Capitol Indem. Corp. v. Wright

• Decision Date: 29 September 2004
• Docket Number: No. CV-S-1602LRHLRL.,CV-S-1602LRHLRL.
• Citation: 341 F.Supp.2d 1152
• Parties: CAPITOL INDEMNITY CORPORATION, Plaintiff, v. William WRIGHT, et al., Defendants.
• Court: U.S. District Court — District of Nevada

341 F.Supp.2d 1152

CAPITOL INDEMNITY CORPORATION, Plaintiff, v. William WRIGHT, et al., Defendants.

No. CV-S-1602LRHLRL.

United States District Court, D. Nevada.

September 29, 2004.

James Silvestri, Pyatt & Silvestri, Chtd., Las Vegas, NV, for Plaintiff.

Robert Kossack, Kossack Law Offices, Terry Coffing, Marquis & Aurbach, Robert Kossack, Kossack Law Offices, Las Vegas, NV, for Defendant.

ORDER

HICKS, District Judge.

I. INTRODUCTION

This declaratory judgment action involves coverage questions arising out of the defense of a tort action¹ (hereinafter "Underlying Action") in the state District Court, in Clark County, Nevada. This action was brought by Capitol Indemnity Corporation ("Plaintiff" or "Insurer") for a declaration of its liability under a policy of insurance (the "Policy") issued to the named insured, EQUITY ENTERPRISES d/b/a The OakLeaf, to cover it for certain risks attendant in operating a group home facility.

Pending before the Court is Defendant Joseph Forte's Motion to Dismiss filed pursuant to Fed.R.Civ.P. 12(b)(6), or, in the alternative, Motion for Summary Judgment (Docket No. 7) filed pursuant to Fed.R.Civ.P. 56(c). For the reasons set forth below, the Defendant's Motion for Summary Judgment (Docket No. 7) will be granted in part.

II. BACKGROUND FACTS

The background facts of this action are disturbing, to say the least. In short, Joseph Forte filed a complaint, by and through the Clark County Public Administrator, for damages in state court against the insured, Equity Enterprises as well as other associated parties. Forte alleges that Equity Enterprises, Inc., owned and operated a group home called "The Oakleaf" during all times relevant to the Underlying Action. Joseph Forte was a resident at The Oakleaf. While Joseph Forte resided at The OakLeaf facility, he was in his mid 80s and allegedly suffered from diminished mental faculties, including dementia and Alzheimer's Disease. Equity Enterprises bought a commercial general liability Policy from the Plaintiff Capitol Indemnity Corporation for The OakLeaf facility. Defendant Equity Enterprises retained Senior Connections, LLC to manage The OakLeaf facility for Equity Enterprises. Richard A. Smith was the principal member of Senior Connections.

During Forte's stay at The OakLeaf, Richard Smith forged Forte's signature on a document purporting to authorize Nevada State Bank to allow Richard Smith to be a signatory on all of Mr. Forte's bank accounts. Richard Smith then withdrew the sum of $452,699.98 from Mr. Forte's bank accounts. Richard Smith deposited the vast majority of these funds in the bank account of Senior Connections, LLC. Eventually, the conversion of Mr. Forte's substantial wealth was discovered. Richard Smith executed a written confession admitting to this misappropriation of Forte's funds, pleaded guilty, and was convicted of Exploitation of the Elderly in violation of Nev.Rev.Stat. 200.5099, in state court in Clark County, Nevada.

Some procedural history might be helpful at this point. A number of the parties in the Underlying Action filed a Motion to Dismiss Forte's complaint, which the Clark County District Court considered as a Motion for Summary Judgment and granted on November 20, 2001. On November 28, 2001, Forte filed a Motion for Reconsideration, which the court denied on January 4, 2002. On December 17, 2002, Forte appealed the district court's decision to the Nevada Supreme Court. On June 5, 2003, The Nevada Supreme Court reversed the district court's granting of summary judgment as to Equity Enterprises and affirmed as to Foster and Wright.

On February 6, 2003, before the Nevada Supreme Court issued its ruling on the granting of summary judgment as to Equity Enterprises, Joseph Forte died. On February 11, 2003, pursuant to Nev. R. Civ. P. 25, Forte, by and through Clark County Public Administrator Kathleen Buchanan, filed a Suggestion of Death upon the record. On April 16, 2003, Forte filed a Notice of Substitution of Real Party in Interest, substituting Clark County Public Administrator Dan Ahlstrom ("Ahlstrom") for Buchanan, as and for the person and estate of Joseph Forte. On July 2, 2003, Forte, by and through Ahlstrom, filed a Motion to Substitute Representative Parties. It appears from the limited record before this Court, that due to the appeal pending before the Nevada Supreme Court, no further action appears to have been taken.

On December 22, 2003, while Forte's appeal was pending, Plaintiff Capitol Indemnity Corporation filed the instant action for Declaratory Judgment. Plaintiff properly served the complaint on all named Defendants.

In the instant action, Plaintiff named Joseph Forte, by and through Clark County Public Administrator Kathleen Buchanan, as a Defendant. However, it is apparent that Mr. Forte was deceased at the time Plaintiff filed this action. Nevertheless, acceptance of service of the summons and complaint was acknowledged on behalf of Joseph Forte by the Clark County Public Guardian. It appears that the confusion over who was representing the interests of the late Mr. Forte was brought about by the Underlying Action being stayed while the appeal to the Nevada Supreme Court was pending. The Clark County Public Administrator Dan Ahlstrom, as represented by his counsel of record, Nursing Home Justice Center, is the proper party representing the interests of Joseph Forte's estate before this Court. The Court hereby substitutes him accordingly.

III. STANDARD OF REVIEW

Defendant Forte has filed a Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6), or, in the alternative, Motion for Summary Judgment (Docket No. 7) pursuant to Fed.R.Civ.P. 56(c). A federal district court must convert a 12(b)(6) motion to one for summary judgment under Rule 56 when the parties submit, and the court does not reject, material beyond the pleadings. Fed.R.Civ.P. 12(b)(6); Portland Retail Druggists Association v. Kaiser Foundation Health Plan, 662 F.2d 641, 645 (9th Cir.1981); Fernandez v. GE Capital Mortgage Services, Inc., 227 B.R. 174, 180 (9th Cir.BAP 1998). As the Court has relied on the materials submitted beyond the pleadings, the Court will decide the Defendant's motion as a motion for summary judgment.

A motion for summary judgment is a procedure that terminates, without a trial, actions in which "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A summary judgment motion may be made in reliance on the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any." Id.

The movant is entitled to summary judgment if the nonmoving party, who bears the burden of persuasion, fails to designate" `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)(quoting Fed.R.Civ.P. 56(e)). Thus, to preclude a grant of summary judgment, the nonmoving party must set forth "`specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)(quoting Fed.R.Civ.P. 56). The substantive law defines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All justifiable inferences must be viewed in the light most favorable to the nonmoving party. County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir.2001) (citing Zenith Radio Corp., 475 U.S. at 587, 106 S.Ct. 1348).

Although the nonmoving party has the burden of persuasion, the party moving for summary judgment bears the initial burden of showing the absence of a genuine issue of material fact. Metro Indust., Inc. v. Sammi Corp., 82 F.3d 839, 847 (9th Cir.1996). That burden is met by showing an absence of evidence to support the nonmoving party's case. Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. The burden then shifts to the nonmoving party to set forth specific facts demonstrating that there is a genuine issue for trial. Liberty Lobby, Inc., 477 U.S. at 250, 106 S.Ct. 2505. In meeting this burden, the nonmoving party must go "beyond the pleadings and by its own evidence present specific facts showing that there is a genuine issue for trial." Far Out Prod. v. Oskar, 247 F.3d 986, 997 (9th Cir.2001)(citing Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir.1996)) (quotations omitted).

IV. DISCUSSION OF POLICY COVERAGE

The basic question in need of determination in this action is the Plaintiff's liability, if any, under the Policy it issued to Equity Enterprises. The Underlying Action alleges five causes of action, which include: (1) breach of contract, (2) fraud, (3) conversion, (4) negligent supervision and retention, and (5) negligence. However, Defendant Forte concedes that for purposes of this action, the relevant claims by Forte in the Underlying Action are (1) breach of contract, (2) negligent supervision and retention, and (3) negligence.

Naturally, as jurisdiction is invoked upon diversity of citizenship in this case, this Court is bound to apply the substantive law of the state in which it sits. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Strassberg v. New England Mutual Life Ins. Co., 575 F.2d 1262 (9th Cir.1978). Thus, Nevada law controls.

Nevada courts apply fundamental tenets of insurance law to the interpretation of insurance contract language. Under Nevada law, an insurance policy is a contract of adhesion. Harvey's Wagon Wheel v. MacSween, 96 Nev. 215, 219-20, 606 P.2d 1095, 1098 (1980). As such, a policy should be interpreted broadly, affording the greatest possible coverage to the insured. Id. Ambiguity in an insurance contract must be interpreted against the drafting party and in favor of the insured. Neumann v. Standard Fire Ins., 101 Nev. 206, 209, 699 P.2d 101, 104 (1985), citing ...