Cornett Management Co. v. Fireman's Fund Insurance

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-2019
CORNETT MANAGEMENT COMPANY, LLC, a foreign corporation,
Plaintiff - Appellant,
v.
FIREMAN’S FUND INSURANCE COMPANY, a foreign corporation;
BRADY RISK MANAGEMENT, INCORPORATED,
Defendants - Appellees,
and
LEXINGTON INSURANCE COMPANY, a foreign corporation; HARTAN
BROKERAGE, INCORPORATED,
Defendants.
Appeal from the United States District Court for the Northern
District of West Virginia, at Wheeling. Frederick P. Stamp,
Jr., Senior District Judge. (5:04-cv-00022)
Argued: May 14, 2009 Decided: June 22, 2009
Before NIEMEYER, MOTZ, and TRAXLER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Brent Karleton Kesner, KESNER, KESNER & BRAMBLE,
Charleston, West Virginia, for Appellant. James William
Marshall, III, BAILEY & WYANT, PLLC, Charleston, West Virginia;
Melvin F. O’Brien, DICKIE, MCCAMEY & CHILCOTE, Wheeling, West
Virginia, for Appellees. ON BRIEF: Ellen R. Archibald, KESNER,
KESNER & BRAMBLE, Charleston, West Virginia, for Appellant.
Robert P. Martin, Billie Jo Streyle, BAILEY & WYANT, PLLC,
Charleston, West Virginia, for Appellee Fireman’s Fund Insurance
Company; Melissa M. Barr, DICKIE, MCCAMEY & CHILCOTE, Wheeling,
West Virginia, for Appellee Brady Risk Management, Incorporated.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
In this insurance coverage dispute, Cornett Management
Company, LLC (Cornett) appeals the district court’s grant of
summary judgment to Fireman’s Fund Insurance Company (Fireman’s
Fund) finding Cornett not entitled to coverage. We affirm.
I.
Cornett, a Richmond-based company, owns a number of
restaurants including a Hooters franchise in Charleston, West
Virginia. Two female Hooters employees filed suit alleging that
a Cornett supervisor improperly conducted a strip search of
them. Cornett seeks reimbursement for settlement costs and
attorneys fees arising from the lawsuit, under an insurance
policy issued by Fireman’s Fund.
According to the employees’ complaint, in 2001 a manager at
the Hooters directed two female employees, one at a time, to his
office and stated that a customer had reported a stolen change
purse. The manager told the women that a police officer had
telephoned, and he directed each woman to listen to the
instructions of the officer on the phone. A male voice then
commanded the women to strip naked in front of the manager,
threatening them with a humiliating arrest if they failed to
comply. The female employees complied. (The telephone call was
later revealed to be a crank call.)
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As a result of this and several other incidents at the
Hooters franchise, seven female employees filed a suit against
Cornett and others alleging sexual harassment (the “Reynolds
complaint”). The amended Reynolds complaint included a claim
for false imprisonment arising from the strip searches described
above.
Cornett eventually settled the Reynolds suit, and Lexington
Insurance Company (Lexington) reimbursed Cornett for defense and
settlement costs to the limits of its coverage. Cornett then
sought additional coverage from a commercial general liability
insurance contract issued to it by Fireman’s Fund.
“Coverage B” of the Fireman’s Fund policy covers claims
arising from “personal injury,” which include “[f]alse arrest,
detention or imprisonment.” An “Employment-Related Practices
Exclusion” (ERP exclusion) attached to the policy, however,
amends Coverage B, limiting coverage for personal injury. This
ERP exclusion provides:
2. The following exclusion is added to COVERAGE B
(Section I):
c. Personal injury arising out of any:
. . .
(3) Coercion, demotion, evaluation,
reassignment, discipline, defamation,
harassment, humiliation, discrimination or
other employment-related practices,
policies, acts or omissions.”
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(Emphasis added).
Seeking coverage under this policy, Cornett filed suit in
state court against Fireman’s Fund. After the case was removed
to federal court, the district court granted summary judgment to
Fireman’s Fund, finding that the ERP exclusion applied to all
claims presented in the underlying lawsuit and that therefore
Cornett was not entitled to reimbursement for costs arising from
that lawsuit. Cornett noted a timely appeal. 1
II.
We review the district court’s grant of summary judgment de
novo. Beard Plumbing & Heating, Inc. v. Thompson Plastics,
Inc., 152 F.3d 313, 315 (4th Cir. 1998). “[S]ummary judgment is
appropriate where there is no genuine dispute as to a material
fact.” Id. In this case, the parties agree that West Virginia
law controls the interpretation of the insurance policy and
that, under applicable law, “the language in an insurance policy
should be given its plain, ordinary meaning.” W. Va. Fire &
Cas. Co. v. Stanley, 602 S.E.2d 483, 489 (W. Va. 2004) (internal
quotation marks omitted).
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If we determine that the exclusion does not apply to the
claims in the Reynolds suit, Fireman’s Fund seeks a remand in
order to conduct discovery to determine whether Cornett timely
notified Fireman’s Fund of its claim. Because we find that the
insurance policy excludes coverage of Cornett’s claim, we need
not reach the late notice issue.
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III.
Cornett argues that the ERP exclusion does not exclude
coverage for the Reynolds false imprisonment claim because (1)
Cornett had no practice or policy of strip searching employees
and (2) the ERP exclusion is ambiguous and therefore should be
construed against Fireman’s Fund as the insurer. Fireman’s Fund
disagrees, arguing that because the manager engaged in an
employment-related act when he strip searched the two women, the
exclusion applies.
We can easily reject Cornett’s first argument -- that the
ERP exclusion applies only to employment-related practices or
policies and not to acts. The exclusion specifically lists
“employment-related . . . acts or omissions” in addition to
“practices” and “policies.” Accordingly, the plain language of
the exclusion makes clear that claims arising from an
employment-related act may be excluded from coverage.
Cornett’s second argument demands a bit more analysis. It
requires us to determine what types of acts the policy meant to
exclude from coverage when it listed “[c]oercion, demotion,
evaluation, reassignment, discipline, defamation, harassment,
humiliation, discrimination or other employment-related . . .
acts.” Courts, considering similar ERP exclusions, have
disagreed as to how to interpret this type of provision.
Compare LDF Food Group, Inc. v. Liberty Mut. Fire Ins. Co., 146
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P.3d 1088, 1094-95 (Kan. Ct. App. 2006) (holding that the
exclusion applied to facts very similar to this case) with
Acuity v. N. Cent. Video, LLLP, No. 1:05-cv-010, 2007 WL
1356919, at *19 (D.N.D. May 7, 2007) (holding that the exclusion
was ambiguous and thus construing it against the insurance
company). Because West Virginia law controls our interpretation
of the contract, we look to the West Virginia Supreme Court of
Appeals for guidance.
In Bowyer v. Hi-Lad, Inc, 609 S.E.2d 895, 913 (W. Va.
2004), which involved an employer installing a security camera
and microphone in a hotel lobby without informing employees,
West Virginia’s highest court found that an ERP exclusion 2 did
not apply because “nothing in the record suggest[s] that [the
insured] made it a practice, or had a policy, or engaged in,
acts of humiliation. . . . [T]here is nothing to indicate that
the [insured’s] actions were intended to cause humiliation.”
Id. at 913 (emphasis added).
In so holding, the West Virginia court indicated that the
ERP exclusion would apply to any claim arising from an
2
The ERP exclusion in Bowyer excluded coverage for
liability “arising out of any . . . [e]mployment-related
practices, policies, acts or omissions, such as coercion, . . .
harassment, humiliation or discrimination directed at the
person.” Bowyer, 609 S.E.2d at 913 (internal quotation marks
omitted). For purposes of this case, we see no difference
between the meaning of this exclusion and of the ERP exclusion
in the Fireman’s Fund policy.
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employer’s act or omission intended to result in coercion,
harassment, humiliation, or discrimination. In the case at
hand, such intention exists; the Reynolds complaint clearly
alleges acts by a Hooters manager that involved intentional
coercion, harassment, and humiliation of the two female
employees who were strip searched. Accordingly, we believe that
a West Virginia court would hold that the ERP exclusion in the
Fireman’s Fund policy excludes coverage for the false
imprisonment claim that arose from the strip searches.
This interpretation of the ERP exclusion accords with that
of a number of other courts. 3 For example, in LDF Food Group v.
Liberty Mut. Fire Ins. Co., 146 P.3d 1088, 1094-95 (Kan. Ct.
App. 2006), the Kansas Court of Appeals determined that a nearly
identical ERP exclusion barred coverage of a claim resulting
from a strip search very similar to the one in this case. In so
holding, the Kansas court explained that the victim of the strip
search, in her lawsuit, had alleged coercive, harassing, and
humiliating acts by managers, and therefore the ERP exclusion in
that case excluded coverage. Id.; see also Capitol Indem. Corp.
3
Moreover, we note that limiting the ERP exclusion to
claims in which the employer intends to cause coercion,
humiliation, or harassment, as the West Virginia court has done,
prevents the exclusion from applying to all acts done by an
employer or impacting an employee, a broad interpretation that
has led some courts to find the provision ambiguous. See, e.g.,
Acuity, 2007 WL 1356919, at *14-15, *19; Peterborough Oil Co. v.
Great Am. Ins. Co., 397 F. Supp. 2d 230, 238-39 (D. Mass. 2005).
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v. 1405 Assoc., Inc., 340 F.3d 547, 550 (8th Cir. 2003) (holding
that under Missouri law, the term “arising out of” must be
broadly construed thereby requiring the court to apply a broad
construction to the ERP exclusion). A manager’s act, like the
one in this case, which intentionally humiliates, coerces, or
harasses an employee, will clearly have an effect on the
employment relationship. Such an act, therefore, is employment-
related and, under West Virginia law, falls within the language
of the ERP exclusion at issue here.
IV.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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