State Farm Fire and Cas. Co. v. McGowan
| Decision Date | 31 August 2005 |
| Docket Number | No. 04-5823.,04-5823. |
| Citation | 421 F.3d 433 |
| Parties | STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff-Appellant, v. James McGOWAN, individually and d/b/a JMAC Enterprises, and Lori L. Dutton, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Kenneth S. Williams, Madewell, Jared, Halfacre & Williams, Cookeville, Tennessee, for Appellant. Mollie A. Martin, Duncan & Hatcher, Chattanooga, Tennessee, William R. Dearing, Chambliss, Bahner & Stophel, Chattanooga, Tennessee, for Appellees.
ON BRIEF:
Kenneth S. Williams, James D. Madewell, Madewell, Jared, Halfacre & Williams, Cookeville, Tennessee, for Appellant. Mollie A. Martin, Duncan & Hatcher, Chattanooga, Tennessee, William R. Dearing, Chambliss, Bahner & Stophel, Chattanooga, Tennessee, for Appellees.
Before: BOGGS, Chief Judge; GILMAN, Circuit Judge; CLELAND, District Judge.*
This action concerns the coverage provided by a property owner's insurance policy issued by State Farm Fire and Casualty Company to James McGowan, the former owner of an apartment building. State Farm filed a declaratory judgment action in federal court regarding its defense obligations to McGowan in a Tennessee state-court lawsuit filed by Lori L. Dutton. Dutton, who lived in one of the apartments with her four-year-old daughter Amy, filed suit against McGowan after a rotting tree collapsed onto the apartment during a thunderstorm, killing Amy. The district court held that State Farm was obligated to defend McGowan in the underlying action under the terms of the policy. For the reasons set forth below, we AFFIRM the judgment of the district court.
McGowan, individually and doing business as JMAC Enterprises, owned a four-unit apartment building in Red Bank, Tennessee, in which Dutton and her daughter Amy lived. The premises were insured under a policy issued by State Farm to McGowan. McGowan's insurance policy contained the following relevant provisions:
BUSINESS LIABILITY
We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments. This insurance applies only:
1. to bodily injury or property damage caused by an occurrence which takes place in the coverage territory during the policy period[.]
...
We will have the right and duty to defend any claim or suit seeking damages payable under this policy even though the allegations of the suit may be groundless, false, or fraudulent. The amount we will pay for damages is limited as described in the Limits of Insurance.
...
DEFINITIONS
...
3. bodily injury means bodily injury, sickness or disease sustained by a person, including death resulting from the bodily injury, sickness, or disease at any time;
...
11. occurrence means:
a. an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury or property damage[.]
...
(Emphases in original.)
McGowan sold the building to Mohammed Hakeem in May of 2001, but Dutton and Amy continued to occupy their apartment after the sale. In September of 2001, McGowan canceled his State Farm insurance policy. The cancellation was effective as of August 1, 2001.
During a thunderstorm in October of 2001, a decaying tree next to the building fell through the roof of Dutton's apartment, killing Amy. Dutton subsequently filed a lawsuit in state court to recover damages against McGowan. Her complaint alleged that McGowan had been negligent during the time that he owned the property by failing to correct the dangerous condition created by the presence of the rotting tree, and that McGowan's negligence caused or contributed to Amy's death.
Upon learning of the lawsuit, McGowan demanded that State Farm defend and cover the claims against him in the state-court action. State Farm refused. It also filed a declaratory judgment action in the United States District Court for the Eastern District of Tennessee regarding its coverage and defense obligations to McGowan. State Farm subsequently filed a motion for summary judgment on the ground that the insurance policy at issue was an "occurrence" policy, and that McGowan was not entitled to coverage because the occurrence that resulted in Amy Dutton's death did not take place during the policy period. McGowan filed a cross-motion for summary judgment, arguing that the occurrence did in fact take place during the policy period. The district court denied State Farm's motion and granted McGowan's, holding that State Farm had a duty under the policy to defend McGowan in the underlying lawsuit. State Farm has timely appealed.
We review a district court's grant of summary judgment de novo. Minadeo v. ICI Paints, 398 F.3d 751, 756 (6th Cir. 2005). Summary judgment is proper where there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). In considering a motion for summary judgment, the court must construe all reasonable inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The central issue is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
With subject matter jurisdiction being based entirely upon diversity of citizenship, the parties do not dispute that Tennessee law applies to this case. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Tennessee caselaw requires that insurance policies be construed in the same manner as any other contract. Am. Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn.2000). Although the language of the policy should be "understood in its plain, ordinary and popular sense," Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn.1975), any ambiguous language that purports to limit the coverage of the policy must be construed against the insurance company and in favor of the insured. Hutchison, 15 S.W.3d at 815.
An insurance company's duty to defend its insured is largely determined by the allegations in the complaint filed against the insured. St. Paul Fire & Marine Ins. Co. v. Torpoco, 879 S.W.2d 831, 835 (Tenn.1994). If the allegations in the complaint "are within the risk insured against and there is a potential basis for recovery," the insurance company is obligated to defend its policyholder. Id. The insurance policy in question in the present case is an "occurrence" policy. See State ex rel. McReynolds v. United Physicians Ins. Risk Retention Group, 921 S.W.2d 176, 177 n. 1 (Tenn.1996) (). It provides coverage for "bodily injury ... caused by an occurrence which takes place ... during the policy period." (Emphasis added.) None of the parties dispute that Amy Dutton suffered a "bodily injury" as defined by the policy. The question, therefore, is whether her injury was caused by an occurrence that took place during the policy period. McGowan contends that his failure to inspect and remove the decaying tree while he owned the apartment building was an occurrence within the meaning of the policy, but State Farm argues that the occurrence did not take place until the tree actually fell onto the building and killed Amy.
The insurance policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury." As the district court noted, "[n]o party addressed the exposure-to-harmful-conditions aspect of the policy's definition for `occurrence,' so the [issue is] whether the alleged negligence constitutes an accident."
The Tennessee Supreme Court addressed the meaning of the term "accident" as used in an insurance policy in Gassaway v. Travelers Insurance Co., 222 Tenn. 649, 439 S.W.2d 605 (1969). Gassaway involved an insurance policy that was issued to the developer of a residential subdivision. The policy provided coverage for property damage "caused by accident." Id. at 606. An underground storm sewer, not disclosed by the developer to the purchasers of the lots, caused serious damage to a subdivision house when the foundation began to settle as a result of discharge from the sewer. Although the court acknowledged that the developer did not intend the damage, it held that such settling was reasonably foreseeable and thus not an "accident" as used in liability insurance policies. The court defined an accident as "an event not reasonably to be foreseen, unexpected and fortuitous." Id. at 608. It stated that a determination of "[w]hether the damages suffered resulted from an accident so as to make the insurer liable requires the examination of the entire factual situation." Id. at 607.
The Gassaway court cited a number of cases in which an insured's negligence qualified as an accident under policies containing similar language. Among the cases cited were American Employers Insurance Co. v. Knox-Tenn Equipment Co., 52 Tenn.App. 643, 377 S.W.2d 573 (1963) (...
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