what is this case about ? Spenser v Hartford

introduction

Mary Spencer and thirteen of her classmates (collectively "Appellants") in the Applied

Sciences of Practical Nursing Program at Saint Louis College of Health Careers ("SLCHC")

sued SLCHC under the Missouri Merchandising Practices Act (the "MMPA"), Section 407.020,1

alleging unfair and deceptive practices in its representation of the program.SLCHC demanded

coverage from its insurer Hartford Casualty Insurance ("Hartford") under its one-year Business

Liability policy (the "Policy").Hartford denied coverage and denied defense to SLCHC.A

bench trial ensued and judgment was entered for each Appellant.

Appellants then brought this equitable garnishment action to recover the judgment from

Hartford.The trial court granted Hartford's motion for summary judgment.The court held

1 All statutory references are to RSMo 2016 unless otherwise provided.

Appellants' petition did not allege a claim that was possibly or potentially within the Policy's

coverage.We affirm.

Facts and Procedural Background

The following are the uncontroverted stipulated facts.Appellants' MMPA petition states

SLCHC "sold them the program" as a sixty-hour degree program for Applied Sciences of

Practical Nursing at SLCHC.The petition asserts SLCHC lacked approval to award a degree

and could only provide a lesser diploma despite contrary claims.Appellants sought recovery of

tuition, attorney's fees, and punitive damages.

SLCHC demanded coverage from Hartford upon service of the MMPA petition.

Hartford denied SLCHC coverage and a defense, on the basis the petition did not allege property

damage or any claim covered under the Policy.

Appellants and SLCHC entered an agreement not to execute under Section 537.065.The

agreement provided that, in the event of a judgment against SLCHC, Appellants would seek to

levy execution only against Hartford.A bench trial ensued.The trial court found SLCHC

practiced deception and fraud in the inducement and entered judgment for each Appellant in the

aggregate amount of $1,227,954 with post-judgment interest of 5.13% per annum.

Appellants then brought this equitable garnishment action against Hartford to recover the

judgment.Appellants and Hartford both moved for summary judgment based on stipulated facts.

Appellants argued Hartford breached its duty to defend because Appellants alleged "property

damage" in the MMPA petition.Appellants argued the award of a diploma rather than a degree

was a loss of property.Hartford argued that neither loss of property nor any allegation triggering

the duty to defend under the Policy language was included in the MMPA petition.

The trial court granted Hartford's motion for summary judgment.It stated an insurer's

duty to defend arises when there is the possibility or potential for coverage based on the initial

petition.The Policy included coverage for loss of property that is not physically injured.

However, the trial court highlighted the difference between the definition of tangible property

and intangible property.Black's Law Dictionary defines "property" as possessing physical form

while intangible property is without "intrinsic or marketable value" and is "merely the

representative or evidence of value, such as certificates of stock, bonds, promissory notes,

copyrights, and franchise."The trial court stated Missouri, as well as the majority of states, do

not consider an educational degree "property."The failure to award a degree was not "property

damage" and therefore not possibly or potentially within the Policy's coverage as a matter of

law.

The trial court concluded Appellants' MMPA petition failed to allege any claim covered

under the Policy.Accordingly, Hartford had no duty to provide coverage or defend.This appeal

follows.

Standard of Review

"The propriety of summary judgment is purely an issue of law."ITT Comm. Fin. Corp.

v. Mid-Am. Marine Supply Corp. 854 S.W.2d 371, 376 (Mo. banc 1993).A grant of summary

judgment is reviewed de novo.Id.We consider an appeal from summary judgment in the light

most favorable to the party against whom judgment was granted.E.O. Dorsch Electric Co. v.

Plaza Const. Co., 413 S.W.2d 167, 169 (Mo. 1967).

Discussion

Appellants' sole point on appeal is that the trial court erred in granting Hartford's motion

for summary judgment because Hartford had a duty to defend SLCHC.Appellants argue

SLCHC's failure to deliver the promised degree was "property damage."They also claim the

damages alleged in the MMPA petition related to tuition, which included books and supplies.

They argue Hartford was charged with knowledge of facts that demonstrate the possibility of

coverage because they were "known or reasonably ascertainable" at the outset of the case, citing

Truck Insurance Exchange v. Prairie Framing, LLC, 162 S.W.3d 64, 79 (Mo. App. W.D. 2005).

They assert books and supplies are known or reasonably ascertainable as needed to pursue a

degree.They contend the books and supplies were rendered "useless" when SLCHC did not

deliver its promised degree and therefore the MMPA petition alleged the "loss of use" of

tangible property.

Hartford asserts the trial court did not err in granting summary judgment because the

MMPA petition lacked allegations of property damage under the policy language. Rather,

SLCHC failed to deliver the end-product it promised, the degree.2Hartford also asserts there

was no property to be damagedthe degree never existed and was never in Appellants'

possession. We affirm.

An agreement not to execute permits plaintiffs with unliquidated claims and a tortfeasor

to enter agreements under which the parties, in the event of a judgment against the tortfeasor,

limit the assets the plaintiff(s) may obtain from the tortfeasor. See 537.065.The parties' use of

Section 537.065 is permitted only if an insurer is provided the opportunity to defend the

tortfeasor and refuses. Id. Further, "[t]o establish an equitable garnishment claim, the plaintiff

must prove that he obtained a judgment in his favor against the insurance company's insured,

that the policy was in effect when the incident occurred and that the injury is covered by the

insurance policy." Kotini v. Cenutry Sur. Co., 411 S.W.3d 374 (Mo. App. E.D. 2013).

2 Hartford also argued, in the alternative, that a policy exclusion applied.Given our holding, it is not necessary to address the argument.

An insurer's duty to defend is triggered if "the insured is exposed to potential liability to

pay based on the facts known at the outset of the case, no matter how unlikely it is that

the insured will be found liable and whether or not the insured is ultimately found

liable." McCormack Baron Mgmt. Servs., Inc. v. Am. & Liab. Ins. Co., 989 S.W.2d 168, 170

(Mo. banc 1999) (alterations omitted). "If the complaint merely alleges facts that give rise to a

claim potentially within the policy's coverage, the insured has a duty to defend."Id.If an

insurer shows there is no possibility of coverage, they have no duty to defend the insured.Id.

"The insurer is charged with knowledge of facts that demonstrate the possibility of coverage if

those facts are known or are reasonably ascertainable."Truck Ins. Exch., 162 S.W.3d at 79 (Mo.

App. W.D. 2005).

An insurer's duty to defend is broader than its duty to indemnify. "[T]he duty to defend is

distinctly different from the duty to indemnify.The issue of indemnification must await final

resolution in court.The broader duty to defend emerges as the insurer gathers facts that may or

may not ultimately be proven."Id.Because the only issue raised by Appellants on appeal is the

duty to defend that is the only issue we address.

The Policy's definition of property damage provides, in pertinent part:

G. LIABILITY AND MEDICAL EXPENSES DEFINITIONS

. . . .

20. "Property damage" means:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of "occurrence" that caused it.

We find Appellants' arguments unpersuasive.The MMPA petition does not allege

physical injury to tangible property or the loss of use of tangible property.Instead, it discusses

SLCHC's misrepresentation of its Applied Sciences of Practical Nursing Program and sought to

recover tuition based on this misrepresentation.Appellants' loss was monetary and it is well

settled that money is not tangible property.See e.g., In Re Armistead, 245 S.W.2d 145, 149 (Mo.

1952).Therefore, SLCHC's failure to award the promised degree cannot possibly or potentially

be "property damage."

Appellants asserted at oral argument and in their brief the loss of use of "books and

supplies" constituted "property damage."The record reveals this argument was first made on

appeal and is therefore not preserved for review. See e.g., State v. Davis, 348 S.W.3d 768, 770

(Mo. banc 2011) ("An issue that was never presented to or decided by the trial court is not

preserved."); Smith v. Shaw, 159 S.W.3d 830, 835 (Mo. banc 2005).We decline to review this

unpreserved argument. See Bowman v. Prinster, 384 S.W.3d 365, 372 (Mo. App. E.D. 2012).

("Although we may review an unpreserved claim for plain error, we rarely review for plain error

in civil cases.")

Even if we were to address Appellants' argument regarding books and supplies,

Appellants' argument has no merit.While we agree with Appellants it is "known or reasonably

ascertainable" that textbooks and supplies are attendant to the pursuit of a degree, Appellants fail

to make a persuasive argument for "loss of use."Appellants cite to Columbia Casualty Co., v.

Hiar Holdings, 411 S.W.3d 258 (Mo. banc 2013), in support of the proposition there is "loss of

use" in the present case. In Columbia, a hotel proprietor, HIAR Holdings, LLC, sent

"approximately 12,500 unsolicited junk faxes" for the purpose of advertising.Id. at 261-62.The

plaintiff filed a class action suit under the Telephone Consumer Protection Act ("TCPA"),

seeking injunctive relief and monetary damages.Id. at 262.HIAR tendered suit to its insurer,

Columbia Casualty Insurance.Id.HIAR held a commercial general liability policy that included

coverage for property and advertising injury.Id.The policy insured HIAR against "those sums

that [HIAR] becomes legally obligated to pay as damages because of [property damage or

advertising injury] to which this insurance applies."Id. 265-66.Columbia refused to defend or

provide coverage to HIAR, asserting the claims were outside the scope of the policy.Id. at 262.

After Columbia again refused to defend or provide coverage to HIAR, HIAR reached a

settlement with plaintiffs.Id.The trial court approved both the settlement and the assignment of

HIAR's claims against Columbia to plaintiffs.Id.The plaintiffs brought an equitable

garnishment action against Columbia.Id.at 263.The trial court found Columbia was liable for

the settlement amount.The Missouri Supreme Court affirmed, stating property damage coverage

was invoked due to the "loss of use of equipment and phone lines for outgoing and incoming

faxes, the expense of paper and ink, and the resultant inconvenience and annoyance ... [of]

unsolicited fax advertisements."Id. at 268.

Columbia and the present case are factually distinct.Here, SLCHC did not use

Appellants' books or supplies without their permission.Appellants used their books and

supplies, the cost of which was included in the tuition, in pursuit of a lesser diploma than the

degree promised.Appellants conflate "loss of use" with the value of the books and supplies

included in the tuition.The books and supplies were part of the monetary fraud perpetrated and

alleged in the Appellants' petition against SLCHC.

Appellants also contend in their brief that Hartford is liable for the entire amount of the

underlying judgment and bad faith is not required to hold an insurer liable for the full amount of

a judgment.However, these issues are not reached when an insurer does not breach the duty to

defend.See Columbia Cas. Co., 411 S.W.3d at 264, 273.Therefore, we decline to address the

arguments.Given our standard of review, we affirm the trial court's decision.Point denied.

Conclusion

The actions of SLCHC, selling and collecting tuition for a non-existent degree, are

abhorrent.The allegations in Appellant's petition however do not expose Hartford to potential

liability under the terms of the insurance policy.Hartford did not owe a duty to defend to

SLCHC.The trial court did not err granting Hartford summary judgment.We affirm the trial

court.