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The Hanover Insurance Co. v. BMOC, Inc.

United States District Court, W.D. Wisconsin

February 27, 2019

THE HANOVER INS. CO., Plaintiff,
v.
BMOC, INC., WILLIAM J. LEVY, and STEVE SAFFIAN, Defendants.

          OPINION AND ORDER

          WILLIAM M. CONLEY DISTRICT JUDGE

         In this declaratory judgment action, plaintiff Hanover Insurance Company seeks to establish that it is not obligated to provide a defense to its insured, BMOC, Levy and Saffian, in an ongoing lawsuit filed in the in the United States District Court for the District of New Jersey. That lawsuit was filed by a Bondholder Committee, on behalf of the Quad Cities Regional Economic Development Authority First Mortgage Revenue Bonds Series 2013A owners (the “Bondholder Lawsuit”). Presently before the court is Hanover's motion for judgment on the pleadings, contending that BMOC's liability insurance policy either does not cover or otherwise excludes coverage for the Bondholder Lawsuit. (Dkt. #23.) Because the relevant language in that policy unambiguously exludes coverage for the claims against defendants in the Bondholder Lawsuit, plaintiff's motion will be granted.

         BACKGROUND[1]

         Hanover issued policy No. LHI A861386 01 (the “Policy”) to BMOC, Inc., in Madison, Wisconsin, providing Miscellaneous Professional Liability Insurance from February 20, 2017, until February 20, 2018. Hanover is incorporated under the laws of New Hampshire and has its principal place of business in Massachusetts; it is authorized to write liability insurance policies in Wisconsin. BMOC is a Wisconsin corporation with its principal place of business in Madison, Wisconsin. William J. Levy is BMOC's president, while Steve Saffian served as BMOC's “residential life liaison” and Sauk Valley Student Housing LLC's executive director. Both individual plaintiffs also reside in Wisconsin. Among other things, BMOC served as the property manager of a student housing project at an Illinois college.

         On September 21, 2017, the Bondholders filed suit against BMOC, Levy and Saffian, along with other defendants in the New Jersey District Court. Levy was sued in his capacities as BMOC's president and a member of its management team, while Saffian was sued in his capacities as BMOC's residential life liaison and a member of its management team, as well as in his capacities as the executive director of both Sauk LLC and United Housing. Hanover agreed to defend defendants on October 26, 2017, under a reservation of rights.

         OPINION

         Under Rule 12(c), “a party may move for judgment on the pleadings” once “the pleadings are closed -- but early enough not to delay trial.” Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is reviewed under the same standard as Rule 12(b)(6), except that the court considers all pleadings, as well as documents that are incorporated into any pleading by reference. See Gill v. City of Milwaukee, 850 F.3d 335, 339 (7th Cir. 2017) (“A motion for judgment on the pleadings is subject to the same standard as a motion to dismiss under Rule 12(b)(6).” (citing Buchanan-Moore v. City of Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009)). To succeed on a motion for judgment on the pleadings, “the moving party must demonstrate that there are no material issues of fact to be resolved, ” even with the court viewing all facts in the light most favorable to the nonmoving party. N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452 (7th Cir. 1998).

         I. Plaintiff's Request for Judgment on the Pleadings

         A. Standard

         Insurance policies, like other contracts, are interpreted to effectuate the contracting parties' intent. Water Well Sols. Serv. Grp., Inc. v. Consolidated Ins. Co., 2016 WI 54, ¶ 14, 369 Wis.2d 607, 881 N.W.2d 285 (citing Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶ 23, 268 Wis.2d 16, 673 N.W.2d 65). The court interprets the policy's terms “as a reasonable person in the position of the insured would understand the language.” Id. (citing Estate of Sustache v. Am. Fam. Mut. Ins. Co., 2008 WI 87, ¶ 19, 311 Wis.2d 548, 751 N.W.2d 845). An “insurer has a duty to defend when the allegations, if proven, give rise to the possibility of recovery under the terms of the policy.” Air Eng'g, Inc. v. Industrial Air Power, LLC, 2013 WI.App. 18, ¶ 10, 346 Wis.2d 9, 828 N.W.2d 565 (citing Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 93, 261 Wis.2d 4, ¶ 19, 660 N.W.2d 666).

         In assessing coverage, the court “compare[s] the four corners of the underlying complaint to the terms of the entire insurance policy.” Water Well Sols., 2016 WI 54, ¶ 14 (internal citations omitted). In so doing, the court “must liberally construe the allegations contained in the underlying complaint, assume all reasonable inferences from the allegations made in the complaint, and resolve any ambiguity in the policy terms in favor of the insured.” Id. at ¶ 15 (citing Sustache, 311 Wis.2d 548, ¶ 21).[2] Moreover, “[t]he legal label applied to the claim is not determinative; what matters is whether the conduct alleged in the complaint is arguably within a category of wrongdoing covered by the policy.” Air Eng'g, 2013 WI.App. 18 ¶ 10 (citing Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir. 1994)). Finally, if the insurance policy provides coverage for one claim in the underlying suit, then the insurer must defend all claims alleged. Water Well Sols., 2016 WI 54, ¶ 16 (citing Fireman's Fund, 2003 WI 93, ¶ 21). This is true, even if the allegations are entirely baseless. Pumpkin, Inc. v. Ryan, 2014 WI.App. 83, ¶ 7, 355 Wis.2d 578, 851 N.W.2d 471 (quoting Olson v. Farrar, 2012 WI 3, ¶ 29, 338 Wis.2d 215, 809 N.W.2d 1); see Marks v. Houston Cas. Co., 2016 WI 53, ¶ 39, 369 Wis.2d 547, 881 N.W.2d 309 (“[W]hen a complaint alleges facts that, if proven, would constitute a covered claim, the insurer must appoint defense counsel for its insured without looking beyond the complaint's four corners.” (quoting Sustache, 311 Wis.2d, 548 ¶ 27)).

         The underlying complaint and the insurance policy are the only documents relevant to the coverage analysis. Marks, 2016 WI 53, ¶ 39 (citing Fireman's Fund, 2003 WI 33, ¶ 19). The court first decides if the insurance policy language covers the complaint's allegations. Water Well Sols., 2016 WI 54, ¶ 16 (citing Sustache, 311 Wis.2d 548, ¶ 22). If not, that is the end of the inquiry, and the insurer has no duty to defend. Id. (citing Sustache, 311 Wis.2d 548, ¶ 22). On the other hand, if the allegations fall within the policy's coverage grant, then the court must determine whether a policy exclusion precludes coverage. Id. (citing Sustache, 311 Wis.2d 548, ¶ 23). If no exclusion applies to preclude coverage, then the insurer has a duty to defend. Finally, even if exclusions apply, the insurer may still have a duty to defend if “an exception to the exclusion applies to restore coverage.”[3] Id. (citing Sustache, 311 Wis.2d 548, ¶ 23). If not, then the insurer has no duty to defend. Id. (citing Am. Girl, Inc., 268 Wis.2d 16, ¶ 24).

         A court interpreting an insurance policy exclusion presumes that a reasonable insured understands that the exclusion limits coverage; however, if the exclusion is ambiguous, “it will be construed in favor of coverage.” Phillips, 2013 WI 105, ¶ 15 (citations omitted). Similarly, exclusions are “narrowly construed against the insurer.” Lexington Ins. Co. v. Tudor Ins. Co., No. 11-C-809, 2013 WL 461279, at *5 (E.D. Wis. Feb. 6, 2013) (citing Day v. Allstate Indem. Co., 332 Wis.2d 571, 798 N.W.2d 199, 206 (Wis. 2011)). At the same time, an exclusion's exception cannot create ...


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