Cornerstone Church of Nashville, Inc. v. Guideone Insurance
3:20-cv-00956
M.D. Tenn.Apr 19, 2021Background
- Cornerstone Church (TN) was sued in 2016 by a former youth attendee (Arnold) alleging sexual assault by a youth staff member (Brian Mitchell) in 2008 and related claims (negligent hiring/supervision, failure to report/investigate).
- Cornerstone’s 2007–08 insurance policy included a CGL with an explicit sexual-misconduct exclusion and a separate Sexual Misconduct Liability (SML) rider capping liability at $500,000 per occurrence.
- GuideOne defended Cornerstone in the underlying suit; the parties settled for $1,000,000, with GuideOne and Cornerstone each contributing $500,000. GuideOne later refused to reimburse Cornerstone’s $500,000 contribution beyond the SML rider limit.
- Cornerstone sued GuideOne in state court (removed to federal court) for breach of contract (seeking the extra $500,000), bad-faith statutory penalty under Tenn. Code Ann. § 56-7-105, and promissory estoppel based on alleged statements by GuideOne’s counsel about coverage.
- GuideOne moved to dismiss under Rule 12(b)(6), arguing the CGL exclusion and SML rider limit control (all claims arise from sexual misconduct) and that no bad-faith or promissory-estoppel claim was adequately pleaded.
- The district court considered the policy and underlying complaint (both central to the pleading) and addressed: (1) whether some underlying claims fall outside the sexual-misconduct exclusion (concurrent-cause analysis); (2) bad-faith statutory claim; and (3) promissory estoppel pleading sufficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of coverage / breach of contract: whether the policy exclusion bars all underlying claims so GuideOne’s liability is limited to the $500,000 SML rider | Arnold’s underlying complaint included post-abuse claims (failure to report/investigate) that are independent of the sexual misconduct and thus not excluded; settlement covered both excluded and non-excluded claims so Cornerstone seeks reimbursement | All underlying claims arise from or relate to the sexual misconduct and are excluded from CGL coverage; only the SML rider (paid $500k) applies | Denied dismissal of breach claim. Court held plaintiff plausibly alleged at least one non-excluded theory (failure to report after the abuse) that, under Tennessee’s concurrent-cause doctrine (Allstate v. Watts), could constitute a covered claim and survive 12(b)(6) pending factual development |
| Bad-faith penalty under Tenn. Code Ann. § 56-7-105 | GuideOne acted in bad faith by refusing to reimburse Cornerstone and should pay up to 25% penalty + fees | GuideOne had substantial legal grounds to deny further coverage (policy exclusion/SML limit) and defended/participated in settlement, so refusal was not in bad faith | Granted dismissal. Court found no plausible facts showing insurer gambled with insured’s money or intentionally disregarded insured’s interests; statutory bad-faith claim (and attendant fee claim) dismissed |
| Promissory estoppel based on alleged statements by GuideOne’s counsel promising an additional $500,000 under general liability limits | Cornerstone relied on counsel’s representations that GuideOne would pay $500k under SML and another $500k under CGL, inducing Cornerstone to settle and pay $500k | GuideOne contends the Complaint fails to plead an unambiguous promise, justified reliance, or the particularity required for fraud/mistake allegations; a contract exists so estoppel is inapplicable absent exceptional facts | Granted dismissal without prejudice. Court held promissory-estoppel allegations were too vague and failed Rule 9(b)/12(b)(6) particularity/reliance requirements; plaintiff may seek leave to amend |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (establishes plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (clarifies pleading of factual matter vs. legal conclusions)
- Directv, Inc. v. Treesh, 487 F.3d 471 (6th Cir.) (Rule 12(b)(6) standards for construing complaints)
- Allstate Ins. Co. v. Watts, 811 S.W.2d 883 (Tenn. 1991) (Tennessee adopts concurrent-cause doctrine; "arising out of" construed narrower than but-for)
- Clark v. Sputniks, LLC, 368 S.W.3d 431 (Tenn. 2012) (insurance-policy interpretation and recognition of Tennessee concurrent-cause doctrine)
- Bill Brown Const. Co., Inc. v. Glens Falls Ins. Co., 818 S.W.2d 1 (Tenn. 1991) (agent misrepresentations can, in limited circumstances, bind insurer under promissory estoppel)