First Liberty Insurance Corp. v. MM

Citation: 259 F. Supp. 3d 264Docket: CIVIL ACTION NO. 16-5397

Court: District Court, E.D. Pennsylvania; April 28, 2017; Federal District Court

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The court is considering cross-motions from The First Liberty Insurance Corporation for judgment on the pleadings and from defendant MM for partial judgment regarding a declaratory judgment claim. First Liberty seeks a declaration of no obligation to defend or indemnify MM in an ongoing lawsuit initiated by BB, which stems from a sexual encounter between MM and BB. The court has jurisdiction based on diversity of citizenship, with First Liberty incorporated in Illinois and having its principal place of business in Massachusetts, while MM and BB are Pennsylvania citizens. MM, an insured under his parents' homeowner's policy with First Liberty at the time of the incident, asserts counterclaims for a declaration of First Liberty's duty to provide defense and indemnification, along with claims for breach of contract, bad faith, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law due to the denial of defense.

The standard for evaluating the motions follows Federal Rule of Civil Procedure 12(c), mirroring that of a motion to dismiss under Rule 12(b)(6). The determination requires assessing whether the pleadings contain sufficient factual matter to present a plausible claim for relief. The court must view the facts favorably toward the nonmoving party, and judgment on the pleadings is appropriate only when there are no material issues of fact and the case presents solely legal questions. The movant must clearly establish entitlement to judgment as a matter of law without any unresolved material issues.

In July 2016, BB initiated a lawsuit against MM in the Superior Court of the District of Columbia, alleging that MM had illegally videotaped her performing a sexual act without her consent in September 2015, while she was intoxicated at an off-campus party. BB, a freshman at American University, was unaware of the incident until informed by others about the video. She claims that MM subsequently shared this video with his peers, leading to severe emotional distress, physical injuries, depression, humiliation, and embarrassment. Following the incident, MM was arrested and pleaded guilty to voyeurism.

BB's civil action includes two claims: the first for Negligence and Gross Negligence, asserting that MM failed to exercise reasonable care, and the second for Assault and Battery, alleging that MM intentionally caused her to fear imminent harmful contact. She seeks $750,000 in compensatory damages plus interest and costs for each claim.

After the lawsuit was filed, MM sought defense and coverage from First Liberty, which denied responsibility under its policy. The relevant policy section states it covers personal liability for bodily injury or property damage due to an occurrence, but has exclusions for injuries arising from sexual molestation, corporal punishment, or physical/mental abuse, as well as intentional or criminal acts by the insured. An exception exists for injuries resulting from reasonable force used to protect persons or property.

First Liberty's duty to defend MM under its insurance policy hinges on the interpretation of policy terms, governed by Pennsylvania law. The court’s primary focus is to determine the parties' intentions as expressed in the policy. Clear language in the policy is given its plain meaning, whereas ambiguous provisions are interpreted in favor of the insured, as insurers draft the policies and control coverage. Ambiguity arises when language can be understood in multiple ways, and common usage terms are construed in their ordinary sense, aided by dictionary definitions.

To assess the duty to defend, the court compares the policy’s coverage with the allegations in the underlying complaint. Under Pennsylvania law, insurers must defend an insured if any allegations in the complaint potentially fall within the policy's coverage. Even a single applicable allegation creates a duty to defend, while a complete absence of covered claims negates this duty. The analysis focuses on the factual allegations of the complaint rather than the specific legal claims made.

The First Liberty insurance policy requires the insurer to defend MM against lawsuits alleging accidental conduct resulting in bodily injury, but excludes coverage for injuries stemming from sexual molestation or intentional acts. The determination of whether First Liberty has a duty to defend MM against BB's lawsuit hinges on the allegations within the complaint. If the allegations fall outside the policy's exclusions, First Liberty must provide a defense; if they fall within the exclusions, there is no duty to defend.

The court emphasizes that the analysis must be confined to the allegations in the underlying complaint, disregarding hypothetical scenarios. BB's complaint alleges negligent acts, but the insurer argues these are encompassed by the sexual molestation exclusion. The term 'molestation' is interpreted according to its ordinary meaning, which includes any unwanted or improper sexual activity, without the need for intent to harm. 

BB accuses MM of unwanted sexual contact that led to serious injuries, describing the conduct as an 'assault' and 'unconsented physical contact.' The court concludes that these allegations clearly fall under the sexual molestation exclusion of the First Liberty policy, thereby negating the insurer's duty to defend MM in the lawsuit.

The day after learning of the sexual assault, MM expressed shock and devastation. MM argues that BB's underlying complaint does not explicitly state the sexual act was non-consensual, citing BB's intoxication and memory loss as grounds for a potential jury to believe the act was consensual. However, the complaint clearly states that BB was significantly intoxicated, disoriented, and incoherent, and it repeatedly characterizes the incident as an unconsented sexual assault. The hypothetical scenario presented by MM, suggesting that he could have reasonably believed in consent despite BB's intoxication, is deemed irrelevant to the determination of First Liberty's duty to defend him, as it conflicts with the allegations in the complaint. The complaint's allegations of unwanted sexual contact fit within the policy exclusion for sexual molestation.

MM contends that no sexual molestation occurred since BB performed the act on him and asserts that BB cannot be both a perpetrator and a victim. This argument lacks merit as a victim can be forced to perform a sexual act on another. The complaint alleges unwanted sexual activity by MM towards BB, which he may contest at trial. Additionally, the complaint accuses MM of illegally videotaping BB during the assault and sharing the recording without consent. This conduct is directly linked to the alleged sexual molestation and thus falls under the policy exclusion. Furthermore, MM has pleaded guilty to voyeurism, admitting to recording BB without consent, which is also excluded from liability coverage under the First Liberty policy for criminal acts by an insured.

First Liberty has no obligation to defend or indemnify MM in the lawsuit brought by BB in the Superior Court of the District of Columbia. Since the duty to defend is broader than the duty to indemnify, the absence of a duty to defend precludes any obligation to indemnify. The court will grant First Liberty's motion for judgment on the pleadings, declaring no duty to defend or indemnify MM. Consequently, MM's motion for partial judgment on its declaratory judgment counterclaim is denied. As First Liberty's lack of duty results in the failure of MM’s counterclaims for breach of contract, bad faith, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, these will be dismissed. Additionally, while BB has been served with the complaint, no counsel has appeared, and BB has not responded or joined any pending motions. The policy language referenced includes bold text, which is quoted as it appears in the policy.