The Four Corners Rule Strikes Again
The Maine Supreme Judicial Court was asked to determine whether an insurer had a duty to defend a policyholder against a complaint alleging, among other things, that the policyholder converted another person’s lobster traps or gear.
FACTUAL AND PROCEDURAL HISTORY
Edwin Mitchell appealed from the entry of a summary judgment in the Superior Court in favor of Allstate Insurance Company on Mitchell’s complaint for breach of contract and from the denial of Mitchell’s motion for partial judgment on the pleadings. The Superior Court concluded that Allstate had no duty to defend Mitchell in the separate liability action because a policy exclusion for certain intentional acts applied. In Edwin Mitchell v. Allstate Insurance Co., 2011 Me. 133 (Me. 12/22/2011) the Supreme Judicial Court of Maine noted that Mitchell was a lobster fisherman working in the waters off Matinicus Island. In September 2008, Victor Ames sued twenty-three people, including Mitchell, numerous other lobster fishermen on Matinicus Island, and certain state officials. Ames alleged generally that a group of Matinicus Island lobster fishermen had conspired to prevent him from fishing for lobster in the area.
Among other things, Ames’s second amended complaint included a cause of action against Mitchell for conversion based on Mitchell’s alleged participation in a “fishermen’s group” that “destroyed, converted, molested and rendered useless” Ames’s lobster traps and fishing gear near Matinicus Island.
At all relevant times, Mitchell held a Deluxe Homeowners Policy with Allstate Insurance Company. The policy included “Coverage X: Family Liability Protection,” which provided Mitchell with liability insurance for “damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.” The policy defined an “occurrence” as “an accident . . . resulting in bodily injury or property damage.” “Property damage” was defined to mean “physical injury to or destruction of tangible property, including loss of its use resulting from such physical injury or destruction.” By the policy’s terms, Allstate agreed to provide a defense if the policyholder was sued for such damages “even if the allegations are groundless, false or fraudulent.”
The policy contained several coverage exclusions, including the following:
Losses We Do Not Cover Under Coverage X [Family Liability Protection]:
1. We do not cover any bodily injury or property damage intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of any insured person. This exclusion applies even if:
a) such insured person lacks the mental capacity to govern his or her conduct;
b) such bodily injury or property damage is of a different kind or degree than intended or reasonably expected; or
c) such bodily injury or property damage is sustained by a different person than intended or reasonably expected.
This exclusion applies regardless of whether or not such insured person is actually charged with, or convicted of a crime.
After being served with Ames’s complaint, Mitchell contacted Allstate, which declined to provide coverage. Mitchell retained his own counsel and was successful in defending himself against the Ames suit, but he states that he incurred approximately $13,625.52 in attorney fees and litigation costs.
Mitchell later filed a complaint against Allstate in the Superior Court for breach of contract in which he alleged that Allstate had breached its duty to defend Mitchell in the Ames litigation. Mitchell attached to his complaint a copy of the Allstate policy.
MOTIONS FOR SUMMARY JUDGMENT
Mitchell moved for partial judgment on the pleadings against Allstate, and Allstate moved for summary judgment. The trial court concluded that the claim for conversion failed to allege property damage that would fall within the policy’s coverage and that the intentional acts exclusion applied. Concluding that Allstate had no contractual duty to defend Mitchell, the court granted Allstate’s motion for summary judgment and denied Mitchell’s motion for partial judgment on the pleadings. Mitchell appealed.
Because, in Maine, the legal analysis of an insurer’s duty to defend involves solely a comparison of the allegations in the underlying complaint with the provisions of the insurance policy and is a question of law the appellate court reviews the case as if it was first presented to it. The Supreme Judicial Court first looked to see if Allstate had a duty to defend Mitchell as a matter of law. Only the complaint and the policy are considered in Maine when determining whether the insurer has a duty to defend even though there was a final decision on the underlying suit.
The facts alleged in the complaint need not make out a claim that specifically and unequivocally falls within the coverage. Rather, where the events giving rise to the complaint may be shown at trial to fall within the policy’s coverage, an insurer must provide the policyholder with a defense.
The Policy Exclusion
Although the duty to defend is broad, it does have limits. An insurer may properly refuse to defend a policyholder if the allegations of the complaint fall entirely within a policy exclusion. The policy exclusion at issue here will apply to Ames’s conversion claim against Mitchell if the complaint limits the potential liability to circumstances where either (a) Mitchell intentionally interfered with property that he knew belonged to Ames, or (b) Mitchell intentionally acted in a way that could reasonably be expected to result in the interference with Ames’s property.
Coverage for the Conversion Claim
The Ames complaint alleged that Mitchell had, among other things, converted Ames’s personal property. To establish a claim for conversion, the plaintiff must show an invasion of the plaintiff’s possession or right to possession. The converter need not intend any conscious wrongdoing, but need only act with an intent to exercise a dominion or control over the goods which is in fact inconsistent with the plaintiff’s rights.
The complaint contained no allegation that Mitchell acquired possession of any of Ames’s property rightfully, so there is no requirement of demand and a refusal to surrender. Ames’s complaint alleged that one or more members of the fishermen’s group had converted lobster traps or fishing gear that belonged to Ames. Although Ames alleges a conversion undertaken “in an agreed upon and concerted effort,” that fact would not have to be proved for Ames to prevail on his conversion claim. Rather, on these allegations, Ames could establish conversion against Mitchell in one of two other ways.
- Ames could demonstrate a conversion by proving that Mitchell exercised dominion or control over lobster fishing gear by simply possessing gear in which Ames had a property interest and right of possession.
- Ames could establish a conversion that involved damage to his property.
Because Ames could potentially establish a conversion resulting in property damage without proving that Mitchell intended to damage Ames’s property, the Maine Supreme Judicial Court concluded that Ames’s conversion claim could result in covered liability. The policy’s intentional acts exclusion would not apply if the evidence showed that Mitchell lacked an intention or expectation that property belonging to Ames would be damaged.
Because an insurer has a duty to defend if any cause of action alleged in a complaint could fall within the policy’s liability coverage the Court had no need to consider whether other theories of liability set forth in the Ames complaint, such as Ames’s claim for intentional infliction of emotional distress, would have independently given rise to a duty to defend.
The case was sent back to the trial court to determine the damages Mr. Mitchell is entitled to receive from Allstate.
Although the Maine court gave credit to the four corners rule it could not, and probably did not, ignore the fact that Mitchell, after his claim was denied, retained his own counsel and was successful in defending himself against the Ames suit that made it clear his actions were not intentional or excluded by the intentional act exclusion. Rather than go through the convoluted reasoning to turn an intentional tort into one that is fortuitous it would have been easier to use the extrinsic evidence available to establish that Mitchell had nothing to do with the allegations of the Ames’ suit.
© 2011 – Barry Zalma
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, “Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Zalma on Diminution in Value Damages,” “Arson for Profit,” “Insurance Fraud,” and others that are available at www.zalma.com/zalmabooks.htm.
Mr. Zalma has published three new E-Books: “Zalma on Insurance,” “Murder and Insurance Fraud Don’t Mix,” a short novel and “Zalma on California Claims Regulations – 2011″ now available.