Butts v. Royal Vendors, Inc.

504 S.E.2d 911

202 W.Va. 448

Joe D. BUTTS, Appellee, v. ROYAL VENDORS, INC. and Eric Ingersoll, Defendants Below, Royal Vendors, Inc., Appellant, Aetna Insurance Company, Intervenor/Appellee.

No. 24743.

Supreme Court of Appeals of West Virginia.

Submitted June 9, 1998.

Decided July 2, 1998.

Harley O. Staggers, Jr., Staggers & Staggers, Paul E. Lane, Martinsburg, for Joe D. Butts.

Michael D. Lorensen, Bowles, Rice, McDavid, Graff & Love, Martinsburg, for Royal Vendors, Inc.

Mary H. Sanders, James C. Stebbins, Huddleston, Bolen, Beatty, Porter & Copen, Charleston, for Aetna Insurance Co.

PER CURIAM:¹

Appellant Royal Vendors, Inc. seeks a reversal of the order of the Circuit Court of Jefferson County entered on March 21, 1997, finding that its commercial liability insurer, Aetna Insurance Company ("Aetna"), has no duty to indemnify and defend it in connection with a civil action brought against it by former employee Joe D. Butts. Upon examination of this issue, we determine that the lower court erred as to Aetna's duty to defend under that part of the commercial general liability policy which provides coverage for personal injuries arising from the publication of libel or slander, but we affirm the lower court in its ruling that Aetna had no duty to defend under the policy provision pertaining to privacy violations.

I. FACTUAL AND PROCEDURAL BACKGROUND

On April 2, 1994, Mr. Butts informed his employer, Royal Vendors, that he was required to serve a twenty-seven day sentence for aggravated assault. Later that same month on April 26, 1994, Mr. Butts injured his knee while at work. He filed a workers' compensation claim in connection with the injury, which was ruled compensable on May 17, 1994. Mr. Butts had knee surgery on June 30, 1994, performed by his treating physician, Dr. Ingersoll.

During the period of time that Mr. Butts was on workers' compensation disability, a managerial employee of Royal Vendors, Ron Michael, observed Mr. Butts at a local bar and allegedly overheard certain statements. According to a handwritten document prepared by Mr. Michael, those statements were "that he [Mr. Butts] had it made; that he was on workmen's comp. making good money just doing what he wanted to do." Mr. Michael represented additionally that when Mr. Butts saw Mr. Michael at the bar, Mr. Butts reportedly "turned white as a ghost and said... I had my operation and I feel good and I am boared [sic] sitting around the house but I can't talk my doctor in to [sic] letting me come back to work."

Mr. Butts alleges that Royal Vendors engaged in ex parte communications with Dr. Ingersoll that included the making of false statements concerning Mr. Butts' ability to return to work. The purported false statements concern the comments that Mr. Michael allegedly overheard Mr. Butts make while in the bar. After an alleged oral communication with Royal Vendors on July 14, 1994, Dr. Ingersoll determined that Mr. Butts was physically able to return to work.² On July 18, 1994, Dr. Ingersoll filed a formal recommendation that Mr. Butts was able to return to work. Since Mr. Butts was serving his criminal sentence and was unable to return to work at this time,³ Royal Vendors terminated him from its employ as of August 30, 1994.

Mr. Butts filed a civil action against Royal Vendors on December 15, 1995, alleging wrongful discharge and wrongful inducement of Dr. Ingersoll to breach the fiduciary duty owed to him as a patient.⁴ By agreement of the parties and approval of the circuit court, Aetna was permitted to intervene in the litigation as the issuer of a commercial general liability policy of insurance to Royal Vendors.

Aetna filed a motion for declaratory judgment on May 1, 1996, seeking a ruling that it was not required to provide a defense under the general liability policy issued to Royal Vendors. With regard to the wrongful discharge claim, Aetna argued that coverage was not available because Mr. Butts had failed to allege either an "occurrence" or a "bodily injury" within the meaning of the policy.⁵ As to the second count of the complaint—that Royal Vendors induced Dr. Ingersoll to breach a fiduciary duty owed to Mr. Butts—Aetna argued that Mr. Butts had not alleged a personal injury sufficient to invoke coverage under the Personal and Advertising Injury section of the policy.

On March 21, 1997, Judge Wilkes granted Aetna's motion for declaratory judgment first on the grounds that Mr. Butts had not alleged "bodily injury" or "property damage" caused by an "occurrence" to come within the liability section of the policy.⁶ Second, the circuit court found that there was no coverage under the "Personal and Advertising Injury" section of the policy "for the reasons stated in Aetna's declaratory judgment motion and its response to Royal Vendors' reply to its motion."⁷ Royal Vendors seeks a reversal of the lower court's ruling that Aetna had no obligation to defend or indemnify Royal Vendors from the claims filed by Mr. Butts under the provisions of the Personal and Advertising Injury section of the policy.

II. DISCUSSION

In Silk v. Flat Top Construction, Inc., 192 W.Va. 522, 453 S.E.2d 356 (1994), we recently "discuss[ed] when an insurance carrier has the duty to defend an insured. Concededly, an insurer must meet a rigorous standard to avoid its obligation to defend.

"As a general rule, an insurer's duty to defend is tested by whether the allegations in the plaintiff's complaint are reasonably susceptible of an interpretation that the claim may be covered by the terms of the insurance policy. See generally 7C J. Appleman, [Insurance Law and Practice] § 4683 [(Berdal ed.1979)]; 14 G. Couch, [Cyclopedia of Insurance Law] § 51.42 [(2nd ed.1982)]; 44 Am.Jur.2d Insurance § 1539 (1969); Annot., 50 A.L.R.2d 458 (1956). `There is no requirement that the facts alleged in the complaint specifically and unequivocally make out a claim within the coverage.'...

"Furthermore, it is generally recognized that the duty to defend an insured may be broader than the obligation to pay under a particular policy. This ordinarily arises by virtue of language in the ordinary liability policy that obligates the insurer to defend even though the suit is groundless, false, or fraudulent." Aetna Cas. & Sur. Co. v. Pitrolo, 176 W.Va. 190, 194, 342 S.E.2d 156, 160 (1986).

192 W.Va. at 525, 453 S.E.2d at 359 (some citations omitted); accord Horace Mann Ins. Co. v. Leeber, 180 W.Va. 375, 376 S.E.2d 581 (1988).⁸

The policy language that Royal Vendors looks to for coverage provides as follows:

We [Aetna] will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this coverage part applies.

"Personal injury" is defined as follows:

10. "Personal injury" means injury, other than "bodily injury," arising out of one or more of the following offenses:

....

(d) Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or

(e) Oral or written publication of material that violates a person's right of privacy.

We will separately examine sections (d) and (e) of the Personal and Advertising Injury section of the policy. Section (d) concerns "[o]ral or written publication of material that slanders or libels a person." Aetna's position with regard to this policy language is, in essence, because Mr. Butts did not assert an actual cause for slander or libel within his complaint there can be no coverage under this section. In support of this position, Aetna cites Nichols v. American Employers Insurance Co., 140 Wis.2d 743, 412 N.W.2d 547 (Ct.App.1987),⁹ in which an employer accused of sexual harassment sought coverage under a personal injury policy provision providing coverage for libel or slander based on the inclusion of an alleged defamatory statement as part of the harassment claim. Rejecting application of coverage in that case, the Wisconsin court reasoned that "the simple fact that a defamatory statement is part of a proceeding does not bring the case within the insurance coverage" when "the nature of the claim was not a defamation action[.]" Id. at 551. Significantly, the reasoning employed in Nichols that the insurance provisions at issue only "contemplat[e] defense of defamation suits, [and] not suits claiming damages where a defamatory statement may be involved" has been expressly distinguished or rejected outright by subsequent rulings of both the same Wisconsin appellate court that issued Nichols and a Wisconsin federal district court. Id. at 550.

In Towne Realty, Inc. v. Zurich Insurance Co., 193 Wis.2d 544, 534 N.W.2d 886 (Ct.App. 1995), the Wisconsin Court of Appeals considered whether an insurer breached its duty to defend under a commercial general liability policy where the complaint alleged that third parties' reputations were "maligned" by their insured's conduct. The court concluded that "while the Balestrieris' complaint did not expressly state a claim for libel or slander, the implication of this allegation [referring to the alleged malignment] is that Towne published false or misleading statements about them that caused damage to their reputation." Id. at 891. The court explained:

The Balestrieris' allegation that they could no longer engage in their chosen profession, taken in conjunction with their allegation that they were maligned by Towne, suggests that Towne disparaged the Balestrieris' services. Accordingly, the Balestrieris' allegation was sufficiently broad to suggest a claim within the policy's definition of "personal injury." Because we are required to resolve all doubts concerning coverage in favor of the insured, we conclude that Zurich had an obligation to defend Towne, at least until the nature of the claim could be otherwise determined.

Id. The court in Towne Realty determined that the plaintiffs' complaint, in contrast to the facts of Nichols,...