St. Paul Mercury Ins. Co. v. Duke University

Decision Date02 October 1987
Docket NumberNo. C-86-959-D.,C-86-959-D.
Citation670 F. Supp. 630
CourtU.S. District Court — Middle District of North Carolina
PartiesST. PAUL MERCURY INSURANCE COMPANY, Plaintiff v. DUKE UNIVERSITY, Leonard R. Prosnitz and Raymond U, Defendants.

Joseph W. Yates, III and Barbara B. Weyher of the firm Yates, Fleishman, McLamb & Weyher, Raleigh, N.C., for plaintiff.

Laura B. Luger of the firm Moore & VanAllen, Charles A. Bentley, Jr. and Robert B. Glenn, Jr. of the firm Glenn & Bentley, P.A., David B. Adcock, Duke University, Associate University Counsel, Durham, N.C., Carl W. Vogt and Robert A. Burgoyne of the firm Fulbright & Jaworski, Washington, D.C., for defendants.


HIRAM H. WARD, Chief Judge.

This matter comes before the Court on cross motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.1 Plaintiff's declaratory judgment action involves questions of law regarding the scope of the coverage of the insurance contract at issue and the public policy of North Carolina. Although finding that the insuring language of the contract provides coverage for liability arising from punitive damage awards, the Court will grant summary judgment in favor of plaintiff, finding that the public policy of North Carolina precludes coverage of punitive damages awards arising from intentional torts and that the contract fails to provide coverage for employees of the insured with regard to personal injury claims brought by fellow employees.


The plaintiff is a Minnesota corporation with its principal place of business in St. Paul, Minnesota. Defendant Duke University is a nonprofit corporation with its principal place of business in Durham, North Carolina. Defendant Leonard R. Prosnitz is a medical doctor employed by defendant Duke. Defendant Raymond U is a medical doctor now residing in Virginia who was employed by defendant Duke at all times relevant to this matter.

In or around March 1983, a machine known as a "Thermotron" was shipped to the United States and installed at Duke University Medical Center. The Thermotron, which is used in cancer research and experimental therapy, had been manufactured in Japan. Sometime thereafter, a dispute arose regarding the ownership of, access to, and use of the machine. While Dr. U maintained that the Japanese manufacturer retained ownership and permitted the installation and use of the Thermotron subject to his supervision and control, other employees contended that the machine was a gift without any restriction on its use.

In late March or early April 1984, Dr. U removed certain parts and equipment from the machine in order to prevent its use by other Duke employees. In response, Duke obtained a temporary restraining order in state court on April 4 requiring Dr. U to return the parts and equipment he had removed. On July 18, 1984, Duke voluntarily dismissed the action based upon a consent agreement regarding the machine's future ownership, use, and control.

On October 3, 1984, Dr. U filed an action in the Superior Court of Durham County, North Carolina, alleging various causes of action against Duke and its employees as to the use of the machine. On September 19, 1986, the jury awarded Dr. U $30,000 in compensatory damages and $1,000,000 in punitive damages on his malicious prosecution claim against Duke. In addition, the jury awarded $50,000 in compensatory damages and $50,000 in punitive damages to Dr. U on his libel and slander claim against defendant Prosnitz. Finally, the jury awarded Dr. U $1 in compensatory damages on his conversion claim against defendants Prosnitz and Duke.2

Following the jury's verdict in the case, defendants Prosnitz and Duke filed a claim with plaintiff for coverage of all of their damages, pursuant to Policy No. 632NA7554. See (Attachment A), attached to (Joint Stipulation of Facts). By letter of counsel dated December 16, 1986, plaintiff advised defendants that it would assume responsibility only for the compensatory damages awarded against Duke for malicious prosecution.3 See (Attachment F). In other words, plaintiff expressly denied coverage for punitive damages as to both defendants and for all of the damages awarded against Prosnitz.

In order to resolve the questions of coverage raised by its position, plaintiff filed this declaratory judgment action in United States District Court for the Middle District of North Carolina on December 15, 1986. Following a stipulation of facts filed May 22, 1987, both plaintiff and defendants filed motions for summary judgment as to the scope of the coverage of the insurance policy and as to the relevant public policy of North Carolina. Having been briefed and argued in open court, the motions are now ready for ruling.


As stated above, this matter raises three issues for resolution by the Court. First, does the insurance policy involved provide coverage of the awards against defendant Prosnitz? Second, does the clause of the insurance policy providing coverage of awards include those representing punitive damages? Third, if punitive damage awards are included, does the public policy of North Carolina preclude as a matter of law coverage of punitive damages arising from intentional torts?

In construing the language of insurance policies, the Supreme Court of North Carolina has generally turned to the guidance of Justice Lake. Basically, "nontechnical words, not defined in the policy, are to be given the same meaning they usually receive in ordinary speech, unless the context requires otherwise." Grant v. Emmco Ins. Co., 295 N.C. 39, 43, 243 S.E.2d 894, 897 (1978) (citations omitted). Thus, absent any ambiguity in the language used, "the courts must enforce the contract as the parties have made it and may not impose liability upon the company which it did not assume and for which the policyholder did not pay." Id.

Generally, "a contract of insurance should be given that construction which a reasonable person in the position of the insured would have understood it to mean...." Id. (emphasis added). However, language that is reasonably susceptible to different constructions "must be given the construction most favorable to the insured, since the company prepared the policy and chose the language." Id. (emphasis added). Hence, "if any ambiguity exists in the insurance contract ..., the fault lies with the insurance company and not with the insured." Mazza v. Medical Mut. Ins. Co., 311 N.C. 621, 630, 319 S.E.2d 217, 223 (1984).


In the policy before the Court, plaintiff states: "Your employees are protected while they are working for you within the scope of their duties." (General Liability Broadening Endorsement at 4) (emphasis added). On the other hand, the policy states: "We won't cover your employees for ... inter alia claims for ... personal injury to a fellow employee occurring on the job." (Id.) (emphasis added). Hence, Dr. U's claims against Prosnitz fail to fall within the terms of the policy for two reasons. First, Prosnitz's commission of defamation was not "within the scope of his duties." Second, an explicit provision elsewhere in the policy specifically excludes coverage of such claims.

Generally, the term "within the scope of their duties" requires that one's injuries result from another's action within the natural course of his employment responsibilities. In this case, defendant Prosnitz was not a spokesman for the hospital; he was a physician. Therefore, the slanderous statements uttered about Dr. U did not occur within the natural course of his employment responsibilities. The facts that Prosnitz and U worked together and that Prosnitz defamed U's character and reputation during working hours are not sufficient to bring the claim within the plain and ordinary meaning of the provision.

In addition, the specific exclusion of personal injury claims involving a fellow employee precludes coverage of Prosnitz's liability. A subsequent endorsement "expanded coverage under Duke's Comprehensive General Liability Protection agreement to cover bodily injury claims brought against employees by their fellow employees." (Fellow Employee Protection Endorsement) (emphasis added). However, the endorsement specifically limited itself to "bodily injury claims." Hence, personal injury claims such as libel and slander remain excluded.

Defendant argues that other language in the endorsement operates to delete the exclusion of all fellow employee claims. See (Memorandum in Support of the Motion of Defendants Duke University & Leonard R. Prosnitz for Partial Summary Judgment at 36). However, this language merely operates to delete that part of the exclusion described above. In other words, the more general language deleting the fellow employee exclusion operates merely to delete bodily injury claims in accordance with and to confirm the description of the endorsement's effect.

To summarize, Prosnitz's liability for defamation is not within the coverage of the insuring clause, is within the scope of the fellow employee exclusion, and is not within the coverage of the endorsement which only affected bodily injury claims. Therefore, plaintiff, the insurer, is not liable for any damages arising from Dr. U's defamation claim against Prosnitz. Accordingly, the Court will grant summary judgment in favor of plaintiff on this issue.


The Court now turns to the issue whether coverage of punitive damages is within the insuring language of the policy. Specifically, the policy states: "We'll pay amounts you and others protected under this endorsement are legally required to pay as damages for covered ... personal injury claims." (General Liability Broadening Endorsement at 1) (emphasis added). Moreover, the policy specifically includes within the definition of "personal injury" claims of malicious prosecution and of libel and slander. (Id.) Thus, the policy covers the types of claims which were made against Duke and Prosnitz.4 Therefore, the...

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