St. Paul Guardian Ins. Co. v. City of Newport
| Decision Date | 31 July 2019 |
| Docket Number | CIVIL ACTION NO. 17-115-DLB-CJS |
| Citation | 416 F.Supp.3d 671 |
| Parties | ST. PAUL GUARDIAN INSURANCE COMPANY, et al., Plaintiffs v. CITY OF NEWPORT, et al., Defendants |
| Court | U.S. District Court — Eastern District of Kentucky |
Justin Matthew Schaefer, Schiller Barnes Maloney PLLC, Michael S. Maloney, Schiller, Osbourn, Barnes & Maloney, PLLC, Louisville, KY, for Plaintiff.
Jason Charles Kuhlman, The Law Office of Jason C. Kuhlman, PLLC, Fort Mitchell, KY, Elliot Slosar, Pro Hac Vice, Michael I. Kanovitz, Loevy & Loevy-IL, Chicago, IL, Amy Robinson Staples, Loevy & Loevy-KY, Shelbyville, KY, for Defendant.
This is a declaratory-judgment action concerning an insurance-coverage dispute stemming from underlying civil-rights litigation. Plaintiffs St. Paul Guardian Insurance Company, The Phoenix Insurance Company, and The Travelers Indemnity Company of America (collectively, "Plaintiffs" or the "Plaintiff-Insurers") bring this action asking the Court to declare that they have no duty to defend and indemnify Defendants City of Newport, Mark Brandt, Norm Wagner, Pat Moore, Howard Niemeier, Sarah Tolle (nee Sarah Desentz), Robert Bradford, Tom Fromme, and Rick Sears (collectively, "Newport Defendants") in a separate civil-rights action brought by Defendant William Virgil against the Newport Defendants, No. 2:16-cv-224 (E.D. Ky.) (the "Virgil Suit").
The Virgil Suit alleges that the Newport Defendants violated Mr. Virgil's constitutional rights in the course of his wrongful conviction and imprisonment in the 1980s. (Doc. # 1-1). In this action, the Newport Defendants claim that Plaintiffs should defend and indemnify them in the Virgil Suit because Plaintiffs sold the City of Newport six insurance policies—each providing law-enforcement-liability coverage, public-entity-management-liability coverage, and general-liability coverage—for policy periods extending from July 1, 2007 through July 1, 2013. Plaintiffs assert that coverage is barred by policy exclusions, and that coverage was not triggered because Mr. Virgil's conviction and the alleged wrongful misconduct occurred decades prior to the applicable policy periods. The Court has independent1 subject-matter jurisdiction over this action based upon diversity of citizenship under 28 U.S.C. § 1332.
On April 13, 1987, Retha Welch was raped and murdered in her Newport, Kentucky apartment. (Doc. # 1-1 ¶ 22). Mr. Virgil was arrested shortly thereafter, and in September 1988, a Kentucky jury convicted him of Ms. Welch's murder; Mr. Virgil was subsequently sentenced to seventy years in prison. Id. ¶ 82. On December 18, 2015—over 28 years later—after DNA testing suggested Mr. Virgil's innocence, he was released from custody and granted a new trial. Id. ¶¶ 28, 84. On January 5, 2017, when the case against Mr. Virgil was re-presented to a Kentucky grand jury, a "no true bill of indictment" was returned; the charges against Mr. Virgil were dismissed, resulting in his exoneration. Id. ¶ 85.
On December 16, 2016, Mr. Virgil filed a civil-rights suit against the Newport Defendants alleging, inter alia , claims pursuant to 42 U.S.C. § 1983. See William Virgil v. City of Newport, et al. , No. 2:16-cv-224 (E.D. Ky.) (the "Virgil Suit"). Therein, Mr. Virgil claims2 that during their investigation of Ms. Welch's murder and Mr. Virgil's subsequent trial, the Newport Defendants withheld exculpatory evidence and even fabricated evidence by coercing Joe Womack—an inmate at the jail where Mr. Virgil was detained—to falsely testify that he heard Mr. Virgil confess to the crime. Id. ¶¶ 26-77.
Mr. Virgil does not allege, however, that the Newport Defendants took any actions that contributed to his injuries between July 1, 2007, through July 1, 2013, when Plaintiffs' insurance policies were in effect. See generally id. Furthermore, aside from continued incarceration, Mr. Virgil does not allege any distinct injuries during this time period. See id. As to damages, Mr. Virgil alleges that, as a result of the Newport Defendants' alleged civil-rights violations, he "suffered tremendous damage, including but not limited to physical harm, mental suffering, and loss of a normal life." Id. ¶ 106. Mr. Virgil seeks compensatory damages, attorneys' fees, costs, and punitive damages against each of the individual Defendants in the underlying Virgil Suit. Id. ¶ 171.
The Plaintiffs provided six different insurance policies—providing law-enforcement-liability coverage, public-entity-management-liability coverage, and general-liability coverage—to Defendant City of Newport which, all together, covered the period of July 1, 2007, through July 1, 2013. See (Docs. # 67-1 through 67-20) (joint exhibits). First, Plaintiff St. Paul issued an insurance policy to the City of Newport for the first three years of coverage: (1) July 1, 2007 to July 1, 2008; (2) July 1, 2008 to July 1, 2009; and (3) July 1, 2009 to July 1, 2010 (collectively, the "St. Paul policies"). (Doc. # 67 at 3-4). Each of the St. Paul policies were assigned Policy Number GP09313991. Id. Plaintiff Phoenix issued an insurance policy to the City of Newport for the next two policy periods: (1) July 1, 2010 to July 1, 2011, and (2) July 1, 2011 to July 1, 2012 (collectively, the "Phoenix policies"). Id. at 4-5. Each of the Phoenix policies were assigned Policy Number GP09315190. Id. Finally, Plaintiff Travelers issued an insurance policy to the City of Newport for the policy period of July 1, 2012, to July 1, 2013, with the policy number ZLP-14S03988-12-PB (the "Travelers policy"). Id. at 5-6. For clarity, the at-issue policies have been summarized in the following chart:
| # | Issuing Insurer | Policy Term | Policy No. |
| 1 | St. Paul | July 1, 2007 – July 1, 2008 | GP09313991 |
| 2 | St. Paul | July 1, 2008 – July 1, 2009 | GP09313991 |
| 3 | St. Paul | July 1, 2009 – July 1, 2010 | GP09313991 |
| 4 | Phoenix | July 1, 2010 – July 1, 2011 | GP09315190 |
| 5 | Phoenix | July 1, 2011 – July 1, 2012 | GP09315190 |
| 6 | Travelers | July 1, 2012 – July 1, 2013 | ZLP-14S03988-12-PB |
The St. Paul policies are essentially identical to one another. The Phoenix and Travelers policies are also practically identical to each other except for a liberalization agreement applied to the first Phoenix policy, discussed infra. St. Paul, Phoenix, and Travelers are all presently owned, through intervening subsidiary companies, by The Travelers Companies, Inc.; the same underwriting department handled the underwriting for all of the policies in question. (Doc. # 68-1 at 5).
The St. Paul policies provided public-entity-management liability coverage (PEML) which covers "damages for [a] covered loss that results from the conduct of duties by or for a public entity; and is caused by a wrongful act first committed while this agreement is in effect." (Doc. # 68-2 at 3). The Phoenix and Travelers policies contained similarly-worded PEML coverage. See (Docs. # 1 ¶¶ 58-66, 1-4 at 7-17, 1-8 at 50-59, 1-12 at 40-50, 1-15 at 48-59, 1-17 at 33-44, and 1-19 at 30-41). The Newport Defendants do not dispute Plaintiffs' claim in Count III of the Complaint that there is no PEML coverage applicable to the Virgil Suit. See (Docs. # 1 ¶¶ 58-66, 68 at 17, 71-1 at 6 n.1, and 76 at 3).
The St. Paul policies provided law-enforcement-liability coverage (LEL), which covers the following:
amounts any protected person is legally required to pay as damages for covered injury or damage that results from law enforcement activities or operations by or for you; happens while this agreement is in effect; and is caused by a wrongful act that is committed while conducting law enforcement activities or operations.
(Doc. # 67-5 at 2). Injury or damages includes "bodily injury, personal injury, or property damage." Id. The policies define "bodily injury" as "harm to the health of other persons," including "physical harm, sickness, or disease, mental anguish, distress, injury, or illness, emotional distress, and humiliation." Id. The policies define "personal injury" as injury other than bodily injury caused by a defined list of wrongful acts, including false arrest, detention, imprisonment, and malicious prosecution. Id.
The Phoenix and Travelers policies also included LEL coverage. The policies are functionally the same as the St. Paul policies except for one significant difference. The Phoenix and Travelers policies each have a "deemer clause" which states that all bodily injury or personal injury caused by the same wrongful act or related wrongful acts will be deemed to occur when the first part of such bodily injury or personal injury occurs. (Doc. # 67-10 at 2). Thus, if a bodily or personal injury began before the applicable policy period, then all bodily or personal injury caused by the same wrongful or related acts fall outside the scope of coverage. See id. The absence of a similar "deemer clause" in the St. Paul policies, therefore, is central to the parties' dispute.
In addition to law-enforcement liability coverage, each of the six policies provided some form of general-liability coverage.3 The St. Paul policies include "Public Entity General Liability Protection Coverage," which covers "damages from covered bodily injury or property damage that happens while this agreement is in effect and is caused by an event." (Doc. # 67 at 3). An exclusion, however, provides that there is no general-liability coverage for injury or damage caused by law-enforcement operations, "meaning any of the official activities or operations of your police department, sheriff agency, or other public safety organization which enforces the law and protects persons or property." Id. at 12.
Similarly, the Phoenix and Travelers policies provided "Commercial General Liability Coverage" that insures against bodily injury or property damage...
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