Rockgate Management Co. v. CGU Ins., Inc.

32 Kan.App.2d 743

88 P.3d 798

ROCKGATE MANAGEMENT COMPANY, BRADLEY SAX, and MARRIOTT INTERNATIONAL, INC., Appellants, v. CGU INSURANCE, INC./PG INSURANCE COMPANY OF NEW YORK, Appellees.

No. 90,406.

Court of Appeals of Kansas.

Opinion filed April 30, 2004.

Dan Biles, of Gates, Biles, Shields & Ryan, P.A., of Overland Park, for appellants.

David W. Hauber, of Baty, Holm & Numrich, P.C., of Kansas City, Missouri, for appellees.

Before MARLONE P.J., MARQUARDT and HILL, JJ.

MARQUARDT, J.:

Rockgate Management Company, Bradley Sax, and Marriott International, Inc. (collectively, "Rockgate") appeal the trial court's grant of summary judgment to CGU Insurance, Inc./PG Insurance Company of New York (CGU). We affirm.

The Bethesda Full Gospel Church (Bethesda) is a predominantly African-American church located in Buffalo, New York. Mark and Shonder Johnson are youth ministers at Bethesda. In early 1998, Shonder telephoned the Residence Inn to discuss lodging for a youth retreat. Shonder booked two suites, received a confirmation number, and guaranteed the reservation with her credit card.

Prior to the date of the retreat, Shonder visited the Residence Inn to check the accommodations. An employee of the Residence Inn allegedly told Shonder that the group would have "more than enough room" and showed her how furniture could be moved to accommodate sleeping bags. Shonder expressly told Residence Inn personnel about the plans for the retreat and how many people would be staying in the rooms.

Shortly after some of the young adults had arrived at the hotel on the day of the retreat, they were met by Sax, the Executive Vice President and Chief Operating Officer of Rockgate. Sax told the youth that they could not stay at the hotel because they would make too much noise. Sax allegedly told the Johnsons that "under no circumstances" would they be allowed to stay because they would exceed the occupancy regulations and violate the noise ordinance.

In June 1998, the Johnsons, Bethesda, and other named plaintiffs (Bethesda plaintiffs) brought suit in the United States District Court for the Western District of New York, claiming violations of: (1) 42 U.S.C. § 1981 (2000); (2) 42 U.S.C. § 1985 (2000); (3) 42 U.S.C. § 1986 (2000); (4) 42 U.S.C. § 2000a (2000) and 42 U.S.C. § 2000a-1 (2000); (5) New York civil rights law; (6) New York civil rights law by aiding and inciting; (7) New York human rights law; (8) New York human rights law by aiding, abetting, inciting, compelling, and coercing; (9) breach of contract; (10) tortious interference with contractual relations; and (11) intentional infliction of emotional distress.

Rockgate, a Kansas corporation, was insured by CGU. CGU received notice of the Bethesda plaintiffs' complaint. In June 1998, CGU notified Rockgate that its insurance policy did not cover the claims arising from the Bethesda plaintiffs' lawsuit. Ultimately, Rockgate settled the Bethesda plaintiffs' action out of court.

In May 1999, Rockgate filed a petition for declaratory judgment in the Johnson County District Court, asking the trial court to find that CGU had a duty to defend Rockgate and that CGU was liable to pay all sums to fully indemnify Rockgate for damages, costs, or expenses that Rockgate incurred in the Bethesda plaintiffs' underlying lawsuit. In June 1999, this case was removed to federal court in Kansas. However, in January 2000 the case was remanded to Johnson County after it was determined that diversity jurisdiction did not exist.

After both parties filed motions for summary judgment, the trial court ruled that there can be no insurance coverage for a claim of denial of accommodations based upon racial discrimination. The trial court found that all of the underlying acts were intentional, which clearly omitted Rockgate from coverage under the CGU policy. Rockgate timely appeals.

Rockgate argues that not all of the claims made by the Bethesda plaintiffs were based on racial discrimination; therefore, some of the claims fell within the scope of policy coverage. Both parties agree that New York law applies. Our standard of review on a question of interpretation of an insurance contract is unlimited. Progressive Casualty Ins. Co. v. Farm Bureau Mut. Ins. Co., 27 Kan. App. 2d 765, 766, 9 P.3d 565, rev. denied 270 Kan. 899 (2000).

Insurance policies must be construed as a whole. Every part must be considered, and none of the words of a policy should be disregarded if a rational and intelligent meaning can be given to them, consistent with the general design and object of the whole instrument. Lee v. Guardian Life Ins. Co. of America, 187 Misc. 221, 223, 46 N.Y.S.2d 241 (1944).

Generally, when an insurer wishes to exclude coverage from its policy, it must do so in clear and unmistakable language. Such exclusions or exceptions must be specific and clear in order to be enforceable, and are to be accorded a strict and narrow construction. Where the policy is ambiguous, and no extrinsic evidence is offered from which it may be concluded that the policy should be interpreted in favor of the insurer, the policy must be narrowly interpreted in favor of the insured. Gaetan v. Firemen's Insurance Company of Newark, 264 App. Div. 2d 806, 808, 695 N.Y.S.2d 608 (1999). However, unambiguous clauses must be given their literal meaning. Amer. Charm Corp. v. St. Paul Life Ins., 53 Misc. 2d 246, 247-48, 278 N.Y.S.2d 270 (1967).

An insurer must provide its insured a defense unless it can show that the allegations of the complaint put it solely within the policy exclusion. The analysis depends on the facts pled, not conclusory assertions. Where it can be determined from the factual allegations that there is no basis for recovery within the coverage of the policy, a court will sustain the insurer's refusal to defend. Allstate Insurance Company v. Mugavero, 581 N.Y.S.2d 142, 162-63, 589 N.E.2d 365 (1992); see Commercial Union Assur. Co., PLC v. Oak Park Marina, 198 F.3d 55, 59 (2d Cir. 1999).

Insurance Policy Section I, Coverage A1

Rockgate argues that Coverage A of the insurance policy grants them coverage for their claim. Section I, Coverage A1, "Insuring Agreement," states:

"a. We will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies. We will have the right and duty to defend any `suit' seeking those damages. We may at our discretion investigate any `occurrence' and settle any claim or `suit' that may result."

Section I, Coverage A2, "Exclusions," states:

"This insurance does not apply to:

a. Expected or Intended Injury

`Bodily injury' or `property damage' expected or intended from the standpoint of the insured. This exclusion does not apply to `bodily injury' resulting from the use of reasonable force to protect persons or property."

Within the policy, "bodily injury" is defined as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Finally, "property damage" is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property."

Rockgate argues that in New York, the term "accident" is broad enough to encompass reckless conduct which causes emotional distress. Rockgate claims that the Bethesda plaintiffs pled intentional infliction of emotional distress in the alternative as a reckless claim, which means that the plaintiffs would not have to prove intent or discrimination for that claim to succeed.

Where a policy excludes coverage for intentional or criminal acts of an insured, the court must look at the actions as a whole in determining whether an "accident," as defined in the policy, has occurred. See Allstate Insurance Company v. Ruggiero, 239 App. Div.2d 369, 370, 658 N.Y.S.2d 321 (1997). In determining whether a policy exclusion covers intentional acts, the relevant inquiry is whether there is a factual or legal basis upon which to find that the consequences of the acts were not expected or intended. See Pennsylvania Millers Mutual Insurance Company v. Rigo, 256 App. Div. 2d 769, 681 N.Y.S.2d 414 (1998).

In 1963, the New York State Superintendent of Insurance determined that acts of discrimination on the basis of race, creed, color, or national origin may not lawfully be written under the New York Insurance Law. A 1989 judicial reaffirmation made it clear that it is against New York public policy to provide insurance coverage against legal liability arising out of the act of discrimination even where the act was unintentional or vicariously imposed. Am. Mgt. Ass'n. v. Atl. Mut. Ins. Co., 168 Misc. 2d 971, 977-78, 641 N.Y.S.2d 802 (1996).

Rockgate contends that the Bethesda plaintiffs' cause of action for intentional infliction of emotional distress was "clearly [pled] alternatively as a reckless, but not intentional act." Rockgate refers to paragraph No. 111 of the Bethesda plaintiffs' complaint, which reads: "These comments and other conduct by defendants, Sax and Rockgate, were intended to cause plaintiffs severe emotional distress and/or constituted a disregard of a substantial possibility of causing severe emotional distress."

In support of its argument, Rockgate cites Am. Mgt. Ass'n., 168 Misc. 2d 971. However, that case clearly addresses the issue of disparate impact discrimination and age discrimination. 168 Misc. 2d at 976-79. In order to state a claim for discrimination under the disparate impact theory, the complaint must allege, at a minimum, that the insured utilized a facially neutral criterion which resulted in a significant discriminatory pattern of behavior. 168 Misc. 2d at 976.

The Bethesda plaintiffs' complaint centers on violations of federal civil rights statutes. Rockgate contends that 42 U.S.C. § 1986 does not require...