Liberty Mut. Ins. Co. v. Tedford

• Decision Date: 15 September 2009
• Docket Number: Cause No. 3:07CV73-SA-SAA.
• Citation: 658 F.Supp.2d 786
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, et al., Plaintiffs v. Pauline TEDFORD, et al., Defendants.
• Court: U.S. District Court — Northern District of Mississippi

658 F.Supp.2d 786

LIBERTY MUTUAL INSURANCE COMPANY, et al., Plaintiffs v. Pauline TEDFORD, et al., Defendants.

Cause No. 3:07CV73-SA-SAA.

United States District Court, N.D. Mississippi, Western Division.

September 15, 2009.

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David M. Ott, Bryan Nelson PA, Rick D. Norton, William Arthur Whitehead, Jr., Bryan, Nelson, Randolph & Weathers, Hattiesburg, MS, for Plaintiffs.

Heber S. Simmons, III, Simmons Law Group, PA, Ridgeland, MS, John Samuel Hill, Otis R. Tims, William D. Prestage, William C. Spencer, Mitchell, McNutt & Sams, Tupelo, MS, for Defendants.

MEMORANDUM OPINION

SHARION AYCOCK, District Judge.

Comes now before this Court, Plaintiff Liberty Mutual Insurance Company's Motion for Partial Summary Judgment [10] and Supplement to that motion [243], Defendant Franklin Corporation's Motion for Partial Summary Judgment [164], and Liberty Mutual's Cross Motion for Partial Summary Judgment [175], and Motion for Summary Judgment as to Defendant's Counterclaim [273].

After reviewing the motions, responses, rules, and authorities, the Court makes the following findings:

Factual and Procedural Background

Liberty Mutual Insurance Company ("Liberty Mutual") has filed this declaratory judgment action seeking reimbursement of defense fees, workers' compensation benefits and costs arising out of a state court case against Franklin Corporation ("Franklin") and other individual defendants. In the state court case, the underlying plaintiffs¹ claimed that Franklin's failure to provide adequate ventilation and protective gear from an adhesive used in the furniture production process caused the employees' injury and damages.

Liberty Mutual issued Workers' Compensation and Employers Liability policies ("WC/ELP") to Franklin in effect during the time periods relevant to the state court case and claims. Liberty Mutual paid claims by each of the state court plaintiffs under the workers' compensation policies and enlisted and paid for the services of Tim Crawley, a Liberty Mutual panel lawyer, to defend Franklin in the underlying state court suit. Pursuant to that defense provided by the insurer, Liberty Mutual sent to Franklin a "reservation of rights" letter.² That letter specifically noted that the insurer "determined that the allegations in the complaint create a question of potential coverage under the [WC/ELP] policies."³ However, Liberty Mutual particularly "reserve[d] the right to withdraw our defense and deny indemnity if facts should develop which establish a lack of coverage under our policy, or if all potentially covered allegations or counts are dismissed from the action."⁴ Liberty Mutual additionally reserved the right to "apportion defense fees and costs between the covered and non-covered claims," or alternatively, to "seek reimbursement from Franklin for defense fees and costs paid in connection with claims or causes of action not covered by our policy."⁵

After a three week trial of the matter,⁶ a state court jury returned a substantial verdict, including punitive damages, against Franklin. The Mississippi Supreme Court affirmed that verdict on April 16, 2009.⁷

Liberty Mutual filed this action on June 18, 2007, seeking a declaration that (1) Liberty Mutual does not and never has had any defense or coverage obligations under the Workers' Compensation and Employers Liability Policies with respect to the underlying civil action; (2) Liberty Mutual does not and never has had any defense obligation to Franklin under the WC/ELP with respect to the underlying civil action and resulting jury verdict; (3) Liberty Mutual does not have any indemnity obligations to Franklin under the WC/ELP for any compensatory or punitive damages awarded to the underlying plaintiffs in the underlying civil action; (4) Liberty Mutual does not have any indemnity obligations to Franklin under the WC/ELP for any settlements that Franklin may reach in connection with the underlying civil action; and (5) the WC/ELP beginning on the dates March 1, 1999, March 1, 2001, and March 1, 2002, provide no coverage for any claims against Franklin for the additional reason that the last day of exposure claimed by all underlying plaintiffs did not occur during the policy periods of those policies.

Franklin answered and filed a counterclaim alleging that Liberty Mutual failed to inform Franklin of any potential conflicts of interest between the insurer and its insured. Franklin claims that had Liberty Mutual advised it of its right pursuant to Mississippi law to have independent counsel and of the conflicts of interests between it and its insurer, it could have demanded independent counsel and controlled its defense in the underlying case. According to Franklin, by this failure, Liberty Mutual breached its fiduciary duties to Franklin and is now estopped from denying coverage and seeking reimbursement and defense costs from Franklin.

Franklin asks that the court exonerate Franklin from all claims brought by Liberty Mutual and seeks damages from Liberty Mutual by way of its counterclaim. Franklin asserts that it is entitled to full coverage for all claims asserted against it in the underlying action both with respect to the duty to defend and the duty to indemnify. Franklin also asserts that Liberty Mutual was grossly negligent in its defense of Franklin and actions by Liberty Mutual rise to the level of bad faith.

Four motions for summary judgment have been filed in this matter. In Liberty Mutual's first Motion for Partial Summary Judgment [10] and attendant Supplement [243], the Plaintiff asserts that the policies of insurance provide no coverage to Franklin for its intentional acts. Moreover, because the insurance policies prohibit coverage for intentional acts, Liberty Mutual asserts it owed no duty to defend Franklin in the underlying civil action and any subsequent appeal. Franklin responded that Liberty Mutual is equitably estopped from denying their duty to defend and must provide coverage for failing to advise the insured of its' Moeller rights.

Franklin filed a Motion for Partial Summary Judgment [164] requesting that this Court dismiss Plaintiff's claims for recovery of defense costs expended on Franklin's behalf in the underlying civil action. Particularly, Franklin alleges that the duty to defend depends on the allegations of the underlying complaint; thus, Liberty Mutual cannot recoup defense costs based solely on the outcome of the underlying litigation. In response, Liberty Mutual filed its Cross-Motion for Summary Judgment [175] countering that the reservation of rights letter sent to Franklin explicitly reserved a right to seek reimbursement for defense costs and further constituted an implied in fact contract.

Finally, Liberty Mutual moved for summary judgment on Franklin's counterclaim [273] and asserts that Franklin has not proved that they reasonably relied on any representation of Liberty Mutual which would equitably estop Plaintiff from denying coverage of the claims against Franklin. In response, Franklin asserts that genuine issues of material fact preclude this Court's grant of summary judgment on that basis.

Summary Judgment Standard

When considering a motion for summary judgment, the movant has the initial burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ("the burden on the moving party may be discharged by `showing' . . . that there is an absence of evidence to support the nonmoving party's case"). The burden then shifts to the nonmovant to "go beyond the pleadings and by . . . affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S.Ct. 2548 (citing FED. R.CIV.P. 56(c), (e)). That burden is not discharged by "mere allegations or denials." FED. R. CIV. P. 56(e). All legitimate factual inferences must be made in favor of the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Rule 56(c) mandates the entry of summary judgment "against a party who fails 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." Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548. Before finding that no genuine issue for trial exists, the court must first be satisfied that no reasonable trier of fact could find for the nonmovant. Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Discussion and Analysis

A. Coverage under the WC/ELP Insurance Contract

Liberty Mutual contends that the WC/ELP insurance policy's intentional acts exclusion relieves them of any duty to cover the claims asserted against Franklin by the underlying plaintiffs. Liberty Mutual issued WC/ELP insurance policies to Franklin from 1999 until 2004 with the exception of one year, 2000-2001.⁸ It was under this workers' compensation policy that Liberty Mutual paid benefits to the underlying plaintiffs before the state court suit was filed. Moreover, it was under these policies that Liberty Mutual determined there to be a potential duty to defend.⁹ Part Two of the WC/ELP provides coverage for claims of accidental bodily injury arising out of and in the course of the injured employee's employment. That section also acknowledges coverage of bodily injury by disease as long as that affliction is caused or aggravated by the conditions of employment. The policies further require that the "employee's last day of last exposure to the conditions causing or aggravating such bodily injury by disease must occur during the policy period." Therefore, Liberty Mutual asserts that under the insurance policy language, only the policies in effect from March 1, 2003, through March 1, 2005,¹⁰ are...