Cornett Management Co. v. Fireman's Fund Insurance

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 07-2019

CORNETT MANAGEMENT COMPANY, LLC, a foreign corporation,

Plaintiff - Appellant,

v.

FIREMAN’S FUND INSURANCE COMPANY, a foreign corporation;
BRADY RISK MANAGEMENT, INCORPORATED,

Defendants - Appellees,

and

LEXINGTON INSURANCE COMPANY, a foreign corporation; HARTAN
BROKERAGE, INCORPORATED,

Defendants.

Appeal from the United States District Court for the Northern
District of West Virginia, at Wheeling. Frederick P. Stamp,
Jr., Senior District Judge. (5:04-cv-00022)

Argued: May 14, 2009 Decided: June 22, 2009

Before NIEMEYER, MOTZ, and TRAXLER, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Brent Karleton Kesner, KESNER, KESNER & BRAMBLE,
Charleston, West Virginia, for Appellant. James William
Marshall, III, BAILEY & WYANT, PLLC, Charleston, West Virginia;
Melvin F. O’Brien, DICKIE, MCCAMEY & CHILCOTE, Wheeling, West
Virginia, for Appellees. ON BRIEF: Ellen R. Archibald, KESNER,
KESNER & BRAMBLE, Charleston, West Virginia, for Appellant.
Robert P. Martin, Billie Jo Streyle, BAILEY & WYANT, PLLC,
Charleston, West Virginia, for Appellee Fireman’s Fund Insurance
Company; Melissa M. Barr, DICKIE, MCCAMEY & CHILCOTE, Wheeling,
West Virginia, for Appellee Brady Risk Management, Incorporated.

Unpublished opinions are not binding precedent in this circuit.

2
PER CURIAM:

In this insurance coverage dispute, Cornett Management

Company, LLC (Cornett) appeals the district court’s grant of

summary judgment to Fireman’s Fund Insurance Company (Fireman’s

Fund) finding Cornett not entitled to coverage. We affirm.

I.

Cornett, a Richmond-based company, owns a number of

restaurants including a Hooters franchise in Charleston, West

Virginia. Two female Hooters employees filed suit alleging that

a Cornett supervisor improperly conducted a strip search of

them. Cornett seeks reimbursement for settlement costs and

attorneys fees arising from the lawsuit, under an insurance

policy issued by Fireman’s Fund.

According to the employees’ complaint, in 2001 a manager at

the Hooters directed two female employees, one at a time, to his

office and stated that a customer had reported a stolen change

purse. The manager told the women that a police officer had

telephoned, and he directed each woman to listen to the

instructions of the officer on the phone. A male voice then

commanded the women to strip naked in front of the manager,

threatening them with a humiliating arrest if they failed to

comply. The female employees complied. (The telephone call was

later revealed to be a crank call.)

3
 As a result of this and several other incidents at the

Hooters franchise, seven female employees filed a suit against

Cornett and others alleging sexual harassment (the “Reynolds

complaint”). The amended Reynolds complaint included a claim

for false imprisonment arising from the strip searches described

above.

Cornett eventually settled the Reynolds suit, and Lexington

Insurance Company (Lexington) reimbursed Cornett for defense and

settlement costs to the limits of its coverage. Cornett then

sought additional coverage from a commercial general liability

insurance contract issued to it by Fireman’s Fund.

“Coverage B” of the Fireman’s Fund policy covers claims

arising from “personal injury,” which include “[f]alse arrest,

detention or imprisonment.” An “Employment-Related Practices

Exclusion” (ERP exclusion) attached to the policy, however,

amends Coverage B, limiting coverage for personal injury. This

ERP exclusion provides:

2. The following exclusion is added to COVERAGE B
(Section I):

c. Personal injury arising out of any:

. . .

(3) Coercion, demotion, evaluation,
reassignment, discipline, defamation,
harassment, humiliation, discrimination or
other employment-related practices,
policies, acts or omissions.”

4
(Emphasis added).

Seeking coverage under this policy, Cornett filed suit in

state court against Fireman’s Fund. After the case was removed

to federal court, the district court granted summary judgment to

Fireman’s Fund, finding that the ERP exclusion applied to all

claims presented in the underlying lawsuit and that therefore

Cornett was not entitled to reimbursement for costs arising from

that lawsuit. Cornett noted a timely appeal. 1

II.

We review the district court’s grant of summary judgment de

novo. Beard Plumbing & Heating, Inc. v. Thompson Plastics,

Inc., 152 F.3d 313, 315 (4th Cir. 1998). “[S]ummary judgment is

appropriate where there is no genuine dispute as to a material

fact.” Id. In this case, the parties agree that West Virginia

law controls the interpretation of the insurance policy and

that, under applicable law, “the language in an insurance policy

should be given its plain, ordinary meaning.” W. Va. Fire &

Cas. Co. v. Stanley, 602 S.E.2d 483, 489 (W. Va. 2004) (internal

quotation marks omitted).

1
If we determine that the exclusion does not apply to the
claims in the Reynolds suit, Fireman’s Fund seeks a remand in
order to conduct discovery to determine whether Cornett timely
notified Fireman’s Fund of its claim. Because we find that the
insurance policy excludes coverage of Cornett’s claim, we need
not reach the late notice issue.

5
 III.

Cornett argues that the ERP exclusion does not exclude

coverage for the Reynolds false imprisonment claim because (1)

Cornett had no practice or policy of strip searching employees

and (2) the ERP exclusion is ambiguous and therefore should be

construed against Fireman’s Fund as the insurer. Fireman’s Fund

disagrees, arguing that because the manager engaged in an

employment-related act when he strip searched the two women, the

exclusion applies.

We can easily reject Cornett’s first argument -- that the

ERP exclusion applies only to employment-related practices or

policies and not to acts. The exclusion specifically lists

“employment-related . . . acts or omissions” in addition to

“practices” and “policies.” Accordingly, the plain language of

the exclusion makes clear that claims arising from an

employment-related act may be excluded from coverage.

Cornett’s second argument demands a bit more analysis. It

requires us to determine what types of acts the policy meant to

exclude from coverage when it listed “[c]oercion, demotion,

evaluation, reassignment, discipline, defamation, harassment,

humiliation, discrimination or other employment-related . . .

acts.” Courts, considering similar ERP exclusions, have

disagreed as to how to interpret this type of provision.

Compare LDF Food Group, Inc. v. Liberty Mut. Fire Ins. Co., 146

6
P.3d 1088, 1094-95 (Kan. Ct. App. 2006) (holding that the

exclusion applied to facts very similar to this case) with

Acuity v. N. Cent. Video, LLLP, No. 1:05-cv-010, 2007 WL

1356919, at *19 (D.N.D. May 7, 2007) (holding that the exclusion

was ambiguous and thus construing it against the insurance

company). Because West Virginia law controls our interpretation

of the contract, we look to the West Virginia Supreme Court of

Appeals for guidance.

In Bowyer v. Hi-Lad, Inc, 609 S.E.2d 895, 913 (W. Va.

2004), which involved an employer installing a security camera

and microphone in a hotel lobby without informing employees,

West Virginia’s highest court found that an ERP exclusion 2 did

not apply because “nothing in the record suggest[s] that [the

insured] made it a practice, or had a policy, or engaged in,

acts of humiliation. . . . [T]here is nothing to indicate that

the [insured’s] actions were intended to cause humiliation.”

Id. at 913 (emphasis added).

In so holding, the West Virginia court indicated that the

ERP exclusion would apply to any claim arising from an

2
The ERP exclusion in Bowyer excluded coverage for
liability “arising out of any . . . [e]mployment-related
practices, policies, acts or omissions, such as coercion, . . .
harassment, humiliation or discrimination directed at the
person.” Bowyer, 609 S.E.2d at 913 (internal quotation marks
omitted). For purposes of this case, we see no difference
between the meaning of this exclusion and of the ERP exclusion
in the Fireman’s Fund policy.

7
employer’s act or omission intended to result in coercion,

harassment, humiliation, or discrimination. In the case at

hand, such intention exists; the Reynolds complaint clearly

alleges acts by a Hooters manager that involved intentional

coercion, harassment, and humiliation of the two female

employees who were strip searched. Accordingly, we believe that

a West Virginia court would hold that the ERP exclusion in the

Fireman’s Fund policy excludes coverage for the false

imprisonment claim that arose from the strip searches.

This interpretation of the ERP exclusion accords with that

of a number of other courts. 3 For example, in LDF Food Group v.

Liberty Mut. Fire Ins. Co., 146 P.3d 1088, 1094-95 (Kan. Ct.

App. 2006), the Kansas Court of Appeals determined that a nearly

identical ERP exclusion barred coverage of a claim resulting

from a strip search very similar to the one in this case. In so

holding, the Kansas court explained that the victim of the strip

search, in her lawsuit, had alleged coercive, harassing, and

humiliating acts by managers, and therefore the ERP exclusion in

that case excluded coverage. Id.; see also Capitol Indem. Corp.

3
Moreover, we note that limiting the ERP exclusion to
claims in which the employer intends to cause coercion,
humiliation, or harassment, as the West Virginia court has done,
prevents the exclusion from applying to all acts done by an
employer or impacting an employee, a broad interpretation that
has led some courts to find the provision ambiguous. See, e.g.,
Acuity, 2007 WL 1356919, at *14-15, *19; Peterborough Oil Co. v.
Great Am. Ins. Co., 397 F. Supp. 2d 230, 238-39 (D. Mass. 2005).

8
v. 1405 Assoc., Inc., 340 F.3d 547, 550 (8th Cir. 2003) (holding

that under Missouri law, the term “arising out of” must be

broadly construed thereby requiring the court to apply a broad

construction to the ERP exclusion). A manager’s act, like the

one in this case, which intentionally humiliates, coerces, or

harasses an employee, will clearly have an effect on the

employment relationship. Such an act, therefore, is employment-

related and, under West Virginia law, falls within the language

of the ERP exclusion at issue here.

IV.

For the foregoing reasons, the judgment of the district

court is

AFFIRMED.

9