Wilson v. Cincinnati Insurance , 36 F. App'x 115 ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: JERRI S. RUSSELL, 
Debtor.
DARRELL WILSON,
Plaintiff-Appellant,  No. 01-2450
v.
THE CINCINNATI INSURANCE COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the Middle District of North Carolina, at Durham.
William L. Osteen, District Judge.
(CA-01-169, BK-97-52161C-7-W, AP-97-6061-W)
Argued: May 8, 2002
Decided: June 4, 2002
Before NIEMEYER and MOTZ, Circuit Judges, and
C. Arlen BEAM, Senior Circuit Judge of the United States
Court of Appeals for the Eighth Circuit,
sitting by designation.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Jeffrey S. Lisson, Winston-Salem, North Carolina, for
Appellant. James Howard Kelly, Jr., KILPATRICK STOCKTON,
2 IN RE: RUSSELL
L.L.P., Winston-Salem, North Carolina, for Appellee. ON BRIEF:
Susan H. Boyles, KILPATRICK STOCKTON, L.L.P., Winston-
Salem, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Darrell Wilson and Jerri Russell initiated this declaratory judgment
action, seeking a determination that the Cincinnati Insurance Com-
pany ("Cincinnati") had a duty to defend and indemnify them under
a policy held by Russell. The case was subsequently removed to the
bankruptcy court, which after a bench trial ruled in favor of Cincin-
nati. Wilson appealed part of the bankruptcy court’s decision, and the
district court affirmed. Wilson now appeals from the district court’s
ruling, and we affirm.
Russell, doing business as T & J Ventures, provided wealth man-
agement and security services. From February 1994 until May 1996,
Russell employed Darrell Wilson, a licensed private investigator, to
oversee security for a client family, the Statons. During the term of
Wilson’s employment, Russell held a comprehensive general liability
policy issued by Cincinnati.
In 1996, the Statons filed suit against Russell and several of her
employees and associates, including Wilson, asserting a number of
claims. The only claim relevant to this appeal is that Wilson
assertedly converted two armored vehicles and a number of weapons
that the Statons entrusted to him to provide for their security. Specifi-
cally, the complaint alleges that Wilson "caused certain [armored]
vehicles . . . to be titled in his own name," and demanded "payment
in excess of $10,000" for their return; and that Wilson "order[ed] the
security employees under [his] supervision . . . to deliver [certain]
IN RE: RUSSELL 3
Armaments to a third party in Colombia ("the Colombian Agent")
[named Jaime Saenz] who was acting in concert with Wilson and
[Russell]."
Wilson and Russell requested a defense from Cincinnati, and when
the company declined they filed a declaratory judgment action seek-
ing a determination of their rights. To support his claim, Wilson sub-
mitted deposition testimony he had given in the underlying suit. In
this testimony, Wilson asserted that the vehicle titles were transferred
without his permission or knowledge, by an attorney associated with
the Statons, and that afterwards Wilson was "at all times . . . willing
and able" to return the vehicles. Wilson also testified that he did not
transfer the armaments to Saenz or order them transferred, and that
he "d[id] not know" how Saenz obtained them.
The parties filed cross-motions for summary judgment. At a hear-
ing on these motions, the parties informed the court that they had
already developed all the evidence they proposed to use at trial, and
consented to have the court determine the case at a bench trial.
Accordingly, the bankruptcy court "considered the evidence offered
by the parties," and "ma[de] findings of fact and conclusions of law
pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure."
Russell v. Cincinnati Ins. Co. (In re Russell), No. 97-6061, slip op. at
2 (Bankr. M.D.N.C. Jan. 3, 2001).
The bankruptcy court noted that Wilson was entitled to coverage
only if the loss of vehicles and weapons constituted an "occurrence,"
which is defined in the policy as "an accident . . . ." Id. at 13. The
court did not credit Wilson’s testimony, and determined instead that
he had been sued for converting the vehicles and weapons, as alleged
in the Statons’ complaint. Because conversion is an intentional depri-
vation of property, and not an accident, the court held that Cincinnati
had no duty to defend or indemnify Wilson on these claims. As an
alternative basis for its holding, the bankruptcy court also stated that
two policy exclusions appeared to bar coverage.
Wilson appealed to the district court. The district court determined
that the bankruptcy court’s findings of facts were not clearly errone-
ous, and affirmed. Russell v. Cincinnati Ins. Co. (In re Russell), No.
01-CV00169 (M.D.N.C. Oct. 30, 2001).
4 IN RE: RUSSELL
At some time after the bankruptcy court’s ruling, (the record does
not disclose the exact date) the underlying suit was settled. The settle-
ment did not require Wilson to make any payment to the Statons, ren-
dering his claim for indemnity moot. The only issue remaining is his
duty to defend claim.
On appeal, Wilson contends that he is entitled to a defense because
he testified that any losses to the Statons resulted from his negligence.
He asserts that this testimony establishes a possibility of coverage,
and that such a possibility is sufficient to invoke the duty to defend.
We disagree. Under North Carolina law, which governs this case,
"when the pleadings allege facts indicating that the event in question
is not covered," then the insurer ordinarily is not bound to defend.
Waste Management of Carolinas v. Peerless Ins. Co., 340 S.E.2d 374,
377 (N.C. 1986). An exception arises only "[w]here the insurer knows
or could reasonably ascertain facts that, if proven, would be covered
by its policy." Id. If so, "the insurer’s refusal to defend is at his own
peril: if the evidence subsequently presented at trial reveals that the
events are covered, the insurer will be responsible for the cost of his
own defense." Id.In this case, it is plain that the complaint asserts intentional acts of
conversion, rather than covered occurrences: Wilson assertedly held
the Statons’ vehicles for ransom, and had his men deliver the Statons’
weapons to an associate without permission or consideration. It is also
plain that the bankruptcy court did not accept Wilson’s testimony that
the facts were otherwise.* We review the bankruptcy court’s findings
of fact for clear error, and after reviewing the record, we, like the dis-
trict court, hold that the bankruptcy court’s findings were not clearly
erroneous. See In re Morris Communications NC, Inc. 914 F.2d 458,
467 (4th Cir. 1990) (citation omitted).
*Even if the bankruptcy court had credited Wilson’s testimony, it
would not assist him here because the testimony does not support a the-
ory that Wilson acted only negligently. Rather, according to Wilson, he
did nothing wrong — and so was not liable under any theory. North Car-
olina law does not require an insurer to defend an insured who claims to
be free of liability, only one that is sued within the field of insured risks.
IN RE: RUSSELL 5
For the foregoing reasons, the judgment of the district court is
AFFIRMED.