Nationwide Mutual Insurance Company v. Ellzey, Civil Action No. 1:93cv280-D-D (N.D. Miss. 2/__/1996)

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NATIONWIDE MUTUAL INSURANCE COMPANY, PLAINTIFF, v. PAUL C. ELLZEY, M.D. and HERBERT HILL, d/b/a HILL'S DISCOUNT DRUGS, INC., DEFENDANTS.

Civil Action No. 1:93cv280-D-D.

United States District Court, N.D. Mississippi, Eastern Division.

February __, 1996.

MEMORANDUM OPINION

Presently before the court is the motion of the plaintiff for the entry of summary judgment on its behalf. Finding the motion well taken, the same shall be granted.

Factual Summary

Nationwide Mutual Insurance Company ("Nationwide") filed this action for a declaratory judgment on September 22, 1993, and seeks a declaration by this court concerning its duty as an insurer to defend its insured, defendant Herbert Hill d/b/a Hill's Discount Drugs, Inc., in a state court action. The defendant Paul C. Ellzey, M.D. currently has an action pending against Hill in the Circuit Court of Prentiss County, Mississippi¹. In this state court action, Ellzey charges that Hill is liable under various tort law causes of action. Hill seeks legal defense from the plaintiff for this state court action under his policy of insurance with Nationwide, and it is the position of Nationwide that the charged acts fall outside the scope of Hill's liability policy. As the charged acts fall outside the scope of the policy, Nationwide contends, it has no duty to provide a legal defense to Hill.

I. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." F.R.C.P. 56(c). The party seeking summary judgment carries the burden of demonstrating that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once a properly supported motion for summary judgment is presented, the burden shifts to the non-moving party to set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511, 91 L.Ed.2d 202 (1986); Brothers v. Klevenhagen, 28 F.3d 452, 455 (5th Cir. 1994). "Where the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986); Federal Sav. & Loan Ins. v. Krajl, 968 F.2d 500, 503 (5th Cir. 1992). The facts are reviewed drawing all reasonable inferences in favor of the party opposing the motion. Matagorda County v. Russel Law, 19 F.3d 215, 217 (5th Cir. 1994).

II. DISCUSSION

A. THE INSURANCE POLICY

The terms of Hill's policy of insurance with the defendant provide:

A. COVERAGES

1. Business Liability

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury," "property damage," "personal injury" or "advertising injury" to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages . . . .

Plaintiff's Exhibit A, Businessowners Liability Coverage Form. However, the policy provides that coverage will not extend to provide protection for acts:

[a]rising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;

Plaintiff's Exhibit A, Businessowners Liability Coverage Form, ¶ B(p)(1). The policy provisions further provide that the coverage will not extend to acts:

[a]rising out of the willful violation of a penal statute or a ordinance committed by or with consent of the insured.

Plaintiff's Exhibit A, Businessowners Liability Coverage Form, ¶ B(p)(3).

B. THE INSURER'S DUTY TO DEFEND

Under Mississippi law, the duty of an insurance company to defend its insured under the provisions of a policy of insurance is determined by application of the "allegations of the complaint" rule. Knight v. U. S. Fidelity & Guar. Ins. Co., 65 F.3d 34, 37 (5th Cir. 1995); E.E.O.C. v. Southern Pub. Co., 894 F.2d 785, 789 (5th Cir. 1990). That is, the duty is determined "by measuring the allegations in the plaintiff's pleadings without regarding the ultimate outcome of the action." Knight, 65 F.3d at 37; E.E.O.C., 894 F.2d at 789. It is important to note that the facts alleged, and not the legal conclusions of the pleadings, control this determination. Employer's Reinsurance v. Martin, Gordon & Jones, 767 F. Supp. 1355, 1359 (S.D. Miss. 1991). "Only if the pleadings state facts `bringing the injury within the coverage of the policy' must the insurer defend." Employer's Reinsurance, 767 F. Supp. at 1360 (quoting Foreman v. Continental Cas. Co., 770 F.2d 487, 489 (5th Cir. 1985)). Application of this standard results in a duty to defend which is broader than the insured's duty to pay claims. Indeed, there is at least one exception to this rule, which results in an even broader duty to defend:

Where [the] complaint fails to state [a] cause of action covered by the policy, but [the] insured informs the insurer that true facts are inconsistent with [the] complaint, or insured learns from independent investigation that the true facts, if established, present potential liability of insured, insurer must defend until it appears that facts upon which liability is predicated exclude insurance coverage.

Mavar Shrimp & Oyster Co. v. United States Fid. & Guar. Co., 187 So. 2d 871, 875 (Miss. 1966) (quoting Crum v. Anchor Casualty Co., 119 N.W.2d. 703 (Minn. 1963)).

In the complaint filed against the defendant Hill in the state court action, there are several allegations of actionable conduct:

VII.

The Plaintiff has learned that the Defendants herein on a number of occasions provided prescription drugs to the patients of the Plaintiff without his knowledge, consent or authority by prescription. Said acts of fraud and deception occurred with at least two patients and possibly many more. Specifically, the Defendants herein would provide prescription medication to certain patients. In an attempt to deceive the Mississippi State Pharmacy Board and the Plaintiff herein, the Defendants would attribute said dispensing of prescription drugs to "call-ins" by the Plaintiff. In fact, the Plaintiff did not authorize nor call-in a prescription for the patients in question who will be presently identified as John Doe and Mary Doe. This procedure took place no less than 16 times and possibly many more.

VIII.

Further, the Defendant herein, in an effort to hide his unethical and illegal actions, made material misrepresentations and purposely misled the investigators for the Mississippi Board of Medical Licensure. The material misrepresentations made to said investigators in reference to the Plaintiff herein were knowingly false, malicious and injurious to the Plaintiff. Such amounts to slander, and the Plaintiff respectfully requests that this Honorable Court award him a judgment against the Defendant . . .

IX.

As a result of the acts of the Defendants herein said Defendants contributed to the addiction of the patients aforementioned. As a result of said addictions, the Plaintiff was subsequently required to provide radical medical treatment to said patients. Said interference with the treatment of the patients is paramount to tortious interference with doctor/patient relations between the Plaintiff and his patients. As a result of this tortuous interference with doctor/patient relations, the Plaintiff respectfully requests this Honorable Court award him a judgment . . .

X.

The aforementioned practice of dispensing prescription drugs to the patients of the Plaintiff and attributing said prescriptions as call-ins, but which were in fact unauthorized, contributed to the investigation into the plaintiff's practice of prescribing controlled substances to escalate. Further, the Defendant herein purposely acted unethically and illegally in failing to properly document prescription medicine dispensed to the patients of the Plaintiff herein. The deceitful, fraudulent, willful, wanton and malicious acts of the Defendants herein contributed to the investigation of the Plaintiff which subsequently resulted in the suspension of his physician's license. .. .

Plaintiff's Exhibit B. Nationwide characterizes these allegations as follows: 1) fraud and/or deceit, 2) slander and 3) tortious interference with doctor/patient relations. In essence, it is Nationwide's contention that Hill's policy of insurance does not provide coverage, and therefore it has no duty to defend, because:

1) The fraud claim is not covered because it alleges a willful violation of a state penal statute as excluded under the policy coverage form in ¶ B(p)(3);² 2) The slander claim is not covered because it alleges an injury "[a]rising out of oral or written publication of material, . . . done by or at the direction of the insured with knowledge of its falsity," as excluded under the policy coverage form in ¶ B(p)(1); and

3) The "tortious interference with doctor/patient relations" claims is in essence a "tortious interference with contract" claim, and is not covered because it is also excluded as arising out of a willful violation of a state penal statute as excluded under the policy coverage form in ¶ B(p)(3).

Even at first blush, these arguments appear to have substantial merit. While the complaint in question does not expressly charge Mr. Hill with the violation of Miss. Code Ann. § 41-29-141, many of the facts alleged in paragraphs VII, IX and X of this complaint would establish its violation if proven. As well, in support of the slander claim, the complaint charges that Hill made statements which were "knowingly false." Liability for slander based upon statements made "with knowledge of their falsity" is expressly excluded from coverage. These policy...