Evanston Insurance Co. v. W.L.M. ( 2008 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 07-2303
___________
Evanston Insurance Company, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Machaga Johns, *
*
Defendant, *
*
W.L.M., *
*
Appellant. *
___________
Submitted: February 15, 2008
Filed: June 24, 2008
___________
Before BYE, RILEY, and BENTON, Circuit Judges.
___________
RILEY, Circuit Judge.
This is an insurance coverage dispute. W.L.M. sued Machaga Johns (Johns) and
Our Gang Hair Designs, Inc. (Salon) in Minnesota state court alleging Johns, a
massage therapist at the Salon, sexually assaulted W.L.M. while W.L.M. was receiving
a therapeutic massage performed by Johns. Johns is insured under a general liability
policy issued by Evanston Insurance Company (Evanston). Evanston brought an
action for declaratory judgment in federal court against Johns and W.L.M. claiming it
was not liable to indemnify Johns under the policy.
The district court1 granted summary judgment for Evanston, holding the policy
language excluded the conduct at issue in the state law case and Evanston had no duty
to defend or indemnify Johns under the policy. On appeal, W.L.M. argues the district
court erred in: (1) refusing to dismiss the action under the federal abstention doctrine;
and (2) concluding Evanston had no duty to provide coverage for Johns on W.L.M.’s
claims. We affirm.
I. BACKGROUND
On August 30, 2003, W.L.M. went to the Salon for a therapeutic massage. The
salon assigned Johns to perform the massage. During the massage, Johns touched
W.L.M.’s genitals on several occasions and digitally penetrated her vagina. Johns was
charged in state court with criminal sexual conduct in the fifth degree. The state court
found the touching nonconsensual and concluded Johns committed criminal sexual
conduct, but found Johns not guilty because he suffered from a mental illness
preventing him from either understanding the nature of his actions or the wrongfulness
of his actions, entitling Johns to the M’Naughten defense under Minnesota law.2
1
The Honorable Patrick J. Schiltz, United States District Judge for the District
of Minnesota.
2
Minnesota codified the common law M’Naughten standard for criminal
responsibility which is rooted in an 1843 decision by the English House of Lords in
Daniel M’Naughten’s case. Minnesota law provides:
[a] person shall not be excused from criminal liability
except upon proof that at the time of committing the alleged
criminal act the person was laboring under such a defect of
reason . . . as not to know the nature of the act, or that it
was wrong.
Minn. Stat. § 611.026.
-2-
After the criminal trial was resolved, W.L.M. initiated a civil action in Ramsey
County (Minnesota) District Court against the Salon and Johns. W.L.M. settled with
both the Salon and Johns. The settlement with Johns included an agreement to submit
the matter to a neutral arbitrator for determination of damages and also included a
provision under which W.L.M. stipulated recovery would be sought only from Johns’s
insurer (Evanston) and not from Johns. The arbitrator assessed W.L.M.’s net damages
against Johns at $220,000.
On September 14, 2006, the day before the arbitration hearing began, Evanston
commenced this declaratory judgment action in district court. The arbitration decision
was rendered on September 21, 2006. The Ramsey County District Court filed a
judgment against Johns in the amount of $220,000 on December 19, 2006.
Evanston moved for summary judgment in the declaratory judgment action, and
W.L.M. moved for summary judgment on its counterclaim and also moved to dismiss.
On April 27, 2007, after oral argument on the motions, the district court granted
Evanston’s motion for summary judgment and denied W.L.M.’s cross-motion for
summary judgment and motion to dismiss. This appeal followed.
II. DISCUSSION
A. Abstention
The district court’s decision to exercise jurisdiction in a declaratory judgment
action rather than to abstain is reviewed for an abuse of discretion. Capitol Indem.
Corp. v. Haverfield, 218 F.3d 872, 874 (8th Cir. 2000) (citing Wilton v. Seven Falls
Co., 515 U.S. 277, 289-90 (1995). The Declaratory Judgment Act “provides that a
court may declare the rights and other legal relations of any interested party seeking
such declaration.” Wilton, 515 U.S. at 286 (internal quotation omitted and italics in
original) . The Supreme Court recalled the Declaratory Judgment Act is “‘an enabling
Act, which confers a discretion on the courts rather than an absolute right upon the
litigant.’” Id. at 287 (quoting Public Serv. Comm’n of Utah v. Wycoff Co., 344 U.S.
-3-
237, 241 (1952)). The key consideration for the district court is “to ascertain whether
the issues in controversy between the parties to the federal action . . . can be better
settled by the state court” in light of the “scope and nature of the pending state court
proceeding.” Haverfield, 218 F.3d at 874 (citing Brillhart v. Excess Ins. Co., 316 U.S.
491, 495 (1942)). If the pending state court proceeding would better settle the issues,
“the district court must dismiss the federal action because ‘it would be uneconomical
as well as vexatious for a federal court to proceed in a declaratory judgment suit where
another suit is pending in a state court presenting the same issues, not governed by
federal law, between the same parties’” Id. at 874-75 (quoting Brillhart, 316 U.S. at
495. In Haverfield, our court determined the district court abused its discretion when
it denied the defendant’s motion to dismiss or to stay the federal action because “the
state court was in the better position to adjudicate the matter, and permitting this
federal action to proceed was unnecessarily duplicative and uneconomical.” Id. at 875.
In Haverfield, the state and federal court actions both “involved the same parties, the
same issue, the same insurance policies, and the same arguments.” Id. In addition, a
split existed in the Missouri intermediate appellate courts over whether the exclusion
at issue applied, and our court noted this disagreement was an important factor
weighing in favor of abstention because this split would put the federal district court
“in the difficult position of predicting how the Missouri Supreme Court would resolve
the conflict.” Id.
Here, unlike in Haverfield, no state court action was pending raising the same
issues and arguments, and no split existed in the Minnesota courts over the substantive
issues, complicating a federal court’s prediction of the Minnesota Supreme Court’s
views. Furthermore, all of the relevant parties were represented in the district court
action at the time the declaratory judgment action was filed. W.L.M. did not
immediately contest the jurisdiction of the district court, or request abstention. In fact,
W.L.M. filed a counterclaim, and voluntarily submitted herself to the district court’s
jurisdiction. The district court did not abuse its discretion in declining to stay or
dismiss this case under the abstention doctrine.
-4-
B. Coverage
W.L.M. asserts the district court erred in concluding Evanston had no duty to
provide coverage to Johns on W.L.M.’s claims because Johns was incapable of “intent”
due to mental illness, and without intent, the policy exclusions should not control.
Orders granting motions for declaratory judgment in an insurance coverage dispute are
reviewed de novo. See Essex Ins. Co. v. Davidson, 248 F.3d 716, 718 (8th Cir. 2001)
(stating, “question[s] of insurance contract construction [are] . . . review[ed] de
novo.”). We also review the district court’s interpretation of state contract law de
novo. See Archer Daniels Midland Co. v. Aon Risk Services, Inc. of Minn., 356 F.3d
850, 859 (8th Cir. 2004) (citation omitted).
The district court determined Evanston need not defend or indemnify Johns
against W.L.M.’s claims arising out of the sexual assault. Evanston directs our court
to two policy exclusions: one which precludes coverage for sexual abuse or
molestation and a separate exclusion which precludes coverage for claims “arising out
of the actual or alleged physical contact . . . of a sexual nature with any person by any
insured.”
Exclusion 1
The first exclusion precludes coverage for claims arising out of: “The actual or
threatened abuse or molestation or licentious, immoral or sexual behavior whether or
not intended to lead to, or culminating in any sexual act, of any person, whether caused
by . . . any insured, his employees, or any other person.” No part of this exclusion
implies that intent on the part of the insured is a necessary prerequisite to the
application of this exclusion. To the contrary, the language of this exclusion clearly
precludes coverage for actual abuse or molestation or licentious sexual behavior even
if the behavior was “not intended to lead to, or culminating in any sexual act.”
The presence or lack of intent does not control the outcome of this suit.
Although the criminal code requires intent, which may or may not be present in this
-5-
case,3 the Evanston policy exclusion is broader than the criminal code. The exclusion
precludes coverage for claims arising out of actual or threatened sexual behavior
“whether or not intended to lead to, or culminating in a sexual act.” W.L.M.’s claim
arising from Johns’s conduct is expressly omitted from coverage by this exclusion.
Exclusion 2
While exclusion 1 precludes coverage, exclusion 2 is even more clear.
Exclusion 2 denies coverage for claims arising out of “the actual or alleged physical
contact . . . of a sexual nature with any person by any insured. No defense or
indemnity will be provided to any person or entity for any claim or suit based upon
such sexual misconduct.”4 W.L.M.’s claim arises out of physical contact of a sexual
nature by Johns—his touching W.L.M.’s genitalia and digital penetration of her vagina
during the massage. As such, W.L.M.’s claim also is excluded from coverage under
this second exclusion.
III. CONCLUSION
The language of the two exclusions is clear and excuses Evanston from any duty
to defend or indemnify Johns for the claims asserted by W.L.M. arising out of Johns’s
August 30, 2003 massage misconduct. We affirm the district court.
______________________________
3
While the outcome does not require the presence of intent, it is arguable the
record indicates Johns may have possessed the requisite “intent.” See 18 U.S.C.
§ 2246(2)(C).
4
One might argue Johns’s actions were not “misconduct” because Johns did not
understand the nature of his actions were wrongful. Even if Johns’s acts were not
wrongful in his mind, his conduct unquestionably was “misconduct” and thus covered
by the exclusion.
-6-