State Farm Fire & Cas. Co. v. Ruffenach

STATE FARM FIRE AND CASUALTY COMPANY v. CATHERINE RUFFENACH, et al

Civil Action No. 22-190

United States District Court, E.D. Pennsylvania

April 4, 2022

MEMORANDUM

KEARNEY, J.

Five Jane Does are presently suing a spa owner and his wife in state court after the spa owner's employee allegedly sexually assaulted the five women. The Jane Does are suing the spa owner's wife for allegedly knowing of the masseur's sexual abuse both in the spa and other businesses but not stopping him. The spa owner and his wife purchased a homeowners insurance policy agreeing their insurer need not defend or indemnify them for damages arising out of business pursuits of any insured. The homeowners' insurer now asks we declare it has no duty to defend or indemnify the spa owner or his wife in the ongoing Jane Doe lawsuits. The spa owner's wife argues she is not involved with her husband's business pursuit-the spa-but is nevertheless being sued for negligence, which is a covered claim under her homeowners' insurance policy. She wants her insurer to continue paying her costs of defense and indemnify her should she be found liable.

We grant the insurer's motion for declaratory judgment finding the spa owner and his wife agreed to a business pursuits exclusion to coverage. The parties agreed the insurer need not cover damages arising from any insured's business pursuit. Jane Does' claims arise from, at the minimum, the spa owner's continuous and profit-motivated spa business. We enter judgment for the insurer declaring it has no obligation to defend or indemnify the spa owner's wife in the Jane Doe lawsuits in state court.

I. Alleged facts in the pleadings.

Husband and wife Gerard and Catherine Ruffenach together own a home in this District.^[1]They purchased homeowners insurance policies from State Farm Fire and Casualty Company covering them for defined losses from April 2015 through April 2019.^[2] They are both named as “Insureds” in their insurance policies.^[3] State Farm and the Ruffenachs agreed State Farm would defend the Ruffenachs against any claim or suit “for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence.”^[4] The parties agreed to define “bodily injury” as “physical injury, sickness, or disease to a person.”^[5] The parties defined “occurrence” as “an accident, including exposure to conditions, which first results in [] bodily injury; or [] property damage.”^[6]

The Ruffenachs agreed State Farm would not cover claims or suits arising from any insured's business pursuits. The “business pursuits exclusion” excuses State Farm's obligation to defend the Ruffenachs against suits claiming “bodily injury or property damage arising out of business pursuits of any insured.”^[7] The parties agreed to define “business” as “a trade, profession or occupation.”^[8]

Five Jane Does sue the Ruffenachs alleging a masseur sexually assaulted them.

Gerard Ruffenach owns the “Phoenixville-Oaks Hand and Stone Massage and Facial Spa” (“Oaks”) in this District.^[9] Five Jane Does sued the Ruffenachs in three lawsuits in the Philadelphia Court of Common Pleas (collectively, the “Underlying Lawsuits”) alleging an Oaks employee sexually assaulted them. State Farm and Catherine Ruffenach dispute whether State Farm must provide Catherine Ruffenach with a defense and indemnity in the three lawsuits.

The five Jane Does allege the Ruffenachs employed masseur Steven Waldman at Oaks.^[10]Mr. Waldman allegedly sexually assaulted one Jane Doe at Oaks, then sexually assaulted the four other Jane Does at his private massage business after the Ruffenachs employed him. The five Jane Does claim their lawsuits regard “the Ruffenachs' decision not to report Steven Waldman . . . after they learned he was a danger to women.”^[11] The five Jane Does allege Catherine Ruffenach and Gerard Ruffenach “were owners, officers and/or directors of Oaks” and “are liable to [the Jane Does] because of their failures to act, their failure to act constituted a breach of their duties as owner, officers and/or directors; and/or their breach of those duties involved intentional misconduct, fraud or a knowing violation of law.”^[12]

In the first lawsuit (“Underlying Lawsuit No. 1”), three Jane Does allege Mr. Waldman sexually assaulted them while purporting to give them massages at his private business, Steven Waldman Massage, after the Ruffenachs employed him at Oaks.^[13] The police arrested Mr. Waldman after he allegedly assaulted the women.^[14] The three women sue Hand and Stone Franchise Corporation; Ruffenach, G., LLC; Catherine Ruffenach and Gerard Ruffenach; Steven M. Waldman; and Steven Waldman Massage.^[15] The women sue the Ruffenachs for vicarious liability for Mr. Waldman's acts, negligence for allowing Mr. Waldman to work at Oaks, negligence per se, and negligent infliction of emotional distress.^[16] They plead the Ruffenachs owed “a duty to reasonably report” Mr. Waldman, a “sexual predator[]” in the Ruffenachs' employ.^[17]

In the second underlying lawsuit (“Underlying Lawsuit No. 2”), Jane Doe alleges Mr. Waldman assaulted her while he worked for Oaks.^[18] Jane Doe sues the same defendants named in Underlying Lawsuit No. 1 except for Steven Waldman Massage.^[19] Jane Doe sues the Ruffenachs for vicarious liability, negligence, negligent performance of undertaking to render services, negligence per se, negligent infliction of emotional distress, negligent misrepresentation, fraudulent concealment, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Act.^[20] Jane Doe premises her claims on the Ruffenachs permitting Mr. Waldman-their employee-to sexually assault her.^[21]

In the third underlying lawsuit (“Underlying Lawsuit No. 3”), a fifth Jane Doe alleges Mr. Waldman assaulted her at Steven Waldman Massage after the Ruffenachs employed him.^[22] Jane Doe sues the Ruffenachs for negligence, negligence per se, negligent infliction of emotional distress, and vicarious liability.^[23] She pleads the Ruffenachs knew about Mr. Waldman's sexual assaults while they employed him yet did not report him.^[24]

State Farm asks we declare its coverage obligations.

State Farm disclaimed coverage for Gerard Ruffenach.^[25] But State Farm is defending Catherine Ruffenach in the Underlying Lawsuits under a reservation of rights.^[26] State Farm now asks us to declare it need not defend or indemnify the Ruffenachs in the Underlying Lawsuits.^[27]Gerard Ruffenach did not respond to State Farm's Complaint and is presently in default.

II. Analysis

State Farm moves for judgment on the pleadings against Catherine Ruffenach.^[28] State Farm argues it need not defend Catherine Ruffenach in the Underlying Lawsuits because the policies' business pursuits exclusion excludes coverage for the five Jane Does' claims arising out of Gerard Ruffenach's ownership of Oaks.^[29] Catherine Ruffenach responds State Farm must continue defending her because, despite the Jane Does' allegations, she had no involvement with Oaks.^[30]State Farm concedes Catherine Ruffenach did not own Oaks but argues the business pursuits exclusion still applies because it bars coverage for damages relating to the business pursuits of

“any insured.”^[31]

We find the business pursuits exclusion bars coverage because the Jane Does' claims against Catherine Ruffenach arise out of Gerard Ruffenach's business pursuit-Oaks. State Farm need not defend Catherine Ruffenach in the Underlying Lawsuits. Because State Farm need not defend Catherine Ruffenach, it need not indemnify her either.

A. State Farm need not defend Catherine Ruffenach in the Underlying Lawsuits.

Our coverage analysis today entails two steps. Only the second step is contested.

First, the insured “has the initial burden of establishing coverage under the policy.”^[32] This burden “is light, ” as “Pennsylvania law imposes on insurers a broad duty to defend lawsuits brought against those they insure.”^[33] State Farm does not contest whether Catherine Ruffenach establishes coverage within the policies' terms. Second, once the insured establishes the policy provides coverage, the burden shifts to the insurer to show policy exclusions nonetheless exclude coverage.^[34] We must “construe the exclusions in favor of coverage.”^[35] State Farm argues the business pursuits exclusion precludes coverage.

Fundamental coverage principles determine the business pursuits exclusion's applicability. “Under Pennsylvania law, an insurer has a duty to defend if the complaint filed by the injured party potentially comes within the policy's coverage.”^[36] “An insurer must defend its insured until it becomes absolutely clear that there is no longer a possibility that the insurer owes its insured a defense.”^[37] The duty to defend “even extends to actions that are ‘groundless, false, or fraudulent' as long as there exists the possibility that the allegations implicate coverage.”^[38] “[I]f a single claim in a multiclaim lawsuit is potentially covered, the insurer must defend all claims until there is no possibility that the underlying plaintiff could recover on a covered claim.”^[39]

The “four corners rule” generally governs whether an insurer must defend its insured.^[40]The four corners rule requires us to “compar[e] the four corners of the insurance contract to the four corners of the [underlying] complaint[s].”^[41] “Under the four corners rule, a court in determining if there is coverage does not look outside the allegations of the underlying complaint[s] or consider extrinsic evidence.”^[42] We view the allegations of the underlying action[s] as true and liberally construe them in favor of the insured.^[43]

Limited exceptions to the four corners rule exist. For example “[e]xtrinsic evidence...