This lаwsuit arises from a check written by James Haas and given to plaintiff Tony Bull and Mr. Bull's resulting claim for coverage under an insurance policy issued by defendant Federated Mutual Insurance Company ("Federated"). Presently before the Court are the parties' cross-motions for summary judgment filed pursuant to Federal Rule of Civil Procedure 56 (Dkt. Nos. 16, 21). The motions have been fully briefed (Dkt. Nos. 21, 24, 28).
I. Factual And Procedural Background
Unless otherwise noted, the following facts are taken from Federated's statement of undisputed material facts and Mr. Bull's statement of undisputed material facts (Dkt. Nos. 18, 23). The Court notes that Local Rule 56.1 of the Local Rules of the United States District Court for the Eastern and Western Districts of Arkansas provides that all material facts set forth in the statement filed by the moving party shall be deemed admitted unless controverted by the statement filed by the non-moving party. Local Rule 56.1(c). As such, the Court deems admitted each parties' statement of material facts to the extent statements are not controverted by the opposing party.
Federated is a general liability insurance carrier that insures Mr. Bull under a general liability insurance policy, Policy No. 9229344 (the "Policy") (Dkt. No. 18, ¶ 3). From October 11, 2013, to October 11, 2014, the Policy provided that Federated:
[W]ill pay all sums the "insured" legally must pay as damages because of "personal and advertising injury" caused by an offense arising out of your business but only if the offense was committed in the Coverage Territory during the Policy Period.
We will have the right and duty to defend any "insured" against a "suit" asking for these damages. However, we have no duty to defend any "insured" against a "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply.
(Dkt. No. 16-12, at 20). Federated admits that Mr. Bull is a named insured under the Policy (Dkt. No. 18, ¶ 3). The Policy defines "personal and advertising injury" as "injury, including consequential 'bodily injury,' arising out of one or more of the following offenses: ... (b) Malicious prosecution; ... (d) Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services...." (Dkt. No. 16-12, at 23).
The Policy excludes coverage for:
"Personal and advertising injury":
...
(2) Caused by or at the direction of the "insured" with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury."
(3) Arising out of oral or written publication of material, if done by or at the direction of the "insured" with knowledge of its falsity.
(Id. , at 21).
Mr. Haas filed his original complaint against Mr. Bull on December 4, 2015, in an Arkansas state court case styled James Haas v. Tony Bull , No. CV-2005-662, Crittenden County Circuit Court (hereinafter, the "Haas litigation") (Dkt. No. 18, ¶ 1). The original complaint included claims of malicious prosecution and abuse of process against Mr. Bull (Dkt. No. 16-2, ¶¶ 9-10). Mr. Bull was served with a summons in the Haas litigation on Decеmber 21, 2015 (Dkt. No. 21-1, ¶ 4). On or about January 6, 2016, Mr. Bull reported the claims against him to Federated (Id. , ¶ 5). On or about January 13, 2016, Mr. Bull spoke with a representative of Federated who indicated that Federated would appoint counsel other than David Hodges to defend Mr. Bull in the Haas litigation (Dkt. No. 21-1, ¶ 6). Mr. Bull was told that, if he was found to have committed with malice the acts alleged in Mr. Haas' complaint, Federated would not pay damages (Id. ).
On February 4, 2016, Federated sent to Mr. Bull a letter reserving its right to deny Mr. Bull coverage and a defense in the Haas litigation (Dkt. No. 16-5). This "reservation of rights" letter stated, "Federated ... agrees to provide a defense and indemnification to Tony Bull subject to the terms and conditions of Bull Motor Company's policy of insurance." (Id. , at 4). The letter also called attention to the exclusions in the Policy (Id. ). This reservation of rights letter did state:
You have the privilege of retaining Mr. Hodges to cooperate with the attorney we have retained in defending this lawsuit; however, Mr. Hodges will be retained at your own expense. Both Federated and Mr. Lowther will be glad to cooperate with him to the fullest extent.
(Id. , at 5).
On February 26, 2016, Mr. Hodges, as attorney for Mr. Bull, filed an action for declaratory judgment in the Circuit Court of Woodruff County, Arkansas, seeking a declaration that the Policy provides coverage for Mr. Bull for the claims made against him in the Haas litigation (Dkt. No. 2). Furthermore, Mr. Bull seeks a declaration that Federated is required to pay the attorneys' fees incurred by Mr. Hodges during his representation of Mr. Bull in the Haas litigation and fоr the fees incurred during this declaratory judgment action (Id. , ¶ 19).
On April 6, 2016, Federated answered and counterclaimed, contending that it had no duty to defend or indemnify Mr. Bull in the Haas litigation because the complaint in that action purportedly did not adequately set forth the necessary elements for malicious prosecution and because malicious prosecution was the only claim potentially covered by the Policy (Dkt. No. 3, ¶¶ 30-31). This declaratory action was removed by Federated to this Court via a notice of removal on April 11, 2016 (Dkt. No. 1).
Meanwhile, the Haas litigation continued. Mr. Haas filed an amended complaint in the Haas litigation on July 26, 2016, adding claims against Mr. Bull for the torts of outrage, unfair сompetition, and defamation (Dkt. No. 16-9, at 2-4). Attached to the amended complaint is a letter to Mr. Bull from counsel for Mr. Haas dated April 30, 2013 (Id. , at 6). This letter represented that, at the time the letter was sent, Mr. Haas was engaged in litigation that precluded the release of the $17,800.00 from Mr. Haas' business account (Id. ). Also attached to the amended complaint is a letter, dated April 11, 2016, from Mr. Bull to the Arkansas State Police (Id. , at 7). This letter asserted that Mr. Haas was violating "the rules of the Motor Vehicle Commission in Arkansas" because he did not maintain a place of business in Arkansas (Id. ). Next, attached to the amended complaint is a letter from Lynda Avery, the "Airport Mаnager" of the West Memphis Municipal Airport, to Inspector John West informing Inspector West that Mr. Haas had been a tenant of the airport since 2005 (Id. , at 8). Finally, excerpts of a
On August 31, 2016, Federated issued a second reservation of rights letter to Mr. Bull that addressed the amеnded complaint (Dkt. No. 16-10). In the second reservation of rights letter, Federated stated, "[Y]our policy with Federated does not provide coverage for abuse of process, tort of outrage or tort of unfair competition." (Id. , at 4). Federated did concede, however, that "[c]overage for [defamation] may be found under [the Policy]." (Id. ). Federated next cited, as it did in its first reservation of rights letter, the specific exclusion that excludes coverage for any "personal and advertising injury" caused by or at the direction of the "insured" with the knowledge that the "act would violate the right of another" or "arising out of oral or written publication оf material" that the insured knows is false (Id. ). Federated concluded that it would "provide coverage for defamation subject to the terms and conditions of the coverage form." (Id. , at 4-5).
On April 25, 2017, the Haas litigation was settled as to all claims, and the Circuit Court entered an order of dismissal on May 26, 2017 (Dkt. Nos. 16-11; 18, ¶¶ 8-9). Mr. Bull admits that Mr. Lowther represented Mr. Bull throughout the entirety of the Haas litigation (Dkt. No. 23, at 5). Mr. Bull contends that Mr. Hodges also represented him throughout that litigation, including at the mediation conference that led to a settlement (Id. , at 5, 8). Mr. Bull admits that Federated paid the entirety of the settlement of all claims against Mr. Bull in the Haas litigation (Id. , at 6). Federated argues that it paid the entirety of all costs and fees owed tо Mr. Lowther and his law firm in the defense of Mr. Bull in the Haas litigation (Dkt. No. 18, ¶ 11).
II. Standard Of Review
Summary judgment is proper if the evidence, when viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue of material fact in dispute and that the defendant is entitled to entry of judgment as a matter of law. Fed. R. Civ. P. 56 ; Celotex Corp. v. Catrett ,
Federated represents to the Court that:
[t]he parties to this litigation have, therefore, agreed that, due to the settlement of the entirety of the underlying action, the only remaining issue to be decided is whether Federated owes reimbursement to Tony Bull for the attorney's fees he paid David A. Hodges to be his separate counsel in the underlying litigation of Haas v. Bull.
(Dkt. No. 16, at 1). Federated makes two аrguments as to why it should not be required to pay Mr. Hodge's fees for the Haas litigation: (1) Federated had no duty to defend Mr. Bull in the Haas litigation as to the original complaint because the only potentially covered claim asserted was malicious prosecution and, based on the language of the complaint and Mr. Bull's answer, the requisite elements necessary to maintain that claim were not present; and (2) regardless of whether the original complaint triggered a duty to defend, Federated satisfied any duty to defend that it had to Mr. Bull when it retained and paid Mr. Lowther to defend Mr. Bull in the Haas litigation (Dkt. No. 17, at 6-12). Federated also argues that it should not be obligated to pay Mr. Hodge's attorney's fees incurred in this declaratory action because Mr. Bull's claim in this action fails (Dkt. No. 24, at 6).
Mr. Bull argues that he is entitled to summary judgment because Federated is obligated to pay Mr. Hodge's fees for both the Haas litigation and this action (Dkt. No. 21). Mr. Bull presents several grounds for why Federated should pay Mr. Hodge's fees: (1) Mr. Haas' original complaint sufficiently alleged the tort of malicious prosecution, a covered claim; (2) Mr. Haas' amended complaint sufficiently alleged the tort of defamation, a covered claim; (3) Mr. Bull is entitled to attorneys' fees because the claims against him were covered by the Policy; and (4) Federated has admitted that therе is coverage under the Policy because of the payment it made to Mr. Haas to settle the claims against Mr. Bull (Dkt. No. 22).
For the reasons discussed below, the Court grants Federated's motion for summary judgment (Dkt. No. 16) and denies Mr. Bull's cross-motion for summary judgment (Dkt. No. 21).
A. Attorney's Fees
The Court declines to award Mr. Hodges fees for his work performed in this declaratory judgment action. An insured who receives a favorable declaratory judgment against a liability insurance company is entitled to collect from the insurance company "all reasonable attorney's fees for the defense or prosecution of the suit...."
B. Coverage For The Claims Against Mr. Bull Alleged In The Original Complaint In The Haas Litigation
Federated is not obligated to pay Mr. Hodges' attorneys' fees incurred in the present declaratory action because the Policy does not require Federated to indemnify Mr. Bull for the claims made against him in the original complaint filed in the Haas litigation. Arkansas law provides, "In all suits in which the judgment or decree of a court is against a ... liability insurance company ... in a suit for declaratory judgment under the policy, ... the company shall also be liable to pay the holder of the policy all reasonable attorney's fees...."
The Court looks to the language of the Policy to determine if it covers the claims alleged against Mr. Bull in the original complaint filed in the Haas litigation. Arkansas law "regarding the construction of an insurance contract is well settled." Norris v. State Farm Fire & Cas. Co. ,
1. Waiver
Mr. Bull argues that Federated, when it paid the settlement in the Haas litigation, waived any argument that the Policy does not cover the claims in the Haas litigation (Dkt. No. 22, 13-14). The Court disagrees. In Arkansas, waiver does not apply where an insurer pays a claim but later determines that the claim was not covered. Columbia Ins. Group, Inc. v. Ark. Infrastructure, Inc. , No. 4:14-cv-00512-SWW,
2. The Policy
To resolve this dispute among the parties, the Court must first determine whether the claims made against Mr. Bull in the original complaint filed in the Haas litigation fall within the scope of the Policy. For the reasons set forth below, the Court finds that only the malicious prosecution claim made by Mr. Haas in his original complaint could qualify as "personal and advertising injury" under the Policy. The Court also finds that, based on the undisputed record evidence, that same claim fails for the reasons argued by Federated. Therefore, per the plain language of the Policy, the Court finds that Federated is not required to indemnify Mr. Bull for the claims brought by Mr. Haas in the original comрlaint filed in the Haas litigation.
The Policy states:
We will pay all sums the "insured" legally must pay as damages because of "personal and advertising injury" caused by an offense arising out of your business but only if the offense was committed in the Coverage Territory during the Policy Period.
We will have the right and duty to defend any "insured" against a "suit" asking for these damages. However, we have no duty to defend any "insured" against a "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply....
The Court must next determine whether the Policy covers the specific claims brought against Mr. Bull in the original complaint filed in the Haas litigation. Mr. Haas' original complaint brought claims of malicious prosecution and abuse of process (Dkt. No. 16-2, at 2). The amended complaint added claims for the torts of outrage, unfair competition, and defamation (Dkt. No. 16-9, at 3). Federated argues that, based upon the face of the original and amended complaints brought in the Haas litigation, there was no claim for malicious prosecution against Mr. Bull, and therefore the Policy does not cover that claim. Specifically, Federated argues that the malicious prosecution claim against Mr. Bull was insufficient because Mr. Haas' complaints did not state facts sufficient to make out a malicious prosecution claim (Dkt. No. 17, at 7).
A claim for malicious prosecution under Arkansas law requires the plaintiff to prove the following five elements: (1) a proceeding instituted or continued by the defendant against the plaintiff; (2) termination of the proceeding in favor of the plaintiff; (3) absence of prоbable cause for the proceeding; (4) malice on the part of the defendant; and (5) damages. McMullen v. McHughes Law Firm ,
In response, Mr. Bull cites Crockett Motor Sales, Inc. v. London for the proposition that a nolle prosequi dismissal is a sufficiently favorable termination to satisfy the second element of a malicious prosecution claim.
Federated argues that the present case is more akin to Forrest City Machine Works Inc. v. Mosbacher , where the Arkansas Supreme Court held that a termination based upon a settlement does not qualify as a favorable outcome sufficient to justify a malicious prosecution claim.
Federated maintains that this nolle prosequi dismissal was entered because Mr. Haas paid the disputed amount to Mr. Bull, making this case more like a settlement. Specifically, in the original complaint, Mr. Haas alleges "[t]hat on June 16, 2015, the charge was nolle prosequied after
The Court recognizes that the authority to nolle pros a criminal case rests solely with the prosecutor under Arkansas law, not the parties. See generally Johnson v. Johnson ,
In Sundeen v. Kroger , the Arkansas Supreme Court looked at the facts and circumstances behind a favorable termination of criminal prosecution to assess whether those facts and circumstances actually supported a claim for malicious prosecution.
The facts and circumstances here as evidenced by the record support Federated's position that this nolle prosequi dismissal does not constitute a sufficient favorable outcome for Mr. Haas to state a malicious prosecution claim under Arkansas law. Federated does not argue that, based on the face of Mr. Haas' complaints, the other elements of a malicious prosecution claim were insufficient. Accordingly, based upon the record before it, the Court finds that Mr. Haas' original and amended complaints did nоt sufficiently allege a claim for malicious prosecution against Mr. Bull. Therefore, based upon the plain and unambiguous language of the Policy, the Court finds that the malicious prosecution claim asserted by Mr. Haas does not qualify as a "personal and advertising injury" under the Policy.
C. Federated Satisfied Its Duty To Defend Mr. Bull In The Haas Litigation
The Court finds that, based upon the record before it, even assuming Federated had a duty to defend Mr. Bull in the underlying Haas litigation, Federated fully
The Arkansas Supreme Court has held that an insurance company's duty to defend is broader than its duty to indemnify. Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co. ,
Furthermore, "Arkansas law does not directly address" whether an insured has the right to select its own counsel. Hortica-Florists' Mut. Ins. Co. v. Pittman Nursery Corp. ,
Federated argues that it satisfied its duty to defend Mr. Bull in the Haas litigation and that it has no obligation to pay for Mr. Hodges' fees incurred during the Haas litigation. Federated points to the fact that it provided counsel for Mr. Bull to defend the claims made in Mr. Haas' original complaint, amended complaint, and the eventual mediаtion and settlement of all the claims made against Mr. Bull by Mr. Haas, all at no expense to Mr. Bull (Dkt. No. 17, at 10-11). Federated points to the decision in Bituminous Casualty Corporation v. Zadeck Energy Group, Inc. , as support for its position that it satisfied its duty to defend and that Mr. Hodges is not entitled to the payment of attorney's fees by Federated for his work on the Haas litigation.
Furthermore, and more pertinent to the issue at hand, the court found that Bituminous was not required to pay the attorney's fees Tri-State incurred when it engaged another attorney to defend it in the underlying action against the third-party. Once Bituminous assumed Tri-State's defense, it hired Randy Murphy to defend Tri-State.
Mr. Bull points to Hicks v. Allstate Insurance Co. to argue that Bituminous Casualty Corporation is distinguishable (Dkt. No. 22, at 8).
Even assuming that, at the time Mr. Haas filed his original complaint, there was a possibility that the Haas litigation claims fell within the Policy's coverage, the Court nonetheless finds that Federated satisfied its duty to defend Mr. Bull. While Bituminous and Hicks are persuasive authorities, Arkansas law is silent on whether an insured has the right to select its own counsеl. See Hortica-Florists' Mut. Ins. Co. ,
Furthermore, the Policy contains no promise by Federated to pay for Mr. Bull's independent counsel. The Court declines to read a provision into the Policy for which the parties could otherwise have bargained. Finally, the first reservation of rights letter sent to Mr. Bull by Federated stated:
You have the privilege of retaining Mr. Hodges to cooperate with the attorney we have retained in defending this lawsuit; however, Mr. Hodges will be retained at your own expense. Both Federated and Mr. Lowther will be glad to cooperаte with him to the fullest extent.
(Dkt. No. 16-5, at 5). Based upon this record and the authorities discussed above, the Court finds that there is no genuine issue of material fact regarding whether Federated satisfied its duty to defend Mr. Bull. Accordingly, Court finds that Federated is not obligated to pay Mr. Hodges' attorney's fees incurred during the defense of Mr. Bull in the Haas litigation.
IV. Conclusion
The Court grants Federated's motion for summary judgment (Dkt. No. 16). Mr. Bull's cross-motion for summary judgment is denied (Dkt. No. 21).
It is so ordered this 7th day of September, 2018.
Notes
Mr. Bull filed his complaint in this action on April 11, 2016, challenging Federated's acts in response to the original complaint in the Haas litigation (Dkt. No. 2). Mr. Bull's complaint in this action sought the following declarations: (1) declaration that "there is coverage for the Complaint , ... and, thereforе, ... a legal declaration that there is coverage that [Federated] owes a duty not only to defend but to pay any and all judgments that may be rendered in the underlying case against Tony Bull;" (2) a declaration that Federated owes the attorney's fees for David Hodges for bringing the present declaratory action; and (3) "a declaration that there is coverage for [Mr. Bull] under these circumstances " and "a determination that [Federated] owes the attorney's fees of David Hodges for ... acting as the attorney for Tony Bull in the underlying action...." (Dkt. No. 2, at 3-4 (emphasis added) ). Attached to Mr. Bull's complaint in this action is a copy of the original complaint in the Haas litigation and Federated's first reservation of rights letter (Id. , at 6-8, 19-23). Mr. Bull never amended his complaint in this action after Mr. Haas amended his complaint in the underlying action on July 26, 2016.
Per Rule 15(a) of the Federal Rule of Civil Procedure, once the time to amend as a matter of course has expired, a party seeking to amend its pleadings before trial may do so only with the opposing party's written consent or the Court's leave. Fed. R. Civ. P. 15(a)(2). Mr. Bull did not receive consent to amend his complaint in this action, nor did he seek the Court's leave to do so. Further, it does not appear that Federated ever contended that it had no duty to defend the amended complaint in the Haas litigation that added the defamation claim (Dkt. No. 24, at 4). For these reasons, it appears the parties request that the Court resolve only the issue of coverage as to the original complaint based on the parties' contentions regarding the malicious prosecution claim.
While Federated did not waive its right to contest coverage when it settled the claims against Mr. Bull, Federated does not have the right to seek reimbursement of the settlement or Mr. Lowther's fees from Mr. Bull. See Med. Liab. Mut. Co. v. Alan Curtis Enterprises, Inc. ,
The Court also concludes that the abuse of process claim alleged in the original complaint in the Haas litigation is not covered by the Policy.