Lapeka, Inc. v. Security Nat. Ins. Co., Inc.

• Decision Date: 12 February 1993
• Docket Number: No. 91-4185-SAC.,91-4185-SAC.
• Citation: 814 F. Supp. 1540
• Parties: LAPEKA, INC., and Eldon V. Danenhauer, Plaintiffs, v. SECURITY NATIONAL INSURANCE COMPANY, INC., a Texas corporation, Defendant.
• Court: U.S. District Court — District of Kansas

814 F. Supp. 1540

LAPEKA, INC., and Eldon V. Danenhauer, Plaintiffs, v. SECURITY NATIONAL INSURANCE COMPANY, INC., a Texas corporation, Defendant.

No. 91-4185-SAC.

United States District Court, D. Kansas.

February 12, 1993.

Dennis G. Hall, Dennis G. Hall, P.A., Topeka, KS, for plaintiffs.

William A. Larson, Gehrt & Roberts, Chartered, Topeka, KS, for defendant.

MEMORANDUM AND ORDER

CROW, District Judge.

This case presents the issue of whether the defendant, Security National Insurance Company, Inc. (Security National), wrongfully failed to investigate, defend and provide coverage to the plaintiffs for an action against them in the United States District Court for the District of Kansas, titled Lawson, et al, v. Lapeka, Inc., et al., Case No. 87-4018-R. In that case, judgment was entered in favor of former Lapeka, Inc. (Lapeka) employees and against Lapeka and Eldon V. Danenhauer, the owner of Lapeka. This case comes before the court upon cross-motions for summary judgment. The parties agree that most of the facts are uncontroverted, and in large part the disposition of this case turns on the interpretation of the insurance policy issued by Security National.¹

The court, having considered the briefs of the parties,² the uncontroverted facts, and the applicable law, is now prepared to rule. In ruling on these motions, the court has considered all of the arguments advanced by the parties, whether asserted in a motion for summary judgment or in response to a motion for summary judgment. For simplicity, the court has condensed and considered the arguments advanced by the parties at the same time.

Standards for Summary Judgment

Summary judgment is appropriate when the movant can demonstrate that there is no genuine issue of material fact and is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Fed. R.Civ.P. 56(c). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2512.

An issue of fact is "genuine" if the evidence is significantly probative or more than merely colorable such that a jury could reasonably return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. at 2510. An issue of fact is "material" if proof thereof might affect the outcome of the lawsuit as assessed from the controlling substantive law. Id. at 249, 106 S.Ct. at 2510. Factual inferences are drawn to favor the existence of triable issues, and where reasonable minds could ultimately reach different conclusions, summary judgment is inappropriate. See Riley v. Brown & Root, Inc., 896 F.2d 474, 476-77 (10th Cir.1990).

If the moving party is able to show "an absence of evidence to support the non-moving party's case" Celotex, 477 U.S. at 325, 106 S.Ct. at 2554, the burden then shifts to the non-moving party "to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. at 2552. The opposing party may not rest upon mere allegations or denials in the pleadings but must set forth specific facts that show a genuine issue for trial remains. Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. The nonmoving party's response must be supported by the kinds of evidentiary materials listed in Rule 56(c). Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; Farnsworth v. Town of Pinedale, Wyoming, 968 F.2d 1054, 1056 (10th Cir.1992). Rule 56 does not require "the moving party to support its motion with affidavits or other similar materials negating the opponent's claim." Celotex, 477 U.S. at 323, 106 S.Ct. at 2553.

Uncontroverted Facts

Lapeka, Inc. (Lapeka), a corporation in good standing in the State of Kansas, is principally engaged in the business of distributing beer and wine in northeast Kansas. Eldon V. Danenhauer was at all relevant times President, Chairman of the Board of Directors, and sole stockholder of Lapeka, Inc. Denver Management Group, Inc. (DMG) is a Colorado corporation engaged in the business of management consultation with its principal place of business in Englewood, Colorado.

In July 1986, due to declining profitability, Lapeka retained DMG as a business management consultant to perform an operational analysis of all aspects of Lapeka's business. In August 1986, DMG's analysis was completed and reduced to written form. The DMG report contained a number of recommended changes, many of which Lapeka implemented. One of the recommendations made by DMG was a reduction in work-force, and DMG provided an evaluation matrix to assist in making the decision of which workers to terminate. In September 1986, Lapeka, relying on DMG's evaluation, terminated, amongst others, John H. Lawson, James L. Bean, Melvin W. Martin and Howard Wood. These employees were notified of their termination by Danenhauer.

Within ninety days of their termination, those four employees filed complaints with the Equal Opportunity Employment Commission (EEOC) and the Kansas Commission on Civil Rights (KCCR) claiming age discrimination by Lapeka. On October 16, 1986, the KCCR notified Lapeka that the Bean, Martin, Wood and Lawson had filed complaints with the KCCR alleging age discrimination. On November 11, 1986, Lapeka was informed that Michael W. Merriam represented the ex-employees, that EEOC complaints were also going to be filed and that litigation would be commenced in the event settlement negotiations were unsuccessful.

On January 15, 1987, those employees subsequently filed a civil action in the United States District Court for the District of Kansas, Lawson, et al, v. Lapeka, Inc., et al., Case No. 87-4018-R hereinafter Lawson. The plaintiffs in Lawson claimed damages for age discrimination, loss of benefits, pain, embarrassment, humiliation and other relief against Lapeka.³ On March 9, 1987, Lapeka filed an answer and third party complaint against DMG and against its representatives Verno, Joslyn and Hjort individually. On December 30, 1987, Lawson, Wood, Martin and Bean filed a motion to amend their complaint to add Eldon Danenhauer as an individual defendant. On March 21, 1988, plaintiffs filed their first amended complaint, naming Danenhauer as an additional defendant.

On August 15, 1988, written notice of loss from Lapeka was received by Security National at its claims office in Topeka, Kansas, along with a copy of the plaintiffs' complaint and first amended complaint.⁴ The notice of loss referred to Policy #TTO 3800181. The comprehensive general liability insurance policy issued by Security National provided coverage to Lapeka from June 1, 1986, to June 1, 1987. The parties have supplied the court with copies of the insurance policy; the policy also includes additional endorsements. The relevant portions of the policy will be discussed in the analysis portion of this opinion.

On August 17, 1988, the defendants in Lawson filed for summary judgment. On September 20, 1988, Security National, by a letter sent to Lapeka's attorney Dennis Hall, declined coverage. On May 31, 1990, Lapeka attorney Hall renewed the demand for defense and indemnity. Hall also sent Security National a copy of the Pretrial Order, Settlement Proposal, and an ABA article dealing with insurance coverage of employee claims against employers as proof of his position that coverage under the insurance policy had been triggered.

On June 14, 1990, Security National again declined coverage. On November 5, 1990, third party defendant DMG was dismissed with prejudice as the result of its settlement stipulation with Lapeka and payment by DMG of $25,000.

On January 2, 1991, the jury trial in Lawson commenced. The court instructed the jury, inter alia, under a disparate impact theory. On January 15, 1991, the jury returned its special verdict, finding:

1) Lapeka and Danenhauer had discriminated against all four plaintiffs because of their age;

2) Neither Lapeka nor Danenhauer discharged Wood for the purpose of interfering with attainment of his rights under the pension plan;

3) Lapeka had breached an implied contract of employment with each of the four plaintiffs;

4) Each of the four plaintiffs was entitled to damages in the amount of $48,000 for back pay and benefits;

5) Each of the four plaintiffs was entitled to damages in the amount of $1,000 for pain, suffering and humiliation from Lapeka;

6) Each of the four plaintiffs was entitled to damages in the amount of $1,000 for pain, suffering and humiliation from Danenhauer;

7) Neither Lapeka's nor Danenhauer's conduct was willful.

On January 15, 1991, a judgment was entered in accordance with the jury's verdict, each plaintiff recovering from Lapeka and Danenhauer the sum of $50,000, for a total of $200,000 plus interest and costs, which equaled $200,382.70 with interest at payment.

On March 19, 1991, the court in Lapeka denied plaintiffs' request for injunctive relief, but granted the plaintiffs' claim for attorneys' fees and expenses in the amount of $161,151.27. In defense of the Lawson case, Lapeka and Danenhauer incurred attorney fees and expenses in the amount of $164,074.22. In the pretrial order, the parties have stipulated that the plaintiffs have paid the total sum of $526,608.19 in relation to the judgment, attorney's fees, interest, expenses and expert witness fees in Lawson.

After the jury's verdict, Lapeka, by its attorney Hall, made demand for indemnity based upon the judgment in Lapeka. Security National declined and Lapeka subsequently commenced this action.

Arguments of the Parties

The plaintiffs contend that Security National breached its duty to defend and duty to indemnify. Specifically, the plaintiffs contend that Security National's...