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Nationwide Insurance Co. v. Lexington Relocation Services, LLC

United States District Court, N.D. Mississippi, Aberdeen Division

March 24, 2014



SHARION AYCOCK, District Judge.

Nationwide Insurance Company and Gum Tree Property Management, The Southern Group of Mississippi, and Wilson Coleman have filed three separate motions for partial summary judgment [51, 75, 151] regarding whether Nationwide owes a duty to defend or indemnify the insureds pursuant to a series of insurance policies held in their names. Because judgment as a matter of law is appropriate, the Court finds that Nationwide does not have a duty to defend or indemnify Gum Tree Property Management, The Southern Group of Mississippi, or Wilson Coleman.[1] Accordingly, Nationwide's Motion for Partial Summary Judgment [51] is GRANTED, Gum Tree's Motion for Summary Judgment [75] is DENIED, and Nationwide's Motion for Partial Summary Judgment [151] is GRANTED. The remaining outstanding motions in this case will be addressed by separate memorandum opinion.

Factual and Procedural Background

At all times relevant, the Gum Tree Defendants[2] were covered by nine different insurance policies issued by Nationwide Insurance Company. After the institution of a suit against them by Lexington Relocation Services, Inc., in the Kentucky state court system, the Gum Tree Defendants inquired as to defense and indemnity coverage pursuant to those policies. Nationwide issued a determination letter that no coverage was available under those policies.

Nationwide then instituted this suit seeking a declaration that that the insurance policies do not provide coverage, including the duty of defense or indemnification, to The Southern Group of Mississippi, and Gum Tree Property Management LLC, and Wilson Coleman, as to the claims made by Lexington Relocation. The Gum Tree Defendants counterclaimed for a declaration that Nationwide is required to defend and indemnify The Southern Group and Gum Tree pursuant to those nine insurance policies for the claims asserted against them in the underlying Kentucky litigation.

The parties have requested summary judgment on the basis that judgment as a matter of law is appropriate to the determination of whether, pursuant to the policies of insurance, Nationwide has a duty to defend and/or indemnify Gum Tree and/or Wilson Coleman against the claims in the underlying litigation, and whether the insurance policies issued to The Southern Group provide coverage for the underlying suit.

Summary Judgment Standard

Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure when the evidence reveals there is no genuine dispute regarding any material fact and that the moving party is entitled to judgment as a matter of law. The rule "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments are not an adequate substitute for specific facts demonstrating a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash. , 276 F.3d 754, 759 (5th Cir. 2002). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record... or showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." FED. R. CIV. P. 56(c)(1). The court is only obligated to consider cited materials but may consider other materials in the record. Id. at 56(c)(3). The court must resolve factual controversies in favor of the nonmovant "but only when there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts." Little v. Liquid Air Corp. , 37 F.3d 1069, 1075 (5th Cir. 1994). When such contradictory facts exist, the court may "not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).

Discussion and Analysis

Mississippi substantive law applies in this diversity case. See Barden Miss. Gaming Ltd. Liab. Corp. v. Great N. Ins. Co. , 638 F.3d 476, 478 (5th Cir. 2011). In Mississippi, "the interpretation of an insurance policy is a question of law, not one of fact." Corban v. United Services Auto. Ass'n. , 20 So.3d 601, 609 (Miss. 2009) (quoting Noxubee Co. Sch. Dist. v. United Nat'l Ins. Co. , 883 So.2d 1159, 1165 (Miss. 2004)). Insurance policies are contracts, and as such, must be enforced according to their written provisions. Id . (citing Noxubee Co. , 883 So.2d at 1166). When parties to a contract make mutual promises, they are entitled to the benefit of that bargain and insurance companies must therefore be able to "rely on their statements of coverage, exclusions, disclaimers, definitions, and other provisions." Id . As such, the court relies upon familiar rules of construction to discern their meaning. Progressive Gulf Ins. Co. v. We Care Day Care Center, Inc. , 953 So.2d 250, 253 (Miss. Ct. App. 2006).

The policy is to be considered as a whole, giving weight to all relevant portions and, whenever possible, giving "operable effect to every provision in order to reach a reasonable overall result." Id . (citing J & W Foods Corp. v. State Farm Mut. Auto. Ins. Co. , 723 So.2d 550, 552 (Miss. 1998)). While ambiguities in an insurance contract are to be construed against the insurer, a clear and unambiguous contract will be enforced as written. Id . In reviewing a policy, terms should be understood in their "plain, ordinary, and popular sense rather than in a philosophical or scientific sense." Blackledge v. Omega Ins. Co. , 740 So.2d 295, 298 (Miss. 1999).

An insurer's duty to defend is determined by comparing the language of the insurance policy with the allegations of wrongdoing asserted in the underlying action. See Delta Pride Catfish, Inc. v. Home Ins. Co. , 697 So.2d 400, 403 (Miss. 1997). Not surprisingly, "the duty to defend is broader than the insurer's duty to indemnify under its policy of insurance: the insurer has a duty to defend when there is any basis for potential liability under the policy." Titan Indem. Co. v. Pope , 876 So.2d 1096, 1101 (Miss. Ct. App. 2004) (quoting Merchants Co. v. Am. Motorists Ins. Co. , 794 F.Supp. 611, 617 (S.D.Miss. 1992)).

The general rule under Mississippi law is that an insurer's duty to defend hinges on the allegations in the underlying complaint. American States Ins. Co. v. Natchez Steam Laundry , 131 F.3d 551, 552 (5th Cir. 1998) (citing State Farm Mut. Auto. Ins. Co. v. Taylor , 233 So.2d 805, 808 (Miss. 1970)). That duty is measured by the "allegations in the plaintiff's pleadings regardless of the ultimate outcome of the action." Id . (citing EEOC v. Southern Pub. Co. , 894 F.2d 785, 789 (5th Cir. 1990)). As such, "if the factual allegations of the complaint bring the action within the coverage of the policy, irrespective of what the actual facts may later prove to be, ' the insurer is contractually bound to defend its insured.'" Meng v. Bituminous Cas. Corp. , 626 F.Supp. 1237, 1240 (S.D.Miss. 1986) (citing Preferred Risk Mut. Ins. Co. v. Poole , 411 F.Supp. 429, 435 (N.D. Miss. 1976)).

A court may consider facts not contained in the underlying pleadings where the insurer is "presented with extrinsic facts, of which the insurer has knowledge or could obtain knowledge by means of a reasonable investigation, that trigger coverage under the policy." Mulberry Square Prods. v. State Farm Fire & Cas. Co. , 101 F.3d 414, 422 (5th Cir. 1996) (citing Merchants Co. v. Amer. Motorists Ins. Co. , 794 F.Supp. 611, 617 (S.D.Miss. 1992)). However, a "true facts" analysis is a "narrow exception" to the general rule. Am. States Ins. Co. v. Natchez Steam Laundry , 131 F.3d 551, 553 (5th Cir. 1998); Farmland Mut. Ins. Co. v. Scruggs , 886 So.2d 714, 719 (Miss. 2004); Mavar Shrimp & Oyster Co. v. U.S. Fid. & Guar. Co. , 187 So.2d 871, 875 (Miss. 1966).

The Mississippi Supreme Court has held that if an insured submits uncontroverted, competent evidence establishing the falsity of the pertinent allegations in the complaint, the insured has provided "true facts" under the exception. See Mavar Shrimp & Oyster Co. , 187 So.2d 871. The underlying complaint in Mavar alleged that the plaintiff sustained injuries while an "employee" of the insured. Id. at 872. The insurance policy excluded coverage for injuries sustained by "employees" of the insured. Id. at 873. In determining whether a duty to defend arose from that policy, the Mississippi Supreme Court held that an insurer was obligated to provide a defense despite the fact that the underlying complaint alleged facts that did not bring the case within the policy's coverage. Id. at 872-74. The insured satisfied the "extrinsic acts" exception and established the "true facts" by proving: (1) the insurer knew of the insured's contention that the third party plaintiff was not an "employee" at the time he was injured; and (2) the insurer knew that the insured "had been successful in maintaining in other cases that other persons in the same status... were not its employees." Id. at 874. Based on these two facts, the Mavar Court held the insurer was obligated to defend the insured. Id. at 875.

"True facts" have also been found where the record evidence unanimously supported coverage under the policy. See Meng , 626 F.Supp. at 1237. In Meng, the underlying complaint alleged unspecified "damages" caused by a defective sprinkler system installed by the insured. Id. at 1238. The policy in Meng excluded liability for damages to the sprinkler system, but not for damage caused to other property by the sprinkler system. Id. at 1239-40. Deposition testimony by the third party plaintiff established that his suit primarily sought recovery for damages to other property caused by the sprinkler system. Id. at 1241. No evidence in the record contradicted this assertion. See id. As a result, the district court held that once the insurer received notice of the deposition testimony, it "had an obligation to defend since the facts indicated coverage." Id.

However, "[n]otwithstanding the decisions in Mavar and Meng, the insured cannot establish true facts' by merely denying the allegations in the underlying complaint." Nationwide Mut. Fire Ins. Co. v. Knight, 2008 U.S. Dist. LEXIS 105342, *12 (S.D.Miss. Sept. 16, 2008). The alleged "true facts" under the "extrinsic facts" exception must be supported by competent summary judgment evidence and must constitute a "fact, " not merely a denial of liability. See Natchez Steam Laundry , 131 F.3d at 553 (rejecting as "true facts" insured's assertion to insurance company that actions alleged were unintentional and therefore covered by the insurance policy). As the Natchez Steam Laundry court explained, if courts deemed such an assertion to be sufficient under Mavar, every insured could simply deny the allegations in the underlying complaint and thereby "eviscerate Mississippi's general rule - that an insurer can determine whether it has a duty to defend by comparing the complaint to the policy." Id. at 553-54.

The Gum Tree Defendants contend that Nationwide was apprised of the underlying complaint and these documents produced by Gum Tree in the underlying litigation: Motion Seeking Continuance of Deadline with respect to... Lexington Relocation's Discovery Requests, Reply to that motion, Motion to Dismiss for Lack of Personal Jurisdiction, and Reply to that motion. Gum Tree Defendants have also attached emails from their attorney to the Nationwide adjuster explaining the Gum Tree Defendants' positions. The Court has reviewed those documents and deems them not to contain "true facts" and as such, their consideration is not warranted in determining whether a duty to defend arises in the underlying lawsuit.

The Gum Tree Defendants highlight several issues in these documents to show that the underlying lawsuit was covered pursuant to the applicable insurance policies. In particular, the documents make conclusory statements that the Gum Tree Defendants are not competitors with Lexington Relocation. Further, those documents claim that the underlying violations alleged against the Gum Tree Defendants involved advertising of the Gum Tree products and services. The documents offered by the Gum Tree Defendants contain only denials of the allegations in the underlying complaint. Natchez Steam Laundry , 131 F.3d at 553 (holding that alleged "true facts" under the "extrinsic facts" exception must be supported by competent summary judgment evidence and must constitute a "fact, " not merely a denial of liability). The statements made in those documents have not been shown to constitute "facts, " just denials of the underlying allegations. The Court finds that consideration of those documents that the Gum Tree Defendants contend should be reviewed is not warranted under the "true facts" exception. However, even if the Court analyzed those documents as "true facts, " coverage would still be lacking.

With these principles in mind, the Court must determine whether the allegations in the underlying complaint trigger the duty to defend under the applicable insurance policies, or if any exclusions apply to prevent coverage. See Nationwide Mut. Ins. Co. v. Lake Caroline, Inc. , 515 F.3d 414, 418-19 (5th Cir. 2008).

I. Underlying Complaint

Lexington Relocation Services filed suit in Kentucky against Gum Tree Property Management, The Southern Group of Mississippi (TSG), Wilson Coleman, individually and in his capacity as President and Manager of Gum Tree Property Management and President of TSG, and Misty McGuire in the Fayette Circuit Court in Kentucky. The allegations contained in the underlying complaint are as follows:

Lexington Relocation is a corporate housing company providing quality lodging in Kentucky, Ohio, Indiana, California, and Mississippi, for individuals relocating or temporarily away from home. Lexington Relocation hired Misty McGuire as an "Account Specialist" in 2003. She was required to execute an Employment Agreement which contained a non-disclosure provision prohibiting McGuire from using or disclosing Lexington Relocation's confidential information without prior written consent from the company. Another provision of the agreement contained a covenant not to compete which prohibits McGuire from working for or assisting any entity that competes with, or may compete with, Lexington Relocation within the business jurisdiction of that company for a period of one year after separation from employment. McGuire was further prohibited from being employed in the lodging business in the greater Lexington area for a period of one year post-employment. The agreement additionally contained a non-solicitation provision prohibiting McGuire from directly or indirectly soliciting any of Lexington Relocation's clients, customers, or employees unless on Lexington Relocation's behalf. She was further barred from interfering with Lexington Relocation's business relationships. In her capacity as Account Specialist, Lexington Relocation alleges that McGuire had access to and received trade secrets, confidential and proprietary business information, including information about customers and pricing, and developed personal business relationships with Lexington Relocation's clients and customers.

McGuire resigned from her position with Lexington Relocation on July 2, 2010. Lexington Relocation alleges that in the year following her resignation, Lexington Relocation's competitors, Gum Tree, TSG, and Coleman, solicited and received services and/or assistance from McGuire. Those services and assistance, Lexington Relocation asserts, violated the terms of McGuire's Employment Contract of which Gum Tree, TSG and Coleman were aware. In fact, Lexington Relocation insists that McGuire was employed in a marketing and sales position performing substantially the same tasks and function for Gum Tree, TSG, and Coleman as she did for Lexington Relocation. Lexington Relocation additionally claims that Gum Tree, TSG, and Coleman solicited and received confidential trade secrets and information from McGuire and used that information to solicit Lexington Relocation's current and prospective customers. As a result of the defendants' actions, Lexington Relocation asserts it suffered prejudice and incurred damages. The complaint alleges ten distinct causes of action:

Count I: Tortious Interference with Contractual Relations

Lexington Relocation claims that Gum Tree, TSG, and Coleman were aware of and intentionally interfered with McGuire's contractual obligations to Lexington Relocation by employing her and receiving confidential information without proper authorization. The complaint cites that the defendants' ...

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