Capano Management Co. v. Transcontinental Insurance

Citations: 78 F. Supp. 2d 320; 1999 U.S. Dist. LEXIS 19647; 1999 WL 1250021Docket: Civ.A. 99-22 MMS

Court: District Court, D. Delaware; December 9, 1999; Federal District Court

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Louis J. Capano, Jr. and associated business entities (Plaintiffs) filed a complaint for a declaratory judgment and breach of contract against multiple insurance carriers (Defendants) regarding their obligation to defend and indemnify the Plaintiffs in an underlying civil suit involving allegations of tortious conduct related to the murder of Anne Marie Fahey by Thomas Capano. The underlying suit includes claims against the Plaintiffs for conversion, spoliation, intentional infliction of emotional distress, and conspiracy. The court has jurisdiction based on diversity of citizenship and applies Delaware law.

Defendants Transcontinental Insurance Co. and American Casualty Co., along with Federal Insurance Co. and Vigilant Insurance Co., filed motions to dismiss, asserting they have no duty to defend or indemnify due to intentional act exclusions in the insurance policies. Plaintiffs countered that some allegations fall outside these exclusions, warranting a defense.

The court ruled that while Defendants do not have a duty to defend against the claims of conversion and spoliation, they are obligated to defend the claims of intentional infliction of emotional distress and conspiracy. Consequently, the Defendants must defend the entire underlying suit until the claims for intentional infliction of emotional distress and conspiracy are resolved.

Thomas Capano engaged in an extramarital affair with Anne Marie Fahey from 1993 until she ended it in September 1995. After their breakup, Thomas persistently contacted Anne Marie until May 1996. On June 27, 1996, he murdered her at his home and, along with his brother Gerard, disposed of her body in the Atlantic Ocean. Following the murder, Thomas confided in Louis about the incident, claiming Anne Marie had harmed herself, and requested Louis to dispose of related items, including a sofa, in a dumpster he controlled. Louis complied and was later subpoenaed to testify before a federal grand jury investigating Anne Marie's disappearance. Initially asserting his Fifth Amendment right, he ultimately received immunity and testified falsely at the behest of Thomas, who urged him to create an alibi. After being informed by Gerard about the murder details, Louis eventually testified truthfully against Thomas in November 1997, contributing to Thomas's subsequent conviction for murder. The underlying complaint includes four counts against Louis: conversion of Anne Marie's personal belongings, intentional infliction of emotional distress, conspiracy to obstruct justice, and spoliation for destroying evidence.

The Plaintiffs seek defense and indemnity from the Defendants under multiple excess and/or umbrella insurance policies for "bodily injury" and "property damage." Two policies from Transcontinental and one from American contain an intentional act exclusion, which denies coverage for injuries or damages that are expected or intended by the insured. A Federal policy also covers these claims but includes a similar exclusion based on an act that is intended or could be reasonably expected to cause bodily injury or property damage. Additionally, two Vigilant and two Federal policies cover "personal injury" and "property damage," with exclusions for damages arising from intentional acts by covered persons, regardless of the degree or type of injury caused. 

The document states that an intentional tort is one where consequences could have been foreseen by a reasonable person. Regarding the standard of review, a motion to dismiss under Rule 12(b)(6) is granted only if the claims, when viewed favorably for the plaintiffs, do not warrant relief as a matter of law. 

The current focus is solely on the Defendants' duty to defend the Plaintiffs in the underlying suit, not on the duty to indemnify or contract claims, which are not yet ripe for decision. Under Delaware law, an insurer must defend an insured if the allegations in the underlying complaint fall within the insurance policy's terms. For an exclusion to negate this duty, all allegations must solely and entirely fall within specific exclusions. The insurer bears the burden of proving no scenario exists where it would need to defend the insured. Delaware courts apply three principles in this analysis: doubts in allegations favor the insured; ambiguities in pleadings are resolved against the insurer; and if any allegation in the complaint falls within policy coverage, the duty to defend is triggered.

The Court interprets the intentional acts exclusions in this case as having the same meaning, despite slight variations in language. Defendants agreed to this interpretation. Under Delaware law, these exclusions are anchored in the phrase "intended or expected," as established in case law, notably Farmer in the Dell Enterprises, Inc. v. Farmers Mut. Ins. Co. of Del. Inc. and Nationwide Mut. Fire Ins. Co. v. Smith, which interpret similar language in exclusions. Any intentional act exclusion must demonstrate three elements to exclude coverage: 1) an intentional act; 2) intent to cause injury or damage; and 3) actual causation of either the intended or foreseeable injury or damage.

Count V addresses the alleged conversion of Anne-Marie's personal property, asserting that Louis unlawfully controlled the property, intended to deprive the estate of it, and acted with malice. Count VIII concerns spoliation of evidence, claiming that Louis intentionally misled law enforcement and concealed evidence related to a potential lawsuit by the Faheys, with the intent of hindering their case.

Both counts fulfill the necessary elements for an intentional act exclusion. They entail intentional acts—where an actor performs with intent—and demonstrate intent to cause injury, aligning with the standards set in Farmer in the Dell. Thus, Counts V and VIII satisfy the criteria for exclusion under the intentional acts doctrine.

Count V asserts that Louis intended to injure Anne Marie's estate by converting her personal property, with the complaint suggesting his intent to harm Anne Marie directly. Count VIII similarly claims Louis intended to harm the Fahey family through evidence spoliation, specifically by obstructing a police investigation into Anne Marie's disappearance. The complaint alleges that Louis disposed of her property following a warning from Thomas about police questioning and that he provided false testimony to the grand jury and fabricated an alibi at Thomas' request. Even without knowledge of a murder investigation, Louis is alleged to have intended to damage the investigation.

Both Counts V and VIII meet the criteria for intentional act exclusions in insurance policies, as they demonstrate Louis acted with intent to cause injury or damage and resulted in reasonably foreseeable injuries, such as depriving Anne Marie's estate of property and interfering with the murder investigation. The precedent from State Farm Fire and Casualty Co. v. Hackendorn is cited, illustrating how intentional acts can lead to predictable injuries.

Count VI addresses intentional infliction of emotional distress (IIED), which does not automatically fall under the intentional act exclusion. Delaware's adopted definition of IIED requires proof of extreme and outrageous conduct, intent or reckless disregard for causing severe emotional distress, and actual causation of such distress. Therefore, the Defendants have a duty to defend Count VI as it does not qualify for the intentional act exclusion.

Intentional infliction of emotional distress (IIED) in Delaware law encompasses both intentional and reckless infliction. Under Delaware law, to exclude conduct from coverage as an intentional act, three criteria must be met: (1) the act must be intentional, (2) there must be intent to cause injury or damage, and (3) the act must result in actual or foreseeable injury or damage. The central issue is whether IIED claims can satisfy the "intent to cause an injury" requirement by demonstrating reckless disregard for emotional distress rather than intent. 

The Delaware Supreme Court has not definitively addressed this matter, prompting the court to predict its stance by examining Delaware Superior Court rulings, relevant federal interpretations, analogous cases from other jurisdictions, and academic commentary. The court found persuasive insights from Maine and Pennsylvania law, both of which allow IIED to be proven through either intent or recklessness, distinguishing between the two concepts. 

Delaware has adopted the Restatement definition of IIED, which similarly permits proof via intent or recklessness, suggesting it may also adopt the Restatement's definition of recklessness. Delaware courts have recognized a definition of recklessness that differentiates it from intent. Based on this analysis, it is probable that the Delaware Supreme Court would conclude that IIED claims do not fall under the intentional act exclusion. Furthermore, when applying Delaware's recklessness definition to the Farmer in the Dell test, IIED claims do not inherently meet the exclusion criteria, as IIED only requires a disregard for substantial risk rather than an intent to harm. The defendants' reliance on the Hackendorn case, which suggests that reckless conduct is covered by the intentional act exclusion, does not negate this conclusion.

Hackendorn entered a hair salon intending to shoot his wife, discharged a shotgun twice, killing her and injuring a bystander. The bystander sued Hackendorn for an intentional tort, prompting him to seek indemnification from his insurance carrier. Hackendorn pled guilty to second-degree murder, which involves recklessly causing death, and could have faced reckless endangerment charges for the bystander. The court ruled that Hackendorn's actions were equivalent to intentional conduct, thus falling under an intentional act exclusion. 

The defendants argued that this ruling should apply to all reckless conduct, which the court rejected for three main reasons. First, the court focused solely on whether an “intentional tort” was included in the exclusion, without clarifying if it could be proven by recklessness. It inferred that the likely tort was assault or battery, which requires intent rather than recklessness. Second, the court distinguished between criminal recklessness, as demonstrated by Hackendorn’s guilty plea, and civil recklessness, with the former reflecting a higher level of culpability. Previous cases indicated that criminal recklessness falls under intentional act exclusions, while civil recklessness does not. Lastly, the Hackendorn court considered the nature of Hackendorn's actions, including his planning and execution of the shooting, concluding that the intentional discharge of the shotgun inferred intent to harm his wife, making the injury to the bystander a foreseeable result.

Consequently, the court concluded that Hackendorn does not support the notion that all reckless conduct is included in the intentional act exclusion. Rather, it determined that criminal recklessness, when combined with intentional acts, might imply harmful intent for these exclusions. The court held that because the IIED claims in the underlying complaint could be established through recklessness, they do not automatically fall under the exclusion. The court emphasized the need to analyze the specific allegations in the complaint, noting that the underlying complaint did not solely allege intentional conduct and allowed for the possibility of liability for IIED through various interpretations.

The jury may determine that Louis intentionally caused severe emotional distress to the Fahey family, which would fall under intentional act exclusions in insurance policies, as defined in *Farmer in the Dell*. Alternatively, the jury could find that Louis acted with intent to cause harm to a police investigation while recklessly disregarding the emotional distress caused to the Faheys, making the emotional distress a foreseeable result of his actions. In this scenario, although Louis' conduct is reprehensible, it would not be excluded from insurance coverage if he acted recklessly without intent to cause harm. Defendants argue against providing insurance coverage for Louis's intentional cover-up of a murder, citing public policy similar to that in *Hackendorn*. However, they overlook the public policy favoring resolution of ambiguities in insurance contracts in favor of the insured, which dictates that since the insurance policies are ambiguous regarding coverage for recklessness, the Plaintiffs should be covered. Count VI, alleging intentional infliction of emotional distress (IIED), does not fall under the intentional act exclusion, obliging Defendants to defend this claim. Count VII alleges conspiracy to obstruct justice and inflict emotional distress, requiring an underlying wrong. Since IIED serves as this underlying wrong and there is a duty to defend it, the Defendants also have a duty to defend the conspiracy claim. Ultimately, Defendants are required to defend the Plaintiffs on both Counts VI and VII throughout the entirety of the underlying lawsuit. A proposed order is to be submitted by the Plaintiffs by December 17, 1999.

The court clarifies that the duty to defend in insurance contracts is broader than the duty to indemnify, meaning that if there is no duty to defend, there is typically no duty to indemnify, indicating no breach of contract. Plaintiffs' argument for defining the first prong of the Farmer in the Dell test as requiring an intentional tort is rejected as it would undermine the second prong, which necessitates intent to cause injury. The court dismisses the claim of spoliation, noting it is not recognized as a tort under Delaware law, and differentiates the case before it from prior rulings by the Delaware Superior Court regarding spoliation claims. The court emphasizes the need to assess whether the defendants had a duty to defend until the dismissal of this count, implying potential obligation to cover defense costs until that point. Additionally, a related count was dismissed for lack of outrageous conduct attributed to Louis Capano. The court must determine the defendants' duty to defend this count, despite its dismissal. The Restatement of Torts outlines two types of reckless conduct, distinguishing between intentional and reckless actions, where recklessness involves awareness of a significant risk of harm without intending that harm. The court reaffirms that a mere probability of harm does not equate to intent to cause that harm.

The Court dismisses the relevance of case law from other states asserting that Intentional Infliction of Emotional Distress (IIED) falls under an intentional act exclusion. These cases, such as Hain v. Allstate Ins. Co., indicate that IIED requires proof of intent without addressing recklessness. The Court emphasizes that IIED is classified as an intentional tort, thereby subject to the intentional act exclusion. The excerpt also notes Delaware courts' inclination to reference the Restatement of Torts, with significant citations recorded since 1934. A person is deemed to act recklessly if they consciously disregard a substantial risk to others, characterized by an "I don't care" attitude. Delaware's definitions of recklessness and intent are outlined, differentiating between the two in both civil and criminal contexts. Recklessness involves awareness and disregard of a significant risk, which constitutes a gross deviation from reasonable conduct standards.

The Court determined that the claim of Intentional Infliction of Emotional Distress (IIED) fails to satisfy the second prong of the Farmer in the Dell test, thus negating the need to evaluate the first and third prongs. The specific intentional tort under which the bystander sued remains unspecified. Generally, IIED claims do not fall under intentional act exclusions because they can be established through recklessness. However, in this case, the allegations of sexual abuse must be proven by demonstrating intent, leading to the claim's exclusion. The IIED claims here are further complicated by allegations of sexual harassment, which imply the defendant's knowledge with substantial certainty, equating to intent. Count VI of the underlying complaint asserts that the defendants acted intentionally or with reckless indifference, resulting in severe emotional distress, mental anguish, and humiliation for the plaintiffs.