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Colony Insurance Co. v. Expert Group International Inc.

United States District Court, D. Colorado

May 17, 2017



          Richard P. Matsch, Senior Judge

         Jurisdiction for this insurance coverage dispute is provided by 28 U.S.C. § 1332. Colony Insurance Company ("Colony") is a Virginia corporation with its principal place of business in Richmond, Virginia. Defendant Expert Group International d/b/a Expert Au Pair ("Expert Au Pair") is a Florida corporation with its principal place of business in St. Petersburg, Florida. Defendant Go Au Pair Operations LLC d/b/a American Cultural Exchange ("Go Au Pair") is a Utah limited liability company that is wholly owned by American Cultural Exchange, LLC. Defendant Au Pair International, Inc. ("Au Pair Int'l ") is a Colorado corporation with its principal place of business in Boulder, Colorado. The individual defendants included in the caption are named plaintiffs in the civil action entitled Johana Paola Beltran, et al. v. Inter exchange, Inc., et al, 14-cv-03074-CMA-CBS, in the United States District Court for the District of Colorado (the "underlying action" or "the Beltran action"). The court has determined that they are not necessary parties to this civil action between Colony and its insureds. See Order, May 5, 2016 (doc. 19).

         Expert Au Pair, Go Au Pair, and Au Pair Int'l are au pair placement agencies. They assist foreign nationals seeking to work in the United States as au pairs and prospective host families looking for au pairs to find one another. Colony issued separate professional liability policies to Expert Au Pair, Go Au Pair, and Au Pair Int'l (collectively "the Insureds").

         The Insureds are three of the named defendants in the Beltran action. The Insureds tendered the defense to Colony, and Colony agreed to defend the Insureds under a reservation of rights. The underlying action is ongoing, and Colony has been funding the Insureds' defense.

         Colony filed this action on November 13, 2015, seeking a declaration that the subject policies provide no coverage for any of the claims asserted against the Insureds in the Beltran action. Colony also seeks reimbursement of the attorneys' fees and costs it has incurred in defending the Insureds.

         On September 15, 2016, Colony moved pursuant to Fed.R.Civ.P. 56 for final summary judgment in its favor, arguing that the express terms of the policies demonstrate that Colony has no duty to defend and, consequently, no duty of indemnification.

         The duty to defend and the duty to indemnify are distinct duties. Because an insurer's duty to defend is broader than the duty to indemnify, the initial question is whether Colony owes a duty of defense.

         Colorado law applies with respect to the Au Pair Int'l policy. Utah law applies with respect to the Go Au Pair policy, and Florida law applies with respect to the Expert Au Pair policy. All three states follow the "four corners" (also known as the "eight corners") rule. Under that rule, the duty to defend is to be determined by comparing the complaint in the underlying action and the language of the subject policy. Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 613 (Colo. 1999); Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299-300 (Colo. 2003); Colony Ins. Co. v. Barnes, 410 F.Supp.2d 1137, 1139 (M.D. Fla. 2005); Jones v. Florida Ins. Guar. Ass 'n, Inc., 908 So.2d 435, 443 (Fla. 2005); Basic Research, LLC v. Admiral Ins. Co., 297 P.3d 578, 580 (Utah 2013).

         An insurer's duty to defend arises when the underlying complaint against the insured alleges any facts that might fall within the coverage of the policy. Hecla Mining Co. v. N.H. Ins. Co., 811 P.2d 1083, 1089 (Colo. 1991) (citation, footnote, brackets, and internal quotation marks omitted). "The actual liability of the insured to the claimant is not the criterion which places upon the insurance company the obligation to defend. Rather, the obligation to defend arises from allegations in the complaint, which if sustained, would impose a liability covered by the policy." Id.; see also Constitution Assocs. v. N.H. Ins. Co., 930 P.2d 556, 563 (Colo. 1996).

         The operative complaint in the Beltran action is the second amended complaint, filed October 18, 2016. Pl's Ex. A. That complaint (the "underlying complaint" or "Beltran complaint") alleges that the underlying plaintiffs are each individuals who obtained a J-l visa and came to the United States to work as an au pair for a host family. As stated in the Beltran complaint, the J-l visa au pair program is overseen and administered by the United States Department of State ("State Department") under the authority of the Mutual Educational and Cultural Exchange Act of 1961, as amended, [1] and "allows foreign nationals between the ages of 18 and 26, with secondary school educations and English proficiency, to work for 'host families' as child care workers for no more than 45 hours a week in exchange for room and board and a legal wage." Underlying Compl. ¶¶ 46-47.[2] Any foreign national seeking a position as an au pair in the United States must be sponsored by an organization designated by the State Department. The underlying defendants ("Sponsors") are the exclusive entities so authorized to recruit and place au pairs with host families in the United States. ¶ 49.

         Federal regulations address the responsibilities of Sponsors. ¶¶ 61-67; see also 22 C.F.R. §§ 62.10 & 62.31. Those responsibilities include requiring that "au pair participants are compensated at a weekly rate based upon 45 hours of child care services per week and paid in conformance with the requirements of the Fair Labor Standards Act as interpreted and implemented by the United States Department of Labor." 22 C.F.R § 63.31(j)(1) (cited in ¶ 67).

         The Beltran Plaintiffs allege that the Sponsors operate as a cartel and colluded to fix standard au pair wages at the programmatic wage floor announced by the State Department. They allege that the Sponsors effected that goal by wrongfully informing au pairs that au pair wages are set by law and cannot be increased, and by failing to advise au pairs that they could be paid more than the amounts identified by the Sponsors. The Beltran Plaintiffs claim that the Sponsors - by maintaining au pair wages at that artificially low rate - are able to increase the fees paid by host families to Sponsors, while maintaining the affordability of the au pair arrangements for potential host families, thereby enhancing the Sponsors' profits at the expense of the au pairs. ¶¶ 2, 5, 73, 80, 84, 87-89, 135, 143-44, 151, 170, 236, 239, 241, 255, 289, 312.

         The Beltran complaint includes ten claims for relief against various sets of the Sponsor defendants. The first claim is for restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and is alleged against all Sponsors. The second claim alleges violations of civil RICO, 18 U.S.C. § 1964(c), by six Sponsors. The remaining claims allege breach of fiduciary duty; negligent misrepresentation; constructive fraud or fraudulent concealment; violations of consumer protection laws; violations of the Fair Labor Standards Act, 29 U.S.C. § 201 ("FLSA"), and violations of various state wage-hour laws.

         The only claim alleged against Au Pair Int'l is the antitrust claim. Go Au Pair and Expert Au Pair are named as defendants for the antitrust claim and the claims of negligent misrepresentation, breach of fiduciary duty, fraud, consumer protection violations, and certain of the wage and hour claims.

         Colony argues that none of the Insureds can show that its policy's Professional Liability Insuring Agreement provides coverage for the Beltran action.

         The professional liability policies that Colony issued to the Insureds were designed primarily for health care companies and health care professionals. In each policy, the title of the professional liability coverage part includes the following subtitle: " Long Term Care Facilities/Miscellaneous Health Care Facilities/Social Services." It is unclear from the record why Colony issued coverage of that type to insureds whose business is au pair placement and who do not perform health care services.

         The Professional Liability coverage part of each policy insures (subject to the policy's other terms, conditions, exclusions, or limitations) those sums the Insureds are legally obligated to pay as "damages" that arise out of a "wrongful act" that occurred in the conduct of the Insured's "professional services." See Pl's Ex. B (Go Au Pair Policy, Professional Liability Coverage Part, Section I, Insuring Agreement at p. 1 of 3); Pl's Ex. C (Au Pair Int'l Policy, Professional Liability Coverage Part, Section I, Insuring Agreement at p. 1 of 4); Pl's Ex. D (Au Pair Int'l Policy at Professional Liability Coverage Part, Section I, Insuring Agreement at p. 1 of 3).

         In all three policies, the term "professional services" is defined to mean the providing of:

a. medical, surgical, dental, x-ray, mental health or nursing service or treatment, or the furnishing of food or beverage in ...

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