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Tolson v. Hartford Financial Services Group, Inc.

United States District Court, District of Columbia

September 29, 2017




         In 2014, plaintiff Sharon Tolson filed an action in D.C. Superior Court against Massage Escape Spa, Inc. (“Massage Escape”), alleging that a Massage Escape employee sexually assaulted her during a massage. Massage Escape's business liability insurance carriers, The Hartford Financial Services Group, Inc. (“Hartford”) and Sentinel Insurance Company, Ltd. (“Sentinel”), refused to defend or indemnify Massage Escape on Tolson's claims, and the Superior Court entered a $1, 000, 000 consent judgment against Massage Escape. Instead of agreeing to pay Tolson directly, Massage Escape assigned to Tolson its rights-if any-against Hartford and Sentinel (collectively, “defendants”). Tolson brought this action in Superior Court against defendants, asserting several claims arising out of their denial of coverage to Massage Escape. After removing the action to this Court, defendants moved to dismiss Tolson's complaint on grounds that, inter alia, her claims against Massage Escape fell within a policy exclusion that disclaims coverage for “any injury or damage . . . arising out of . . . ‘sexual abuse.'” Tolson's complaint alleges a grievous wrong. But unfortunately, as the Court will explain below, the settlement that she accepted in Superior Court leaves her with few avenues to seek redress. For the reasons that follow, the Court will grant defendants' motion to dismiss.


         In July 2014, a friend gave Tolson a “Groupon”[2] that entitled her to a free 60-minute massage at Massage Escape. Pl.'s Compl. [ECF No. 1-1] ¶ 10. When Tolson went to Massage Escape to redeem her Groupon a few months later, she was introduced to “Tommy, ” a male employee whose real name (according to Tolson) was Zhenkai Tong. Id. ¶ 12. Tolson followed Tong into a small room, where she undressed, placed a sheet over her body, and laid face down on a massage table. Id. ¶ 14. Tong then proceeded to massage Tolson. Id. During the massage, Tolson alleges, Tong “rub[ed] his erect penis against [her] head, ” “insert[ed] his fingers into [her] vagina and anus, ” and “perform[ed] oral sex on her” while “forcefully holding [her] down”-all without her consent. Id. ¶ 15. Tolson was eventually able to escape Tong, dress quickly, and flee the premises. Id.

         After leaving Massage Escape, Tolson immediately flagged down a police officer and reported what had happened. Id. ¶ 16. According to Tolson's complaint, Tong was arrested that day and charged with “the felony of First Degree Sexual Abuse of a Patient/Client.” Id. Nonetheless, Tolson alleges, Tong remained an employee at Massage Escape until a few days later, when “he was able to flee the country to China.” Id. Tolson later discovered that she was not the first woman to be assaulted during a massage at Massage Escape: in an online review dated January 21, 2014, another female customer had written that during her massage, “my male masseur pressed himself against me-I could feel his penis through his pants.” Id. ¶ 17. Tolson also alleges that Tong was not licensed to practice massage therapy in the District of Columbia. Id. ¶ 12.

         Tolson filed a complaint in the Superior Court for the District of Columbia against several defendants, including Massage Escape. Id. ¶ 19. Her complaint asserted five claims against Massage Escape: (1) negligent hiring, training, and supervision; (2) negligence per se; (3) unlawful trade practices in violation of the D.C. Consumer Protection Procedures Act (“CPPA”), D.C. Code §§ 3901-13; (4) assault and battery; and (5) intentional infliction of emotional distress. Ex. A to Defs.' Mot. to Dismiss [7-1] ¶¶ 24-36, 42-47, 54-63. At some point thereafter, Massage Escape asked Hartford and Sentinel, its business liability insurance carriers, [3] to defend it against Tolson's claims. In a letter dated November 20, 2014, Hartford and Sentinel disclaimed any duty to defend or indemnify Massage Escape under the policy because, inter alia, Tolson's claims fell within an exclusion in the policy for “injury or damage . . . arising out of . . . ‘sexual abuse.'” Ex. 2 to Pl.'s Compl. [ECF No. 1-1] at 6.

         In August 2015, the Superior Court entered a consent judgment against Massage Escape in the amount of $1, 000, 000. See Ex. 1 to Pl.'s Compl. [ECF No. 1-1]. The judgment provided that:

Massage Escape . . . shall grant, assign[, ] and transfer to [Tolson] . . . all rights, claims[, ] and causes of action, including but not limited to those for failure to defend, indemnification, breach of contract, bad faith, wrongful failure to settle within the limits of liability[, ] and the award of attorneys [sic] and costs, which . . . Massage Escape . . . has or may have against [] Hartford . . . arising under and out of the Business Owner[']s insurance policy . . . issued by [] Hartford . . . to Massage Escape . . . []or as a result of a wrongful denial by [] Hartford of liability insurance coverage and defense to Massage Escape . . . for claims and causes of action[] asserted by [Tolson] . . . []or as a result of [] Hartford's wrongful failure to settle those claims and cause[s] of action[] within the limits of liability of the Policy.[4]

Id. at 1-2. The judgment explicitly provided that “this Consent Judgment shall not be enforced against [] Massage Escape.” Id. at 2.

         Consent judgment in hand, Tolson filed this action in Superior Court against defendants Hartford and Sentinel. Tolson's complaint asserts five claims arising out of defendants' failure to indemnify Massage Escape on the consent judgment, as well as their alleged failure to properly “investigate, ” “evaluat[e], ” “negotiate, ” and “defend” Tolson's claims in the underlying action. These claims are: (1) breach of contract, see Pl.'s Compl. ¶ 29-37; (2) breach of the implied covenant of good faith and fair dealing, see id. ¶¶ 38-43; (3) breach of fiduciary duty, see id. ¶¶ 44-50; (4) negligence, see id. ¶ 51-55; and (5) unlawful trade practices in violation of the D.C. Consumer Protection Procedures Act, see id. ¶¶ 56-65. Defendants removed to this Court on the basis of the parties' diverse citizenship, see Notice of Removal [ECF No. 1] at 1-2, and filed this motion to dismiss Tolson's complaint under Federal Rule of Civil Procedure 12(b)(6).


         To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain “‘a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Although “detailed factual allegations” are not necessary, to provide the “grounds” of “entitle[ment] to relief” plaintiffs must furnish “more than labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Id. at 555-56 (citation and internal quotation marks omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570); accord Atherton v. D.C. Office of the Mayor, 567 F.3d 672, 681 (D.C. Cir. 2009).


         I. Tolson's Contract Claims against Hartford and Sentinel

         Because an insurance policy is a contract, it is governed by principles of contract law. See Stevens v. United Gen. Title Ins. Co., 801 A.2d 61, 66 (D.C. 2002). As the assignee of Massage Escape's rights (if any) against defendants, Tolson “stands in the shoes” of Massage Escape and may assert any claims that Massage Escape could have asserted against defendants. Flack v. Laster, 417 A.2d 393, 400 (D.C. 1980) (citations and internal quotation marks omitted). Neither party disputes that the law of the District of Columbia governs in this diversity action. See Adolph Coors Co. v. Truck Ins. Exch., 960 A.2d 617, 620-21 (D.C. 2008) (setting out the “governmental interest test” that D.C. courts use to determine which state's law governs the interpretation of an insurance contract).

         A. Breach of Contract

         Tolson's primary claim in this action is that defendants breached their insurance contract with Massage Escape by failing both to defend it in the underlying action and to indemnify it on the $1, 000, 000 consent judgment.[5] The motion to dismiss will be granted as to this claim.

         Under District law, an insurer's duty to defend an insured is “conceptually distinct” from its duty to indemnify the insured on any judgment that may be entered against it. Salus Corp. v. Cont'l Cas. Co., 478 A.2d 1067, 1069 (D.C. 1984). “To determine whether an insurance company has the duty to defend an insured, ” courts in the District apply the so-called “eight corners rule, ” which calls for an examination of “both the underlying complaint and the insurance policy.” Carlyle Inv. Mgt., LLC v. Ace Am. Ins. Co., 131 A.3d 886, 896 (D.C. 2016). “If the allegations of the complaint state a cause of action within the coverage of the policy[, ] the insurance company must defend.” Id. (citation omitted). Moreover, because “[t]he duty to defend is broader than the duty to indemnify, ” “[i]f there is no duty to defend, there is no duty to indemnify.” Id. (citations omitted). Where an insurer disclaims coverage on the basis of a policy exclusion, “the burden is on the insurer to prove the facts which bring the case within the specified exception.” Id. (citation omitted). At the motion-to-dismiss stage, this means that “it must be clear, without sweeping generalizations, that all claims in the underlying complaint[] fall squarely within the [claimed] exclusion.” Id. at 897.

         Here, Massage Escape's business liability insurance policy provides that defendants “will pay those sums that [Massage Escape] becomes legally obligated to pay as damages because of ‘bodily injury[, '] ‘property damage' or ‘personal and advertising injury' to which this insurance applies.” Ex. B to Defs.' Mot. to Dismiss [ECF No. 7-2] at 21. Defendants also “have the right and duty to defend [Massage Escape] against any ‘suit' seeking those damages.” Id.[6]

         But the policy also contains several exclusions, including one entitled “EXCLUSION - SEXUAL ABUSE OR MOLESTATION” (the “sexual-abuse exclusion”). Under this exclusion, the policy does not apply to any injury or damage, loss, cost or expense, including but not limited to “bodily injury[, ”] “property damage” or “personal and advertising injury” arising out of, or relating to, in whole or in part:

1. Actual, threatened or attempted “sexual abuse[.”] “Sexual abuse” means lewd, lascivious or sexual conduct, including but not limited to: a. Sexual intercourse, including but not limited to any kind of sexual penetration, of any bodily orifice or part; b. Sexual molestation; c. Sexually explicit, sexually oriented, or sexually suggestive language, images, acts or statements; d. Inappropriate touching, including but not limited to any, kissing or fondling of any bodily part, including but not limited to genitalia; e. Sexual exhibitionism; f. Voyeurism; or g. Photographic, audio, video or digital recording or the showing of any of the foregoing by any person(s), whether injury is intended or not.
2. Any: a. Employment of; b. Investigation of or failure to investigate; c. Supervision of or failure to supervise; d. Reporting to the proper authorities of, or failure to so report; e. Retention of; or f. Failure to protect others from the conduct of any person(s) whose conduct would be excluded by Paragraph 1. above.

Id. at 49. Defendants argue that the sexual-abuse exclusion bars coverage on all of Tolson's claims against Massage Escape in the underlying action. See, e.g., ...

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