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Catlin Specialty Insurance Company v. Stanley Recreation Club, Inc. v. Stanley Recreation Club, Inc.

United States District Court, W.D. North Carolina, Charlotte Division

March 30, 2018




         THIS MATTER comes before the Court on Catlin Specialty Insurance Company’s (“Catlin”) Amended Complaint for Declaratory Judgment, (Doc. No. 19); Jeffrey Nicholson’s, Kristi Nicholson’s, and L.C.N.’s (collectively, “the Nicholsons”) Answer to Amended Complaint, (Doc. No. 20); Catlin’s Motion for Summary Judgment, (Doc. No. 33); its memoranda in support, (Doc. No. 33-1); the Nicholsons’ Motion for Default, (Doc. No. 37); their Motion for Summary Judgment, (Doc. No. 38); their Response in Opposition to Catlin’s Motion for Summary Judgment, (Doc. No. 39); and Catlin’s Reply, (Doc. No. 41).

         I. BACKGROUND

         A. Procedural Background

         On August 11, 2016, Catlin filed its Complaint for Declaratory Judgment against Stanley Recreation Club, Inc. (“the Club”), Joshua Roberts, Jerry N. Ragan, James Abernethy, and the Nicholsons. (Doc. No. 1). The Nicholsons filed an Answer with accompanying crossclaims against the Club and counterclaims against Catlin. (Doc. No. 8). Catlin then amended its Complaint on October 7, 2016, to which the Nicholsons filed a corresponding answer. (Doc. Nos. 19, 20). Roberts, Abernethy, and the Club failed to answer or otherwise appear before the Court. Accordingly, on December 19, 2016, the Clerk entered default against the Club, Abernethy, and Roberts pursuant to a motion filed by Catlin. (Doc. Nos. 25–28). On April, 28, 2017, Catlin filed its Motion for Summary Judgment against the Nicholsons. (Doc. No. 33). On the same day, the Nicholsons then filed a Motion for Default Judgment against the Club and a Motion for Summary Judgment against Catlin. (Doc. Nos. 37, 38).

         B. Factual Background

         On May 24, 2016, the Nicholsons filed an underlying tort action in North Carolina State Court against the Club, James Abernethy, and Joshua Roberts. In that suit, the Nicholsons allege that the Club and the coaches of its swim team, Abernethy and Roberts, were negligent when L.C.N., Jeffery and Kristi Nicholson’s daughter, dove off of a starting block and hit her head on the bottom of the Club’s pool, resulting in injury. (Doc. No. 19-2; 38-1). Subsequent to the filing of that action, Catlin, an insurance company, brought this suit seeking a declaratory judgment clarifying the scope of Catlin’s indemnity obligation in the state tort action in light of the insurance policy it signed with the Club. (Doc. No. 19). Catlin asserts that a Members Exclusion Clause within its insurance policy (“the Policy”) with the Club prevents coverage over the Nicholsons’ underlying state tort claim. While the clause may seem straight forward, the Policy fails to later define the term “member.” The main issue of Catlin’s current action concerns whether the Nicholsons qualify as “members” of the Club, which then determines whether the Exclusionary Clause bars insurance coverage over their state court negligence claim.

         Before proceeding to this Policy’s application to the Nicholsons, some background on the Club and its relationship with Abernethy, Roberts, and the Nicholsons is necessary. To begin with, the Club functions as a recreational center, providing access to a pool. (Doc. Nos. 33 at 3; 38 at 5). The Club solicits memberships, which grant unlimited pool access as well as discount prices for services such as the Club’s swim team and swim lessons. (Doc. No. 33 at 3; 33-2 ¶¶ 9, 25). Abernathy and Roberts served as coaches of the Club’s swim team, the Stanley Sharks. (Doc. No. 33-4 ¶ 17, 19). The record shows that the Nicholsons first applied for membership with the Club in 2011. (Doc. Nos. 33-2; 38-1). This application was subsequently accepted by the Club’s Board when they signed the Nicholsons’ application. (Doc. No. 8-3). From 2011–15, the Nicholsons continued to pay annual dues to the Club and, in return, accepted the benefits of membership. This included taking advantage of the member-discounted registration price for the Club’s swim team. (Doc. No. 33-2 ¶¶ 24–25). Rather than paying the $55 price for non-members, the Nicholson family paid the $45 member price to register their daughter, L.C.N. (Id.).

         The Nicholsons do not dispute that they have continued to pay annual dues in accordance to the Bylaws. Nor do they dispute that the Board approved of their membership application or that they took advantage of the benefits memberships usually offer. The Nicholsons only assert that they never received a membership certificate mentioned in the Club’s Articles of Incorporation and Bylaws, which they argue precludes their status of Stanley Club members. (Doc. No. 38-1 ¶ 6).


         Summary judgment shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material only if it might affect the outcome of the suit under governing law. Id. The movant has the “initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal citations omitted). “The burden on the moving party may be discharged by ‘showing’ . . . an absence of evidence to support the nonmoving party’s case.” Id. at 325.

         Once this initial burden is met, the burden shifts to the nonmoving party. The nonmoving party “must set forth specific facts showing that there is a genuine issue for trial.” Id. at 322 n.3. The nonmoving party may not rely upon mere allegations or denials of allegations in his pleadings to defeat a motion for summary judgment. Id. at 324. The nonmoving party must present sufficient evidence from which “a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248; accord Sylvia Dev. Corp. v. Calvert Cty., Md., 48 F.3d 810, 818 (4th Cir. 1995).

         When ruling on a summary judgment motion, a court must view the evidence and any inferences from the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255. “Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (internal citations omitted). The mere argued existence of a factual dispute does not defeat an otherwise properly supported motion. Anderson, 477 U.S. at 248. If the evidence is merely colorable, or is not significantly probative, summary judgment is appropriate. Id. at 249-50.

         A. The Court Will Not Address the Nicholsons’ Status as “Insureds” or “Uninsureds”

         The Court first addresses the Nicholsons’ counterclaim seeking declaratory judgement regarding their status under the Policy. (Doc. No. 8 at 17). Specifically, the Nicholsons claim, and Catlin does not oppose, that they are not insureds under the Policy (Doc. No. 38 at 8). Catlin contends rather that the Court lacks jurisdiction over this issue because the determination of the Nicholsons’ status “is not a ‘controversy of sufficient immediacy and reality.’” (Doc. No. 33 at 19). Catlin points out that no allegation exists imputing liability on the Nicholsons under the policy, which renders the question of their status as insureds moot. (Id.).

         The Court declines to extend jurisdiction over this issue. There is no need to clarify the legal relationship of the Nicholsons because no uncertainty exists regarding the Nicholsons’ status as uninsureds. See Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 422 (4th Cir. 1998) (allowing district courts to exercise discretion and decline issuing a judgment pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, when it would not end any uncertainty, insecurity, or controversy giving that gave rise to the proceeding).

         B. The Nicholsons are “members” as used in the Policy.

         The main contention between the parties is how one interprets the term “member” within Catlin’s insurance policy with the Club? (Doc. Nos. 33, 38). Again, the relief sought by both parties is declaratory in nature. (Doc. Nos. 8, 19). Here, the Court finds sufficient controversy to warrant extending jurisdiction. The parties submit different constructions of the term. The Court will exercise jurisdiction over these claims for declaratory relief because the issue, while referencing the underlying state tort claim, is not necessarily within the scope of the state court action. NGM Ins. Co., 642 F.Supp.2d at 515–16 (finding that, when determining if jurisdiction over declaratory relief should be declined in the interest of federalism, efficiency, and comity, district courts should consider, among other factors, the scope of the state court proceedings). The Nicholsons have voluntarily dismissed Catlin from their underlying action, reducing the possibility that this Court’s holding conflicts with the state court’s conclusions. The notions of federalism, efficiency, and comity are therefore sufficiently safeguarded. See L.C.N., et. al. v. Abernethy, eta ...

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