Summary: The insured, Morlan Enterprises (Morlan), brought an action against Owners Insurance Company (Owners) alleging bad faith and a violation of the Unfair Trade Practices Act (UTPA). In response, Owners sought a writ of prohibition seeking to prevent the Circuit Court from exercising jurisdiction over Owners, from applying West Virginia substantive law rather than Ohio law to an insurance coverage dispute, from allowing Morlan to proceed on its bad faith claim, and from prohibiting presentation of certain evidence. The majority of theSupreme Court of Appeals of West Virginia held in three opinions that Owners had not established the necessary elements for the granting of a writ and, therefore, denied the requested writ of prohibition.
Owners Insurance Company v. Morlan Enterprises, Inc.
This case arises from a September 15, 2005, incident where an electrician, Bobby Messer (Messer), came into contact with an energized electrical transmission line while working as a lineman for Rectron, Inc. (Rectron). Messer filed a civil action against his employer and other entities, and later added claims against Morlan, who had contracted with Rectron for services, and against Paul Kerns (Kerns), an electrician who worked as a subcontractor for Morlan.
Kerns, an Ohio resident, was covered under a commercial general liability policy issued by Owners. The Owner’s policy was obtained in Ohio through an Ohio agent and Owners operates in Ohio. After Messer’s lawsuit was filed against Morlan and the other defendants, Morlan’s insurer, Westfield Insurance Company (Westfield), put Owners on notice of a potential claim against the commercial general liability policy on which Morlan was listed as an additional insured. Owners took no action to defend Morlan until after Morlan filed a third-party complaint against Kerns. Owners then engaged counsel to defend Kerns for the third-party claim. Messer eventually asserted a direct claim against Kerns, and Owners provided a defense to that claim. In April 2009, Owners settled Messer’s claim against Morlan and Kerns but failed to resolve the coverage dispute between Morlan and Owners.
On May 24, 2011, Owners filed a motion to apply Ohio law to the dispute between Owners and Morlan. Morlan disputed Owners’ motion, arguing West Virginia law applied because the certificate of insurance issued by Owners to Morlan was issued to Morlan’s West Virginia address and that the incident giving rise to the dispute happened in West Virginia. On June 11, 2013, the Circuit Court denied Owners’ motion to apply Ohio law. Furthermore, the Circuit Court granted Morlan’s motion to prohibit any evidence or testimony about the payment of legal fees by Westfield on behalf of attorneys representing Morlan in the action. The Circuit Court also granted Morlan’s motion for summary judgment on the coverage issue, but did not address Morlan’s claims against Owners for bad faith, breach of contract and violations of the UTPA. In response, Owners sought a writ of prohibition to stop the proceedings filed by Morlan in the Circuit Court.
The Supreme Court of Appeals of West Virginia stated that the standard of review applicable to a writ of prohibition was as follows: “[a] writ of prohibition will not issue to prevent a simple abuse of discretion by a trial court. It will only issue where the trial court has no jurisdiction or having such jurisdiction exceeds its legitimate powers.” The court then went on to state that,
[text_box] In determining whether to entertain and issue the writ of prohibition for cases not involving an abuse of jurisdiction but only where it is claimed that the lower tribunal exceeded its legitimate powers, this Court will examine five factors:
- whether the party seeking the writ has no other adequate means, such as direct appeal, to obtain the desired relief;
- whether the petitioner will be damaged or prejudiced in a way that is not correctable on appeal;
- whether the lower tribunal’s order is clearly erroneous as a matter of law;
- whether the lower tribunal’s order is an oft repeated error or manifests persistent disregard for either procedural or substantive law; and
- whether the lower tribunal’s order raises new and important problems or issues of law of first impression.
These factors are general guidelines that serve as a useful starting point for determining whether a discretionary writ of prohibition should issue. Although all five factors need not be satisfied, it is clear that the third factor, the existence of clear error as a matter of law, should be given substantial weight.[/text_box]
In analyzing the first factor listed above, the Supreme Court of Appeals of West Virginia found that inasmuch as the order of the circuit court is not a final order, Owners would have an opportunity to appeal the decision of the lower court upon entry of a final order. Therefore, it could not be concluded that Owners would have no other adequate means to obtain the desired relief. Applying the second factor regarding whether Owners would be prejudiced in a way that is not correctable upon appeal, the court found no indication that any error in the lower court’s interlocutory rulings would not be reparable if this matter were directly appealed to the court; under the second factor, Owners was not prejudiced by waiting to appeal a final order.
The third and most significant factor is whether the circuit court’s order is clearly erroneous as a matter of law. Owners made a number of arguments regarding the propriety of the lower court’s rulings, including that the Circuit Court’s decision was clearly wrong because West Virginia had no jurisdiction over an Ohio insurer that issued a policy to cover an Ohio resident at the request and behest of an Ohio insurance agent. Owners further argued that Morlan was not a first-party claimant who is entitled to pursue a bad faith/UTPA agreement against Owners. Morlan countered all of these arguments, relying upon the issuance of the certificate of insurance naming it an additional named insured to its West Virginia address. The issuance of the certificate of insurance naming a West Virginia company as an additional insured was also support for Morlan’s argument that West Virginia law, not Ohio law, should apply to the case. Finally, Morlan contended that the certificate of insurance established the basis of its bad faith/UTPA claim against Owners. The court held that the circuit court’s rulings were not clearly erroneous within its definition of the phrase. While there were arguments that supported both Owners’ motion and Morlan’s response, the Circuit Court’s resolution of the issues did not leave the Supreme Court of Appeals of West Virginia with a definite and firm conviction that the lower court made a mistake, such that the matter could not proceed to a resolution before the Circuit Court and then be part of an appeal by one of the parties.
Applying the fourth and fifth factors, the appeals court found that the Circuit Court’s order did not display a type of persistent error or blatant disregard for its jurisprudence and procedure. Furthermore, the Circuit Court’s order did not raise new or important problems or issues of law of first impression. Therefore, the Supreme Court of Appeals found that Owners was not entitled to a writ of prohibition.
The takeaway from this case is to note the unwillingness of the West Virginia courts to grant a writ of prohibition absent a lower tribunal’s issuance of an order that is clearly erroneous as matter of law. Furthermore, it is important for insurance companies to understand that often complicated choice of law issues presented when multiple insureds are insured under the same policy, can impact the choice of law. The choice of law determination many times will affect the outcome of the bad faith claims asserted.
By Aaron D. French and Jeff S. Wehmer
