Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ared-4_05-cv-00979/USCOURTS-ared-4_05-cv-00979-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:2201 Declaratory Judgement

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 One policy was issued to Moser and Associates, P.A., the other to Jewell Law Firm,

P.A. They are both claims made and reported policies effective from September 1, 2003, to

September 1, 2004. The provisions of the two policies relevant to this case are identical.

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

WESTERN DIVISION

CONTINENTAL CASUALTY COMPANY PLAINTIFF

v. No. 4:05CV00979 JLH

BOBBY KEITH MOSER; MOSER &

ASSOCIATES, P.A.; BARRY JEWELL;

JEWELL LAW FIRM, P.A.; and 

BOB BOMAR as an interested party DEFENDANTS

OPINION AND ORDER

This diversity case presents a dispute as to whether a professional liability policy provides

coverage for an action filed by Bob Bomar against his former attorneys, Bobby Keith Moser and

Barry Jewell, in the Circuit Court of Pulaski County, Arkansas. Continental Casualty Company

commenced this action seeking a declaratory judgment that it has no duty to defend or indemnify

Bobby Keith Moser, Moser & Associates, P.A., Barry Jewell, or Jewell Law Firm, P.A., under

the terms of two lawyers professional liability policies.1 Continental has filed a motion for

summary judgment. Barry Jewell and Jewell Law Firm, P.A., have responded. The other

defendants have filed no response to the motion for summary judgment. For the following

reasons, Continental’s motion is granted.

I.

A court should grant summary judgment when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

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matter of law.” FED. R. CIV. P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

250 (1986). The party moving for summary judgment bears the initial responsibility of

informing the district court of the basis of its motion and identifying the portions of the

pleadings, depositions, answers to interrogatories and admissions on file, together with the

affidavits, if any, that demonstrate the absence of a genuine issue of material fact. Celotex Corp.

v. Catrett, 477 U.S. 317, 323 (1986); Group Health Plan, Inc. v. Philip Morris USA, Inc., 344

F.3d 753, 763 (8th Cir. 2003). When the moving party has carried its burden under Rule 56(c),

the non-moving party must “come forward with ‘specific facts showing that there is a genuine

issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1985) (quoting

FED. R. CIV. P. 56(e)). The non-moving party sustains this burden by showing that there are

“genuine factual issues that properly can be resolved only by a finder of fact because they may

reasonably be resolved in favor of either party.” Anderson, 477 U.S. at 250. When a nonmoving party cannot make an adequate showing on a necessary element of the case on which that

party bears the burden of proof, the moving party is entitled to judgment as a matter of law. 

Celotex, 477 U.S. at 323.

Local Rule 56.1 provides that a party moving for summary judgment must file a

statement of material facts as to which it contends there is no genuine issue to be tried. All

material facts set forth in this statement filed are deemed admitted unless controverted in a

statement of material facts filed by the non-moving party. Id. In accordance with this rule,

Continental filed a statement of material facts along with its motion for summary judgment. 

Although Jewell and Jewell Law Firm, P.A., responded to the motion for summary judgment,

they did not file a statement of facts controverting those set forth by Continental. As noted

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above, the other defendants have filed no response to the motion for summary judgment. 

Because none of the defendants has controverted Continental’s statement of undisputed facts,

those facts are deemed admitted.

II.

In or around 1989, Bomar sought legal representation from Jewell in connection with a

business called Scanning Technologies, Inc., which Bomar had founded. About four years later,

Jewell informed Bomar that Moser, who was then Jewell’s law partner, knew of a client who was

interested in purchasing an interest in Scanning Technologies.

Bomar owned 49% of Scanning Technologies’s stock. At that time, the remaining 51%

of the stock was owned by three other individuals. Jewell and Moser prepared documents

effectuating transfers in which Scanning Technologies exchanged all voting common stock held

by the other three stockholders for non-voting preferred stock and issued new voting common

stock to an entity called EAB Enterprises. As a result of these transactions, EAB became the

owner of 51% of the voting stock. Moser and Jewell also prepared documents in connection with

Scanning Technologies’s receipt of a $400,000 loan from an entity called FBN Investments.

Jewell and Moser told Bomar that a woman named Fran Post was the president of both

FBN and EAB and that she was directing the investments and activities of those companies. 

Post’s signature purportedly appears on the documents formalizing the loan from FBN to

Scanning Technologies, and a place for her signature appears on the documents effectuating

EAB’s stock purchase in Scanning Technologies.

Post, a resident of Jackson Hole, Wyoming, has testified that she was not involved in

setting up EAB or FBN and that she never consented to serve, or knew that she was serving, as

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either company’s president. Post further testified that Moser asked her to pick up mail for FBN

and EAB in Jackson Hole and to forward that mail, unopened, to the Jewell and Moser law firm. 

Post was not involved in the business of FBN or EAB, never directed either companies’

activities, and never invested any money in either company.

After EAB purportedly purchased the majority interest in Scanning Technologies, Post

and Jewell were named directors of Scanning Technologies. Scanning Technologies’s board of

directors was then comprised of Jewell, Post, and Bomar. Bomar never met Post, however, and

at one point asked Jewell if Post was a real person. Post has testified that she knew nothing

about Scanning Technologies and never consented to serve, or knew that she was serving, as a

director of the company.

Bomar served as president of Scanning Technologies, as well as a director, both before

and after the transactions involving FBN and EAB. Before the transfer of Scanning

Technologies’s stock to EAB, Bomar and other shareholders had been responsible for Scanning

Technologies’s accounting. After the stock transfer, however, Jewell and Moser told Bomar that

their clients, FBN and EAB, wanted the Jewell and Moser law firm to take control of Scanning

Technologies’s finances. Jewell and Moser then took over responsibility for the corporation’s

finances, and in 1998 their law firm began financing Scanning Technologies’s operations. 

Thereafter, Jewell and Moser provided Bomar with very little information about Scanning

Technologies’s financial affairs. Jewell and Moser also began unilaterally determining Bomar’s

compensation and removed his name from the signature card at Scanning Technologies’s bank.

In 1996 or 1997, Bomar informed Jewell and Moser that he wanted to sell Scanning

Technologies. Several individuals and entities had expressed an interest in purchasing all or part

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of the corporation. Jewell and Moser insisted on negotiating any sale of Scanning Technologies,

purportedly on behalf of their clients FBN and EAB. On April 27, 1999, Jewell wrote a letter to

a potential purchaser stating, “our law firm has been financing the operations of Scanning

Technologies, Inc., since January of 1998.” The letter stated how much Scanning Technologies

owed to Jewell and Moser and how a prospective purchaser could satisfy that debt. The letter

demanded that “all offers, financial questions, and negotiations should be directed to [Jewell’s]

attention.” (Emphasis in the original.) Bomar alleges that Jewell and Moser intentionally

blocked the sale of Scanning Technologies to prospective buyers because they wanted to

continue using Scanning Technologies for illegal money laundering activities. Scanning

Technologies was never sold and eventually went out of business.

FBI investigators interviewed Bomar about Jewell and Moser in 2002. Moser later

pleaded guilty to defrauding eight victims by improperly withdrawing money from his law firm’s

client trust account and secretly investing those funds in Scanning Technologies.

Bomar filed suit against Jewell and Moser. His second amended complaint includes

counts for breach of fiduciary duty, negligence, and fraud, as well as a RICO count. Continental

asserts that it has no duty to defend or indemnify Jewell, Moser, and their law firms because five

provisions in the liability policies issued to Jewell and Moser unambiguously bar coverage for

Bomar’s claims: section I.A.3, which excludes coverage for acts or omissions that the insured

knew before the inception of the policy might give rise to a claim; section IV.A, which excludes

coverage for a claim arising out of a dishonest or fraudulent act; section IV.F, which excludes

coverage for a claim arising out of an insured’s capacity as a director or manager of a business

enterprise; section IV.H, which excludes coverage for a claim for legal services performed for an

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entity controlled by or managed by an insured; and section V.H, which obligates the insured to

cooperate in the defense.

III.

“In Arkansas, insurance policies are to be interpreted like other contracts.” Foster v.

Farm Bureau Mut. Ins. Co., 71 Ark. App. 132, 133, 27 S.W.3d 464, 465 (2000) (citing Agric.

Ins. Co. v. Ark. Power & Light Co., 235 Ark. 445, 361 S.W.2d 6 (1962)). “The language in an

insurance policy is to be construed in its plain, ordinary and popular sense.” Tri-State Ins. Co. v.

Sing, 41 Ark. App. 142, 145, 850 S.W.2d 6, 8 (1993). “Contracts of insurance should receive a

practical, reasonable and fair interpretation consonant with the apparent object and intent of the

parties in the light of their general object and purpose.” Id. 

“The initial determination of whether a contract is ambiguous rests with the court, and

when a contract is unambiguous, is construction is a question of law for the court.” Hartford

Fire Ins. Co. v. Carolina Cas. Ins. Co., 52 Ark. App. 35, 39-40, 914 S.W.2d 324, 326 (1996).

“Ambiguous provisions are to be construed most strongly against the insurer, which drafts the

policy.” Home Indem. Co. v. City of Marianna, 291 Ark. 610, 616, 727 S.W.2d 375, 378 (1987). 

“However, when the terms of an insurance contract are not ambiguous, it is unnecessary to resort

to the rules of construction, and the policy will not be interpreted to bind the insurer to a risk

which it plainly excluded and for which it was not paid.” Hartford Fire Ins. Co., 52 Ark. App. at

40, 914 S.W.2d at 326. When “only one reasonable interpretation is possible, it is the duty of the

courts to give effect the plain wording of the policy.” Foster, 71 Ark. App. at 133, 27 S.W.3d at

465 (citing W. World Ins. Co. v. Branch, 332 Ark. 427, 965 S.W.2d 760 (1998)).

When an insurer’s duty to defend is in dispute, the pleadings against an insured generally

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determine the insurer’s duty to defend. Madden v. Cont’l Cas. Co., 53 Ark. App. 250, 254, 922

S.W.2d 731, 734 (1996). “The duty to defend is broader than the duty to pay damages and the

duty to defend arises where there is a possibility that the injury or damage may fall within the

policy coverage.” Id. (citing Commercial Union Ins. Co. of Am. v. Henshall, 262 Ark. 117, 553

S.W.2d 274 (1977)). “It is the allegations made against the insured, however groundless, false,

or fraudulent such allegations may be, that determine the duty of the insurer to defend the

litigation against its insured.” Id. (citing Equity Mut. Ins. Co. v. S. Ice Co., 232 Ark. 41, 334

S.W.2d 688 (1960)). Although a court must resolve any doubt in favor of the insured in

determining whether a complaint states a claim within the policy coverage, Murphy Oil USA, Inc.

v. Unigard Sec. Ins. Co., 347 Ark. 167, 178, 61 S.W.3d 807, 814 (2001), courts “are not required

by the rules of contractual construction to stretch our imaginations to create coverage where none

exists,” Pate v. U.S. Fid. & Guar. Co., 14 Ark. App. 133, 136, 685 S.W.2d 530, 532 (1985). 

IV.

Continental argues that the exclusion for claims arising from dishonest or fraudulent acts

applies here. Count II of Bomar’s second amended complaint alleges:

Defendants were negligent in telling plaintiff that they had a client who was

investing money in Scanning Technologies, were negligent in failing to advise

plaintiff that it was defendants who were investing monies in Scanning

Technologies, were negligent in failing to fully disclose that they were investing

money in Scanning Technologies, were negligent in failing to advise plaintiff that

they had a conflict of interests, and were negligent in blocking the sale of the

company.

As a general rule, the pleadings against an insured determine the insurer’s duty to defend. 

Madden v. Cont’l Cas. Co., 53 Ark. App. at 254, 922 S.W.2d at 734. The inquiry does not end

here, however, as the cause of action must be determined by looking at the “quality and purpose”

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of the complaint as a whole, not simply by the use of a word such as “negligence.” See Fisher v.

Travelers Indem. Co., 240 Ark. 273, 398 S.W.2d 892 (1966). Fisher involved a suit arising from

a physical attack by an insured upon another man. Id. at 273-74, 398 S.W.2d at 892-93. The

man who had been attacked alleged in his complaint that the insured “did willfully, unlawfully,

and negligently injure [him].” Id. at 274-74, 398 S.W.2d at 893. The insured argued that,

because the word “negligently” appeared in the complaint, his insurance company had a duty to

defend him under a policy providing coverage for injuries “caused by accident.” Id. at 275, 398

S.W.2d at 893. However, the court held that the character of the liability was to be “determined

by the quality and purpose of the transaction as a whole.” Id. (quoting Messersmith v. Am. Fid.

Co., 232 N.Y. 161, 133 N.E. 432, 19 A.L.R. 876 (1921)). The injured party obviously “was not

seeking damage for injuries to himself caused by an accident or negligence;” rather, he sought

“both compensatory and punitive damages for an alleged willful and intentional act.” Id. at 276,

398 S.W.2d at 894. Thus, the court in Fisher held, “[i]t is evident that the nature of this tort

action was not changed by the use of the word ‘negligently’ one time.” Id. at 275, 398 S.W.2d at

893-94. See also Carolina Cas. Ins. Co. v. Pinnacol Assurance, 425 F.3d 921, 929 (10th Cir.

2005) (“The facts alleged in a complaint, not the complaint’s legal characterization of those facts,

ordinarily control coverage.”); Standard Fire Ins. Co. v. Proctor, 286 F. Supp. 2d 567, 572 (D.

Md. 2003) (the “mere allegation of negligence is not sufficient to establish [an insurer’s] duty to

defend;” rather, “it is the substance of the underlying claim, not its label, that controls in duty-todefend and coverage cases”). “To hold otherwise would be contrary to the plain provisions of

the policy,” which provided that an “assault and battery” would not be deemed an “accident” if

committed by the insured. Fisher, 240 Ark. at 275, 398 S.W.2d at 893.

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Although Bomar’s complaint uses the term “negligence,” the real character of the tort

alleged in this case is intentional misrepresentation. Cf. Cherepski v. Walker, 323 Ark. 43, 55,

913 S.W.2d 761, 767 (1996) (court looks to the real character of the claim, not the label placed

on it by the plaintiff). Bomar’s complaint alleges dishonest and fraudulent acts and omissions,

not a failure to exercise reasonable care. Coverage is not created under the professional liability

insurance policies merely because the complaint labels the claim as “negligence” when the facts

alleged constitute dishonest and fraudulent conduct. See Standard Fire Ins. Co., 286 F. Supp. 2d

at 571-72. Section IV.A excludes any claim arising out of any dishonest or fraudulent act or

omission by an insured. All of Bomar’s claims arise out of allegations of dishonest acts or

omissions by Moser and Jewell. Section IV.A unambiguously excludes coverage for Bomar’s

claims.

V.

The policies issued to Jewell and Moser both contained a section labeled IV.F, providing

that no coverage would be available for:

any claim based on or arising out of an Insured’s capacity as:

1. a former, existing or prospective officer, director, shareholder, partner or

manager of a business enterprise or charitable organization . . . ; or

2. a former, existing or prospective officer, director, shareholder, partner

manager, or trustee of a fund or trust which is a pension, welfare, profitsharing, mutual or investment fund or trust[.]

Both policies also contained a section labeled IV.H, barring coverage for:

any claim based on or arising out of legal services performed for any existing or

prospective partnership, trust, organization, corporation, company or other

business enterprise . . . if at the time of the act or omission giving rise to such

claim:

1. any Insured or Insured’s spouse controlled, operated or managed or

intended to control, operate or manage such enterprise; or

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2. any Insured was or was intended to become

a. a partner or employee of such enterprise, or

b. more than a 10% shareholder or a sole proprietor of such

enterprise, or

3. Insureds cumulatively were or were intended to become more than a 10%

shareholder of such enterprise[.]

This case is similar to Continental Casualty Company v. Smith, 243 F. Supp. 2d 576

(E.D. La. 2003), which involved a coverage dispute under a lawyers professional liability policy

with language identical to sections IV.F and IV.H of the policies in this case. The plaintiff in the

underlying lawsuit in Smith sued his former attorney and the attorney’s law firm, alleging that the

attorney had unlawfully taken control of corporations that were owned in part by the plaintiff. Id.

at 577-78. The attorney had represented both the corporations and the plaintiff, who was then the

president of the corporations. Id. The plaintiff alleged that he and the attorney agreed that the

attorney would take over as president and that the plaintiff would move into a newly-created

CEO position. Id. Upon becoming president, however, the attorney allegedly succeeded in

taking control of the corporations and firing the plaintiff because the attorney had never amended

the corporate by-laws to include the CEO position. Id. at 578. The plaintiff filed suit in federal

court, alleging, among other things, RICO violations, legal malpractice, breach of fiduciary

duties, and fraud. Id.

The court in Smith held that sections IV.F and IV.H of the insurance policy were “clear

and unambiguous.” Id. at 581. The court then determined that the attorney and his firm were not

entitled to either a defense or indemnification under the policy because all of the plaintiff’s

allegations arose out of the attorney’s “activities as president of the corporations, in anticipation

of his role as president, or from legal services performed for companies that an insured managed,

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controlled or intended to control.” Id. at 582. The defendants in Smith “failed to identify a single

allegation in the Complaint . . . that state[d] a cognizable claim independent and separable from

an insured’s capacity as an existing or prospective officer of the corporations or from legal

representation provided to companies which an insured controlled or intended to control.” Id.

The undisputed facts are that Jewell and Moser controlled Scanning Technologies’s

financial transactions, funded its operations, determined Bomar’s compensation as president of

Scanning Technologies, and conducted negotiations for the potential sale of the corporation. 

Jewell and Moser controlled Scanning Technologies. Bomar’s claims arise out of services

performed for Scanning Technologies. Section IV.H of the policy excludes claims from

coverage. The defendants in this case, like the defendants in Smith, point to no claims arising out

of any other activities that could be subject to coverage under the policies.

Because Sections IV.A and IV.H unambiguously exclude coverage, the court need not

and will not address the other grounds for summary judgment asserted by Continental.

CONCLUSION

As a matter of law, Continental has no duty to defend or indemnify Bobby Keith Moser,

Moser & Associates, P.A., Barry Jewell, or Jewell Law Firm, P.A., against the claims asserted by

Bob Bomar. Continental’s motion for summary judgment (Document #28) is therefore

GRANTED.

IT IS SO ORDERED this 29th day of March, 2006.

J. LEON HOLMES

UNITED STATES DISTRICT JUDGE

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