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Bull v. Federated Mutual Insurance Co.

United States District Court, E.D. Arkansas, Eastern Division

September 7, 2018

TONY BULL PLAINTIFF
v.
FEDERATED MUTUAL INSURANCE COMPANY DEFENDANT

          OPINION AND ORDER

          KRISTINE G. BAKER UNITED STATES DISTRICT JUDGE

         This lawsuit arises from a check written by James Haas and given to plaintiff Tony Bull and Mr. Bull's resulting claim for coverage under an insurance policy issued by defendant Federated Mutual Insurance Company (“Federated). Presently before the Court are the parties' cross-motions for summary judgment filed pursuant to Federal Rule of Civil Procedure 56 (Dkt. Nos. 16, 21). The motions have been fully briefed (Dkt. Nos. 21, 24, 28).

         I. Factual And Procedural Background

         Unless otherwise noted, the following facts are taken from Federated's statement of undisputed material facts and Mr. Bull's statement of undisputed material facts (Dkt. Nos. 18, 23). The Court notes that Local Rule 56.1 of the Local Rules of the United States District Court for the Eastern and Western Districts of Arkansas provides that all material facts set forth in the statement filed by the moving party shall be deemed admitted unless controverted by the statement filed by the non-moving party. Local Rule 56.1(c). As such, the Court deems admitted each parties' statement of material facts to the extent statements are not controverted by the opposing party.

         Mr. Haas alleges that, on March 26, 2013, he gave to Mr. Bull a check for $17, 800.00 for a vehicle (Dkt. No. 16-2, ¶ 3). At that time, Mr. Haas allegedly informed Mr. Bull that he did not have sufficient funds to honor the check (Id.). According to Mr. Haas, Mr. Bull agreed to hold the check until such funds were available (Id.). On September 3, 2013, Mr. Bull deposited the check, and it did not clear (Id., ¶ 4). Mr. Haas claims that, on December 17, 2013, Mr. Bull authorized his employee to file an affidavit for the arrest of Mr. Haas (Id., ¶ 5). Mr. Haas also claims that Mr. Bull did not disclose all relevant information to the prosecutor (Id.). On May 19, 2014, Mr. Haas was charged with a violation of Arkansas' hot check law (Id., ¶ 7). That charge was nolle prosequied after Mr. Haas paid the full amount owed to Mr. Bull (Dkt. No. 18, ¶ 6).

         Federated is a general liability insurance carrier that insures Mr. Bull under a general liability insurance policy, Policy No. 9229344 (the “Policy”) (Dkt. No. 18, ¶ 3). From October 11, 2013, to October 11, 2014, the Policy provided that Federated:

[W]ill pay all sums the “insured” legally must pay as damages because of “personal and advertising injury” caused by an offense arising out of your business but only if the offense was committed in the Coverage Territory during the Policy Period.
We will have the right and duty to defend any “insured” against a “suit” asking for these damages. However, we have no duty to defend any “insured” against a “suit” seeking damages for “personal and advertising injury” to which this insurance does not apply.

(Dkt. No. 16-12, at 20). Federated admits that Mr. Bull is a named insured under the Policy (Dkt. No. 18, ¶ 3). The Policy defines “personal and advertising injury” as “injury, including consequential ‘bodily injury,' arising out of one or more of the following offenses: . . . (b) Malicious prosecution; . . . (d) Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services . . . .” (Dkt. No. 16-12, at 23).

The Policy excludes coverage for:
“Personal and advertising injury”:
(2) Caused by or at the direction of the “insured” with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury.”
(3) Arising out of oral or written publication of material, if done by or at the direction of the “insured” with knowledge of its falsity.

(Id., at 21).

         Mr. Haas filed his original complaint against Mr. Bull on December 4, 2015, in an Arkansas state court case styled James Haas v. Tony Bull, No. CV-2005-662, Crittenden County Circuit Court (hereinafter, the “Haas litigation”) (Dkt. No. 18, ¶ 1). The original complaint included claims of malicious prosecution and abuse of process against Mr. Bull (Dkt. No. 16-2, ¶¶ 9-10). Mr. Bull was served with a summons in the Haas litigation on December 21, 2015 (Dkt. No. 21-1, ¶ 4). On or about January 6, 2016, Mr. Bull reported the claims against him to Federated (Id., ¶ 5). On or about January 13, 2016, Mr. Bull spoke with a representative of Federated who indicated that Federated would appoint counsel other than David Hodges to defend Mr. Bull in the Haas litigation (Dkt. No. 21-1, ¶ 6). Mr. Bull was told that, if he was found to have committed with malice the acts alleged in Mr. Haas' complaint, Federated would not pay damages (Id.).

         Even though Federated reserved its right to deny potentially Mr. Bull coverage and a defense in the Haas litigation, it nonetheless retained attorney Ed Lowther of Little Rock, Arkansas, to defend Mr. Bull in the Haas litigation at no charge to Mr. Bull (Dkt. No. 18, ¶ 4). Mr. Bull admits that Federated retained Mr. Lowther, and he was not charged for Mr. Lowther's representation (Dkt. No. 23, at 3). Mr. Lowther answered the original complaint against Mr. Bull in the Haas litigation (Id.). Mr. Bull voluntarily decided to retain separate counsel, Mr. Hodges, as his additional counsel in the Haas litigation (Id., ¶ 7). The decision to hire attorney Mr. Hodges was solely that of Mr. Bull's (Id., ¶ 13).

         On February 4, 2016, Federated sent to Mr. Bull a letter reserving its right to deny Mr. Bull coverage and a defense in the Haas litigation (Dkt. No. 16-5). This “reservation of rights” letter stated, “Federated . . . agrees to provide a defense and indemnification to Tony Bull subject to the terms and conditions of Bull Motor Company's policy of insurance.” (Id., at 4). The letter also called attention to the exclusions in the Policy (Id.). This reservation of rights letter did state:

You have the privilege of retaining Mr. Hodges to cooperate with the attorney we have retained in defending this lawsuit; however, Mr. Hodges will be retained at your own expense. Both Federated and Mr. Lowther will be glad to cooperate with him to the fullest extent.

(Id., at 5).

         On February 26, 2016, Mr. Hodges, as attorney for Mr. Bull, filed an action for declaratory judgment in the Circuit Court of Woodruff County, Arkansas, seeking a declaration that the Policy provides coverage for Mr. Bull for the claims made against him in the Haas litigation (Dkt. No. 2). Furthermore, Mr. Bull seeks a declaration that Federated is required to pay the attorneys' fees incurred by Mr. Hodges during his representation of Mr. Bull in the Haas litigation and for the fees incurred during this declaratory judgment action (Id., ¶ 19).

         On April 6, 2016, Federated answered and counterclaimed, contending that it had no duty to defend or indemnify Mr. Bull in the Haas litigation because the complaint in that action purportedly did not adequately set forth the necessary elements for malicious prosecution and because malicious prosecution was the only claim potentially covered by the Policy (Dkt. No. 3, ¶¶ 30-31). This declaratory action was removed by Federated to this Court via a notice of removal on April 11, 2016 (Dkt. No. 1).

         Meanwhile, the Haas litigation continued. Mr. Haas filed an amended complaint in the Haas litigation on July 26, 2016, adding claims against Mr. Bull for the torts of outrage, unfair competition, and defamation (Dkt. No. 16-9, at 2-4). Attached to the amended complaint is a letter to Mr. Bull from counsel for Mr. Haas dated April 30, 2013 (Id., at 6). This letter represented that, at the time the letter was sent, Mr. Haas was engaged in litigation that precluded the release of the $17, 800.00 from Mr. Haas' business account (Id.). Also attached to the amended complaint is a letter, dated April 11, 2016, from Mr. Bull to the Arkansas State Police (Id., at 7). This letter asserted that Mr. Haas was violating “the rules of the Motor Vehicle Commission in Arkansas” because he did not maintain a place of business in Arkansas (Id.). Next, attached to the amended complaint is a letter from Lynda Avery, the “Airport Manager” of the West Memphis Municipal Airport, to Inspector John West informing Inspector West that Mr. Haas had been a tenant of the airport since 2005 (Id., at 8). Finally, excerpts of a deposition of Mr. Bull were also attached to the amended complaint. In that deposition, Mr. Bull stated among other things, “I gave him a time limit, over a time limit, and the time limit was up and I told ...


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