Appeal by plaintiff from order entered 6 January 2006 by Judge
Anderson D. Cromer in Forsyth County Superior Court. Heard in the
Court of Appeals 11 January 2007.
Carruthers & Roth, P.A., by Jack B. Bayliss, Jr.; and Smith,
James, Rowlett & Cohen, L.L.P., by Norman B. Smith, for
Womble Carlyle Sandridge & Rice, PLLC, by Allan R. Gitter and
Bradley R. Johnson, for defendant-appellee.
Plaintiff Jason M. Crandell appeals from an order concluding
that American Home Assurance Company ("American Home") had no dutyto defend Crandell against a previously filed lawsuit and, as a
result, granting summary judgment to American Home. The Supreme
Court has established that if review of the pleadings in an
underlying action gives rise even to "a mere possibility" that the
insured's potential liability is covered by the insurance policy,
then the carrier has a duty to defend. Waste Mgmt. of Carolinas,
Inc. v. Peerless Ins. Co., 315 N.C. 688, 691 n.2, 340 S.E.2d 374,
377 n.2 (1986). Applying this standard, we reviewed the complaint
filed in the underlying action against Crandell, and we hold that
at least a mere possibility exists that Crandell's potential
liability in that action is covered by American Home's policy.
Consequently, we hold that American Home had a duty to defend
Crandell and reverse the order of the trial court.
In the early 1990s, Michael Rivest was the pastor of a small
congregation of the Charismatic Episcopal Church and had
established Isaiah 61 Ministries, Inc., which was providing
Christian counseling as the St. Matthew's Institute for Healing and
Growth. In 1994, Crandell, a licensed psychiatrist, agreed to act
as a referral for any of Rivest's clients who could potentially
benefit from medical management. Subsequently, Crandell became the
medical director and psychiatrist for Isaiah 61. The parties do
not dispute that Crandell served in this capacity through 1996.
Crandell contends he "provid[ed] essentially the same supervision"
as a "volunteer" _ rather than as an employee _ through 1998. As more thoroughly detailed in our related opinion, Foster v.
, 181 N.C. App. 152, 638 S.E.2d 526, temporary stay
, 361 N.C. 352, 643 S.E.2d 406 (2007), three of Rivest's
counseling clients _ Freida Foster, Tami Borland, and Kathy Bowen
_ filed suit against Isaiah 61 and Rivest in October 2001 (the
"Isaiah litigation"). Foster, Borland, and Bowen alleged that,
between 1996 and 2001, Rivest committed various "indecent
liberties" and used "mind control techniques, threats and
intimidation to illegally obtain money" from them. Foster,
Borland, and Bowen ultimately settled with Isaiah 61 and Rivest and
voluntarily dismissed the Isaiah litigation with prejudice in June
Prior to the settlement of the Isaiah litigation, Foster,
Borland, and Bowen filed suit against Crandell and his employer,
PsiMed, P.A. (the "Crandell litigation"). After voluntarily
dismissing that action without prejudice, plaintiffs refiled suit
in January 2004. In the Crandell litigation, Foster, Borland, and
Bowen asserted claims against Crandell for negligent supervision of
Rivest, negligent infliction of emotional distress, intentional
infliction of emotional distress, breach of fiduciary duty, and
professional and medical malpractice.
American Home is the carrier on a professional liability
insurance policy for Isaiah 61 and its employees covering the
period from 1 August 1996 until 31 July 1998. American Home
provided partial coverage and defense for both Isaiah 61 and Rivest
during the Isaiah litigation. Crandell also demanded coverage fromAmerican Home in the Crandell litigation and sought to involve
himself in the settlement proceedings in the Isaiah litigation,
contending that he, like Rivest, was an employee of Isaiah 61. In
August 2004, American Home declined to defend Crandell in the
Crandell litigation, concluding that he was "neither a named
insured nor an additional insured" under American Home's policy
with Isaiah 61.
On 22 June 2005, Crandell filed a complaint against American
Home, seeking, among other things, a declaration that Crandell was
covered with respect to the claims in the Crandell litigation by
American Home's policy with Isaiah 61. American Home filed an
answer denying the material allegations of Crandell's complaint and
asserting a counterclaim seeking a declaratory judgment that it had
no duty to defend or indemnify Crandell in the Crandell litigation.
Crandell moved for judgment on the pleadings and, following
discovery, American Home moved for summary judgment. In its
summary judgment motion, American Home no longer contended that
Crandell was neither a named nor additional insured, but, rather,
argued that a duty to defend Crandell never arose because the
policy explicitly limited coverage to actions committed during the
policy period from 1 August 1996 through 31 July 1998, whereas the
complaint in the Crandell litigation only alleged negligent acts by
Crandell "[a]s early as 2000."
The parties' motions came on for hearing during the 3 January
2006 civil session of Forsyth County Superior Court. The trial
court concluded that the allegations in the Crandell litigationcomplaint "relate[d] only to 'early 2000' or later." As this was
outside the policy period, the trial court ruled that American
Home's "policy afforded no coverage" for Crandell and,
consequently, that "there was no duty to defend." The trial court
denied Crandell's motion for judgment on the pleadings, awarded
summary judgment to American Home, and dismissed Crandell's action.
Crandell timely appealed to this Court.
Our Supreme Court has observed that "the insurer's duty to
defend the insured is broader than its obligation to pay damages
incurred by events covered by a particular policy." Waste Mgmt.
315 N.C. at 691, 340 S.E.2d at 377. This duty to defend "is
ordinarily measured by the facts as alleged in the pleadings . . .
"When the pleadings state facts demonstrating that the
alleged injury is covered by the policy, then the insurer has a
duty to defend, whether or not the insured is ultimately liable."
An insurer is excused from its duty to defend only "if the
facts are not even arguably covered by the policy." Id.
340 S.E.2d at 378.
Any doubt as to coverage must be resolved in favor of the
insured. Bruce-Terminix Co. v. Zurich Ins. Co.
, 130 N.C. App. 729,
735, 504 S.E.2d 574, 578 (1998). If the "pleadings allege multiple
claims, some of which may be covered by the insurer and some of
which may not, the mere possibility
the insured is liable, and thatthe potential liability is covered, may suffice to impose a duty to
(emphasis added). See also Waste Mgmt.
, 315 N.C. at
691 n.2, 340 S.E.2d at 377 n.2 ("[A]llegations of facts that
describe a hybrid of covered and excluded events or pleadings that
disclose a mere possibility that the insured is liable (and that
the potential liability is covered) suffice to impose a duty to
defend upon the insured."); Naddeo v. Allstate Ins. Co.
, 139 N.C.
App. 311, 319, 533 S.E.2d 501, 506 (2000) (holding that pleadings,
which disclose "mere possibility" that potential liability is
covered suffice to impose duty to defend upon insurer (emphasis
In determining whether an insurer has a duty to defend the
underlying lawsuit, "our courts employ the so-called 'comparison
test.'" Holz-Her U.S., Inc. v. U.S. Fid. & Guar. Co.
, 141 N.C.
App. 127, 128, 539 S.E.2d 348, 349 (2000) (quoting Smith v.
Nationwide Mut. Fire Ins. Co.
, 116 N.C. App. 134, 135, 446 S.E.2d
877, 878 (1994)). That test requires us to read the pleadings in
the underlying suit side-by-side with the insurance policy to
determine whether the alleged injuries are covered or excluded.
In this case, a side-by-side comparison of the pertinent
American Home policy with the complaint from the Crandell
litigation reveals at least a "mere possibility" of coverage. The
sole dispute presented by the parties is whether the acts or
omissions alleged in the Crandell litigation fell within the policy
period of 1 August 1996 through 31 July 1998. The complaint alleged that plaintiffs Bowen and Borland each
began psychological counseling with Rivest in 1997 and Foster in
1998, and "[a]t all times alleged herein, Crandell maintained
supervisory authority over Rivest." The complaint added that "[a]t
all times during the counseling relationship between Rivest and the
plaintiffs, Crandell was Rivest's and/or Isaiah 61 Ministeries'
medical director and/or clinical supervisor." The complaint then
alleged "Defendant Crandell, at all times alleged herein, had the
ability to properly supervise and control Rivest's behavior;
however, he failed to do so." Given the allegations of negligent
supervision throughout Rivest's counseling of the plaintiffs, which
the complaint indicates began in 1997 and 1998, it is apparent that
the complaint contains sufficient factual allegations to bring the
claims within the policy period. See St. Paul Fire & Marine Ins.
Co. v. Vigilant Ins. Co.
, 919 F.2d 235, 239 (4th Cir. 1990)
(holding that allegations passed the "comparison test" when
complaint did not allege that plaintiffs sought relief for only the
time after insured psychiatrist's improper sexual contact, a date
outside the policy period, but rather allegations referred to
entire treatment period, a portion of which fell within policy
American Home nonetheless urges this Court to focus on another
paragraph of the compliant that states:
As early as 2000
, [Crandell] knew or should
have known that . . . Rivest was engaged in an
unprofessional, unethical and illegal
relationship with [Foster, Borland, and
(Emphasis added.) According to American Home, nothing can "change
the indisputable fact" that this paragraph only references "early
2000," long after American Home's policy had expired. According to
American Home, this allegation is controlling because any negligent
supervision claim required proof that Crandell "knew or should have
known" about Rivest's conduct: "The 'early 2000' dates . . . are
pivotal because those allegations unequivocally establish the
earliest possible time by which they allege that Crandell's conduct
(whether by negligent act, error or omission) supports the
plaintiffs' claims." We disagree.
American Home has overlooked Mozingo v. Pitt County Mem'l
, 331 N.C. 182, 189, 415 S.E.2d 341, 345 (1992), in
which our Supreme Court held that "a physician who undertakes to
provide on-call supervision of residents actually treating a
patient may be held accountable to that patient, if the physician
negligently supervises those residents and such negligent
supervision proximately causes the patient's injuries." Under
, Crandell could arguably be held liable for negligently
supervising Rivest during 1997 and 1998 regardless whether he knew
or should have known of any misconduct by Rivest. American Home
has also overlooked the three plaintiffs' claims for negligent
infliction of emotional distress and breach of fiduciary duty
during the counseling period that began in 1997 and 1998 _ neither
of those claims necessarily depend upon the allegation of what
Crandell knew or should have known in 2000. American Home's focus on a single sentence in the complaint to
the exclusion of other allegations referring to acts and omissions
within the policy period overlooks the applicable test, which
requires only that the complaint give rise to a "mere possibility"
that the potential liability is covered by the policy. See Naddeo
139 N.C. App. at 319-20, 533 S.E.2d at 506 (insurer had duty to
defend bodily injury claims arising from an automobile accident
when insurer was aware that the accident may have happened either
before or after 12:00 a.m. on the day the policy was cancelled);
, 130 N.C. App. at 735, 504 S.E.2d at 578 ("Although
[the insurer] brings forth arguments addressing each claim for
relief, the possibility that [the insurer] could have been liable
under one of the claims would have sufficed to impose a duty to
defend."). We cannot, as American Home urges, construe Paragraph
20 as negating the rest of the complaint.
American Home argues further that any allegations from before
"early 2000" are barred by the applicable statutes of limitations.
The duty to defend is not, however, dependent on the viability of
the claims _ "the insurer has a duty to defend, whether or not the
insured is ultimately liable." Waste Mgmt.
, 315 N.C. at 691, 340
S.E.2d at 377. As the Supreme Court further pointed out in Waste
, "the insurer is bound by the policy to defend
groundless, false or fraudulent lawsuits filed against the insured
. . . ." Id.
at 692, 340 S.E.2d at 378 (internal quotation marks
omitted). It is only "if the facts [in the complaint] are not even
arguably covered by the policy [that] the insurer has no duty todefend." Id.
Indeed, the American Home policy specifically
provides for a duty to defend "even if any of the allegations of
the claim or suit are groundless, false or fraudulent." Here, the
claims may ultimately be found groundless because of the statute of
limitations, but that possibility does not excuse American Home
from providing a defense to establish that fact.
Since we cannot conclude that the facts alleged in the
underlying complaint "are not even arguably covered by the policy,"
we must hold that American Home had a duty to defend Crandell. Id.
See also St. Paul Fire & Marine
, 919 F.2d at 240 ("If there is any
chance that [the patient's] claim even arguably
the [insurer's] policy period, [the insurer] had a duty to
defend."). The trial court, therefore, erred in entering summary
judgment in American Home's favor. We reverse that order and
remand for entry of judgment in Crandell's favor on the issue of
the duty to defend. See Purcell v. Downey
, 162 N.C. App. 529, 534,
591 S.E.2d 556, 559 (2004). We express no opinion on any other
issues raised by the pleadings and parties in this case.
Judges CALABRIA and JACKSON concur.
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