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Allied World Specialty Insurance Co. v. City of Ferguson, Missouri

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

March 11, 2019

ALLIED WORLD SPECIALTY INSURANCE COMPANY, f/k/a Darwin Select Insurance Company, Plaintiff,



         This matter is before the court on Defendant The City of Ferguson, Missouri's Motion to Dismiss or to Strike Plaintiffs Complaint for Declaratory Judgment or Alternative Motion to Abstain (ECF No. 11). This matter is fully briefed and ready for disposition.


         Plaintiff Allied World Specialty Insurance Company, formerly known as Darwin Select Insurance Company ("Allied") seeks a declaration that it has no duty to defend or indemnify the City of Ferguson (the "City") under a public officials liability insurance policy (the "Policy") issued to the City by Allied. Allied issued a Public Officials Liability and Employment Practices Liability Insurance Policy, No. 0202-2994, to the City for the Policy Period of July 1, 2014 through July 1, 2015.

         The underlying lawsuit for which the City is seeking coverage is Carter et al. v. City of Ferguson, No. 14SL-CC04195 (Circuit Court of St. Louis County, State of Missouri). In the Carter lawsuit, the plaintiffs allege the City "charges a variety of illegal fees, designed to profit the municipal corporation at the expense of the general welfare." The allegedly illegal fees include a "warrant recall" fee, a "letter" fee, and a "failure to appear" or "FTA" Fee (collectively, the "Fees"). The Carter lawsuit alleges that the Fees are "statutorily prohibited, are void because they were enacted for profit and not to promote the welfare of the public, and violate the Missouri Constitutional rights of Plaintiff and Class." The Carter lawsuit further alleges the Fees are "not a tax" and are not "related to actual costs incurred," but rather are "charged by [the City] as a means of profiting from the issuance of traffic tickets and other violations," and that the Fees are "not designed to promote healthy, safety, peace, comfort, or general welfare of the public. [They are] designed to generate profit." The Carter lawsuit seeks to recoup from the City certain fees that were charged by the City, allegedly in violation of Missouri statutory law and plaintiffs' rights under the Constitution.

         Allied is defending the City in the Carter lawsuit, subject to a full and complete reservation of Allied's rights pursuant to the terms and conditions of the Policy. The City has made demand upon Allied to pay the limits of the Policy in settlement of the claims asserted in the Carter lawsuit.

         On May 31, 2018, Allied filed this action in this Court. Allied brings claims for: Count I-Declaratory Judgment (Uncovered or Uninsurable Loss) and Counts II-VI seek Declaratory Judgment pursuant to various exclusions under the Policy.


         To survive a motion to dismiss, a complaint "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp., v. Twombly, 550 U.S. 544, 570 (2007). A "formulaic recitation of the elements of a cause of action" will not suffice. Twombly, 550 U.S. at 555. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556).


         The City has filed a motion to dismiss Allied's declaratory judgment claims. In its Motion, the City argues that Allied's Complaint fails to state plausible claims for relief.

         Specifically, Allied argues that the Policy requires Allied to defend the City until some court concludes that Allied is not liable under the Policy and, therefore, the counts seeking to find Allied has no defense obligation should be stricken. (ECF No. 12 at 4-5). Further, the City asks the Court to apply the "innocent taxpayer" rule to find an exception to the public policy prohibition for municipal entities. (ECF No. 12 at 6-7). In addition, the Court argues that Counts II, III, and IV should be dismissed or stayed because the Policy's "in fact" language in Section III.A.[2] requires the Court to await factual findings in the Carter case before the exclusion is triggered. The City also contends the Court should dismiss Count IV of the Complaint because the illegal "profit, renumeration or advantage" does not apply in that an allegation that the City received personal gain is not an essential element of each claim in the Carter lawsuit. The City asserts Count V should be dismissed because it is fatally flawed; the exclusion in Section III.C. (11) does not apply.[3] The City claims Count VI should be dismissed because the exclusion in Section III.C. (15) does not apply to the allegations in the Carter lawsuit.[4] Finally, the City asks this Court to dismiss or stay the litigation pending a final determination of the Carter lawsuit under the principles of abstention.

         "Under Missouri's Declaratory Judgment Act, any person interested under a written contract, or whose rights are affected by a contract may have determined any question of construction or validity under the contract and obtain a declaration of rights." Secure Energy, Inc., 2012 WL 13710, at *2 (citing Mo.Rev.Stat. §527.020). An action under the declaratory judgment act requires a justiciable controversy wherein: "(1) the plaintiff has a legally protectable interest at stake; (2) a substantial controversy exists with genuinely adverse interests; and (3) the controversy is ripe for judicial determination." Missouri Alliance for Retired Am. v. Dep't of Labor & Indus. Relations, 277 S.W.3d 670, 676 (Mo. 2009) (citations omitted). Allied's Complaint asks the Court to identify the parameters of its duty to defend and indemnify the City. An insurer's duty to defend a suit against its insured arises "whenever there is a potential or possible liability to pay based on the facts at the outset of the case and is not dependent on the probable liability to pay based on the facts ascertained through trial." McCormack Baron Mgmt. Servs., Inc. v. Am. Guar. & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo. 1999). The duty to defend is determined by comparing the language of the insurance policy with the allegations in the complaint. Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d 857, 861 (8th Cir. 2012) (citing McCormack, 989 S.W.2d at 170); see also Williams v. Employers Mut. Cas. Co., No. 4:13-CV-2393 RLW, 2015 WL 892556, at *3 (E.D. Mo. Mar. 2, 2015), aff'd, 845 F.3d 891 (8th Cir. 2017). Unlike the duty to defend, "[t]he duty to indemnify is determined by the facts as they are established at trial or as they are finally determined by some other means, for example through summary judgment." McCormack, 989 S.W.2d at 173. Under Missouri law, the duty to defend is broader than the duty to indemnify. Lampert v. State Farm Fire and Cas. Co., 85 S.W.3d 90, 93 (Mo.Ct.App. 2002). An insurer may have a duty to defend claims falling within the policy even if it may not ultimately be obligated to indemnify the insured. Millers Mut. Ins. Ass'n of Illinois v. Shell Oil Co., 959 S.W.2d 864, 871 (Mo.Ct.App. 1997); Argonaut Great Cent. Ins. Co. v. Lincoln Cty., Missouri, No. 4:17-CV-00762 JAR, 2018 WL 3756767, at *4 (E.D. Mo. Aug. 8, 2018). "The duty to defend arises when the insured is first sued and thus is understandably broader than the duty to indemnify." Esicorp, Inc. v. Liberty Mut. Ins. Co., 193 F.3d 966, 969 (8th Cir. 1999) "Where there is no duty to defend, there is no duty to indemnify.", 4m. States Ins. Co. v. Herman C Kempker Constr. Co., 71 S.W.3d 232, 236 (Mo. App. W.D. 2002); Trainwreck W. Inc. v. Burlington Ins. Co., 235 S.W.3d 33, 44 (Mo.Ct.App. 2007).

         Upon review of the Complaint and the memoranda pertaining to the present motion to dismiss, the undersigned finds that dismissal is not appropriate at this time. At the motion to dismiss stage, the only issue before the Court is whether the pleadings state a cause of action that is plausible on its face. Secure Energy, Inc. v. Philadelphia Indem. Ins. Co., No. 4:11CV1636 TIA, 2012 WL 13710, at *2 (E.D. Mo. Jan. 4, 2012). The Court holds that Allied has sufficiently alleged facts to support a declaratory judgment action. Allied alleges a present case and controversy that is ripe for adjudication. See Employers Ass'n, Inc. v. United Steelworkers,32 F.3d 1297, 1299 (8th Cir.1994) ("[r]ipeness is demonstrated by a showing that a live controversy exists such that the plaintiffs will sustain immediate injury from the operation of the challenged provisions."); S. Dakota Min. Ass'n, Inc. v. Lawrence Cty.,155 F.3d 1005, 1008 (8th Cir. 1998). The City has made a claim for settlement for its full policy limits, and Allied is currently defending this action under a reservation of rights. See Home v. Firemen's Ret. Sys. of St. Louis,69 F.3d 233, 236 (8th Cir.1995) (quoting United States v. Fisher-Otis Co., 496 F.2d 1146, 1151 (10th Cir.l974))("The essential distinction between a declaratory judgment action and an action seeking other relief is that in the former no actual wrong need have been committed or loss have occurred in order to sustain the action."); Cty. of Mile Lacs v. Benjamin, 361 F.3d 460, 464 (8th Cir. 2004). The Court will make a coverage determination after interpreting the insurance policy and the allegations in the underlying lawsuit. This determination is a question of law that is appropriately determined by this Court. Griffitts v. Old Republic Ins. Co., 550 S.W.3d 474, 478 (Mo. 2018) ...

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