Westfield Ins. Co. v. Paugh

Decision Date29 September 2005
Docket NumberNo. Civ.A. 3:03CV43.,Civ.A. 3:03CV43.
Citation390 F.Supp.2d 511
PartiesWESTFIELD INSURANCE COMPANY, an Ohio Corporation, Plaintiff, v. Scott E. PAUGH; and Susan K. Paugh, husband and wife; and Smith-Nadenbousch Insurance, Inc., Defendants, and Scott E. Paugh; and Susan K. Paugh, husband and wife; and Smith-Nadenbousch Insurance, Inc., Counterclaim and Third-Party Plaintiffs, v. Westfield Insurance Company, an Ohio Corporation, Counterclaim Defendant, and Aaron Lewis and North Queen Auto Sales, Inc., a West Virginia Corporation, Third-Party Defendant.
CourtU.S. District Court — Northern District of West Virginia

Brent K. Kesner, Ernest G. Hentschel, II, Kesner, Kesner & Bramble, PLLC, Charleston, WV, for Plaintiff/Counterclaim Defendant.

Daniel R. Schuda, M. Andrew Brison, Schuda & Associates, PLLC, Charleston, WV, Michael W. McGuane, McGuane Law Offices, Robert P. Fitzsimmons, Fitzsimmons Law Offices, Wheeling, WV, Christopher P. Bastien, Morgantown, WV, for Defendants/Counterclaim and Third-Party Plaintiffs.

MEMORANDUM OPINION AND ORDER

BROADWATER, District Judge.

I. INTRODUCTION

On January 24, 2005, and again on January 27, 2005, the above-captioned matter came before the Court for consideration of the parties' cross-motions for summary judgment on an insurance coverage issue. The insurance coverage issue is whether the Paughs have 1 million dollars of uninsured/underinsured motorist (UM/UIM) umbrella coverage applicable to a May 29, 2002, motor vehicle accident in which Scott Paugh sustained serious injuries. (Documents # 117 and # 119). The parties appeared by their respective counsel of record and presented oral arguments in support of their respective memoranda of law. After considering the above, the Court is of the opinion that the Plaintiff Westfield's Motion for Summary Judgment (Document # 119) should be DENIED and that the Defendant Paughs' Motion for Summary Judgment (Document # 117) should be GRANTED for reasons hereinafter set forth.

The Paughs' Memorandum in Support of Motion for Summary Judgment against Westfield Insurance Company on Coverage Issue (Document # 117) asserts that 22 material facts are not in dispute. Westfield concedes that with one exception,1 Paughs' Statement of Facts summarizes the facts material to summary judgment on the coverage issues. (Document # 125, Page 2). The undisputed material facts asserted by the Paughs were as follows:

1. The relevant portions of West Virginia Code § 33-6-31(a) and (b) have been in effect at all times material hereto.

2. In 1992, a declaratory judgment class action lawsuit was filed in the Circuit Court of Kanawha County, West Virginia, styled Franklin S. Fragale, Jr., individually and on behalf of all others similarly situated, v. Westfield Insurance Company, Civil Action No. 92-C-795, which was subsequently removed to the United States District Court for the Southern District of West Virginia and assigned Civil Action No. 2:92-0251. A central issue in the Fragale case was whether an insurance company was required to offer UM/UIM coverage with respect to umbrella policies.

3. On September 22, 1992, Roger McManus, then vice-president and now president of Westfield, executed an Affidavit which was filed in the Fragale case. This Affidavit represented in pertinent part as follows:

That Westfield has requested, and is again requesting that the [independent insurance agencies which are responsible for the sale of all of its insurance policies in the State of West Virginia] notify all its known West Virginia umbrella/excess insureds that they now have the option of purchasing uninsured and/or underinsured motorist coverage limits, including umbrella/excess limits, to correspond with their liability limits, up to a maximum limit of Six Million Dollars.

4. Following the McManus Affidavit in which Westfield represented that it would offer its umbrella policyholders the option to purchase UM/UIM coverage, the Fragale case was dismissed upon the agreement of the parties.

5. Since the McManus Affidavit in 1992, it has been Westfield's stated policy to require its agents to offer UM/UIM coverage in amounts up to the liability limits on umbrella policies.

6. Not only was it Westfield's stated policy to offer UM/UIM coverage to persons purchasing umbrella policies, but Westfield at various times has also represented that it was required to do so by West Virginia law. These representations were made to the office of the West Virginia Insurance Commissioner as well as to some of its West Virginia agents.

7. In November 1993, Westfield, through Smith-Nadenbousch, sold the Paughs a Personal Auto Policy having liability limits of $500,000, at which time the Paughs elected UM/UIM coverage limits of $500,000.

8. Thereafter, Dailey recommended that the Paughs purchase an umbrella policy from Westfield.

9. During the application process, Dailey, a vice-president and producer for Smith-Nadenbousch, represented to Susan Paugh that in order to get a Westfield Personal Umbrella Policy, the Paughs were required to reject UM/UIM coverage.

10. In reliance on Dailey's representation, the Paughs signed Westfield Form AC 970.

11. Smith-Nadenbousch, through Stewart M. Borger, its president, CEO, chairman of the board, and Rule 30(b)(6) Corporate Representative, also admits that the Paughs were required to reject excess uninsured and underinsured coverage during the application process in order to get the Umbrella Policy from Westfield.

12. Smith-Nadenbousch also admits that at no time was an offer of optional UM/UIM coverage made to the Paughs during their application for the Umbrella Policy.

13. Westfield thereafter issued an Umbrella Insurance Policy to the Paughs having an effective date of December 7, 1994, with liability limits of $1 million but no stated UM/UIM coverage limits.2

14. With annual renewals sent to policyholders with personal automobile insurance policies (not its umbrella policies), Westfield included Form AD 8082 titled "IMPORTANT NOTICE." This form contained offers of UM/UIM coverage on which policyholders could elect coverages by completing, signing, and returning the form to Westfield.

15. With annual renewals of its umbrella policies sent to policyholders, Westfield included the UP 118 Form titled "PERSONAL UMBRELLA POLICY UNINSURED & UNDERINSURED MOTORIST EXPLANATORY NOTICE." This form differed in a number of respects from Form AD 8082, including, but not limited to, not including the "IMPORTANT NOTICE" and not containing any place to elect coverage.

16. Dailey could not recall ever having seen a UP 118 Form until September 20, 2004, the day of his deposition.

17. Despite Westfield's stated policy that the UP 118 Form was to be provided to the customer at the time of the execution of the AC 970 Form during the application process, Dailey never provided the UP 118 form to the Paughs.

18. In receiving annual renewal materials from Westfield, Susan Paugh did not think that the UP 118 Forms applied to them, particularly in light of Dailey having told her that the Paughs could not get UM/UIM coverage.

19. Westfield's Rule 30(b)(6) Corporate Representative, Thomas W. McFadden, admitted that "[y]our normal person isn't going to understand insurance anyway", and Dailey admitted that he does not even read renewals of his own insurance policies.

20. Although the Paughs continued to look to Dailey to handle their insurance needs between the December 7, 1994 effective date of the Umbrella Policy and the May 29, 2002 accident, Dailey never informed them that they could obtain UM/UIM coverage from Westfield.

21. Even at the time of the May 29, 2002, accident, Dailey believed that the Paughs did not have the option to purchase UM/UIM coverage under their Westfield umbrella policy.

22. The Paughs relied upon Dailey's advice in insurance matters.

II. THE UNDISPUTED FACTS

After reviewing the pleadings, depositions, answers to interrogatories, and affidavits on file, the Court finds that there are no genuine issues as to the following material facts:

1. Beginning in the early 1990's and continuing at all times material to this case, Westfield's stated policy was to offer persons buying umbrella policies in West Virginia UM/UIM coverage up to the amount of the umbrella liability limits.3

2. Westfield also at various times represented in filings with the West Virginia Insurance Commissioner that it was required to do so by West Virginia law.

3. At all times material hereto, the defendant, Smith-Nadenbousch Insurance, Inc., was an insurance agency having an office in Martinsburg, West Virginia, and was authorized to take applications and bind insurance policies with Westfield.

4. In November, 1993, Westfield through the Smith-Nadenbousch Agency in Martinsburg, West Virginia, sold the Paughs a personal auto policy having liability limits of $500,000.00. At this time, the Paughs elected UM/UIM coverage limits of $500,000.00.

5. Westfield maintains that as early as April, 1991, it notified its West Virginia agents that they should offer optional UM/UIM coverage and that West Virginia law required an effective offer and a knowing and intelligent waiver of such coverage.

6. Westfield required its West Virginia agents to discuss Form UP118, relating to umbrella UM/UIM coverage and applicable premiums for various coverage limits, with applicants and have applicants sign Form AC970 to elect or decline umbrella UM/UIM coverage.

7. In 1994, James S. Dailey, III, a Vice-President and Producer for Smith-Nadenbousch, contacted Susan Paugh and recommended that the Paughs purchase an Umbrella Policy from Westfield.

8. During the application process, Dailey incorrectly represented to Susan Paugh that in order to get a Westfield personal umbrella policy, the Paughs were required to reject umbrella UM/UIM coverage.

9. In reliance on Dailey's representation, the Paughs signed Westfield Form AC970 purporting to reject umbrella UM/UIM...

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2 cases
  • W. Va. Mut. Ins. Co. v. Vargas
    • United States
    • U.S. District Court — Northern District of West Virginia
    • March 20, 2013
    ...the clear focus of Potesta's first exception on misrepresentations made at the policy's inception. Cf. Westfield Ins. Co. v. Paugh, 390 F.Supp.2d 511, 530 (N.D.W.Va.2005) (“[T]he focus of an inquiry into coverage by estoppel is ... on the misrepresentations that were made by the insurer or ......
  • W. Va. Mut. Ins. Co. v. Vargas, Civil No. 1:11-CV-32
    • United States
    • U.S. District Court — Northern District of West Virginia
    • March 20, 2013
    ...the clear focus of Potesta's first exception on misrepresentations made at the policy's inception. Cf. Westfield Ins. Co. v. Paugh, 390 F. Supp. 2d 511, 530 (N.D.W. Va. 2005) ("[T]he focus of an inquiry into coverage by estoppel is . . . on the misrepresentations that were made by the insur......

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