D.E.M. v. Allickson

• Court: North Dakota Supreme Court
• Writing for the Court: NEUMANN; MARING and MESCHKE, JJ., and EVERETT NELS OLSON; EVERETT NELS OLSON, District Judge, sitting in place of SANDSTROM; VANDE WALLE
• Citation: D.E.M. v. Allickson, 555 N.W.2d 596 (N.D. 1996)
• Decision Date: 18 November 1996
• Docket Number: No. 960054,960054
• Parties: D.E.M. and D.J.M., Plaintiffs and Appellees, v. Pastor John L. ALLICKSON and Gustaf Adolph Lutheran Church of Gwinner, North Dakota; and Eastern North Dakota Synod of the Evangelical Lutheran Church of America of Fargo, North Dakota; and the Evangelical Lutheran Church of America of Chicago, Illinois, Defendants, and North Star Insurance Company, aka North Star Mutual Insurance Company, Garnishee and Appellant. Civil

Page 596

555 N.W.2d 596

D.E.M. and D.J.M., Plaintiffs and Appellees, v. Pastor John L. ALLICKSON and Gustaf Adolph Lutheran Church of Gwinner, North Dakota; and Eastern North Dakota Synod of the Evangelical Lutheran Church of America of Fargo, North Dakota; and the Evangelical Lutheran Church of America of Chicago, Illinois, Defendants and North Star Insurance Company, aka North Star Mutual Insurance Company, Garnishee and Appellant.

Civil No. 960054.

Supreme Court of North Dakota.

Nov. 18, 1996.

Stephen F. Rufer (argued), of Pemberton, Sorlie, Sefkow, Rufer & Kershner, Fergus Falls, MN and Edward F. Klinger (argued), of Gunhus, Grinnell, Klinger, Swenson & Guy, Fargo, for plaintiffs and appellees.

Steven L. Marquart (argued), of Cahill & Marquart, Moorhead, MN, for garnishee and appellant.

NEUMANN, Justice.

North Star Insurance Company [North Star] appeals from a district court judgment concluding North Star had a duty to defend and indemnify its insured, Gustaf Adolf Lutheran Church of Gwinner [Church], in a tort action for pastoral sexual misconduct. We affirm.

Pastor John Allickson served as pastor of the Church. D.E.M. ["Donna Martin," a pseudonym] and her husband, D.J.M. ["David Martin," a pseudonym], were members of the Church. In late 1987, Donna experienced serious medical problems. Donna claimed that, when she consulted Pastor Allickson for spiritual guidance and counseling, he made sexual advances toward her, culminating in a sexual relationship that continued until 1989.

At all relevant times, the Church was insured by North Star. The coverage section of the policy provides:

"I. The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

"bodily injury or

"property damage...."

The policy defines "bodily injury":

" 'bodily injury' means bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom...."

On March 16, 1991, the Church advised North Star of a possible claim based upon sexual misconduct by Pastor Allickson. By letter dated March 19, 1991, North Star's Assistant Claims Manager, Beth Sneller, responded:

"We received your letter of March 16, 1991 advising that your congregation may be involved in a lawsuit, which if filed will involve a sexual misconduct charge on the part of a former pastor of your congregation.

"In your letter you question what type of coverage might be provided under SMP-6014 for this suit, including the provision of legal defense for a suit brought against you. We must advise that this policy would provide no coverage for a suit charging sexual misconduct of a pastor. You do not give a date of loss as to when this alleged misconduct took place; but the date would not be relevant. The policy your church has had with our company since 10-1-85 did not at any time provide coverage for this type of claim.

"Your liability coverage under our policy provides coverage for all sums which you become legally obligated to pay as damages because of bodily injury, property damage, or personal and advertising injury. It provides no coverage for damages as a result of sexual misconduct or for your defense if a lawsuit is brought because of such charges."

The policy did not, in fact, include any exclusion for sexual misconduct claims.

In June 1991, the Martins sued Allickson, the Church, the Evangelical Lutheran Church of America [ELCA], and the Eastern North Dakota Synod of the ELCA [Synod] for damages for Pastor Allickson's alleged sexual exploitation of Donna. They alleged claims based upon negligent supervision and respondeat superior against the Church. The complaint also alleged, among other things, that the Martins had suffered "great pain of mind and body" and had incurred "medical and psychological treatment and therapy expenses."

The Church forwarded a copy of the complaint to North Star, and the Church's attorney wrote to North Star asking it to reconsider its determination the policy did not provide coverage "for any allegations relating to sexual misconduct of a pastor." Al Anderson, North Star's Vice President, responded:

"After reviewing the summons and complaint, it is clear that your policy will not be in a position to respond either for defense or indemnity with respect to this claim. In reviewing our file, I note that Beth Sneller, Asst. Casualty Claims Manager, has previously corresponded with you to point out that there is no coverage under your policy for this type of claim.

* * * * * *

"If you have any questions about any aspect of the coverage of your policy as it relates to this type of occurrence, we would be happy to discuss that with either you or your attorney."

On September 3, 1992, the Church's attorney again wrote to North Star asking it to reconsider its denial of coverage, suggesting North Star take over defense of the action with a reservation of rights. The Church's attorney included a copy of a settlement demand letter from the Martins' attorney, which indicated their claims sought damages for, among other things, "physical and emotional treatment," travel expenses to "health care providers such as ... clinics and hospitals," and long-term "physical effects." North Star responded: "we see nothing in the contents of either your letter ... or [the settlement] letter ... that would relate to coverage under the policy."

After extensive discovery in the underlying action, the trial court dismissed the respondeat superior claims against the Church, the Synod, and the ELCA, and the Martins settled their remaining claims against the Synod and the ELCA. In February 1994 the Church and the Martins entered into a Miller-Shugart ¹ settlement agreement, whereby the Church stipulated to entry of judgment against it for $300,000, and the Martins agreed to enforce the judgment only against the proceeds of the Church's policy with North Star. The Martins' attorney notified North Star of the settlement by letter dated February 18, 1994.

On May 19, 1994, the Martins served a garnishment summons and notice upon North Star, advising that judgment had been entered upon the Miller-Shugart stipulation. In its garnishment disclosure, filed June 9, 1994, North Star for the first time asserted coverage and defense of the claim was being denied because it had not been advised a claim for bodily injury was being made:

"At no time before the stipulation for judgment was signed on February 11, 1994, did Gustaf Adolph Lutheran Church or anyone else ever notify the Garnishee that any claim for 'bodily injury' was being made."

On July 29, 1994, the Martins served a supplemental complaint upon North Star, seeking judgment of $300,000 plus costs. In its answer, North Star alleged that the Martins' complaint against the Church did not allege bodily injury, again asserting that "at no time before the Stipulation for Judgment was signed ... did [the Church] or anyone else ever notify [North Star] that any claim for 'bodily injury' was being made," and that the settlement was unreasonable.

The trial court granted partial summary judgment determining the allegations in the original complaint were sufficient as a matter of law to allege "bodily injury," and North Star therefore had a duty to defend and indemnify against the claim. Trial was held on the reasonableness of the claim, and the trial court found the settlement was reasonable and enforceable. Judgment was entered against North Star for the amount of the settlement plus costs, and North Star appealed.

I

North Star asserts the trial court erred in concluding North Star had notice the Martins made claims for "bodily injury."

North Star does not assert Donna Martin did not suffer a compensable "bodily injury" under the policy. Nor does North Star argue that "bodily injury" does not include emotional or psychological injuries which have physical manifestations. ² Instead, North Star argues only that, although Donna's claims would have been covered, North Star was not put on notice a "bodily injury" was claimed. We find it unnecessary to reach that issue because we conclude North Star is estopped from raising insufficiency of notice as a defense to coverage and duty to defend under its policy.

Generally, an insurer which denies liability on specified grounds may not subsequently attempt to deny liability on different grounds:

"Where an insurance company denies liability, asserts a defense, or refuses to pay a loss on a specified ground, it waives, or is estopped to assert, other grounds relieving it from liability of which it had full knowledge where insured has acted on its position as announced and suffered resultant detriment, or, as the rule is sometimes more broadly stated, when one specific ground of forfeiture is urged against a policy of insurance, and the validity thereof denied on that ground alone, all other grounds are waived."

46 C.J.S. Insurance § 821 (1993) (footnote omitted); see also 44 Am.Jur.2d Insurance § 1665 (1982); 16C Appleman, Insurance Law and Practice § 9260 (1981).

The rule has been widely followed. See, e.g., J.C. Wyckoff & Associates, Inc. v. Standard Fire Insurance Co., 936 F.2d 1474, 1489 (6th Cir.1991) (applying Michigan law); First Alabama Bank v. First State Insurance Co., 899 F.2d 1045, 1063 (11th Cir.1990) (applying Alabama law); Luria Brothers & Co. v. Alliance Assurance Co., 780 F.2d 1082, 1090 (2nd Cir.1986) (applying New York law); Dillingham Corp. v. Employers Mutual Liability Insurance Co., 503 F.2d 1181, 1185 (9th Cir.1974) (applying Oregon law); John Hancock Mutual Life Insurance Co. v. Tuggle, 303 F.2d 113, 117 (10th Cir.1962) (applying Texas law); Auto-Owners Insurance Co. v. Rodgers, 360 So.2d 716, 719 (Ala.1978); American States Insurance Co. v. McGuire, 510 So.2d 1227, 1229 (Fla.Ct.App.1987); Lee v. Evergreen Regency Cooperative & Management Systems, Inc., 151 Mich.App. 281, 390 N.W.2d 183, 185 (1986);...