Lucterhand v. Granite Microsystems, Inc.

Citations: 564 F.3d 809; 14 Wage & Hour Cas.2d (BNA) 1345; 2009 U.S. App. LEXIS 8971; 2009 WL 1118939Docket: 07-2719

Court: Court of Appeals for the Seventh Circuit; April 28, 2009; Federal Appellate Court

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Granite Microsystems, Inc. and its president, Daniel Armbrust, were sued by former employee Mark Lucterhand for intentional infliction of emotional distress, false imprisonment, and wrongful termination. The company held two liability insurance policies that provided coverage for bodily injuries resulting from an "occurrence," defined as an "accident," as well as a third policy for bodily injury caused "by accident." The core issue on appeal was whether Lucterhand's allegations triggered coverage under these policies. The district court ruled that they did not, and the appellate court affirmed this decision, reasoning that the insurance policies only covered accidental injuries, while Lucterhand's claims involved intentional acts. The background details revealed that Lucterhand sustained a quadriceps injury at work, was forcibly taken to a meeting against his will, and was later fired by Armbrust after being accused of exaggerating his injuries. Granite Microsystems sought defense from its insurers, Federal Insurance Company and Vigilant Insurance Company, but the insurers intervened for a declaratory judgment, asserting that the claims did not constitute an "accident." Ultimately, the court sided with the insurers, confirming no coverage was applicable due to the nature of the claims.

Wisconsin law applies to this case, which is brought under the court's diversity jurisdiction. A liability insurer is obligated to defend its insured if the allegations in the underlying complaint suggest potential coverage under the insurance policy terms, as established in Estate of Sustache v. Am. Family Mut. Ins. Co. The insurer's duty to defend is more expansive than its duty to indemnify because it pertains to arguable rather than actual coverage. The core issue involves determining whether Lucterhand's complaint allegations fall within the coverage of the CGL, Excess, Umbrella, and Workers Compensation policies.

The duty to defend is assessed by comparing the complaint's allegations with the insurance policy terms, following a de novo review standard. Lucterhand's complaint includes claims of intentional termination in retaliation for exercising FMLA rights, intentional infliction of emotional distress, and false imprisonment. While the first claim is statutory, the latter two are intentional torts. Generally, liability insurance does not cover intentional losses, as coverage is aimed at fortuitous losses rather than intended consequences.

Liability policies typically state that they cover damages for which the insured is legally responsible "because of an accident" or, in the case of CGL and Excess, Umbrella policies, for damages caused by an "occurrence," defined as an accident. Although the term "accident" isn't explicitly defined in the policies, Wisconsin uses various definitions emphasizing the unexpected and unintended nature of such events. Additionally, liability policies often include intentional-acts exclusions that negate coverage for injuries expected or intended by the insured. The CGL and Excess, Umbrella policies in question specifically exclude coverage for bodily injury resulting from acts that are intended or reasonably expected to cause such injury.

The Workers Compensation policy explicitly excludes coverage for injuries that are intentionally caused or aggravated. The district court analyzed the term "accident" within the context of all three relevant policies, concluding that coverage hinged on whether Armbrust's actions were accidental rather than the nature of the damage caused. Since the complaint alleged intentional acts by Armbrust, the court determined that coverage was unavailable under any of the policies. Granite Microsystems contends that the assessment should instead focus on whether the alleged damage was intentional or accidental, arguing that even intentional acts could lead to coverage if the resulting injury was unintended. However, the distinction between intentional acts and intentional injury does not alter the outcome in this case. The legal landscape regarding the definitions of "accident" and "occurrence" remains unsettled, with courts divided on whether an intentional act can be considered an "accident" if the resulting damage was unintentional. This divergence is illustrated in a Wisconsin Supreme Court case, Stuart v. Weisflog's Showroom Gallery, where the court evaluated coverage under a policy defining "occurrence" as an "accident." The court sought to determine if the underlying act was unintentional, though it did not clarify the distinction between "unintentional" and "not volitional," leaving the matter ambiguous.

The court focused on whether the event causing damage was unintentional, defining the 'causal event' separately from the injury. The contractor argued for coverage under the policy, claiming no intent to cause the specific damage. The court rejected this, stating that the key issue was whether the damage's cause was accidental. The deceptive-practices regulation did not require intent to deceive but mandated that false representations be made to induce a home-improvement contract. The court concluded the contractor's actions were intentional, thus not accidental, eliminating coverage under the policy.

Two justices expressed a narrower view, agreeing that the relevant inquiry was whether the acts leading to the injury were intentional or accidental, but debated the interpretation of "volitional act." The majority found the contractor's representations to be volitional due to their purpose to induce, while the dissenting justices focused solely on whether the act of representation itself was volitional.

In a related case, Estate of Sustache v. Am. Family Mut. Ins. Co., the court addressed coverage for a battery claim involving a homeowner's son who punched a partygoer, leading to the victim's death. Despite the son claiming self-defense and not intending a fatal punch, the court ruled the allegations of intentional battery indicated volition inconsistent with an 'accident.' Justice Bradley concurred, criticizing the majority's rationale, asserting that the key issue remained whether harm was intended, concluding there was no accident due to the son's intent to harm.

Sustache is more relevant to the case than Stuart II, as its conclusion about no coverage is pertinent. The court does not need to reconcile differing interpretations of 'occurrence' since Lucterhand's complaint involves intentional acts leading to injuries, which, under any Wisconsin Supreme Court approach, results in no coverage. The first count accuses Armbrust of intentionally firing Lucterhand and violating the Family and Medical Leave Act, causing loss of wages and benefits. Granite Microsystems acknowledged that these allegations imply intent to act and injure, as termination inherently leads to loss of salary and emotional distress, categorizing it as an intentional act and injury.

The second count claims intentional infliction of emotional distress, requiring intent to cause injury, supported by Rabideau v. City of Racine. Lucterhand's allegations that Armbrust's conduct was 'intentionally unlawful' aimed to inflict emotional harm. The third count involves false imprisonment and intentional withholding of medical treatment, causing pain and emotional distress. Lucterhand alleges that Armbrust, aware of his injury, forcibly transported him to a meeting, further prolonging his suffering, which cannot be construed as accidental.

While other issues regarding policy exclusions have been raised, the court concludes that none of the allegations trigger coverage under the policies, rendering those issues unnecessary to address. The decision is affirmed. The excerpt references the four-corners rule regarding the duty to defend in Wisconsin, noting that an insurer can contest coverage while still providing a defense under certain conditions.

In Wisconsin, an insurer that has initially defended its insured can seek a judicial ruling on its ongoing defense obligations, allowing for the introduction of extrinsic evidence pertinent to the coverage issue. This situation is evaluated under the four-corners rule. The determination of whether an event is classified as an accident hinges on whether the injury was expected or intended by the insured, rather than on the intentionality of the actions taken. The case referenced as 'Stuart II' builds on prior rulings in 'Stuart I.' While the current discussion does not necessitate a deep dive into intentional-acts exclusions, it's noted that Wisconsin law generally holds that such exclusions apply only if the insured acted intentionally and intended harm. An insured is deemed to intend injury if they foresee the consequences of their actions or believe that harm is substantially certain to occur. Consequently, intentional-acts exclusions apply when an intentional act is likely to result in injury, regardless of any differences in the nature or extent of the resulting harm compared to what the insured intended. These exclusions operate similarly to the "accident" limitation in insurance coverage language.