Cuyahoga Heights Sch. Dist. v. Netherlands Ins. Co. ( 2019 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 19a0334n.06
Case No. 18-4037
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Jul 03, 2019
CUYAHOGA HEIGHTS LOCAL SCHOOL ) DEBORAH S. HUNT, Clerk
DISTRICT, )
)
Plaintiff-Appellant,
) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
v.
) THE NORTHERN DISTRICT OF
) OHIO
NETHERLANDS INSURANCE COMPANY
)
and MIDWESTERN INDEMNITY
)
COMPANY,
)
Defendants-Appellees. )
BEFORE: SILER, BATCHELDER, and DONALD, Circuit Judges.
SILER, Circuit Judge. Cuyahoga Heights Local School District (“the District”) sued its
insurers, Netherlands Insurance Company and Midwestern Indemnity Company (“Insurers”),
seeking satisfaction of a state-court judgment it obtained against its employee Peter Guerrera. The
district court granted summary judgment to the Insurers because Guerrera was not an insured under
policies written by the Insurers. We AFFIRM.
I.
The District was victim of a criminal fraud and theft scheme orchestrated by Joseph
Palazzo, the District’s former Director of Information Technology. Palazzo was convicted of
Case No. 18-4037, Cuyahoga Heights Local Sch. Dist. v. Netherlands Ins. Co., et al.
conspiracy to commit mail fraud, money laundering conspiracy, and wire fraud. United States v.
Palazzo, No. 1:13-CR-167 (N.D. Ohio June 14, 2013).
In 2013, the District filed suit in the Court of Common Pleas for Cuyahoga County, Ohio
seeking to recover some of the money it lost as a result of the fraud. The complaint included claims
against its former Superintendent, Peter Guerrera.
Guerrera reported the complaint to the Insurers seeking defense and indemnification based
on two insurance policies. One policy was between the District and Netherlands Insurance
Company and provided “School Leaders Errors & Omission Liability Coverage” up to one million
dollars for each wrongful act and one million dollars in the aggregate. The other policy was an
umbrella policy between the District and Midwestern Indemnity Company. The Insurers denied
coverage because the policies did not cover claims made by the District against its employees
working within the scope of their duties. After Guerrera agreed to an interview with the District’s
attorneys, the District dismissed its claims against Guerrera without prejudice.
Later in 2013, the District again filed suit against Guerrera in the Court of Common Pleas.
The District alleged that, because of Guerrera’s negligence, negligent hiring, negligent
supervision, and negligent failure to implement appropriate controls (and other wrongful acts), the
District sustained losses of over four million dollars. Guerrera admitted all allegations except that
regarding punitive damages and declined to assert any affirmative defenses. The District and
Guerrera submitted a proposed judgment and accompanying evidentiary materials to the state
court. The Insurers declined to participate in the proceedings because they believed the insurance
policies did not insure Guerrera against suit by the District. The court entered judgment in favor
of the District in the amount of $4,199,812 and approved a covenant between the parties in which
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Case No. 18-4037, Cuyahoga Heights Local Sch. Dist. v. Netherlands Ins. Co., et al.
the District agreed not to execute the judgment against Guerrera. The court also noted the covenant
was not the result of any collusion or fraud by either party.
This action against the Insurers was filed in 2016. The District seeks payment under the
insurance policies for the judgment it obtained against Guerrera.1 Because Guerrera is not an
“insured” under the policies, the district court is AFFIRMED.
II.
The district court’s decision to grant summary judgment is reviewed de novo. Simpson v.
Ernst & Young, 100 F.3d 436, 440 (6th Cir. 1996).
III.
The policy between the District and Netherlands Insurance Company, in relevant part,
provides:
SECTION II - WHO IS AN INSURED
Each of the following is an insured:
A. The “educational institution”, and its board of governors, board of
education, school committee, board of trustees, or commission.
B. Each of the following is also an insured for acts within the scope of their
duties as such:
***
1. Your “employees”. However . . . no “employee” is an insured for
“claims” made:
a. By you or by a co-“employee” for “loss’” arising out of and in the
course of his or her employment or performing duties related to the
conduct of your business;
1
Indiana Insurance Company was originally listed as a defendant. Midwestern Indemnity
was substituted as a party after removal.
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Case No. 18-4037, Cuyahoga Heights Local Sch. Dist. v. Netherlands Ins. Co., et al.
The policy between Midwestern Indemnity Company and the District follows form to the
Netherlands Policy.
According to the policies, an employee is generally an “insured.” But an exception is set
out for claims made by the District against its employees for loss arising in the course of
employment or during the performance of duties related to the District’s business. Thus, an
employee is not an “insured” for purposes of such a claim.
Those circumstances exist here. The District seeks satisfaction of a judgment resulting
from a lawsuit the District filed against Guerrera, its employee. As a basis for that suit and
corresponding judgment, the District alleged that because of “the wrongful acts of Guerrera in the
performance of . . . School District duties . . . the School District has sustained a loss of over
$4,000,000[.]” The complaint listed several wrongful acts connected with Guerrera’s duties as
Superintendent, including “negligent hiring, negligent supervision, [and] negligent failure to
implement appropriate controls[.]” By the District’s own characterization then, the loss arose in
the course of Guerrera’s employment.
The District now seeks to satisfy the judgment as a claim under the policies. But the
policies clearly and unambiguously explain that Guerrera is not an “insured” in such
circumstances.
AFFIRMED.
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