Johnson v. Studyvin

• Decision Date: 17 December 1993
• Docket Number: 92-2430-JWL.,No. 92-2292-JWL,92-2292-JWL
• Citation: 839 F. Supp. 1490
• Parties: Harry JOHNSON, et al., Plaintiffs, v. Robert J. STUDYVIN, Defendant, Great American Insurance Company, et al., Garnishees. GREAT AMERICAN INSURANCE COMPANY, et al., Plaintiffs, v. Robert J. STUDYVIN d/b/a Studyvin Drywall, et al., Defendants.
• Court: U.S. District Court — District of Kansas

839 F. Supp. 1490

Harry JOHNSON, et al., Plaintiffs, v. Robert J. STUDYVIN, Defendant,

Great American Insurance Company, et al., Garnishees.

GREAT AMERICAN INSURANCE COMPANY, et al., Plaintiffs, v. Robert J. STUDYVIN d/b/a Studyvin Drywall, et al., Defendants.

Nos. 92-2292-JWL, 92-2430-JWL.

United States District Court, D. Kansas.

December 17, 1993.

Daniel G. Menzie, Turner & Boisseau, Chartered, Wichita, KS, Victor A. Bergman, John M. Parisi, Shamberg, Johnson, Bergman & Morris, Chtd., Overland Park, KS, for Harry Johnson, Annie K. Johnson, Erin C. Johnson, Bridget B. Johnson, and Deborah A. Sapp-Johnson.

Curtis L. Tideman, Lathrop & Norquist, Overland Park, KS, Kyle B. Mansfield, Stephen J. Foley, Foley & Mansfield, Minneapolis, MN, for Great American Ins. Co., and American Nat. Fire Ins. Co.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

The plaintiffs, Harry Johnson, Deborah A. Sapp-Johnson and their children, bring this action against Great American Insurance Company ("Great American") to recover for damages arising from the installation of asbestos containing material in areas of their home by Robert J. Studyvin ("Studyvin") and his company Studyvin Drywall. A trial to the court was held on this matter beginning November 2, 1993. After careful consideration, the court finds, by a preponderance of the evidence, that plaintiffs are not entitled to recover damages for their injuries under the terms of the insurance agreement between Great American and Mr. Studyvin, and that Great American did not breach any duty to defend. Thus, the court finds in favor of Great American Insurance Co., and denies plaintiffs' requested relief on all grounds.

Pursuant to Federal Rule of Civil Procedure 52(a), the court makes the following findings of fact and conclusions of law.

I. Findings of Fact

1. Robert J. Studyvin is a drywall subcontractor who in August and September of 1977 applied asbestos containing materials ("ACM") to the ceiling of a home purchased by the Johnsons in 1985. In 1990, the roof of the house was damaged and in the course of repairing the home, the ceiling was removed and the ACM was released into the air, contaminating the entire Johnson home.

2. In 1977, Studyvin was insured by Great American Insurance Company under a Select Liability Policy ("SLP"), which covered certain types of personal injury and property damage. Mr. Studyvin actually had SLPs providing coverage from 1976 to 1982. These policies obligated Great American to defend a suit against the insured seeking damages on account of bodily injury or property damage even if the allegations of the suit were "groundless, false or fraudulent."

3. In 1991, the Johnsons brought suit against Studyvin, seeking redress for both personal injury and property damage as a result of the contamination of their home. In April of 1991, Mr. Studyvin notified Great American, through Great American's sales agent Lockton Insurance Company, of the claim against him and requested a defense in the action.

4. In May of 1991, Great American had a copy of the Petition containing the Johnson's allegations against Mr. Studyvin. Lisa Newbold, the manager for Environmental Claims for Great American, was responsible for the handling of Mr. Studyvin's claim for insurance beginning around this time. It was her responsibility to determine whether to provide Mr. Studyvin with a defense against the Johnson's claim.

5. On June 5, 1991, David Fieser, an adjuster with Leamon, Peterson & Bello, met with Mr. Studyvin on behalf of Great American regarding the Johnson's claims against him and potential coverage by Great American. At this time, Mr. Studyvin explained the circumstances surrounding the installation of the ACM in the Johnson home, and signed a "Non-Waiver Agreement" drawn by Great American. The agreement provided that Mr. Studyvin "may" hold a Great American policy and that he claims benefits under the policy for events occurring in 1977. The agreement continues to provide as follows:

And whereas it appears that the interest of both the Assured and the Company may be better served and protected by an investigation of the facts and/or entering of defense on behalf of the Assured:

Now, therefore, it is understood and agreed between the Assured and the Company that the Company may by its representatives proceed to investigate the said accident, or undertake the defense of any suit growing out of the said accident, without prejudice to the rights of the said company, and that no action heretofore or hereafter taken by the Company shall be construed as a waiver of the right of the Company, if in fact it has such right, to deny liability and withdraw from the case; also, that by the execution of this agreement the Assured does not waive any rights under the policy.

6. In a letter dated June 6, 1991, Lisa Newbold advised Mr. Studyvin that Great American could not locate an insurance policy for him covering the period of time in which the ACM was installed in the Johnson home. She also advised him that even if proof of such a policy were found, it was unlikely he was covered for the damage caused by the ACM. She based her conclusions on the provisions of the standard SLP used by Great American in 1977. Other portions of the letter are as follows:

Until such time as we are able to verify the existence of the policy, we will be unable to make a commitment to you with respect to indemnity of defense of this lawsuit.

... A review of the coverage form which was typically issued in 1977, reveals the following exclusions which may be applicable to this lawsuit ... As our investigation continues, there may be other coverage issues presented as well. Great American Insurance, therefore, reserves its right to disclaim coverage under the policy provisions cited, as well as other potentially applicable policy provision sic. By our undertaking the investigation of this claim, we do not waive any rights under the applicable policy.

7. Subsequently, Ms. Newbold was able to verify that Mr. Studyvin was insured by Great American under SLP policies from December 5, 1978 through December 5, 1981. However, Mr. Studyvin's actual 1977 policy was not and could not be located in Great American's files. Great American did have access, however, to the basic SLP form, 21000C, and all of the basic forms used as endorsements to the SLPs. Great American also had a computer program ("MIFMAP" program) through which it could verify the existence of a policy. Once Great American had a policy number, it could run a "MIFMAP" and a printout containing limited information about the policy could be generated. The original purpose of the MIFMAPs was to track and maintain statistical data for the company. Although MIFMAPs and standard forms available to Great American could establish pieces of the policy issued to Mr. Studyvin, an exact replica of the policy could not be recreated.

8. Complete copies of all of the Great American Insurance policies issued to Mr. Studyvin existed in files maintained by the Lockton Insurance Agency, however, these files were lost for a period of time and could not be located even after great efforts on the part of Lockton. The files were eventually located during discovery of this case, well after a default judgment had been issued against Mr. Studyvin as to the Johnson's claims against him.

9. Months passed and Great American did not locate a policy for Mr. Studyvin for the year of 1977. Mr. Studyvin was also unable to locate a copy of the policy throughout this time. After the investigation by the private adjuster and a few "MIFMAP" searches, Ms. Newbold and Great American took no further action in pursuit of discovery of coverage of the claims against Mr. Studyvin. Ms. Newbold made no effort to contact Mr. Studyvin by phone or in person, nor was there any significant correspondence by letter between Ms. Newbold and Mr. Studyvin for a period of months.

10. On January 19, 1992, Mr. Studyvin wrote to Great American and advised it that a trial date of February 3, 1992 had been set to determine the validity of the Johnson's claims against him. Great American responded on January 29, 1992, four days before trial, and informed him it did not have sufficient information to determine whether or not it could act in his defense.

11. On February 6, 1992, Richard C. Wallace of Evans and Mullinix, P.A., informed Great American via facsimile that a default judgment would be entered against Mr. Studyvin on Monday, February 10, 1992, in the Johnson County District Court in Olathe, Kansas. Mr. Wallace represented Mr. Studyvin in a separate bankruptcy action, which was proceeding at the same time as the Johnson's action, but did not represent him in the matter involving the Johnsons and Great American. Mr. Wallace did, however, periodically advise Mr. Studyvin in general terms how he might proceed regarding the Johnson's claims.

12. Despite this notice, Great American did not represent Mr. Studyvin; Mr. Studyvin in fact had no representation in the action and a default judgment was entered against him in favor of the Johnsons on February 11, 1992. Ms. Newbold was not in the office at the time the notice was received and did not learn of the default hearing until after the default judgment had been entered.

13. The judgment was entered in the amount of $1,309,200.00. It listed the Johnson's property damage as totaling $184,200.00 and was broken down further as follows:

Cost to abate or clean up asbestos in home—$45,000.00

Cost to refurbish the dwelling after abatement to a liveable condition—$27,000.00

Diminution in value of the plaintiff's home after clean up—$21,400.00

Loss of all personal property in the home due to asbestos contamination—$67,800.00 Cost of additional living expenses of the Johnsons — $23000.00

The order listed the remaining damages to be noneconomic damages of $375,000.00 and personal injury damages of $750,000.00.

14. Great American did not seek...