Aetna Cas. & Sur. v. Metropolitan Baptist Church
| Decision Date | 16 December 1996 |
| Docket Number | Civil Action No. H-96-0959. |
| Citation | 967 F.Supp. 217 |
| Parties | The AETNA CASUALTY AND SURETY CO., Plaintiff, v. METROPOLITAN BAPTIST CHURCH, Joel H. Hoffman, and Deborah M. Hoffman, Defendants, v. FRONTIER INSURANCE CO. OF NEW YORK, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Nicholas E. Zito, Livingston & Markle, Houston, Texas, for Plaintiff.
Wayne Adams, Lorance & Thompson, Houston, Texas, for Defendant.
Pending before the Court is the complaint filed by the plaintiff, Aetna Casualty add Surety Co. ("Aetna"), seeking a declaratory judgment that it has no duty to defend or indemnify its insured, Metropolitan Baptist Church ("Metropolitan"), in an underlying lawsuit pending in state district Court. Metropolitan filed a counter complaint against Aetna seeking a declaratory judgment that Aetna has a duty to defend and indemnify it in the underlying action. Metropolitan also filed a third party complaint against Frontier Insurance Company of New York ("Frontier") seeking a declaratory judgment that it has a duty to defend and indemnify Metropolitan in the underlying lawsuit, either alone or in conjunction with Aetna. Frontier filed a motion to dismiss Metropolitan's complaint. After considering the pleadings, motions, and the attached exhibits, the Court is of the opinion that a judgment should be entered declaring that Aetna has a duty to defend Metropolitan in the underlying state suit, and that the complaint against Frontier should be dismissed.
Joel and Deborah Hoffman filed a complaint in state court against Metropolitan, Mr. Hoffman's former employer, alleging that Metropolitan negligently misrepresented the terms and benefits of the insurance coverage Mr. Hoffman would receive if he came to work for Metropolitan. Mr. Hoffman left his employment at the Olde Oaks Racquet Club to work as a manager and tennis instructor at the Metropolitan Club, an athletic facility owned by Metropolitan. The Hoffmans' complaint alleges that Metropolitan's principals and agents negligently misrepresented that his medical benefits would be identical to those provided by Olde Oaks.
Mr. Hoffman alleges that he was later terminated from his position at Metropolitan because of a dispute as to his required attendance at the Metropolitan Baptist Church. He informed Metropolitan that he intended to continue his medical coverage through the Consolidated Omnibus Reconciliation Act (COBRA) provisions of the policy because his wife was pregnant at the time. Metropolitan agreed to pay his premiums for another month, through May 31, 1991. In the meantime, Mrs. Hoffman was hospitalized for complications relating to her pregnancy and for kidney stones. On June 18, 1991, Mr. Hoffman attempted to pay Metropolitan for continued coverage under COBRA for eighteen months. The Hoffmans allege that, on June 19, 1991, Metropolitan informed Mr. Hoffman for the first time that his coverage was not identical to his coverage at Olde Oaks, and that the COBRA provisions did not apply to a nonprofit entity such as the Metropolitan Club, which was owned and operated by a church.
Mr. Hoffman acquired an individual insurance policy to cover his wife's hospitalization, but the insurer rejected her insurance claims as pre-existing conditions. The Hoffnans complaint alleges that Mrs. Hoffman became physically and emotionally ill because of the stress and uncertainty regarding the payment of her medical bills and whether she could continue to receive treatment for her medical conditions. Mrs. Hoffman allegedly suffered mental anguish and accompanying physical manifestations, which included repeated hospitalization for premature labor and related urinary and kidney conditions, loss of sleep, clinical anxiety, and depression. Mr. Hoffman claims to have suffered mental anguish as well due to his wife's condition and that of his unborn child, resulting in the loss of sleep, weight loss, and clinical anxiety.
Metropolitan notified Aetna of the Hoffmans' suit against it, and requested that Aetna provide a defense. Aetna refused, and filed this suit in federal court seeking a declaratory judgment that it has no duty to defend or indemnify Metropolitan. The parties agree that the action is properly before the Court on the basis of federal diversity jurisdiction.
During Mr. Hoffman's tenure at Metropolitan, the club was insured by two different insurance carriers. From June 14, 1990 to June 14, 1991, Frontier provided coverage. Metropolitan switched its coverage to Aetna in June of 1991. The Hoffmans' original complaint stated only that Metropolitan informed Mr. Hoffman it had no COBRA coverage "[i]n June, 1991." As a result of the confusion, Metropolitan stated that it joined Frontier in this suit, seeking a defense by either one or both of the insurance companies. The Hoffmans later amended their complaint to specify that the event occurred on June 19, 1991.
Frontier seeks dismissal from the suit. The Court's reasons for granting its motion to dismiss are discussed infra. Aetna, on the other hand, contends that it has no duty to defend or indemnify Metropolitan because (1) mental anguish is not "bodily injury" under the policy; (2) the umbrella policy has an exclusion for "`bodily injury' consisting of humiliation, mental injury or mental anguish directly or indirectly related to the employment of any person or persons by any insured"; (3) the policy excludes bodily injury for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement; and (4) no "occurrence" took place during the policy period. The Court will address each of these arguments in turn.
Frontier's policy provides coverage for bodily injury or property damage that "occurs during the policy period." Assuming that bodily injuries occurred, they occurred after Frontier's policy expired, and upon the Hoffnans' discovery, on June 19, 1991, that they did not have the health benefits that had been represented to them. The Hoffmans allege that this discovery caused them to suffer severe emotional distress and resulting physical injuries. The undisputed facts show that the alleged injuries were not realized during the policy period.
Because Frontier's policy does not cover injuries occurring outside of the policy period, it has no duty to defend or indemnify Metropolitan and is entitled to a dismissal of Metropolitan's claims against it.
Next, the Court is required to determine whether the Aetna policy covers bodily injury that occurs during the policy period as a result of a negligent misrepresentation. The policy applies to "bodily injury" or "property damage" "(a) [o]ccurring during the policy period; and (b) [c]aused by an `occurrence.'" The Court must resolve whether "bodily injury" in fact occurred, whether it occurred during the policy period, and whether it was caused by an "occurrence." Aetna's duty to defend turns on the potentiality that coverage exists as opposed to whether coverage, from a liability perspective, exists.
In determining the duty of an insurance company to defend its insured in a lawsuit, Texas courts generally look only to the allegations in the complaint and the terms of the insurance contract. Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 393 (5th Cir.1995); see also Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973); State Farm Fire & Cas. Co. v. Wade, 827 S.W.2d 448, 451 (Tex.App. — Corpus Christi 1992, writ denied). Under the "eight comers" rule or "complaint allegation" rule, the court takes the allegations in the underlying complaint as true, and the duty to defend arises if the complaint asserts a claim that is facially within the terms of the policy's coverage. Lafarge, 61 F.3d at 393 (citing Gulf Chemical Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d 365, 369 (5th Cir.1993)). "The duty to defend arises if the factual allegations against the insured, when fairly and reasonably construed, state a cause of action potentially covered by the policy." Cullen/Frost Bank v. Commonwealth Lloyd's Ins. Co., 852 S.W.2d 252, 255 (Tex.App. — Dallas 1993, writ denied) (citing Norvell Wilder Supply Co. v. Employers Cas. Co., 640 S.W.2d 338, 339, 340 (Tex.App. — Beaumont 1982, writ dism'd)). The duty to defend does not depend on what the facts are, but on what they are alleged to be. Argonaut, 500 S.W.2d at 636.
The Hoffmans' complaint alleges that they suffered mental anguish accompanied by physical manifestations, including pregnancy complications, kidney problems, loss of sleep, clinical anxiety, and depression. Aetna claims that mental anguish is not "bodily injury" covered by the policy. However, Aetna's policy expressly covers "mental anguish." The umbrella policy defines "bodily injury" as "bodily injury, shock, fright, mental injury, disability, mental anguish, humiliation, sickness or disease sustained by a person, including death resulting from any of these at any time."
This Court need not enter the debate over whether "pure" mental anguish unaccompanied by physical manifestations constitutes "bodily injury." Compare Travelers Indem. Co. v. Holloway, 17 F.3d 113, 115 (5th Cir.1994) () with Trinity Universal Ins. Co. v. Cowan, 906 S.W.2d 124, 130 (Tex.App. — Austin 1995, writ granted) (). Aetna's policy clearly covers "mental anguish" as a form of bodily injury. In addition, the complaint...
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