Benson v. Casa De Capri Enters.

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Jacob Benson, et al., Plaintiffs, v. Casa De Capri Enterprises LLC, et al., Defendants.

No. CV-18-00006-PHX-DWL

United States District Court, D. Arizona

December 10, 2024

ORDER

DOMINIC W. LANZA, UNITED STATES DISTRICT JUDGE

Jacob Benson is a disabled vulnerable adult who received skilled nursing care at a now-defunct facility called Casa de Capri Enterprises LLC (“Capri”). In December 2012 Benson and other family members (together “Plaintiffs”) brought a negligence action against Capri in Arizona state court.

At the time, Capri had a “claims paid” insurance policy issued by Defendant Continuing Care Risk Retention Group Inc. (“CCRRG”). Under this unusual type of policy, the insurer is only responsible for indemnifying the insured against claims that become payable while the policy remains in effect. In contrast, under an “occurrence” policy or a “claims made” policy (which are more common), the insurer becomes responsible for indemnification so long as the liability-generating event occurred (or was disclosed to the insurer) during the policy term.

CCRRG initially assumed the defense of Plaintiffs' lawsuit against Capri pursuant to Capri's insurance policy. However, after Capri became insolvent, stopped paying its premiums, declared bankruptcy, and cancelled the policy, CCRRG withdrew the defense.

Years later, after the bankruptcy stay was lifted, Plaintiffs obtained a $1.5 million judgment against Capri and initiated this garnishment action against CCRRG.

In February 2023, following years of complicated litigation, the Court issued a lengthy order resolving the parties' cross-motions for summary judgment, holding that CCRRG had no duty under the relevant insurance policies to indemnify Capri for the judgment. (Doc. 149.) The Court also noted that it was unclear whether the summary judgment ruling was sufficient to fully dispose of the case, given that Plaintiffs had asserted during oral argument that they “also seek to recover under the theory that CCRRG breached its duty to defend Capri in the underlying lawsuit.” (Id. at 15 n.4.) After receiving supplemental briefs (Docs. 156, 157), the Court concluded that Plaintiffs adequately disclosed their intention to pursue relief under a duty-to-defend theory. (Doc. 159.) Because the supplemental briefs did not fully address the merits of that theory, the Court authorized the parties to file a second round of summary judgment motions. (Id.)

The parties have now done so. (Docs. 160, 162.) For the reasons that follow, CCRRG's motion is granted and Plaintiffs' motion is denied.

BACKGROUND

I. Facts

The facts summarized below, and detailed throughout this order, are taken from the parties' summary judgment submissions and other documents in the record. The facts are uncontroverted unless otherwise noted.

On December 10, 2012, Plaintiffs filed suit in Maricopa County Superior Court against Capri, alleging abuse and neglect of a vulnerable adult and negligence. (Doc. 65 ¶ 1.) At the time the lawsuit was served, Capri was insured under a “professional liability insurance policy” issued by CCRRG. (Id. ¶ 3.) The policy (the “2012 Policy”) provided coverage from January 1, 2012 to January 1, 2013 and had a policy limit of $1 million. (Doc. 56-1 at 36.) Capri renewed its policy with CCRRG the following year (the “2013 Policy”). (Doc. 65 ¶ 4.) The 2013 Policy provided coverage from January 1, 2013 to January 1, 2014. (Doc. 13-1 at 5.) Both policies incorporate by reference a 2009 subscription agreement (Doc. 13-1 at 53-73) and CCRRG's member bylaws (Doc. 65-4). (Doc. 13-1 at 6 [2013 Policy]; Doc. 56-1 at 37 [2012 Policy].)

The 2012 and 2013 Policies are “claims paid” policies. (Doc. 132 ¶ 1.) In the “Coverages” section of each Policy, under the subheading “Insuring Agreement,” CCRRG agreed to pay “amounts within the policy limits for ‘Damages,' [and] ‘Cost of Defense' . . . on behalf of a ‘Member' who becomes legally obligated to ‘Pay' ‘Damages' and ‘Cost of Defense' during the time they are a CCRRG ‘Member. ' ” (Doc. 13-1 at 13, emphasis added.) In the subscription agreement, CCRRG elaborated that “[t]he terms and conditions of this type of coverage differ significantly from a typical occurrence or claims made indemnification insurance policy. In essence, . . . CCRRG has no responsibility for any portion of a claim not actually paid during the contract period.” (Id. at 58.)

On its website and in a brochure, CCRRG further addressed this policy language, stating that “[t]he average carrier collects higher premiums to protect itself in advance from the possibility you will change carriers, because their obligation to pay claims persist even after you leave. With [CCRRG], your claims are paid for by the group as long as you are a member. If you have an open claim and decide to leave [CCRRG], the group stops supporting the claim so your claim moves with you.” (Doc. 164 ¶ 20.) Similarly, in a checklist concerning the renewal of coverage, CCRRG explained: “The result of [a ‘claims paid' policy] is that Members pay less on average from year to year. In return for typically lower premium costs, the Member agrees either to remain with CCRRG until any pending claim is resolved or has the option to purchase an extended reporting period (ERP) coverage when they leave CCRRG. If a Member leaves CCRRG with an open claim and does not purchase ERP then the departing member is thus making the election to take the claim with them and handle defense and payment of indemnity out of their ‘own pocket.'” (Doc. 65-2, emphasis added.)^[1]

At the time the Policies were issued, CCRRG was domiciled in South Carolina. (Doc. 164 ¶ 10.) The South Carolina Department of Insurance approved the CCRRG “claims paid” policy form. (Id. ¶ 11.) Gregory Anderson served as Capri's President and CEO from 2008 through September 2013, when it ceased ongoing operations. (Doc. 56-9 ¶¶ 5, 15.) Before 2008, William Fay was Capri's “managing member.” (Doc. 132-2 ¶¶ 15.) Other relevant entities and individuals include Magnolia LTC Management Services (“Magnolia”), which served as the program manager for CCRRG, and Robert “Bob” Bates, who was Magnolia's president and CCRRG's corporate secretary. (Doc. 65 ¶ 13.)

On December 28, 2012, Capri was served in the Arizona state court lawsuit. (Doc. 65 ¶ 2.) It is undisputed that Capri timely reported the lawsuit to CCRRG, as it was required to do under the 2012 Policy. (Id. ¶ 20.) It is also undisputed that CCRRG accepted Capri's tender under the 2012 Policy and appointed defense counsel to defend the lawsuit without a written reservation of rights. (Id. ¶¶ 21, 23.)

Regarding CCRRG's duty to defend, the 2012 Policy states: “Our right and duty to defend ends when we have exhausted the applicable limit of insurance by the payment of ‘Cost of Defense' . . . under this Policy or, when this policy is cancelled or not renewed for any reason, provided however, in the event CCRRG is paying ‘Cost of Defense' . . . CCRRG shall continue to pay ‘Cost of Defense' . . . for all such ‘Claims' for a period of time not to exceed thirty (30) days to enable such former ‘Member' to assume its own legal defense.” (Doc. 56-1 at 2.) The relevant language in the 2013 Policy is identical. (Doc. 13-1 at 13.) The subscription agreement further elaborates that:

In the event a CCRRG Member fails to pay any Assessment or Dues, Premiums or any payment required by the CCRRG agreement for deferred payment of Surplus when the same is due . . . CCRRG may terminate such member's Membership status if the failure to pay is not cured within ten (10) days . . . . Upon such termination, the former Member shall not be entitled to the return of all or any part of their Surplus Contribution, and the professional liability insurance services in compliance with and as reflected in this agreement shall thereupon terminate, as to all Claims then pending against such former Member . . . . However, in the event CCRRG is then providing the legal defense services described in compliance with and as reflected in this agreement to such former member, CCRRG shall continue to provide such legal defense services for a period of time not [to] exceed thirty (30) [sic] to allow for a reasonable period of time to enable such former Member to assume their own legal defense.

(Id. at 64-65.)

After CCRRG began providing a defense of the lawsuit, Capri defaulted on its obligation to pay certain deductibles. (Doc. 65 ¶ 24.) As a result, Magnolia, through Bates, sent Capri a letter on July 15, 2013 informing Capri of its “seriously delinquent” status “in meeting its insurance deductible payment obligations.” (Doc. 56-6 at 1-2.) The letter stated that CCRRG's board of directors could terminate Capri's membership for the outstanding delinquencies, in which case “Capri's right to continued coverage of existing open claims . . . may be at risk if the outstanding default in payment is not cured to the satisfaction of the [board].” (Id. at 1.)

On July 19, 2013, CCRRG and Capri agreed to a payment plan concerning the outstanding deductible obligation. (Doc. 65 ¶ 25.) Less than one month into that plan, Capri again defaulted. (Id.) As a result, CCRRG again threatened action against Capri. (Id.)

On August 13, 2013, CCRRG issued a notice of intent to cancel the 2013 Policy, which stated that the Policy would be cancelled if Capri did not pay $22,270.03 by August 27, 2013. (Doc. 56-8 at 1; Doc. 65 ¶ 26.)

On August 19, 2013, Capri filed for bankruptcy. (Doc. 65 ¶ 27.) Afterward, Plaintiffs' lawsuit against Capri was stayed. (Doc. 1-1 at 54-55, 58-59, 62.)

By August 22, 2013, CCRRG received notice of the bankruptcy. (Doc. 65 ¶ 33.) That same day, the bankruptcy court authorized a debtor in possession loan for Capri “to immediately pay the . ....