An appellate court in Washington, affirming a trial court's decision, has ruled that an insurer had no duty to defend or indemnify a corporation or its president against a minority shareholder lawsuit, reasoning that the lawsuit did not seek damages for which bodily injury, property damage, or personal and advertising injury coverages applied.
The Case
A minority of the shareholders of Mielke Brothers, Inc. (which owned crop and pasture land, farming equipment, farming buildings, and residential homes) filed a lawsuit alleging oppressive actions by the corporation through Douglas Mielke (the corporation's president and board chair) and a majority of the shareholders.
For example, the suit alleged that minority shareholder-employees were barred from accessing land necessary for employment. In addition, the minority shareholders claimed that the corporation changed its rules regarding shareholder tenants; some tenants were going to be charged rent for residential property while other tenants could reside rent-free. Other alleged mismanagement included refusal to make payments on debt owed to one of the minority shareholders, failure to pay wages, cancelling crop leases related to minority shareholder income, and refusal to allow minority participation at board meetings.
Grange Insurance Association, which provided farm insurance to Mielke Brothers, initially defended Mielke Brothers and Mr. Mielke in the minority shareholders' lawsuit under a reservation of rights. Grange then filed a declaratory judgment action in a Washington court.
The court ruled that Grange had no further responsibility to defend or indemnify under its policy.
Mielke Brothers and Mr. Mielke appealed. They argued that the Grange policy's coverage for bodily injury and property damage and for personal and advertising injury applied to the claims in the minority shareholder complaint and, as a result, Grange had a duty to defend.
The Appellate Court's Decision
The appellate court affirmed.
In its decision, the appellate court explained that the Grange policy's coverage for bodily injury and property damage was limited to an "occurrence," defined as an "accident," that happened during the policy period.
The appellate court then found that the shareholder complaint did not allege damages attributable to an accident. Rather, the appellate court said, the complaint alleged that Mielke Brothers engaged in purposefully oppressive conduct. "Such an intentional act with foreseeable consequences [did] not quality for coverage under the bodily injury and property damage provision," the appellate court ruled.
The appellate court also rejected the appellants' contention that coverage for personal and advertising injury applied because the complaint included claims for wrongful eviction. The appellate court disagreed with this characterization of the complaint, ruling that a unilateral change of lease terms (i.e., requiring rent where none was demanded before) was "not an eviction." In addition, the appellate court stated, although there was an allegation that a minority shareholder had been wrongfully excluded from farming areas, Grange's policy only applied to evictions from a place of private occupancy, not an exclusion from the workplace.
The case is Grange Ins. Ass'n v. Mielke Bros., Inc., No. 36195-1-III (Wash. Ct. App. Sept. 19, 2019). Attorneys involved include: For Appellant: Robert Powers Hailey, April L. Anderson, Timothy Nault, Randall | Danskin, P.S., Spokane, WA. For Respondent: William Frank Knowles, Jonathan Toren, Cozen O'Connor, Seattle, WA.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].