Ostwald v. Hartford Insurance Company of the Midwest

THE HONORABLE JOHN C. COUGHENOUR [6] UNITED STATES DISTRICT COURT [7] WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 MICHELE OSTWALD, CASE NO. C19-0685-JCC [10] Plaintiff, ORDER 11 v. 12 THE HARTFORD INSURANCE COMPANY OF THE MIDWEST, a foreign insurance 13 company, [14] Defendant. [15] 16 This matter comes before the Court on Defendant Hartford Insurance Company of the 17 Midwest’s (“Hartford”) motion for summary judgment (Dkt. No. 18) and Plaintiff Michelle 18 Ostwald’s cross-motion for summary judgment (Dkt. No. 20). Having considered the parties’ 19 briefing and the relevant record, the Court hereby GRANTS Hartford’s motion and DENIES Ms. 20 Ostwald’s motion for the reasons explained herein. 21 I. BACKGROUND 22 Between August 2009 and August 2012, Wayne Ostwald allegedly sexually abused and 23 assaulted K.M.F., his granddaughter, while he and his wife, Ms. Ostwald, were babysitting 24 K.M.F. (Dkt. No. 20-1 at 10.) Although Mr. Ostwald denied abusing K.M.F., he entered an 25 Alford plea and was sentenced to prison for violating Wash. Rev. Code § 9A.44.089—child 26 molestation in the third degree. (Dkt. No. 20-2 at 92–93.) 1 After Mr. Ostwald was sentenced to prison, K.M.F.’s attorney sent the Ostwalds a 2 demand letter with a copy of a civil complaint for damages. (Dkt. No. 20-1 at 5–13.) The 3 complaint asserted claims against Mr. Ostwald for battery, assault, negligent infliction of 4 emotional distress, and outrage. (Id. at 11–12.) In addition, the complaint asserted a claim against 5 Ms. Ostwald for “negligent failure to protect.” (Id. at 12.) According to the complaint, 6 26. Defendant Michelle Ostwald had a special relationship with K.M.F., and a duty of reasonable care to protect K.M.F. from sexual abuse by third parties; 7 27. Defendant Michelle Ostwald failed to reasonably correct [sic] K.M.F. from a lengthy pattern of criminal sexual abuse that occurred in her own household; [and] [8] 28. Defendant Michelle Ostwald’s negligent failure to protect resulted in damages, including severe emotional distress. [9] (Id. at 12.) [10] Ms. Ostwald sent a copy of the complaint to Hartford, asking it to defend her under her [11] homeowner’s insurance policy.1 (Dkt. No. 20-22 at 33–35.) That policy contains the following [12] relevant provisions relating to coverages and exclusions: [13] Section II – Liability Coverages 14 A. Coverage E – Personal Liability If a claim is made or a suit is brought against an “insured” for damages [15] because of “bodily injury” . . . caused by an “occurrence” to which this 16 coverage applies, we will: 1. Pay up to our limit of liability for the damages for which an 17 “insured” is legally liable. . . . and 2. Provide a defense at our expense by counsel of our choice, even if [18] the suit is groundless, false, or fraudulent. . . . . . . [19] Section II – Exclusions 20 . . . E. Coverage E – Personal Liability . . . 21 Coverage[] E . . . do[es] not apply to the following: 1. Expected or Intended Injury [22] “Bodily injury” . . . which is expected or intended by an “insured” 23 even if the resulting “bodily injury” . . . . a. Is of a different kind, quality or degree than initially 24 expected or intended; [25] 1 The complaint Ms. Ostwald sent to Hartford was identical in all material respects to the [26] complaint K.M.F. eventually filed. (Compare Dkt. No. 19-1, with Dkt. No. 19-2.) b. Is sustained by a different person . . . than initially expected [1] or intended. 2 . . . 6. Sexual Molestation, Corporal Punishment Or Physical Or 3 Mental Abuse “Bodily injury” . . . arising out of sexual molestation, corporal 4 punishment, or physical or mental abuse . . . . 5 (Dkt. No. 19-3 at 21, 23–24.) The policy also contains the following relevant definitions: 6 3. “Bodily injury” means bodily harm, sickness or disease . . . . “Bodily injury” includes required care, loss of services and death resulting from 7 covered bodily harm, sickness or disease. . . . [8] 11. “Occurrence” means an accident, including continuous or repeated 9 exposure to substantially the same general harmful conditions, which results, during the policy period, in: 10 a. “Bodily injury” . . . . 11 (Id. at 1, 4.) 12 One month after receiving the complaint, Hartford informed Ms. Ostwald that it would 13 not defend her against K.M.F.’s civil suit. (Dkt. No. 20-1 at 64–66.) Hartford explained its 14 decision by pointing to the exclusions in Ms. Ostwald’s policy for expected or intended injuries 15 and for injuries arising out of sexual molestation. (See id. at 65.) According to Hartford, those 16 exclusions precluded coverage because Ms. Ostwald “expected the alleged sexual abuse” and 17 because “the claimed damages arose out of or are related to sexual molestation.” (See id. at 65– 18 66.) 19 Following Hartford’s denial of coverage, the Ostwalds settled K.M.F.’s civil suit for 20 $950,000. (See Dkt. No. 20-2 at 85, 96, 99–102.) Ms. Ostwald subsequently filed suit against 21 Hartford, alleging that it breached its duty to defend her; acted in bad faith; violated 22 Washington’s Insurance Fair Conduct Act, Wash. Rev. Code §§ 48.30.010 , 015; and violated 23 Washington’s Consumer Protection Act, Wash. Rev. Code § 19.86.010 et seq. (See Dkt. No. 1-1 24 at 4–6.) 25 Hartford now moves for summary judgment on the ground that it had no obligation to 26 defend the claims against Ms. Ostwald. (Dkt. No. 18 at 11.) Ms. Ostwald also moves for 1 summary judgment on the grounds that Hartford (1) violated its duty to defend; (2) acted in bad 2 faith; (3) is estopped from denying coverage on K.M.F.’s claims; (4) is liable for the full amount 3 the Ostwalds’ settlement with K.M.F.; and (5) is liable for reasonable attorney fees and costs. 4 (Dkt. No. 20 at 1, 21.) 5 II. DISCUSSION 6 Hartford argues that K.M.F.’s claim against Ms. Ostwald is not conceivably covered by 7 Ms. Ostwald’s insurance policy for three reasons: (1) K.M.F.’s injuries arose out of sexual 8 molestation or abuse; (2) K.M.F.’s injuries were intended or expected by an insured; and (3) 9 K.M.F.’s injuries were not caused by an occurrence because they were not accidental. (See Dkt. 10 No. 18 at 2.) Plaintiff responds that K.M.F.’s injuries arose out of Ms. Ostwald’s “post-assault 11 negligence,” not Mr. Ostwald’s abuse, and that Washington’s “efficient proximate cause rule” 12 renders Ms. Ostwald’s negligence a covered occurrence despite the “intended or expected” 13 exclusion in her policy. (See Dkt. Nos. 20 at 13–16, 26 at 3–8.) But Ms. Ostwald misreads 14 K.M.F.’s complaint: K.M.F. did not allege that Ms. Ostwald acted negligently after Mr. 15 Ostwald’s abuse was over. Instead, K.M.F. alleged only that Ms. Ostwald failed to prevent her 16 husband’s abuse. As a result, K.M.F.’s claim “arose out of” Mr. Ostwald’s abuse and is not 17 conceivably covered by the Ostwalds’ insurance policy. Accordingly, the Court need not reach 18 the parties’ arguments about Washington’s efficient proximate cause rule. 19 A. Summary Judgment Standard 20 “The court shall grant summary judgment if the movant shows that there is no genuine 21 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 22 Civ. P. 56(a). Material facts are those that may affect the outcome of the case, and a dispute 23 about a material fact is genuine if there is sufficient evidence for a reasonable jury to return a 24 verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 , 248–49 (1986). 25 In deciding whether there is a genuine dispute of material fact, the court must view the facts and 26 justifiable inferences to be drawn therefrom in the light most favorable to the nonmoving party. [1] Id. at 255 . The court is therefore prohibited from weighing the evidence or resolving disputed 2 issues in the moving party’s favor. Tolan v. Cotton, 572 U.S. 650, 657 (2014). 3 B. Hartford’s Duty to Defend K.M.F.’s Claim Against Ms. Ostwald 4 To determine whether a claim is covered under an insurance policy, an insurer must 5 generally look to the “eight cor[n]ers” of the policy and the complaint against the insured. See 6 Xia v. ProBuilders Specialty Ins. Co., 400 P.3d 1234 , 1240 (Wash. 2017). If neither document 7 raises an issue of fact or law that could conceivably result in coverage, then the insurer need not 8 defend. Id. But “if there is any reasonable interpretation of the facts or law that could result in 9 coverage, the insurer must defend.” Am. Best Food, Inc. v. Alea London, Ltd., 229 F.3d 693 , 696 10 (Wash. 2010). And if the facts in the complaint are ambiguous, then the insurer must investigate 11 facts outside of the complaint to determine if the insured is conceivably covered. See Woo v. 12 Fireman’s Fund Ins. Co., 164 P.3d 454, 459 (Wash. 2007). Given these standards favoring the 13 insured, insurers typically defend under a reservation of rights when coverage is disputed. See 14 American Best Food, 229 F.3d at 696. By defending under a reservation of rights, an insurer 15 avoids breaching its duty to defend and acting in bad faith during the time it takes for a court to 16 clarify ambiguity in the law or facts. Id. “[A]n insurer takes a great risk when it refuses to defend 17 on the basis that there is no reasonable interpretation of the facts or the law that could result in 18 coverage.” Xia, 400 P.3d at 1240. 19 Here, Hartford’s duty to defend turns on both the meaning of the sexual molestation 20 exclusion and the content of K.M.F’s complaint. The Court will consider each separately. 21 1. The Meaning of the Sexual Molestation Exclusion 22 The first issue the Court must decide is the meaning of the phrase “arising out of” as it 23 appears in the sexual molestation exclusion. (Dkt. No. 19-3 at 24.) The Court concludes that the 24 phrase’s meaning is dictated by the Washington Supreme Court’s decision in American Best 25 Food, Inc. v. Alea London, Ltd., 229 P.3d 693 (Wash. 2010). 26 The principles for interpreting terms in insurance contracts are well known. 1 “Interpretation of an insurance contract is a question of law.” Woo, 164 P.3d at 459 . Terms must 2 be interpreted as the “average person purchasing insurance” would understand them. Id. 3 “Undefined terms are to be given their plain, ordinary, and popular meaning.” Key Tronic Corp. 4 v. Aetna (CIGNA) Fire Underwriters Ins. Co., 881 P.2d 201, 207 (Wash. 1994). The ordinary 5 meaning of terms is often derived from dictionaries. Boeing Co. v. Aetna Cas. & Sur. Co., 784 6 P.2d 507 , 511 (Wash. 1990). Extrinsic evidence can also be used to define terms, but such 7 evidence is appropriate only if a term is ambiguous. Am. Nat’l Fire Ins. Co. v. B & L Tucking & 8 Const. Co., 951 P.2d 250, 256 (Wash. 1998). And if a term’s ambiguity cannot be resolved by 9 extrinsic evidence, then the term must be construed in favor of the insured. Weyerhauser Co. v. 10 Commercial Union Ins. Co., 15 P.3d 115, 141 (Wash. 2000). This is particularly true of 11 exclusionary clauses, which “are to be most strictly construed against the insurer.” Phil 12 Schroeder, Inc. v. Royal Globe Ins. Co., 659 P.2d 509, 511 (Wash. 1983). 13 In American Best Food, the Washington Supreme Court applied these interpretive 14 principles to an exclusionary clause precluding coverage for “any claim arising out 15 of . . . Assault and/or Battery.” 229 P.3d at 696 . The court began by acknowledging that cases 16 had broadly defined “arising out of” to mean “‘originating from,’ ‘having its origin in’, ‘growing 17 out of’, or ‘flowing from.’” See id. at 698 (quoting Toll Bridge Authority v. Aetna Ins. Co., 773 18 P.2d 906, 908 (Wash. Ct. App. 1989)). The court did not disagree with that definition, and it 19 endorsed cases holding that “arising out of” exclusions preclude coverage for suits alleging that 20 an insured negligently failed to prevent an assault. See id. at 697 (discussing McAllister v. Agora 21 Syndicate, Inc., 11 P.3d 859, 861 (Wash. Ct. App. 2000)). But the court observed that there was 22 “legal ambiguity” as to whether an “arising out of” exclusion precludes coverage for post-assault 23 negligence that enhances a person’s injuries. See id. at 699. The court then resolved that 24 ambiguity in favor of the insured, finding that the exclusionary clause at issue did not apply to a 25 person’s claim that the insured’s security guards negligently dumped the person on the sidewalk 26 after he was shot. Id. at 699. 1 American Best Food’s definition of “arising out of” applies here. Under that definition, 2 an injury “arises out of” sexual molestation or abuse—and is not conceivably covered by the 3 Ostwalds’ policy—if an insured causes the injury by behaving negligently before the abuse. Such 4 negligence would include, for example, failing to stop the abuse. See Safeco Ins. Co. of Am. v. 5 Wolk, C18-5368-RBL, Dkt. No. 20 at 10 (W.D. Wash. 2018) (concluding negligent supervision 6 claim arose out of sexual abuse where a woman allegedly failed to stop her husband from 7 abusing a minor in their home); Capitol Specialty Ins. Co. v. JBC Enter. Holdings, Inc., 289 P.3d 8 735 , 736–38 (Wash. Ct. App. 2012) (holding claims against nightclub owner for negligent hiring, 9 training, supervision, and failure to provide adequate security arose out of the use of a firearm 10 where a patron alleged that he was shot because the owner failed to “keep the Plaintiff safe”); 11 McCallister, 11 P.3d at 860–61 (holding claim was “based on assault and/or battery” where a 12 nightclub patron alleged that security personnel negligently failed to intervene in a fight). If, 13 however, an insured “enhances” the injury by behaving negligently after the abuse, then the 14 injury would not “arise out of” the abuse and would be covered. See Homesite Ins. Co. of the 15 Midwest v. Walker, C18-5879-BHS, Dkt. No. 28 at 13–14 (W.D. Wash. 2019) (citing American 16 Best Food, 229 P.3d at 698 ) (holding that “arising out of” exclusion did not apply because the 17 insureds were sued for “fail[ing] to recognize and provide for” a child after the child was 18 assaulted). 19 2. The Content of K.M.F.’s Complaint 20 Having determined the meaning of the phrase “arising out of,” the Court must decide if 21 K.M.F.’s alleged injuries “arose out of” sexual misconduct or abuse. The Court concludes that 22 they did. 23 The allegation against Ms. Ostwald is sad but straightforward: K.M.F. alleges that Ms. 24 Ostwald had a “duty . . . to protect K.M.F. from sexual abuse” but failed to do so. (See Dkt. No. 25 20-1 at 12.) Ms. Ostwald’s failure to protect K.M.F. from sexual abuse necessarily preceded the 26 abuse itself. Thus, any bodily injury Ms. Ostwald caused to K.M.F. “arose out of” Mr. Ostwald’s 1 abuse and is not conceivably covered under the Ostwalds’ insurance policy. See Wolk, C182 5368-RBL, Dkt. No. 20 at 10. 3 Ms. Ostwald disputes this conclusion by reading non-existent allegations into K.M.F.’s 4 complaint. (See Dkt. Nos. 20 at 13, 26 at 8–9.) Likening this case to Homesite Insurance Co. of 5 the Midwest v. Walker, C18-5879-BHS (W.D. Wash. 2019), Plaintiff argues that K.M.F. brought 6 “allegations of post-assault negligence.” (See Dkt. No. 26 at 3, 8.) But the allegations in Walker 7 were far different than the allegations in this case. In Walker, a child brought a claim against a 8 couple for negligent infliction of emotional distress, alleging that she exhibited signs of 9 psychological injuries following her abuse, that the couple negligently failed to notice those 10 signs, and that the couple’s negligence caused her additional injuries.2 See C18-5879-BHS, Dkt. 11 No. 28 at 3–4, 12. Here, by contrast, K.M.F. did not allege that the Ostwalds “should [have] 12 forsee[n] the possibility of psychological harm and the need for psychological therapy and 13 counseling for [K.M.F.]” Compare id. at 3, with (Dkt. No. 20-1 at 12). Nor did K.M.F. allege 14 that the Ostwalds “failed to assist in getting [K.M.F.] necessary psychological treatment to 15 address her developing psychological injuries.” Compare C18-5879-BHS, Dkt. No. 28 at 4, with 16 (Dkt. No. 20-1 at 12). Instead, K.M.F. alleged only that Ms. Ostwald “failed to reasonably 17 [protect] K.M.F. from a lengthy pattern of criminal sexual abuse.” (Dkt. No. 20-1 at 12.) That 18 allegation is unambiguous, and Hartford was entitled to rely on that unambiguous allegation in 19 assessing whether it had a duty to defend. See Woo, 164 P.3d at 459 . 20 Given that K.M.F.’s complaint unambiguously alleged that Ms. Ostwald’s negligence 21 preceded Mr. Ostwald’s abuse, K.M.F.’s claim against Ms. Ostwald was not conceivably 22 covered under any reasonable interpretation of the sexual assault exclusion in the Ostwalds’ [23] 24 2 In addition to bringing an NIED claim, the child in Walker also brought a claim that the insured couple “had a duty to protect minor Plaintiff L.D. from sexual abuse, which they failed to do.” 25 C18-5879-BHS, Dkt. No. 28 at 3. The court concluded that this claim—which is identical to K.M.F’s claim against Ms. Ostwald—was not covered by the couple’s insurance policy. See id. [26] at 10–14. Ms. Ostwald ignores this portion of Walker. 1 insurance policy. Accordingly, Hartford is entitled to summary judgment because it did not 2 breach its duty to defend Ms. Ostwald. 3 III. CONCLUSION 4 For the foregoing reasons, the Court GRANTS Hartford’s motion for summary judgment 5 (Dkt. No. 18) and DENIES Ms. Ostwald’s cross-motion for summary judgment (Dkt. No. 20). 6 DATED this 28th day of February 2020. A [9] John C. Coughenour 10 UNITED STATES DISTRICT JUDGE