Inn-One Home, LLC v. Colony Speciality Ins. Co.

• Decision Date: 23 February 2021
• Docket Number: Case No. 19-cv-00141
• Citation: 521 F.Supp.3d 495
• Court: U.S. District Court — District of Vermont
• Parties: INN-ONE HOME, LLC, d/b/a Our House Residential Care Homes, Plaintiff, v. COLONY SPECIALITY INSURANCE COMPANY and James River Insurance Company, Defendants, Colony Speciality Insurance Company, Counterclaim Plaintiff, v. Inn-One Home, LLC, d/b/a Our House Residential Care Homes, Counterclaim Defendant.

521 F.Supp.3d 495

INN-ONE HOME, LLC, d/b/a Our House Residential Care Homes, Plaintiff,

v.COLONY SPECIALITY INSURANCE COMPANY and James River Insurance Company, Defendants,Colony Speciality Insurance Company, Counterclaim Plaintiff,

v.Inn-One Home, LLC, d/b/a Our House Residential Care Homes, Counterclaim Defendant.

Case No. 19-cv-00141

United States District Court, D. Vermont.

Signed February 23, 2021

Joshua L. Simonds, Esq., The Burlington Law Practice, PLLC, Burlington, VT, for Plaintiff/Counterclaim Defendant.

William L. Boesch, Esq., Sugarman, Rogers, Barshak & Cohen, P.C., Boston, MA, for Defendant/Counterclaim Plaintiff Colony Specialty Insurance Company.

Gary M. Burt, Esq., Primmer Piper Eggleston & Cramer P.C., Manchester, NH, for Defendant James River Insurance Company.

OPINION AND ORDER GRANTING COLONY SPECIALTY INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT AND DENYING INN-ONE HOME, LLC'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

Christina Reiss, District Judge

Plaintiff Inn-One Home, LLC ("Inn-One") brings this suit against Colony Specialty Insurance Co. ("Colony"), its former primary coverage insurer, and James River Insurance Company ("James River"),¹ its former coverage insurer, asserting a breach of contract by Colony and seeking a declaratory judgment regarding its right to coverage for claims made against it by the Estate of Marilyn Kelly (the "Estate") in an underlying state court civil suit (the "Underlying Suit").

On June 5, 2020, Colony moved for summary judgment, seeking a declaration that it has no duty to defend or indemnify Inn-One in the Underlying Suit under the terms of a claims-made liability insurance policy it issued to Inn-One. (Doc. 19.) On that same date, Inn-One cross-moved for partial summary judgment on its breach of contract claim against Colony. (Doc. 20.) Inn-One and Colony oppose each other's motion. The court heard oral argument on August 24, 2020, at which time it took the parties’ cross-motions under advisement.

Inn-One is represented by Joshua L. Simonds, Esq. Colony is represented by William L. Boesch, Esq. James River, which took no position on the pending motions, is represented by Gary M. Burt, Esq.

I. The Undisputed Facts.

A. Events Giving Rise to the Claims in the Underlying Suit.

In May 2015, Marilyn Kelly was admitted to a residential care facility in Rutland, Vermont operated by Inn-One because she suffered from dementia

. While at Inn-One's facility, Ms. Kelly was allegedly medicated with the anti-psychotic drug haloperidol without the consent of her legal guardian. On December 31, 2015, Marissa Flagg, an Inn-One caregiver, intentionally pushed Ms. Kelly, causing her to fall and suffer injuries (the "Flagg Assault"). Ms. Flagg was later terminated by Inn-One and criminally prosecuted for assaulting Ms. Kelly. On January 15, 2016, Ms. Kelly was hospitalized. She died of bronchopneumonia on February 1, 2016.

The Vermont Department of Disabilities, Aging, and Independent Living ("DAIL") performed an unannounced inspection of Inn-One's facility on February 2 and 3, 2016. DAIL investigators produced a twenty-six page report (the "DAIL Report") which they delivered to Inn-One on or about February 18, 2016. The DAIL Report identifies numerous "deficiencies" discovered during the agency's investigation, including the following:

Resident #3 was observed on a video surveillance tape dated 12/31/15 at 1:58:58 through 2:00:10, being pushed by resident care attendant #1, from behind causing the resident to fall to the floor. The employee walked away from Resident #3 who was lying on the floor. The attendant did not offer the resident assistance nor did s/he report the occurrence to resident care attendant #2, who was on duty at the time. Per intake information the perpetrator abandoned his/her position at approximately 3 AM, leaving the facility understaffed and without a medication technician.

...

Per resident care service note dated 12/31/15, the resident returned to the facility after Emergency Room evaluation with a diagnosis of right hip contusion

and treatment advised.

(Doc. 19-4 at 21.) The date and time of the incident, as well as the events described, match the date, time, and circumstances of the Flagg Assault.

On September 7, 2017, counsel for Ms. Kelly's Estate sent a letter to Inn-One asserting that Ms. Kelly "suffered injuries and eventually died as the result of negligent care she received at" Inn-One's facility. (Doc. 21-7 at 2.) Upon receipt of the Estate's letter, Inn-One notified its then-insurance carrier, James River, and provided a copy of the Estate's letter. On October 6, 2017, Inn-One contacted Colony and provided the same information. On October 26, 2017, Colony informed Inn-One that it would not defend or indemnify Inn-One for claims made by the Estate because no claim was made or reported to Colony during the applicable policy period.

On January 4, 2018, the Estate and Ms. Kelly's children filed the Underlying Suit against Inn-One, asserting claims of negligence, breach of contract, wrongful death, negligent hiring, and violation of Vermont's Consumer Protection Act arising out of Inn-One's chemical restraint of Ms. Kelly and the Flagg Assault, both of which they contend contributed to Ms. Kelly's death.

B. The Colony Insurance Policy.

From March 28, 2015 to March 28, 2016 ("Policy Period 1"), Colony provided long term care facilities insurance to Inn-One pursuant to Policy No. AD515227 (the "Policy"). On March 23, 2016, Inn-One submitted an application seeking an additional year of coverage through its insurance broker. Colony subsequently renewed the Policy for a one-year term from March 28, 2016 through March 28, 2017 ("Policy Period 2") subject to Colony's receipt and review of certain documents "including current licenses and [the] most recent reports of state inspections for each of Inn-One's facilit[ies]." (Doc. 19-2 at 2, ¶ 11.) The renewal application required Inn-One to answer the following question: "Have there been any claims or incidents[ ] within the last 12 months that haven't been reported to us?" This question was followed by illustrative examples including: "[i]njury to a client, patient, or resident that required hospitalization;" "[i]ncident involving abuse[;]" "[i]ncident that generated a formal complaint or notice from any federal or state regulatory body;" and "[i]mproper medication or improper dosage resulting in hospitalization[.]" (Doc. 19-6 at 2.) Inn-One answered each of these questions in the negative.

On April 7, 2016, Inn-One's insurance broker provided Colony with the requested documents, including a copy of the DAIL Report. That same day, Colony's underwriting department notified Inn-One's broker by email that "the report for [the facility in which Ms. Kelly resided] is not acceptable so just a heads up that it's our intention to issue a non-renewal on the [P]olicy next year." (Doc. 19-8 at 2.) In response to the broker's inquiry regarding "what is not acceptable[,]" the Colony representative explained, "if you read the [twenty-six]-page report you submitted today you'll see that there are numerous deficiencies, most of which could be quite serious and indicate a poorly managed facility." Id.

The Policy's terms and conditions are identical for Policy Period 1 and Policy Period 2 and provide coverage for both professional liability and commercial general liability ("CGL"). The Policy defines "bodily injury" as "bodily injury, mental anguish, sickness or disease sustained by a person, including death resulting from any of these at any time." (Doc. 19-5 at 20; Doc. 19-7 at 20.) A "claim" is:

a. a demand for money; or

b. the filing of "suit";

naming the insured and alleging:

(1) a "wrongful act" resulting from the rendering of or the failure to render "professional services"; or

(2) an offense or an "occurrence".

Id.

The Policy defines an "[o]ccurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 22. "Professional services" include "the providing of ... medical ... mental health or nursing service or treatment[;] ... medications, medical supplies or medical appliances;" or "health or therapeutic service, treatment or advice[.]" Id. A "wrongful act" is:

an act, error or omission in the rendering of or failure to render "professional services" by any insured covered under this Policy and performing the operations described under BUSINESS DESCRIPTION in the Declarations including an act, error or omission resulting in the violation of any right guaranteed to your residents under state or federal law or guidelines regulating your business as a resident health facility.

Id. at 23. The "BUSINESS DESCRIPTION" in the Policy's Declarations is "[Assisted Living Facility.]" Id. at 6.

The Policy provides professional liability coverage on a claims-made and reported basis pursuant to which Colony will "pay ... those sums the insured becomes legally obligated to pay as ‘damages’ because of a ‘wrongful act’ to which this insurance applies." (Doc. 19-5 at 26; Doc. 19-7 at 26.) The professional liability coverage "applies to ‘wrongful acts’ ... only if" the following conditions are met:

(2) prior to the effective date of this Policy, no insured had knowledge of any ‘claim’ or any ‘wrongful act’ that could reasonably give rise to a ‘claim’ under this Policy;

...

(6) the ‘claim’ is first made against an insured subsequent to this Policy's effective date and prior to the expiration of this Policy or during the Supplemental Extended Reporting Period; if applicable;

(7) the ‘claim’ is first reported to us subsequent to this Policy's effective date and prior to the expiration of this Policy or during any applicable Extended Reporting Period we provide and in accordance with the provisions set forth in SECTION VI – CONDITIONS, 5. Duties In the Event of A Claim Or Suit within the Common Policy Provisions; and

(8) any incident, event, offense, or circumstance that reasonably may result in a

...