Pacific Employers Ins. v. Cesnik

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
____________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 27 2000
No. 99-8218
THOMAS K. KAHN
____________________ CLERK
D.C. Docket No. 98-00041-4-CV-JRE
PACIFIC EMPLOYERS INSURANCE COMPANY,
Plaintiff-Appellant,
versus
BLANE CESNIK,
KRISTI CESNIK,
Defendants-Appellees.
____________________
Appeal from the United States District Court
for the Middle District of Georgia
____________________
(July 27, 2000)
Before EDMONDSON and HULL, and WOOD, JR.*, Circuit Judges.
WOOD, JR., Circuit Judge:
*
Honorable Harlington Wood, Jr., U.S. Circuit Judge for the Seventh Circuit,
sitting by designation.
This case arises out of a 1993 lawsuit filed by Blane and Kristi Cesnik against
Edgewood Baptist Church (“Edgewood”) and three individual Edgewood employees
based on the Cesniks’ adoption of two newborn babies through the church’s adoption
agency. The underlying facts of this case are set forth in our previous opinion, Cesnik
v. Edgewood Baptist Church, 88 F.3d 902 (11th Cir. 1996) (“Cesnik”), and we will
not restate them here. The Cesniks’ original complaint alleged “wrongful placement
and adoption,” state and federal conspiracy claims, and a claim for breach of contract.
On appeal, this court upheld the district court’s grant of summary judgment with
respect to the Cesniks’ tort claims against all of the defendants based on statute of
limitations grounds. Id. at 908-09. The panel affirmed the district court’s grant of
summary judgment in favor of the individual defendants on the Cesniks’ contract
claims. Id. at 910. The court also affirmed the grant of summary judgment in favor
of one of the individual defendants on the conspiracy claims. Id. However, the panel
vacated the district court’s grant of summary judgment in favor of Edgewood on the
Cesniks’ contract claims as well as the judgment in favor of Edgewood and two of the
individual defendants on the conspiracy claims. Id. The case was remanded with
instructions to the district court “to require” the Cesniks to replead their contract and
conspiracy claims. Id.
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The Cesnik opinion was issued on July 5, 1996. This court then issued an
unpublished order, Pacific Employers Insurance Company v. Cesnik, No. 94-9458
(11th Cir. August 20, 1996) (per curiam), dealing with a declaratory judgment action
that Pacific Employers Insurance Company (“Pacific Employers”) brought in the
district court while Cesnik was pending seeking a declaration that the claims asserted
in Cesnik were not covered under the commercial general liability insurance policy
it issued to Edgewood (“the policy”). The district court held that the claims were
embraced by the policy, but this court reversed, holding that the Cesniks alleged only
non-physical injuries and, therefore, their claims were not covered by the policy.
Following remand and denial of certiorari in Cesnik, on July 31, 1997, the
Cesniks filed their First Amended Complaint (“amended complaint”). Once again,
Pacific Employers defended the suit pursuant to a reservation of rights. On March 2,
1998, Pacific Employers filed the declaratory judgment action at issue in this case,
asserting that the claims of the amended complaint were not covered by the policy.
The parties filed cross-motions for summary judgment. On January 22, 1999, the
district court denied Pacific Employers’ motion for summary judgment and granted
summary judgment in favor of appellees, holding that there were claims in the
amended complaint that were not asserted in the original complaint and that the
amended complaint stated claims which, if successful, could arguably fall within the
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policy’s coverage. The district judge concluded, therefore, that this court’s decision
on the first declaratory judgment action was inapplicable and that Pacific Employers
must continue to defend the suit. Pacific Employers appeals.
ANALYSIS
Pacific Employers raises several issues. First, Pacific Employers argues that
the facts, claims, and damages alleged in the amended complaint are the same as those
alleged in the original complaint and, therefore, the parties are barred by the earlier
declaratory judgment action from relitigating the issue of insurance coverage.
Alternatively, Pacific Employers contends that the Cesniks’ claims are not covered
under the policy. We review the district court’s grant of summary judgment de novo.
Elan Pharmaceutical Research Corp. v. Employers Ins. of Wausau, 144 F.3d 1372,
1175 (11th Cir. 1998). The parties agree that Georgia law governs this diversity case.
We need not determine the preclusive effect of the earlier declaratory judgment
action because we find that the claims set forth in the amended complaint are clearly
excluded from coverage under the express language of the policy. “Under Georgia
law, the duty to defend an insured is separate and independent from the obligation to
indemnify.” Elan Pharmaceutical, 144 F.3d at 1375 (citing Penn-America Ins. Co. v.
Disabled Am. Veterans, Inc., 490 S.E.2d 374, 376 (Ga. 1997)). “[A]n insurer must
provide a defense against any complaint that, if successful, might potentially or
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arguably fall within the policy’s coverage.” Id. (citing Penn-America, 490 S.E.2d at
376). To determine whether a duty to defend exists, we must “compare the allegations
of the complaint, as well as the facts supporting those allegations, against the
provisions of the insurance contract.” Id. (citing Great Am. Ins. Co. v. McKemie, 259
S.E.2d 39, 40-41 (1979)); see also SCI Liquidating Corp. v. Hartford Fire Ins. Co.,
181 F.3d 1210, 1214 (11th Cir. 1999) (citing cases).
The policy, which supplied coverage from October 1, 1989 through October 1,
1990, provides in pertinent part:
SECTION I – COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE
LIABILITY
1. Insuring Agreement
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.
...
b. This insurance applies to “bodily injury” or “property damage”
only if:
(1) The “bodily injury” or “property damage” is caused by
an “occurrence” that takes place in the “coverage territory;”
and
(2) The “bodily injury” or “property damage” occurs during
the policy period.
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c. Damages because of “bodily injury” include damages claimed
by any person or organization for care, loss of services or death
resulting at any time from the “bodily injury.”
2. Exclusions
This insurance does not apply to:
a. “Bodily injury” or “property damage” expected or intended
from the standpoint of the insured. This exclusion does not apply
to “bodily injury” from the use of reasonable force to protect
persons or property.
b. “Bodily injury” or “property damage” for which the insured is
obligated to pay damages by reason of the assumption of liability
in a contract or agreement. This exclusion does not apply to
liability for damages:
(1) Assumed in a contract or agreement that is an “insured
contract,” provided the “bodily injury” or “property
damage” occurs subsequent to the execution of the contract
or agreement; or
(2) That the insured would have in the absence of the
contract or agreement.
The policy defines “bodily injury” 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.”
The Cesniks’ amended complaint contained four causes of action. Count One
alleged breach of contract while Counts Two, Three, and Four alleged violations of
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Georgia’s Racketeer Influenced and Corrupt Organizations Act (Georgia RICO), GA.
CODE ANN. § 16-14-4(a), (b), and (c). The amended complaint’s prayer for damages
sought to recover “all contractual damages including medical, psychological,
psychiatric, educational, and like extraordinary child care expenses for [their two
sons] which have been or will be incurred by the Cesniks” as well as “all contractual
and/or extracontractual damages for past, present and future mental and emotional
pain, distress, anguish and suffering.”
It is clear that the Cesniks do not seek damages for bodily injury directly
because, as this court has previously held, they are barred by the statute of limitations
from pursuing tort claims under Georgia common law. Cesnik, 88 F.3d at 908-09.
Furthermore, the Cesniks’ Georgia RICO claims are not covered under the policy.
These claims are based on allegations of intentional conduct, and therefore, any injury
would not result from an occurrence as defined in the policy. See O’Dell v. St. Paul
Fire & Marine Ins. Co., 478 S.E.2d 418, 420 (Ga. Ct. App. 1996); Presidential Hotel
v. Canal Ins. Co., 373 S.E.2d 671, 673 (Ga. Ct. App. 1988). Additionally, the
Cesniks’ claims for damages for mental and emotional pain do not constitute claims
for damages because of bodily injury as defined in the policy and, therefore, are not
covered. See Anderson v. Southern Guar. Ins. Co., 508 S.E.2d 726, 729 (Ga. Ct. App.
1998) (holding that purely mental harm is not covered under a policy that defines
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“bodily injury” as “bodily harm, sickness or disease”). Therefore, we focus our
analysis on whether the Cesniks’ breach of contract claim seeks damages because of
bodily injury as defined in the policy.
Under the policy, the mere fact that bodily injury occurred is insufficient to
trigger coverage. Instead, the policy provides coverage for damages sought “because
of ‘bodily injury.’” As the Court of Appeals of Georgia has held, damages “because
of bodily injury” can be construed two ways. Lunceford v. Peachtree Cas. Ins. Co.,
495 S.E.2d 88, 90 (Ga. App. Ct. 1997). Under a narrow construction, the phrase
would only require coverage equal to the amount of damages actually awarded for
bodily injury. Id. at 90-91. The phrase could also reasonably be construed more
broadly to mean all damages which an insurer becomes liable to pay “by reason of”
or “on account of” an injury. Id. at 91. Under either interpretation, the express terms
of the policy at issue in the present case require a connection between the damages
sought and a covered bodily injury. The amended complaint contains no such
connection. While, in the body of their complaint, the Cesniks allege that, “related to
the contractual agreement for the physical placement and prospective adoption” of the
boys, they incurred costs for care of the boys due to bodily injury, there is no actual
claim for damages on account of this injury. As previously noted, “whatever tort
claims the Cesniks may have had under Georgia common law” are barred by the
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statute of limitations. Cesnik, 88 F.3d at 908. Furthermore, as evidenced by their
prayer for damages, the Cesniks seek only contractual damages. Liability, if any, for
these damages would result from a breach of contract; they are not damages that the
insured could be liable for by reason of or on account of a bodily injury and, therefore,
do not fall within the scope of the policy. The amended complaint does not contain
any claims which potentially might fall within the policy’s coverage. Therefore,
Pacific Employers has no duty to defend in the present case, and the district court
erred in denying Pacific Employers’ motion for summary judgment.
CONCLUSION
The district court’s grant of summary judgment in favor of appellees is
REVERSED. The case is REMANDED to the district court with instructions to enter
judgment in favor of Pacific Employers.
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