Johnson ex rel. Estate of Johnson v. Acceptance

• Decision Date: 19 September 2003
• Docket Number: No. CIV.A.3:01 CV 82.,CIV.A.3:01 CV 82.
• Citation: 292 F.Supp.2d 857
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Deborah K. JOHNSON, personal representative of the ESTATE OF David S. Johnson, deceased, Plaintiff, v. ACCEPTANCE INSURANCE COMPANY/Acceptance Indemnity Insurance Company and Equity Insurance Managers, Inc., Defendants.

292 F.Supp.2d 857

Deborah K. JOHNSON, personal representative of the ESTATE OF David S. Johnson, deceased, Plaintiff, v. ACCEPTANCE INSURANCE COMPANY/Acceptance Indemnity Insurance Company and Equity Insurance Managers, Inc., Defendants.

No. CIV.A.3:01 CV 82.

United States District Court, N.D. West Virginia.

September 19, 2003.

COPYRIGHT MATERIAL OMITTED

Kevin S. Kaufman, Bridgeport, WV, Avrum Levicoff, Ryan J. King, Brown & Levicoff, PC, Pittsburgh, PA, for plaintiff.

William A. Kolibash, Phillips, Gardill, Kaiser & Altmeyer, Wheeling, WV, Walter M. Jones, III, Allison Ann Marquina, Martin & Seibert, Martinsburg, WV, Patricia L. Dodge, Edward A. Smallwood, Meyer Unkovic & Scott, Pittsburgh, PA, for defendants/third-party plaintiffs.

William A. Kolibash, Phillips, Gardill, Kaiser & Altmeyer, Wheeling, WV, Susan K. Dirks, Christopher P. Bastien, Bastien & Martin, L.C., Charleston, WV, for third-party defendant.

MEMORANDUM OPINION AND ORDER CONFIRMING PRONOUNCED ORDER OF THE COURT DENYING DEFENDANT EQUITY'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON PHASE ONE, GRANTING DEFENDANT ACCEPTANCE'S MOTION TO DISMISS FIRST-PARTY UNFAIR CLAIM SETTLEMENT PRACTICES ACT CLAIM, DENYING DEFENDANT ACCEPTANCE'S MOTION FOR SUMMARY JUDGMENT ON PHASE ONE, GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON PHASE ONE, GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE SUPPLEMENTAL MEMORANDUM IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT, GRANTING EQUITY'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON PHASE TWO, GRANTING IN PART AND DENYING IN PART ACCEPTANCE'S MOTION FOR SUMMARY JUDGMENT ON PHASE TWO, DENYING AS MOOT EQUITY'S MOTION TO BIFURCATE, GRANTING PLAINTIFF'S MOTION FOR LEAVE TO FILE ADDITIONAL AUTHORITIES AND GRANTING PLAINTIFF'S MOTION FOR LEAVE TO CORRECT TYPOGRAPHICAL ERROR

STAMP, District Judge.

I. Procedural History

Plaintiff, Deborah K. Johnson, filed this action on behalf of the estate of her brother, David S. Johnson, deceased, against defendants, Acceptance Insurance Company/Acceptance Indemnity Insurance Company ("Acceptance") and Equity Insurance Managers, Inc. ("Equity"), asserting various causes of action relating to the insurance policy Acceptance issued to its insured, Behavioral Health Associates, Inc. ("BHA").¹ By previous order of the Court,² the case has been bifurcated into two phases: Phase One relates to whether the insurance policy issued by Acceptance provides coverage in the underlying claim and Phase Two relates to all other remaining claims.

On March 17, 2003, Equity filed a motion for partial summary judgment on Phase One in which they joined in Acceptance's motion for summary judgment.³ No response has been filed by either plaintiff or Acceptance to Equity's motion. On that same date, Acceptance filed a motion for summary judgment on Phase One⁴ and a motion to dismiss the first-party Unfair Claim Settlement Practices Act claim ("bad faith claim").⁵ No response was filed to Acceptance's motion to dismiss the first-party bad faith claim. On April 21, 2003, plaintiff filed a response to Acceptance's motion for summary judgment on Phase One.⁶ Also on March 17, 2003, plaintiff filed her motion for summary judgment on Phase One,⁷ to which Acceptance responded on April 17, 2003.⁸

Equity filed a motion for summary judgment on the Phase Two claims on July 21, 2003⁹ and Acceptance filed its motion for summary judgment on the Phase Two claims on July 22, 2003.¹⁰ Plaintiff responded to both motions on August 5, 2003.¹¹ On August 7, 2003, Equity filed a motion to bifurcate the trial.¹² Acceptance filed a response on August 14, 2003, in which it joined in Equity's motion to bifurcate the trial.¹³ On August 25, 2003, plaintiff filed a response opposing Equity's motion to bifurcate the trial.¹⁴

Plaintiff has filed the following motions to which neither Equity nor Acceptance have responded: for leave to file supplemental memorandum in support of motion for partial summary judgment and in opposition to Acceptance's motion for summary judgment on June 18, 2003,¹⁵ for leave to file additional authorities on August 11, 2003,¹⁶ and for leave to correct typographic error on August 14, 2003.¹⁷

The parties have fully briefed the issues presented, the court has considered the pleadings, submissions, and applicable law, and the pending motions are ripe for decision. For the reasons set forth below:

1. Equity's motion for partial summary judgment (Phase One) is DENIED,

2. Acceptance's motion to dismiss first-party Unfair Claim Settlement Practices Act claim is GRANTED,

3. Acceptance's motion for summary judgment (Phase One) is DENIED,

4. Plaintiff's motion for partial summary judgment (Phase One) is GRANTED,

5. Plaintiff's motion for leave to file supplemental memorandum in support of motion for partial summary judgment is GRANTED,

6. Equity's motion for partial summary judgment (Phase Two) is GRANTED,

7. Acceptance's motion for summary judgment (Phase Two) is GRANTED in part and DENIED in part,

8. Equity's motion to bifurcate trial is DENIED as moot,

9. Plaintiff's motion for leave to file additional authorities is GRANTED, and

10. Plaintiff's motion for leave to correct typographical error is GRANTED.¹⁸

II. Facts

This action arises out of an underlying wrongful death action involving plaintiff and BHA that was filed in the Circuit Court of Harrison County, West Virginia in 1997. In the mid 1990s, BHA was in the business of providing residential living services and other behavioral health services to adult individuals who required supervision and mental health treatment. In August 1995, BHA's president, Parvis A. Farudi, contacted Arndt-McBee Insurance Agency, Inc. ("Arndt-McBee"), a Martinsburg, West Virginia independent insurance agent, about acquiring a general liability insurance policy for BHA. Arndt-McBee then contacted Equity, a managing general agent, to inquire about obtaining coverage for BHA. Equity then contacted Acceptance and inquired about obtaining coverage from Acceptance for BHA. Equity then issued, on behalf of Acceptance, a commercial general policy with coverage limits of $1 million per occurrence and $2 million aggregate. The policy term was from August 4, 1995 to August 4, 1996.

The policy included an endorsement which made coverage subject to a professional services exclusion. The professional services exclusion provided that any liability arising from rendering or failing to render a professional service would be excluded from coverage. That exclusion also referred to an attached schedule that described other professional services that were also excluded from the policy. The sole professional service listed on the attached schedule was for the operation of a group home. At the time the policy was issued, it is contended that BHA intended to operate a group home to house its mentally disabled clients. In September 1995, BHA notified Arndt-McBee that it had not opened the group home. Thus, it is contended that the provision was removed and coverage for the group home was eliminated from the policy.

For several years prior to the time BHA was attempting to acquire insurance coverage for its facilities, the plaintiff's decedent, David S. Johnson, lived in various mental health treatment facilities due to his mental illness. In Spring 1995, plaintiff's decedent was transferred from a facility in Clarksburg, West Virginia to the care of BHA, which operated facilities to house mentally disabled individuals in the Martinsburg, West Virginia area. Mr. Johnson was placed in the Kountry Kove apartments in Martinsburg which was owned and operated by BHA. On October 12, 1995, Mr. Johnson left the Kountry Kove apartments to walk to a nearby convenience store. While walking along West Virginia Route 11, Mr. Johnson was struck by a car and sustained life threatening injuries. For several months after the accident, Mr. Johnson received intensive medical treatment. Mr. Johnson died in March 1996 as a result of the injuries sustained in the accident.

In 1997, the estate brought a wrongful death action in the Circuit Court of Harrison County against BHA for negligence. Pursuant to Rule 12(a)(1) of the West Virginia Rules of Civil Procedure, BHA filed a notice of a bona fide defense. In the meantime, BHA contacted Arndt-McBee about the case. Arndt-McBee contacted Equity, who then notified Acceptance about the lawsuit. Acceptance, less than three weeks after receiving the complaint and without investigation, issued a letter dated September 26, 1997, denying coverage based upon the professional services exclusion. Thereafter, Acceptance did not participate in the defense of the lawsuit on behalf of its insured, BHA. BHA also did not participate in the suit after the filing of the notice of a bona fide defense. As a result, a default judgment of liability was entered against BHA by the state court in October 1998. In April 2001, plaintiff and BHA entered into a settlement agreement whereby the parties agreed that plaintiff would not attempt to execute on the judgment against BHA's assets in exchange for an assignment of all of BHA's rights against Acceptance and Equity. Plaintiff and BHA then stipulated certain facts to the Circuit Court of Harrison County for the Court to determine damages. That court considered the stipulation, the case record, and entered judgment for plaintiff against BHA on November 5, 2001 in the sum of $2,250,000.

On November 20, 2001, plaintiff brought the instant action in this Court alleging: that the policy affords coverage, that the policy is ambiguous, that Acceptance breached its duty to defend the underlying claim, that Acceptance breached the policy, that Acceptance breached its duty of good faith and fair dealing, that there was a first-party and third-party violation of the West Virginia unfair claim settlement provision of the West Virginia Unfair Trade Practices Act ("UTPA"), West Virginia Code § 33-11-1, et seq., and that civil conspiracy existed. Plai...