Employers Mutual Casualty Co. v. Cedar Rapids Television Co. , 552 N.W.2d 639 ( 1996 )

HARRIS, Justice.

This dispute concerns whether an insurer’s duty to defend continues after dismissal of certain counts in the petition. The insurer contends the obligation to defend ended with the dismissal of'those counts that squared with listed coverages in the policy. The trial court ruled otherwise and we agree.

In the underlying case of Bond v. Cedar Rapids Television Co., 518 N.W.2d 352 (Iowa 1994), we reversed a plaintiffs judgment in a suit for tortious interference with a contract. The present plaintiff, Employers Mutual Casualty Company (Employers), was the insurer of Cedar Rapids Television' Company (CRTV). CRTV was defendant in both the Bond case and in this one.

The Bond case arose from competing attempts to purchase DTV, a Dubuque television station. After CRTV extended an unsuccessful bid, DTV entered a written contract of sale with Sage Broadcasting Company. The contract provided that either party could terminate the agreement if the Federal Communications Commission (FCC) did not approve a broadcasting license transfer within 180 days. DTV promptly applied to the FCC for authority to assign its license to Sage.

CRTV, in the move that precipitated the Bond case, filed a petition with the FCC seeking denial of the license assignment. The FCC ultimately found that CRTV had not established the transfer to be against the public interest, and allowed the assignment. Three times while the matter was pending before the FCC, DTV and Sage agreed to contract extensions. But the last of the three extensions expired before final FCC action, and Sage terminated the contract.

Disconcerted by CRTV’s conduct, DTV and its general partner, Thomas G. Bond, brought the Bond suit, alleging CRTV’s FCC filings caused the anticipated sale of the station to fall through. The Bond petition was in four counts: (1) tortious interference with existing contract; (2) abuse of process; (3) malicious prosecution; and (4) intentional infliction of emotional distress.

Upon being notified by CRTV of the suit, Employers hired the law firm of Pickens, Barnes & Abernathy to defend subject to a reservation of rights. Employers based its decision to defend on the Bond plaintiffs allegations of malicious prosecution, which it recognized might be covered under the personal injury coverage provisions of CRTV’s policy. Employers took the position, however, there was no coverage for the other counts. Due to Employers’ reservation of rights, CRTV elected to hire its own regular counsel, the law firm of Simmons, Perrine, Albright & Ellwood, to assist in the defense. Before trial CRTV requested that Employers substitute the Simmons firm for the Pickens firm as defense counsel, but Employers declined. Both firms continued as counsel of record, with CRTV paying Simmons’ fees and Employers paying Pickens’ fees.

On the eve of trial, DTV withdrew its claims of abuse of process, malicious prosecution, and intentional infliction of emotional distress. Because the malicious-prosecution claim was withdrawn, Employers withdrew the Pickens firm and discontinued paying attorney fees. The case went to trial before a jury, which awarded $2.1 million on the interference claim and $10,000 to Bond individually for his emotional distress. CRTV appealed and DTV cross-appealed.

At this point Employers filed the present action seeking a declaratory judgment that it was not responsible under the policy to indemnify CRTV for the judgment entered in favor of DTV, or for either trial or appellate defense costs. After issues were joined in the present suit, we considered CRTV’s appeal (which Employers also refused to defend) and, as mentioned, reversed the judgment. The question of Employers’ duty to indemnify thus became moot. Both parties in the present case then moved for partial summary judgment on the issue involved here: Employers’ duty to defend the DTV lawsuit after withdrawal of the malicious-prosecution claim.

The parties stipulated that CRTV incurred $354,393.83 in defense costs after Employers withdrew counsel. The district court found Employers had a duty to defend all claims and entered judgment for CRTV in that amount plus interest. The case is before us on Employers’ appeal.

I. The case was tried at law, so our review is for correction of errors. Iowa R.App. P. 4. On appeal from a district court ruling granting summary judgment, our task normally is to determine whether a genuine issue of material fact exists and whether the law was correctly applied. Lihs v. Lihs, 504 N.W.2d 890, 892 (Iowa 1993). But here the facts are not in dispute, so we only need address Employers’ assignments of legal error.

II. Although CRTV alleges coverage under either of two policy provisions, we find coverage on one (coverage B)¹ and therefore, like the trial court, we do not consider the second suggested provision.

Employers argues DTVs withdrawal of the malicious prosecution claim “untrig-gered” its duty to defend because none of the enumerated personal-injury offenses continued to be implicated (ie., the sole theory upon which the case was tried was tortious interference with contract, an unlisted offense). CRTV, on the other hand, claims Employers’ duty to defend continued because the factual circumstances underlying the in-terferenee-with-contract count arose out of the alleged malicious prosecution (ie., the FCC filings). CRTV focuses its claim under coverage B on language taken from the insuring agreement, which specifies it applies only to offenses “[ajrising out of the conduct of your business.... ” Coverage B’s exclusion provisions likewise point to conduct “arising out of’ various conducts, not theories of liability.

III. We have described an insurer’s general duty to defend this way:

An insurer’s duty to defend is separate from its duty to indemnify; the duty to defend is broader than the duty to indemnify. The duty to defend arises “whenever there is potential or possible liability to indemnify the insured based on the facts appearing at the outset of the case.” In other words, the duty to defend rests solely on whether the petition contains any allegations that arguably or potentially bring the action within the policy coverage. If any claim alleged against the insured can rationally be said to fall within such coverage, the insurer must defend the entire action. In case of doubt as to whether the petition alleges a claim that is covered by the policy, the doubt is resolved in favor of the insured.

A.Y. McDonald Indus., Inc. v. Insurance Co. of N. Am., 475 N.W.2d 607, 627 (Iowa 1991) (en banc) (citations omitted) (emphasis added).

Although Employers thinks otherwise, we are convinced that, proceeding as they do from common facts, the claim for intentional interference with a contract was bound up together with the claim for malicious prosecution. We note and approve the following:

The bulk of the cases involving interference ... also involved the commission of some independent tort.... Thus in many cases interference with contract is not so much a theory of liability in itself as it is an element of damages resulting from the commission of some other tort....

W. Page Keeton et al., Prosser & Keeton on the Law of Torts ch. 24 § 129, at 992 (5th ed.1984).

We understand the question to be, in the light of the rule just quoted from A.Y. McDonald Industries, whether an insurer has a duty to defend an action brought by a plaintiff based on a theory of recovery not mentioned among those listed for coverage in the policy, when the operative facts contain allegations of conduct expressly covered in the policy. We believe this exact question is one of first impression with us.²

It is important that the issue concerns a duty to defend, rather than a duty to indemnify. The duty to defend is treated differently because “[a]n insurer’s duty to defend is separate from its duty to indemnify; the duty to defend is broader than the duty to indemnify.” A.Y. McDonald Indus., 475 N.W.2d at 627 (emphasis added). See also First Newton Nat’l Bank v. General Cas. Co., 426 N.W.2d 618, 630 (Iowa 1988); McAndrews v. Farm Bureau Mut. Ins. Co., 349 N.W.2d 117, 119 (Iowa 1984). This difference between the duty to defend and the duty to indemnify “exists because it is impossible to determine the basis, if any, upon which the plaintiff will recover until the action is completed." First Newton Nat’l Bank, 426 N.W.2d at 630 (emphasis added).

In determining whether there is a duty to defend we look “first and primarily to the petition for the ‘facts at the outset of the case.’ ” First Newton Nat’l Bank, 426 N.W.2d at 623 (citation omitted).

“[An insurer’s] duty to defend arises whenever there is a potential or possible liability to pay based upon the facts at the outset of the case.... ” The “facts at the outset of the case” under this test have traditionally been those alleged in the petition in the suit against the insured.

McAndrews, 349 N.W.2d at 119 (emphasis added). “In deciding whether an insurer has a duty to defend, the first query is into plaintiffs pleadings to see if the pleadings state facts which bring the claim within the liability covered by the policy.” Chipokas v. Travelers Indem. Co., 267 N.W.2d 393, 395 (Iowa 1978) (emphasis added).

Thus it is clear under Iowa law that an insurance company is to look at the allegations of fact in the third-party plaintiffs petition against the insured and not the legal theories on which the third-party claims insured is liable. Thus it should be irrelevant that DTV, the third-party plaintiff in Bond, changed their petition on the eve of trial to allege a different legal theory of liability against CRTV. The facts alleged still would have met the elements required for malicious prosecution, and thus the insurance company still had a duty to defend the lawsuit.

Better reasoned cases from other jurisdictions are in accord. As was stated in Titan Holdings Syndicate v. City of Keene, New Hampshire:

In deciding the scope of a liability policy’s coverage, a court must compare the policy language with the facts pled in the underlying suit to see if the claim falls within the express terms of the policy; the legal nomenclature the plaintiff uses to frame the suit is relatively unimportant.

898 F.2d 265, 271 (1st Cir.1990) (applying New Hampshire law); see also Curtis-Universal v. Sheboygan Emergency Medical Serv., Inc., 43 F.3d 1119, 1122 (7th Cir.1994) (applying Wisconsin law, and finding an antitrust action potentially within the terms of coverage for unfair competition); Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1043-44 (7th Cir.1987) (applying Illinois law, and finding anti-trust and deceptive trade practices action potentially within the terms of coverage for defamation); Jefferson-Pilot Fire & Cas. Co. v. Boothe, Prichard & Dudley, 638 F.2d 670, 674-75 (4th Cir.1980) (applying Virginia law, and finding anti-trust action potentially within the terms of coverage for malpractice arising out of the provision of professional services); Colton v. Swain, 527 F.2d 296, 304 (7th Cir.1975) (applying Illinois law, and finding a civil rights action under 42 U.S.C. § 1983 within the terms of coverage for false arrest and malicious prosecution); Ethicon, Inc. v. Aetna Cas. & Surety Co., 737 F.Supp. 1320, 1329 (S.D.N.Y.1990) (applying New Jersey law, and finding anti-trust action potentially within the terms of coverage for malicious prosecution); Ruder & Finn, Inc. v. Seaboard Sur. Co., 52 N.Y.2d 663, 439 N.Y.S.2d 858, 862-63, 422 N.E.2d 518, 522-23 (1981) (applying New York law, and finding unfair competition action potentially within the terms of coverage for libel).

A careful examination of the DTV lawsuit revealed allegations which, if proven true, would show CRTV committed the offense of malicious prosecution. Because malicious prosecution was specifically listed in the insurance policy, if there were elements alleged in the petition proving malicious prosecution, then Employers had a duty to defend. The elements of malicious prosecution are as follows: (1) a previous prosecution; (2) investigation of that prosecution by the defendant; (3) termination of that prosecution by acquittal or discharge of the plaintiff; (4) want of probable cause; (5) malice on the part of the defendant for bringing the prosecution; and (6) damage to the plaintiff. Wilson v. Hayes, 464 N.W.2d 250, 259 (Iowa 1990). This damage to the plaintiff must be for an arrest of the person, seizure of property or special injury — injury that would not ordinarily result in all similar cases involving such a claim. Royce v. Hoening, 423 N.W.2d 198, 200 (Iowa 1988); Aalfs v. Aalfs, 246 Iowa 158, 160, 66 N.W.2d 121, 124 (1954).

In the petition for intentional interference with existing contract, the third-party plaintiff DTV alleged (a) it was required to be a defendant in a civil proceeding before the FCC (paragraph 10); (b) the proceeding was initiated by a petition filed by CRTV (paragraph 10); (c) DTV prevailed in that proceeding (paragraph 15); (d) CRTV had no .basis for filing the petition (paragraph 11-12); (e) the action was malicious because it was done for the sole purpose of interfering with DTV’s contract for sale with Sage (division II, paragraphs 2^4); and (f) DTV suffered damages as a result thereof (paragraph 14).

The damages DTV alleged it suffered in its petition, loss of the sale price from the contract with Sage, arguably and/or potentially • qualified as special damages required for a malicious prosecution claim. Plaintiffs have recovered on malicious prosecution claims for ’ special injury when proceedings were • brought that interfered with the possession, use, or enjoyment of property by injunction. See 52 Am.Jur.2d Malicious Prosecution ' § 11, at 194 (1970); see also 54 C.J.S. Malicious Prosecution § 15, at 534 n. 68 (1987) , (describing “wrongful interference with pos- , session or enjoyment of property” as qualifying for special injury). At least arguably or .potentially (all that is required by A.Y. McDonald Industries) the third-party plaintiff, DTV, had a possible malicious prosecution cause of action against the insured, CRTV.

Thus the petition contained factual allegations which if proven would support a claim • for malicious prosecution. Employers had a duty to defend because of the teaching of A.Y. McDonald Industries that “the duty to defend arises ... based on the facts appearing at the outset of the case.” A.Y. McDonald Indus., 475 N.W.2d at 627; see also First Newton Nat’l Bank, 426 N.W.2d at 623.

In approving the logic of the foregoing, we cannot improve on the language of the trial court, which we quote and adopt as "our own:

The insured can control his own conduct and insure against damages arising from such conduct. An insured has no control over which of possibly several applicable legal theories a plaintiff may choose to invoke in a lawsuit against him. It would be inequitable to allow the plaintiff to determine whether the defendant is or is not insured simply by the choice of legal theories under which he brings suit. Insurance coverage is predicated on the assessment of the risk involved should the insured participate in a particular type of conduct and not the risk of the plaintiffs choice of legal theories.

The judgment of the trial court is accordingly

AFFIRMED.

All justices concur except CARTER, NEUMAN and ANDREASEN, JJ., who dissent, and TERNUS, J., who takes no part.

1 . The relevant provision states:

COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY.

1. Insuring agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury” or "advertising injury” to which this insurance applies....

b. This insurance applies to "personal injury” only if caused by an offense:

(1) Committed in the "coverage territory" during the policy period; and

(2) Arising out of the conduct of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you.

The policy defines "personal injury” this way:

10. “Personal injury” means injury, other than "bodily injury," arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. Wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies;

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization’s goods, products or services; or

e. Oral or written publication of material that violates a person’s right of privacy.

2 . Employers contends otherwise, citing the cases of Kibbee v. State Farm Fire & Casualty Co., 525 N.W.2d 866 (Iowa 1994), and North Iowa State Bank v. Allied Mutual Insurance Co., 471 N.W.2d 824 (Iowa 1991). The issue in Kibbee was whether language providing coverage for the listed offense of "malicious prosecution and humiliation” could be construed as. encompassing the unrecognized tort of “malicious humiliation” (which the insured claimed was the equivalent of intentional infliction of emotional distress). 525 N.W.2d at 868. We held it could not. Id. at 869-70. North Iowa State Bank arose from a complicated procedural morass stemming from a judgment entered against the insured, plaintiff bank. The bank's claim in North Iowa State Bank seeking reimbursement from its insurer for this judgment amounted to a collateral attack upon an unappealed judgment of the district court in a prior declaratory judgment action. See 471 N.W.2d at 828 (stating the only judgment rendered against the bank was on the theory of sale in other than a reasonably commercial manner, and the declaratory judgment ruling determined that this theory of recovery was not covered as a loss under the policy; accordingly, we affirmed the judgment of the trial court dismissing the portion of the action seeking coverage under the insurance policy). The issue whether the insured’s policy provided coverage for the identical conduct of the insured, depending upon what legal theory the plaintiff chose to have submitted to the jury, was simply never addressed in either case.

We do not find these cases controlling.