Knutsen v. State Farm Fire & Cas. Co.

375 F.Supp.3d 514

Raymond KNUTSEN and Marilynn Knutsen, Plaintiffs,

v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

Case No. 2:18-cv-88-wks

United States District Court, D. Vermont.

Signed March 25, 2019

Robert P. McClallen, McClallen & Associates, P.C., Rutland, VT, for Plaintiffs.

Richard H. Wadhams, Jr., Esq., Pierson Wadhams Quinn Yates & Coffrin, LLP, Burlington, VT, for Defendant.

OPINION AND ORDER

William K. Sessions III, District Court Judge

Plaintiffs Raymond and Marilynn Knutsen brought action against Defendant State Farm Fire and Casualty Company for breach of its duty to defend under Plaintiffs' homeowner's insurance policy. Now before the Court is Defendant's Motion for Summary Judgment. For the reasons set forth below, Defendant's Motion for Summary Judgment is granted .

Background

I. Undisputed Facts

Since at least January 2015, Plaintiffs Raymond and Marilynn Knutsen (collectively, "the Knutsens") have had a homeowners insurance policy ("the Policy") with State Farm Fire and Casualty Company ("State Farm"). ECF 16-1 at 1.

In April, 2015, Karen Cegalis ("Cegalis") filed a lawsuit against the Knutsens, claiming that the Knutsens "conspired to create a campaign to cause severe estrangement of Leif Cegalis from his mother Karen Cegalis." ECF 16-3 at 1-2, ECF 16-1 at 2. Leif Cegalis is the child of Raymond Knutsen and Karen Cegalis. ECF 16-3 at 1. Cegalis' Complaint alleges that, inter alia, the Knutsens prevented contact between her and her son, violated Court Orders to not engage in discussing their Family Court case with Leif Cegalis, brainwashed Leif Cegalis against Karen Cegalis, recklessly or knowingly made defamatory statements about Karen Cegalis to Leif Cegalis, tortuously interfered with Karen Cegalis' custodial rights, and "engaged in a crusade to prosecute Karen Cegalis for unsubstantiated allegations of abuse towards Leif Cegalis." ECF 16-3 at 2. The Complaint alleged four separate claims: Negligence, Breach of Good Faith and Fair Dealing, Intentional Infliction of Emotional Distress, and Intentional Torts. ECF 16-3. In terms of damages, Karen Cegalis sought "damages in an amount sufficient to compensate her for her damages including but not limited to past, present and future damages for physical pain, suffering [sic] emotional damages, economic damages for the cost of litigating false accusations, counseling costs and other equivalent out of pocket expenses." ECF 16-3 at 5. Damages are for "compensation of medical bills past, present and future" and "for pain and suffering past, present and future." Id.

On September 23, 2015, the Knutsens contacted State Farm and requested that State Farm provide insurance coverage for the claims asserted against them in the Cegalis Complaint. ECF 16-1 at 2. State Farm replied on October 28, 2015, denying insurance coverage for the claims. Id. State Farm determined that the claims in the Cegalis Complaint are not covered by the Policy. ECF 16-4 at 1. The Policy provides personal liability coverage to the Knutsens as follows:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. Pay up to our limit of liability for the damages for which the insured is legally liable; and2. Provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any claim or suit ends when the amount we pay for damages, to effect settlement or satisfy a judgment resulting from the occurrence, equals our limit of liability.

ECF 16-2 at 24. The Policy defines "bodily injury" as follows:

1. "Bodily injury" means physical injury, sickness, or disease to a person. This includes required care, loss of services and death resulting therefrom."

Bodily injury does not include:

a. Any of the following which are communicable: disease, bacteria, parasite, virus, or other organism, any of which are transmitted by any insured to any other person;

b. The exposure to any such disease, bacteria, parasite, virus, or other organism by any insured to any other person; or

c. Emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person.

Id. at 10. Additionally, the Policy contains the following coverage exclusion:

Coverage L [Personal Liability] and Coverage M [Medical Payments to Others] do not apply to:

a. bodily injury or property damages:

(1) which is either expected or intended by the insured; or

(2) which is the result of willful or malicious acts of the insured.

Id. at 25.

Trial for the Cegalis lawsuit began on June 5, 2017. ECF 16-1 at 2. At trial, Cegalis described how the alleged acts by the Knutsens were affecting her: "I couldn't concentrate ... I was starting to have physical symptoms, tingling and numbness in my fingers and just this brain fog." ECF 16-5 at 3. Cegalis added that she also had "trouble sleeping." ECF 16-5 at 5.

On July 5, 2017, the trial judge announced the close of evidence and gave the jury closing instructions. Id. The instructions attached to the Knutsen Complaint in Rutland Superior Court are not signed by the trial judge. Id. The instructions for the Negligence claim instruct jurors that:

To prove that the Knutsens were negligent Ms. Cegalis must prove all the following:

(1) That the Knutsens had a duty to Ms. Cegalis; and

(2) They failed to use reasonable care in discharging that duty; and

(3) The Knutsen's [sic] failure to use reasonable care caused physical injury to Ms. Cegalis.

ECF 16-6 at 3. The instructions further provide that "[i]f you find that the Knutsens breached a duty toward Ms. Cegalis, then you must decide whether Ms. Cegalis has proved that the breach caused physical harm to her." Id.

The jury returned a verdict for Cegalis and eventually awarded her $ 500 in damages: $ 499 for negligence and $ 1 for intentional infliction of emotional distress. ECF16-1 at 3. On October 7, 2017, the court ordered that the Cegalis lawsuit be re-tried. Id. On November 1, 2017, the Knutsens' attorney wrote to State Farm, renewing their claim for insurance coverage.

Id. On January 19, 2018, State Farm wrote back to the Knutsens, reiterating State Farm's position that there is no coverage for the Cegalis claims. Id.

On April 2, 2018, Cegalis filed an Amended Complaint. ECF 16-1 at 4. The Amended Complaint is identical to the original Complaint except that Count IV is now labeled ‘Defamation’ instead of ‘Intentional Torts.’ Id. That same month, the Knutsens renewed their request for insurance coverage, and State Farm again replied that there was no insurance coverage for the disputed claims. Id.

State Farm now moves for summary judgment arguing that it has no duty to defend the Cegalis lawsuit because the Cegalis Complaint does not allege that Cegalis sustained "bodily injury" as that term is defined in the Policy. ECF 16 at 6. State Farm also argues that it has no duty to defend the Cegalis lawsuit because the Cegalis Complaint alleges that the harm to Cegalis was "expected or intended" or was "willful and malicious." Id. at 13.

Discussion

1. Summary Judgment Standard

A court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In making a determination on summary judgment, the court must construe all evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor." Dickerson v. Napolitano , 604 F.3d 732, 740 (2d Cir. 2010). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has discharged its burden the opposing party must set out specific facts showing a genuine issue of material fact for trial. Wright v. Goord , 554 F.3d 255, 266 (2d Cir. 2009). The moving party bears the burden of establishing that there are no factual issues and that they are entitled to judgment as a matter of law. Battery Steamship Corporation v. Refineria Panama S.A. , 513 F.2d 735, 738 (2d Cir. 1975).

2. Choice of Law

Jurisdiction in this case is based on diversity of the parties. "It is well established that federal courts determine governing law in diversity actions by looking to choice of law principles in the forum state." Evergreen Bank, N.A. v. Sullivan , 980 F.Supp. 747, 750 (D. Vt. 1997). When contractual parties have not specified the state law to be applied in a given case, Vermont uses the test laid out in Restatement (Second) Conflict of Laws § 188 (the "Restatement") to determine which state has the most significant relationship to the transaction and the parties. Id. ; see also McKinnon v. F.H. Morgan & Co. , 170 Vt. 422, 750 A.2d 1026, 1028 (2000) ("This Court has adopted the Restatement (Second) of Conflicts for choice-of-law questions in both tort and contract cases."). The Restatement considers five factors in determining the law applicable including: (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, nationality, place of incorporation, and place of business to the parties. Restatement (Second) Conflict of Laws § 188.

Here, the balance of factors weighs heavily in Vermont's favor. The Knutsens are residents of Castleton, Vermont and State Farm has its principal place of business in Illinois. ECF 1 at 1. The contract at issue is a Homeowners Insurance Policy purchased by the Knutsens from State Farm. The Knutsens are alleging that State Farm has a duty, under this contract, to defend them in a lawsuit in Vermont state court. The alleged acts which gave rise to the state...