All American Ins. Co. v. Burns

• Citation: 971 F.2d 438
• Decision Date: 04 May 1992
• Docket Number: Nos. 87-1202,87-1321,s. 87-1202
• Parties: ALL AMERICAN INSURANCE CO., Plaintiff, v. David L. BURNS; James O. Wilde, individually and as father and next friend of Jamie Janice Wilde; Larry Erbe, individually and as father and next friend of Brandy Erbe, a minor; First Assembly of God Church, Inc., an Oklahoma corporation; George Denny, Defendants, Leroy Hall, Defendant-Cross-Claimant-Appellant. and Floyd MARTIN and Ralph Morgan, Defendants-Appellants, v. PREFERRED RISK MUTUAL INSURANCE COMPANY, Defendant-Cross-Claim Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 438

971 F.2d 438

ALL AMERICAN INSURANCE CO., Plaintiff, v. David L. BURNS; James O. Wilde, individually and as father and next friend of Jamie Janice Wilde; Larry Erbe,

individually and as father and next friend of Brandy Erbe, a

minor; First Assembly of God Church, Inc., an Oklahoma

corporation; George Denny, Defendants,

Leroy Hall, Defendant-Cross-Claimant-Appellant.

and

Floyd MARTIN and Ralph Morgan, Defendants-Appellants, v. PREFERRED RISK MUTUAL INSURANCE COMPANY, Defendant-Cross-Claim Defendant-Appellee.

Nos. 87-1202, 87-1321.

United States Court of Appeals Tenth Circuit.

May 4, 1992.

Joseph F. Clark, Jr. (Roger R. Williams, with him, on the brief), Williams, Clark, Baker, Howard & Earl, P.A., Tulsa, Okl., for defendants-appellants Floyd Martin and Ralph Morgan.

Walter D. Haskins, of Thomas, Glass, Atkinson, Haskins, Nellis & Boudreaux, Tulsa, Okl. (Renee J. Harter, on the brief), for defendant-cross-claimant-appellant Leroy Hall.

John H. Tucker, of Rhodes, Hieronymus, Jones, Tucker & Gable, Tulsa, Okl., for defendant-cross-claim defendant-appellee Preferred Risk Mut. Ins. Co.

Before McKAY, Chief Judge, and HOLLOWAY and SEYMOUR, Circuit Judges.

HOLLOWAY, Circuit Judge.

This is an appeal from a summary judgment granting declaratory relief for defendant-appellee Preferred Risk Mutual Insurance Company (Preferred Risk). The judgment determined that there was no duty to defend or indemnify several named insured parties. We feel there is one primary dispositive issue--whether the circumstances of the case were within an exclusion in Preferred Risk's policy for "personal injury arising out of the willful violation of a penal statute ... committed by or with knowledge of [sic] consent of any insured." The district judge held that due to the convictions of a volunteer driver of the insured church's bus on his pleas of guilty to charges of molestation of two girls, the exclusion applied. We agree and accordingly affirm.

I

In June and July 1984, David L. Burns, then a volunteer bus driver for the First Assembly of God Church, Inc., molested and sexually assaulted Jamie Wilde and Brandy Erbe. I R.Doc. 43, at 2; Brief of Appellants at 3; see I R.Doc. 21, Exs. C and E. Burns subsequently was charged in an Oklahoma state district court on two counts of lewd molestation in violation of title 21, section 1123 A(2) of the Oklahoma Statutes. In May 1985, Burns pled guilty to both counts and was sentenced to 20 years' imprisonment with 10 years on each count suspended. The appellants acknowledge that the acts of molestation were committed by Burns on children he was transporting, although they argue that "[i]n committing the criminal acts of lewd molestation upon the children he was transporting, [Burns] was not acting within the scope of his duties as a volunteer bus driver for the church." Brief of Appellants at 11.

In May 1985, civil suits were filed in the state district court for Tulsa County, Oklahoma, by the fathers of the victims, individually and as next friends of their daughters. The suits named as defendants Burns, First Assembly, and several members of the board of directors of First Assembly. The civil actions sought damages from First Assembly and its directors, alleging that they negligently failed to investigate Burns' background or record, and that they were negligent in failing to discharge Burns on learning of his allegedly aberrant behavior. I R.Doc. 21, Exs. A and B.

All American Insurance Company (All American) had a homeowners insurance policy in force with Burns. Burns demanded that All American provide him with a defense in the damage actions as well as indemnification for any liability incurred by him. Brief of Appellants at 4. In August 1985 All American filed a declaratory judgment suit in the United States District Court for the Northern District of Oklahoma seeking a determination that All American owed no duty to defend or indemnify with respect to the state court suits. In the declaratory action, All American relied on a policy provision excluding coverage for intentional acts. The district court found that the exclusion applied, and All American's motion for summary judgment was granted in a judgment separate from that for Preferred Risk. I R.Doc. 47. The ruling for All American was not appealed.

One named defendant in the declaratory judgment action, Leroy Hall, cross-claimed against Preferred Risk alleging that Preferred Risk was obligated to defend and indemnify Hall respecting the state court negligence actions. Preferred Risk denied any obligation to defend or indemnify Hall and itself moved for summary judgment of nonliability to defend or indemnify.

The district court granted Preferred Risk's motion for summary judgment. I R.Doc. 43. The judge's order stated that he had for consideration the motion of Preferred Risk for summary judgment, the motion for summary judgment of defendant Hall, and the motion for summary judgment of defendants Erbe and Wilde, individually and as next friends of their daughters, the victims. All of the motions asked the court to render a declaratory judgment concerning the liability of Preferred Risk to indemnify and defend First Assembly, Hall, Morgan, and Martin against the negligence claims asserted against them by Erbe and Wilde in the Tulsa County district court actions.

In its ruling, the court found that these basic facts were undisputed. Preferred Risk had issued a comprehensive liability policy in January 1984, insuring First Assembly against liability for personal injury and property damage. During June and July 1984, "while serving as the driver of a church vehicle" for First Assembly, Burns sexually molested Wilde and Erbe. I R.Doc. 43, at 2. Subsequently, in May 1985, Burns was convicted of lewd molestation arising out of these acts. The fathers of the girls brought the state court actions alleging, inter alia, that First Assembly and other defendants negligently failed to investigate Burns' background and record.

The court concluded that there was no factual dispute regarding the terms of the policy issued by Preferred Risk to First Assembly. In the "Comprehensive Liability" portion of the policy, Section II, "insured" is defined, in part, as follows:

If the named insured is a religious or educational institution, each of the following is an insured:

(a) any clergyman, councilman, deacon, elder, employee, executive officer, member of the Board of Education, Board of Governors or Board of Trustees, Sunday school superintendant, Sunday school teacher, vestryman, warden, volunteer who is duly appointed or elected; but only while acting in the scope of his duty as such in relation to the named insured;

(b) any church organization authorized or controlled by the named insured; and

(c) any other member of the named insured, if the named insured is unincorporated, who is duly appointed or elected, but only while acting in the scope of his authority as such in relation to the named insured.

I R.Doc. 36, Attach. at 2 of 7.

Further, the district judge noted that the policy contains an exclusion in the "Comprehensive Liability" section stating:

Under this coverage, this policy does not apply:

....

(m) to personal injury arising out of the willful violation of a penal statute or ordinance committed by or with knowledge of [sic] consent of any insured;

Id. at 5 of 7.

Recognizing that a court must liberally construe the insurance contract in favor of the objects to be accomplished, Catts Co. v. Gulf Ins. Co., 723 F.2d 1494, 1500-01 (10th Cir.1983); Dayton Hudson Corp. v. American Mut. Liab. Ins. Co., 621 P.2d 1155, 1158 (Okla.1980), the court here nevertheless concluded that:

The exclusion in the policy for criminal acts clearly states that it does not cover damages for personal injury arising out of the willful violation of a penal statute which was committed by an insured or committed with the consent of an insured. This clause clearly excludes all damages caused by criminal violations from coverage under the policy. Although Defendants Hall, Martin and Morgan have only negligence claims asserted against them, the personal injuries for which these claims are asserted arose out of the willful violation of a penal statute committed by an insured. The fact that these Defendants were "upstream" in the chain of causation, does not bring them within the terms of the policy.

IT IS THEREFORE ORDERED that the motion for summary judgment of Defendant Preferred Risk Mutual Insurance Company is hereby granted, and the motions for summary judgment of Defendant Hall, Erbe, and Wilde are denied, and a declaratory judgment is rendered that Preferred Risk Mutual Insurance Company has no duty to indemnify or defend Leroy Hall under the terms of the policy issued to the First Assembly of God Church.

I R.Doc. 43, at 5. These appeals followed.

II

We focus on the dispositive holding of the district judge that Preferred Risk was entitled to summary judgment on the basis that the policy excluded coverage for the willful violation of a penal statute by, or with the knowledge or consent of, any insured.

In our record are the First Amended Petitions filed in state court by the fathers of the two girls. They allege: negligence by First Assembly and Martin, Morgan, Denny, and Hall in failing to investigate the background habits and the record of Burns; that the defendants became aware of Burns' aberrant behavior but failed to terminate his employment; and that Burns molested and sexually annoyed each girl. I R.Doc. 21, Exs. A and B. Further, the record contains the state court preliminary informations filed against Burns alleging lewd molestation of the girls, who were both under 16 years of age. The informations charged that the offenses were committed by Burns "unlawfully, feloneously, intentionally, designedly and knowingly." Id. at Exs. C and E. The judgment and sentence on the pleas of guilty in each criminal case appears in our record,...