Intermountain Gas Co. v. Industrial Indem. Co. of Idaho

• Decision Date: 27 January 1994
• Docket Number: No. 20029,20029
• Citation: 868 P.2d 510,125 Idaho 182
• Parties: , 9 IER Cases 281, 17 Employee Benefits Cas. 2293 INTERMOUNTAIN GAS COMPANY, Plaintiff-Appellant, v. INDUSTRIAL INDEMNITY COMPANY OF IDAHO, an Idaho corporation, Defendant-Respondent.
• Court: Idaho Court of Appeals

Page 510

868 P.2d 510

125 Idaho 182, 9 IER Cases 281, 17 Employee Benefits Cas. 2293

INTERMOUNTAIN GAS COMPANY, Plaintiff-Appellant, v. INDUSTRIAL INDEMNITY COMPANY OF IDAHO, an Idaho corporation, Defendant-Respondent.

No. 20029.

Court of Appeals of Idaho.

Jan. 27, 1994.

Petition for Review Denied March 9, 1994.

Moffatt, Thomas, Barrett, Rock & Fields, Boise, for appellant. Richard C. Fields and Grant T. Burgoyne argued.

Quane, Smith, Howard & Hull, Boise, for respondent. Robert C. Moody argued.

WALTERS, Chief Judge.

SUBSTITUTE OPINION

The Court's prior opinion dated November 9, 1993, is hereby withdrawn.

This appeal addresses an insurer's obligation to defend and indemnify an insured under a policy covering negligent acts performed in the insured's administration of its employee benefit programs. The insured, Intermountain Gas Company (Intermountain), was sued by an employee, Armida Metcalf, who alleged that employees of Intermountain had demoted her to deprive her of employee benefits because of her use of sick leave. Industrial Indemnity Company (Industrial), Intermountain's insurer, refused to defend Intermountain against the claims, a decision Intermountain later challenged in district court. The district court granted summary judgment for Industrial and denied a similar cross-motion filed by Intermountain. We affirm.

Facts and Procedural Background

We glean the following facts from the briefs on appeal and from Metcalf v. Intermountain Gas Company, 116 Idaho 622, 778 P.2d 744 (1989). In 1979, Armida Metcalf was hired by Intermountain to work in its Hailey office as an office clerk. In 1984 and 1985, she used substantial amounts of her sick leave due to two surgeries but never exceeded the amount of sick leave she had accrued. During these years, she had been told by employees at Intermountain that she was using more sick leave than the company average and should bring her absences in line with the rest of the company. The Hailey office employed seven people, including one other clerk who also took substantial amounts of sick leave during this time and who ultimately retired in 1986. According to the officer manager, the absences of the two clerks created serious problems for the office.

In June, 1986, Intermountain hired a younger, less experienced part-time clerk to replace the retiring clerk. The new clerk was elevated to full-time status in August. In the meantime, Metcalf was demoted from full to part-time, in part because of her use of sick leave. In September, 1986, her employment was further reduced to two hours per day, substantially reducing her income and employee benefits such as sick leave, medical insurance, and retirement benefits. She resigned soon thereafter.

In August, 1986, Metcalf filed charges with the Idaho Human Rights Commission, alleging age and sex discrimination. The Commission found no probable cause to believe that illegal discrimination occurred, but felt that Intermountain "acted unwisely in penalizing Ms. Metcalf for her legitimate use of accrued sick leave," constituting a violation of its own policy representation to its employees. Also in August, 1986, Metcalf filed an action in federal district court in Idaho. She alleged age and sex discrimination based on the observation that a younger, less experienced female had been promoted before Metcalf, and that a male employee who also had used substantial amounts of sick leave was not penalized for his absence. Metcalf also alleged breach of contract by demotion and breach of a covenant of good faith and fair dealing in her employment contract by: (a) demotion; (b) refusing to reinstate her but promoting a younger, less experienced woman; (c) harassing her by falsely accusing her of leaving her job early; and (d) intentionally and maliciously resisting her claims for unemployment benefits after she was terminated. The federal litigation was stayed, and the litigation was transferred to state court in January, 1987. The state court subsequently granted a partial summary judgment to Intermountain dismissing Metcalf's claims of breach of contract and breach of a covenant of good faith and fair dealing. On appeal, the Idaho Supreme Court reversed after determining that a triable issue of fact precluded granting summary judgment on the breach of contract claim. It also held, for the first time, that a covenant of good faith and fair dealing applied in employment contracts. See Metcalf, 116 Idaho 622, 778 P.2d 744. The dispute was finally resolved in 1991 when Intermountain settled Metcalf's claims.

During 1986, when Intermountain demoted Metcalf, it had a policy of insurance with Industrial covering liability for the negligent administration of Intermountain's employee-benefits programs. When Metcalf filed her action in federal district court, Intermountain tendered a copy of the complaint to Industrial thereby providing Industrial with notice of the claims. On October 30, 1986, Industrial responded by denying coverage and refusing to defend Intermountain. Intermountain proceeded to defend itself. After settling with Metcalf, Intermountain demanded that Industrial indemnify Intermountain and pay its attorney fees. Industrial refused, and in December, 1991, Intermountain filed its complaint in this action. The parties submitted cross-motions for summary judgment. The district court granted Industrial's motion and denied Intermountain's cross-motion, prompting this appeal by Intermountain.

Standard of Review

Summary judgment is appropriate only when the pleadings, depositions, affidavits, and admissions on file show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. I.R.C.P. 56(c); State v. Continental Casualty Co., 121 Idaho 938, 939-40, 829 P.2d 528, 529-30 (1992). The fact that both parties move for summary judgment does not, by itself, establish that there is no genuine issue of material fact. Kromrei v. Aid Insurance Co. (Mutual), 110 Idaho 549, 551, 716 P.2d 1321, 1323 (1986); Casey v. Highland Insurance Co., 100 Idaho 505, 507, 600 P.2d 1387, 1389 (1979). Here, however, the parties filed cross-motions for summary judgment based on the same evidentiary facts and the same issues and theories. They have effectively stipulated that there is no genuine issue of material fact, that the question presented can be answered as a matter of law, and that summary judgment is therefore appropriate. Kromrei, supra; Williams v. Computer Resources, Inc., 123 Idaho 671, 851 P.2d 967 (1993).

Analysis

The duty to defend is not coextensive with the duty to pay damages. Standlee v. St. Paul Fire & Marine Insurance Co., 107 Idaho 899, 901, 693 P.2d 1101, 1103 (Ct.App.1984). "If a complaint alleges facts which, if true, create a potential liability within coverage of a liability insurance policy, the insurer has an initial duty to defend." Id.; Pendlebury v. Western Casualty & Surety Co., 89 Idaho 456, 464, 406 P.2d 129, 134 (1965). As succinctly stated by the court below: "the duty to defend is defined by the scope of the claims, not their validity." The claims alleged in the complaint are to be read broadly to determine if, in whole or in part, they "reveal a potential liability that would be covered by the insured's policy." County of Kootenai v. Western Casualty and Surety Co., 113 Idaho 908, 910, 750 P.2d 87, 89 (1988). Because an insurance policy is a contract, the rights and remedies of parties to an insurance contract are determined by the terms contained therein. Continental Casualty, 121 Idaho at 939-40, 829 P.2d at 529-30.

We note that insurance policies are contracts of adhesion which ordinarily are not subject to negotiation between the parties, and any ambiguity must be construed strongly against the insurer. Kromrei, 110 Idaho at 551, 716 P.2d at 1323; Moss v. Mid-American Fire and Marine Insurance Co., 103 Idaho 298, 300, 647 P.2d 754, 756 (1982). When construing such contracts, a construction will not be favored that will defeat the purpose or object of the insurance. Nielsen v. Provident Life and Accident Insurance Co., 100 Idaho 223, 226, 596 P.2d 95, 98 (1979). On the other hand, an insurance policy will be construed to provide full coverage of indicated risks, Erikson v. Nationwide Mutual Insurance Co., 97 Idaho 288, 292, 543 P.2d 841, 845 (1975), but not to create a liability unassumed by an insurer under the terms of the policy. Lively v. City of Blackfoot, 91 Idaho 80, 85, 416 P.2d 27, 32 (1966). When construing an insurance policy, the intent of the parties is to be determined from the language of the contract itself and in the absence of ambiguity, coverage must be determined according to the plain meaning of the words employed. Juker v. American Livestock Insurance Co., 102 Idaho 644, 645, 637 P.2d 792, 793 (1981); Aid Insurance Company v. Armstrong, 119 Idaho 897, 900, 811 P.2d 507, 510 (Ct.App.1991).

In the "employee benefits liability" policy at issue in this case, Industrial agreed to provide the following coverage:

To pay on behalf of the Insured all sums which the insured shall become legally obligated to pay as a result of damages sustained by an employee, prospective employee or the beneficiaries or legal representatives thereof and caused by any negligent act, error or omission of the Insured, or any other person for whose acts the Insured is legally liable in the administration of the Insured's Employee Benefit Programs defined herein, and the Company shall have the right and duty to defend any suit against the Insured seeking such damages, even if such suit is groundless, false or fraudulent,....

Excluded from coverage were "any dishonest, fraudulent, criminal or malicious act, libel, slander, discrimination, or humiliation," as well as "failure of performance of contract by any Insurer, including failure of any Employee Benefit Program" or "the Insured's failure to comply with any law concerning Worker's Compensation,...