Gage Cnty. v. Emp'rs Mut. Cas. Co.

304 Neb. 926

937 N.W.2d 863

GAGE COUNTY, Nebraska, appellant,

v.EMPLOYERS MUTUAL CASUALTY COMPANY, appellee.

No. S-18-1118.

Supreme Court of Nebraska.

Filed January 31, 2020

Joel D. Nelson and Joel Bacon, of Keating, O’Gara, Nedved & Peter, P.C., L.L.O., Lincoln, for appellant.

Karen K. Bailey and L. Paige Hall, of Engles, Ketcham, Olson & Keith, P.C., for appellee.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Funke, J.

This is a declaratory judgment action brought by Gage County, Nebraska, alleging that its insurer, Employers Mutual Casualty Company (EMC), has defense and indemnity obligations for federal court judgments entered against Gage County in 2016. The district court overruled Gage County’s motion for partial summary judgment and entered summary judgment in favor of EMC. We reverse the district court’s decision and remand the cause for further proceedings.

I. BACKGROUND

The following background describes the judgments underlying Gage County’s insurance claim, the nature of the insurance dispute between Gage County and EMC, and the district court’s decision granting summary judgment in favor of EMC.

1. MURDER AND PROSECUTION

Helen Wilson was raped and murdered in Beatrice, Nebraska, on February 5, 1985. After months of investigation, the case became cold. In 1989, Gage County Sheriff Jerry DeWitt and five deputy sheriffs—Burdette Searcey; Wayne Price, who was also a psychologist; Gerald Lamkin; Kent Harlan; and Mark Meints—reopened the investigation. DeWitt, Searcey, and Price were the primary investigators and interviewed multiple witnesses and suspects.

After the additional investigative efforts, the Gage County Attorney Richard Smith charged six people with crimes related to Wilson’s death: Joseph White, James Dean, Kathleen Gonzalez, Thomas Winslow, Ada Joann Taylor, and Debra Shelden. They became known as the Beatrice Six. Dean, Gonzalez, Taylor, and Shelden agreed to plead guilty and testify against White and Winslow. In November 1989, a jury convicted White of Wilson’s murder, and in December 1989, Winslow entered a no contest plea. Nearly two decades later, the Beatrice Six were exonerated after DNA evidence showed that they were not present at the crime scene. In 2009, the Nebraska Board of Pardons granted pardons to each member of the Beatrice Six.

2. CIVIL RIGHTS LAWSUITS

In July 2009, five members of the Beatrice Six filed civil rights lawsuits in the U.S. District Court for the District of Nebraska. The sixth member, Shelden, filed suit in 2011, and the cases were consolidated. The defendants were Gage County, the Gage County sheriff’s office, the Gage County Attorney’s office, and, in their individual and official capacities, DeWitt, Smith, Searcey, Price, Lamkin, Harlan, and Meints. The complaints alleged that the defendants had manufactured and coerced false or misleading evidence for the purpose of arresting, prosecuting, convicting, and imprisoning the Beatrice Six for Wilson’s death. The complaints alleged that the defendants made intentional misrepresentations in arrest warrants, utilized improper interrogation techniques, conducted a reckless investigation, and intentionally prosecuted the plaintiffs without proper evidentiary support. The complaints asserted claims for malicious prosecution, false arrest, conspiracy, and having policies, practices, and customs that deprived the plaintiffs of their civil rights.

3. INSURANCE POLICIES

On February 2, 1989, Gage County purchased three insurance policies from EMC: (1) a commercial general liability (CGL) policy, (2) a linebacker policy, and (3) an umbrella policy. The effective period of the three policies was from February 2, 1989, to February 2, 1990.

(a) CGL Policy

The CGL policy was written on an occurrence basis, with a $1 million limit per occurrence and $2 million aggregate limit. Under the insuring clause, EMC agreed to pay sums that Gage County becomes legally obligated to pay as damages because of " ‘personal injury’ ... to which this insurance applies." The policy states, "This insurance applies to ‘personal injury’ only if caused by an offense: (1) [c]ommitted ... during the policy period; and (2) [a]rising out of the conduct of your business ...." The policy defines "personal injury" to mean "injury, other than ‘bodily injury,’ arising out of one or more of the following offenses: ... [f]alse arrest, detention or imprisonment [or] [m]alicious prosecution."

An endorsement to the CGL policy excludes coverage for " ‘personal injury’ ... due to the rendering [of] or failure to render any professional service." The endorsement applies to "any and all professional services" but the term "professional services" is not defined in the CGL policy or endorsement.

(b) Linebacker Policy

The linebacker policy is a claims-made policy covering losses from errors or omissions in the discharge of organizational duties. The linebacker policy excludes coverage for "[a]ny liability for personal injury" (emphasis omitted). Like that of the CGL policy, the linebacker policy’s definition of "personal injury" includes injury arising out of the offenses of false arrest, detention, or imprisonment or malicious prosecution.

The linebacker policy similarly excludes liability arising from the "rendering [of] or failure to render professional services" (emphasis omitted). The policy defines "professional services" as "anyone employed in any of the following professions while performing their duties as such":

1. The practice of medicine, such as (but not limited to) physician, surgeon, osteopath, chiropractor, anesthesiologist, dentist, psychiatrist, psychologist, nurse, paramedic, EMT, pharmacist, etc.

2. The practice of law (including the judiciary).

3. The practice of accounting.

4. Architects, engineers, surveyors or draftsmen.

Gage County does not contend that the linebacker policy provides coverage for the federal court judgments. In not doing so, Gage County acknowledges that the linebacker policy is a claims-made policy and that no claims were made during the effective period.

(c) Umbrella Policy

The umbrella policy covers "loss in excess of the primary limit" of the policies "listed in Schedule A ... because of ... Personal Injury" (emphasis omitted). Schedule A lists both the CGL policy and the linebacker policy issued by EMC to Gage County. In an endorsement applicable to political subdivisions, coverage under the umbrella policy was expressly conditioned on the availability of coverage under a primary policy described in schedule A. Like the two other policies, the umbrella policy’s definition of "personal injury" includes injuries arising out of the offenses of false arrest, detention, or imprisonment or malicious prosecution. Under certain circumstances, the umbrella policy will drop down and provide primary coverage if the primary aggregate limit is totally used up.

The umbrella policy contains an exclusion for liability arising out of "professional liability" or "excluded occupations liability," but the exclusion states that it does not apply to the extent that "professional or excluded occupations liability coverage" is provided by a CGL policy (emphasis omitted). The umbrella policy defines "professional liability" as "liability arising out of the rendering of a service relating to a profession in a manner which is reasonable and in keeping with the standards of that profession and formal accreditation or failure to render a service." The definition

includes but is not necessarily limited to, professions such as:

A. The practice of medicine, i.e., physician, surgeon, osteopath, chiropractor, anesthesiologist, dentist, psychiatrist, psychologist, nurse, paramedic, EMT, pharmacist, etc.

B. The practice of law

C. The practice of accounting

D. Insurance sales or consulting

E. Real estate sales or management

F. Architects, engineers, surveyors, or draftsmen

G. Stockbrokers

The umbrella policy separately defines "excluded occupations liability" as

liability arising out of the rendering of a service relating to an occupation listed below or the failure to render a service:

A. A Director or Officer of an Organization

B. Data Processing or Computer Software Development

C. Law Enforcement

D. Travel Agents

E. Publishers, Printers, or Broadcasters[.]

4. TENDER OF DEFENSE

In July 2009, Gage County tendered defense of the first five Beatrice Six lawsuits to EMC and provided copies of the five complaints which had been filed. In October, EMC denied Gage County’s request for a defense and indemnification under all three insurance policies. EMC denied coverage under the linebacker policy, because no claims were brought during the policy period, from 1989 to 1990.

With respect to the CGL policy, EMC noted it covered personal injury arising out of offenses such as false arrest or imprisonment and malicious prosecution. However, EMC stated that the professional services exclusion applied. EMC stated:

The lawsuits filed by the Plaintiffs against you allege the use of improper investigative techniques, improper training techniques, malicious prosecution, false arrest and conspiracy to violate civil rights. A professional service has been determined to be a service involving specialized skill, training or knowledge. Your investigation leading to the arrests of the Plaintiffs involved special skill, training and knowledge, which constitutes a professional service.

EMC stated that it did not have a duty under the CGL policy to defend or indemnify Gage County in the lawsuits. EMC denied coverage under the umbrella policy due to the professional liability and excluded occupations liability exclusions. That section of the denial letter stated:

The definition of "professional liability" includes "the practice of law" and psychiatry or psychology and the definition of "excluded occupations liability" includes "law enforcement". Consequently, ... the [u]mbrella [policy] does not provide coverage for liability arising out of law enforcement or the practice of law,

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