Lott v. Scottsdale Ins. Co.

• Decision Date: 27 October 2011
• Docket Number: Case No. 1:11cv362.
• Parties: Deborah LOTT, Individually, and as Personal Representative of the Estate of Sara Kelsey Lott, Deceased, et al., Plaintiffs, v. SCOTTSDALE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

827 F.Supp.2d 626

Deborah LOTT, Individually, and as Personal Representative of the Estate of Sara Kelsey Lott, Deceased, et al., Plaintiffs,

v.SCOTTSDALE INSURANCE COMPANY, Defendant.

Case No. 1:11cv362.

United States District Court, E.D. Virginia,Alexandria Division.

Oct. 27, 2011.

Thomas Wilfried Mitchell, Klores Perry Mitchell PC, Washington, DC, Matthew Thomas Sutter, Wade Friedman Sutter & Dupray PC, Alexandria, VA, Elizabeth E. Stanulis Skilling, Thomas Simpson Garrett, Harman Claytor Corrigan & Wellman, Richmond, VA, for Plaintiffs.

Tracie Noelle Wesner, Eccleston and Wolf PC, Fairfax, VA, for Defendant.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

At issue in this diversity declaratory judgment action are the following two questions of insurance policy interpretation:

(i) Whether it is appropriate to refer to parol evidence to identify the entity that parties intended to insure under a policy where, as here, the policy's named insured is a non-existent or inactive entity.

(ii) Whether an insurance policy covers the allegedly negligent provision of lifeguard services and pool safely, rescue, and resuscitation equipment where, as here, the policy does not explicitly refer to these mailers, but excludes from coverage “all operations not related to pool sales, service or maintenance.”

I.

Plaintiffs Deborah Lott and Douglas Lott (collectively “the Lotts”) are residents of Virginia. On July 21, 2008, their twelve year old daughter, Sara Kelsey Lott, was found face down and not moving in a swimming pool at Lake Ridge Community Swim Club (“Lake Ridge”) in Occoquan, Virginia. Sara, it turned out, had suffered hypoxic injury to her brain due to loss of oxygen, and she died two days later. Following this tragic event, the Lotts filed a Virginia wrongful death action in the Prince William County Circuit Court (the “Underlying Lawsuit”) against live defendants: (i) Lake Ridge and (ii) the following four Palm Pools defendants: (a) Palm Pool Management, Inc., (b) Palm Pools Service Corp., (c) Palm Pools Corp., of Maryland, and (d) ICA/Palm Pools Corp. (collectively “Palm Pools”). In the Underlying Lawsuit, the Lotts allege that Palm Pools was responsible for operating the swimming pool at Lake Ridge and was negligent in providing lifeguard services and pool safety, rescue, and resuscitation equipment. Based on these allegations, the Lotts assert claims against Palm Pools for, inter alia, wrongful death and negligent hiring, training, retention, and supervision of lifeguards.

Prior to this tragic event, defendant Scottsdale Insurance Company (“Scottsdale”) had issued a primary commercial general liability insurance policy (the “Primary Policy”) to “Palm Pools Management Corporation” and an excess liability insurance policy (the “Excess Policy”) to “Palm Pools Inc.” for the period from June 9, 2008 to June 9, 2009. When Palm Pools provided Scottsdale with timely notice of the Underlying Lawsuit, Scottsdale responded by denying that it had any duty to defend Palm Pools in that lawsuit or to indemnify Palm Pools for any damages resulting from that lawsuit. Thereafter, the Lotts, Lake Ridge, and Lake Ridge's insurance provider, Harleysville Insurance Company (“Harleysville”)—which has agreed to defend and indemnify Lake Ridge in the Underlying Lawsuit—filed a declaratory judgment action against Scottsdale and Palm Pools in Prince William County Circuit Court. In their declaratory judgment complaint, plaintiffs request a declaration that Scottsdale has both (i) a duty to defend Palm Pools against the claims asserted in the Underlying Lawsuit, and (ii) a duty to indemnify Palm Pools for any settlement or judgment resulting from the claims in the Underlying Lawsuit. Plaintiffs also seek “such other relief [deemed] just and appropriate, including plaintiffs' attorneys' fees incurred prosecuting this action.”

Scottsdale removed the action to federal court and sought realignment of the Palm Pools entities as plaintiffs in order to establish the requisite diversity of citizenship. The realignment motion was granted by Order dated May 9, 2011, at which time the Palm Pools entities became plaintiffs and Scottsdale remained the sole defendant. See Lott v. Scottsdale Ins. Co., 811 F.Supp.2d 1220, 2011 WL 2022539 (E.D.Va. May 9, 2011). Thereafter, Lake Ridge and Harleysville were dismissed as plaintiffs for lack of standing. See Lott v. Scottsdale Ins. Co., 811 F.Supp.2d 1224, 2011 WL 4374824 (E.D.Va. Sept. 14, 2011). In addition, Palm Pools and the Lotts filed an amended complaint which sought the same declaratory relief, but included Palm Pools as plaintiffs and a claim for breach of contract, which is the gravamen of the requested declaratory relief. At this time, both parties have filed potentially dispositive motions. Plaintiffs have filed a motion for summary judgment, and Scottsdale has filed a motion to dismiss, or in the alternative, for summary judgment on the amended complaint.

II.

Dismissal pursuant to Rule 12(b)(6), Fed.R.Civ.P., is appropriate where the complaint does not “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) ( quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1973, 167 L.Ed.2d 929 (2007)). It follows that to survive a Rule 12(b)(6) motion to dismiss, a complaint must contain “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. Thus, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. Instead, the complaint must allege facts that, if true, plausibly satisfy each element of the claims for which relief is sought. Accordingly, a motion to dismiss must be granted if the complaint does not allege a sufficient factual basis to create a plausible inference that plaintiff is entitled to relief.

Summary judgment is appropriate under Rule 56, Fed.R.Civ.P., only where, on the basis of undisputed material facts, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Importantly, to defeat summary judgment, the non-moving party may not rest upon a “mere scintilla” of evidence, but must set forth specific facts showing a genuine issue for trial. Id. at 324, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, the party with the burden of proof on an issue cannot prevail at summary judgment on that issue unless that party adduces evidence that would be sufficient, if believed, to carry the burden of proof on that issue at trial. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548.

III.

The legal principles governing an insurer's duty to defend and indemnify are well-settled in Virginia.¹ The principal governing rule is that a duty to defend depends on whether any allegations in the Underlying Lawsuit's complaint (the “Underlying Complaint”) fall within the policy's coverage. See VEPCO v. Northbrook Property & Cas. Ins., 252 Va. 265, 268, 475 S.E.2d 264, 265 (1996) ( quoting Lerner v. Safeco, 219 Va. 101, 104, 245 S.E.2d 249, 251 (1978)). This rule, often referred to as the Eight Corners Rule, requires a court to compare the four corners of the insurance policy against the four comers of the underlying complaint; if any of the complaint's allegations may potentially be covered by the policy, the insurer has a duty to defend. See America Online, Inc. v. St. Paul Mercury Ins. Co., 207 F.Supp.2d 459, 465 (E.D.Va.2002). An insurer is only relieved of its duty to defend if it appears clearly that the insurer would not be liable under its policy for any judgment based upon the complaint's allegations. See Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 397 S.E.2d 100, 102 (1990).

It is also well-settled that an insurer's duty to defend is broader than its duty to indemnify, inasmuch as the duty to defend turns on a complaint's allegations whereas “a duty to indemnify ‘springs from the facts actually discovered or proven at trial.’ ” Morrow Corp. v. Harleysville Mut. Ins. Co., 101 F.Supp.2d 422, 435 (E.D.Va.2000) ( quoting Liberty Life Ins. Co. v. Travelers Indem. Co., 181 F.3d 88, 1999 WL 417436, at *4 (4th Cir.1999) (unpublished)). Thus, unless there is no duty to defend or indemnify, a duty to indemnify can only be determined after resolution of the facts alleged in the underlying complaint. See Minnesota Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, 355 Fed.Appx. 698, 704 (4th Cir.2009) ( quoting Penn–America Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir.2004)); Pennsylvania Nat. Mut. Cas. Ins. Co. v. Block Roofing Corp., 754 F.Supp.2d 819 (E.D.Va.2010). As a result, there may be some instances in which an insurer has a duty to defend, yet ultimately will not to have a duty to indemnify. A duty to defend limited to and coextensive with a duty to indemnify would be inadequate; insureds pay a premium for what is partly “litigation insurance” designed with the purpose of “protecting the insured from the expense of defending suits brought against him.” Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252, 258 (4th Cir.2006).

IV.

Scottsdale argues that it has no duty to defend or indemnify Palm Pools in the Underlying Lawsuit because its policies do not provide coverage for any of the actions or inactions alleged in the Underlying Complaint. Scottsdale points to two specific provisions of the Primary Policy for this assertion. First, Scottsdale argues that only one Palm Pools entity, Palm Pool Management, Inc., has standing to assert a duty to defend or indemnify because it is the sole named insured.² Plaintiffs respond that because the policy's named insured is a non-existent entity, there is a latent ambiguity in the policy that requires resort to parol evidence and...