Wigton v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 28 July 2021
• Docket Number: CV 20-98-M-DWM
• Citation: 551 F.Supp.3d 1032
• Parties: Carla WIGTON, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Montana

551 F.Supp.3d 1032

Carla WIGTON, Plaintiff,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

CV 20-98-M-DWM

United States District Court, D. Montana, Missoula Division.

Filed July 28, 2021

Ann L. Moderie, Moderie Law Firm, PLLC, Kenneth Cotter, Cotter Law Office, Polson, MT, for Plaintiff.

David Rossmiller, Elissa M. Boyd, Pro Hac Vice, Betts, Patterson & Mines, PS, Portland, OR, for Defendant.

OPINION & ORDER

Donald W. Molloy, District Judge The plaintiff, Carla Wigton, seeks summary judgment on the questions of whether the defendant, State Farm, breached a duty to defend its insured in an underlying action and whether State Farm is liable for the damages she was awarded in state court. In the underlying action, Wigton alleged that the insured, David Murphy, sexually assaulted her on two occasions, harassed her on multiple occasions, and created a hostile living environment. State Farm declined to defend Murphy, and judgment was entered against him in the amount of $1,100,000.00. State Farm seeks summary judgment in its favor, asking the Court to declare that it had no duty to defend Murphy. State Farm is incorrect and therefore liable for the $1,100,000 judgment. Tidyman's Mgmt. Servs. v. Davis , 376 Mont. 80, 330 P.3d 1139, 1149 (2014).

BACKGROUND ¹

I. The Policies

State Farm issued a Homeowners Insurance Policy ("the Homeowners Policy") and a Personal Liability Umbrella Policy ("the Umbrella Policy") to David Murphy, the defendant-insured in the underlying action. (Doc. 30 at ¶¶ 1–2.)

A. The Homeowners Policy

The "personal liability" section of the Homeowners Policy covers "bodily injury or property damage" "caused by an occurrence." (Doc. 20-4 at 25.) "Bodily injury" is defined to mean "physical injury, sickness, or disease to a person. This includes required care, loss of services and death resulting therefrom." (Id. at 11.) The definition of bodily injury specifically excludes "emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person." (Id. ) The parties agree that the definition of "occurrence" is amended by Mandatory Endorsement FE-3485. (See Doc. 19 at ¶ 25; Doc. 30 at ¶ 25.) Under the Endorsement, "occurrence"

means an accident, including exposure to conditions, which first results in: (a) bodily injury; or (b) property damage; during the policy period. All bodily injury and property damage resulting from one accident, series of related accidents or from continuous and repeated exposure to the same general conditions is considered to be one occurrence.

(Doc. 20-4 at 36.) The Homeowners Policy also includes an exclusion that states coverage does not apply to:

a. Bodily injury or property damage:

(1) which is either expected or intended by the insured; or

(2) which is the result of willful and malicious acts of the insured;

b. bodily injury or property damage arising out of the business pursuits of any insured or the rental or holding for rental of any part of any premises by any insured.

(Id. at 26.)

B. The Umbrella Policy

The Umbrella Policy states that, in the event an insured is sued "because of a loss to which this policy applies, [State Farm] will provide a defense to the insured at [State Farm's] expense by counsel of [State Farm's] choice when the basis for the suit is a loss that is not covered by any other insurance policy but is covered by this policy." (Doc. 20-5 at 10.) The Umbrella Policy defines the term "bodily injury" the same as the Homeowners Policy. ( Id. at 5.) The term "loss" in the Umbrella Policy is similar to the term "occurrence" in the Homeowners Policy, but it is broader as it encompasses additional conduct that is not within the scope of "occurrence." In the Umbrella Policy, "loss" is defined as

a. an accident, including accidental exposure to conditions, which first results in bodily injury or property damage during the policy period. Repeated or continuous exposure to the same general conditions is considered to be one loss; or

b. the commission of an offense which first results in personal injury during the policy period. A series of similar or related offenses is considered to be one loss.

(Id. at 6.) Notably, "personal injury" "means injury other than bodily injury arising out of" certain offenses. (Id. ) These offenses include the "invasion of a person's right of private occupancy by physically entering into that person's residence. (Id. at 7.)

The Umbrella Policy also includes several exclusions. It states there is no coverage for any "loss arising out of alleged or actual: (a) sexual harassment; (b) sexual molestation; or (c) discrimination prohibited by law; by the insured." (Id. at 11.) There is also no coverage for "loss arising out of any insured's business property or business pursuits of any insured." (Id. ) Nor is there coverage for "bodily injury or property damage which is: (a) either expected or intended by the insured; or (b) the result of any willful and malicious act of the insured." (Id. at 13.) Finally, there is no coverage for "personal injury when the insured acts with specific intent to cause any harm." (Id. )

II. The Underlying Action

In October 2019, Carla Wigton filed suit against Murphy in the Montana Fourth Judicial District Court.² (Doc. 20-1.) In her complaint ("the Underlying Complaint"), Wigton alleges that beginning in May 2017, she was a tenant of Lakeview Village Apartments in Polson, which Murphy managed. (Id. ¶¶ 3, 7.) She also alleges that she qualified for a reduced rental rate based on her disability and income, but none of the reduced-rent units were available at the time. (Id. ¶¶ 11–12.) According to the Underlying Complaint, Murphy knew Wigton could not afford to rent a unit at its normal rate, but he offered Wigton an agreement to rent a standard unit with the understanding that he would help her find "miscellaneous jobs" to cover the excess rent. (Id. ¶¶ 14–15.) Wigton signed this agreement. (Id. ¶ 15.)

Wigton alleges that on July 1, 2017, Murphy invited her to clean his family's cabin in exchange for her monthly rent. (Id. ¶ 20.) Once Wigton arrived at the cabin, Murphy had sexual intercourse with her without her consent. (Id. ¶ 21.) According to the Underlying Complaint, Murphy entered Wigton's residence without permission on July 3, 2021, and again had sexual intercourse with her without her consent. (Id. ¶ 22.) After the assaults, Murphy apparently apologized to Wigton, requested that she not contact the police, and—when news of the assaults circulated through the Lakeview community—distributed letters to Lakeview tenants denying that the assaults happened and insinuating that Wigton was a liar. (Id. ¶¶ 23–26.)

Wigton moved out of Lakeview in the middle of July, allegedly due to the hostile environment Murphy created at Lakeview and her continued fear of him. (Id. ¶ 27.) Wigton's friends reported the events to the police, and Murphy was eventually cited for sexual intercourse without consent, witness tampering, and negligent endangerment. (Id. ¶¶ 29, 34, 37.) Murphy pleaded no contest to the charges, and his employment at Lakeview was terminated. (Id. ¶¶ 35, 37.) Wigton sought recovery on claims of assault, battery, negligence, and violation of Montana Fair Housing Law. (See generally id. ) She sought damages for medical and psychological care, as well as damages for physical pain and suffering, emotional distress, loss of enjoyment of life, punitive damages, and attorney fees and costs. (Id. at 9.)

Murphy tendered the claim to State Farm, and State Farm notified him in December 2019 that it would not defend or indemnify him because the alleged acts were outside the scope of coverage under either the Homeowners or Umbrella Policy. (Doc. 20-2 at 1–2.) In its letter disclaiming coverage, regarding the Homeowners Policy, State Farm stated,

While there is no question the claims being made in the present Complaint are for bodily injury, based on the information presently known and the allegations pled in the current Complaint, there is a question whether Ms. Wigton is seeking damages because of bodily injury or property damage caused by an occurrence, as these terms are defined within the Homeowners Policy and Endorsement, FE-3485. Specifically, in the sense the definition of occurrence requires, in part, an accident, we do not believe that the damages being alleged were caused by an accident.

(Id. at 4.) Additionally, regarding the Umbrella Policy, State Farm noted,

Inasmuch as a loss includes an accident, including accidental exposure to conditions, which first result in bodily injury or property damage or the commission of an offense which first results in personal injury, based on the information presently known we believe that there are claims being asserted which meet the policy definition of a loss, and therefore the insuring agreement of the [Umbrella Policy] is met.

(Id. at 6.) But, despite acknowledging that Wigton's allegations likely satisfied the definition of "loss," State Farm repeated its belief that no coverage existed because of the Umbrella Policy exclusions related to sexual harassment, business loss, intentional or expected bodily harm, and personal injury resulting from the specific intent to harm. (Id. at 7–8.) Thus, State Farm declined to defend Murphy in the underlying action, (see generally id. ), and State Farm did not file a declaratory action, (Doc. 30 at ¶ 13).

In February 2021, Murphy entered into a compromise settlement agreement ("the settlement") with Wigton, ending the defense of the underlying action and avoiding exposure of his personal assets. (Id. ¶ 14.) Under the settlement, Murphy agreed to entry of judgment against him in the amount of the combined limits of the Homeowners Policy and Umbrella Policy, and agreed to assign to Wigton all of his contractual and extra-contractual claims and rights of action related to the underlying action against State Farm. (Id. ¶ 15.) The settlement was...