Neighborhood Hous. Serv. of Am. Inc. v. Turner–ridley

Citation742 F.Supp.2d 964
Decision Date24 September 2010
Docket NumberNo. 1:08–CV–182.,1:08–CV–182.
PartiesNEIGHBORHOOD HOUSING SERVICES OF AMERICA, INC., Plaintiff,v.Nicole TURNER–RIDLEY, et al., Defendants.
CourtUnited States District Courts. 7th Circuit. United States District Court of Northern District of Indiana

OPINION TEXT STARTS HERE

Dina M. Cox, Lisa M. Dillman, Brett Y. Hoy, Lewis Wagner LLP, Indianapolis, IN, for Plaintiff.Daniel E. Serban, Serban Law Office, J. Spencer Feighner, Mark E. Giaquinta, Haller & Colvin P.C., John W. Bowers, Theisen Bowers & Associates LLC, G. Martin Cole, Burt Blee Dixon Sutton & Bloom LLP, Fort Wayne, IN, for Defendants.

OPINION AND ORDER

RUDY LOZANO, District Judge.

This matter is before the Court on: (1) Motion for Summary Judgment of Third–Party Defendant Philadelphia Indemnity Insurance Company, filed on March 31, 2010; (2) Defendant/Third–Party Plaintiff, Nicole Turner–Ridley's, Motion for Partial Summary Judgment, filed on March 31, 2010; and (3) Motion of Third–Party Defendant Philadelphia Indemnity Insurance Company to Strike as Untimely Defendant/Third–Party Plaintiff Nicole Turner–Ridley's Response in Opposition to Philadelphia Indemnity Insurance Company's Motion for Summary Judgment and Reply in Support of Motion for Partial Summary Judgment of Nicole Turner–Ridley, filed on May 11, 2010. After due consideration, the motion to strike (DE # 125) is DENIED. Because the underlying complaint does not contain an allegation which could potentially come within the coverage of the insurance policy issued to Rainbow by Philadelphia, Philadelphia's motion for summary judgment (DE# 116) is GRANTED and Nicole Turner–Ridley's motion for summary judgment (DE# 117) is DENIED.

BACKGROUND

Plaintiff, Neighborhood Housing Services of America (NHSA) brought suit against Rainbow Community Organization, Inc. (“Rainbow”) and three of its employees, Nicole Turner–Ridley, Mary Bailey and Margaret Steinbacher, arising out of the Rainbow Defendants' involvement in servicing mortgage loans purchased from Rainbow by NHSA. Rainbow and its employees have filed a third-party complaint seeking a declaratory action against their insurance provider, Philadelphia Indemnity Insurance Company (“Philadelphia”), seeking a declaratory judgment that Philadelphia has a duty to defend and indemnify them with respect to NHSA's claims.

Nicole Turner–Ridley and Philadelphia have filed cross motions for summary judgment on the declaratory judgment issue.

DISCUSSIONSummary Judgment Standard

The standards that generally govern summary judgment motions are familiar. Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper only if it is demonstrated that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Nebraska v. Wyoming, 507 U.S. 584, 590, 113 S.Ct. 1689, 123 L.Ed.2d 317 (1993); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In other words, the record must reveal that no reasonable jury could find for the nonmovant. Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th Cir.1991); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding a motion for summary judgment, a court must view all facts in the light most favorable to the nonmovant. Anderson, 477 U.S. at 255, 106 S.Ct. 2505; NUCOR Corp. v. Aceros Y Maquilas de Occidente, 28 F.3d 572, 583 (7th Cir.1994).

The burden is upon the movant to identify those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits,” if any, that the movant believes demonstrate an absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. Once the movant has met this burden, the nonmovant may not rest upon mere allegations but “must set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e); Becker v. Tenenbaum–Hill Assocs., Inc., 914 F.2d 107, 110 (7th Cir.1990); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir.1989). “Whether a fact is material depends on the substantive law underlying a particular claim and ‘only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.’ Walter v. Fiorenzo, 840 F.2d 427, 434 (7th Cir.1988) (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505).

[A] party who bears the burden of proof on a particular issue may not rest on its pleading, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact which requires trial.” Beard v. Whitley County REMC, 840 F.2d 405, 410 (7th Cir.1988) (emphasis in original); see also Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1391 (7th Cir.1993). Therefore, if a party fails to establish the existence of an essential element on which the party bears the burden of proof at trial, summary judgment will be appropriate.

Interpretation of a written contract, including a contract of insurance, typically presents a question of law suitable for resolution on motions for summary judgment. Erie Ins. Group v. Alliance Environmental, Inc., 921 F.Supp. 537, 539 (S.D.Ind.1996). “When the question presented is whether an insurance policy provides liability coverage for a particular claim or lawsuit, the central material facts are ordinarily the terms of the written contract and the contents of the plaintiff's allegations in the underlying litigation.” Id. ( citations omitted). Here, the facts are not disputed; instead, it is the legal conclusions to be drawn from the terms of the insurance contract as applied to the underlying lawsuit that is at issue.

Facts

Rainbow is an Indiana non-nonprofit organization in the business of providing mortgage loans to purchase and rehabilitate homes to low income families in and around Fort Wayne, Indiana. (Rainbow's Answer to Sec. Am. Cmplt. ¶¶ 2, 8). At all material times, Nicole Turner–Ridley (Ridley) was employed by Rainbow and served as Rainbow's Executive Director. (Ridley's Answer to Sec. Am. Cmplt. ¶ 9).

On July 31, 2008, NHSA sued Rainbow and three of its employees, including Ridley, for damages arising out of their involvement in servicing mortgage loans purchased from Rainbow by NHSA. (Second Am. Cmplt.). According to NHSA's second amended complaint, it entered into a Revised Loan Sale and Servicing Agreement, whereby NHSA agreed to purchase from Rainbow and Rainbow agreed to sell to NHSA, certain mortgage loans originated by Rainbow. (Second Am. Cmplt., ¶ 12). Pursuant to that agreement, Rainbow was to receive a quarterly fee from NHSA in exchange for retaining certain responsibilities for the purchased loans. (Second Am. Cmplt., ¶ 13). As part of Rainbow's retained responsibilities, Rainbow accepted loan payments from borrowers and forwarded these amounts to NHSA. (Second Am. Cmplt., ¶ 14). In addition, when mortgage loans were paid off, Rainbow was required to forward those payoff amounts to NHSA. (Second Am. Cmplt., ¶ 14). Between 2001 and 2006, Rainbow accepted several payoffs on mortgage loans. (Second Am. Cmplt., ¶ 15). However, instead of forwarding these payoffs to NHSA, Defendants allegedly diverted these funds into accounts controlled by Rainbow for use by Rainbow. (Second Am. Cmplt., ¶ 15). After allegedly misdirecting the funds, Rainbow continued to make the monthly payments on the mortgage loans to NHSA as though the loans had not been paid off. (Second Am. Cmplt., ¶ 15). According to NHSA, Rainbow allowed a number of mortgage loans to go into default. (Second Am. Cmplt., ¶ 16). Based on these allegations, NHSA brought suit against Ridley for civil conversion, negligence, conspiracy and fraud. (Second Am. Cmplt.). The negligence claim against Ridley arises from her alleged failure to properly supervise Rainbow employees in the administration and services of the loans, which included ensuring that any payoff amounts were property applied to those loans. (Second Am. Cmplt., ¶¶ 9, 35–37).

Upon receipt of NHSA's lawsuit, Rainbow Defendants sought Philadelphia to defend them pursuant to a commercial general liability insurance policy Philadelphia issued to Rainbow under Policy No. PHSD216703 (hereinafter “Policy”). (Ridley's Motion. Ex. A). The Policy provided Commercial Property Coverage, Commercial General Liability Coverage, Commercial Crime Coverage, Commercial Inland Marine Coverage, Commercial Auto Coverage, Business Owners, Workers Compensation and “Flexi Plus Five” coverage parts. (Ridley's Motion. Ex. A, Common Policy Decl., p. 7). The Flexi Plus Five Policy coverage included Not–For–Profit Organization Directors & Officers Liability Insurance, Employment Practices Liability Insurance and Fiduciary Liability Insurance. (Ridley's Motion, Ex. A, Flexi Plus Declarations, p. 9). Under the Policy, Ridley was covered as an “Individual Insured” due to her role as Executive Director and employee of Rainbow. (Ridley Motion, Ex. A, Common Policy Definitions, p. 32).

According to the Policy's Directors & Officers Liability Insurance, Philadelphia was obligated to insure both individual directors and officers as well as the organization for any loss or claims made for “D & O Wrongful Acts.” (Ridley Motion, Ex. A, Not–For–Profit Organization Directors & Officers Liability Insurance, p. 21). A “D & O Wrongful Act is defined, in part, by the policy as any actual or alleged “act, error, omission, misstatement, misleading statement, neglect, breach of duty or Personal & Advertising Injury committed or attempted by an Individual Insured in his/her capacity as an Individual Insured; or by the Organization ....” (Ridley Motion, Ex. A, Not–For–Profit Organization Directors & Officers Liability Insurance, p. 21). The Policy further provided that, once an insured tendered the defense of a claim to Philadelphia, Philadelphia “shall undertake and manage the defense of such Claim, even if such...

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