Camico Mut. Ins. Co. v. Hess, Stewart & Campbell, P.L.L.C.

240 F.Supp.3d 476

CAMICO MUTUAL INSURANCE COMPANY, Plaintiff,

v.HESS, STEWART & CAMPBELL, P.L.L.C., Defendant.

CIVIL ACTION NO. 3:16–2357

United States District Court, S.D. West Virginia, Huntington Division.

Signed March 8, 2017

Christian Mathers, Susan R. Snowden, Jackson Kelly, Martinsburg, WV, for Plaintiff.

James D. Lamp, Lamp Bartram Levy Trautwein & Perry, L. David Duffield, Chad S. Lovejoy, Duffield Lovejoy & Stemple, Huntington, WV, for Defendant.

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS, CHIEF JUDGE

Plaintiff CAMICO Mutual Insurance Company filed this declaratory action against Defendant Hess, Stewart & Campbell, PLLC., asking this Court to find it has no obligation to defend or indemnify Defendant for claims arising out of the activities of one of Defendant's employees beyond a single $100,000 sub-limit in the policy. In Defendant's Amended Answer and Counterclaim, Defendant opposes Plaintiff's request and asks this Court to declare that Plaintiff must pay Defendant "past and future general and special damages, aggravation, and inconvenience as well as attorney's fees, costs, and expenses, net economic loss occasioned by the delay, statutory damages, and pre-judgment and post-judgment interest[.]"Am. Answer and Countercl. , at 8, ECF No. 9. The parties have filed cross-motions for summary judgment. ECF Nos. 19 & 21. For the following reasons, the Court DENIES, IN PART, and GRANTS, IN PART, both motions.

I.FACTUAL AND PROCEDURAL HISTORY

The underlying facts of this case are not in dispute. Defendant provides professional bookkeeping, accounting, and tax-related services and operates as a Professional Limited Liability Company (PLLC) under West Virginia law. In late 2015, Defendant became aware of discrepancies in the accounts of some of its clients. An internal investigation was performed, and it was discovered that one of Defendant's employees (referred to as Jane Doe) misappropriated assets from at least as early as October 2010 through September 2015.¹ Multiple clients have claims against Defendant, and Defendant gave timely notice of the claims to Plaintiff, its insurer. Plaintiff accepted notice of the claims, but issued Reservation of Rights Letters dated October 18, 2015, January 11, 2016, and March 11, 2016.

In the letter dated October 18, 2015, Plaintiff agreed to defend Defendant against the potential claims, subject to limitations set forth in the letter and a "reservation of the right to assert the $100,000 Sub–Limit of Liability applicable to Claims arising from misappropriation, misuse, theft, or embezzlement of funds." Letter from Elizabeth M. Cauldwell of CAMICO to Eli Wilson of Hess, Stewart &Campbell, PLLC , at 4, ECF No. 20–2 (Oct. 18, 2015) (italics original). In the letter dated January 11, 2016, Plaintiff renewed its reservation of rights, but agreed to provide Defendant a $100,000 sub-limit as an aggregate maximum amount for both indemnification and defense. Letter from Mark Aubrey of CAMICO to James D. Lamp on behalf of Hess, Stewart & Campbell, PLLC at 4, ECF No. 20–3 (Jan. 11, 2016). Similarly, in the March 11, 2016 letter, Plaintiff agreed to pay up to $100,000, but reserved its right to contest any request by Defendant for additional coverage for indemnification and/or defense under the policy. Letter from Susan Snowden of behalf of CAMICO to James D. Lamp on behalf of Hess, Stewart & Campbell, PLLC at 1, ECF No. 32–2 (Mar. 11, 2016). In their cross-motions, Plaintiff and Defendant sharply disagree as to the amount of coverage, if any, that is available under the policy.

II.STANDARD OF REVIEW

To obtain summary judgment, the moving party must show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In considering a motion for summary judgment, the Court will not "weigh the evidence and determine the truth of the matter[.]" Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Instead, the Court will draw any permissible inference from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Although the Court will view all underlying facts and inferences in the light most favorable to the nonmoving party, the nonmoving party nonetheless must offer some "concrete evidence from which a reasonable juror could return a verdict in his [or her] favor[.]" Anderson , 477 U.S. at 256, 106 S.Ct. 2505. Summary judgment is appropriate when the nonmoving party has the burden of proof on an essential element of his or her case and does not make, after adequate time for discovery, a showing sufficient to establish that element. Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The nonmoving party must satisfy this burden of proof by offering more than a mere "scintilla of evidence" in support of his or her position. Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

III.DISCUSSION

As this Court sits by virtue of diversity jurisdiction, state substantive law controls the Court's analysis of the insurance policy. Nationwide Prop. & Cas. v. Comer , 559 F.Supp.2d 685, 690 (Mar. 27, 2008) (citation omitted). Under West Virginia law, "insurance policies are controlled by the rules of construction that are applicable to contracts generally." Payne v. Weston , 195 W.Va. 502, 466 S.E.2d 161, 166 (1995). Thus, insurance policies should be given their "plain, ordinary meaning." Aluise v. Nationwide Mut. Fire Ins. Co. , 218 W.Va. 498, 625 S.E.2d 260, 268 (2005) (internal quotation marks and citations omitted). If the provisions " ‘are clear and unambiguous[,] they are not subject to judicial construction or interpretation, but full effect will be given to the plain meaning intended.’ " Id. (quoting, Syl., Keffer v. Prudential Ins. Co. , 153 W.Va. 813, 172 S.E.2d 714 (1970) ; other citation omitted). However, where ambiguous terms exist, those terms "are to be strictly construed against the insurance company and in favor of the insured." Syl. Pt. 4, Nat'l Mut. Ins. Co. v. McMahon & Sons, Inc. , 177 W.Va. 734, 356 S.E.2d 488 (1987).² If ambiguous language exists in an exclusionary provision, the language "will be strictly construed against the insurer in order that the purpose of providing indemnity not be defeated." Syl. Pt. 5, id. An ambiguity exists "[w]henever the language of an insurance policy provision is reasonably susceptible of two different meanings or is of such doubtful meaning that reasonable minds might be uncertain or disagree as to its meaning[.]" Syl. Pt. 1, Prete v. Merch. Prop. Ins. Co. , 159 W.Va. 508, 223 S.E.2d 441 (1976). "The mere fact that parties do not agree to the construction of a contract does not render it ambiguous. The question as to whether a contract is ambiguous is a question of law to be determined by the court." Am. States Ins. Co. v. Surbaugh , 231 W.Va. 288, 745 S.E.2d 179, 186 (2013) (quoting Syl. pt. 1, Berkeley Cnty. Pub. Serv. Dist. v. Vitro Corp. of Am. , 152 W.Va. 252, 162 S.E.2d 189 (1968) ).

In their brief, Plaintiff first argues that all claims arising from the criminal activities of Jane Doe are outside the scope of the insurance policy it issued to Defendant because Defendant has failed to fulfill a condition precedent to coverage. Specifically, Plaintiff points to Section 1.A.1 of the Insuring Agreement of the Policy that provides it will pay

those sums that an Insured becomes legally obligated to pay as Damages because of a Claim arising out of an Insured's negligent act, error or omission in rendering or failing to render Professional Services performed after the Retroactive Date and before the end of the Policy Period , provided that:

* * *

(b) the Claim does not arise from circumstances which, prior to the effective date of the Policy Period , any Insured might reasonably expect would be the basis for a Claim [.]

Accountants Prof'l Liab. Ins. Policy , at 1 (I.A.1(b)), ECF No. 20–4, at 7 (italics original). The policy further defines "an insured," in part, as "[a] current or former ... employee of a Named Insured. " Id. at 3–4 (II.(b)) (italics original). In light of these provisions, Plaintiff argues that Jane Doe was an insured under the policy who was aware prior to the effective date of the policy period that her activities might reasonably serve as the basis of a claim. Therefore, Plaintiff argues coverage does not exist for any claims arising or resulting from Jane Doe's actions.

In support of its argument, Plaintiff cites the Fourth Circuit in Bryan Brothers Inc. v. Continental Casualty Co. , 660 F.3d 827 (4th Cir. 2011). In Bryan Brothers , the Fourth Circuit considered a substantially similar insurance provision under Virginia law. As here, Bryan Brothers was an accounting firm that sought coverage under a professional liability policy for liability that arose from the illegal activities of a former employee. 660 F.3d at 828. The employee stole funds from client accounts prior to, and during, the policy period. Id. at 829. The insurer, Continental Casualty Insurance Company, asserted the policy contained a condition precedent to coverage that it would pay proceeds " ‘provided that: ... prior to the effective date of this policy, none of you had a basis to believe that any such act or omission, or interrelated act or omission, might reasonably be expected to be the basis of a claim....’ " Id. at 828 (quoting "prior knowledge provision" in the policy). The insurer denied coverage under this provision by claiming the employee "had reason to believe, before the effective date of the policy, that her thefts might become the basis for claims." Id. at 829.

In considering the issues presented in the case, the Fourth Circuit looked to Virginia law which has long held that "if the insured fails to fulfill a condition of an insurance policy, the insurer's...