NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0952n.06
No. 12-2505
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
) Nov 05, 2013
MATTHEW T. SZURA & CO., INC., ) DEBORAH S. HUNT, Clerk
)
Plaintiff-Appellant, )
)
v. )
) ON APPEAL FROM THE UNITED
GENERAL INSURANCE CO. OF ) STATES DISTRICT COURT FOR THE
AMERICA, ) EASTERN DISTRICT OF MICHIGAN
)
Defendant-Appellee. )
)
Before: KEITH, GUY, and GIBBONS, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. This insurance dispute arises from General
Insurance Co. of America’s refusal to defend Matthew T. Szura & Co. (which operates under the
name Szura Insurance Services) against claims brought by Mayfair Insurance Agency Inc., a third
party, in a separate state-court suit. Szura initiated this action against General Insurance to obtain
a declaration that General Insurance was obligated to defend Szura in the Mayfair litigation. Szura
also asserted claims for breach of contract and bad faith. After Szura and General Insurance filed
cross-motions for summary judgment, the district court concluded that General Insurance had no
duty to defend Szura against Mayfair’s allegations, and the court awarded summary judgment to
General Insurance. For the reasons that follow, we affirm on grounds other than those on which the
district court relied when it reached its decision.
I.
Matthew T. Szura & Co. and Mayfair Insurance Agency are competing providers of
insurance products and services. Mayfair filed a separate action in Michigan state court in February
2009 against Szura and Doug Charon, an insurance agent who previously had been affiliated with
Mayfair. The complaint in that case included eight counts, only three of which named Szura as a
defendant: count six (Tortious Interference with Contract), count seven (Tortious Interference with
Business Relationship/Expectancy), and count eight (Civil Conspiracy). The gravamen of the
complaint was that Charon breached his confidentiality agreement and fiduciary duties when he
parted company with Mayfair, joined Szura, and sold Szura’s insurance products to Mayfair’s
customers. Mayfair alleged that Szura tortiously interfered with the confidentiality agreement in the
Charon–Mayfair employment contract, as well as with Mayfair’s business relationships and
expectancies, when Szura engaged Charon to sell its insurance products to certain Mayfair
customers with whom Charon had developed a relationship while working at Mayfair.
Szura asked General Insurance Co. of America to defend Szura in the suit pursuant to an
Insurance Professionals Errors and Omissions Liability Insurance Policy that General Insurance had
issued to Szura. When General Insurance refused to defend Szura, Szura brought this action against
General Insurance in the Oakland County Circuit Court to obtain a declaration that the Errors and
Omissions Policy compelled General Insurance to defend Szura in that suit. Szura also asserted
claims for breach of the insurance contract and bad faith. General Insurance removed the case to
the United States District Court for the Eastern District of Michigan on the basis of diversity of
citizenship. See 28 U.S.C. § 1332(a). Both Szura and General Insurance subsequently moved for
summary judgment.
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The district court heard argument on the motions, and two days later the court issued an
opinion and order denying Szura’s motion for partial summary judgment, granting General
Insurance’s motion for summary judgment, and entering judgment in favor of General Insurance.
The district court concluded that the Errors and Omissions Policy covered only “errors and
omissions in connection with providing insurance services to Szura’s customers, if one of those
customers brought suit against Szura based on the insurance services it received.” Because “Mayfair
did not sue in relation to any insurance services it received from Szura,” the district court held that
the events and conduct that gave rise to the Mayfair litigation were “outside the scope of
professional services as defined by the Policy.” The court further noted that “[c]ourts have
uniformly held that claims of tortious interference with prospective business or business relations
are not covered by an errors and omissions policy.” The district court therefore appeared to base
its decision on two independent conclusions: (1) the policy covered only claims brought by a
customer, and not claims asserted by a competitor; and (2) the term “professional services,” as used
in the policy, did not include the type of activities that would give rise to a claim for tortious
interference. Szura timely appealed.
II.
Several provisions of the Errors and Omissions Policy issued by General Insurance to Szura
are relevant to this appeal. Section one, captioned “Insuring Agreements,” includes two pertinent
provisions delineating the scope of the coverage:
A. COVERAGE PROVISION:
We will pay on behalf of the insured damages that the insured becomes legally
obligated to pay because of claims made against the insured for wrongful acts
arising out of the performance of professional services for others.
C. DEFENSE PROVISION
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We have the right and the duty to defend the insured against any covered claim, even
if such claim is groundless, false or fraudulent. . . . We have no duty to defend any
claim not covered by this policy.
Certain of those terms are defined in section four:
“Claim” means a demand for money or professional services received by the
insured for damages, including but not limited to the service of a lawsuit or the
institution of arbitration proceedings or other alternative dispute resolution
proceedings, alleging a wrongful act arising out of the performance of professional
services.
“Professional Services” means services performed for others in the Insured’s
capacity as an insurance agent, insurance broker, insurance general agent, insurance
managing general agent, surplus lines insurance broker, insurance consultant,
insurance based risk management consultant or advisor, employee insurance benefits
counselor, estate insurance planner, insurance claims administrator, insurance
appraiser, insurance expert witness, insurance premium financier, notary public,
instructor of insurance subjects, or board member of a nonprofit insurance
professional association.
“Wrongful Act” means any actual or alleged negligent act, error or omission,
Personal Injury, or Advertising Injury.
Section two, titled “Exclusions,” restricts the scope of coverage and provides one caveat with
potential implications for the insurer’s duty to defend:
This policy does not apply to any claim . . . arising out of any dishonest, fraudulent,
criminal, or malicious act, error, or omission or acts of a knowingly wrongful nature
committed by or at the direction of any insured. We will defend the insured against
such claim unless or until the dishonest, fraudulent, criminal, malicious or knowingly
wrongful act has been determined by any trial verdict, court ruling, regulatory ruling
or legal admission, whether appealed or not. We do not have the duty to defend the
insured in a criminal proceeding. This exclusion does not apply to any insured who
did not commit, participate in, acquiesce to or remain passive after having learned
of the dishonest, fraudulent, criminal, malicious act, error, or omission or knowingly
wrongful conduct.
III.
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We review de novo the district court’s decision to grant General Insurance’s motion for
summary judgment. See Surles v. Andison, 678 F.3d 452, 455 (6th Cir. 2012). Summary judgment
is appropriate where “the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
As a general matter, questions of contract interpretation are questions of law that this court
reviews de novo. Royal Ins. Co. of Am. v. Orient Overseas Container Line Ltd., 525 F.3d 409, 421
(6th Cir. 2008). If the contract is clear and unambiguous, the court need not determine issues of fact
and instead should interpret the contract based on the intent of the parties as expressed in the plain
language of the contract. Id. To determine whether the contract is unambiguous, the court should
read the contract as a whole and give the contract language its ordinary and natural meaning. Id.
An insurer’s duty to defend the insured in certain types of litigation derives from contract
rather than statute, and the scope of the duty therefore turns on the specific terms to which the
parties agreed. See Frankenmuth Mut. Ins. Co. v. Cont’l Ins. Co., 537 N.W.2d 879, 880 (Mich.
1995); see also Twichel v. MIC Gen. Ins. Corp., 676 N.W.2d 616, 622 (Mich. 2004) (“An insurance
policy is enforced in accordance with its terms.”). The clear and unambiguous language of the
contract, rather than the parties’ reasonable expectations, must determine the scope of coverage
under an insurance contract. See Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 786 (Mich.
2003).
“The duty to defend is essentially tied to the availability of coverage,” moreover, and
analysis of the insurer’s duty to defend “must begin with an examination of whether coverage is
possible.” Marlo Beauty Supply, Inc. v. Farmers Ins. Grp. of Cos., 575 N.W.2d 324, 327 (Mich. Ct.
App. 1998). “If the policy does not apply, there is no duty to defend.” Am. Bumper & Mfg. Co. v.
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Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996). But “the scope of the two duties is not
identical; the duty to defend is broader than the duty to indemnify. If the allegations of a third party
against the policyholder even arguably come within the policy coverage, the insurer must provide
a defense.” Id. (internal citations omitted). In determining the scope of a contractual duty to defend,
all doubts concerning the applicability of the duty to defend must be resolved in favor of the insured.
Polkow v. Citizens Ins. Co. of Am., 476 N.W.2d 382, 384 (Mich. 1991).
IV.
This case turns on the interplay of two provisions of the Errors and Omissions Policy. The
Defense Provision provides that General Insurance “ha[s] the right and the duty to defend the
insured against any covered claim, even if such claim is groundless, false or fraudulent.” Whether
General Insurance was obligated to defend Szura in the Mayfair litigation thus depends on whether
one or more of Mayfair’s claims against Szura was a “covered claim.” To answer that inquiry the
court must look to the Coverage Provision, which stipulates that General Insurance “will pay on
behalf of the insured damages that the insured becomes legally obligated to pay because of claims
made against the insured for wrongful acts arising out of the performance of professional services
for others.” A wrongful act is “any actual or alleged negligent act, error or omission.” General
Insurance thus had a duty to defend Szura against any lawsuit that alleged negligent acts, errors, or
omissions arising out of Szura’s performance of professional services, including services performed
in its capacity as an insurance agent, if those services were provided for others.
The district court focused its analysis on the portion of the Coverage Provision that limits
coverage to claims “arising out of the performance of professional services for others.” In its view,
General Insurance was not required to defend Szura against the claims asserted by Mayfair for two
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distinct reasons: (1) the Errors and Omissions Policy “limits General Insurance’s duty to defend to
only those claims brought by the object of the services provided by Szura,” and (2) the policy covers
claims resulting from “wrongful acts arising out of the performance of professional services,” and
the term “professional services” “do[es] not include intentional and tortious interference with
contracts and business relationships.”
General Insurance reiterates these arguments on appeal. But General Insurance also
advances a different, more compelling basis on which to affirm the district court: The Errors and
Omissions Policy committed General Insurance to defend Szura against certain negligence claims;
Mayfair’s suit against Szura alleged intentional torts rather than negligence; and General Insurance
therefore had no duty to defend Szura in the Mayfair litigation. We find this latter argument to be
meritorious. Because we interpret the contract de novo and Szura had an opportunity to respond to
this argument in its reply brief, we need not address the grounds on which the district court relied
when it awarded summary judgment to General Insurance. See Henderson v. Walled Lake Consol.
Sch., 469 F.3d 479, 494 (6th Cir. 2006) (stating that the court of appeals may affirm district court’s
judgment on other grounds “as long as the opposing party is not denied the opportunity to respond
to the new theory”).
General Insurance was required to defend Szura against all arguably covered claims, see Am.
Bumper & Mfg. Co., 550 N.W.2d at 481, and only claims “made against the insured for wrongful
acts arising out of the performance of professional services for others” were covered under the
Errors and Omissions Policy. The term “wrongful acts” therefore controls the types of legal claims
that are covered under the policy. Because the policy defines wrongful act as “any actual or alleged
negligent act, error or omission, Personal Injury, or Advertising Injury,” the policy “covers only
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liability for negligent conduct.” See Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448,
457 (6th Cir. 2003) (applying Michigan law and discussing a policy that covered “damages because
of a negligent act, error or omission in the rendering of or failure to render professional services”).
It does not require General Insurance to provide Szura with a defense to allegations of intentional
misconduct.
Although the Michigan Supreme Court has never opined on whether the term “negligent acts,
errors or omissions” might include intentional misconduct, courts around the nation are in general
agreement that a policy covering “negligent acts, errors or omissions” does not cover intentionally
wrongful conduct. See, e.g., St. Paul Fire & Marine Ins. Co. v. Compaq Computer Corp., 539 F.3d
809, 815 (8th Cir. 2008); Pac. Ins. Co. v. Burnet Title, Inc., 380 F.3d 1061, 1065 (8th Cir. 2004);
Conn. Indem. Co. v. DER Travel Serv., Inc., 328 F.3d 347, 349 (7th Cir. 2003); Town of Cumberland
v. R.I. Interlocal Risk Mgmt. Trust, Inc., 860 A.2d 1210, 1220 (R.I. 2004); Hoyle v. Utica Mut. Ins.
Co., 48 P.3d 1256, 1261–62 (Idaho 2002). We therefore conclude that General Insurance was not
required to defend Szura in the Mayfair litigation unless Mayfair alleged negligent conduct.
Of course, General Insurance might have been obligated to provide a defense even though
the complaint asserted causes of action other than negligence. The insurer’s duty to defend depends
upon the allegations in the third party’s complaint against the insured. Protective Nat’l Ins. Co. of
Omaha v. City of Woodhaven, 476 N.W.2d 374, 375 (Mich. 1991) (citing Detroit Edison Co. v.
Mich. Mut. Ins. Co., 301 N.W.2d 832, 835 (Mich. Ct. App. 1980)). But “[t]he duty to defend is not
limited by the precise language in the underlying complaint. The insurer has the duty to look
beyond the allegations in the complaint to determine whether coverage is possible.” Pattison v.
Emp’rs Reins. Corp., 900 F.2d 986, 988 (6th Cir. 1990). Accordingly, to determine whether the act,
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error, or omission that gave rise to the underlying lawsuit is one that implicates the duty to defend,
courts should look not to the theory of liability alleged in the complaint, but instead to whether the
underlying allegations “sound[] in negligence.” See 1325 N. Van Buren, LLC v. T-3 Grp., Ltd., 716
N.W.2d 822, 838–39 (Wis. 2006) (interpreting identical contract language).
To ascertain whether General Insurance was bound to defend Szura against Mayfair’s suit,
we therefore must look to Mayfair’s complaint to determine whether Mayfair’s allegations sounded
in negligence. One final rule bears on this inquiry: “[I]nsurers owe a duty to defend until the claims
against the policyholder are confined to those theories outside the scope of coverage under the
policy.” Am. Bumper & Mfg. Co., 550 N.W.2d at 483. General Insurance thus was obliged to
defend Szura against all three of Mayfair’s claims if just one of those claims implicated the duty to
defend.
Mayfair asserted three separate causes of action against Szura in its complaint, and each of
those claims alleged intentional misconduct rather than negligence. Looking first at the claims for
tortious interference, count six alleged tortious interference with a contract, and count seven alleged
tortious interference with business relationships. To succeed on either cause of action, Mayfair had
to prove that Szura intentionally committed a per se wrongful act or maliciously committed a lawful
act for the purpose of invading Mayfair’s contractual rights or business relationships. See CMI Int’l,
Inc. v. Intermet Int’l Corp., 649 N.W.2d 808, 812 (Mich. Ct. App. 2002).
With that in mind, we turn to the actual allegations in the complaint. Mayfair alleged that
Szura “intentionally interfered” with the contract between Charon and Mayfair, “improperly
interfered” with that contract, “intentionally interfered” with Mayfair’s business relationships and
expectancies, and “improperly interfered” with those business relationships and expectancies.
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Counts six and seven of the complaint thus alleged intentional misconduct that falls outside the
scope of “wrongful act,” as that term is defined in the Errors and Omissions Policy. Neither
intentional interference nor improper interference with contract rights and business relationships
“sounds in negligence.” See 1325 N. Van Buren, LLC, 716 N.W.2d at 838–39; see also Hoyle, 48
P.3d at 1262 (“[T]he term ‘improper’ is in no way synonymous with the word ‘negligent.’”).
Count eight, which alleged a civil conspiracy to tortiously interfere with Mayfair’s contract
rights and business relationships, likewise alleged intentional misconduct. To prove the conspiracy,
General Insurance had to allege and establish that Szura and Charon acted in concert to accomplish
an unlawful purpose or to accomplish a lawful purpose by unlawful means. See Admiral Ins. Co.
v. Columbia Cas. Ins. Co., 486 N.W.2d 351, 358 (Mich. Ct. App. 1992). Tortious intent was a sine
qua non to Szura’s liability for civil conspiracy. See Rosenberg v. Rosenberg Bros. Special Account,
351 N.W.2d 563, 569 (Mich. Ct. App. 1984). It is therefore unsurprising that the complaint alleged
that Charon and Szura reached an agreement, the object of which was to interfere with Mayfair’s
contract rights and business relationships. Because such an agreement sounds in intentional
misconduct rather than negligence, the alleged conspiracy was not a “wrongful act” for which
General Insurance had a duty to defend Szura.
Accordingly, the district court properly awarded summary judgment to General Insurance.
General Insurance had no obligation to defend Szura in the Mayfair litigation unless Mayfair’s
claims were arguably covered under the Coverage Provision. See Am. Bumper & Mfg. Co., 550
N.W.2d at 481; Marlo Beauty Supply, Inc., 575 N.W.2d at 327. The Coverage Provision extended
only to claims that arose out of “wrongful acts,” and only conduct that sounds in negligence is
deemed a wrongful act as that term is used and defined in the Errors and Omissions Policy. See
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Northland Ins. Co., 327 F.3d at 457; 1325 N. Van Buren, LLC, 716 N.W.2d at 838–39. None of the
factual allegations in Mayfair’s complaint against Szura sounded in negligence, and it therefore
follows that General Insurance had no duty to defend Szura against Mayfair’s claims.
V.
Szura argues that General Insurance had a duty to defend Szura against intentional
misconduct as well as negligent acts, errors, and omissions because the “Exclusions” section of the
Errors and Omissions Policy states: “We will defend the insured against such claim unless or until
the dishonest, fraudulent, criminal, malicious or knowingly wrongful act has been determined by
any trial verdict, court ruling, regulatory ruling or legal admission, whether appealed or not.” Szura
misunderstands the effect of this exclusion. Exclusions limit the scope of coverage; an exclusion
cannot expand the scope of coverage beyond that provided in the insuring agreement. See Fragner
v. Am. Cmty. Mut. Ins. Co., 502 N.W.2d 350, 352 (Mich. Ct. App. 1993). Had Mayfair alleged
negligent conduct, General Insurance would have been required to defend Szura in that suit and,
ultimately, to indemnify Szura for any damages, unless the Szura employee was ultimately
determined to have acted fraudulently or maliciously rather than negligently. In that event, General
Insurance would be relieved of its duty to defend Szura as soon as a trial verdict, court ruling,
regulatory ruling, or legal admission established that the employee had acted fraudulently or
maliciously. Because Mayfair sued Szura for intentional misconduct rather than a negligent act,
error, or omission, however, the initial claims were not covered and the exclusions do not apply.
VI.
For the foregoing reasons, the judgment of the district court is AFFIRMED.
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