Mountain Lodge Ass'n v. Crum & Forster

Decision Date07 December 2001
Docket NumberNo. 29289.,29289.
Citation558 S.E.2d 336,210 W.Va. 536
CourtWest Virginia Supreme Court
PartiesMOUNTAIN LODGE ASSOCIATION, an Unincorporated Association, Plaintiff Below, Appellant, v. CRUM & FORSTER INDEMNITY COMPANY, a Corporation, and United States Fire Insurance Company, a Corporation, Defendants Below, Appellees.
Dissenting Opinion of Justice Davis December 10, 2001.

Larry O. Ford, Meyer & Ford, Anne E. Shaffer, Charleston, for the Appellant.

Erik T. Engle, Pullin, Knopf, Fowler & Flanagan, Charleston, for the Appellees. ALBRIGHT, Justice.

Mountain Lodge Association (hereinafter "Appellant" or "MLA"), appeals the August 28, 2000, final order of the Circuit Court of Pocahontas County awarding summary judgment in favor of Crum & Forster Indemnity Co. (hereinafter "Crum") and United States Fire Insurance Company (hereinafter "U.S. Fire" or collectively "Appellees"), in a civil action filed by Appellant seeking a declaratory judgment to determine coverage for "employee dishonesty" under a commercial general liability policy and seeking recovery for alleged employee dishonesty and alleged bad faith on the part of Appellees for denying coverage under the policy. Appellees Crum and U.S. Fire denied coverage under that insurance policy because Appellees claim that the allegedly dishonest person was an independent contractor and not an employee of MLA. The lower court agreed and entered summary judgment for Appellees after also considering a cross-motion for summary judgment filed by Appellant. Because we find Appellees are not entitled to summary judgment as a matter of law, we reverse and remand for proceedings consistent with this opinion.

I. FACTS AND PROCEDURAL HISTORY

MLA, an unincorporated association, operates Mountain Lodge, which is located at Snowshoe in Pocahontas County, West Virginia. At some time prior to May 1996, MLA decided to renovate its condominium complex. It appears that MLA originally intended to utilize a general contractor to accomplish at least some of the renovations, but elected, on or about May 16, 1996, to alter its approach. Mountain Lodge proposed to act as general contractor for the "exterior rehabilitation project rather than rely on a commercial general contractor." According to MLA board meeting minutes dated May 16, 1996, and approved July 22, 1996, the plan was for the board to hire Norman D. Tyler to "work for" the "board as their construction manager." Mr. Tyler had worked for the board prior to May 16, 1996, in a different capacity.

Later, but prior to starting these renovations, MLA purchased from Crum & Forster, through Accordia, Inc., a commercial general liability policy of insurance issued by U.S. Fire, which included an employee dishonesty section intended to protect the insured from theft of property or money by employees. Subsequently, a letter dated November 13, 1996, was prepared, referring to a "professional services contract" for "N. D. Tyler," which, with its attachments, outlined duties and compensation for Mr. Tyler with respect to the renovations. Copies of that letter, included in the record with some of its attachments, are addressed to Sam McKeen, President, Mountain Lodge Association, and are signed by Mr. McKeen, but not by Mr. Tyler. The documents in the record also disclose a plan to pay Mr. Tyler for his services in a series of installments, plus a possible bonus based on savings in costs effected by Mr. Tyler.

It is not clear from the record when Mr. Tyler actually began acting as "construction manager," but the record does disclose a representation by Mr. McKeen that the project was scheduled to be accomplished between January and September, 1997, and that Mr. McKeen expected Mr. Tyler's services to be "on-site."

There is also a reference in the record to a three-way telephone conversation on March 26, 1997, among Mr. Tyler, Mr. McKeen and Janice Peacock, a representative of Accordia, during which Mr. McKeen asserts that he verified to Accordia that Mountain Lodge had an employment relationship with Mr. Tyler. Specifically, MLA allegedly sought, and then obtained assurance from Accordia, based on Mr. Tyler's status as an employee, that it would not be necessary to acquire a separate bond to protect MLA against any dishonesty by Mr. Tyler, as it would be if he was an independent contractor.

After the renovations began in 1997, MLA Board President Sam McKeen sent Mr. Tyler at least three memos regarding aspects of Mr. Tyler's work and the progress of the renovations. Those memos included demands that Mr. Tyler "[i]mmediately return" various amounts of money which Mr. Tyler had allegedly over-billed for work and materials, that he provide justification for certain invoices, and that he complete installation of certain trim pieces, as well as other matters. The last memo in the record, dated December 3, 1997, requested that Mr. Tyler perform specified tasks, demanded reimbursement to MLA of $53,000.00 which Mr. Tyler had allegedly misappropriated, and announced the termination of his services by MLA. Those memos suggest that, in addition to serving as "construction manager," Mr. Tyler furnished certain materials and labor for the renovation project through a separate business entity in which he had an interest or was the owner.1

When Mr. Tyler did not make the reimbursement requested, MLA filed a proof of loss with Appellee, Crum & Forster, alleging employee dishonesty by Mr. Tyler in the amount of $53,616.00. Crum & Forster responded by requesting copies of MLA's tax forms relating to Mr. Tyler's employment. MLA had no such records because it had neither withheld income taxes from, nor paid workers' compensation premiums for, Mr. Tyler. Crum & Forster denied the claim by letter dated August 10, 1998, stating that a "key element in determining the status of the actor is whether or not Mountain Lodge Association paid taxes on behalf of the actor." Citing the definition of "employee" in the policy, Crum & Forster concluded that "there is no evidence to support that Norman D. Tyler was, in fact, an employee" and closed the claim.

Later that month, Accordia sent a detailed letter to Crum & Forster in support of MLA's claim, and Crum & Forster reopened the claim. MLA and Crum & Forster exchanged correspondence in which MLA argued that Mr. Tyler's position was similar to that of its "general manager" position. Crum & Forster again denied the claim. In the last letter, dated November 4, 1998, Crum & Forster again cited the fact that taxes were withheld from, and workers compensation paid on, the "general manager" position, but not with respect to Mr. Tyler. The letter made no comment regarding similarities between the two positions and recited that no additional evidence had been presented in support of the MLA claim that Mr. Tyler was an employee.

Following this denial, MLA filed its Complaint in this action on October 9, 1999, seeking a declaratory judgment on the issues of coverage and other relief mentioned above. After Appellees filed an answer and after some initial discovery, MLA filed a motion for summary judgment, followed by the filing of a cross-motion for summary judgment by Appellees. The circuit court made initial findings by an order entered June 28, 2000, and its final summary judgment order was entered August 28, 2000. The court below determined that the subject insurance policy afforded MLA no coverage for the alleged defalcations of Mr. Tyler. Essentially, the trial court found that there were no disputed facts, that MLA had failed to retain control over Mr. Tyler and that Appellees were therefore entitled to judgment as a matter of law. It is from that August 28, 2000, order granting Appellees summary judgment that MLA appeals.

II. STANDARD OF REVIEW

This case involves the granting of summary judgment in a declaratory judgment action. Our focus here is upon whether summary judgment was properly granted, although we note that the standard of review for both types of judgments is the same. "A circuit court's entry of summary judgment is reviewed de novo." Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). "A circuit court's entry of a declaratory judgment is reviewed de novo." Syl. Pt. 3, Cox v. Amick, 195 W.Va. 608, 466 S.E.2d 459 (1995).

III. DISCUSSION

The question with which we must grapple is whether Appellees here, Defendants below, were entitled to summary judgment as a matter of law. That question depends on whether the record below supports the conclusion of the trial court that the undisputed facts, without further inquiry, show that Appellant did not have the right to control the manner in which Mr. Tyler performed his duties as "construction manager" for Appellant. If Appellant had such a right of control, Mr. Tyler was an employee covered by the insurance policy at issue in this case. If Appellant did not have that right of control, Mr. Tyler was an independent contractor not covered by the insurance policy.

This Court has expressed the underlying law which distinguishes an employee from an independent contractor in two contrasting, but consistent, leading cases. We have stated the roles as follows:

"`If the right to control or supervise the work in question is retained by the person for whom the work is being done, the person doing the work is an employee and not an independent contractor, and the determining factor in connection with this matter is not the use of such right of control or supervision but the existence thereof in the person for whom the work is being done.' Point 2, Syllabus, Spencer v. Travelers Insurance Company, 148 W.Va. 111, [133 S.E.2d 735 (1963)]."

Syl. Pt. 3, Myers v. Workmen's Compen. Comm'r, 150 W.Va. 563, 148 S.E.2d 664 (1966).

In syllabus point one of Spencer v. Travelers Insurance Company, 148 W.Va. 111, 133 S.E.2d 735 (1963), we further said:

The question as to whether a person is an employee or an
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