Ziebart Intern. Corp. v. CNA Ins. Companies

• Decision Date: 08 March 1996
• Docket Number: No. 94-1361,94-1361
• Citation: 78 F.3d 245
• Parties: ZIEBART INTERNATIONAL CORPORATION and Ziebart Corporation, Plaintiffs-Appellants, v. CNA INSURANCE COMPANIES; Transportation Insurance Company; and Valley Forge Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 245

78 F.3d 245

ZIEBART INTERNATIONAL CORPORATION and Ziebart Corporation Plaintiffs-Appellants, v. CNA INSURANCE COMPANIES; Transportation Insurance Company and Valley Forge Insurance Company, Defendants-Appellees.

No. 94-1361.

United States Court of Appeals Sixth Circuit.

Argued Feb. 6, 1996.

Decided March 8, 1996.

On Appeal from the United States District Court for the Eastern District of Michigan.

Steven M. Raymond (argued and briefed), Marilynn K. Arnold (briefed), May, Simpson & Strote, Bloomfield Hills, MI, for Plaintiffs-Appellants.

Mary Massaron Ross (argued and briefed), Stanley A. Prokop, Plunkett & Cooney, Detroit, MI, for Defendants-Appellees.

Before: ENGEL, BROWN, and MILBURN, Circuit Judges.

BAILEY BROWN, Circuit Judge.

The plaintiffs ("Ziebart") appeal from the district court's entry of summary judgment for the defendants ("the insurers") in a declaratory judgment action concerning the insurers' duty to represent Ziebart on appeal under an insurance contract. The district court heard the case in its diversity jurisdiction, and it based its decision primarily on a jury verdict, rendered in underlying Michigan state court wrongful death litigation, which found Ziebart liable for an intentional tort. While Ziebart's appeal was pending before this court, however, the Michigan Court of Appeals reversed the judgment based on that verdict. LaDuke v. Ziebart Corp., 211 Mich.App. 169, 535 N.W.2d 201, 203-04 (1995) (per curiam). Ziebart contends that the insurers, which defended Ziebart at trial, had a duty to continue that defense on appeal. The insurers argue that they never had a duty to defend Ziebart at all. For the reasons that follow, we agree with Ziebart and REVERSE.

I. FACTS AND BACKGROUND

A. The State Trial Court Wrongful Death Litigation.

Ziebart operates automotive service centers and had workers' compensation and general liability insurance policies with the insurers. ¹ In April of 1989, Ziebart's regional branch operations manager Michael LaDuke and other Ziebart officials decided to discharge Robert Zielin, the manager of a Ziebart branch in Westland, Michigan, because of his poor work performance. Zielin apparently learned of the plan to discharge him and sought a meeting with LaDuke, who was his immediate supervisor. LaDuke met with Zielin, then fired him. Shortly afterward, Zielin shot and killed LaDuke in the middle of a public street.

LaDuke's estate filed a wrongful death action in Michigan state court against Ziebart and Zielin. ² In its amended complaint, the estate alleged that Ziebart ordered LaDuke to fire Zielin with willful disregard of its knowledge that Zielin "was mentally unstable, and ... that injury was certain or substantially certain to occur."

The estate's claim faced one obvious obstacle: the provision in the Michigan Workers' Disability Compensation Act ("the Act") which makes the Act an employee's exclusive remedy against an employer for a personal injury, except where an employer commits an intentional tort. The Act also declares that:

An intentional tort shall exist only when an employee is injured as a result of a deliberate act of the employer and the employer specifically intended an injury. An employer shall be deemed to have intended to injure if the employer had actual knowledge that an injury was certain to occur and willfully disregarded that knowledge. The issue of whether an act was an intentional tort shall be a question of law for the court.

Mich.Comp.Laws Ann. § 418.131(1) (West Supp.1995) (emphases added).

After receiving the estate's complaint, Ziebart contacted the insurers and requested that they undertake Ziebart's defense and indemnify it for any losses. The insurers agreed to defend the claim, but expressly reserved their right to withdraw from the defense, citing, inter alia, an intentional tort exclusion clause in Ziebart's policy. The policy excluded from coverage "bodily injury intentionally caused or aggravated by [Ziebart]."

Ziebart moved for summary judgment at the end of discovery in the wrongful death case, asserting that the LaDuke estate's complaint failed to state a claim, particularly with regard to Ziebart's having had actual knowledge of certain injury and willfully disregarding such knowledge. The Michigan trial judge denied the motion, and after a four-day trial, the jury, applying the trial judge's instruction, found that the murderer, Zielin, was not liable to the estate. The jury also found, however, that Ziebart was liable for $2.1 million in damages. In response to special interrogatories, the jury specifically found that (1) Ziebart had actual knowledge that an injury was certain to occur and willfully disregarded that knowledge, and (2) Ziebart performed an intentional act which resulted in LaDuke's wrongful death.

The insurers then wrote Ziebart and stated that they would, after posttrial motions, withdraw their defense of the wrongful death claim because of the policy's intentional tort exclusion clause. The court denied Ziebart's motions for judgment notwithstanding the verdict and for a new trial. In denying the motion for a new trial, the state trial court expressly held that it was imputing the knowledge of the murderer, Zielin, to the corporate defendant, Ziebart, saying, "He had actual knowledge of the murder. He committed the murder." Ziebart, without the aid of the insurers, appealed to the Michigan Court of Appeals.

B. The Federal Court Declaratory Judgment Litigation.

In the meantime, Ziebart filed a declaratory judgment action against the insurers in Michigan state court, and the insurers removed the case to federal district court on diversity grounds. Ziebart sought declarations that the insurers had a duty to represent Ziebart on appeal, and that the insurers would be liable to Ziebart for losses associated with the wrongful death action. Because the issues were purely legal and no discovery was necessary, the parties agreed to resolve the matter on the insurers' motion for summary judgment.

The district court held that, since the Michigan jury found Ziebart guilty of an intentional tort, and since an intentional tort was the only theory under which LaDuke's estate could have effectively sued Ziebart, given the exclusive remedy provision of the Act, the insurers had had no duty to defend Ziebart at all, and certainly not on appeal. ³ Ziebart filed a motion for reconsideration. The district court denied that motion, reiterating that the insurers never had a duty to defend Ziebart. Ziebart then filed this appeal.

C. The Michigan Court of Appeals Decisions.

While Ziebart's appeal was pending in this court, the Michigan Court of Appeals issued opinions in two cases bearing heavily on the instant case. In the first case, the court reversed the judgment based on the jury verdict against Ziebart. LaDuke, 535 N.W.2d at 203-04. The court held that (1) the record did not support the conclusion that Ziebart had actual knowledge of the fired employee's dangerous propensities, or of threats that he had made toward LaDuke, and (2) the fired employee's knowledge of his own violent tendencies could not be imputed to Ziebart. Thus, the court held, Ziebart had not committed an "intentional tort" that would, under the language of the Act, remove the LaDuke estate's claim from workers' compensation coverage.

In the second case, in which these parties were not involved, the court held that the Act's definition of an "intentional tort" does not entirely overlap with the language "bodily injury intentionally caused" in an insurance contract clause precisely identical to the one in the instant case. Cavalier Mfg. v. Employers Ins., 211 Mich.App. 330, 535 N.W.2d 583, 585 (1995), application for leave to appeal filed, No. 103991 (Mich. Aug. 15, 1995). Thus, the court held, such a clause in a policy did not exclude from coverage a situation similar to the one alleged in the LaDuke estate's wrongful death complaint: where the employer had actual knowledge that an injury was certain to occur and willfully disregarded that knowledge. See id. 535 N.W.2d at 589. Under Cavalier, an event could constitute an "intentional tort" for purposes of the Act, but that same event might not be a "bodily injury intentionally caused" under the exclusion provision of an insurance policy.

II. ANALYSIS

We review a grant of summary judgment de novo, applying the same test the district court used. E.g., City Management Corp. v. U.S. Chem. Co., 43 F.3d 244, 250 (6th Cir.1994). Summary judgment is appropriate where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also, e.g., City Management Corp., 43 F.3d at 250.

Michigan law provides that an insurer's duty to defend "depends upon the allegations of the complaint" against the insured, and that a defense must be provided if those allegations "even arguably come within the policy coverage." Detroit Edison Co. v. Michigan Mut. Ins. Co., 102 Mich.App. 136, 301 N.W.2d 832, 835 (1980). Insurers also have a duty to "look behind" a complaint's allegations to analyze whether coverage is possible and, where doubt exists, to resolve that doubt in the insured's favor. Id.

With respect to appellate defense, Michigan cases have stated the general rule that an insured whose policy includes a "duty to defend" clause is entitled to a defense from its insurer at both the trial and the appellate levels, unless the insurance contract specifically provides otherwise. Iacobelli Constr. Co. v. Western Casualty & Sur. Co., 130 Mich.App. 255, 343 N.W.2d 517, 521-22 (1983); Palmer v. Pacific Indem. Co., 74 Mich.App. 259, 254 N.W.2d 52, 55 (1977). This is so because (1) insurance companies can limit their duties when they draft insurance contracts, (2) ambiguous language in insurance contracts is construed against the drafting insurance company, and (3) an insured could reasonably expect the...