Employers Mut. Cas. v. Horace Mann Ins.

• Decision Date: 25 August 2005
• Docket Number: No. 2004AP1899.,2004AP1899.
• Citation: 707 N.W.2d 280,2005 WI App 237
• Parties: EMPLOYERS MUTUAL CASUALTY COMPANY, Plaintiff-Appellant, v. HORACE MANN INSURANCE COMPANY, Defendant-Respondent.
• Court: Wisconsin Supreme Court

707 N.W.2d 280

2005 WI App 237

EMPLOYERS MUTUAL CASUALTY COMPANY, Plaintiff-Appellant, v. HORACE MANN INSURANCE COMPANY, Defendant-Respondent.

No. 2004AP1899.

Court of Appeals of Wisconsin.

Submitted on Briefs December 16, 2004.

Opinion Filed August 25, 2005.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Jeffrey A. Schmeckpeper and Patti J. Kurth of Kasdorf, Lewis & Swietlik, S.C., Milwaukee.

On behalf of the defendant-respondent, the cause was submitted on the brief of Jay R. Starrett and Molly Zillig of Whyte Hirschboeck Dudek, S.C., Milwaukee.

Before DYKMAN, DEININGER and HIGGINBOTHAM, JJ.

¶ 1 DYKMAN, J

Employers Mutual Casualty Company (Employers) appeals from a declaratory judgment in favor of Horace Mann Insurance Company (Horace Mann). Employers had asked the trial court to declare that Horace Mann breached its duty to defend two separate Columbia County civil lawsuits in which Michael Bailey, a teacher, was a named defendant. The trial court declined to do so. Because we determine that Bailey's conduct did not fall within Horace Mann's policy coverage, we conclude that Horace Mann did not have a duty to defend or indemnify Bailey in the lawsuits. We therefore affirm.

Background

¶ 2 Employers issued an insurance policy to Bailey, part of which provided coverage for "[e]mployees of [the Portage County School District] while acting within their scope of duties while conducting the business of the [school district]." Horace Mann issued an insurance policy to the Wisconsin Education Association Council, of which Bailey was a member. Part of Horace Mann's policy provided coverage for "loss ... sustained by the Insured by reason of liability imposed by law for damage caused by an occurrence in the course of the Insured's educational employment activities."

¶ 3 Bailey was named as a defendant in two civil suits filed in Portage County Circuit Court, Shaben, et al. v. Bailey, et al. (Case No.2000CV275), and Hughan, et al. v. Bailey, et al. (Case No.2000CV276). Shaben involved allegations by minor plaintiffs that Bailey committed sexual battery and offensive bodily conduct. Bailey was accused of inappropriately touching, squeezing, and pinching the buttocks, breasts, and hips of minor plaintiffs. In Hughan Bailey was accused of forcibly grabbing, squeezing, shaking, and punching minor plaintiffs, leading to bruising. In both lawsuits, Employers defended Bailey. Employers settled the claims against Bailey for $300,000.

¶ 4 Although Horace Mann was notified of the lawsuits involving Bailey, it did not provide a defense for any of the claims made against him. After Employers settled the lawsuits against Bailey, it brought a motion for declaratory relief seeking judgment against Horace Mann for failing to pay for defense and settlement costs. The trial court held that although Horace Mann had a duty to defend Bailey, it did not breach that duty because the "Other Insurance" clause¹ in Horace Mann's policy of insurance with Michael Bailey made the policy excess to Employer's policy. Therefore, Horace Mann had no obligation to defend or indemnify Bailey for the claims made against him. Employers appeals.

Standard of Review

¶ 5 Because this case requires us to interpret the terms of an insurance policy, our review is de novo. Greene v. Gen. Cas. Co. 216 Wis.2d 152, 157, 576 N.W.2d 56 (Ct.App.1997). Additionally, this case requires us to determine whether an insurance company has a duty to defend an insured, which is also subject to de novo review. Grube v. Daun 173 Wis.2d 30, 72, 496 N.W.2d 106 (Ct.App.1992).

Analysis

¶ 6 We must decide whether Horace Mann had a duty to defend Bailey. Employers argues that Horace Mann breached its duty to defend. We disagree. To determine whether there was a duty to defend, we compare the allegations in the complaint to the relevant portions of the insurance policy. State Farm Fire & Cas. Co. v. Acuity, 2005 WI App 77, ¶ 7, 280 Wis.2d 624, 695 N.W.2d 883. The insurer has a duty to defend whenever the allegations in the complaint, if proven, create a possibility of recovery that falls under the terms and conditions of the insurance policy. Id. We conclude that this requirement was not met here.

¶ 7 Employers argues that Bailey's conduct fell within the terms of Horace Mann's policy under the "Coverage A—Educators Liability" provision of the policy.² Employers asserts that because Bailey's alleged conduct stemmed from his interactions with students, the conduct occurred in the course of his "educational employment activities." If Bailey's conduct can accurately be described as "educational employment activities," then Horace Mann would have a duty to defend Bailey.

¶ 8 When an insurer breaches a duty to defend the insured, the insurer is responsible for all defense costs. Loosmore v. Parent 2000 WI App 117, ¶ 21, 237 Wis.2d 679, 613 N.W.2d 923. To determine whether the allegations against Bailey are properly within the terms of Horace Mann's policy requires us to interpret the "Coverage A—Educators Liability" provision of the policy. We construe insurance policies to give effect to the intent of the parties. State Farm Mut. Auto. Ins. Co. v. Langridge 2004 WI 113, ¶ 15, 275 Wis.2d 35, 683 N.W.2d 75. To do so, we give the words in the insurance policy the meaning a reasonable person in the position of the insured would have understood the words to mean. Id. If a policy is ambiguous as to coverage, it will be construed in favor of the insured. Id. An insurance policy is ambiguous if its language is susceptible to more than one reasonable interpretation. Id. We will interpret the words of an insurance contract against the insured when the insurer's interpretation conforms to what a reasonable person in the position of the insured would have understood the words to mean. Id.

¶ 9 Here, the provision is not ambiguous because "educational employment activities" is defined within the policy and the definition excludes the alleged misconduct for which Bailey was sued.³ Where an ambiguity does not exist, we apply the policy to the situation and do not engage in construction. Quevillon v. State Farm Fire & Cas. Co. 177 Wis.2d 160, 164, 501 N.W.2d 855 (Ct.App.1993). In applying the policy to Bailey's alleged conduct, we conclude that Bailey's alleged conduct did not constitute "activities ... performed pursuant to the express or implied terms of his ... employment," the contract's definition of "educational employment activities."

¶ 10 The trial court noted that student interactions were within the implied terms of Bailey's employment. However, the narrower question is whether the specific interactions with students alleged in the two civil lawsuits against Bailey were within the terms of Bailey's employment. Groping and bruising cannot be said to be within the terms of Bailey's employment, even though the conduct may involve student interaction. This conclusion is consistent with Desotelle v. Continental Casualty Co. 136 Wis.2d 13, 400 N.W.2d 524 (Ct.App.1986), overruled in part on other grounds, Kruckenberg v. Harvey 2005 WI 43, 279 Wis.2d 520, 694 N.W.2d 879. There, we held that a police officer's conduct in falsely imprisoning and sexually assaulting a woman while on duty was outside the scope of his employment because the conduct was so extraordinary and too disconnected from the type of services ordinarily contemplated. Id. at 17, 400 N.W.2d 524. The officer discovered the woman and her boyfriend in a parked car, allegedly suspected underage drinking, and removed the woman to his squad car for questioning. Id. at 18, 400 N.W.2d 524. While in the squad car, he sexually assaulted her. Id. Thus, although the officer was acting in an official capacity, his conduct and behavior was beyond the terms of his employment. Similarly, in the present case, Bailey was acting beyond the implied or explicit terms of his employment.

¶ 11 The trial court determined that Horace Mann had a duty to defend because it felt that "[o]nly upon complete determination of the issues in the form of trial would the court be able to determine whether the acts complained of truly fell outside of [Bailey's] `educational employment activities,' were intentional in nature, or were just careless and rude conduct." Although this is true, it is not the appropriate analysis for determining whether an insurer has a duty to defend the insured for alleged behavior.

¶ 12 To determine whether an insurer has a duty to assume the defense of a third-party suit, we must decide whether the complaint alleges facts, which if proven, would give rise to liability covered under the terms and conditions of the policy. Sola Basic Industries, Inc. v. U.S. Fidelity & Guaranty Co. 90 Wis.2d 641, 646, 280 N.W.2d 211 (1979). Here, the complaints in both Shaben and Hughan allege intentional, offensive, and willful conduct. We must take these allegations in the complaints to be true, and then decide whether the conduct fell within the terms...