Cousins Submarines, Inc. v. Fed. Ins. Co.
| Decision Date | 08 February 2013 |
| Docket Number | Case No. 12-CV-387-JPS |
| Parties | COUSINS SUBMARINES, INC. and COUSINS SUBS SYSTEMS, INC., Plaintiffs, v. FEDERAL INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Wisconsin |
The plaintiffs, Cousins Submarines, Inc., and Cousins Subs Systems, Inc. (collectively, "Cousins"), initially filed this suit on March 19, 2012, in Waukesha County Circuit Court. . The defendant, Federal Insurance Company ("Federal"), removed the case to this Court on April 27, 2012, pursuant to 28 U.S.C. §§ 1332(a) and 1441. (Docket #1). In this suit, which stems from Federal's refusal to cover a settlement reached by Cousins in a prior franchise dispute, Cousins seeks compensatory and declaratory relief against Federal. .
On December 18, 2012, the parties filed cross-motions for summary judgment. (Docket #22, #30).1 The summary judgment motions are now fully briefed, and the Court may address them. (Docket #23, #34, #37, #41, #53, #54). In doing so, the Court will first set forth the background of the case, after which it will discuss the summary judgment standard and general lawapplicable to this case, before turning to the more substantive issues that it must decide.
1. BACKGROUND
This matter's background is rather intricate. There are multiple individuals and businesses involved; there are a number of contracts between those entities; and there was a prior action in federal court, which made it all the way to the summary judgment stage before being settled. Therefore, the Court sets forth the facts of this matter in the most distilled way possible, with brief subsection headings intended to provide an overview of the most relevant facts underlying this suit.2
The primary parties involved at this juncture are Federal and Cousins. Federal is an insurance provider. Cousins, of course, is a chain of sandwich shops, with franchise locations across the country.
1.1 Insurance Contract Between Federal and Cousins
In connection with its operations, Cousins acquired an insurance policy through Federal for the period November 1, 2008, through November 1, 2009. (SF ¶ 1).3 As a part of that policy, Cousins purchased Corporate Liability Coverage, which supplements the standard Directors & Officers Liability Coverage. (SF ¶¶ 2, 4; Policy , Directors & Officers Liability Coverage Section, at 1-2). The Directors & Officers portionprovides coverage for "wrongful acts" committed by Cousins' individual directors and officers, whereas the Corporate portion covers any "wrongful acts" committed by Cousins, itself, as an entity.4 .
1.2 Cousins' Underlying Wrongful Acts
Indeed, that coverage was wisely purchased, as Cousins engaged in activities qualifying as wrongful acts during and before the period of coverage, requiring it to call upon that coverage. In short, Cousins and a number of its representatives enticed—through arguably illegal means—a group of investors to open Cousins franchises in Indiana. See Cousins Subs Systems v. Better Subs Development, Inc., et al., No. 09-CV-336-CNC, Docket #94, at 2-8.
1.3 Prior Action, Cousins Sub Systems v. Better Subs Development, Inc., et al.
That franchise deal fell through, prompting Cousins to file suit against the investors in the Eastern District of Wisconsin, which was assigned to Judge Charles Clevert. See Cousins Subs Systems, No. 09-CV-336-CNC, Docket #1. The investors quickly filed twelve counterclaims against Cousins and its representatives. See Cousins Subs Systems, No. 09-CV-336-CNC, Docket #9.
Shortly thereafter, on August 31, 2009, Federal wrote a letter to Cousins, informing Cousins that Federal would not provide coverage for any award against Cousins stemming from those counterclaims. (SF ¶ 10; Letter, 8/31/09 (Docket #35, Ex. D)). In that letter, Federal stated that it viewed thelosses as being excluded from coverage under Exclusions (C)(2) and (C)(8)5 of the insurance policy. (Letter, 8/31/09, at 3-4). Put simply, Federal argued—and continues to maintain this position in the matter at hand6 —that Cousins' activities all resulted from contracts or unfair trade practices, and are thus excluded from coverage by Exclusions (C)(2) and (C)(8), respectively. (Letter, 8/31/09, at 3-4). Despite declining to cover any losses,Federal agreed to pay for some of the defense costs under a separate clause of Cousins' policy, as the prior action, including the counterclaims against Cousins, progressed. (Letter, 8/31/09, at 4).
The action did, indeed, progress, and on September 30, 2011, Judge Clevert issued a summary judgment opinion. Cousins Subs Systems, No. 09-CV-336-CNC, Docket #94. Following Judge Clevert's opinion, Cousins' initial claims against the investors remained; more importantly, though, Judge Clevert declined to grant summary judgment on six of the investors' counterclaims, specifically the following:
Cousins Subs Systems, No. 09-CV-336-CNC, Docket #94, at 10-27; (FF ¶¶ 47-50; Cousins Resp. FF ¶¶ 47-50).
Several of Cousins' and the investors' claims remaining, the litigation in the prior action continued onward. Federal continued to provide defense costs to Cousins after the issuance of that opinion, but persisted in asserting its denial of coverage for any losses. (FF ¶¶ 68, 70-73; Cousins Resp. FF ¶¶ 68, 70-73). Federal offered to contribute $20,000 to a potentialsettlement, but declined to offer any additional coverage. (FF ¶ 66; Cousins Resp. FF ¶ 66).
1.4 Cousins' Unilateral Settlement With Investors
Despite Federal's continued opposition to coverage, Cousins unilaterally decided to settle the remaining claims on the eve of trial. (CF ¶¶ 15, 16, 17; Federal Resp. CF ¶¶ 15, 16, 17; FF ¶¶ 75, 76, 77; Cousins Resp. FF ¶¶ 75, 76, 77). That settlement required Cousins to dismiss its claims against the investors and further to pay $750,000 to the investors, in exchange for dismissal of the six counterclaims remaining against Cousins. (FF ¶ 76; Cousins Resp. FF ¶ 76; CF ¶ 16; Federal Resp. CF ¶ 16). Cousins paid the full $750,000 using its own funds, without any contribution from Federal. (CF ¶ 17, 18; Federal Resp. CF ¶ 17, 18).
Thereafter, having funded the settlement on its own, Cousins brought the suit at hand in Waukesha County Circuit Court. (Docket #1). In it, Cousins alleges that Federal breached its insurance contract with Cousins by denying coverage, and accordingly Cousins seeks damages for breach of contract and bad faith, as well as a declaratory judgment that Federal breached its obligations under the contract. (Compl. ¶¶ 21-38).
Federal removed the case to this Court on diversity grounds, and—the parties' mediation having been unsuccessful—the Court has before it the parties' cross-motions for summary judgment. Those motions are now fully briefed, and the matter is ripe for review.
The parties do not dispute any of the above-discussed factual background, and also agree that Cousins' underlying conduct toward the investors qualifies as a wrongful act for purposes of the policy; thus, Federalwould be required to cover any losses resulting from that conduct unless an exclusion were to apply. (CF ¶ 1; Federal Resp. CF ¶ 1). And that is the broad legal issue, here: whether either Exclusion (C)(2) or (C)(8) applies to Cousins' conduct such that it bars Federal's coverage of Cousins' resulting losses.
With the parties in agreement on the entirety of the material facts, the Court may appropriately evaluate that legal issue at this summary judgment stage. See, e.g., Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp, 475 U.S. 574 (1986).
The Court's analysis will be governed by Wisconsin law, given that the policy was issued in the state of Wisconsin, to Cousins (a Wisconsin corporation), and with litigation in the prior action having taken place in the Eastern District of Wisconsin. See, e.g., Sentry Ins. Co. v. Novelty Inc., No. 09-CV-355-SLC, 2009 WL 5087688, at *4-*5 (W.D. Wis. Dec. 17, 2009); Love v. Blue Cross & Blue Shield of Georgia, Inc., 439 F. Supp. 2d 891, 892-93 (E.D. Wis. 2006); State Farm Mut. Auto Ins. Co v. Gillette, 2002 WI 31 ¶ 26, 251 Wis. 2d 561, 641 N.W.2d 662; see also Heil Co. v. Hartford Accident & Indem. Co., 937 F. Supp. 1355, 1360 (E.D. Wis. 1996) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).
Under Wisconsin law, the interpretation of an insurance policy is appropriately decided at the summary judgment phase of litigation. Rhein Bldg. Co. v. Gehrt, 21 F. Supp. 2d 896, 899 (E.D. Wis. 1998); Heil Co., 937 F. Supp. at 1360-61 (citing United States Fire Ins. Co. v. Good Humor Corp., 173 Wis. 2d 804, 819, 496 N.W.2d 730, 735 (Ct. App. 1993); Raby v. Moe, 153 Wis.2d 101, 109, 450 N.W.2d 452, 454 (1990)); American Family Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶ 23, 268 Wis. 2d 16, 673 N.W.2d 65. TheCourt must first interpret the policy's plain language, giving the policy's words their common and ordinary meaning as would be understood by a reasonable person in the position of the insured. Froedtert Memorial Lutheran Hospital, Inc. v. National States Ins. Co., 2009 WI 33, ¶ 41, 317 Wis.2d 54, 765 N.W.2d 251; American Girl, Inc., 2004 WI 2, at ¶ 23; Society Ins. v. Capitol Indem. Corp., ...
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