Coulter v. CIGNA Property & Cas. Companies

Decision Date14 August 1996
Docket NumberNo. C 94-3070-MWB.,C 94-3070-MWB.
Citation934 F. Supp. 1101
PartiesRobert J. COULTER, Plaintiff, v. CIGNA PROPERTY & CASUALTY COMPANIES, Defendant.
CourtU.S. District Court — Northern District of Iowa

Robert K. DuPuy, LaMarca & Landry, P.C., West Des Moines, Iowa, for Plaintiff Robert J. Coulter.

Joseph M. Barron, Peddicord, Wharton, Thune, and Spencer, P.C., Des Moines, Iowa, for Defendant CIGNA Property and Casualty Companies.

MEMORANDUM OPINION AND ORDER REGARDING PARTIES' JOINT MOTION FOR PARTIAL SUMMARY JUDGMENT

BENNETT, District Judge.

                                                TABLE OF CONTENTS
                  I.  INTRODUCTION AND BACKGROUND .................................... 1103
                      A. Coulter's Actions As Executor ............................... 1103
                      B. The Underlying Lawsuit ...................................... 1104
                      C. CIGNA's Response To The Underlying Lawsuit .................. 1105
                      D. The Present Lawsuit ......................................... 1105
                 II.  STANDARDS FOR SUMMARY JUDGMENT ................................. 1106
                III.  FACTUAL BACKGROUND ............................................. 1107
                      A. Coulter's Actions Involving The Estates ..................... 1107
                      B. Eloise And Susan Kaster As Executors ........................ 1110
                      C. Coulter's Insurance Policy .................................. 1111
                 IV.  LEGAL ANALYSIS ................................................. 1111
                      A. General Insurance Principles ................................ 1113
                         1. Insurer's duty to defend ................................. 1113
                         2. Ambiguity of terms in an insurance policy ................ 1113
                      B. "Property Damage" Under The CIGNA Policy .................... 1115
                         1. Requirement of physical damage or destruction ............ 1116
                            a. Iowa law .............................................. 1116
                            b. Other jurisdictions ................................... 1118
                
                                   i. Ehlers and Dixon ............................... 1118
                                  ii. American Home .................................. 1119
                                 iii. Analysis of CGL language ....................... 1120
                                 iv.  Analysis of Coulter's policy with CIGNA ........ 1121
                         2. Loss of use of tangible property ......................... 1122
                  V.  CONCLUSION ..................................................... 1124
                

This joint motion for partial summary judgment requires the court's analysis of the definition of "property damage" in a homeowners insurance policy and a determination of whether the underlying lawsuit against the plaintiff alleges physical damage or destruction to tangible property. In the underlying lawsuit, beneficiaries of two estates for which plaintiff served as executor alleged plaintiff had breached his common law, statutory, and fiduciary duties to them by mishandling and depleting the assets of these estates. Plaintiff asserts that the damages asserted in the underlying lawsuit are loss of use damages to tangible property which are covered by his homeowner's insurance policy issued by defendant as "property damage." Defendant asserts that the definition in defendant's policy of "property damage" requires physical damage or destruction to tangible property in order to recover loss of use damages. Furthermore, defendant argues that even if there is no physical damage requirement in order to recover loss of use damages, the underlying lawsuit fails to allege a loss of use to tangible property.

I. INTRODUCTION AND BACKGROUND

This lawsuit involves a dispute between plaintiff insured, Robert J. Coulter, and defendant insurance company, CIGNA Property and Casualty Companies, in which Coulter contends that his homeowners liability policy should provide insurance coverage for property damage caused by his breach of fiduciary duty as executor of two estates. The genesis of this dispute is Coulter's breach of his fiduciary duty to the sole beneficiaries of those estates. Before examining the intricacies of this lawsuit, it is helpful to review the actions of Coulter and his involvement with those estates.

A. Coulter's Actions As Executor

Coulter was a lifelong friend and business associate of James Kaster. Kaster and his mother, Merle Kaster, passed away within a few months of each other in 1980; in both of their wills, they had appointed Coulter as executor. Eloise and Susan Kaster were the sole beneficiaries of the wills. After his appointment, Coulter hired an attorney, William Miles, to represent the estates.

At the time of his death, James Kaster and his insurance agency in Corydon, Iowa, were indebted both to Corydon State Bank and to Security Savings Bank of Williamsburg. At that time, Coulter was president of Security Savings Bank, and Miles was a controlling shareholder of Corydon State Bank. During his brief tenure as executor, Coulter authorized the use of the insurance agency's cash income and the cash assets of James Kaster's estate to pay all of Kaster's debts to Security Savings Bank and a significant portion of Kaster's debt to Corydon State Bank. After serving as executor for both wills for less than a year, Coulter resigned as executor of both estates in July 1981 and secured the appointment of Eloise and Susan Kaster ("the Kasters"), the sole beneficiaries under both wills, as successor executors of the James and Merle Kaster estates, respectively.

Miles continued to deplete the money remaining in the Kaster estates for the benefit of his bank and failed to take any meaningful steps toward closing the estates for most of the next decade after Coulter's resignation. At the close of 1990, Miles withdrew as counsel to the estates under pressure from the court and the Kasters, and Don Clark of Creston, Iowa, was appointed as both attorney and successor executor of the estates by the Probate Court on January 3, 1991. Clark completed the work on the estates, and they were finally closed on July 30, 1993. The net value of the estates had been reduced by seventy-five percent during the time the estate was in probate.

B. The Underlying Lawsuit

On June 6, 1994, the Kasters filed a lawsuit against Coulter and Miles, alleging that they had breached their common law, statutory, and fiduciary duties to the Kasters. Regarding the estate of James Kaster,1 the Kasters claimed they had "lost much of the value of the estate of James Kaster, and interest income that could have been derived therefrom, have incurred legal fees and expenses paid to Coulter and Miles, and to other attorneys in attempting to settle the estate, have and will incur additional legal fees and expenses in this action resulting from Coulter and Miles' breach, have incurred and will incur liability for interest and penalties on additional taxes, and attorney's fees for the preparation of delinquent federal and state tax returns, have suffered emotional pain and anguish at the loss of their inheritance resulting from Coulter and Miles' breach." (Joint Statement of Facts, Exhibit 33, pp. 33-34). The Kasters alleged the same damages on behalf of the estate of Merle Kaster as well.2 The malpractice lawsuit against Miles was settled for an amount equal to twice the "per claim" limits of Miles' professional liability policy.

C. CIGNA's Response To The Underlying Lawsuit

Robert Coulter had a homeowners/general liability insurance policy issued by CIGNA for the period from October 31, 1980, through October 31, 1982, which provided "occurrence" coverage, as opposed to "claims made" coverage. Coulter's attorney at that time placed CIGNA on notice of the claims of the estates of James and Merle Kaster on March 14, 1994, and requested defense and indemnity of the claims. On May 13, 1994, CIGNA issued a letter denying coverage and declining to defend Coulter.

With the permission of Coulter's counsel, counsel for the Kasters responded to CIGNA's May 13, 1994 letter, seeking CIGNA's reconsideration of its decision and inviting CIGNA to participate in a scheduled mediation on July 7, 1994. Following the mediation, Coulter, through his attorney, entered into settlement negotiations with counsel for the estates. On July 18, 1994, the Kasters' attorneys again wrote to CIGNA, suggesting it participate in the settlement negotiations. Finally, on July 18, 1994, CIGNA responded to the letters of the Kasters, reiterating its declination of coverage and refusing to participate in settlement negotiations. However, also in that letter, CIGNA indicated that the attorneys should proceed with their case "as they see fit with their clients." On August 30, 1994, the Kasters entered into a settlement agreement with Coulter in which Coulter paid $21,000.00 in partial settlement and assigned his rights under his CIGNA policy to the Kasters as additional consideration for the release provided.

D. The Present Lawsuit

On September 23, 1994, Coulter filed suit against CIGNA, requesting a declaration of "the rights and other legal relations between the parties with regard to the insurance contract issued by CIGNA to Coulter and the claims of the executors and heirs of the estates of James and Merle Kaster regarding the liability of Coulter under that insurance policy/contract." (Complaint ¶ 21.). Specifically, Coulter cited three issues for the court's consideration: (1) whether the loss of, and the loss of use of "tangible property" of the estates of James and Merle Kaster was included in the claims of the estates; (2) whether the policy exclusion for legal responsibility assumed under an unwritten contract or agreement can exclude coverage under a written agreement to accept an appointment as an executor of an estate; and (3) whether the acts and omissions of Coulter constituted negligence and/or breach of fiduciary duty which proximately caused damage to the estates of James and Merle Kaster. Furthermore, Coulter also alleged that CIGNA acted in bad faith in refusing to defend...

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