Jonathan Isom v. Valley Forge Insurance Company, e ( 2017 )

Case: 17-60014 Document: 00514289575 Page: 1 Date Filed: 12/29/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-60014
Fifth Circuit
FILED
December 29, 2017
DOCTOR JONATHAN M. ISOM, Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
VALLEY FORGE INSURANCE COMPANY; TRANSPORTATION
INSURANCE COMPANY; JOHN DOE AS AGENT FOR THE
DEFENDANTS; JOHN DOE CORPORATIONS 1-20,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 2:16-CV-109
Before KING, DENNIS, and COSTA, Circuit Judges.
PER CURIAM:*
Jonathan M. Isom, an anesthesiologist, sued a surgeon who refused to
work with him, alleging racial discrimination. The parties settled that action
for $4 million. But instead of paying damages, the surgeon and his practice
assigned Isom their right to sue their liability insurers for indemnity. Isom did
just that, bringing this action against the insurers for breach of contract and
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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breach of the covenant of good faith and fair dealing—seeking not just the $4
million he was promised in the settlement but also punitive damages. The
district court concluded that Isom’s claim did not qualify for coverage under
the relevant insurance policies and granted summary judgment in the
insurers’ favor. Isom appeals, and we AFFIRM.
I.
A.
Jonathan M. Isom is an anesthesiologist. According to his complaint, he
was a “contract employee” with Wesley Medical Center (“Wesley”) from
November 2012 to July 2013. Thomas B. Baylis is an orthopedic surgeon and
the chief executive officer of Premier Orthopedic & Sports Medicine (“Premier”
and together with Baylis, the “Insureds”). Wesley occasionally assigned Isom
to provide anesthesiology services during Baylis’s operations. Isom alleged,
however, that Baylis refused to work with him solely because he is black, and
instead required Isom to arrange for a white anesthesiologist to assist Baylis
during surgery. Isom also alleged that Baylis was openly hostile and made
derogatory remarks about him. According to Isom, Wesley’s management
ignored his complaints and ultimately terminated his contract without cause. 1
In August 2013, Isom filed a discrimination charge against Wesley with
the U.S. Equal Employment Opportunity Commission (“EEOC”). The EEOC
closed its investigation after concluding that Isom was an independent
contractor and issued a right to sue letter. Isom also filed a charge of
discrimination against Premier. The EEOC closed that investigation and
issued a right to sue letter after determining that no employment relationship
existed between Isom and Premier.
1 We merely summarize Isom’s allegations. We make no judgment as to the validity of
any of his discrimination claims, which have been settled.
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Shortly after that, Isom sued the Insureds in federal district court,
alleging racial discrimination in violation of federal law. In September 2015,
the parties entered into a consent judgment in the amount of $4 million. In
reality, the Insureds paid nothing. Instead, they “sold” Isom their right to
recover under various insurance policies in exchange for Isom’s promise not to
pursue any of the Insureds’ other assets. The Insureds nonetheless retained
any claims against their insurers for attorneys’ fees and expenses associated
with their defense.
B.
The Insureds had two general liability policies that are relevant to this
litigation. 2 A policy from Valley Forge Insurance Company provided coverage
from December 2011 to December 2012. And another policy from
Transportation Insurance Company provided coverage from December 2012 to
December 2013. 3 The policies are substantially similar and contain two
coverage forms relevant here: the Employment Practices Liability Coverage
Form (“EPL”) and the Businessowners Liability Coverage Form (“BLCF”).
Under the EPL, the Insurers agreed to pay any “sums in excess of the
deductible and subject to the limits of liability that the Insured becomes legally
obligated to pay as ‘damages’ because of a ‘claim’ resulting from a ‘wrongful
employment practice.’” To qualify for coverage, a claim must be “first made
against an insured, during the ‘policy period’ or Extended Reporting Period, if
applicable.” The policy defines a claim as “a ‘suit’ or written demand for
monetary damages against an insured and made by or on behalf of . . . an
‘employee’ . . . for a ‘wrongful employment practice.’” Employee is, in turn,
2 The Insureds also had an umbrella policy through Continental Casualty Company.
However, Isom has not named Continental Casualty Company as a party in this action or
pursued recovery under that policy.
3 We refer to Valley Forge Insurance Company and Transportation Insurance
Company collectively as the “Insurers.”
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defined as “all of your past, present or future full-time or part-time employees,
including seasonal and temporary employees and employees leased or loaned
to you.” The definition expressly excludes independent contractors.
Under the BLCF, the Insurers must cover any “sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury,’
‘property damage’ or ‘personal and advertising injury’ to which this insurance
applies.” “Bodily injuries” must result from an “occurrence,” which is defined
elsewhere in the policy as an “accident.” “Bodily injuries” and “personal and
advertising injuries” arising out of employment-related practices such as
“defamation, harassment, humiliation or discrimination” are specifically
excluded. So too is “‘[b]odily injury’ . . . expected or intended from the
standpoint of the insured.” The BLCF additionally excludes from coverage any
“[p]ersonal and advertising injury . . . [c]aused by or at the direction of the
insured with the knowledge that the act would violate the rights of another
and would inflict ‘personal and advertising injury’” or “[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.”
C.
The Insurers received notice of Isom’s lawsuit on January 30, 2014, and
immediately began to investigate. A claims adjuster called Premier’s manager,
Ryan Cole, who told the adjuster that Isom was an independent contractor for
Wesley and not an employee of Premier. Premier’s defense counsel
subsequently told a claims adjuster that Isom’s EEOC complaint against
Premier had been dismissed after the EEOC determined that Isom was not an
employee of Premier. Based on that information, the Insurers determined that
Isom’s lawsuit was not covered under the EPL because Isom was not an
“employee” of the Insureds. The Insurers also determined that Isom’s lawsuit
did not qualify for coverage under the BLCF because Isom alleged that the
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Insureds discriminated against him intentionally. The Insurers notified the
Insureds that their claim had been denied on May 1, 2014—over one month
before their answer was due on June 23, 2014.
After Isom and the Insureds settled, Isom filed this lawsuit against the
Insurers in Mississippi state court. He alleged breach of contract and breach
of the implied covenant of good faith and fair dealing, seeking compensatory
and punitive damages. The Insurers removed the action to federal court based
on diversity. The parties later cross-motioned for summary judgment. The
Insurers argued that they did not breach the policies because neither the EPL
nor the BLCF covered Isom’s claims in the discrimination lawsuit.
The district court agreed and granted the Insurers’ motion. It held that
the Insurers had no duty to defend against the discrimination lawsuit because
Isom’s complaint did not allege facts establishing that he was an “employee” of
Baylis or Premier. The district court also rejected Isom’s argument that his
complaint could be construed to support a slander or invasion of privacy claim
covered under the BLCF. Because the court concluded that the Insurers had
not breached the policies, it also held that they had not breached the covenant
of good faith and fair dealing. The district court dismissed Isom’s claims with
prejudice and denied his motion for partial summary judgment.
Separately, the district court disqualified two of Isom’s attorneys for
unauthorized practice of law. The Insurers moved for disqualification because
both attorneys had allowed their names to be listed on the complaint and
attempted to negotiate a settlement before the district court acted on their
applications for admission to practice pro hac vice. Isom did not respond. After
the Insurers moved for disqualification, the district court granted one
attorney’s application and denied the other. The Insurers then filed a motion
to revoke the first attorney’s admission and oppose the second attorney’s
admission. Isom again failed to respond. The district court concluded that the
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attorneys’ activities qualified as unauthorized practice under Mississippi law,
and, in part because Isom never responded, the district court disqualified both
attorneys. Isom filed a motion for reconsideration, which the district court
denied.
Isom appeals the district court’s grant of summary judgment in favor of
the Insurers and the disqualification of his out-of-state counsel. 4 We conclude
that the district court properly granted summary judgment and find no abuse
of discretion in its decision to disqualify Isom’s out-of-state counsel.
II.
We review the district court’s grant of summary judgment de novo.
Estate of Bradley ex rel. Sample v. Royal Surplus Lines Ins. Co., 647 F.3d 524,
528 (5th Cir. 2011). We view the facts in the light most favorable to the non-
moving party. Id. However, we must affirm the grant of summary judgment if
“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). Isom’s sole contention on
appeal is that the district court erred by determining that there was no duty
to defend. Because the existence of the duty to defend depends on the
allegations in the complaint and the policy language, it is a question of law.
See Sample, 647 F.3d at 529.
III.
Jurisdiction in this case is based on diversity. Thus, we must apply
Mississippi law. See Nationwide Mut. Ins. Co. v. Lake Caroline, Inc., 515 F.3d
414, 418 (5th Cir. 2008).
4 This is not Isom’s first appearance in this court. Before the district court granted
summary judgment, Isom filed a petition for a writ of mandamus challenging the district
court’s disqualification ruling and denial of his attorney’s pro hac vice application. This court
denied that petition.
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A.
In order to determine whether there is a duty to defend under
Mississippi law, we first examine two documents: the complaint and the policy.
See QBE Ins. Corp. v. Brown & Mitchell, Inc., 591 F.3d 439, 443 (5th Cir. 2009);
Auto. Ins. Co. of Hartford v. Lipscomb, 75 So. 3d 557, 559 (Miss. 2011). The
duty to defend is a matter of contract, and there can be no duty to defend when
a claim falls outside the policy’s coverage. See Baker Donelson Bearman &
Caldwell, P.C. v. Muirhead, 920 So. 2d 440, 450–51 (Miss. 2006). Only if the
complaint “contains reasonable, plausible allegations of conduct covered by the
policy” does the duty to defend arise. Id. at 451; see State Farm Mut. Auto. Ins.
Co. v. LogistiCare Sols., LLC, 751 F.3d 684, 689 (5th Cir. 2014) (quoting Baker
Donelson, 920 So. 2d at 451); see also Brown & Mitchell, 591 F.3d at 443(characterizing inquiry as whether a claim is “within or arguably within the
scope of coverage” (quoting Am. Guar. & Liab. Ins. Co. v. 1906 Co., 273 F.3d
605, 610 (5th Cir. 2001))).
We must interpret the policy according to its plain terms and strive to
give effect to all of its provisions. See Lake Caroline, 515 F.3d at 419 (quoting
Centennial Ins. Co. v. Ryder Truck Rental, Inc., 149 F.3d 378, 382–83 (5th Cir.
1998)). Any ambiguities and exclusionary provisions must be construed
against the insurer and in favor of the insured. See S. Healthcare Servs., Inc.
v. Lloyd’s of London, 110 So. 3d 735, 744 (Miss. 2013). “But ‘if a contract is
clear and unambiguous, then it must be interpreted as written,’” even if doing
so would result in hardship to the insured. LogistiCare Sols., 751 F.3d at 688
(quoting U.S. Fid. & Guar. Co. of Miss. v. Martin, 998 So. 2d 956, 963 (Miss.
2008)). Moreover, language is not ambiguous merely because the parties
disagree over its interpretation. See Martin, 998 So. 2d at 963. Rather,
language is ambiguous only if it “can be logically interpreted in two or more
ways, where one logical interpretation provides for coverage.” Id.
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Although the court’s initial inquiry is limited to the complaint and the
policy, it may stray beyond the confines of these documents. Where an insurer’s
investigation uncovers “true facts” that would trigger coverage if established,
then it “must provide a defense until it appears that the facts upon which
liability is predicated fall outside the policy’s coverage.” Lipscomb, 75 So. 3d at
559. But this doctrine cuts both ways. Just as the insurer’s knowledge of the
“true facts” can trigger the duty to defend, see Brown & Mitchell, 591 F.3d at
444, it can also release the insurer from that duty, see Lipscomb, 75 So. 3d at
560.
B.
As an initial matter, we will consider only whether the EPL imposed a
duty to defend under the circumstances of this case. Although Isom extensively
block-quotes the BLCF in the “Statement of the Case,” he does not actually
argue in his brief that there was a duty to defend under the BLCF.
Consequently, Isom has forfeited that argument, and we will not consider it on
appeal. See, e.g., Procter & Gamble Co. v. Amway Corp., 376 F.3d 496, 499 n.1
(5th Cir. 2004) (collecting authorities).
C.
Isom does not argue on appeal that he was an employee of Insureds. Nor
can he. His complaint did not allege that he was an employee of Baylis or
Premier, merely that he was assigned to work with them. Moreover, the EEOC
Dismissal and Notice of Rights attached to the complaint indicated that the
EEOC had closed its investigation because it found no employer-employee
relationship. Thus, it was clear based on the complaint alone that Isom was
not an employee of Baylis or Premier. See United States ex rel. Riley v. St.
Luke’s Episcopal Hosp., 355 F.3d 370, 375 (5th Cir. 2004) (“The exhibits
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attached to the complaint, however, are part of the complaint ‘for all purposes.’”
(quoting Fed. R. Civ. P. 10(c))). 5
Isom’s sole argument on appeal is that under a “fair reading” of his
discrimination complaint, he “may have been” a leased or loaned employee
under Mississippi’s borrowed servant doctrine. But Isom did not even mention
the borrowed servant doctrine in his briefing in the district court. Rather, he
simply argued that it was not possible to determine from his complaint
whether or not he was an “employee” of the Insureds. He never argued that he
was a leased or loaned employee under the borrowed servant doctrine or any
other rationale. Because he did not squarely present this argument in the
district court, he has forfeited it on appeal. Cf. Keelan v. Majesco Software, Inc.,
407 F.3d 332, 340 (5th Cir. 2005) (“If a party wishes to preserve an argument
for appeal, the party ‘must press and not merely intimate the argument during
the proceedings before the district court.’” (quoting New York Life Ins. Co. v.
Brown, 84 F.3d 137, 141 n.4 (5th Cir. 1996))).
Even assuming Isom preserved this argument, it lacks merit. Under the
borrowed servant doctrine, “if one person lends his servant to another for a
particular employment, the servant, for anything done in that employment, is
dealt with as the servant of the one to whom he had been lent, although he
remains the general servant of the person who lent him.” N. Elec. Co. v.
Phillips, 660 So. 2d 1278, 1281 (Miss. 1995) (quoting Runnels v. Burdine, 106
So. 2d 49, 51 (Miss. 1958)). To determine whether an individual qualifies as a
“borrowed servant,” Mississippi courts consider the following three factors: (1)
whose work is being performed; (2) who controls or has the right to control the
worker’s performance; and (3) whether the worker voluntarily accepted the
5 As this litigation progressed, Isom admitted in response to requests for admissions
that he was not and never had been an employee of the Insureds.
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special employment. Gorton v. Rance, 52 So. 3d 351, 359 (Miss. 2011) (quoting
Jones v. James Reeves Contractors, Inc., 701 So. 2d 774, 778–79 (Miss. 1997)).
Even though all three factors are relevant to the inquiry, “[t]he second factor,
right of control, is the determinative factor in ascertaining whether an
employment relationship is that of master-servant or one of principal-
independent contractor.” Jones, 701 So. 2d at 779.
As an initial matter, it is not clear that Isom ever worked with Baylis.
Isom’s discrimination complaint alleged, “Whenever [Isom] was assigned to
perform anesthesiology services for [Baylis], [Baylis] would refuse to allow
[Isom] to provide such services.” (emphasis added). Although counsel stated at
oral argument that the two did in fact work together, counsel’s assertions at
oral argument cannot retroactively amend a complaint in a lawsuit settled
more than two years ago.
Moreover, it is clear that Isom, an anesthesiologist, was not the borrowed
servant of Baylis, an orthopedic surgeon. In Starcher v. Byrne, the Mississippi
Supreme Court held that a nurse-anesthetist was not the borrowed servant of
a surgeon with whom she worked. See 687 So. 2d 737, 741 (Miss. 1997). The
nurse-anesthetist was under no obligation to follow the surgeon’s orders if she
disagreed with them, and the surgeon did not pay her for her services. See id.Thus, the nurse-anesthetist was the agent of the anesthesiologist for whom she
was filling in, not the surgeon. See id. Had the anesthesiologist attended the
surgery himself, rather than substituting the nurse, there would have been no
colorable argument that he was the surgeon’s borrowed servant: “[I]t cannot
be said that one doctor is the employee of another in a surgical situation where
each performs an independent function and bills the patient independent of
the other.” Id.Isom’s complaint merely states that he and Baylis were both on staff at
Wesley. Isom alleged that he “was assigned to perform anesthesiology services
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for” the Insureds. But Isom was not performing anesthesiology services for the
Insureds, he was performing them for the patient. There is no indication in the
complaint that the Insureds paid Isom or controlled his performance. See id.Rather, on the face of the complaint it appears that Isom and Baylis were
independent specialists performing different functions during the surgery.
Absent further detail, the complaint did not contain “reasonable, plausible
allegations,” Baker Donelson, 920 So. 2d at 451, that Isom was even arguably
the Insureds’ leased or loaned employee.
Isom contends that the Insurers’ initial uncertainty regarding coverage
demonstrates the existence of a duty to defend. This might be relevant under
the “true facts” doctrine if the Insurers learned facts that brought Isom’s claim
within the scope of the EPL. That is not what happened here. Rather, a claims
adjuster evaluating coverage under the EPL quickly determined that Isom was
not an “employee” of the Insureds, but nonetheless suggested offering to defend
as a “concession.” The claims adjuster evaluating coverage under the BLCF
initially believed that Isom was an employee of the Insureds and denied
coverage on that basis. However, she quickly learned that Isom was not the
Insureds’ employee. Isom is correct that the Insurers sought a second opinion
on coverage from counsel, but they only did so after initially deciding to
disclaim coverage. Accordingly, the investigation uncovered no “true facts” that
triggered coverage. To the contrary, the investigation only confirmed that
Isom’s claim was not covered under the EPL and thereby released the Insurers
from any duty to defend. Cf. Lipscomb, 75 So. 3d at 560 (holding that insurer
had no duty to defend where holder of homeowner’s policy admitted during
claim investigation that he rented out portion of property where fire started).
Accordingly, under the EPL, the Insurers had no duty to defend the
Insureds against Isom’s claim. Because there is no duty to defend here, there
can be no duty to indemnify. See 14 Steven Plitt et al., Couch on Insurance
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§ 200:3 (3d ed. 2007); cf. U.S. Fid. & Guar. Co. v. Omnibank, 812 So. 2d 196,
203 (Miss. 2002) (“[T]he duty to defend is broader than the insurer’s duty to
indemnify . . . .”). The Insurers were entitled to summary judgment on Isom’s
breach of contract claims.
D.
Because the Insurers were under no duty to defend, they cannot be liable
for breach of the duty of good faith and fair dealing for their refusal to do so.
See Daniels v. Parker & Assocs., Inc., 99 So. 3d 797, 801 (Miss. Ct. App. 2012)
(“[T]o have a breach of the duty of implied good faith and fair dealing there
must first be . . . a breach of [] contract.”).
IV.
Isom also appeals the district court’s disqualification of his out-of-state
counsel. The district courts “enjoy broad discretion to determine who may
practice before them.” United States v. Nolen, 472 F.3d 362, 371 (5th Cir. 2006).
Under the circumstances, the district court did not abuse its broad discretion
in concluding that counsel engaged in the unauthorized practice of law. See In
re Williamson, 838 So. 2d 226, 235 (Miss. 2002) (“[A] foreign attorney will be
deemed to have made an appearance in a Mississippi lawsuit if the foreign
attorney signs the pleadings or allows his or her name to be listed on the
pleadings.”); see also S.D. Miss. L.U. Civ. R. 83.5 (adopting Mississippi Rules
of Professional Conduct).
V.
For the foregoing reasons, we AFFIRM.
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