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Statton v. Allied World Specialty Insurance Co.

United States District Court, N.D. Oklahoma

January 17, 2018

KENNETH STATTON, Plaintiff,
v.
ALLIED WORLD SPECIALTY INSURANCE COMPANY, Defendant.

          OPINION AND ORDER

          JOHN E. DOWDELL, UNITED STATES DISTRICT JUDGE

         I. Background

         A. The New York Suit

          The plaintiff, Kenneth Statton, was employed by M&M Precision Components, LLC (M&M) as President from June 30, 2015 to July 5, 2016, when he was discharged, allegedly for cause. On the same day that M&M terminated his employment, M&M filed suit against Statton in the Southern District of New York. (Doc. 23-6). M&M's initial Complaint in the New York suit alleged that Statton misappropriated M&M's assets, directed M&M's employees to manufacture parts for Statton's personal side business, MotorSports Tulsa LLC (MST), “off-the-books” and to prioritize work for MST rather than for M&M's own customers. (Id. at 1). M&M subsequently filed a Second Amended Complaint, which alleges claims against Statton for breach of fiduciary duty, fraud, breach of his employment agreement with M&M and an Asset Purchase Agreement, misappropriation of M&M's trade secrets, breach of representation and warranties under the Asset Purchase Agreement, and declaratory relief. (Doc. 23-9).

         Statton asserts that M&M's claims are a sham and were fabricated in an effort to avoid paying Statton $2, 000, 000 that he was owed. Statton also filed counterclaims against M&M and third-party claims against David Caputo and Rift Valley Management Partners, LLC (Rift Valley) in the New York suit, based upon allegations that Rift Valley and Caputo attempted to build a case against Statton to terminate him for cause to avoid the $2, 000, 000 payment. (See Doc. 42-4). M&M is a subsidiary of Wingman Holdings, Incorporated (WHI). Rift Valley is alleged to be the ultimate owner of WHI, and it oversees M&M's operations and performance on behalf of WHI. David Caputo is a principal of Rift Valley. Statton's claims against M&M in the New York suit are for breach of the employment agreement, indemnification, and wrongful discharge, and he asserts claims against Rift Valley and Caputo for wrongful discharge and tortious interference with his contracts with M&M. (See id.).

         The merits of the claims in the New York action are not before this Court, but are before the United States District Court for the Southern District of New York.

         B. This Declaratory Judgment Action

         Here, Statton seeks a Declaratory Judgment that he was an “insured person” under the Employment Practices Liability Coverage section of an insurance policy issued by the defendant, Allied World Specialty Insurance (Allied) to WHI. Statton seeks determinations that, pursuant to the policy: (1) Allied must indemnify Statton on M&M's claims against him in the New York suit; and (2) Allied is obligated to assume Statton's defense of M&M's claims. (See Doc. 2; Doc. 2-1).

         Statton has cited two separate policies, one which was effective between September 30, 2015 and September 30, 2016, and another effective from September 30, 2016 to September 30, 2017. He contends that both policies covered WHI as the “Named Insured, ” M&M as a “Subsidiary of the Insured, ” and also included Statton, as an “Insured person, ” because he was an “Executive, ” “Employee, ” or “Outside Entity Insured Person” under the Policy. However, the second policy, effective from September 30, 2016 to September 30, 2017, covered Wingman Intermediate Holdings, LLC, which is an entity separate from WHI and of which M&M is not a subsidiary, and Statton is not an Insured under the latter policy. (See Doc. 36-2). Thus, the only policy at issue here is the policy effective between September 30, 2015 and September 30, 2016, which included WHI as the “Named Insured.” (Doc. 36-1).

         Allied argues that (1) M&M's claims are not alleged against Statton by or on behalf of an employee and are not the type of claims contemplated by the policy's terms; and (2) the policy does not include a general duty to defend an Insured, and Allied is not obligated to assume Statton's defense under the policy's narrow tender of defense provision.

         Both parties moved for summary judgment on these issues, and the Court conducted a hearing on those cross-motions for summary judgment on January 10, 2018.

         II. Summary Judgment Standards

         Summary judgment is appropriate “if 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); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). “[S]ummary judgment will not lie if the dispute about a material fact is ‘genuine, ' that is, if the evidence is such that a reasonable jury could return a verdict for a nonmoving party.” Anderson, 477 U.S. at 248. The courts thus determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52. A non-movant's evidence is taken as true, with all justifiable and reasonable inferences drawn in the non-movant's favor. Id. at 255.

         III. Discussion

         The interpretation of an insurance contract is governed by state law and, in a diversity action, the law of the forum state applies. Houston Gen. Ins. Co. v. American Fence Co., Inc., 115 F.3d 805, 806 (10th Cir. 1997). Oklahoma rules of construction accordingly apply. Under Oklahoma law, an insurance policy is a contract to be interpreted as a matter of law, according to its terms. BP America, Inc. v. State Auto Property & Cas. Ins. Co., 148 P.3d 832, 835 (Okla. 2005). When policy provisions are unambiguous and clear, the contract language is accorded its ordinary, plain meaning, and the contract is enforced carrying out the parties' intentions. Id. A policy term will be considered ambiguous only if it can be interpreted as having two different meanings. Equity Ins. Co. v. City of Jenks, 184 P.3d 541, 544 (Okla. 1998). An ambiguity may not be created by “using a forced or strained construction by taking a provision out of context, or by narrowly focusing on a provision.” Wynn v. Avemco Ins. Co., 963 P.2d 572, 575 (Okla. 1998); see also Haworth v. Jantzen, 172 P.3d 193, 196 (Okla. 2006). A court “may not rewrite an insurance contract to benefit either party, ” and “will not impose coverage where the policy language clearly does not intend that a particular individual or risk should be covered.” BP America, 148 P.3d at 835-36.

         A. M&M's claims against Statton are not covered under the terms of the policy.

         Allied argues that M&M's claims against Statton are not covered claims within the meaning of the applicable policy provisions, such that Allied has no obligation to indemnify Statton on M&M's claims. As is relevant to this dispute, the Employment Practices Liability Coverage section of the policy requires that Allied “pay on behalf of an Insured the Loss arising from a Claim . . . against such Insured for any Wrongful Act. . . .” (Doc. 36-1 at 50-60). By its terms, that part of the policy covers only claims for a “Wrongful Act.” (See id.). In relevant part, Wrongful Act is defined as follows:

         “Wrongful Act” means ...


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