Livonia Pub. Sch. & Metro. Ass'n for Improved Sch. Legislation v. Selective Ins. Co. of the Se.

• Decision Date: 24 August 2018
• Docket Number: Case No. 16-10324
• Citation: 443 F.Supp.3d 815
• Parties: LIVONIA PUBLIC SCHOOLS and Metropolitan Association for Improved School Legislation, Plaintiffs/Counter-Defendants, v. SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Eastern District of Michigan

443 F.Supp.3d 815

LIVONIA PUBLIC SCHOOLS and Metropolitan Association for Improved School Legislation, Plaintiffs/Counter-Defendants,

v.SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Defendant/Counter-Plaintiff.

Case No. 16-10324

United States District Court, E.D. Michigan, Southern Division.

Signed August 24, 2018

James D. Wilson, Wilson Young, Southfield, MI, Daniel J. Zollner, Dykema Gossett PLLC, Chicago, IL, Kathryn J. Humphrey, Dykema Gossett, Detroit, MI, for Plaintiffs/Counter-Defendants.

Margaret A. Cernak, Nicole E. Wilinski, Collins Einhorn Farrell PC, Southfield, MI, for Defendant/Counter-Plaintiff.

OPINION AND ORDER:

(1) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (ECF NO. 59); AND

(2) GRANTING IN PART AND DENYING IN PART PLAINTIFFS' JOINT MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF NO. 57)

Paul D. Borman, United States District Judge

In this civil action, Plaintiffs Metropolitan Association for Improved School Legislation ("MAISL ") and Livonia Public Schools ("LPS ") sue their insurer, Defendant Selective Insurance Company of the Southeast, regarding a set of insurance policies under which both MAISL and LPS (collectively "Plaintiffs ") were named as insured parties. The dispute is over the extent of Selective's obligation to reimburse Plaintiffs for past and ongoing costs that Plaintiffs have incurred in defending three lawsuits alleging misconduct by LPS employees.

Both parties have moved for summary judgment. In the manner fully set forth below, each party's motion shall be granted in part and denied in part.

I. BACKGROUND

A. The Parties

Plaintiff MAISL is a group self-insured pool of Michigan public school districts formed under the Michigan Intergovernmental Contracts Between Municipal Corporations Act, Mich. Comp. Laws § 124.1 et seq. Plaintiff LPS is a public school district incorporated as a municipal corporation under Michigan law. (ECF No. 8, Am. Compl. ¶¶ 1-2.) Defendant Selective Insurance Company of the Southeast ("Selective ") is a commercial insurance company incorporated and headquartered in Indiana. (ECF No. 10, Answer ¶ 5.)

B. Insurance Policies and Significant Provisions

Each policy at issue in this case ran one year from July 1 to July 1. The relevant time period includes three consecutive policy years: 2010, 2011, and 2012. Two policies from each of those years are implicated in this lawsuit, and the significant provisions of those policies are summarized below.

1. 2010-2011 Policies

From July 1, 2010 to July 1, 2011, Plaintiffs were insured under two Selective policies that are relevant here: Policy No. S1323571 ("2010-2011 Primary Policy ") (ECF No. 10, Answer Ex. A), and Policy No. S1317854 ("2010-2011 Umbrella Policy ") (ECF No. 10, Answer Ex. D).

Plaintiffs had policies that were materially identical to these two policies in the subsequent 2011-2012 term (and in fact had the some policy numbers as their 2010-2011 term counterparts). Those policies are discussed in depth below. To avoid redundancy, it is sufficient to say that the following descriptions of the 2011-2012 policies also apply to their 2010-2011 counterparts.

2. 2011-2012 Policies

The relevant policies that were in effect from July 1, 2011 until July 1, 2012 are Policy No. S1323571 ("2011-2012 Primary Policy ")¹ (ECF No. 1, Compl. Ex. 2, Pg ID 79-201), and Policy No. S1317854 ("2011-2012 Umbrella Policy ") (Compl. Ex. 4, Pg ID 234-365).

a) 2011-2012 Primary Policy

The 2011-2012 Primary Policy is the most central policy to this case, and what follows is a summary of the most significant provisions of that policy.

i. General Coverage Provisions

The 2011-2012 Primary Policy's "General Liability" coverage applies to lawsuits and other claims arising from "bodily injuries or personal injuries, suffered or alleged to have been suffered" as well as "property damage or loss of use." (Compl. Ex. 2, 2011-2012 Primary Policy at Pg ID 109.) Subject to certain exclusions discussed infra , the policy provides that Selective "must defend any suit against the Insured that seeks damages for bodily injury, property damage or personal injury this insurance covers, even if the allegations are groundless, false or fraudulent. We may settle any claim or suit we consider expedient." (Id. ) The injury giving rise to the lawsuit "must be caused by an occurrence during the term of [the 2011-2012 Primary Policy]." (Id. ) The 2011-2012 Primary Policy relevantly defines "bodily injury" as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." (Id. at Pg ID 115.) The 2011-2012 Primary Policy defines "personal injury" as "injury other than ‘bodily injury’ arising out of ... a. false arrest, false imprisonment, detention ...; b. mental anguish and humiliation; c. wrongful entry, wrongful eviction, malicious prosecution; [or] d. an oral or written publication that slanders, libels, harms property value or violates privacy rights." (Id. at Pg ID 115-16.)

Among the various forms and endorsements that affect the scope of the 2011-2012 Primary Policy's coverage is the "Supplemental Declarations" section. The limits for General Liability are set forth in Part III, Section K of the Supplemental Declarations. (See id. at Pg ID 83.) That section provides that there is a $1,000,000 indemnification limit for "[e]ach occurrence,"² and identifies the "General Aggregate Limit" as "N/A." (Id. ) "General Aggregate Limit" is defined as "the most [Selective] will pay in any year of this insurance for damages and expenses defined by Ultimate Net Loss." (Id. at Pg ID 116.) In a separate section entitled "Common Policy Provisions," the policy states that "[t]he policy limit will not be reduced by defense cost or loss adjustment expenses." (Id. at Pg ID 123.)

Selective's obligations under the policy, subject to the $1,000,000 per-occurrence limit referenced above, are paid to the insured only after the insured first pays a "Self Insured Retention" ("SIR "). (See id. at Pg ID 81 ("The limit of liability under this agreement shall be in excess of the retained amount shown on the Schedule of Self Insured Retentions.").) The Schedule of Self-Insured Retentions provides for a $500,000 SIR "per occurrence or per loss from a covered cause of loss." (Id. at Pg ID 84.)

Two other terms used in the 2011-2012 Primary Policy are important here. First is "Ultimate Net Loss, " which the policy defines as having two components:

A. all sums which the Insured is legally obligated to pay as damages including pre- and post-judgement [sic ] interest, whether by reason of adjudication or settlement because of liability to which this insurance applies, and

B. all expenses incurred by the Insured (including any third party administrator) in the investigation, negotiation, settlement or defense of claims or suits seeking such damages, excluding only the salaries of the Insured's regular employees, provided, however, that Ultimate Net Loss shall not include any damages or expenses or liability excluded or not otherwise covered by this policy.

(2011-2012 Primary Policy at Pg ID 85 (emphasis in original).)

The second key term is "Loss Fund Policy Aggregate," defined as

[t]he amount of loss dollars retained by the Insured, which is the maximum amount to be applied for all Self Insured Retentions. No losses in excess of the Self Insured Retentions are chargeable to the loss fund. In addition, the Self Insured Retention is limited to the aggregate as indicated for all occurrences, persons, organizations, accidents, employees or claims. This aggregate Self Insured Retention applies separately to each consecutive annual period and any remaining period of less than 12 months starting with the beginning of the policy period shown in the Declaration.

(Id. (emphasis in original).) The Loss Fund Policy Aggregate in the 2011-2012 Primary Policy is $3,600,000. (Id. at Pg ID 84.)

Bringing all of these terms together, the 2011-2012 Primary Policy states:

In consideration of the reduced premium charged, [Selective]'s obligation to pay for damages caused by a resulting [sic ] from any occurrence or covered cause of loss is limited to the payment of that portion of the Ultimate Net Loss which, subject to the Loss Fund Aggregate, is in excess of the Self Insured Retention amount [specified in the policy].

...

[Selective]'s duty to investigate, settle and defend claims or suits under this policy applies only after the Ultimate Net Loss exceeds the Self Insured Retention, and the Maintenance Deductible, if applicable.³ [Selective] shall have the right, but not the duty, to associate with you in defense of any claim or suit for which the Ultimate Net Loss is likely to exceed the Self Insured Retention. [Selective] shall not be obligated to defend any claim or suit after the applicable limit of [Selective]'s liability has been exhausted through payment of claims, settlements or judgements [sic ].

(Id. (emphasis in original).)

To summarize the provisions quoted above: absent modification by any other terms of the policy, the 2011-2012 Primary Policy obligates Selective to pay for damages and defense costs incurred based on claims arising from actual or alleged bodily or personal injuries. For each occurrence, the insured must first pay up to $500,000 as an SIR, after which Selective is obligated to reimburse the insured up to $1,000,000 per occurrence. Defense costs reimbursed by Selective do not count towards the $1,000,000 limit, though defense costs paid by the insured do count towards exhausting the SIRs. Although there is a $1,000,000 per-occurrence limit, there is no aggregate limit in the event of multiple occurrences. If the insured's SIR payments reach $3,600,000, however, any costs in excess of that are covered.⁴

ii. Exclusion 7

The section of the 2011-2012 Umbrella Policy entitled "Exclusions" sets forth categories of claims that are entirely excluded from coverage under the policy. One of these is Exclusion 7: "Personal Injury arising...