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Schwegman v. Continental Casualty Co.

United States District Court, N.D. Oklahoma

May 5, 2017

DOUG SCHWEGMAN, d/b/a Schwegman Insurance and Financial Services, Plaintiff,
v.
CONTINENTAL CASUALTY COMPANY, Defendant.

          OPINION AND ORDER

          CLAIRE V. EAGAN, UNITED STATES DISTRICT JUDGE

         Now before the Court is defendant's motion to dismiss (Dkt. # 18), which the Court will treat as a motion for summary judgment under Federal Rule of Civil Procedure 56. See Dkt. # 23. Defendant asks the Court to grant summary judgment in its favor, arguing that plaintiff has failed to present evidence to support his claims for breach of contract and breach of the duty of good faith and fair dealing. Dkt. # 29, at 6. Plaintiff asserts that he has presented sufficient evidence to support his claims. Dkt. # 31, at 22. Alternatively, plaintiff asks the Court to defer ruling on the motion as to plaintiff's claim for breach of the duty of good faith and fair dealing until plaintiff has had the opportunity to conduct additional discovery. Id. at 23.

         I.

         Plaintiff is an insurance agent and the owner of Schwegman Insurance and Financial Services. Dkt. # 22-1, at 1. In 2009, plaintiff sold Brook Trotter a long-term disability policy with Fort Dearborn National Life Insurance Company (Fort Dearborn) that covered Trotter and the one other employee of Trotter's painting company. Dkt. # 22-1, at 1; Dkt. # 31-3, at 12. In late 2011 or early 2012, Trotter and plaintiff entered into an oral partnership agreement, under which the two would work together to sell insurance. Dkt. # 18-3, at 2-5; Dkt. # 22-1, at 2. Trotter sold his painting company and became licensed to sell accident, health, and life insurance. Dkt. # 18-3, at 3; Dkt. # 22-1, at 1. Once Trotter sold his painting company, he was the only individual covered under the Fort Dearborn policy. On July 1, 2012, Fort Dearborn cancelled Trotter's policy because enrollment was below the minimum required for renewal. Dkt. # 31-1, at 11.

         In November 2012, Trotter sued plaintiff in the District Court of Washington County, State of Oklahoma asserting four causes of action: dissolution of partnership, accounting of joint assets, temporary injunction, and breach of contract (Trotter lawsuit). Dkt. # 18-3, at 2-5. Trotter alleged that plaintiff breached their partnership agreement in July 2012 when plaintiff told Trotter that Trotter could no longer be involved in the business. Id. at 2-5. During discovery in the Trotter lawsuit, plaintiff sent Trotter a set of interrogatories asking Trotter to, inter alia, identify all damages he was asserting in the lawsuit. Dkt. # 18-4, at 6. Trotter's response included the following claim for damages:

         Professional Negligence - disability policy

(a) Amount of Damages: $960, 000.00;
(b) Calculation of Damages: $ 48, 000.00 (diminished earning capacity) times 20 years (years of work left for Plaintiff). Diminished earning capacity is based upon the difference between what contract promised, a minimum of “six figures a year” or $100, 000.00 and percentage of that amount payable by policy;
(c) Documents: Ft. Dearborn disability insurance policy, notice from Ft. Dearborn to Defendant, cancelled checks to Defendant for monthly payment of premiums;
(d) Negligence: Plaintiff was in a high risk category because of pre-existing conditions but as part of the agreement with Defendant, disability insurance coverage was arranged. Despite Plaintiff timely paying all premiums and doing nothing to void the insurance, Defendant negligently allowed the policy to lapse.

Id. at 7.

         Plaintiff was insured under a professional liability policy issued by defendant (Continental policy). Dkt. # 18-2. Under the Continental policy, defendant has the duty to defend plaintiff from claims that fall under the policy. Id. at 12. Claims included in the policy are “written demand[s] for monetary or non-monetary damages, or civil adjudicatory . . . proceeding[s] for monetary damages, against an Insured for a Wrongful Act.” Id. at 6. Wrongful Act is defined as “any actual or alleged negligent act, error or omission in . . . the rendering or failure to render Professional Services.” Id. at 10. Professional Services is defined as “those services arising out of the conduct of the Insured's business as a licensed Agent.” Id. at 23.

         On July 12, 2013, plaintiff sent a letter informing defendant about the Trotter lawsuit, in which plaintiff told defendant that he believed Trotter was asserting a professional negligence claim that might be covered by the Continental policy. Dkt. # 18-4, at 2. To support his request for defendant to defend him in the Trotter lawsuit, plaintiff attached Trotter's interrogatory response. Id. at 3-10. On August 23, 2013, defendant sent plaintiff a letter informing him that defendant determined that the Trotter lawsuit was not covered by the Continental policy. Dkt. # 31-3, at 24. Defendant concluded that Trotter's first three claims were not covered because they were for non-monetary or injunctive relief. Id. at 26. Additionally, defendant found that Trotter's breach of contract claim was not covered because it arose out of a contract between business partners, not plaintiff rendering professional services as an insurance agent. Id. at 26-28.

         In September 2016, Trotter dismissed his suit against plaintiff after the parties reached a settlement. See Motion to Dismiss, Trotter v. Schwegman, No. CJ-2012-352 (Okla. Dist. Ct. Sep. 29, 2016); Order of Dismissal, Trotter v. Schwegman, No. CJ-2012-352 (Okla. Dist. Ct. Sep. 29, 2016).[1] On August 19, 2015, plaintiff filed this suit in the District Court of Washington County. Dkt. # 2, at 10. Defendant removed the suit to this Court on December 5, 2016. Id. at 1. Plaintiff alleges claims for breach of contract and breach of the duty of good faith and fair dealing implied in all insurance contracts. Id. at 12. Defendant moved to dismiss plaintiff's claims against it for failure to state a claim under Rule 12(b)(6). Dkt. # 18. Because defendant's motion and plaintiff's response presented matters outside the pleadings, the Court informed the parties that it must treat defendant's motion as one for ...


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