338 F. Supp. 3d 958
E.D. Ark.2018Background
- Bull received a $17,800 check from Haas for a vehicle; Haas told Bull the check lacked funds and Bull later deposited it; criminal hot-check charges against Haas were filed and later nolle prossed after Haas paid the amount owed.
- Federated insured Bull under a commercial general liability policy covering "personal and advertising injury," which expressly lists "malicious prosecution" and defamation-related publication and contains exclusions for acts done with knowledge of falsity or with knowledge they violate another's rights.
- Haas sued Bull in state court alleging malicious prosecution and abuse of process (later amended to add outrage, unfair competition, and defamation); Bull notified Federated and Federated reserved rights but retained and paid defense counsel Lowther to represent Bull.
- Bull separately hired Hodges at his own expense; Federated stated Hodges would be at Bull’s expense and reiterated reservation of rights in two letters.
- The underlying Haas litigation settled with Federated paying the settlement; Bull sued Federated in a declaratory action seeking coverage and reimbursement of Hodges’s fees for both the underlying defense and the declaratory action.
- The district court resolved cross-motions for summary judgment: it held the original malicious-prosecution claim was not covered and that Federated satisfied any duty to defend by providing and paying Lowther, so Federated need not reimburse Hodges or pay declaratory-action fees.
Issues
| Issue | Bull's Argument | Federated's Argument | Held |
|---|---|---|---|
| Whether original complaint alleged malicious prosecution covered by policy | Original complaint sufficiently alleged malicious prosecution (covered) | Complaint and record show the nolle prosse followed payment by Haas; termination not sufficiently "favorable" and claim lacked necessary elements | Held for Federated — malicious prosecution did not qualify as covered "personal and advertising injury" on these facts |
| Whether Federated waived coverage defenses by paying settlement | Payment of settlement constitutes admission of coverage and waiver of later coverage defenses | Payment under reservation of rights does not effect waiver; insurer may pay and later contest coverage | Held for Federated — no waiver due to reservation and Arkansas precedent |
| Whether Federated satisfied its duty to defend and must reimburse Bull for hiring independent counsel Hodges | Bull entitled to reimbursement for retaining separate counsel; reservation-created conflict justified independent counsel paid by insurer | Federated provided Lowther to defend at no cost, actively defended, and reservation letters informed Bull Hodges was at Bull’s expense; no evidence Lowther was inadequate | Held for Federated — duty to defend satisfied; Federated not required to pay Hodges for underlying defense |
| Whether Bull is entitled to attorney fees for prosecuting declaratory action | Bull seeks fees under Ark. Code § 23-79-209 because he prevailed on coverage | Federated contends Bull did not prevail on coverage; policy excluded claim and insurer satisfied defense duties | Held for Federated — Bull did not obtain a favorable declaratory judgment on coverage, so no statutory fee award |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Crockett Motor Sales, Inc. v. London, 283 Ark. 106 (nolle prosequi can be a favorable termination supporting malicious prosecution in some circumstances)
- Forrest City Mach. Works, Inc. v. Mosbacher, 312 Ark. 578 (settlement-based termination does not qualify as favorable termination for malicious prosecution)
- Sundeen v. Kroger, 355 Ark. 138 (court may examine facts behind nolle prosse to assess probable cause and malicious prosecution elements)
- Hicks v. Allstate Ins. Co., 304 Ark. 101 (declaratory judgment loss can trigger statutory attorney-fee liability under Ark. Code)
- Bituminous Cas. Corp. v. Zadeck Energy Group, Inc., 416 F. Supp. 2d 654 (insurer need not pay insured’s separately retained counsel when insurer provides defense counsel and no evidence of inadequate representation)
- Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co., 347 Ark. 167 (duty to defend broader than duty to indemnify)