U.S. Fire Ins. Co. v. Mother Earth Sch.

• Decision Date: 31 October 2019
• Docket Number: No. 3:18-cv-01762-HZ,3:18-cv-01762-HZ
• Citation: 423 F.Supp.3d 1048
• Parties: UNITED STATES FIRE INSURANCE COMPANY, Plaintiff, v. MOTHER EARTH SCHOOL; Brice Lemke, guardian ad litem for B.L.; Michelle Moore, guardian ad litem for S.M. 1 and S.M. 2; John and Jane Does 1 through 25, Defendants.
• Court: U.S. District Court — District of Oregon

423 F.Supp.3d 1048

UNITED STATES FIRE INSURANCE COMPANY, Plaintiff,

v.MOTHER EARTH SCHOOL; Brice Lemke, guardian ad litem for B.L.; Michelle Moore, guardian ad litem for S.M. 1 and S.M. 2; John and Jane Does 1 through 25, Defendants.

No. 3:18-cv-01762-HZ

United States District Court, D. Oregon, Portland Division.

Signed October 31, 2019

Thomas Lether, Eric J. Neal, Lether and Associates, PLLC, 1848 Westlake Ave. N., Suite 100, Seattle, WA 98109, Attorneys for Plaintiff.

Randall Vogt, Barbara C. Long, Vogt & Long PC, 1314 NW Irving St., Suite 207, Portland, OR 97209, Robert E.L. Bonaparte, Shenker & Bonaparte, LLP, 1500 SW First Ave, Suite 765, Portland, OR 97201, Attorneys for Defendant Brice Lemke.

Gilion C. Dumas, Ashley L. Vaughn, Dumas Law Group, LLC, 3835 SE Hancock St., Suite GL-B, Portland, OR 97212, Attorneys for Defendant Michelle Moore.

Scott T. Schauermann, Hitt Hiller Monfils Williams LLP, 411 SW 2nd Ave., Suite 400, Portland, OR 97204, Attorney for Defendant Mother Earth School.

OPINION & ORDER

HERNÁNDEZ, District Judge:

Before the Court is Plaintiff United States Fire Insurance Company's motion for summary judgment. For the reasons that follow, the motion is DENIED.

BACKGROUND

Defendant Mother Earth School was an outdoor pre-school and elementary school in Multnomah County, Oregon. Postlewaite Decl. Ex. 2 ¶ 2, ECF 47-1. Defendants B.L., S.M. 1, and S.M. 2 were students at the Mother Earth School. Id. ¶ 4; Postlewaite Decl. Ex. 3 ¶ 6. In June 2018, Defendant Lemke, as guardian ad litem for B.L., filed suit against Defendant Mother Earth School in state court, alleging that B.L. was the victim of sexual and non-sexual misconduct at the Mother Earth School. Postlewaite Decl. Ex. 1. In March 2019, Defendant Moore, as guardian ad litem for S.M. 1 and 2, filed suit against the Mother Earth School in state court, alleging that S.M. 1 and 2 were also victims of sexual and non-sexual misconduct at the Mother Earth School. Postlewaite Decl. Ex. 3. This sexual and non-sexual misconduct was allegedly committed by at least one other child who attended the Mother Earth School. Postlewaite Decl. Ex. 2, Ex. 3.

At the time of the alleged misconduct, Defendant Mother Earth School was insured through a policy issued by Plaintiff. Postlewaite Decl. Ex. 8. This policy contains a coverage limit for abuse and molestation claims brought during the policy's period. Id. at 19. Specifically, the policy provides that:

This insurance does not apply to "bodily injury", "property damage" or personal and advertising injury" arising out of the actual or threatened abuse or molestation by anyone of any person.

However, subject to all other terms of the policy, this exclusion does not apply to claims against an insured for failing to prevent or stop any abuse or molestation, provided the insured did not:

(1) participate in the abuse or molestation; or

(2) remain passive upon gaining actual or constructive knowledge of the abuse or molestation.

Id. at 20. A claim that arises out of or is related to actual or threatened abuse or molestation that is not excluded under these terms is limited to

$100,000 or another specified amount up to the maximum amount of $1,000,000, regardless of the number of:

(1) Insureds;

(2) Claims made or "suits" brought; or

(3) Persons or organizations making claims or bringing "suits".

Id. at 19.

The policy also includes a provision explaining Plaintiff's duty to defend. This provision states, in relevant part, that Plaintiff

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 the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which the insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:

(1) The amount we will pay for damages is limited as described in Section III – Limits of Insurance; and

(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.

Id. at 3; see also id. at 8.

After Defendants Lemke and Moore filed suit in state court, Plaintiff filed this interpleader action in federal court. Compl., ECF 1. Plaintiff then deposited $100,000 into the court's registry. Colito Decl. Ex. A, ECF 48.

On April 5, 2019, this Court held a scheduling conference with the parties to this case. ECF 43. During this conference, the Court informed the parties that it would hear dispositive motions on Plaintiff's duty to defend, but would not hear any indemnification issue until the state court cases were resolved. Following the conference, Plaintiff filed this Motion for Summary Judgment.

STANDARDS

Summary judgment is appropriate if there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial responsibility of informing the court of the basis of its motion, and identifying those portions of " ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting former Fed. R. Civ. P. 56(c) ). Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the nonmoving party to present "specific facts" showing a "genuine issue for trial." Fed. Trade Comm'n v. Stefanchik , 559 F.3d 924, 927–28 (9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Bias v. Moynihan , 508 F.3d 1212, 1218 (9th Cir. 2007) (citing Celotex , 477 U.S. at 324, 106 S.Ct. 2548 ). The substantive law governing a claim determines whether a fact is material. Suever v. Connell , 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc. , 658 F.3d 1108, 1112 (9th Cir. 2011).

DISCUSSION

Plaintiff argues that, under the terms of the policy, the underlying state court lawsuits are limited by a provision capping Plaintiff's liability at $100,000 for all claims arising from "abuse" or "molestation." Pl. Mot. for Summ. J. 12, ECF 46. Thus, Plaintiff argues it has satisfied all coverage obligations by depositing $100,000 into the court's registry. Id. at 17. In other words, Plaintiff asks the Court to rule that it has "no further obligation to defend or indemnify [Mother Earth School] because it has exhausted the available limits of its policy." Pl. Reply 2, ECF 55. Given the overlap between these issues—notwithstanding the Court's direction to brief only the duty to defend—Court will address, to the extent possible, both the duty to indemnify and the duty to defend below.

State law determines the court's interpretation of insurance policies and an insurer's duty to defend and indemnify. Larson Constr. Co. v. Or. Auto. Ins. Co. , 450 F.2d 1193, 1195 (9th Cir. 1971) ; Country Mut. Ins. Co. v. Larson , Civil No. 08-6154-TC, 2010 WL 1039790, at *1 (D. Or. Feb. 26, 2010) (adopted by Country Mut. Ins. Co. v. Larson , Civil No. 08-6154-TC, 2010 WL 1039798 (D. Or. Mar. 19, 2010) ). The parties do not contest that Oregon law applies. "Under Oregon law, insurance policies must be liberally construed in favor of the insureds." Allstate Ins. Co. v. Braukman , 278 F. App'x 733, 734 (9th Cir. 2008) (citing United Pac. Ins. Co. v. Truck Ins. Exchange , 273 Or. 283, 541 P.2d 448 (1975) ). Interpretation of an insurance policy is a question of law, and the primary goal is to ascertain the intent of the parties "based on the terms and conditions of the insurance policy." Hoffman Const. Co. of Alaska v. Fred S. James & Co. of Oregon , 313 Or. 464, 469, 836 P.2d 703 (1992).

I. Duty to Indemnify

An insurer's duty to indemnify arises when the insured is "liable for harm or injury that is covered by the policy." Leach v. Scottsdale Indemn. Co. , 261 Or. App. 234, 247, 323 P.3d 337 (2014) (quoting Ledford v. Gutoski , 319 Or. 397, 405, 877 P.2d 80 (1994) (en banc)). In other words, if the facts proved at trial establish the liability of the insured, the insurer's duty to indemnify will also be established as long as the insured's conduct is covered by the policy. Charter Oak Fire Ins. Co. v. Interstate Mechanical, Inc. , 958 F.Supp.2d 1188, 1215 (D. Or. 2013) (citing Ledford , 319 Or. at 403, 877 P.2d 80 ). Indemnification liability, unlike liability for the duty to defend, "derives from factual determinations separate from the allegations in the complaint." American States Ins. Co. v . Dastar Corp. , 318 F.3d 881, 890 (9th Cir. 2003). While a duty to defend is triggered by the allegations in a pleading, the duty to indemnify is proven by facts that establish a right to coverage. Nw. Pump & Equip. Co. v. Am. States Ins. Co. , 144 Or. App. 222, 227, 925 P.2d 1241 (1996). Thus, "to determine the existence of a duty to indemnify, the court must examine the facts of the underlying lawsuit." Scottsdale Ins. Co. v. Ortiz & Associates, Inc. , 3:13–cv–01791–AA, 2014 WL 1883653, *2 (D. Or. May 9, 2014).

Here, Plaintiff does not argue it has no duty to indemnify Defendant Mother Earth School. Rather, it argues that Defendants Moore and Lemke's underlying claims are entirely encompassed within the "abuse and molestation" provision of the policy. This provision limits damages to $100,000 total for claims that arise out of or are related to actual or threatened abuse or molestation and are not otherwise excluded under...