Universal Underwriters Ins. Co. v. Lallier

• Decision Date: 10 August 2018
• Docket Number: No. 7:17-CV-30-D,7:17-CV-30-D
• Citation: 334 F.Supp.3d 723
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNIVERSAL UNDERWRITERS INSURANCE COMPANY, Plaintiff, v. Michael G. LALLIER, RLC, et al., Defendants.

334 F.Supp.3d 723

UNIVERSAL UNDERWRITERS INSURANCE COMPANY, Plaintiff,

v.Michael G. LALLIER, RLC, et al., Defendants.

No. 7:17-CV-30-D

United States District Court, E.D. North Carolina, Southern Division.

Signed August 10, 2018

Kenneth B. Rotenstreich, Mallory G. Horne, Camilla Frances DeBoard, Teague, Rotenstreich, Stanaland, Fox & Holt, LLP, Greensboro, NC, for Plaintiff.

James G. Middlebrooks, Middlebrooks Law, L.D. Simmons, II, McGuireWoods, LLP, Thomas Richmond McPherson, III, Mainsail Lawyers, Charlotte, NC, for Defendants.

ORDER

JAMES C. DEVER III, Chief United States District Judge

On February 16, 2017, Universal Underwriters Insurance Co. ("Universal" or "plaintiff") filed a complaint against Michael G. Lallier ("Lallier"), RLC, LLC, d/b/a Reed Lallier Chevrolet ("Reed Lallier Chevrolet"), GRJ, Inc., MGL Inc., Gene Reed, Jr. ("Reed"), and John Quinn ("Quinn") seeking a declaratory judgment [D.E. 1]. Universal seeks a declaration concerning its duties to defend and indemnify defendants Lallier, Reed, and Reed Lallier Chevrolet in a lawsuit that Quinn filed (the "Quinn Action"). See id.; [D.E. 1-2]. On June 16, 2017, defendants Lallier, Reed Lallier Chevrolet, MJL, Inc., GRJ, Inc., and Gene Reed, Jr. answered and counterclaimed for (1) a declaratory judgment concerning Universal's duty to defend and indemnify, (2) breach of contract for failure to indemnify, (3) bad faith and punitive damages, and (4) unfair and deceptive trade practices in violation of N.C. Gen. Stat. § 75-1.1 [D.E. 21].

On December 8, 2017, Universal moved for judgment on the pleadings [D.E. 32] and filed a memorandum in support [D.E. 33], Lallier and MGL, Inc. moved for partial judgment on the pleadings [D.E. 34] and filed a memorandum in support [D.E. 35], and Reed, Reed Lallier Chevrolet, and GRJ, Inc. moved for partial judgment on the pleadings [D.E. 36] and filed a memorandum in support [D.E. 37]. On December 29, 2017, each of the parties responded in opposition to the cross-motions [D.E. 38, 39, 40]. On January 12, 2018, each of the parties replied [D.E. 41, 42, 43]. As explained below, plaintiff's motion for a judgment on the pleadings is granted in part and denied in part, and defendants' motions for a partial judgment on the pleadings is granted.

I.

Universal issued an insurance policy covering garage operations to defendants Lallier, Reed, and Reed Lallier Chevrolet (the "policy"). See Compl. [D.E. 1] 4; [D.E. 1-2]; [D.E. 1-3]. On January 27, 2017, Quinn, a former employee of Reed Lallier Chevrolet, filed a complaint against Reed Lallier Chevrolet, Michael Lallier, MGL, Inc., Gene Reed, Jr., and GRJ, Inc. alleging ten causes of action for (1) wrongful termination, (2) interference with free speech rights under the North Carolina Constitution, (3) abuse of process, (4) obstruction of justice, (5) unfair and deceptive trade practices in violation of N.C. Gen Stat. § 75.01, (6) negligent hiring and retention, (7) civil conspiracy, (8) vicarious liability, (9) punitive damages, and (10) declaratory judgment. See [D.E. 1-1]. Quinn contends that he was fired from his job at Reed Lallier Chevrolet for assisting law enforcement with the investigation of a heinous crime that Lallier committed against a minor. See id. at 2–5. Quinn also contends that defendant Reed knew about Lallier's prior sexual misconduct, and that Lallier and Reed used their business to pay off Lallier's victims. See id. at 8–10.

Universal agreed to defend the Quinn Action under a reservation of rights. See [D.E. 21] 23. In its reservation of rights letter, Universal stated that there would likely be no coverage for the claims in the Quinn Action because the claims would be excluded by either the "International Acts" exclusion, the "Public Policy" exclusion, or the "Dishonest Acts" exclusion. Id.

The policy provides that Universal "will pay those sums the INSURED legally must pay as DAMAGES because of INJURY to which this insurance applies ... caused by an OCCURRENCE arising out of YOUR GARAGE OPERATIONS or AUTO HAZARD." [D.E. 1-3] 1. The policy divides the covered injuries into various groups. See id. at 6–7. Group 1 includes "bodily injury, sickness, disease or disability (including death resulting from any of these)." Id. Group 3 includes, among other injuries, "malicious prosecution" and "abuse of process." Id. Group 6 includes "discrimination" and "wrongful employment practices." Id. at 7. "Wrongful employment practices" includes "wrongful termination" and "retaliation." Id. at 9. The policy defines "wrongful termination" as "the termination of any employment relationship in a manner which is against the law." Id. The policy defines "retaliation" as "adverse employment actions against employees for exercising or attempting to exercise their rights under law, where RETALIATION is insurable by law." Id. at 8. The policy defines "Occurrence" as

1. with respect to COVERED POLLUTION DAMAGES and INJURY Groups 1 and 2, an accident, including continuous or repeated exposure to conditions which result in such INJURY or COVERED POLLUTION DAMAGES neither intended nor expected from the standpoint of a reasonably prudent person;

2. with respect to INJURY Groups 3, 4, 5 and 6, acts or offenses of the INSURED which result in such INJURY;

3. with respect to INJURY Group 6, when INJURY arises out of a series of related and continuous acts or offenses, the last injurious act or offense committed in the last coverage part period insured by US.

Id. at 8.

The policy also includes a "dishonest acts" exclusionary provision and an "intent to cause harm" exclusionary provision. Id. at 11–12. The "dishonest acts" provision excludes from coverage

an OCCURRENCE, SUIT or claim arising out of any dishonest, fraudulent or criminal acts committed by any INSURED.

However, with respect to INJURY Group 6, this exclusion does not apply to YOU if such act was committed by YOUR employee (other than a partner, director, or executive officer) without YOUR direction or YOUR knowledge.

Id. at 11. The "intent to cause harm" provision excludes from coverage "any act committed by or at the direction of the INSURED with intent to cause harm. This exclusion does not apply if INJURY arises solely from the intentional use of reasonable force for the purpose of protecting persons or property." Id. at 12.

Universal moves for judgment on the pleadings and asks the court to declare that it has no duty to defend or indemnify the defendants against the claims in the Quinn Action. Universal argues that it has no duty to defend because: (1) the facts alleged in the Quinn Action do not constitute an occurrence under the policy; (2) the dishonest acts provision excludes all claims in the Quinn Action; and (3) the intent to cause harm provision also excludes several claims in the Quinn Action. See Compl. at 4–7; [D.E. 33] 9–16. Universal also argues that it is entitled to judgment on the pleadings concerning defendants' breach of contract, bad faith, and unfair claims settlement practices ("UDTPA") counterclaims. See [D.E. 33] 16–21.

Defendants Lallier and MGL, Inc. seek partial judgment on the pleadings and argue that Universal has a duty to defend them in the Quinn Action. See [D.E. 34, 35]. Similarly, defendants Reed Lallier Chevrolet, GRJ, Inc., and Gene Reed seek partial judgment on the pleadings and contend that Universal has a duty to defend them in the Quinn Action. See [D.E. 36, 37].

II.

Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." A court ruling on a Rule 12(c) motion for judgment on the pleadings applies the same standard as when deciding a Rule 12(b)(6) motion to dismiss. See Mayfield v. Nat'l Ass'n for Stock Car Auto Racing, Inc., 674 F.3d 369, 375 (4th Cir. 2012). Thus, the court assumes the facts alleged in the complaint are true and draws all reasonable factual inferences in plaintiffs' favor. See Burbach Broad. Co. of Delaware v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir. 2002). As when ruling on a Rule 12(b)(6) motion to dismiss, the court can consider documents relied on by the parties in their briefing if they are integral to and explicitly relied on in the complaint, and their authenticity is undisputed. See Occupy Columbia v. Haley, 738 F.3d 107, 117 n.7 (4th Cir. 2013).

The cross-motions for judgment on the pleadings require the court to consider the parties' state-law claims and defenses, and the parties agree that North Carolina law applies. Accordingly, this court must predict how the Supreme Court of North Carolina would rule on any disputed state-law issue. See Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005). In doing so, the court must look first to opinions of the Supreme Court of North Carolina. See Stahle v. CTS Corp., 817 F.3d 96, 100 (4th Cir. 2016). If there are no governing opinions from that court, this court may consider the opinions of North Carolina Court of Appeals, treatises, and "the practices of other states." Twin City Fire Ins. Co., 433 F.3d at 369 (quotation and citation omitted).¹ In doing so, this court "should not create or expand a [s]tate's public policy." Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp., 506 F.3d 304, 314 (4th Cir. 2007) (alteration and quotation omitted); see Wade v. Danek Med., Inc., 182 F.3d 281, 286 (4th Cir. 1999). Moreover, in predicting how the highest court of a state would address an issue that it has not yet resolved, this court must "follow the decision of an intermediate state appellate court unless there is persuasive data that the highest court would decide differently." Toloczko, 728 F.3d at 398 (quotation omitted).

A.

Under North Carolina law, interpreting a written contract is a question of law for the court. See Briggs v. Am. & Efird Mills, Inc., 251 N.C. 642, 644, 111 S.E.2d 841, 843 (1960) ; N.C. Farm Bureau Mut. Ins. Co. v. Mizell, 138...