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Twin City Fire Insurance Co. v. Chewning

United States District Court, W.D. Kentucky

May 13, 2019



          Thomas B. Russell, Senior Judge United States District Court

         This matter is before the Court upon motion by Plaintiff, Twin City Fire Insurance Company (“Twin City”), for summary judgment. (R. 16). Twin City seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 and FRCP 57. Defendant, Sands M. Chewning, has filed his response. (R. 25). Defendants, Tasha and William Uland, have also filed their response. (R. 20). Twin City has filed its reply (R. 28). Fully briefed, this matter is ripe for review. Having carefully considered the issues in this case, and for the following reasons, the Court DECLINES JURISDICTION over the matter at this time pursuant to 28 U.S.C. § 2201. Therefore, Twin City's motion for summary judgment (R. 16) is DENIED.


         Declaratory Defendant Sands Chewning-an attorney practicing law in Kentucky- represented Cherie Sherril in a custody dispute with her granddaughter's former foster parents, Declaratory Defendants Tasha and William Uland. (R. 16-1 at 2). Chewning was indicted for crimes in connection with his alleged use of an electronic recording device to eavesdrop on the Ulands. Chewning allegedly purchased the recording decive and advised his client to install the device within the clothing of the granddaughter-a minor child-so that Chewning and Sherril could eavesdrop on the Ulands while the granddaughter was visiting them. (R. 20 at 2). After Chewning was indicted, the Ulands filed a bar complaint against Chewning and a civil action against Chewning and Sherril in Christian County Circuit Court. (Id.). Both the bar complaint and the state civil action are currently pending. (Id.).

         On September 28, 2017, Chewning entered a guilty plea to the charge of criminal attempt to commit eavesdropping. (R. 16-1 at 5-6). On January 29, 2018, the Ulands filed a motion for partial summary judgment in the state civil action on the issue of liability based upon Chewning's admitted criminal conduct. (R. 16-8 at 1). The Ulands' motion for partial summary judgment was granted on July 16, 2018. (R. 16-9).

         Twin City is an insurance company. (R. 1 at 2). On or about May 11, 2016, Twin City issued a Lawyers' Professional Liability Insurance Policy (“the Policy”) to Chewning's law firm. (R. 1 at 5). The policy provides coverage for damages arising

out of a negligent act, error, omission or personal injury in the rendering of or failure to render professional legal services for others by you or on your behalf provided always that the negligent act, error, omission or personal injury occurs on or after the retroactive date as stated in the Declarations.

(R. 1 at 5) (emphasis in original). The policy also provides that “[Twin City] shall pay reasonable and necessary fees, costs and expenses (but not damages or sanctions) incurred by an insured resulting from the defense of a proceeding by a regulatory or disciplinary official or agency” if certain conditions set forth by the Policy are met. (Id. at 6) (emphasis in original).

         The Policy also includes the following coverage exclusions:

         This insurance does not apply to claims:

1. Arising out of any dishonest, fraudulent, criminal or malicious act, error, omission or personal injury committed by, at the direction of, or with the knowledge of an insured. This exclusion does not apply to an insured who did not personally commit or personally participate in committing any of the knowingly wrongful acts, errors, omissions or personal injury, provided that:
a. Such insured had neither notice nor knowledge of such knowingly wrongful act, error, omission or personal injury; and
b. Such insured upon receipt of notice or knowledge of such knowingly wrongful act, error, omission or personal injury, immediately notifies us.

(R. 1 at 5-6) (formatting altered). Twin City argues, and the Defendants do not dispute in their responses to the motion for summary judgment, that “the Criminal Act Exclusion in Twin City's policy substantively applies to preclude coverage to Chewning for the claims in the Uland suit and the Kentucky Bar Complaint.” (R. 28 at 1). Instead, Defendants argue that Twin City should not be allowed to enforce the exclusion provision of the Policy because Twin City did not properly send a reservation of rights letter to Chewning. (Id.). The most important facts in this case are therefore those relevant to the alleged transmission of the reservation of rights (“ROR”) letters.

         Twin City argues that it emailed its ROR to Chewning on April 26, 2017. (R. 16-1 at 5). Twin City argues that the email address it sent the ROR to was listed on Chewning's law firm's website, that Chewning had previously used it to communicate with Twin City, and that Chewning continued to use the email address after the ROR was sent. In the first ROR, Twin City argues that it identified relevant policy language and “explained that it would defend Chewning ‘under a complete and full reservation of any and all rights under the subject policy.'” (Id.). Twin City alleges that it “received electronic confirmation the email transmitting the April 26, 2017 reservation of rights letter was not only delivered to Chewning's email address but was also opened.” (Id.). Finally, Twin City alleges that it sent Chewning a supplemental ROR through email and U.S. mail on November 29, 2017. (Id. at 6). Defendants deny that Chewning received either ROR letters. (R. 25-1 at 2; R. 20 at 2). Defendants also argue that even if Chewning had received the ROR letters, they are improper. Defendants argue that-because Twin City was allegedly providing Chewning's defense under a ROR-Chewning is entitled to independent counsel and that the ROR was improper because it did not notify him of that right. Defendants also argue that it is improper to send a ROR by email. Instead, Chewning asserts that a ROR should “be sent certified mail, return receipt requested to the insured as well as defense counsel.” (R. 25-1 at 4). Finally, Defendants argue that the ROR letters were untimely. Twin City disputes each of these arguments.


         Summary judgment is appropriate when the record, viewed in the light most favorable to the nonmoving party, reveals “that there is no genuine dispute as to any material fact and the movant is entitled to judgement as a matter of law.” Fed.R.Civ.P. 56(a). A genuine dispute of material fact exists where “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Court “may not make credibility determinations nor weigh the evidence when determining whether an issue of fact remains for trial.” Laster v. City of Kalamazoo, 746 F.3d 714, 726 (6th Cir. 2014) (citing Logan v. Denny's, Inc., 259 F.3d 558, 556 (6th Cir. 2001); Ahlers v. Schebil, 188 F.3d 365, 369 (6th Cir. 1999)). “The ultimate question is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'” Back v. Nestle USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S. at 251-52).

         As the party moving for summary judgment, Twin City must shoulder the burden of showing the absence of a genuine dispute of material fact. Fed.R.Civ.P. 56(c); see Laster, 746 F.3d at 726 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). If Twin City satisfies its burden of production, Defendants “must-by deposition, answers to interrogatories, affidavits, and admissions on file-show specific facts that reveal a genuine issue for trial.” Laster, 746 F.3d at 726 (citing Celotex Corp., 477 U.S. at 324).


         Twin City argues that it owes neither a defense nor indemnity coverage to Chewning because both the state civil action and bar complaint arise out of Chewning's admitted criminal conduct, which is excluded from coverage by the policy. Defendants argue that Twin City has either waived its right to deny coverage under the policy or that Twin City should be estopped from enforcing the policy coverage exclusions because Twin City has provided representation in the state action without properly issuing a ROR. In his answer, Chewning “denies jurisdiction to declare the rights and liability of the parties herein….” (R. 5 at 5).

         Before reaching the substantive issues in this case, the Court must consider whether to exercise its discretionary jurisdiction under the Declaratory Judgment Act (“DCA”). Upon careful consideration of the issues in this case, the Court finds it appropriate to decline jurisdiction in this matter at this time pursuant to the DCA.

         The Declaratory Judgment Act states that “[i]n a case of actual controversy within its jurisdiction ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). The Act is an enabling act, which extends the jurisdiction of the court beyond the jurisdictional basis initially required. Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995). While this Act authorizes district courts to exercise jurisdiction, it does not mandate or impose a duty to do so. Bituminous Cas. Corp. v. J & L Lumber Co., Inc.,373 F.3d 807, 812 (6th Cir.2004); Allstate Ins. Co. v. Mercier, 913 F.2d 273, 276 (6th Cir.1990), abrogated on other grounds by Wilton v. Seven Falls Co.,515 U.S. 277 (1995). The Act convers on the “federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.” Wilton, 515 U.S. at 286. A district court may not decline jurisdiction, however, as a matter of whim or personal disinclination. Mercier, 913 F.2d at 277; see ...

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