emotional distress do not fall within the definition of "bodily injury" in the policy issued by Aetna to the bank. As no "bodily injury" was alleged in Ervin's complaint against the bank, coverage cannot be premised upon the "bodily injury" provision of the policy.

The bank's reliance on the decision in County of Chemung v. Hartford Casualty Insurance Co., 130 Misc.2d 648, 496 N.Y. S.2d 933 (1985), is misplaced. In Chemung, the court held that a child's pain and suffering as a result of being physically abused over a period of three months constituted "bodily injury" within the meaning of the applicable insurance policy. The child victim in Chemung had sustained physical injuries. The Chemung court expressly refused to decide the issue of whether "bodily injury" excluded injuries of a non-physical nature. 496 N.Y.S.2d at 935.

2. Property Damage.

The court turns to the question of whether Ervin's complaint alleges any "property damage" within the meaning of the liability insurance policy. The policy defines "property damage" as follows:

"(1) Physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy."

In the underlying action against the bank, Ervin's alleged damages include lost wages, diminished earning capacity and loss of good reputation.²

The Montana Supreme Court has considered the "property damage" policy language at issue herein on prior occasions. In Lindsay Drilling, supra, the Montana court held that such language "requires physical injury to tangible property." 676 P.2d at 205. Determination of whether property is tangible or intangible depends upon the particular nature and characteristics of the type of property in question. Id., citing, State Board of Equalization v. Fall, 121 Mont. 280, 192 P.2d 532 (1948). In Lindsay, for example, the court held that core samples from test holes drilled on placer mining claims were tangible, and therefore within the liability policy definition of "property damage," because such core samples were "perceptible and material." 676 P.2d at 206.

The Montana Supreme Court has not ruled on whether lost wages, diminished earning capacity or damage to reputation constitute "tangible property." In the absence of such authority, the bank urges the court to rule that lost wages and diminished earning capacity represent a loss of money, that money is tangible personal property, and therefore that Ervin's suit against the bank is for loss of tangible personal property. The bank relies on Aetna Casualty and Surety Co. v. General Time Corp., 704 F.2d 80 (2d Cir.1983), to support its argument. The bank's argument, however, is without merit. While the court in General...