Ken Allen, Janet Allen, and Franklin Quick Cash, LLC v. Continental Western Insurance Company

• Court: Supreme Court of Missouri
• Decided: May 27, 2014
• Docket: SC93502
• Status: Published

Opinion

SUPREME COURT OF MISSOURI en banc

KEN ALLEN, JANET ALLEN, AND ) FRANKLIN QUICK CASH, LLC, ) ) Respondents, ) ) v. ) No. SC93502 ) CONTINENTAL WESTERN INSURANCE ) COMPANY, ) ) Appellant. )

APPEAL FROM THE CIRCUIT COURT OF FRANKLIN COUNTY The Honorable John B. Berkemeyer, Judge

Opinion issued May 27, 2014

A payday and title lending company, Franklin Quick Cash, LLC, ("Franklin"),

was sued for wrongfully repossessing a vehicle. In this subsequent action, Franklin

has sued Continental Western Insurance Co. ("Continental Western") to recover the

costs of litigating that wrongful repossession suit because Continental Western refused

to provide a defense. Franklin's claim for costs is based on a commercial general

liability insurance policy that covers liability for "accidents" but excludes coverage of

liability for property damage "expected or intended" by the insured. The circuit court

ruled that Continental Western had a duty to defend Franklin in the wrongful

repossession suit and granted Franklin's motion for summary judgment. This Court

holds that Continental Western did not have a duty to defend. Because Franklin

intended to repossess the vehicle, there was no potential for coverage under the policy at the outset of the underlying case. The circuit court's judgment is reversed, and

judgment is entered for Continental Western.

Factual Background

Stephanie Whipple filed the underlying lawsuit against Franklin. 1 Whipple

claimed that Franklin unlawfully took possession of Whipple's 1998 Plymouth

Voyager on two separate occasions. Whipple's original petition alleged, in two counts

of conversion, that Franklin "intended to exercise control over" her Voyager and

"deprived [her] of possession and control" without her authorization.

Franklin requested that Continental Western defend it in the Whipple lawsuit

pursuant to a commercial general liability insurance policy that it had purchased from

Continental Western for $250 per year. The policy covers liability for "property

damage" resulting from an "accident," but it does not cover liability for "property

damage" that is "expected or intended from the standpoint of the insured." Continental

Western informed Franklin that Whipple's claims were not covered by the policy

because its repossession of her Voyager was intentional, and Continental Western

declined to provide a defense.

Whipple then amended her petition to add two counts of "Negligence." Both of

the new counts alleged that the "aforesaid conduct was negligent"—but that was the

only new allegation. The new counts otherwise "reallage[d] and incorporate[d] by

reference" allegations from the two conversion counts. This included the allegation

1 Whipple sued Franklin and Ken Allen in the underlying lawsuit but not Janet Allen. For simplicity, this opinion refers collectively to all three of the plaintiffs-respondents in this case as "Franklin." that Franklin "intended to exercise control over" Whipple's Voyager. 2 After Whipple

filed her amended petition, Franklin again requested a defense from Continental

Western. Continental Western again informed Franklin that Whipple's claims were not

covered by the policy because Franklin's actions were intentional and declined to

provide a defense.

Franklin retained other counsel and proceeded to defend the Whipple lawsuit

without Continental Western. Franklin moved to dismiss Whipple's amended petition

for failure to state a claim on which relief can be granted. The circuit court sustained

the motion and dismissed Whipple's amended petition. The court of appeals reversed

the dismissal of Whipple's two conversion claims but affirmed the dismissal of the two

negligence claims because the amended petition failed to state a claim for negligence.

Whipple v. Allen, 324 S.W.3d 447, 451 (Mo. App. 2010). The case was remanded for

further proceedings on the two conversion claims, and the Whipple lawsuit is currently

pending before the Circuit Court of Franklin County.

Following remand in the Whipple case, Franklin sued Continental Western in

this subsequent action for wrongful refusal to defend. Both parties moved for

summary judgment. Franklin claimed that Continental Western had a duty to defend

because Franklin's alleged wrongful repossession of Whipple's Voyager was an

"accident," potentially covered under the policy at the outset of the case. Continental

Western argued, in relevant part, that there was no potential for coverage under the

2 Franklin admits this fact, that Whipple's amended petition states that Franklin intended to exercise control over the Voyager, in its statement of uncontroverted facts in support of its motion for summary judgment as filed with the circuit court. (L.F. 80 ¶ 2.b.)

3 policy because it excluded coverage of liability for property damage "expected or

intended from the standpoint of the insured." 3

The circuit court ruled Continental Western owed a duty to defend and granted

Franklin's motion for summary judgment. It entered judgment against Continental

Western for the costs of litigating the Whipple lawsuit and the present lawsuit. This

Court ordered transfer after the court of appeals issued an opinion and, therefore, has

jurisdiction. See Mo. Const. art. V, § 10.

Standard of Review

The trial court makes its decision to grant summary judgment based on the pleadings, record submitted, and the law; therefore, this Court need not defer to the trial court's determination and reviews the grant of summary judgment de novo. In reviewing the decision to grant summary judgment, this Court applies the same criteria as the trial court in determining whether summary judgment was proper. Summary judgment is only proper if the moving party establishes that there is no genuine issue as to the material facts and that the movant is entitled to judgment as a matter of law. The facts contained in affidavits or otherwise in support of a party's motion are accepted as true unless contradicted by the non-moving party's response to the summary judgment motion. Only genuine disputes as to material facts preclude summary judgment. A material fact in the context of summary judgment is one from which the right to judgment flows.

A defending party . . . may establish a right to summary judgment by demonstrating: (1) facts negating any one of the elements of the non- movant's claim; (2) that the non-movant, after an adequate period for 3 Continental Western also raised four other arguments: (1) that Whipple's loss of her Voyager was not "loss of use" and, therefore, not within the policy's coverage of "property damage;" (2) that Franklin's actions did not constitute an "accident" within the policy's coverage; (3) that another policy exclusion applied, which bars coverage for property damage sustained while in the "care, custody, or control" of the insured; and (4) that the circuit court erred in applying the "doctrine of reasonable expectations" to unambiguous policy language. This Court need not address these arguments, which Continental Western has also raised on appeal, because it holds the "expected or intended injury" exclusion prevented coverage and a duty to defend.

4 discovery, has not been able and will not be able to produce sufficient evidence to allow the trier of fact to find the existence of any one of the elements of the non-movant's claim; or (3) that there is no genuine dispute as to the existence of the facts necessary to support movant's properly pleaded affirmative defense. Each of these three methods individually establishes the right to judgment as a matter of law. . . .

The record below is reviewed in the light most favorable to the party against whom summary judgment was entered, and that party is entitled to the benefit of all reasonable inferences from the record.

Goeriltz v. City of Maryville, 333 S.W.3d 450, 452-53 (Mo. banc 2011) (citations and internal quotation marks omitted). Analysis

An insurer owes two distinct duties to its insured: a duty to indemnify and a

duty to defend. McCormack Baron Mgmt. Servs., Inc. v. Am. Guar. & Liab. Ins. Co.,

989 S.W.2d 168, 170 (Mo. banc 1999). The sole issue in this appeal is whether

Continental Western had a duty to defend Franklin in the underlying Whipple lawsuit.

This Court holds that Continental Western did not have a duty to defend. Even

considering facts beyond the allegations set out in Whipple's amended petition that

were reasonably apparent to Continental Western at the outset of the case, the

"expected or intended injury" exclusion barred coverage of Whipple's claims against

Franklin. Because there was no potential for coverage at the outset of the case, there

was no duty to defend.

I. Duty to Defend

The insurer's duty to defend, though broader than its duty to indemnify, arises

only when "'there is a potential or possible liability to pay based on the facts at the

outset of the case.'" Id. In determining whether an insurer has a duty to defend, the

5 Court first compares the policy language with the allegations in the petition from the

underlying lawsuit. Id. If the underlying petition alleges facts that give rise to a claim

potentially covered by the policy, the insurer has a duty to defend. Id. at 170-71.

Beyond the facts alleged in the plaintiff's petition, the insurer also has a duty to

defend if facts that are known to the insurer, or that are reasonably apparent to the

insurer, at the commencement of the suit establish a potential for coverage. Zipkin v.

Freeman, 436 S.W.2d 753, 754 (Mo. banc 1968); State ex rel. Inter-State Oil Co. v.

Bland, 190 S.W.2d 227, 229 (Mo. banc 1945); Marshall's U.S. Auto Supply v. Md.

Cas. Co., 189 S.W.2d 529, 530-31 (Mo. 1945). The insurer is not relieved of its duty

to defend merely because the plaintiff in the underlying lawsuit pleaded his or her

claims inartfully. 4 Marshall's U.S. Auto Supply, 189 S.W.2d at 531 (stating that the

"condition of the pleadings" does not control the duty to defend).

However, the insurer's duty to defend arises only from potential coverage based

on facts: (1) alleged in the petition; (2) the insurer knows at the outset of the case; or

(3) that are reasonably apparent to the insurer at the outset of the case. Zipkin, 436

S.W.2d at 754; see also McCormack Baron Mgmt. Servs., Inc., 989 S.W.2d at 170

(stating that facts adduced at trial that the insurer could not have known at the outset of

the case do not give rise to a duty to defend); Trainwreck W. Inc. v. Burlington Ins.

Co., 235 S.W.3d 33, 39 (Mo. App. 2007) (holding that facts adduced solely from

4 On the contrary, the insurer's defense may be at its most effective when the insured can obtain a dismissal of a defective petition with the assistance of the insurer's legal expertise, especially when it is known or reasonably apparent to the insurer at the outset of the case that the plaintiff may be able to amend the petition later to assert a valid claim that potentially is covered under the policy.

6 deposition testimony are not reasonably apparent at the outset of the case and do not

give rise to a duty to defend). If there is no potential for coverage based on those facts,

then the insurer has no duty to defend. Marshall's U.S. Auto Supply, 189 S.W.2d at

531 (holding that an insurer did not have a duty to defend based on facts that were

reasonably apparent to the insurer at the outset of the case, although not alleged in the

underlying petition, because regardless of those facts, there was no potential for

coverage under the insurance policy).

II. There Was No Potential for Coverage at the Outset of the Whipple Case

Franklin argues that Continental Western had a duty to defend it against the

Whipple lawsuit because Whipple's damages resulted from the allegedly unlawful

repossession of her Voyager, which it claims was an "accident" potentially covered by

the policy. The court of appeals has already addressed the validity of Whipple's

amended petition in the underlying case and concluded it does not state a claim for

negligence, only for conversion. Whipple, 324 S.W.3d at 451. Accordingly, Franklin

relies on facts not alleged in the petition: its allegedly mistaken beliefs that Whipple

was in default when it repossessed the Voyager and that Franklin had a valid security

interest.

Assuming Franklin made a mistake about Whipple's default or whether it had a

valid security interest, those facts would have been reasonably apparent to Continental

Western when Whipple filed her claims for conversion. Those additional facts are,

therefore, relevant to whether Continental Western had a duty to defend. See Zipkin,

436 S.W.2d at 754; Marshall's U.S. Auto Supply, 189 S.W.2d at 531. However, even

7 considering those facts, there was no potential for coverage under the policy because

Whipple sought recovery only for damages Franklin intended, which the policy

unambiguously excluded. Therefore, Continental Western did not have a duty to

defend. See Marshall's U.S. Auto Supply, 189 S.W.2d at 531.

A. Contract Interpretation

The interpretation of an insurance policy is an issue of law, subject to de novo

review. Mendenhall v. Property and Casualty Ins. Co. of Hartford, 375 S.W.3d 90, 92

(Mo. banc 2012). "[I]n construing the terms of an insurance policy, this Court applies

the meaning which would be attached by an ordinary person of average understanding

if purchasing insurance . . . ." Ritchie v. Allied Prop. & Cas. Ins. Co., 307 S.W.3d 132,

135 (Mo. banc 2009). The general rule in interpreting insurance contracts is to give

the language of the policy its plain meaning. Gavan v. Bituminous Cas. Corp., 242

S.W.3d 718, 720 (Mo. banc 2008). If language in an insurance policy is ambiguous,

this Court resolves the ambiguity against the insurer-drafter. Mendenhall, 375 S.W.3d

at 92; Krombach v. Mayflower Ins. Co., Ltd., 827 S.W.2d 208, 211 (Mo. banc 1992).

An ambiguity exists only when a phrase is "'reasonably open to different

constructions.'" Mendenhall, 375 S.W.3d at 92.

Absent an ambiguity, however, Missouri appellate courts do not resort to

canons of construction. State Farm Mut. Auto. Ins. Co. v. Ballmer, 899 S.W.2d 523,

525 (Mo. banc 1995). If the policy's language is unambiguous, it must be enforced as

written. Gavan, 242 S.W.3d at 720. In addition, "[c]ourts may not unreasonably

distort the language of a policy or exercise inventive powers for the purpose of

8 creating an ambiguity where none exists." Todd v. Mo. United Sch. Ins. Council, 223

S.W.3d 156, 163 (Mo. banc 2007). "Definitions, exclusions, conditions, and

endorsements are necessary provisions in insurance policies. If they are clear and

unambiguous within the context of the policy as a whole, they are enforceable." Id.

B. The Insurance Policy

The purpose of a commercial general liability policy is for business owners to

"protect against the unpredictable, potentially unlimited liability that can be caused by

accidentally causing injury to other persons or their property." Columbia Mut. Ins. Co.

v. Schauf, 967 S.W.2d 74, 77 (Mo. banc 1998). It does not protect its insured from

every risk of operating a business. Id. Because insurers have an interest in being

certain they will not be liable for the insured's deliberate actions, liability insurance

policies typically exclude coverage for injury or damage intended or expected by the

insured. 7A Couch on Insurance, § 103:23 (3d ed. 2013). The commercial general

liability policy at issue here states the following:

SECTION I—COVERAGES

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. . . .

9 The insurance applies only to an "occurrence," which is defined as "an accident."

"Property damage" is defined as physical injury to property or "loss of use" of

property. The policy also states this:

2. Exclusions

This insurance does not apply to:

a. Expected Or Intended Injury

"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. ...

In short, the plain language of the policy covers the insured's liability for an accident

that causes property damage. Property damage includes the loss of use of property.

The insurance explicitly does not apply if the insured expected or intended the

property damage. The "expected or intended injury" exclusion is unambiguous and

must be enforced as written. See Todd, 223 S.W.3d at 163.

C. The Exclusion Barred Any Potential for Coverage

Franklin argues that Whipple's loss of her Voyager was caused by an accident

covered by the policy because Franklin allegedly incorrectly determined it had a right

to repossess the Voyager and did not intend to do so unlawfully. Regardless of

whether these acts constituted an "accident" or whether the loss of the Voyager itself

10 could constitute "property damage," the "expected or intended injury" exclusion

unambiguously barred coverage because Franklin intended to repossess the Voyager. 5

In analyzing whether an "expected or intended injury" exclusion in a

commercial general liability policy bars coverage, this Court has held that the insured

must intend not only the act causing the property damage but also the resulting harm.

See Columbia Cas. Co. v. HIAR Holding, L.L.C., 411 S.W.3d 258, 268-69 (Mo. banc

2013); see also Am. Family Mut. Ins. Co. v. Pacchetti, 808 S.W.2d 369, 371 (Mo. banc

1991) (stating that the insured must expect or intend the acts causing personal injury

and the injury itself). In HIAR Holding, the plaintiffs in the underlying lawsuit sued

the insured for sending them junk faxes in violation of the federal Telephone

Consumer Protection Act (TCPA). Id. at 262. The "property damage" at issue in that

case was caused by the receipt of those unlawful faxes. See id. at 262, 267-68. This

Court held that the "expected or intended injury" exclusion did not apply because

nothing in the record supported a contention that the insured sent the faxes intending to

injure the recipients or violate the TCPA. Id. at 269.

Here, the record reflects that Franklin intended both the act of repossession and

the resulting harm that is the subject of Whipple's lawsuit—the loss of her Voyager.

Franklin admits that Whipple's claim is based on its intentional exercise of control

over the Voyager in its statement of uncontroverted facts in support of its motion for

5 Accordingly, this Court need not address whether Franklin's alleged mistake about the lawfulness of the repossession constitutes an "accident" or an "occurrence," and it need not address whether the loss of a vehicle can constitute "loss of use" and, therefore, "property damage" within the meaning of the policy.

11 summary judgment. By actually taking possession with intent to do so, Franklin also

demonstrated its intent to deprive her of possession, which is the only harm asserted

by Whipple. The policy defines "property damage" as "loss of use." Even assuming

the loss of the Voyager itself could amount to "loss of use" within the meaning of the

policy, the exclusion plainly barred coverage because Franklin intended both the act

that caused Whipple's harm and also the harm itself. 6 See HIAR Holding, 411 S.W.3d

at 269; Landers Auto. Grp. No. One, Inc. v. Continental W. Ins. Co., 621 F.3d 810, 815

(8th Cir. 2010) (holding that an identical "intended or expected injury" exclusion

prevented coverage of the insured's wrongful repossession of an automobile); Mass.

Bay Ins. Co. v. Vic Koenig Leasing, 136 F.3d 1116, 1125 (7th Cir. 1998) (holding that

a substantially identical exclusion prevented coverage of the insured's wrongful

repossession of an automobile); Am. Family Mut. Ins. Co. v. Mission Med. Grp.,

CHTD, 72 F.3d 645, 648 (8th Cir. 1995) (holding that a substantially identical

exclusion prevented coverage of the insured's intentional burning of a particular

business, although the insured was mistaken in believing it performed abortions).

6 Some courts have held that "loss of use" in a commercial general liability policy's definition of "property damage" does not include physical takings of property, only the loss of rental value. See Collin v. Am Empire Ins. Co., 26 Cal. Rptr. 2d 391, 408-09 (Cal. Ct. App. 1994) (holding that conversion of property is not "property damage" because "'[l]oss of use' of property is different from 'loss' of property"); see also M Consulting & Export, LLC v. Travelers Cas. Ins. Co., ___ F. Supp. 2d ___, No. RDB-13-1730, 2014 WL 793980, at *5 (D. Md. Feb. 27, 2014) (holding that a claim for conversion failed to plead "loss of use," and, thus, there was no "property damage," under substantially identical policy language); Md. Cas. Co. v. Tex. Commerce Bancshares, Inc., 878 F. Supp. 939, 943 (N.D. Tex. 1995) (holding that a claim for conversion failed to plead "loss of use;" therefore, there was no "property damage" under substantially identical policy language). This Court need not decide whether the loss of Whipple's Voyager was "loss of use" within the meaning of the policy because, even if it was, the "expected or intended injury" exclusion barred coverage at the outset of the Whipple case.

12 Assuming Whipple's loss of her Voyager could be "loss of use" and, therefore,

"property damage" within the meaning of the policy, Franklin necessarily intended to

deprive Whipple of the vehicle's use by taking possession with the intent to exercise

control. Whipple's loss of the Voyager is the only harm she has asserted in the

underlying lawsuit and is the only harm that could arguably constitute "property

damage" under the policy. Franklin intended both the act that caused Whipple's harm

(repossession) and the harm itself (loss of the Voyager). See HIAR Holding, 411

S.W.3d at 268-69. Therefore, the "expected or intended injury" exclusion plainly

barred coverage for Franklin's intentional acts at the outset of Whipple's lawsuit, and

Continental Western did not have a duty to defend.

Conclusion

The "expected or intended injury" exclusion unambiguously applies in this case

because Franklin intended both the act of repossessing Whipple's Voyager and

Whipple's resulting harm. There was no potential for coverage at the outset of the

Whipple lawsuit, even considering the facts beyond the allegations in Whipple's

petition that were reasonably apparent to Continental Western. Therefore, Continental

Western did not have a duty to defend Franklin. See Marshall's U.S. Auto Supply, 189

S.W.2d at 531. As a matter of law, Franklin is not entitled to the costs of litigating the

underlying Whipple lawsuit or this subsequent suit, and Continental Western is

entitled to summary judgment. See Goeriltz, 333 S.W.3d at 452-53. Rule 84.14

directs that this Court "shall dispose finally of the case" and shall give judgment as the

13 Court "ought to give." The circuit court's judgment is reversed, and judgment is

entered for Continental Western.

__________________________ Zel M. Fischer, Judge

All concur.