Opinion ID: 2798275
Heading Depth: 4
Heading Rank: 2

Heading: Negligent Conversion

Text: Having shown that the policy does not cover intentional conversion, we now turn to CE Design’s claim for what it calls “negligent conversion.” Although CE Design uses this term, we do not understand it to argue that Oklahoma or Illinois law would recognize a tort for negligent conversion in a real sense of that term—for instance, a traveler mistakenly but honestly grabbing an identical-looking suitcase instead of the 8 The parties agree that Oklahoma law governs the interpretation of the insurance policy. Even so, we are unsure we agree with the district court that Oklahoma’s law on conversion governs. Perhaps, because the conversion itself took place in Illinois, its law of conversion—and not Oklahoma’s—should apply. In considering this, we recognize that Oklahoma’s choice-of-law principles control. See Boyd Rosene & Assocs. v. Kan. Mun. Gas Agency, 174 F.3d 1115, 1118 (10th Cir. 1999) (stating that, for substantive matters, a federal court sitting in diversity should look “to the substantive law of the forum state, including its choice of law principles, to determine the applicable substantive law”). Under Oklahoma’s choice-of-law principles, we would apply Illinois’s law on conversion if Illinois had the “the most significant relationship to the occurrence and the parties.” See Brickner v. Gooden, 525 P.2d 632, 637 (Okla. 1974). Because the conversion claim would fail under both Oklahoma and Illinois law, we need not decide which state’s conversion law governs. - 15 - traveler’s own.9 Nor do we understand CE Design to address that situation. Instead, we understand CE Design to speak to a traditional, intentional conversion committed under a mistaken factual or legal belief of a right to appropriate the property. Appellant’s Br. at 20-21, citing Ins. Corp. of Hanover v. Shelborne Assocs., 905 N.E.2d 976, 985 (Ill. App. Ct. 2009) (concluding, at declaratory judgment stage, that “[it] is possible that [the insured] was negligent in believing that the subject fax advertisements were authorized and did not intend to convert the recipients’ paper and toner or dispossess them of their fax machine”); SportChassis, LLC v. Brownard Motorsports of Palm Beach, LLC 2011 WL 5429404, at  (W.D. Okla., Nov. 9, 2011) (unpublished) (concluding that failure to return two cars provided on consignment was conversion despite a mistaken view about the consignment agreement’s provisions). We believe that CE Design pleaded this sort of “negligent conversion” by alleging that Custom “should have known” that it had 9 CE Design would have no legal basis to support a mistaken-suitcase theory of negligent conversion. Neither Oklahoma nor Illinois law recognizes such a negligence claim. See Harmon, 286 P.3d at 649 (focusing on “whether [the defendant] intentionally diverted [the property] for his own personal benefit”); Loman v. Freeman, 890 N.E.2d 446, 462 (Ill. 2008) (stating that “[t]he essence of a claim for conversion is an allegation that the defendant engaged in an intentional, wrongful act”); Craig v. Citicorp Sav., 578 N.E.2d 1331, 1336 (Ill. App. Ct. 1991) (concluding that an act “alleged to be a conversion must be positive and tortious but not necessarily wil[l]ful or corrupt; neither negligence nor a breach of contract, though it results in the loss of specific property, constitutes conversion”). - 16 - misappropriated paper, toner, and CE Design’s employee’s time.10 Appellant’s App. vol. I at 105. So we agree with CE Design that a fax-sender could intentionally convert its fax recipients’ paper, toner, and use of their fax machines while mistakenly believing that the recipients had expressly permitted and welcomed its faxed advertisement. And we agree with CE Design that, in certain circumstances, such a mistaken belief could qualify as an occurrence (accident) causing property damages under the policy. Further, we agree that if Custom had a supported, though mistaken, belief that its recipients welcomed its faxes, it likely would meet either Oklahoma’s or Illinois’s definition of accident. In arguing that Custom’s “negligent conversion” qualifies as an accident causing property damages, CE Design relies heavily on this court’s decision in Park Univ. Enters., Inc. v. Am. Cas. Co. of Reading, 442 F.3d 1239 (10th Cir. 2006). Indeed, that case bears many similarities to this one—it involved a class-action TCPA claim; the complaint alleged that the insured fax-sender (Park University) “knew or should have known” that it did not have express permission to fax the advertisements; and Park University claimed that, at most, it accidentally caused the property damage (loss of paper, toner, and use of fax machines) because it believed that the recipient had solicited its fax. We concluded that the insurer owed a duty to defend, because “an 10 Faced with this same “knew or should have known” complaint language in Park University, we noted that the occurrence (accident) “could result from negligent conduct . . . .” 442 F.3d 1246. - 17 - occurrence was possible under the insurance contract. . . .” Id. at 1247. Applying Kansas law, we noted that “even if an act itself is intentional, it may result in an unintended injury.” Id. at 1245 (citing Spruill Motors, Inc. v. Universal Ins. Co., 512 P.2d 325, 327 (Kan. 1973)). But in Park University, we did not hold that any bare claim of a mistake would trigger coverage as an accident. Instead, we evaluated Park University’s asserted bases it set forth to show the reasonableness of its belief. Id. at 1242–43. In particular, we noted that Park University claimed that its fax to JC Hauling was “not unsolicited because Park University had an existing business relationship with JC Hauling or, in the alternative, it had prior express invitation or permission from JC Hauling to send the fax advertisement.” Id. at 1242. And this was no unsupported, self-serving conclusion. From the start, Park University had said that it had sent its fax to a named employee of JC Hauling (the fax recipient), who, acting in her employment, had registered for a Park University seminar and supplied JC Hauling’s fax number to it. Id. at 1242-43. In determining that this established a sufficient basis for a duty to defend, we distinguished Park University’s circumstance from those in other cases where courts found no insurance coverage despite a fax-sender’s claim of a belief that it had permission to send its faxes. Id. at 1246-47. In this regard, we examined Resource Bankshares Corp. v. St. Paul Mercury Ins., 407 F.3d 631, 638 (4th Cir. 2005), a case in which the insured fax-sender claimed “it only intended to fax ads to recipients who - 18 - actually wanted them, and only did otherwise inadvertently.” Park Univ., 442 F.3d at 1246-47 (quoting Res. Bankshares Corp., 407 F.3d at 638). We approvingly cited that court’s decision against policy coverage, noting that “the plaintiff there failed to present any evidence ‘that would cause a reasonable person to mistakenly believe that they had received prior express consent to send their ads . . . .”’ Id. (citing Res. Bankshares Corp., 407 F.3d at 639). Here, any belief of Custom’s that its faxes would be welcomed more resembles the unsupported belief in Resource Bankshares Corp. than the “clearly expressed” answer assertions of Park University that “its actions were in fact solicited . . . .”11 Park Univ., 442 F.3d at 1247. For this reason, CE Design’s claim for coverage must fail. Unlike the insured in Park University, CE Design points us to nothing in the record showing that Custom identified to Emcasco any basis for its supposed mistaken belief that even a single one of its 2,552 faxes was authorized. Instead it presents to us a bare claim of 11 We note that CE Design included in its appendix an affidavit from Custom’s President, Richard G. Peitz, alleging that it obtained fax numbers from a “Construction Blue Book.” Peitz claimed that Custom believed that, by providing contact information to the Blue Book, those individuals and businesses had consented to receiving faxes from Custom. But this affidavit came shortly before the state court entered judgment and accepted the settlement, and nothing in the record shows that Custom presented the affidavit to Emcasco before settling. This is unlike Park University, where the insured company clearly asserted in its state-court answer that the recipient solicited the insured’s fax. See 442 F.3d at 1247. Moreover, we conclude that Peitz’s late affidavit and unexplained, blanket assertion is not “evidence that could reasonably be mistaken as express permission to send these faxes.” See Res. Bankshares Corp., 407 F.3d at 639. - 19 - mistake that any fax-sender can make. We disagree with CE Design that Park University would qualify such a deficiently supported “mistake” as an occurrence (accident) causing property damage. If this sufficed as an accident, it is hard to imagine what would not. Accordingly, we conclude that Emcasco had no duty to defend Custom against CE Design’s “should have known” conversion claim.