Shoshone First Bank v. Pacific Employers Insurance Co.

• Court: Wyoming Supreme Court
• Writing for the Court: THOMAS, Justice.
• Citation: Shoshone First Bank v. Pacific Employers Insurance Co., 2 P.3d 510 (Wyo. 2000)
• Decision Date: 03 April 2000
• Docket Number: No. 98-146.,98-146.
• Parties: SHOSHONE FIRST BANK, and United Bancorporation of Wyoming, Inc., Appellants (Defendants), v. PACIFIC EMPLOYERS INSURANCE CO., Appellee (Plaintiff).

2 P.3d 510

SHOSHONE FIRST BANK, and United Bancorporation of Wyoming, Inc., Appellants (Defendants), v. PACIFIC EMPLOYERS INSURANCE CO., Appellee (Plaintiff).

No. 98-146.

Supreme Court of Wyoming.

April 3, 2000.

Representing Appellants: Dan B. Riggs and Jonathan A. Botten of Lonabaugh and Riggs, Sheridan, Wyoming.

Representing Appellee: Thomas A. Nicholas of Hirst & Applegate, P.C., Cheyenne, Wyoming; and Kevin F. Amatuzio of Montgomery, Kolodny, Amatuzio, Dusbabek & Parker, L.L.P., Denver, Colorado.

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN, and HILL, JJ.

THOMAS, Justice.

The only question presented in this case relates to the allocation to, and recovery from, an insured by an insurance carrier of part of the costs and expenses of litigation. Pacific Employers Insurance Company (Pacific) seeks to allocate and recover for both the costs attributable to non-covered claims under the policy and the costs attributable to a counterclaim. Shoshone First Bank and United Bancorporation of Wyoming, Inc. (collectively Shoshone) vigorously assert that the allocation and recovery of the costs of litigation should not be permitted. This case comes to us as a question certified from the United States District Court for the District of Wyoming. In answering the certified question, we hold that the allocation and recovery of the costs attributable to the defense of claims that were not covered by the policy of insurance is not permitted under Wyoming law so long as one or more of the claims alleged is covered by the insurance policy. We further hold that the allocation and recovery of costs attributable to the prosecution of a counterclaim belonging to the insured is permitted, without regard to any tactical or strategic justification for asserting the counterclaim.

The certified question presented by the United States District Court for the District of Wyoming, pursuant to Wyo. Stat. Ann. §§ 1-13-104 through 1-13-107 (Lexis 1999) and W.R.A.P. 11 is:

Does Wyoming law recognize a legal or equitable right of insurer allocation, allowing the insurer to allocate to its insured and recover either (1) the costs of defending non-covered claims, where there is at least one covered claim and the insurer has already paid for the defense, or (2) the costs of bringing a counterclaim, where there is at least one covered claim and the insurer has already paid for the litigation of the counterclaim?

Both parties faithfully reproduced the certified question in stating the issue in the case.

Our appellate rules request that a certification order include "a statement of all facts relevant to the questions certified." W.R.A.P. 11.03(b). In this instance, however, we did permit the parties to file an additional record consisting of a set of stipulated facts that the parties presented to the United States District Court for the District of Wyoming. This Court, however, has no authority to resolve any factual questions, and we turn primarily to the Certification Order of the United States District Court for the District of Wyoming in articulating the facts material to our decision.

Pacific seeks a declaratory judgment determining that, upon the facts of this case and under Wyoming law (which the parties agree applies to this controversy), Pacific is entitled to recover from Shoshone those expenses incurred in litigation that are attributable to uncovered claims. Pacific asserts both contractual and equitable grounds in support of its position. Shoshone answered Pacific's complaint, denying Pacific's entitlement to relief and asserting that insurer allocation is not recognized in Wyoming. Shoshone also has asserted counterclaims against Pacific, including claims of breach of contract and insurance bad faith. The parties, however, have entered into a Stipulation, approved by the United States District Court, which substantially narrows and limits the issues in the case. Pursuant thereto, the parties have agreed

to limit further litigation in this matter to [Pacific's] First Claim for Relief (declaratory judgment) and [Shoshone's] Sixth Claim for Relief (declaratory judgment) respecting the Plaintiff's asserted legal and equitable right, if any, under Wyoming law and the facts of this case, to (a) allocate to and recover from its insureds a portion of the cost of defending the [disgruntled director's] lawsuit on the basis that Plaintiff's policy of insurance did not cover some of the claims asserted against the Defendants by [the director], and (b) to allocate and recover from its insureds a portion of the cost of the [director's] lawsuit on the basis that Shoshone asserted a counterclaim in the [director's] lawsuit.

Pacific and Shoshone each filed a motion for summary judgment on the remaining issues, as defined by the Stipulation.

Pacific issued a policy of commercial general liability insurance (Policy) to Shoshone for a policy period from December 5, 1990 through December 5, 1991. The Policy contains a standard commercial general liability coverage form issued by the Insurance Service Office. The duty to defend clause states:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. * * * We will have the right and duty to defend any "suit" seeking those damages * * *.

Coverage under the Policy for "bodily injury" and "property damage" applies only if the injury or damage is caused by an "occurrence" during the policy period, as those terms are defined therein:

3. "Bodily injury" means bodily injury, sickness or disease sustain by a person, including death resulting from any of these at any time.

* * *

9. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

The Policy also contains "Coverage B" for personal and advertising injury liability:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this insurance applies.

The Policy contains the following exclusion:

This insurance does not apply to: "Bodily injury" or "property damage" expected or intended from the standpoint of the insured.

The action out of which the current dispute arose was filed on November 7, 1995, by a disgruntled former director, alleging that his termination on November 15, 1991 constituted a breach of contract, breach of the covenant of good faith and fair dealing, invasion of privacy, infliction of severe emotional distress, and abuse of process. On November 8, 1995, the chairman of Shoshone mailed copies of the complaint to Shoshone's insurance agent, seeking defense of the claims, and also to Shoshone's retained attorneys. Pacific did not respond prior to the date an answer was due. Therefore, Shoshone's retained attorneys filed an answer and a counterclaim. Following that filing, Shoshone received, a December 4, 1995, letter from a liability specialist at Pacific reserving the insurer's rights pending further investigation of its rights and obligations concerning the complaint. In March of 1996, Pacific agreed to defend Shoshone under a continuing reservation of rights. Pacific undertook the defense because, according to the liability specialist, Count IV of the complaint, alleging invasion of privacy, was potentially covered by Shoshone's policy. Pacific, however, asserted that it was entitled to allocate to Shoshone the costs of the defense related to uncovered claims. The director's action later was settled by court-ordered mediation. The total settlement, the exact amount of which is confidential, was a fraction of the more than $215,000.00 paid by Pacific to defend the suit and the additional $40,000.00 in fees and costs that Pacific declined to pay and Shoshone did pay. On December 4, 1997, Pacific sued Shoshone seeking recovery of the portion of the defense costs paid to defend the uncovered claims and to assert the counterclaim.

Certain fundamental principles of law are well established in Wyoming. An insurance policy is a contract between the insurer and the insured, and the policy is subject to the usual rules of contract construction and interpretation. Doctors' Co. v. Insurance Corp. of America, 864 P.2d 1018, 1023 (Wyo. 1993); First Wyoming Bank, N.A., Jackson Hole v. Continental Ins. Co., 860 P.2d 1094, 1097 (Wyo.1993); St. Paul Fire and Marine Ins. Co. v. Albany County School Dist. No. 1, 763 P.2d 1255, 1258 (Wyo.1988).

If the court is satisfied that the terms of the policy are clear and not ambiguous, the policy must be interpreted by applying the ordinary and usual meaning of its terms without looking beyond the four corners of the policy. Doctors' Co., 864 P.2d at 1024; First Wyoming Bank, N.A., Jackson Hole, 860 P.2d at 1097; Alm v. Hartford Fire Ins. Co., 369 P.2d 216, 217 (Wyo.1962). If the language is ambiguous, the construction afforded the ambiguous language will be the meaning that favors the insured. Alm, 369 P.2d at 218.

The duty of the insurer to defend is more extensive than its duty to indemnify the insured. First Wyoming Bank, N.A., Jackson Hole, 860 P.2d at 1097; Aetna Ins. Co. v. Lythgoe, 618 P.2d 1057, 1061 (Wyo.1980). We defined the duty to defend in First Wyoming Bank, N.A., Jackson Hole, 860 P.2d at 1097, by this language:

Analysis of the duty to defend is not made based on the ultimate liability of the insurer to indemnify the insured or on the basis of whether the underlying action is groundless or unsuccessful. Lythgoe, 618 P.2d at 1061 (citing Employers' Fire Ins. Co. v. Beals, 103 R.I. 623, 240 A.2d 397 (1968); Burger v. Continental Nat'l American Group, 32 Ohio Misc. 161, 441 F.2d 1293 (6th Cir.1971)). Instead, we analyze the duty to defend by examining the facts alleged in the complaint that the claim is based upon. Lythgoe, 618 P.2d at 1061 n. 2. See also Garvis v. Employers Mut. Casualty Co., 497 N.W.2d 254, 258 (Minn. 1993);

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