Church Mut. Ins. Co. v. Lake Pointe Assisted Living, Inc.

CHURCH MUTUAL INSURANCE COMPANY, Plaintiff, v. LAKE POINTE ASSISTED LIVING, INC. et al., Defendants.

CASE NO. 4:20-CV-00055-M

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA EASTERN DIVISION

February 4, 2021

OPINION AND ORDER

Plaintiff Church Mutual Insurance Company ("Plaintiff"), through this declaratory-judgment action, asks this court to determine whether or not it is obligated to defend and indemnify Lake Pointe Assisted Living, Inc. and its owners/operators Tony and Edith Bigler ("Lake Pointe Defendants") in ongoing litigation in Craven County Superior Court ("Underlying Lawsuit"). The plaintiffs in the Underlying Lawsuit are joined as defendants in this action ("Resident Defendants") as their rights will ultimately be affected by any court order. This matter is before the court on Plaintiff's Motion for Judgment on the Pleadings ("Motion") [DE-24]. For the reasons that follow, the Motion will be granted in part and denied in part.

I. Factual and Procedural Background

A. The Underlying Lawsuit¹

Lake Pointe Assisted Living is an adult care home.² FAC ¶ 1, DE-35-1. The facility and its residents entered into identical contracts, entitled the "Home Contract." Id. ¶ 17. In exchange for a monthly fee, the contract included several promises to its residents including that "[m]eals would be nutritious"; the facility "would provide assistance with eating, walking, dressing, bathing, personal grooming, ambulating, correspondence, scheduling of appointments, and shopping"; residents would be supervised "on a 24 hour basis"; and group and individual activities would be planned and implemented. Id. ¶¶ 18, 23. Additionally, the facility was to provide its residents "with care and services that were in compliance with relevant federal and state laws and rules and regulations" and operate "in compliance with relevant federal and state laws and rules and regulations." Id. ¶¶ 20-21.

Because the Lake Pointe Defendants allegedly did not fulfill contractual obligations as promised, the Resident Defendants filed a class action lawsuit in Craven County Superior Court on behalf of themselves and all residents of the facility from December 1, 2014, until the present.³ Id. ¶ 24. The complaint raises three causes of action: breach of contract, violation of the North Carolina Unfair Trade Practices Act ("UTPA"), and negligence. Id. ¶¶ 33-61.

Specific to their breach-of-contract claim are allegations that the Lake Pointe Defendants understaffed the facility, failed to serve nutritious meals, failed to provide activities, and generally failed to comply with the law, rules, and regulations that govern the operation of a licensed adult care home. Id. ¶ 36. The core of the UTPA claim is that the Lake Pointe Defendants, not members of a learned profession, engaged in false representations in their marketing brochures and the Home Contract knowing they could not fulfill their promises to residents and that these actions "were driven by greed to increase profit margins." Id. ¶¶ 42, 46, 50(d), 52. Finally, the Underlying Lawsuit alleges that Tony and Edith Bigler were negligent in the management and operation of the adult care home. Id. ¶ 60. The Resident Defendants seek recovery of economic damages they sustained as a result of these violations. Id. ¶ 4.

B. The Insurance Policy

Plaintiff issued two insurance policies to the Lake Pointe Defendants that were in effect from May 1, 2018, through May 1, 2019, a primary policy and an umbrella policy. Mem. in Supp. of Pl.'s Mot. for J. on the Pleadings at 10,⁴ DE-25. The primary policy included professional liability coverage and the umbrella policy included a professional liability coverage endorsement to the extent provided by the primary policy. Id. at 12-13. With regards to the professional liability coverage, the insurance, in pertinent part, "applies to injury only if: . . . caused by a 'professional health care incident.'" Policy of Insurance Issued to Lake Pointe Assisted Living Facility, Inc. at 217, DE-4-1. The term injury is not defined in the policy. "Professional health care incident" is defined and means:

a. Any act, error, omission or failure:

(1) In the furnishing of "professional health care services." This includes furnishing of food, beverages, medications or appliances in connection with such services; (2) In the handling of deceased human bodies;

(3) Arising out of service by any persons as members of a formal accreditation, standards review or similar board of the Named Insured or as a person who executes the duties of such board.

b. Failure to comply with any right of a resident under any state or federal law regulating you as a resident health care facility;

c. Failure to protect any resident from undue influence by an insured when such undue influence is to the personal detriment of the resident.

Any such act, error, omission, or failure, together with all related acts, errors, omissions or failures in the furnishing of "professional health care services" to any one person, shall be considered one "professional health care incident" subject to the Each Claim Limit of Insurance in force at the time the first "professional health care incident" covered by this policy occurred.

Id. at 223. Furthermore, "professional health care services" is defined as "professional medical, nursing, cosmetic, social, and similar professional services that relate to the care of your residents." Id.

C. The Federal Lawsuit

Plaintiff filed a Complaint for Declaratory Judgment against the Lake Pointe and Resident Defendants in this court on March 30, 2020 [DE-1]. The Lake Pointe Defendants filed a Corrected Answer on June 2, 2020, and asserted counterclaims for declaratory judgment, breach of contract, unfair claims practices/trade practices, and breach of the covenant of good faith [DE-16]. The Resident Defendants filed an Answer on June 12, 2020, and asserted counterclaims for declaratory judgment and unfair claims practices/trade practices [DE-17]. Plaintiff filed Answers to the counterclaims on June 18, 2020, and July 1, 2020, respectively [DE-21; DE-22]. Plaintiff filed the Motion [DE-24] and memorandum in support [DE-25] on August 3, 2020. The Resident and Lake Pointe Defendants separately responded in opposition on August 24, 2020 [DE-29; DE-30]. Plaintiff replied on September 8, 2020 [DE-33] and the Motion is ripe for ruling. On October 22, 2020, this court ordered a stay in discovery pending resolution of the Motion [DE-34].

The pending Motion seeks three things: (1) a declaration that Plaintiff has no duty to defend the Lake Pointe Defendants because the allegations in the Underlying Lawsuit fall outside the scope of professional liability insurance coverage; (2) a declaration that Plaintiff has no duty to indemnify the Lake Pointe Defendants, for the same reason; and (3) dismissal with prejudice of Defendants' counterclaims against Plaintiff.

II. Legal Standards

A. Judgment on the Pleadings

Federal Rule of Civil Procedure 12(c) permits a party to move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings should be granted if "the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law." Progress Solar Sols. v. Fire Prot., Inc., Nos. 5:17-CV-152-D, 5:19-CV-5-D, 2020 WL 5732621, at *13 (E.D.N.C. Sept. 24, 2020) (citations omitted). The court may consider the pleadings along with any materials referenced in or attached to the pleadings, which are incorporated by reference. See Fed. R. Civ. P. 10(c). The same standard of review applies under Rule 12(b)(6) and Rule 12(c). See, e.g., Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 405-06 (4th Cir. 2002). When a court reviews a motion for judgment on the pleadings, it must "construe the facts and reasonable inferences . . . in the light most favorable to the [non-moving party]." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997) (Rule 12(b)(6) motion); Burbach, 278 F.3d at 406 (Rule 12(c) motion).

B. Choice of Law

The parties agree, and the court finds, that the substantive law applicable to Plaintiff's insurance policy is the law of North Carolina. See N.C. Gen. Stat. § 58-3-1 ("All contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein, and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof."); see also Cont'l Cas. Co. v. Physicians Weight Loss Ctrs. of Am., Inc., 61 F. App'x 841, 844-45 (4th Cir. 2003) (unpublished) ("Because of constitutional concerns, application of this provision has been limited to situations where there is a 'close connection' between North Carolina and the interests insured by the policy.") (citation omitted). In the instant case, the Plaintiff's policy insures the interests of the Lake Pointe Defendants in their provision of services within the state of North Carolina. DE-25 at 10; DE-35-1 ¶ 1. The policy therefore falls within the plain terms of North Carolina General Statute Section 58-3-1. In addition, the requisite close connection between the insured's interests and North Carolina exists. Lake Pointe Assisted Living—the facility to which Plaintiff's policy was issued—was licensed by the state of North Carolina to operate an adult care home in the state and was home to citizens of the state. DE-1 ¶¶ 3, 6-8.

C. Duties to Defend and Indemnify

i. Generally

An insurance policy is a contract and therefore its plain terms and provisions govern the rights and duties of the contracting parties. Gaston Cnty. Dyeing Mach. Co. v. Northfield Ins. Co., 351 N.C. 293, 299, 524 S.E.2d 558, 563 (2000). The goal "is to arrive at the insurance coverage intended by the parties when the policy was issued." Harleysville...