Davis, J.:
This case involves two consolidated
appeals filed by Thomas J. Aluise and Jacqueline B. Aluise, appellants/plaintiffs
below (hereinafter referred to as “the Aluises”), from two adverse
summary judgment orders entered by the Circuit Court of Kanawha County. The
two orders granted summary judgment to Nationwide Mutual Fire Insurance Company
and two of its employees, Betsy A. Ross and Terry Ridenour, appellees/defendants
below (hereinafter collectively referred to as “Nationwide”). Here,
the Aluises contend the circuit court erred in granting Nationwide summary
judgment, denying their motions for summary judgment, and erred in adopting
the recommendations of a discovery commissioner. Based upon the arguments of
the parties and a careful review of the record, we affirm the circuit court's
order.
In April of 2003, the Forsseniuses allowed
judgment to be entered against them in the amount of $34,000.00. Also, the Forsseniuses
assigned the Aluises any first-party bad faith claim they may have had against
Nationwide. In exchange for the assignment, the Aluises entered into a covenant
not to execute the judgment against the Forsseniuses.
On July 18, 2003, the Aluises filed an action
against Nationwide in the Circuit Court of Kanawha County. The complaint asserted
causes of action for first-party breach of contract, first-party bad faith settlement,
and third-party bad faith settlement. After answering the complaint, Nationwide
filed a motion for summary judgment on December 24, 2003.
On January 5, 2004, while the case was still
pending in Kanawha County, the Aluises filed a separate action in the Circuit
Court of Cabell County against Nationwide, its adjuster Betsy A. Ross, and its
claims legal counsel, Terry Ridenour. The Cabell County complaint asserted twelve
causes of action that included three breach of contract claims involving homeowner's
policies allegedly issued to the Forsseniuses in West Virginia, Indiana and Virginia;
four first-party bad faith claims; and five third-party bad faith claims.
On April 28, 2004, the Circuit Court of Kanawha
County entered an order consolidating the two actions. This order also bifurcated
the contract coverage and duty to
defend issues from the bad faith claims, and stayed discovery on the bad faith
claims.
On March 31, 2004, the Aluises filed nine
motions for partial summary judgment. (See
footnote 3) On June 16, 2004, the circuit court heard oral arguments
on five of the Aluises' motions for partial summary judgment, and on Nationwide's
previously filed motion for summary judgment relating to the issues of coverage
and the duty to defend. By order entered July 22, 2004, the circuit court granted
Nationwide's motion for summary judgment concluding there was no coverage or
duty to defend. The order also denied the Aluises' motions for partial summary
judgment.
Nationwide filed a motion for summary judgment
on the remaining bad faith claims on August 9, 2004. The Aluises responded to
the motion by arguing that the July 22 summary judgment order involved only the
West Virginia policy, and that issues related to coverage and the duty to defend
under the Virginia and Indiana policies remained. The Aluises also asked the
court to rule upon its previously filed partial summary judgment motions involving
the bad faith claims. Nationwide replied to the Aluises' response by pointing
out that the controlling language of the Virginia policy was identical to the
West
Virginia policy. (See footnote
4) Nationwide also alleged that the Aluises failed to show that
an Indiana policy was issued to the Forsseniuses. By order entered December
16, 2004, the circuit court granted Nationwide's motion for summary judgment
on all remaining issues and denied the Aluises remaining motions for partial
summary judgment. Thereafter, the Aluises filed separate appeals to this Court
for the summary judgment orders entered on July 22 and December 16, 2004. We
consolidated the two appeals for purposes of our review.
Occurrence
means bodily injury (See
footnote 11) or
property damage (See footnote
12) resulting from an accident, including continuous or repeated
exposure to the same general conditions. The occurrence must be during the policy
period.
(Footnotes added).
This Court has long held that “[l]anguage
in an insurance policy should be given its plain, ordinary meaning.” Syl.
pt. 1, Soliva v. Shand, Morahan & Co., 176 W. Va.
430, 345 S.E.2d 33 (1986). See also Syl. pt. 2, American States Ins.
Co. v. Tanner, 211 W. Va. 160, 563 S.E.2d 825 (2002). Further, “[w]here
the provisions in an insurance policy contract are clear and unambiguous they
are not subject to judicial construction or interpretation, but full effect
will be given to the plain meaning intended.” Syllabus, Keffer v. Prudential
Ins. Co., 153 W. Va. 813, 172 S.E.2d 714 (1970). See also Syl.
pt. 1, Russell v. State Auto. Mut. Ins. Co., 188 W. Va. 81, 422
S.E.2d 803 (1992).
The complaint filed by the Aluises against
the Forsseniuses in the underlying action, essentially alleged that the Aluises
sustained damages as a result of the failure of the Forsseniuses to disclose
a structural and water seepage problems in the home. Nationwide contends that
such a claim against the Forsseniuses is clearly not an occurrence within the
meaning of the policy. We agree.
The coverage issue presented in this case
was addressed in St. Paul Fire & Marine Ins. Co. v. Lippincott, 287
F.3d 703 (8th Cir. 2002). In that case, a couple, Steve and Bonnie
Thompson (hereinafter referred to as “the Thompsons”), filed an action
against Charles and Barbara Lippincott (hereinafter referred to as “the
Lippincotts”) alleging fraud in the sale of a home they purchased from the
Lippincotts. Specifically, the Thompsons alleged the Lippincotts intentionally
and negligently concealed structural damage to a house they sold to the Thompsons.
It was determined that before listing the house for sale, the
Lippincotts patched a structural crack with spackling, covered a crack with
carpet, and then filled a room with boxes, making it difficult to discover
the cracks. In selling the home to the Thompsons, the Lippincotts completed
a property disclosure statement falsely representing that they were unaware
of any past or present cracks or flaws in the walls or foundations. A judgment
was eventually entered awarding the Thompsons $75,000. Subsequent to the judgment,
the Lippincotts' insurer filed a declaratory judgment action seeking a determination
that judgment entered against its insureds was not covered under their basic
insurance and umbrella policies. The district court granted summary judgment
to the insurer upon finding the policies did not cover the claim against the
Lippincotts. The Eighth Circuit Court of Appeals agreed with the district court
for the following reasons:
The
Lippincotts' negligent misrepresentations did not cause any property damage to
the house. Neither did the Lippincotts' actions to conceal the cracks in the
house cause any property damage to the house. The structural flaws in the house
constitute tangible property damage, but these flaws predate the occurrence of
concealments and misrepresentations by which the Lippincotts incurred liability.
The Thompsons' judgment covered the intangible losses incurred when the Thompsons
relied to their economic detriment upon the Lippincotts' misrepresentations.
These damages are pecuniary in nature and are not property damage within the
meaning of the St. Paul insurance policies.
St. Paul, 287 F.3d at 706. The decision in St. Paul is not isolated.
It has been recognized that courts “are virtually unanimous in their holdings
that damages flowing from misrepresentation and/or fraud have no basis [as]
property damage; rather, the only
cognizable damages from such torts are economic and contractual in nature and
as such do not fall within the scope of coverage afforded by [homeowners] policies[.]” State
Farm Fire and Cas. Co. v. Brewer, 914 F. Supp. 140, 142 (S.D. Miss.
1996) (citing Safeco Ins. Co. of America v. Andrews, 915 F.2d 500 (9th Cir. 1990)). Accord Allstate
Ins. Co. v. Morgan, 806 F. Supp. 1460 (N. D. Cal. 1992); Allstate
Ins. Co. v. Chaney, 804 F. Supp. 1219 (N.D. Cal. 1992); Allstate
Ins. Co. v. Hansten, 765 F. Supp. 614 (N.D. Cal. 1990); State
Farm Fire and Cas. Co. v. Gwin, 658 So. 2d 426 (Ala. 1995); Devin
v. United Servs. Auto. Assoc., 8 Cal. Rptr. 2d 263 (1992); Dixon
v. National Am. Ins. Co., 411 N.W.2d 32 (Minn. 1987); Qualman v. Bruckmoser,
471 N.W.2d 282 (Wis. 1991).
Based upon the overwhelming authorities,
we now hold that, absent policy language to the contrary, a homeowner's policy
defining “occurrence” as “bodily injury or property damage resulting
from an accident” does not provide coverage for an insured homeowner who
is sued by a home buyer for economic losses caused because the insured negligently
or intentionally failed to disclose defects in the home.
Applying our holding to the facts of this
case, it is clear that no language in the policy provided coverage for the type
of action the Aluises brought against the Forsseniuses. The policy provided coverage
for property damage or bodily injury sustained at the Forsseniuses home. The
Aluises sought damages for economic losses they sustained as a
result of the negligent or intentional failure of the Forsseniuses to disclose
defects in the home at the time of the sale. The claims asserted by the Aluises
simply do not trigger an occurrence as defined under the policy. As one court
appropriately noted, “[t]o find coverage existed in this case would be
to find that based on an act of sale, a homeowner's insurer becomes the warrantor
of the condition of the insured property. This is not the type of coverage
which is contemplated by . . . homeowner's policies[.]” Lawyer
v. Kountz, 716 So. 2d 493, 498 (La. Ct. App. 1998). See Lenning
v. Commercial Union Ins. Co., 260 F.3d 574, 577 (6th Cir. 2001); Shelter
Mut. Ins. Co. v. Brown, 345 F. Supp. 2d 645 (S.D. Miss.
2004) (same); Allstate Ins. Co. v. Morgan, 806 F. Supp. 1460 (N.D. Cal.
1992) (same); Miller v.
Western Gen. Agency, Inc., 49 Cal. Rptr. 2d 55 (1996) (homeowners
policy did not provide coverage for problems arising from sale of home); Fisher
v. Fitchburg Mut. Ins. Co., 560 A.2d 630 (N.H. 1989) (same); Syvertsen
v. Great Am. Ins. Co., 700 N.Y.S.2d 289 (1999) (same); Cincinnati Ins.
Co. v. Anders., 789 N.E.2d 1094 (Ohio 2003) (same); Sclabassi v. Nationwide
Mut. Fire Ins. Co., 789 A.2d 699 (Pa. Super. Ct. 2001) (same); Huffhines
v. State Farm Lloyds, 167 S.W.3d 493 (Tex. Ct. App. 2005) (same).
3. Duty to defend. The Aluises also
contend that the circuit court erred in finding that Nationwide did not have
a duty to defend the Forsseniuses in the underlying suit. To support their contention
that a duty to defend existed, the Aluises argue that “[t]he allegations
in the underlying tort case clearly allege property damage as a result of negligent
repair and negligent failure to disclose.” This Court has held that, “[a]s
a general rule, an insurer's duty to defend is tested by whether the allegations
in the plaintiffs complaint are reasonably susceptible of an interpretation
that the claim may be covered by the terms of the insurance policy.” Aetna
Cas. & Sur. Co. v. Pitrolo, 176 W. Va. 190, 194, 342 S.E.2d 156,
160 (1986) (citations omitted).
The allegations in the underlying complaint
simply do not rise to the requirement of Aetna, that the allegations be “reasonably
susceptible” to an interpretation that the claims may be covered. A case
that helps illustrate this conclusion is Qualman v. Bruckmoser, 471 N.W.2d
282 (Wis. Ct. App. 1991).
The decision in Qualman involved undisclosed
defects in a home that was sold by the insureds. The buyers alleged negligent
and intentional misrepresentation and breach of contract in the sale of the house.
Specifically, the buyers alleged that the house had cracked basement walls and
defective kitchen pipes, and that the insureds misrepresented these known conditions
and breached the contract. The insureds tendered their defense to the insurer;
but, the insurer declined to defend. The buyers subsequently filed an amended
complaint and named the insurer as a defendant. The insureds thereafter filed
a cross-claim against the insurer seeking indemnification pursuant to the terms
of their homeowner's policy in the event they were required to pay any damages,
and for recovery of costs incurred in the
defense of the claims. The trial court granted summary judgment in favor of
the insurer and entered a judgment dismissing the buyers' claims and the insureds'
cross-claim. The insureds appealed. The appellate court affirmed. In addressing
the duty to defend issue, the appellate court reasoned as follows:
An
insurance company's duty to defend is dependent solely on the allegations of
the complaint. These allegations must state or claim a cause of action for the
liability insured against or for which indemnity is paid in order for the suit
to come within any defense coverage of the policy. Thus, for there to be a duty
to defend, there must be allegations in the complaint which would fall within
coverage afforded under the policy. . . .
The
pertinent language of the policy issued to the Bruckmosers provides the following:
. . . “Property
damage” is defined in the policy as “injury to or destruction of tangible
property, including the loss of its use.”
The
causes of action against the [insureds] relate to breach of contract and misrepresentation
of significant structural defects. The damages for such claims, if proven, would
be the difference between the market value of the property at the time of purchase
and the amount actually paid. Therefore, the damages alleged by the [buyers]
are pecuniary in nature and do not constitute property damage as defined by the
insurance policy. Property damage within the meaning of the policy is not alleged.
There is no coverage in the policy for the pecuniary loss the [buyers] do allege.
Thus, [the insurer] has no duty to defend.
Qualman, 471 N.W.2d at 284-285 (internal quotation marks and citations
omitted). See also Safeco Ins. Co. of America v. Andrews,
915 F.2d 500 (9th Cir. 1990) (no duty to defend under homeowner
policy for claims arising from sale of home); Allstate Ins. Co. v. Miller,
743
F. Supp. 723 (N.D. Cal. 1990) (same).
In the instant proceeding, the complaint
filed by the Aluises alleged “property damage as a result of negligent repair
and negligent failure to disclose.” These allegations simply do not fall
within the scope of the policy and therefore did not trigger a duty to defend. (See
footnote 13)
The Aluises have assigned error
to several issues regarding the circuit court's summary judgment order of December
16, wherein the circuit court dismissed the remaining claims. Those issues
involve the Virginia policy, the Indiana policy, and the bad faith claims.
We will address each issue separately.
(1) The Virginia policy. Nationwide
issued a homeowners policy to the Forsseniuses for a Virginia residence they
maintained. The Aluises contended that coverage and a duty to defend existed
by virtue of this policy. The circuit court's order addressed this issue as follows:
Having
now reviewed the Virginia policy issued by Nationwide to Mr. and Mrs. Forssenius,
the Court finds that the definitions of “occurrence” and the coverages
set forth in the
Virginia policy are identical to the West Virginia policy and therefore the
Court finds that summary judgment is appropriate regarding coverage under the
Virginia policy, incorporating herein the findings of July 22, 2004.
The Aluises do not contest the circuit court's
determination that the Virginia policy was identical to the West Virginia policy.
Instead, in this appeal they simply assert that “to the extent that this
Court reverses as to the West Virginia policy, Appellants ask that you also reverse
as to the Virginia policy.” This is the sum total of the grounds for reversing
the order with respect to the Virginia policy. Insofar as we have determined
that no coverage or duty to defend existed under the Wets Virginia policy, we
find no error with the circuit court's ruling on the Virginia policy.
(2) The Indiana policy. The Aluises
also asserted that Nationwide issued the Forsseniuses a homeowners policy for
an alleged home they owned in Indiana. The circuit court granted summary judgment
on this issue because the Aluises failed to produce any evidence that such a
policy was in fact issued.
In their brief, the Aluises contend that
no evidence was forthcoming on the Indiana policy because the circuit court “ruled
on Nationwide's motion as to all remaining counts before any discovery was taken
as to the newly added counts . . . Therefore, to the extent that
this Court finds that discovery should have been allowed, Appellants ask that
the summary judgment as to the Indiana policy be reversed as well.”
As an initial matter, we will note that when
the circuit court consolidated the Cabell County action with the Kanawha County
action, the order stayed discovery only as to the bad faith claims. Consequently,
discovery was available for all other claims. The Aluises apparently did not
avail themselves of the right to conduct discovery on the issue of the existence
of the Indiana policy. Now, the Aluises would have this Court afford them such
an opportunity. We respectfully decline to do so.
Our rules of civil procedure are quite clear
as to what a party must do if he/she feels that discovery is needed before he/she
can defend against a motion for summary judgment. We addressed this issue in
syllabus point 3 of Williams v. Precision Coil, Inc., 194 W. Va.
52, 459 S.E.2d 329 (1995), as follows:
If
the moving party makes a properly supported motion for summary judgment and can
show by affirmative evidence that there is no genuine issue of a material fact,
the burden of production shifts to the nonmoving party who must either (1) rehabilitate
the evidence attacked by the moving party, (2) produce additional evidence showing
the existence of a genuine issue for trial, or (3) submit an affidavit explaining
why further discovery is necessary as provided in Rule 56(f) of the West Virginia
Rules of Civil Procedure.
(Emphasis added).
Under Williams, the Aluises were required
to submit an affidavit explaining the need for discovery in order to resist summary
judgment as to the Indiana policy. This was
not done. Consequently, the Aluises cannot complain to this Court about the
need for discovery on that issue.
(3) Bad faith claims. The Aluises
argue that even if the circuit court was correct in dismissing the substantive
claims under the policies, it erred in dismissing the bad faith claims alleged
under the West Virginia Unfair Claims Settlement Practices Act, W. Va. Code § 33-11-4(9)
(2003). The Aluises point out that under the Act “there is no requirement
that one substantially prevail” with respect to the underlying coverage
and/or duty to defend claim(s). McCormick v. Allstate Ins. Co., 197 W. Va.
415, 427, 475 S.E.2d 507, 519 (1996) .
Here, the Aluises have briefed only one issue
as the basis for keeping their bad faith claims alive. The Aluises allege that
an issue exists as to whether Nationwide promptly responded when the Forsseniuses
notified them of the lawsuit. Under the regulations promulgated pursuant to the
Act, Nationwide had to respond within 15 working days. See 114 CSR 14-5.3.
Nationwide was informed of the lawsuit by
the Forsseniuses on December 16, 2002. (See
footnote 14) Nationwide investigated the matter and issued a denial
of coverage letter to the Forsseniuses on January 3, 2003. Excluding non-working
days, it is clear that Nationwide
responded within 15 working days. Further, after the lawsuit was actually filed,
a request was made for Nationwide to provide a defense on January 8, 2003.
On January 20, 2003, Nationwide issued a letter denying a defense. This response
was also within the 15 day requirement. Insofar as the Aluises have not asserted
any other reasons why their bad faith claims should not have been dismissed,
we will not disturb the circuit court's ruling on the issue. (See
footnote 15)
On December 8, 2003, the circuit court
referred certain discovery matters to a Special Commissioner. A hearing was
conducted by the Special Commissioner and on January 30, 2004, the Special
Commissioner issued a report. By order entered February 25, 2004, the circuit
court adopted the report of the Special Commissioner. In this appeal, the Aluises
have assigned a number of issues as error regarding the discovery order. In
their brief, the Aluises indicate that if this Court affirmed the summary judgment
orders the issues raised involving the discovery order are moot. We agree.
However, we believe that one of the discovery order issues raised by the Aluises
should be addressed even though the issue is moot in this case.
This Court set out the standard for determining whether to address a moot issue in syllabus point one of Israel by Israel v. West Virginia Secondary Schools Activities Commission, 182 W. Va. 454, 388 S.E.2d 480 (1989):
Three
factors to be considered in deciding whether to address technically moot issues
are as follows: first, the court will determine whether sufficient collateral
consequences will result from determination of the questions presented so as
to justify relief; second, while technically moot in the immediate context, questions
of great public interest may nevertheless be addressed for the future guidance
of the bar and of the public; and third, issues which may be repeatedly presented
to the trial court, yet escape review at the appellate level because of their
fleeting and determinate nature, may appropriately be decided.
The moot issue presented in this case involves
a request by the Aluises to record the discovery proceedings held before the
Special Commissioner. The Aluises contend that on the day the proceeding was
actually held they asked the Special Commissioner to allow a court reporter to
record the proceedings. The Special Commissioner refused the request. The Aluises
contend that they should have been permitted to have the proceedings recorded.
We believe that the issue of utilizing a court reporter at a proceeding before
a Special Commissioner raises a legal matter of vital public interest which is
subject to repetition and requires guidance from this Court for future actions.
Consequently, we will address this matter though it is moot for the purposes
of the Aluises' appeal.
We have previously noted that “there is the time-honored use of special commissioners by courts for certain purposes[.]” Nagy v. Oakley, 172 W. Va. 569, 571, 309 S.E.2d 68, 70 (1983). See also State of West Virginia ex rel. Allstate Ins. Co. v. Madden, 215 W. Va. 705, 720, 601 S.E.2d 25, 40 (2004) (“In conducting in camera examinations of the purportedly privileged communications, the circuit court may conduct such inquiries itself or may, in the interests of judicial economy, appoint a special master for this purpose.”). Although no specific statute or rule authorizes trial courts to appoint commissioners to preside over discovery matters, (See footnote 16) it has been correctly noted that,
Courts
have (at least in the absence of legislation to the contrary) inherent power
to provide themselves with appropriate instruments required for the performance
of their duties. . . . This power includes authority
to appoint persons unconnected with the court to aid judges in the performance
of specific judicial duties as they may arise in the progress of a cause.
In re Peterson, 253 U.S. 300, 312, 40 S. Ct. 543, 547, 64 L. Ed.
919 (1920). See also United Steelworkers of Am., AFL-CIO, CLC v.
Tri-State Greyhound Park, 178 W. Va. 729, 735, 364 S.E.2d 257, 263
(1987) (“'The general rule applicable in equitable actions is that even
in the absence of a statute authorizing it, a court of equity has inherent
power to enter an order [appointing a commissioner]' 66 Am. Jur. 2d
References § 13, at 489 (1973).”); People v. Superior Court,
107 Cal. Rptr. 2d 323, 328 (2001) (“[T]he superior court nonetheless
possesses inherent authority to appoint a special master to assist it in examining
such documents and ruling upon the claims of privilege.”); State v.
Doe, 603 P.2d 731, 734 (N.M. 1979) (“[I]t is generally recognized
that the district court has inherent power to appoint special masters. This
is an inherent power of the judiciary.”). In the instant proceeding, the
trial court relied upon its inherent authority to appoint the Special Commissioner
to hold a hearing and make recommendations regarding specific discovery issues.
The general guidelines for commissioners
appointed by trial courts to address
specific matters has been summarized as follows:
An
order referring a case to a commissioner is the source and limit of the commissioner's
duties and powers. If an order is silent on the manner in which a commissioner
must conduct a proceeding, the commissioner has substantial discretion to determine
the kind of evidence the parties must submit and the manner in which it may be
presented. Further, the commissioner has discretion, absent a trial court's order
to the contrary, to permit discovery or hold an evidentiary hearing
in a particular case.
Cleckley, Davis and Palmer, Litigation Handbook, § 53, at 131 (Supp.
2005). In the instant proceeding, the order appointing the Special Commissioner
did not address the issue of recording the proceedings. However, the Special
Commissioner had discretionary authority to allow the Aluises to record the
hearing. In an effort to resolve the issue of recording proceedings heard by
commissioners appointed by trial courts, we now hold that, in a proceeding
heard by a Special Commissioner appointed by a trial court, a party is entitled
to have the proceeding recorded if a timely request is made. The costs incurred
in recording the proceeding shall be borne by the party making the request,
if the parties have not made other arrangements for paying such costs.
Under the facts of this case and in view
of our holding, we do not believe the Special Commissioner abused his discretion
in not permitting the proceedings to be recorded. During oral argument it was
indicated that the request to have the proceeding recorded was made at the hearing
before the Special Commissioner. There was no indication that the
means for recording the proceeding were immediately available when the request
was made, i.e., the hearing would have been delayed for some unspecified time
in order to provide a method of recording the proceeding. Under these facts,
we believe the request was simply untimely made. (See
footnote 17)