Opposition Brief — Teague v. Employers Reinsurance Corp.
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OFFICE OF THE CLERK
In The
Supreme Court of the United States
October Term, 1992
*
JOSEPH W. TEAGUE and HELEN B. TEAGUE,
STEVEN ALLEN BARKER, RITA STRAHOWSKI, and
SWANNEE BECK, Lifetime Partners of PTL, as
Respresentatives of a Nationwide Class Consisting
of 150,290 Lifetime Partners and of 27,839 Persons
Who Have Partially Paid for Lifetime Partnerships,
Petitioners,
v.
EMPLOYERS REINSURANCE CORPORATION,
Respondent,
JAMES O. BAKKER, DAVID A. TAGGART, and
AIMEE CORTESE,
Defendants.
a
Petition For Writ Of Certiorari To The
United States Court Of Appeals
For The Fourth Circuit
*
BRIEF IN OPPOSITION TO PETITION
FOR WRIT OF CERTIORARI
e
MIcHAEL T. MeprorpD*
Cuares E. NicHots, Jr.
MANNING, Futton & Sxinner, P.A.
3605 Glenwood Avenue
Post Office Box 20389
Raleigh, North Carolina 27619-0389
Telephone: (919) 787-8880
Attorneys for Respondent
*Counsel of Record
COCKLE PRINTING CC
. | COOLS 442.82)
. COLL _ Cees
Il.
QUESTIONS PRESENTED
Did the Fourth Circuit correctly hold that, under
North Carolina substantive law, the interpretation of
the plain, unambiguous language of the Multimedia
Policy was a legal issue, not a question of fact?
Did the Fourth Circuit correctly interpret the Multi-
media Policy and correctly hold that North Carolina
law does not permit Teague to change the plain terms
of the policy by distorting the policy’s language or
using irrelevant and inadmissible extrinsic evidence?
ii
TABLE OF CONTENTS
Page
8 eee ete i
TABLE CP ALPE CIs oan ca cave snncccnaved ean iv
STATEMENT OF THE CASE.............sccesssees 2
I. PROCEDURAL BACKGROUND................ 2
Sh. PACTUAL DACRE 56s vines ecncsncden 3
A. PTL’s Purchase Of The Multimedia Policy.... 3
B. The Multimedia Policy.................0005 4
C. Claims By Lifetime Partners............... 5
D. The Judgment Against Bakker............. 6
SUMMARY OF ARGUMENT....................055 6
PEGE 6 6h BS ies 5 a a AAAS 7
I. THIS CASE DOES NOT PRESENT A SUBSTAN-
TIAL FEDERAL QUESTION REQUIRING
REVIEW BY THE SUPREME COURT .......... 7
A. The Court Should Not Grant Certiorari To
Second Guess The Fourth Circuit’s Applica-
tion Of North Carolina Law............... 8
B. Teague’s Attempt To Create The Illusion Of
A Federal Question Is Without Merit ...... 9
THAT THE PLAIN LANGUAGE OF THE MUL-
TIMEDIA POLICY DOES NOT INDEMNIFY
JAMES O. BAKKER AGAINST LIABILITY FOR
co eB ee ey ae 14
II. THE DISTRICT COURT CORRECTLY HELD
ili
TABLE OF CONTENTS - Continued
Page
A. North Carolina Law Does Not Permit Cre-
ation of Indemnification for Bakker Against
Liability for His Own Fraud Through Distor-
tion of the Policy Language............... 14
B. The Policy Is Not Ambiguous Under North
SE AE Se a enn 20
ae
‘2
The Lower Courts Properly Rejected Tea-
gue’s Attempt To Find Ambiguity Through
Strained Reading And Irrelevant Extrinsic
IRS Burks es Gn dAG RRC A Ss eK ews An ons 40 22
1. It Is Irrelevant That Other Policy Provi-
sions Create Other Types Of Coverage 22
2. The Absence Of A Fraud Exclusion Is
Irrelevant Unless The Coverage Provi-
sion Creates Fraud Coverage .......... 23
3. Language In Other ERC Policies Is Irrel-
ON 086666 Kee kena ed un cawed dena ncaes 24
SEPP ES me comer
ad.
4. Teague’s Purported Expert Affidavits
Py I 5.645 chek i esa Ne eeewesenses 25
5. The Testimony Of Other Witnesses Is
Irrelevant And Does Not Support Teague
PPE FOES PPO Tee ee eee ee ee 26
6. Teague May Not Use Non-Existent Facts
To Support His Petition................ 27
Ee eke yeh eR ESS EKKNECK ARHAAGDRREA 29
iv
TABLE OF AUTHORITIES
Page
CASEs:
Adalman v. Baker, Watts & Co., 807 F.2d 359 (4th
8 GENIE ares at ed Roa ts or ghe: © chk AC AC 26
American Home Assurance Co. v. Osbourn, 47 Md.
App. 73, 422 A.2d 8 (Md. Ct. Spec. App. 1980) .... 23
Amos v. Coffee, 288 Va. 88, 320 S.E.2d 335 (Va. 1984) .... 12
Barbee v. Harford Mutual Ins. Co., 330 N.C. 100, 408
“op cn chisel cept COTTE EOS PEC Pee PETE 11
Big B Transportation, Inc. v. U.S. Ins. Group, 93 N.C.
App. 233, 377 S.E.2d 278 (1989)................2.. 19
Britt v. Upchurch, 327 N.C. 454, 396 S.E.2d 318
SR Ui va dove yh kUhneea Gown bawetesehanksbawees 22
Burger King Corp. v. Horn & Hardart Co., 893 F.2d
ee RE ni pga nen ckang avec inca kas vans 12
Butler v. City of Vero Beach, 495 So. 2d 266 (Fla.
Se Me PO MO hac adc oad cawnsk basedecey css 18
Celotex Corp. v. Catrett, 477 U.S. 317 (1986)........... 8
Chatton v. National Union Fire Ins. Co. of Pittsburgh,
P.A., 10 Cal. App. 4th 846, 13 Cal. Rptr. 2d 318
EP Rha bd kaeR Gina ebhek ddka cexns tered ens 18, 26
Chimart Assocs. v. Paul, 66 N.Y.2d 570, 498 N.Y.S.2d
344, 489 N.E.2d 231 (N.Y. 1986)................... 12
Cohan v. Thurston, 223 Va. 523, 292 S.E.2d 45 (Va.
SUC aits CaN en ak ced oan eee rete, Sen 12
Vv
TABLE OF AUTHORITIES - Continued
Country Floors, Inc. v. Partnership, 930 F.2d 1056
Te SE Pr cs ascs has Soe ndcdeec aa ehaneeekios 13
County of Erie v. American States Ins. Co., 573 F.
Supp. 479 (W.D. Pa. 1983) aff'd, 745 F.2d 45 (3rd
Me SOME cole osanhvoeencheussasan cen en tuuneee ees 26
Eastern Associated Coal Corp. v. Aetna Casualty &
Surety Co., 475 F. Supp. 586 (W.D. Pa. 1979),
modified on other grounds, 632 F.2d 1068 (3rd Cir.
1980), cert. denied, 451 U.S. 986 (1981)............. 25
Employer's Reinsurance Corp. v. Martin, Gordon &
Jones, Inc., 767 F. Supp. 1355 (S.D. Miss. 1991) .... 16
E-Z Loader Boat Trailers v. Travelers Indemn. Co., 106
Wash. 2d 901, 726 P.2d 439 (1986) ................ 18
Golf Course Superintendents Ass’n of America v.
Underwriters at Lloyd's, London, 761 F. Supp.
RG ER A. TOE nn os cas caccasswncas 15, 20, 24
Grant v. Emmco Ins. Co., 295 N.C. 39, 243 S.E.2d
clin Mi ices oh TERRE TTT re re 15
Guardian Life Ins. Co. of America v. Richardson, 129
| S.W.2d 1107 (Tenn. App. 1939)..............2.005. 18
| Haigler v. City of New York, 135 A.D.2d 362, 521
PP ERE Ge CE ac pnceneapacewadetexidockrexsas 18
Huddleston v. Dwyer, 322 U.S. 232 (1944) ............. 8
al ical
vi
TABLE OF AUTHORITIES —- Continued
Page
Keys v. Sambo’s Restaurant, Inc., 389 So. 2d 1360
(La. Ct. App. 1980), aff’d, 398 So. 2d 1083 (La.
| Pr eee rCee ry ere rr yt rrr er reer 18
Kirk v. Nationwide Mut. Ins. Co., 254 N.C. 651, 119
Dm GR WOES vn oe on bees ences aaestieeauennas 11
LeDoux v. Iowa Nat. Mut. Ins. Co., 262 N.W.2d 418
| eee rere ser te yr er reer er 23
Loeb v. Hammond, 407 F.2d 779 (7th Cir. 1969)....... 26
Magnum Import Co. v. Coty, 262 U.S. 159, 67 L.Ed.
Tae SD TAR. DOU Cie: vc as cancun nercnsschweeceanas 8
Marx & Company, Inc. v. The Diners’ Club, Inc., 550
F.2d 505 (2d Cir. 1977), cert. den., 434 U.S. 861
og ee er erro eres rrr y ers rarer re ree 26
McMahon v. Boston Old Colony Ins. Co., 67 A.D. 2d
757, 412 N.Y.S.2d 465 (N.Y. App. Div. 1979)....... 24
Metric Constructors, Inc. v. Industrial Risk Insurers,
102 N.C. App. 59, 401 S.E.2d 126 (N.C. 1991)..... 10
Nationwide Mut. Ins. Co. v. Akers, 340 F.2d 150 (4th
ee Gr errr Tey Tre ee ere ree ed 25
Phillips v. Union Bankers Ins. Co., 812 S.W.2d 616
COR. A FI, TUN igo eid xine Sexier ceeess 12
Port of Portland v. Water Quality Insurance Syndi-
cate, 796 F.2d 1188 (9th Cir. 1986).............. 12, 20
Presidential Hotel v. Canal Ins. Co., 188 Ga. App.
GOR, Fro Dt Or CINE vb ooh vengceds ca nnnnscne 18
vii
TABLE OF AUTHORITIES - Continued
Page
Queens Ins. Co. of America v. Meyer Milling Co., 43
af 8 Se Ee ERE ECT Te eee TTT Tee 21
Radiator Specialty Company v. First State Insurance
Company, 651 F. Supp. 439 (W.D.N.C. 1987),
aff'd, 836 F.2d 193 (4th Cir. 1987) .......... 10, 21, 26
Raffles v. Wichelshause, 2 Howd. N.C. 906, 159 Eng.
Oe | ee reer TT rer er er tere 22
Redd v. Taylor, 270 N.C. 14, 153 S.E.2d 761 (1967) .... 21
Reliance Insurance Co. v. General Reinsurance Corp.,
aoe FH Seep. 1062 (2.D. Pa. 1960) ..............5:. 16
Richards v. Fireman's Fund Ins. Co., 417 N.W.2d 663
PI IS, WI 5 6 6 5s ooh aban ess Wieassknavaus 16
S&F Trading Co. v. Carson, 87 N.C. App. 602, 361
IE CUUO Ds iok beset pecercscisvseecasieneue' 12
Saloomey v. Jeppesen & Co., 707 F.2d 671 (2d Cir.
SPIT TTT ETT TTT TCT TT CTT TC ETT 5
School Dist. No. 1 v. Mission Insurance Co., 58 Or.
PD. Gre, Soe FOG Fae CEPR. once ccc ccenscsccenes 16
Sirvint v. Fidelity & Deposit Co., 242 A.D. 187, 272
N.Y.S. 555 (N.Y. App. Div. 1934), aff'd, 266 N.Y.
Sy. WO WE BO ROUEN ois ve sscnannenacvssseeses. 17
Slaughter v. State Capital Life Insurance Co., 250
N.C. 265, 108 S.E.2d 438 (1959) ................ 11, 23
Smith v. Nationwide Mut. Ins. Co., 214 Conn. 734,
oe eB re Tere eT eo ee eee 24
Squires v. Textile Ins. Co., 250 N.C. 580, 108 S.E.2d
ES bare sek cs kak a ck a ean ess 11
——————
Vili
TABLE OF AUTHORITIES —- Continued
Page
Strother v. North Carolina Farm Bureau Mutual Ins.
Co., 90 N.C. App. 734, 370 S.E.2d 82 (1988), rev.
denied, 323 N.C. 369, 373 S.E.2d 556 (N.C. 1988) .... 19
United States for Westchester Elec. v. Sentry Ins., 774
ee ee ret er TT Terre 11
Urtado v. Shupe, 33 Colo. App. 162, 517 P.2d 1357
(1973), aff'd en banc, 187 Colo. 24, 528 P.2d 222
Ce errr eee Tee ree TT erry el Peete eee 24
Wachovia Bank & Trust Co. v. Westchester Fire Ins.
Co., 276 N.C. 348, 122 S.E.2d 518 (1970)
PRPS Sad, AEN AR ergle Oee hs Pg yn DPN 12, 14, 20, 21, 23, 24
Walker v. Durham Life Ins. Co., 90 N.C.App. 191,
oe Ek gO | Ri yrir errr erro 11
Waste Management of Carolinas, Inc. v. Peerless Ins.
Co., 315 N.C. 688, 340 S.E.2d 374 (1986)....11, 15, 21
Western Fire Ins. Co. v. Wallis, 289 Or. 303, 613 P.2d
RE I» diet hy Yb eS eh 2 aia ind Pent ete 20
STATUTES:
EO UBC. & 1560 Cop. TOG) vi uia nieces cccneciccscees 17
ee i ae I oo oa ss ooo 6.05 40040eesnaaeens 17
Se I eS ie bh ik kos ek ck Asan 17
OTHER SOURCES:
13 Moore’s Federal Practice 4 810.25-1[3]............... )
J. Hodges & M. Whitten, Harbrace College Handbook
See SOE OU SR his sheen s kann ncccSusareanistss 17
ix
TABLE OF AUTHORITIES - Continued
eee Ere OT Pr Oe! Shea te Pree 18
No. 92-850
+
In The
Supreme Court of the United States
October Term, 1992
a +
JOSEPH W. TEAGUE and HELEN B. TEAGUE,
STEVEN ALLEN BARKER, RITA STRAHOWSKI, and
SWANNEE BECK, Lifetime Partners of PTL, as
Respresentatives of a Nationwide Class Consisting
of 150,290 Lifetime Partners and of 27,839 Persons
Who Have Partially Paid for Lifetime Partnerships,
Petitioners,
V.
EMPLOYERS REINSURANCE CORPORATION,
Respondent,
JAMES O. BAKKER, DAVID A. TAGGART, and
AIMEE CORTESE,
Defendants.
¢
Petition For Writ Of Certiorari To The
United States Court Of Appeals
For The Fourth Circuit
Y
BRIEF IN OPPOSITION TO PETITION
FOR WRIT OF CERTIORARI
¢
Respondent Employers Reinsurance Corporation
(“ERC”] opposes the Petition for Writ of Certiorari in this
case. Joseph Teague and others [“Teague”] ask this Court
to review an unreported decision by the United States
Court of Appeals for the Fourth Circuit affirming, per
curiam, an unreported district court opinion granting
1
2
summary judgment on an issue of state law. Both the
Fourth Circuit and the district court held that a libel and
allied torts indemnity policy [the “Multimedia Policy”]
issued to PTL by ERC, does not indemnify James O.
Bakker [“Bakker”] for liability for his own common law
fraud.
The Fourth Circuit’s unanimous decision in this
diversity action rests solely on state law. The circuits are
not split on any federal principle which would affect the
outcome. Thus, the case does not present an issue of
federal law for resolution by the Supreme Court.
In addition, the Fourth Circuit, like the District
Court, decided the controlling state law question cor-
rectly.
STATEMENT OF THE CASE
I. PROCEDURAL BACKGROUND.
ERC filed this diversity action in the United States
District Court for the Western District of North Carolina
on April 27, 1990. It sought a declaration that the Multi-
media Policy does not indemnify PTL officers and direc-
tors for claims by persons defrauded by PTL’s “lifetime
partner” program. The original defendants were Bakker,
David Taggart and Aimee Cortese, three former PTL offi-
cers and directors against whom such claims had been
made. Teague intervened on behalf of a class of “lifetime
partners” whom he represents in a class action against
Bakker, Taggart, Cortese and others [the “Teague Class
3
Action”). Teague claims that the Multimedia Policy cov-
ers the judgment for common law fraud entered against
Bakker in the Teague Class Action.1
On October 16, 1991, after discovery and full brief-
ing, the district court granted ERC’s motion for summary
judgment that the Multimedia Policy does not indemnify
Bakker for the fraud judgment. [App. 1032.]? The court
entered final judgment pursuant to Rule 54(b), Fed. R.
Civ. P. [App. 1033-34.]
Teague’s appeal was fully briefed, and a panel of the
Fourth Circuit heard oral argument on May 7, 1992. On
August 14, 1992, the panel unanimously affirmed the
district court’s judgment. [Appendix to Petition for Cer-
tiorari at A-1.] The court then denied Teague’s Petition
for Rehearing and Suggestion for Rehearing En Banc, by
order filed September 24, 1992. [Id. at A-7.]
II. FACTUAL BACKGROUND.
A. PTL’s Purchase Of The Multimedia Policy.
PTL bought the Multimedia Policy to protect itself
against “libel, slander and related actions.” In 1980, an
insurance consultant's report reviewed PTL’s entire insur-
ance program [App. 761-76] and recommended, among
other things, that PTL get libel coverage:
' Teague also contended that the policy covered claims
against Cortese and Taggart, but trial of the Teague Class Action
mooted that contention. The lifetime partners lost on all claims
against Taggart and Cortese, and they won against Bakker
solely on common law fraud. [App. 713-17.]
2 References to “App.” in this brief refer to the Joint Appen-
dix filed with the Fourth Circuit.
+
PTL’s broadcasting and telecasting activities
expose the organization to potential suits arising
out of libel, slander and related actions. No
insurance is in effect for these exposures.
[App. 776.] PTL’s “insurance coordinator,” Dave Cad-
well, implemented the consultant’s recommendation by
obtaining an ERC libel and related torts policy for PTL’s
Ohio television station, WJAN-TV, effective November
1980. [App. 757-58 (4 9).]
In 1982, PTL, through Mr. Cadwell, elected to extend
the coverage to PTL’s Charlotte operations. [App. 410; 758
(q 10).] ERC quoted and bound the coverage based on its
“Broadcasters Broadform” policy [App. 435-37], but it
actually issued the policy on its “multimedia policy”
form because PTL used both print and broadcast media.
The resulting Policy No. MML-044 [App. 1-26] is at issue
in this case.
Mr. Cadwell’s uncontradicted testimony is that he
did not believe that the policy covered fraud. [App.
118-21.] He did not seek coverage for fraud liability, and
he did not think that he had acquired any fraud coverage.
[App. 759 (( 14-15).]
B. The Multimedia Policy.
The Multimedia Policy is not a comprehensive lia-
bility policy. It is a “specified risk” indemnity policy
covering only specified torts in connection with broadcast
or publication of material. [App. 2-3 (Policy Section I).]
Chief among those are libel and slander, but the policy
also covers related torts such as invasion of privacy,
copyright infringement, and trespass in the acquisition or
publication of a story. [Id. Section I(a)(1)-(6).]
5
The policy also covers negligent broadcasting or pub-
lishing mistakes that cannot be pigeonholed into tradi-
tional torts such as libel, slander or invasion of privacy.
See, e.g., Saloomey v. Jeppesen & Co., 707 F.2d 671 (2d Cir.
1983) (publisher of a book of airport approach informa-
tion sued for erroneous information which allegedly
resulted in crash). These non-traditional negligent pub-
lication claims are covered by Section I(a)(7) of the policy
[App. 2] which covers liability arising from
negligent error, omission, misstatement or
misleading statement [in the broadcast or pub-
lication of material][emphasis added].
The Multimedia Policy does not contain any provi-
sion covering liability for fraudulent error, omission, mis-
Statement or misleading statement in broadcasts or
publications.
C. Claims By Lifetime Partners.
In 1987, certain PTL “lifetime partners” filed lawsuits
(including the Teague Class Action) against Bakker and
others. The lifetime partners contributed money to PTL
for the right to stay in PTL’s accommodations for a cer-
tain number of nights each year. The “partners” sued
when PTL could no longer provide the promised accom-
modations after its bankruptcy in the wake of the Jessica
Hahn scandal in 1987. They alleged that Bakker fraudu-
lently oversold the lifetime partnerships and diverted
3 Despite the Multimedia Policy’s prompt notice require-
ment, [App. 5-6 (Section VII)], neither Bakker nor anyone else
notified ERC of these lawsuits - or contended that the claims
were covered by the Multimedia Policy - for more than two
years. [App. 881-88? (qq 3-4).]
6
PTL assets, knowing that PTL could not provide the
promised accommodations. [App. 575-682.]
D. The Judgment Against Bakker.
The basis of the class action judgment against Jim
Bakker is clear. He already had been convicted of wire
fraud, mail fraud and conspiracy for the same conduct.
[App. 753.] Teague told the jury that
on October 5, 1989, Jim Bakker was convicted of
Lifetime Partnership fraud. On those same set of
facts that Jim Bakker was convicted on, we are
bringing this cause of action.
[App. 754.] Not surprisingly, the verdict against Bakker
was expressly and solely for common law fraud. [App.
713-17.]
¢
SUMMARY OF ARGUMENT
This is not an appropriate case for certiorari because
the only issue is the application of North Carolina sub-
stantive law to determine whether the Multimedia Policy
covers the judgment for common law fraud. Teague’s
attempt to disguise that state law issue as a federal ques-
tion cannot withstand scrutiny. Contrary to his argument,
the circuits are not split on the summary judgment stan-
dard. More important, the courts below did not “weigh”
any evidence or impose any burden of proof on Teague.
North Carolina law makes interpretation of the Multi-
media Policy a question of law to be decided by the court
based solely on the face of the policy without resort to
extrinsic evidence. Questions about “burden of proof”
and “evidence weighing” are irrelevant when the sole
task before the court is making a legal interpretation, not
7
deciding whether there is enough evidence to create an
issue of fact.
Even if it were proper for Teague to use this court to
rehash state law issues on which he has been fully heard
in two courts, his petition is without merit. The district
court and the Fourth Circuit applied the plain meaning of
the Multimedia Policy as required by North Carolina law
and reached the same conclusion as other courts consid-
ering similar policy language. Teague’s effort to avoid the
policy’s plain meaning through strained readings, parol
evidence and mischaracterizations of the evidence are
contrary to North Carolina law.
oo _
ARGUMENT
I. THIS CASE DOES NOT PRESENT A SUBSTAN-
TIAL FEDERAL QUESTION REQUIRING REVIEW
BY THE SUPREME COURT.
This case did not involve federal law. The sole issue
was controlled by state law, and the courts below fol-
lowed procedural principles upon which the Supreme
Court and all circuits agree. The decision has little signifi-
cance to anyone beyond the parties to this case - a fact
emphasized by the absence of any reported opinion. Tea-
gue simply quarrels with the application of North Caro-
lina law by the district court and the Fourth Circuit, and
he seeks a third bite at the apple in violation of this
Court’s long-standing admonition that the certiorari
jurisdiction exists solely
to bring up cases involving questions of impor-
tance which it is in the public interest to have
decided by this court of last resort. The jurisdic-
tion was not conferred upon this court merely to
8
give the defeated party in the Circuit Court of
Appeals another hearing.
Magnum Import Co. v. Coty, 262 U.S. 159 (1923).
A. The Court Should Not Grant Certiorari To Sec-
ond Guess The Fourth Circuit’s Application Of
North Carolina Law.
Teague does not dispute that North Carolina law
governs this case. No such dispute would be possible.
The case is in federal court only because of the parties’
diverse citizenship, and the sole issue is interpretation of
an insurance policy issued to an insured in North Caro-
lina.
Teague does argue, however, that the district court
and the Fourth Circuit misapplied North Carolina law.
[Petition for Certiorari at 15-31]. As shown in Part II
below, that argument is wrong; but it would not justify
review by the Supreme Court in any event.
The Supreme Court has long recognized that it does
not exist to second guess the courts of appeal on state law
questions. E.g., Huddleston v. Dwyer, 322 US. 232, 237
(1944):
[O]rdinarily we accept and therefore do not
review, save in exceptional circumstances, the
considered determination of questions of state
law by the intermediate federal appellate
courts ..
See also, Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986)
(“We think the Court of Appeals with its superior knowl-
edge of local law is better suited than we are to make
these determinations [of state law] in the first instance.”).
Thus, the Court seldom has granted certiorari to review
state law decisions, and in 1980 it deleted from its rules
9 ;
the provision for certiorari to review state law issues. 13
Moore's Federal Practice 4 810.25-1[3].
This is not a case in which the Court should depart
from its practice of deferring to the courts of appeal on
State law issues. The Fourth Circuit and district court
correctly applied North Carolina law, and their decisions
are unlikely to govern a substantial number of other cases
since they were unreported and relate solely to the inter-
pretation of the Multimedia Policy with respect to one
type of judgment.
B. Teague’s Attempt To Create The Illusion Of A
Federal Question Is Without Merit.
Teague fails in his attempt to disguise the controlling
State law question as a federal issue. Teague’s theory is
that the Court should grant certiorari to resolve a split
among the circuits about the propriety of weighing evi-
dence on a motion for summary judgment and the role of
the burden of proof on summary judgment. [Petition for
Certiorari at 7-14.]
While no such split among the circuits exists, this
would not be an appropriate case for resolving the split if
it did exist. Contrary to Teague’s argument, the Fourth
Circuit neither weighed any evidence nor imposed any
burden of proof on Teague. Indeed, those concepts had
no relevance to its decision because North Carolina sub-
stantive law made interpretation of the Multimedia Pol-
icy an issue of law, not a question of fact.
The Fourth Circuit correctly noted that the facts
material to ERC’s motion for summary judgment under
controlling North Carolina law were - and are — undis-
puted. The Multimedia Policy is in writing [App. 1-26],
and the parties do not dispute its contents. Nor does any
10
dispute exist about the basis for Bakkers’ liability to the
lifetime partners. The fraud judgment against Bakker
[App. 713-17] and Bakker’s criminal indictment and con-
viction for the same conduct [App. 725-53] are both in
writing. The Teague verdict was expressly for common
law fraud.
The Fourth Circuit noted correctly that North Caro-
lina law makes interpretation of the Multimedia Policy on
these undisputed facts a question of law, and it based its
decision squarely on that controlling principle of North
Carolina substantive law, not on weighing the evidence:
Since there is no dispute regarding the facts, and
the matter is reduced to a narrow question of
contract interpretation, we must decide only
whether ERC is entitled to judgment as a matter
of law under the policy. Radiator Specialty Com-
pany v. First State Insurance Company, 651 F.Supp.
439 (W.D.N.C. 1987), aff'd, 836 F.2d 193 (4th Cir.
1987).
* * *
Under North Carolina law, which controls,
unambiguous policy language is to be consid-
ered without resort to extrinsic evidence to
“aid” in its interpretation. Metric Constructors,
Inc. v. Industrial Risk Insurers, 102 N.C. App. 59,
401 S.E.2d 126, 128 (N.C. 1991). The District
Court therefore properly declined to consider
Teague’s proffers of extrinsic evidence . . .
[Appendix to Petition for Certiorari at A-4 and A-5.]
Nor did the Fourth Circuit impose any burden of
proof or burden of production on Teague. There are no
* Contrary to Teague’s argument, he would bear the burden
of proof if there were any material issues of fact relating to
11
burdens of proof or production on issues of law. All
relevant facts (i.e. the text of the Multimedia Policy and
the Teague Class Action judgment) were before the Court.
The Fourth Circuit’s conclusion that interpretation of
the Multimedia Policy is an issue of law was compelled
by three well-established principles of North Carolina
law.
First, North Carolina, like most American jurisdic-
tions, has long held that interpretation of an unam-
biguous insurance policy or contract is a question of law
for the court. E.g., Barbee v. Harford Mutual Ins. Co., 330
N.C. 100, 102, 408 S.E.2d 840, 841 (1991); Waste Manage-
ment of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688,
690-91, 340 S.E.2d 374, 377 (1986). No fact issue is present
- and extrinsic evidence may not be used to interpret the
contract — unless the court first decides that the contract is
ambiguous. United States for Westchester Elec. v. Sentry
Ins., 774 F.2d 80, 84 (4th Cir. 1985) (applying North Caro-
lina law).
Second, under North Carolina law, “{t]he determina-
tion whether the terms of a policy are . . . ambiguous is
one of law for the court.” Squires v. Textile Ins. Co., 250
N.C. 580, 585, 108 S.E.2d 908, 911 (1959). The North
Carolina Supreme Court cogently stated the controlling
coverage. Under North Carolina law, the claimant under an
insurance policy bears the burden of proving the material facts
relating to coverage. See, e.g., Kirk v. Nationwide Mut. Ins. Co.,
254 N.C. 651, 654, 119 S.E.2d 645, 647 (1961) (burden on party
claiming benefits under insurance policy to show coverage);
Slaughter v. State Capital Life Insurance Co., 250 N.C. 265, 108
S.E.2d 438 (1959) (insurer does not have burden of showing
applicable exclusion unless insured first establishes that claim is
within coverage); Walker v. Durham Life Ins. Co., 90 N.C.App.
191, 193, 368 S.E.2d 43, 45 (1988).
OL
12
principle in Wachovia Bank & Trust Co. v. Westchester Fire
Ins. Co., 276 N.C. 348, 354, 122 S.E.2d 518, 522
(1970)(emphasis added):
No ambiguity . . . exists unless, in the opinion of
the court, the language of the policy is fairly and
reasonably susceptible to either of the construc-
tions for which the parties contend. [Citation
omitted]. If it is not, the court must enforce the
contract as the parties have made it and may
not, under the guise of interpreting an ambig-
uous provision, remake the contract and impose
liability upon the company which it did not
assume and for which the policyholder did not
Pay.
Third, North Carolina law precludes use of parol
evidence to create ambiguity. E.g., S&F Trading Co. v.
Carson, 87 N.C. App. 602, 604, 361 S.E.2d 897, 899 (1987)
(rejecting use of extrinsic evidence to create ambiguity as
“circular”’). North Carolina is not unique. See, e.g., Burger
King Corp. v. Horn & Hardart Co., 893 F.2d 525, 527 (2d Cir.
1990) (under New York law, court must determine
whether contract is ambiguous by reference to contract
alone); Port of Portland v. Water Quality Insurance Syndi-
cate, 796 F.d 1188, 1194 (9th Cir. 1986) (“We agree .. . that
[under Oregon law] parol evidence should not be allowed
in for the purpose of creating an ambiguity.”); Amos v.
Coffee, 228 Va. 88, 93, 320 S.E.2d 335, 338 (Va. 1984)
(holding, under Virginia law, that “ ‘[p]arole evidence
cannot be used to first create an ambiguity and then
remove it.’ ” (quoting Cohan v. Thurston, 223 Va. 523, 292
S.E.2d 45, 46 (Va. 1982)); Phillips v. Union Bankers Ins. Co.,
812 S.W.2d 616, 620 (Tex. Ct. App. 1991) (“In the absence
of ambiguity on the face of the [insurance] contract, parol
evidence is not available to create ambiguity.”); Chimart
Assocs. v. Paul, 66 N.Y.2d 570, 572, 498 N.Y.S.2d 344, 346,
13
489 N.E.2d 231, 233 (N.Y. 1986) (“[W]Je should determine
if there is any ambiguity by the contractual language
alone, without reference to extrinsic evidence.”).
Accordingly, ERC’s motion for summary judgment
did not require either the district court or the Fourth
Circuit to weigh any evidence or allocate the burden of
proof or burden of production. Indeed, that would have
been contrary to North Carolina law. Rather, the courts
simply had to read the plain English language of the
Multimedia Policy and apply it according to its terms,
unless in the court's opinion the language was ambiguous.
Both courts concluded that the language was not ambig-
uous. Hence no fact issue arose.
The cases which Teague cites [Petition for Certiorari
at 12-13] do not establish a split among circuits on the
standards for summary judgment. For example, Teague
cites Country Floors, Inc. v. Partnership, 930 F.2d 1056,
1061-62 (3rd Cir. 1991) for the proposition that the Third
Circuit endorses weighing of evidence. [Petition at 13.] In
fact, the Third Circuit’s opinion in Country Floors expressly
rejects weighing the evidence. 930 F.2d at 1061-62. Nor do
any of the other cases cited by Teague endorse weighing
the evidence. Teague cites seven cases as opposing
weighing and four cases as supporting weighing. [Peti-
tion for Certiorari at 12-13.] If the Court were to shuffle
those eleven opinions together, it would have difficulty
separating them again into the two categories without
consulting the Petition. The cases which Teague cites in
the two categories are, as groups, indistinguishable.
More important, the cases which Teague cites deal
with an issue not present here. Those cases are concerned
with the quantum of evidence necessary to create a genu-
ine issue about the existence or non-existence of a fact
14
once it has been determined that the fact is material under
the controlling substantive law. That issue is not present
here because, under controlling North Carolina law, this
case presents an issue of law, not a question of fact. In
addition, as the Fourth Circuit properly found, North
Carolina law prohibits use of the extrinsic evidence prof-
fered by Teague in resolving that question of law.
Thus, in the final analysis, Teague really quarrels
with the Fourth Circuit’s application of North Carolina
law, not with its interpretation of the federal summary
judgment standard. As shown, that is not an appropriate
basis for certiorari, especially since the Fourth Circuit
decided the state law question correctly.
Il. THE DISTRICT COURT CORRECTLY HELD THAT
THE PLAIN LANGUAGE OF THE MULTIMEDIA
POLICY DOES NOT INDEMNIFY JAMES O. BAK-
KER AGAINST LIABILITY FOR HIS OWN
FRAUD.
Although Teague’s lengthy state law arguments do
not present a proper basis for certiorari, ERC nevertheless
responds below to show that the Fourth Circuit and dis-
trict court correctly applied North Carolina law.
A. North Carolina Law Does Not Permit Creation
of Indemnification for Bakker Against Lia-
bility for His Own Fraud Through Distortion
of the Policy Language.
The Multimedia Policy does not indemnify Bakker
against liability for his own fraud. It covers only specified
torts, and fraud is not specified. Under North Carolina
law, ERC is not liable for a risk it did not assume. Wac-
hovia Bank & Trust Co., 276 N.C. at 354,-172 S.E.2d at 522.
15
Contrary to Teague’s argument, Section I(a)(7) does
not indemnify Bakker for the fraud judgment. It plainly
covers only “negligent error, omission, misstatement or
misleading statement” — not fraudulent error, omission,
misstatement or misleading statement. Teague tries to
rewrite Section I(a)(7)’s coverage by arguing that the
policy should be read as if “negligent” modifies only
“error” rather than the entire phrase which it precedes.
This “Teague Revision” ignores the fundamental princi-
ple of North Carolina law that insurance policies must be
read according to ordinary English usage. Waste Manage-
ment, 315 N.C. at 694, 340 S.E.2d at 379; Grant v. Emmco
Ins. Co., 295 N.C. 39, 42, 243 S.E.2d 894, 897 (1978). Asa
consequence, courts applying law like that of North Caro-
lina consistently have rejected similar arguments.
In Golf Course Superintendents Ass'n of America v.
Underwriters at Lloyd’s, London, 761 F. Supp. 1485, 1489-90
(D. Kan. 1991), for example, the court rejected, as a matter
of law, an insured’s claim that virtually identical policy
language covered intentional retaliation for filing a civil
rights charge:
The insurance contract covers liability for
“wrongful acts” which are defined as “any negli-
gent act, error, omission, misstatement or misleading
Statement.” Intentional conduct .. . is not con-
tained in this definition. [Citations omitted.]
[The insured] contends that the definition of
“wrongful act” is ambiguous and should be lib-
erally construed in favor of [the insured.] [The
insured] argues that “negligent” in the phrase
“negligent act, error, omission, misstatement or
misleading statement” could be interpreted as
modifying only the word “act.” .. . We dis-
agree .... We believe it makes better sense and
16
captures the intent of the parties to construe the
definition of “wrongful acts” so that the word
“negligent” modifies every relevant term of the
definition. It would be self-defeating to limit the
definition of “wrongful act” to negligent acts,
but at the same time cover intentional errors or
omissions. [Emphasis added.]
Other courts have reached the same result. See, e.g., Rich-
ards v. Fireman's Fund Ins. Co., 417 N.W.2d 663, 667 (Minn.
App. 1988) (professional liability policy covering claims
for “any negligent act, error or omission” is clear and
unambiguous and does not cover omission to perform
contractual duties unless done negligently); Employer's
Reinsurance Corp. v. Martin, Gordon & Jones, Inc., 767 F.
Supp. 1355, 1362 n.2, (S.D Miss. 1991) (holding that
phrase “negligent act, error or omission of the Insured”
includes only negligent errors, thus concluding that “neg-
ligent” modified all terms in the series); Reliance Insurance
Co. v. General Reinsurance Corp., 506 F. Supp. 1042, 1044,
1050 (E.D. Pa. 1980) (holding that endorsement covering
“any negligent act, error or omission” does not cover
intentional or willful conduct); School Dist. No. 1 v. Mis-
sion Insurance Co., 58 Or. App. 692, 701, 650 P.2d 929, 935
(1982) (holding that policy covering claims for “any negli-
gent act, error or omission” does not cover intentional
discrimination, only negligent discrimination).
These cases apply the ordinary meaning of the policy
language, just as North Carolina law requires. In normal
usage, an adjective preceding a conjoined series of nouns
modifies each noun in the series. For example:
1. The bakery was filled with delicious cakes,
pies, cookies and pastries.
2. Countless judges, lawyers and legal scholars
have pondered the meaning of “proximate
cause.”
17
No one familiar with English would think that the first
illustration means that only the cakes were delicious; nor
does the second example mean that only the judges are
countless. Rather, the adjective modifies each noun (or
noun phrase) in the series. Normal usage avoids unneces-
sary repetition by using the adjective to modify the entire
series rather than clumsily repeating it.
The technical term for this common grammatical
practice is “ellipsis” or “elliptical construction” - a
phrase or sentence in which words are omitted in order to
avoid unnecessary repetition. Sirvint v. Fidelity & Deposit
Co., 242 A.D. 187, 272 N.Y.S. 555, 557 (N.Y. App. Div.
1934), aff'd, 266 N.Y. 482, 195 N.E. 164 (1934); J. Hodges &
M. Whitten, Harbrace College Handbook 512 (10th ed. 1986).
Contrary to the Teagues’ contention [Petition for Cer-
tiorari at 20], this is not an outdated grammatical concept
no longer in use. Indeed, the Teagues themselves use
adjectives to modify entire series of nouns. Paragraph 60
of their crossclaim, for example, alleges that Bakker
intended to defraud them “by means of false or fraudulent
pretenses, representations, or promises.” “False” and
“fraudulent” modify all three nouns in the series, not just
“pretenses.” What’s more, Congress uses the same pat-
tern. For example, 18 U.S.C. § 1341 (Supp. 1989) prohibits
fraudulent use of “any counterfeit or spurious coin, obliga-
tion, security, or other article...” (emphasis added). The
underlined adjectives modify all nouns in the series, not
just the first term. Also see, e.g., 18 U.S.C. § 1342 (1988); 18
U.S.C. §§ 1341 and 1343 (1988).
The Multimedia Policy itself contains numerous
examples of a single adjective modifying a series of
nouns. Section I(b)(1) covers “false arrest, detention or
imprisonment... .” [App. 2.] Plainly, “false” modifies all
18
three nouns in the series. “False arrest,” “false imprison-
ment” and “false detention” are synonyms for the same
tort.° Similarly, Section II(a)(5) refers to “bodily injury,
sickness, disease or death of any person.” The adjective
“bodily” in that phrase modifies the entire phrase, not
just “injury.” See Chatton v. National Union Fire Ins. Co. of
Pittsburgh, PA., 10 Cal. App. 4th 846, 13 Cal. Rptr. 2d 318
(1992); Presidential Hotel v. Canal Ins. Co., 188 Ga. App.
609, 611, 373 S.E.2d 671, 672 (1988); E-Z Loader Boat
Trailers v. Travelers Indemn. Co., 106 Wash. 2d 901, 908, 726
P.2d 439, 443 (1986) (en banc); Guardian Life Ins. Co. of
America v. Richardson, 129 S.W.2d 1107 (Tenn. App. 1939).
At least seven other examples appear throughout the
Multimedia Policy [App. 3 (Section I(a)(3) and Section
II(a)(2)); App. 4 (Section IV(a)(2) (two examples), Section
IV(a)(3), Section IV(c)) and App. 7 (Section X).6
* The policy includes all three terms because the same tort
is known by differing names in various jurisdictions. See, e.g.,
Prosser & Keeton on the Law of Torts 47 (Sth ed. 1984); Haigler v.
City of New York, 521 N.Y.S.2d 428 (N.Y. App. Div. 1987); Butler v.
City of Vero Beach, 495 So. 2d 266 (Fla. Dist. Ct. App. 1986); Keys
v. Sambo’s Restaurant, Inc., 389 So. 2d 1360 (La. Ct. App. 1980),
aff'd, 398 So.2d 1083 (La. 1981).
© Teague’s purported counter examples are without merit.
For example, Section I(a)(4) - which excludes coverage for lia-
bility arising “under any workman’s compensation, unemploy-
ment compensation or disability benefits law” — does not use
one adjective to modify a series of nouns. Rather, it contains a
series of adjective phrases - “workman’s compensation,” etc. -
that modify the single noun “law.” Thus, each adjective phrase
is the functional equivalent of a single word. Indeed, they are so
commonly used as single words that they have their own dic-
tionary entries. See, e.g., Webster's Third New International Dic-
tionary 2635 (defining “workman’s compensation insurance”);
19
The North Carolina courts have recognized elliptical
phrases in insurance policies. In Big B Transportation, Inc.
v. U.S. Ins. Group, 93 N.C. App. 233, 234, 377 S.E.2d 278,
279 (1989), the policy covered “liability of the Insured as
a carrier under bills of lading or shipping receipts issued
by the Insured . ..” (emphasis added). The court rejected
the insured’s contention that the adjective phrase “issued
by the Insured” modified only “shipping receipts.” The
court said that the only reasonable way to read the policy
was that “issued by the insured” modified both “bills of
lading” and “shipping receipts” - even though it
appeared after only one of the terms. Id. at 235, 377 S.E.2d
at 279. And see, Strother v. North Carolina Farm Bureau
_ Mutual Ins. Co., 90 N.C. App. 734, 735-36, 370 S.E.2d 82,
83 (1988), rev. denied, 323 N.C. 369, 373 S.E.2d 556 (N.C.
1988) (holding that words in an insurance policy mod-
ified entire series of nouns, not just immediately adjacent
noun).
In short, Section I(a)(7) of the Multimedia Policy
follows common English usage - a usage which is (i)
repeated throughout the policy, (ii) used in the Teagues’
own pleadings and in federal statutes, and (iii) recog-
nized by numerous courts and authorities on usage.
Contrary to Teague’s assertion [Petition for Certiorari
at 16-18], his strained interpretation does not give signifi-
cance to each word. As the courts below recognized, the
Teague Revision would nullify the word “negligent” in
Section I(a)(7). It would be illogical for the policy to limit
coverage for “errors” to negligent errors if, as the Teagues
contend, it covers all omissions. Just as a surgeon’s
Id. at 2493 (defining “unemployment compensation”). Cf., Id. at
642 (defining “disability insurance”).
20
“error” in leaving a sponge inside a patient can be char-
acterized as an omission to remove it, any “error” by a
broadcaster can be characterized as an omission, a mis-
statement or a misleading statement. Thus, the insured
could always circumvent the restriction to “negligent
error” by characterizing a claim as an omission. See Golf
Course Superintendents, 761 F.Supp. at 1490 (“[i]t would be
self-defeating to limit [coverage] to negligent acts, but at
the same time cover intentional errors or omissions.”)
Common sense compels the conclusion that “negligent”
was meant to have practical significance, not the nuga-
tory effect created by the Teague Revision. See Wachovia
Bank, 276 N.C. at 355, 172 S.E.2d at 522 (“Each word is
deemed to have been put into the policy for a purpose
and will be given effect, if that can be done by any
reasonable construction . . . ).
B. The Policy Is Not Ambiguous Under North Car-
olina Law.
Because Teague cannot seriously argue that a natural
reading of Section I(a)(7) indemnifies Bakker for his own
fraud, he spends much of his Petition trying to create
some imaginary ambiguity which he can exploit to create
coverage not contemplated by either ERC or PTL at the
policy’s inception. The cases cited above reject that con-
tention.
Ultimately, Teague depends on a misconception of
“ambiguity” under North Carolina law. Contrary to his
apparent belief, a policy is not ambiguous simply because
inventive counsel can conceive of a “possible but unlikely
meaning [for policy language].” Port of Portland, 796 F.2d
at 1194 (citing Western Fire Ins. Co. v. Wallis, 289 Or. 303,
21
308, 613 P.2d 36, 38-39 (1980)). Rather, a policy is ambig-
uous only if it is reasonably subject to different interpreta-
tions by a person in the place of the insured. Wachovia
Bank, 276 N.C. at 354, 172 S.E.2d at 522 (quoted at p. 12
above). “The key word in this [principle] is ‘reasonably.’ ”
Radiator Specialty, 651 F. Supp. at 442.
Thus, Teague cannot establish that Section I(a)(7) of
the Multimedia Policy is ambiguous by showing that a
Strained, distorted reading might lead to a different
result. See Waste Management, 315 N.C. at 695, 340 S.E.2d
at 379 (reinstating summary judgment for insurer with
observation that “[aJlthough it is possible to perceive
ambiguity in the policy language, it strains at logic to do
so.”).
Teague tries to circumvent these fundamental princi-
ples of North Carolina law by arguing that the policy
contains a “latent ambiguity.” [Petition for Certiorari at
21-27.] In doing so, however, he proves only that he does
not understand what “latent ambiguity” means under
North Carolina law. The North Carolina Supreme Court
defined “latent ambiguity” in Redd v. Taylor, 270 N.C. 14,
22, 153 S.E.2d 761, 766 (1967):
[a] latent ambiguity occurs when the words of
an instrument are plain and intelligible, but
extrinsic facts are necessary to identify the per-
son or thing mentioned therein. A latent ambi-
guity, therefore, presents a question of identity -
a fitting of the description in the will to the
person or thing the testator intended.
Accord: Queens Ins. Co. of America v. Meyer Milling Co., 43
F.2d 885, 887 (8th Cir. 1930) (cited by Teague). The classic
example of latent ambiguity is a contract requiring the
purchase of goods “arriving on the ship Peerless from
Bombay” when, unknown to the parties, there are two
22
different ships by that name arriving from Bombay. E.g.,
Raffles v. Wichelshause, 2 Howd. N.C. 906, 159 Eng. Rep.
375 (Ex. 1869).
The North Carolina Supreme Court recently reaf-
firmed this definition of “latent ambiguity” and empha-
sized that the latent ambiguity doctrine does not permit
the use of extrinsic evidence “to alter or affect the con-
struction of [the instrument itself].” Britt v. Upchurch, 327
N.C. 454, 458, 396 S.E.2d 318, 320 (1990).
In this case, Teague is not trying to use extrinsic
evidence to resolve a latent ambiguity. That is, he is not
using the evidence to identify a person or thing to which
the policy refers. Rather, he attempts to use it to argue
that the policy’s words mean something other than their
ordinary meaning — he seeks to use extrinsic evidence “to
alter or affect the construction” of the policy. This is
exactly what the North Carolina Supreme Court's deci-
sion in Britt says that he cannot do.
C. The Lower Courts Properly Rejected Teague’s
Attempt To Find Ambiguity Through Strained
Reading And Irrelevant Extrinsic Evidence.
1. It Is Irrelevant That Other Policy Provisions
Create Other Types Of Coverage.
Contrary to Teague’s argument [Petition for Cer-
tiorari at 21], he is not helped because parts of the Multi-
media Policy other than Section I(a)(7) cover libel, invasion
of privacy and other torts generally categorized as “inten-
tional.” Not even Teague contends that fraud is one of the
“intentional” torts specified in Sections I(a)(1)-(6). Rather,
he relies solely on Section I(a)(7) which expressly covers
only negligent conduct. It makes no sense for Section
|
23
I(a)(7) to begin with the word “negligent” if, as Teague
argues, it was intended to cover intentional conduct.
2. The Absence Of A Fraud Exclusion Is Irrele-
vant Unless The Coverage Provision Creates
Fraud Coverage.
Teague is also wrong in arguing that ERC must
indemnify Bakker for his fraud because the policy does
not expressly exclude fraud. [Petition for Certiorari at
20-21.] Under North Carolina law, analysis must begin
with the coverage section. The policy is for specific perils:
it covers a claim only if it falls within the coverage
affirmatively granted. See, e.g., Wachovia Bank, 276 N.C. at
358, 172 S.E.2d at 525 (holding that absence of express
exclusion of cumulating limits of “medical payments”
provision did not expand coverage beyond affirmative
grant of coverage); Slaughter, 250 N.C. at 269, 108 S.E.2d
at 441 (insurer does not have burden of showing applica-
ble exclusion unless insured first establishes that claim is
within coverage; either lack of coverage or exclusion
would preclude claim).”
Many other jurisdictions agree with North Carolina
on this point. See, e.g., American Home Assurance Co. v.
Osbourn, 47 Md. App. 73, 82, 422 A.2d 8, 14 (Md. Ct. Spec.
7 Nor does the exclusion for criminal fines and penalties
make absence of an express fraud exclusion significant. [Peti-
tion for Certiorari at 20-21.] That exclusion is necessary because
some of the torts expressly covered — e.g., trespass — could result
in “criminal” fines or penalties in some jurisdictions. In con-
trast, since fraud is not a specified tort, the policy does not need
to exclude it. Cf. LeDoux v. Iowa Nat. Mut. Ins. Co., 262 N.W.2d
418, 421 (Minn. 1978) (exclusions have no bearing on whether
coverage sections are ambiguous).
24
App. 1980) (holding that issue of exclusion was irrele-
vant, since coverage clause did not create coverage);
Smith v. Nationwide Mut. Ins. Co., 214 Conn. 734, 741, 573
A.2d 740, 743 (1990) (whether claim covered was “a ques-
tion of coverage, not exclusion”); McMahon v. Boston Old
Colony Ins. Co., 67 A.D. 2d 757, 758, 412 N.Y.S.2d 465, 467
(N.Y. App. Div. 1979) (“[B]efore the need for an exclusion
arises, there must first be coverage. . . . ”); Urtado v.
Shupe, 33 Colo. App. 162, 165, 517 P.2d 1357, 1359 (1973),
aff’d en banc, 187 Colo. 24, 528 P.2d 222 (1974) (“[I]t is not
necessary that all limitations [on coverage] appear as
exclusions . .. .”); Golf Course Superintendents, 761 F. Supp.
at 1490 (“[t]he policy should not be construed only in
light of what is expressly excluded... . ”).
3. Language In Other ERC Policies Is
Irrelevant.
There is no merit to Teague’s argument that the Mul-
timedia Policy is ambiguous because other types of ERC
policies have different coverage provisions or express
fraud exclusions. The North Carolina Supreme Court
rejected a similar argument in Wachovia Bank, 276 N.C. at
358, 172 S.E.2d at 525. In that case, the court rejected the
argument that the insurer’s addition of exclusionary lan-
guage to later versions of the same policy constituted
evidence that the earlier version without the exclusionary
language was ambiguous:
Nor does the fact that the company has now
included such provision in the medical pay-
ments section [of other policies] show that it
recognized a pre-existing ambiguity therein. To
insert a provision which will eliminate the remotest
possibility of litigation upon a given theory is not to
25
be deemed a recognition of the reasonableness of such
theory in the absence of such provision in the policy.
276 N.C. at 358, 172 S.E.2d at 525. (emphasis added).
Accord: Nationwide Mut. Ins. Co. v. Akers, 340 F.2d 150, 156
(4th Cir. 1965) (Virginia law) (rejecting contention that
subsequent revision of statutory policy form to expressly
exclude certain coverage created inference that such cov-
erage existed under the old form).
Thus, under North Carolina law, interpretation of
PTL’s Multimedia Policy would not be affected even if
ERC (contrary to fact) had subsequently revised its multi-
media policy form to include an express fraud exclusion.
A fortiori, it is irrelevant that some ERC policies other than
the multimedia form have an express fraud exclusion.
4. Teague’s Purported Expert Affidavits Are
Irrelevant.
Teague improperly attempts to create ambiguity
through purported “expert” affidavits which are little
more than briefs in affidavit form. The “experts” merely
render opinions about whether the policy language is
ambiguous or what it means. Under North Carolina law,
these were legal issues for the courts to decide.
As succinctly stated in Eastern Associated Coal Corp. v.
Aetna Casualty & Surety Co., 475 F. Supp. 586, 592 (W.D.
Pa. 1979), modified on other grounds, 632 F.2d 1068 (3rd Cir.
1980), cert. denied, 451 U.S. 986 (1981):
Complaint is made of exclusion of expert testi-
mony of witness Ron Rodda who was called to
interpret the meaning of the insurance contract.
This is not permitted. The interpretation of the
insurance contract is a matter for the court... .
There is nothing in Rule 702 which would allow
26
an expert to interpret a legal document and
substitute his judgment for that of the court.
Accord: Loeb v. Hammond, 407 F.2d 779, 781 (7th Cir. 1969)
(holding that expert testimony is not permitted with
respect to interpretation of contract); County of Erie v.
American States Ins. Co., 573 F. Supp. 479 (W.D. Pa. 1983)
aff’d., 745 F.2d 45 (3rd Cir. 1984) (holding that affidavit of
purported expert on interpretation of policy language did
not preclude summary judgment for the insurer); Radiator
Specialty, 651 F. Supp. at 443 (expert affidavit purporting
to interpret policy did not preclude summary judgment
under North Carolina law). Cf. Chatton v. National Union
Fire Ins. Co. of Pittsburgh, P.A., 13 Cal. Rptr. 2d at __
(opinion evidence not admissible to interpret unam-
biguous policy language). This authority is consistent
with the North Carolina substantive rule that extrinsic
evidence may not be used to modify policy language.
Although state law is conclusive, the same result
would apply under the Federal Rules of Evidence. E.g.,
Marx & Company, Inc. v. The Diners’ Club, Inc., 550 F.2d
505, 509 n.11 (2d Cir. 1977), cert. den., 434 U.S. 861 (1977);
Adalman v. Baker, Watts & Co., 807 F.2d 359, 365-68 (4th
Cir. 1986).
5. The Testimony Of Other Witnesses Is Irrele-
vant and Does Not Support Teague.
The North Carolina rule prohibiting use of extrinsic
evidence to interpret or create ambiguity in plain contract
language is fatal to Teague’s reliance on deposition testi-
mony to influence the court’s decision of the legal issue
in this case. See Chatton, 13 Cal. Rptr. at ___ (alleged
admissions of insurer’s employees that policy covered
claim not admissible to change policy’s plain meaning).
27
Moreover, Teague’s Petition simply mischaracterizes that
testimony.
The eighteen depositions taken by the Teagues reflect
that PTL did not intend to buy and ERC did not intend to
sell fraud coverage. No deponent testified that he or she
understood the Multimedia Policy to cover comrion law fraud.
To the contrary, those deponents who expressed an opin-
ion — including Dave Cadwell who bought the policy for
PTL — testified that they did not believe that it covers
fraud. [App. 68-75, 113-27.] Mr. Cadwell clearly indicated
that he understood the policy to cover only negligent
acts, not intentional acts. [App. 759 (44 14-15); App.
113-27.] So did Mr. Heidenreich, another of PTL’s agents.
[App. 68-75.]
6. Teague May Not Use Non-Existent Facts To
Support His Petition.
Teague’s Petition is replete with non-sequiturs and
“factual” statements which are not supported by the
record. Those misstatements would not change the result
of the case even if they were true, but they are not true.
Space does not permit discussion here of all such mis-
characterizations of the record. A few examples will suf-
fice.
Teague falsely claims that ERC charged PTL a higher
premium in exchange for shifting from the Broadcaster’s
Broadform (which Teague admits does not cover fraud) to
the multimedia form. [Petition for Certiorari at 3, 6, 14,
17, 18, 19 and 29.] That argument is pure fantasy unsup-
ported by any evidence. The record is undisputed that
world-wide coverage was quoted and bound as “Broadcas-
ters Broadform” coverage for a premium of $42,187.
[App. 436 and 435.] The policy was then issued on the
28
multimedia form with no increase in premium. [Compare
App. 435 and 436 (quote and binder for Broadcaster’s
Broadform) with App. 1 (Multimedia Policy Declara-
tions).]
The cheaper quotation cited by the Teagues shows on
its face that it was for coverage limited to the United States
and Canada. [App. 437; see also App. 436.] In contrast, the
coverage as bound was for worldwide coverage. [App. 1;
435.] Obviously worldwide libel coverage is more expen-
sive than coverage for the United States and Canada only
- especially since many foreign countries lack the First
Amendment and due process protections available in this
country. There is not a scrap of evidence that ERC
charged a higher premium for shifting from broadcaster’s
broadform or for fraud coverage. No witness so testified.
Dave Cadwell, who purchased the policy for PTL, cer-
tainly did not think that the premium was increased in
exchange for fraud coverage. [App. 97-99; 120-29; 759.]
Indeed, the shift from Broadcaster’s Broadform to the
multimedia form with no premium increase confirms that
PTL did not pay for fraud coverage.
Teague states that ERC’s underwriter, agent and
attorney all admitted that the language was ambiguous.
[Petition for Certiorari at 4, 26-27] This is false. Similarly,
Teague claims that ERC’s “agents” admitted coverage of
non-negligent misstatements and one “even admitted the
possible coverage of the Teague Class Action.” [Petition
for Certiorari at 4, 26-27] This is wrong. Not only does
Teague mischaracterize the testimony, but there is no
evidence that the “agents” were agents of ERC.
Even if North Carolina law permitted use of extrinsic
evidence to avoid the plain terms of the policy, these and
other unsupported statements in Teague’s Petition for
a aia a
29
Certiorari would not be probative. All of this purported
“evidence” was argued to the Fourth Circuit.® Mischarac-
terizations of the record in a party’s brief are not evi-
dence and cannot create a material issue of fact — even if,
contrary to North Carolina law, it were otherwise proper
to modify a written insurance policy by extrinsic evi-
dence.
CONCLUSION
For the reasons stated, the Petition for Certiorari
should be denied. This case does not present any substan-
tial question of federal law. The unreported per curiam
decision of the Fourth Circuit rests solely on state law,
and Teague simply seeks an opportunity to rehash the
same state iaw issues before this Court. That is not an
appropriate use of the -ertiorari jurisdiction, and it
should be rejected.
Respectfully submitted, this the 15th day of Decem-
ber, 1992.
MicHact T. Meprorp
Cares E. Nicnots, Jr.
Or MANNING, FULTON & SKINNER
3605 Glenwood Avenue - Suite 500
Post Office Box 20389
Raleigh, North Carolina 27619-0389
Telephone: (919) 787-8880
® Teague’s false allegation that ERC withheld certain docu-
ments during discovery was briefed to and implicitly rejected
by both courts below. The documents were produced to both
sides by PTL, and Teague admitted in the courts below that his
| counsel had one of the documents for two years and simply
forgot about it.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.