Donald R. Martin, Appellant, v. United States Fidelity and Guaranty Company, Respondent.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Western District Case Style: Donald R. Martin, Appellant, v. United States Fidelity and Guaranty Company, Respondent. Case Number: 55439 Handdown Date: 12/29/1998 Appeal From: Circuit Court of Cooper County, Hon. Michael Lyons Midyett Counsel for Appellant: Mark Pfeiffer Counsel for Respondent: Kathy Wilke Opinion Summary: Plaintiff Donald R. Martin appeals from a declaratory judgment rendered by the Jackson County trial court in favor of United States Fidelity & Guaranty Company. AFFIRMED. Division Four holds: The trial court did not err in determining that Melvin Cauthon did not qualify as an "executive officer," and thereby, he was not an insured under the City of Boonville's liability insurance policy issue by United States Fidelity & Guaranty Company. Citation: Opinion Author: Forest W. Hanna, Judge Opinion Vote: AFFIRMED. Breckenridge, P.J., and Ulrich, J., concur. Opinion: Donald R. Martin appeals from a declaratory judgment rendered in favor of United States Fidelity & Guaranty Company. The threshold question on appeal revolves around the interpretation of a general liability insurance policy issued by USF&G that afforded coverage to the "executive officers and directors" of the City of Boonville.(FN1) Martin first argues that Melvin Cauthon, Chief Operator at the Boonville Waste Water Treatment Plant, qualifies as an "executive

officer" and thereby is an insured under the policy. In a related point, Martin also contends that USF&G did not adequately notify Cauthon that it was denying coverage on the basis that Cauthon was not an "executive officer." We conclude that Cauthon was not afforded coverage in that he was a co-employee, and that USF&G's denial coverage letter adequately notified Cauthon of its basis for denying coverage. Donald R. Martin worked at the Waste Water Treatment Plant in Boonville when he was injured on July 5, 1988. Mr. Martin was injured when a joint pipe flange assembly exploded and a portion of the assembly struck him in the head. (FN2) On June 24, 1993, at the conclusion of his workers' compensation claim, Martin filed a petition in the circuit court of Cooper County against Melvin Cauthon alleging that Mr. Cauthon, as the Chief Operator of the Waste Water Treatment Plant, negligently installed the joint pipe flange assembly that injured Mr. Martin. Mr. Cauthon tendered the defense of the case to USF&G, the commercial liability insurance carrier for the City of Boonville. On July 15, 1993, USF&G denied coverage. Mr. Cauthon then filed a motion to dismiss claiming that he was a supervisory employee immune from tort liability because of the exclusivity provision in the Missouri Workers' Compensation Act. Shortly thereafter, Cauthon and Martin entered into a section 537.065, RSMo 1994, agreement whereby Cauthon withdrew his responsive pleadings and Martin agreed that he would not attempt to collect any judgment against Cauthon's personal assets. Martin agreed to collect judgment only through the insurance proceeds of USF&G. On January 8, 1996, a default hearing was held and the circuit court entered judgment in Martin's favor, against Cauthon, in the sum of $800,000. On April 11, 1996, Martin filed this declaratory judgment action against USF&G. USF&G countered with its declaratory judgment action. Evidence was heard, and the trial court entered findings of fact, conclusions of law and a judgment in favor of USF&G. On September 16, 1996, the trial court found against Martin, ruling that Martin had not established Cauthon as an insured under the terms of the general liability insurance policy. Specifically, the court concluded that Cauthon's duties as Chief Operator of the Boonville Waste Water Treatment Plant did not qualify him as an "executive officer," thus he was not insured.(FN3) Martin timely appealed. The dispute here concerns the characterization of Cauthon as an "executive officer," as opposed to an employee, of the City of Boonville. The pertinent part of the policy states: 1.If you are designated in the declarations as . . . an organization other than a partnership or joint venture, you are an insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders. 2.Each of the following is also an insured: A.Your employees other than your executive officers, but only for acts within the scope of their employment by you. However, none of these employees is an insured for (1) >bodily injury' or >personal injury' to you or to a co-employee while

in the course of his or her employment. (Emphasis added). The factual issues in the case are not the subject of conflicting evidence, thus Murphy v. Carron applies. 536 S.W.2d 30 (Mo. banc 1976). Under this standard, we are not bound and need not defer to the trial court's conclusions as to the legal effect of its findings of fact. McDermott v. Carnahan, 934 S.W.2d 285 (Mo. banc 1996); Shroeder v. Horack, 592 S.W.2d 742 (Mo. banc 1979). The first issue presented is whether Cauthon qualifies as an "executive officer" and thereby was an insured under the policy. Martin argues that Cauthon, as Chief Operator at the Boonville Waste Water Treatment Plant, qualified as an executive officer in that he actively participated in the control, supervision and management of the plant. Martin also maintains that if USF&G wanted the term "executive officer" to be restricted to a certain class of persons, it would have defined the term or included other language to this effect. Martin contends that the term "executive officer" is ambiguous and, therefore, should be interpreted against the insurer. Krombach v. Mayflower Ins. Co., 827 S.W.2d 208, 210-11 (Mo. banc 1992). The insurance policy in question did not define the term "executive officer," but the lack of definition does not make the term ambiguous. Missouri case law dictates that ambiguity arises when there is duplicity, indistinctness, or uncertainty of the meaning of the words used in the insurance contract. Rodriguez v. General Accident Ins. Co., 808 S.W.2d 379, 382 (Mo. banc 1991).(FN4) The contract between USF&G and the City of Boonville clearly states "executive officers and directors are insured." Martin correctly notes that Webster's Dictionary defines "executive" as "one who holds a position of administrative or managerial responsibility." Seventh Edition, pg. 290. The term "executive officer" is defined in Black's Law Dictionary as "one who assumes command or control and directs course of business, or some part thereof, and who outlines duties and directs work of subordinate employees. President and vice president of a corporation are executive officers." Fifth Edition, pg. 511. Cauthon's title was Chief Operator at the Boonville Waste Water Treatment Plant. As chief operator, Cauthon was an hourly employee with no authority to hire or fire employees. Hiring and firing decisions were accomplished through the board of public works and its superintendent. Cauthon had spending authority not to exceed $150. Any purchases over that amount had to be approved by the superintendent of public works and then the city administrator. Cauthon supervised five positions and screened the applications of those persons seeking those positions. He gave performance evaluations to those he supervised and made recommendations regarding the termination of certain employees. Cauthon also prepared a budget for his treatment plant which was submitted to the director of public works and then to the city

counsel for approval. Ultimately, his department budget was the responsibility of the director of public works. Martin refers us to several cases from other states where the courts have defined the term "executive officer."(FN5) In Guillory v. Aetna Ins. Co., the court determined that an employee was an executive officer despite the fact that he was not a formally appointed corporate officer. 415 F.2d 650, 651 (5th Cir. 1969)(applying Louisiana law). In Guillory, the employee had expanded managerial responsibilities including: supervising the performance of the corporation's single contract, hiring and firing employees, handling union matters, negotiating contracts, writing checks and receiving a portion of any profits that the corporation made. Id. In Industrial Indemnity Co. v. Duwe, the court relied upon the following factors in determining that a branch manager was an executive officer: (1) whether the employee's position was created by corporate charter; (2) whether the employee was formally elected to his office by the board officers, or shareholders; (3) whether the employee had authority, discretion and managerial responsibility covering divergent affairs of the corporation; (4) whether the employee had duties or authority outside his particular department; (5) whether the employee was involved in shaping company policy; (6) whether the employee had authority to alter contract terms or conditions or to change specified company procedure; (7) whether the employee had several department heads under his supervision; (8) whether the employee had a large number of employees under his direction and control; (9) whether the employee had authority to hire and fire employees; (10) the value of employee's services to the employer; (11) the ease with which the employee could be replaced; (12) the importance of the employee's functions to the employer; (13) the extent to which the employee's ordinary functions tended to expose him to liability; (14) whether the purported executive officer was a corporate officer or worked directly under one; and (15) whether the employee participated in the formulation and execution of company policy with respect to an area of administrative responsibility.(FN6) 707 P.2d 96, 99-100 (Or. App. 1985). See also Hadrick v. Diaz, 302 So.2d 345, 353 (La. App. 1974). While these cases provide us with some guidance, they are not factually on point in that they addressed the meaning of the term "executive officer" within the context of a private corporation. In Holm v. Mutual Serv. Casualty Ins. Co., like the current case, the court looked at the meaning of the phrase "executive officer" within the context of a municipality. 261 N.W.2d 598, 599-600 (Minn. 1977). There, the court determined that a police officer was not an "executive officer" despite the fact that the police officer exercised a substantial amount of discretion in the course of his employment. The court reasoned that such discretionary actions are not managerial or policy oriented. Id. In reaching this conclusion, the court noted that the term executive officer referred to "those persons whose position, power, and duties are established in the municipal charter and who are responsible for high-level governmental policymaking."(FN7)

Id. at 601. The court emphasized that this definition would generally include "a city's mayor or manager, councilmen, administrative board members, and department heads, while excluding employees whose duties were largely ministerial." Id.(FN8) We agree with Martin that the foregoing cases indicate that an "executive officer" is someone who actively participates in the control, supervision and management of a corporation or municipality. However, we disagree that this interpretation dictates that Cauthon was an "executive officer." The interpretation of the term "executive officer" turns on a number of factors including: ability to hire and fire, control over the company's purse strings, formal designation as an officer, authority to contract, scope of responsibilities outside of the employee's particular department, and the value of the employee to the company. Here, Cauthon was an hourly employee with no power to hire or fire employees and had limited spending authority. Cauthon prepared a budget then it was submitted to the director of public works and then to the city counsel for approval. Cauthon did not have duties or authority outside his particular department, he was not directly involved in determining the city's policy, nor was he a corporate officer. In fact, there was testimony that the only executive officer of the City of Boonville was the city administrator. Although Cauthon had the ability to make limited managerial decisions with regard to the treatment plant, his duties with the City of Boonville were largely ministerial and subordinate. Thus, regardless of how broadly or narrowly we interpret the term "executive officer," Cauthon's responsibilities are not of the character contemplated by the case law defining the term "executive officer." In sum, examination of Cauthon's responsibilities do not warrant the conclusion that he was an "executive officer" of the City of Boonville, and thereby an insured. In his second point, Martin argues that the trial court erred in concluding that Cauthon was not acting within the scope of his duty as an executive officer at the time of Cauthon's alleged negligent acts. Our conclusion that Martin is not an "executive officer" is determinative of this issue and, therefore, it is moot. Martin next argues that USF&G is estopped from denying liability on the basis that Cauthon was not an "executive officer" because no mention of this basis for denial was included in USF&G's denial of coverage letter.(FN9) Martin refers us to Brown v. State Farm Mutual Auto. Ins. Co. for the proposition that "having denied liability for a stated reason, an insurer may not later assert a different one." 776 S.W.2d 384, 388-89 (Mo. banc 1989)(quoting State Farm Auto. Ins. Co. v. Central Surety and Ins. Corp., 405 S.W.2d 530, 532 (Mo. App. 1966)). See also 20 C.S.R. 100-1.050 (stating that an insurance company is prohibited "from asserting a basis for denial of a claim on the grounds of a specific policy provision, condition or exclusion, unless reference to such provision, condition or exclusion is eluded, in writing, in the denial of the

claim to the insured"). Brown owned a Chevy that was insured by State Farm. Brown left the car in a parking lot and subsequently found it stripped and burned. Id. Brown notified State Farm that the car was stolen. State Farm sent a letter denying coverage, that states: "Our investigation indicated that this is not a loss as defined by your policy." Id. Brown filed suit, and on the day of trial successfully sought to exclude all evidence tending to show that the car had been stolen. The court directed a verdict in favor of Brown, and State Farm appealed. Id. On appeal, State Farm argued that the trial court erred in excluding the evidence. Id. In response, Brown maintained that because State Farm had not fully apprised her of its reasons for denying her claim, it could not now defend itself on grounds that were not asserted in the letter. Id. at 388. Relying on these facts, the court ruled that "it cannot be reasonably said that [Brown] relied to her detriment on the general denial statement contained in State Farm's denial letter; [Brown] may not invoke estoppel." Id. at 389. In reaching this conclusion, the court noted that the doctrine of estoppel requires a showing of prejudice to the insured before the insurer is precluded from asserting a subsequent more specific defense. Id. (citing Stone v. Waters, 483 S.W.2d 639, 645 (Mo. App. 1972)). In the present case, USF&G's denial letter to Martin dated July 1993, stated in relevant part: [R]eview of the coverages for the City of Boonville indicates that there would be no coverage for you relative to this lawsuit. It is our understanding also that Martin was employed by the City of Boonville as the Chief Operator at the Waste Water Plant. Since Mr. Martin is an employee of the City of Boonville and since his injury arose out of and in the course of his employment by the City Boonville and since he did receive workers compensation benefits, his claim would not be covered by the Commercial General Liability Policy. . . . Additionally, the USF&G denial letter included the following language: Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors.

Applying the court's rationale in Brown to the current case, compels the conclusion that the July 1993 denial letter was sufficient to apprise Martin of the basis for denying coverage. By acknowledging that the only possible coverage under this policy would be by virtue of Cauthon's status as an employee of the City of Boonville, the letter reasonably implies that Cauthon would not qualify as an executive officer. Moreover, Martin has failed to show that he was prejudiced by USF&G's conduct. In his fourth point relied on, Martin argues that the trial court erred in concluding that liability coverage, if applicable, was limited to $100,000 per person. We concluded supra that Martin does not qualify as an insured under the terms of the insurance policy, therefore, the point is moot. In his fifth point, we understand Martin's argument to be that the trial court erroneously adopted a finding of the

court in Martin v. CauthonCthe court that heard and entered a default judgment. In Martin v. Cauthon, Martin filed a motion to dismiss which was overruled. Martin argues, here, that the trial court drew a legal conclusion that Cauthon was not a supervisory employee, in part based upon the default court's ruling on Cauthon's motion to dismiss. This issue fails to present any issue upon which reversible error can be found. It is a well established rule that correct decisions of a trial judge, even if founded on the wrong reason, are not disturbed on appeal. Schmidt v. Warner, 955 S.W.2d 577, 579 (Mo. App. 1997). In his last point, Martin apparently claims that before denying coverage, USF&G should have investigated the facts rather than relying on the petition for damages. According to Martin, the burden was on USF&G to investigate the claim and establish that USF&G did not have a duty to defend Cauthon. When determining an insurer's duty to defend, we look to the insurance policy provisions and the allegations of the petition charging liability to the insured. Steve Spicer Motors v. Federated Mut. Ins. Co., 758 S.W.2d 191, 193 (Mo. App. 1988). "This means an insurer has a duty to defend an insured if the allegations of the plaintiff's complaint state a claim which is potentially or arguably within the policy's coverage." Miller's Mutual Ins. Assoc. v. Shell Oil Co., 959 S.W.2d 864, 869 (Mo. App. 1997). If an insurance company denies coverage, it does so at its own peril, subject to a later court determination finding coverage. In this case, we have determined that there was no coverage. Judgment affirmed. Footnotes: FN1.Martin raises six related points on appeal. We only address three points, however, because our conclusions on those points are dispositive of the remaining issues. FN2.Martin argued extensively, at the underlying trial, that Cauthon negligently designed and supervised the installation of the joint pipe flange assembly. There is no evidentiary or pleading support, however, that Cauthon had anything to do with the design of the assembly. Martin's petition alleged that Cauthon negligently participated in the installation of the pipe flange assembly, but no he does not alleged that Cauthon designed or supervised any modifications to the assembly. FN3.Additionally, the court found that if the policy provided coverage, the limit of the coverage would be $100,000. Because our decision affirms the trial court, we do not reach this point. FN4.To determine whether a contract is ambiguous, words should be given their natural and ordinary meaning. American Family Mutual Ins. Co. v. Moore, 912 S.W.2d 531, 533 (Mo. App. 1995). A contract is not ambiguous merely because the parties disagree over its meaning. See Watt v. Mittelstadt, 690 S.W.2d 807, 810 (Mo. App. 1985)(concluding that the term "household" within the context of a homeowners policy was not ambiguous, despite the fact that the parties were struggling to determine whether a certain individual was an insured). A court is not permitted to create an ambiguity in order to enforce a particular construction which it might feel is more appropriate. State Farm Mutual Auto. Ins. Co. v. Universal Underwriters Ins. Co., 594 S.W.2d 950, 954 (Mo. App. 1980). See also Young Dental Mfg. Co. v. Eng'd Prod., Inc., 838 S.W.2d 154, 156 (Mo. App. 1992)(stating that if a meaning is common enough "a court should not indulge in the vagaries of the legal mind to seek an uncommon meaning").

FN5.Neither party nor our independent research has revealed a Missouri case defining the term "executive officer." FN6.In Duwe, the insured company was a beer and wine distributor that had seven branches, each headed by a branch manager. There was one general manager to whom all branch managers reported. The general manager reported directly to the corporate president. Branch managers duties also included: supervising 14 or 15 employees, training employees, hiring temporary personnel and janitors, terminating employees in certain situations, maintaining branch vehicles, purchasing fuel up to $500, overseeing monthly office expenses up to $1000, and suggesting policy changes. Because these responsibilities satisfied several of the factors listed infra, the court determined that a branch manager had "adequate indicia of managerial responsibility . . . to permit the conclusion that he was an executive officer." Id. at 100-01. FN7.The Holm court relied upon the rationale of the court in the following cases: United States Fidelity & Guaranty Co. v. Warhurst, 366 F. Supp. 1190 (N.D.Ala. 1971); Lemmons v. Zurich Ins. Co., 403 F.2d 512 (5th Cir. 1968); Bruce v. Travelers Ins. Co., 266 F.2d 781 (5th Cir. 1959). FN8.Martin also refers us to several Eighth Circuit cases that discuss the meaning of the term "executive officer" outside the context of liability insurance contracts. FN9.Estoppel requires: (1) an admission, statement or act inconsistent with the claim afterwards asserted and sued upon, (2) action by the other party on faith of such admission, statement or act, and (3) injury to such other party resulting from allowing the first party to contradict or repudiate the admission, statement, or act. Mississippi-Fox River Drainage Dist. v. Plenge, 735 S.W.2d 748, 754 (Mo. App. 1987). Thus, under the estoppel theory, the insurer must first announce a specific defense and subsequently seek to rely instead on an inconsistent theory. See State Farm Mut. Auto. Ins. Co. v. Central Surety and Ins. Corp., 405 S.W.2d 530, 532 (Mo. App. 1966). Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.