United Wats, Inc. v. Cincinnati Ins. Co., Civil Action No. 96-2376-GTV.
| Decision Date | 08 July 1997 |
| Docket Number | Civil Action No. 96-2376-GTV. |
| Citation | 971 F.Supp. 1375 |
| Parties | UNITED WATS, INC., Timothy A. Barton, and David H. Ferdman, Plaintiffs, v. CINCINNATI INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Kansas |
Kathleen A. Hardee, Bruce B. Waugh, Gilliland & Hayes, P.A., Kansas City, MO, for United Wats Inc., Timothy A. Barton, David H. Ferdman.
John E. Franke, Lawrence P. Warshaw, Franke & Schultz, P.C., Kansas City, MO, for Cincinnati Ins. Co.
Plaintiffs bring this action alleging that defendant breached its insurance contract by refusing to defend and indemnify plaintiffs on claims asserted against them in a state court lawsuit in Johnson County, Kansas. The case is before the court on the following motions:
(1) plaintiffs' motion to dismiss (Doc. 7) defendant's counterclaim;
(2) plaintiffs' motion for summary judgment (Doc. 23); and
(3) defendant's motion for summary judgment (Doc. 27).
For the reasons set forth below, plaintiffs' motion to dismiss defendant's counterclaim is denied. With respect to the cross-motions for summary judgment, the court finds that defendant had a duty both to defend and indemnify plaintiffs in their state court lawsuit. The court further finds that plaintiffs are not entitled to any statutory attorney's fees.
Plaintiff United Wats operates its business by acting as a long distance service agent for its customers. The company evaluates its customers' long distance usage and then assigns them the long distance service that best suits their needs. On May 18, 1993, United Wats entered into an "Independent Contractor Marketing Agreement" (the "Marketing Agreement") with Coast International, Inc., a long distance provider that leases and resells long distance capacity from Sprint. Under this contract, United Wats agreed to serve as a commission-based independent marketing agent for Coast, soliciting individuals to transfer their long distance service to Coast. At the time it signed the agreement, United Wats itself did not serve as a long distance carrier; the company merely assigned its customers either to one of the major long distance telephone service networks (i.e., AT&T, MCI, and Sprint) or to one of the many "reseller" carriers that sell discounted excess long distance capacity purchased from the major networks.
In October 1994, United Wats became an authorized long distance "reseller" carrier. Shortly thereafter, the company began distributing letters of agency to its customers requesting that they authorize a transfer in long distance service from their present provider to United Wats. In the absence of an agreement to the contrary, such solicitations are legal. Coast, however, alleged that United Wats' usurpation of Coast's customers violated the parties' Marketing Agreement. Coast also alleged that United Wats had engaged in tortious conduct in the manner in which it pursued the service transfers.
According to plaintiffs, Coast, in response to United Wats' purported breach of the Marketing Agreement, began withholding United Wats' commissions and interfering with United Wats' customer relations. (Def.'s Mot. for Summ. J., Ex. G at 6-12). In April 1995, United Wats reacted to Coast's alleged actions by seeking a preliminary injunction against Coast in Johnson County, Kansas District Court. After a hearing, the court issued United Wats the requested injunctive relief.
Five months later, in the same underlying case, United Wats filed a petition against Coast and its president, Bijan Moaveni, alleging breach of contract, quantum meruit, conversion, and tortious interference with contract and prospective business relationships. (Def.'s Mot. for Summ. J., Ex. G). Coast then filed a counter-petition against United Wats and two United Wats executives — Timothy Barton and David Ferdman — alleging breach of contract, tortious interference with contract/business relations, conversion, breach of fiduciary duty, fraud, and contempt of court. (Def.'s Mot. for Summ. J., Ex. C). The court will refer to this litigation as "the Coast lawsuit."
On February 2, 1996, several months after receiving Coast's counter-petition, United Wats contacted Charlton Manley, Inc., a local insurance agency that had procured a Commercial General Liability Policy ("CGL Policy") from defendant Cincinnati Insurance Company on behalf of United Wats, and demanded coverage under the policy. Four days later, United Wats also notified Cincinnati Insurance Company directly and offered to provide any information necessary for its consideration of the claim. United Wats included in its correspondence with defendant all pleadings that had been filed to date in the Coast lawsuit.
United Wats' CGL Policy provides, in relevant part, that defendant "will pay those sums that the insured becomes legally obligated to pay as damages because of `personal injury' or `advertising injury' to which this coverage applies." (Def.'s Mot. for Summ. J., Ex. O at 3). Only "personal injury" coverage is at issue in the case at bar. Personal injury is defined under the policy as:
injury, other than "bodily injury" arising out of one or more of the following offenses:
...
d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services.
(Def.'s Mot. for Summ. J., Ex. O at 9). The CGL policy also contains several exclusions that limit the coverage for personal injury. Specifically, the policy states that no insurance shall be provided for personal injury:
(1) Arising out of oral or written publication of material if done by or at the direction of the insured with knowledge of its falsity;
(2) Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
(3) Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured; or
(4) For which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of the contract or agreement.
(Def.'s Mot. for Summ. J., Ex. O at 3) (emphasis added).
After waiting more than three months for a decision on its claim, United Wats wrote again to defendant on May 9, 1996, and requested a confirmation of coverage. On May 16, 1996, without ever having taken a statement from a United Wats representative, defendant's claims adjuster notified United Wats that its demand for defense and indemnification against Coast's counterclaims had been denied. Defendant contended that none of the damages Coast sought in its counter-petition met the definition of personal injury under United Wats' CGL Policy.
On May 21, 1996, United Wats' counsel wrote to defendant and requested a reconsideration of the coverage denial. Nine days later, United Wats' counsel forwarded to defendant's local attorneys a copy of the entire case file from the Coast lawsuit.
On June 25, 1996, United Wats' counsel notified defendant's counsel that the parties in the Coast lawsuit would be convening a settlement conference two days later. Although United Wats invited defendant to participate in the settlement negotiations, defendant declined to send a representative. On June 27, 1996, all litigants in the Coast lawsuit reached a settlement. United Wats faxed a copy of the proposed agreement to defendant and indicated that, unless defendant agreed to take over the defense and indemnify United Wats for any loss, United Wats would accept Coast's settlement offer. On July 25, 1996, having received no response from defendant to the fax, United Wats executed a settlement agreement in the Coast lawsuit.
Under the terms of the agreement, in return for Coast dropping its breach of contract counterclaim, United Wats authorized Coast to retain all commissions that Coast held in connection with the parties' Marketing Agreement. In addition, the parties resolved all of Coast's tort counterclaims by United Wats agreeing to pay $100,000 "as settlement of damages for Coast's tortious interference claim." (Pls.' Mot. for Summ. J., Ex. S at 2). The parties allocated no settlement funds to Coast's conversion, breach of fiduciary duty, fraud, or contempt of court counterclaims.
After signing the settlement agreement, United Wats made a final demand upon defendant for reconsideration of its claim denial. Apparently receiving no response, plaintiffs commenced this lawsuit on August 27, 1996, alleging that defendant breached the CGL Policy by refusing to defend and indemnify plaintiffs in the Coast lawsuit.1 Defendant responded by filing a declaratory judgment counterclaim seeking a declaration that the CGL Policy does not cover the claims asserted against plaintiffs in the Coast lawsuit.
Additional facts will be provided as necessary.
Plaintiffs first contend that defendant's declaratory judgment counterclaim must be dismissed because it raises the same issues as plaintiffs' underlying claims. Citing Continental Cas. Co. v. Robsac Indus., 947 F.2d 1367 (9th Cir.1991), plaintiffs argue that "[a]n insurance carrier cannot file an action in federal court seeking to determine the same rights as those sought by the insured in a state court action involving the same facts and issues." (Pls.' Mot. to Dismiss at 1). Plaintiffs' motion is without merit.
The Robsac holding was predicated on the court's desire to: (1) avoid having federal courts needlessly determine issues of state law; (2) discourage litigants from filing declaratory judgment actions as a means of forum shopping; and (3) avoid duplicative litigation. Robsac, 947 F.2d at 1371 (citing Chamberlain v. Allstate Ins. Co., 931 F.2d 1361 (9th Cir.1991) (citing Brillhart v. Excess...
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