Golf Course Superintendents Ass'n v. Underwriters

• Decision Date: 15 March 1991
• Docket Number: No. 88-4251-R.,88-4251-R.
• Citation: 761 F. Supp. 1485
• Parties: GOLF COURSE SUPERINTENDENTS ASSOCIATION OF AMERICA, Plaintiff, v. UNDERWRITERS AT LLOYD'S, LONDON, Defendant.
• Court: U.S. District Court — District of Kansas

761 F. Supp. 1485

GOLF COURSE SUPERINTENDENTS ASSOCIATION OF AMERICA, Plaintiff, v. UNDERWRITERS AT LLOYD'S, LONDON, Defendant.

No. 88-4251-R.

United States District Court, D. Kansas.

March 15, 1991.

Michael Kelley, Robert D. Ochs, Golf Course Superintendents Assoc. of America, Topeka, Kan., for Golf Course.

Steven Johnson, Justice King, Fisher, Patterson, Sayler & Smith, Topeka, Kan., for Underwriters.

MEMORANDUM AND ORDER

ROGERS, District Judge.

Plaintiff, the Golf Course Superintendents Association of America ("GCSAA"), filed this action to recover certain monies pursuant to an insurance policy issued by defendant, Underwriters at Lloyd's of London ("Lloyd's"). GCSAA was a defendant in the case of Zahid Iqbal v. Golf Course Superintendents Association of America, 717 F.Supp. 756, in this court. A jury found that GCSAA illegally retaliated against Mr. Iqbal (terminated his employment) because he had filed a lawsuit under 42 U.S.C. § 1981 against GCSAA. The jury awarded Mr. Iqbal $50,000.00. In the case at bar, GCSAA claims that Lloyd's must indemnify GCSAA for the amount of the judgment.

This case is now before the court upon cross-motions for summary judgment. Oral argument has been conducted upon these motions. It appears from the pleadings and the oral argument that the facts are not in dispute. This is largely a matter of interpreting the insurance contract between the parties and deciding whether Lloyd's should be estopped from declining coverage under the contract.

The relevant facts are as follows. Under the insurance policy in question, Lloyd's agreed to indemnify GCSAA and "its Directors, Officers, employees and the members of its committees for all sums which they shall become legally obligated to pay by reason of any wrongful act committed or alleged to have been committed by them while in the operation, administration, or management of services provided by GCSAA or on behalf of GCSAA,...." (Emphasis supplied.)

"Wrongful act" is defined in the policy as "any negligent act, error, omission, misstatement or misleading statement committed or alleged to have been committed by GCSAA or its Directors, Officers, employees or the members of its committees while in the operation, administration or management of services provided by GCSAA ..."

The policy also expressly excludes any coverage of claims arising out of or directly or indirectly attributable to "dishonesty" of GCSAA.

An endorsement to the policy further provides that the parties "understood and agreed" that the policy did not include coverage of any loss or defense fees or costs with respect to prior discrimination claims against GCSAA which were noted in a financial statement of the association.

After being informed of the Iqbal lawsuit, which was filed in February 1984, a representative of Lloyd's wrote GCSAA on March 28, 1984. This letter stated in part:

The allegations of the complaint also give rise to certain additional coverage issues. Initially, there are allegations of intentional conduct on behalf of the Association. In this regard, Exclusion 5(a) deletes coverage for any dishonesty on the part of the assureds. Therefore, any amounts which may be awarded on the basis of this excluded conduct would not be provided coverage.

....

In the event that any amounts awarded on the basis of punitive damages are not otherwise excluded, the certificate does limit coverage for same to $50,000. Lloyd's would have no obligation or responsibility for any amounts in excess of said limits of liability. In view of the foregoing, Lloyd's ... reserves all of its rights with respect to this matter. Subject to the foregoing reservation of rights, it is our understanding that the law firm of Fisher, Ochs, Heck & Wright ... is proceeding to defend the interests of the Association in this matter with Robert D. Ochs, Esq. being the attorney directly in charge of said defense. By carbon copy of this letter, I am informing Mr. Ochs of the coverage issues presented, as well as our request that we be kept informed of the progress of this action.

After receiving correspondence from Mr. Robert Ochs, GCSAA's attorney, counsel for Lloyd's wrote back on April 24, 1984 regarding coverage of the Iqbal lawsuit. This letter stated in part:

I thank you for your extensive research and effort regarding the coverage issues presented. While I note your advice as to the current status of Kansas law regarding the duty of defense in a situation where the action arguably falls within the scope of the complaint, that aspect of this matter is not at issue. As noted in my letter of March 28, 1984 on the matters which may fall outside the scope of coverage under the policy, such as a demand for punitive damages and the allegations of intentional conduct, Underwriters have reserved their rights. We have not asserted that the allegations of the complaint fall outside the scope of coverage so as to bar any duty on the part of Underwriters to indemnify for defense costs.

....

Nor, in fact, are we stating in any way that your firm should be defending the interests of the insurer, in addition or opposed to the interests of the insured. My firm represents the interests of Underwriters and it is clear that your firm, as local defense counsel, is representing the interests of the assured Association alone.

....

On this basis, I do wish to confirm to you that, subject to a full reservation of rights as to all of the coverage issues presented, those interested Underwriters at Lloyd's, London subscribing to Certificate No. 83-A-221 have agreed to assume the defense of this action on behalf of the Golf Course Superintendents Association of America and through your firm, as local defense counsel. This assumption of defense is, of course, also subject to the deductible of $500 per claim, which deductible is applicable to both loss payments and claims and defense fees, costs, charges and expenses.

Then, on March 27, 1986 — the last day of the trial of the Iqbal case — counsel for Lloyd's again wrote counsel for GCSAA as follows:

This action is essentially one based upon allegations that your association intentionally discriminated against the claimant due to his national origin. In this regard, Exclusion 5(A) deletes coverage for any dishonesty on the part of the assureds. Therefore, any amounts which may be awarded on the basis of this excluded conduct would not be provided coverage. Additionally, intentional conduct on the part of the assured is not within the meaning of wrongful act as defined by the policy, consequently coverage would not be afforded for an act of discrimination.

The legal principles which govern the construction of a contract of insurance, as well as the burden of proof in this case, were summarized in Dronge v. Monarch Ins. Co., 511 F.Supp. 1, 4-5 (D.Kan.1979), wherein the court drew heavily from the case of Mah v. United States Fire Ins. Co., 218 Kan. 583, 545 P.2d 366 (1976):

The law provides that in construing an insurance policy, a court should consider the instrument as a whole and endeavor to ascertain the intention of the parties from the language used, taking into account the situation of the parties, the nature of the subject matter, and the purpose to be accomplished. Policies must be construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense. Mah, supra; Bramlett v. State Farm Mutual Ins. Co., 205 Kan. 128, 468 P.2d 157 (1970). When an insurance contract is not ambiguous, a court may not make another contract for the parties. An unambiguous contract must be enforced according to its terms. Mah, supra; Goforth v. Franklin Life Ins. Co., 202 Kan. 413, 449 P.2d 477 (1969); Simpson v. KFB Insurance Co., Inc., 209 Kan. 620, 498 P.2d 71 (1972).

However, a contract of insurance may be ambiguous. To be ambiguous the contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves one genuinely uncertain which one of two or more meanings is the proper meaning. Mah, supra; Clark v. Prudential Ins. Co., 204 Kan. 487, 464 P.2d 253 (1970); Western Casualty & Surety Co. v. Budig, 213 Kan. 517, 516 P.2d 939 (1973). Where the terms of a policy of insurance are ambiguous or uncertain, conflicting or susceptible of more than one construction, the construction most favorable to the insured must prevail. Mah, supra; Goforth v. Franklin Life Ins. Co., supra. This is because an insurance contract is by nature an adhesion contract. Gowing v. Great Plains Mutual Ins. Co., 207 Kan. 78, 483 P.2d 1072 (1971).

The language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties. Mah, supra; Goforth, supra. In determining the intention of the parties to a contract of insurance, the test is not what the insurer intends the printed language to mean, but rather what a reasonable person placed in the position of the insured would have understood the words to mean. Fancher v. Carson-Campbell, Inc., 216 Kan. 141, 530 P.2d 1225 (1975); Gowing v. Great Plains Mutual Ins. Co., supra; Walker v. Imperial Casualty & Indemnity Co., 1 Kan.App.2d 349, 564 P.2d 588 (1977). Since the insurer prepares its own contracts, it has a duty to make the meaning clear. If the insurer intends to restrict or limit coverage provided in the policy, it must use clear and unambiguous language in doing so, employing such language as will clearly and distinctly reveal its stated purpose. Fancher v. Carson-Campbell, Inc., supra; Gowing, supra; Goforth, supra. This rule of construction applies with particular force to provisions which attempt to exclude liability coverage under certain

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