Court Opinion

ID: 4685690
Source: CourtListenerOpinion
Date Created: 2021-05-11 17:02:25.978381+00
Date Added: 2024-06-11T08:04:29.741349
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 21a0237n.06

                                           No. 20-5774

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

                                                                                   FILED
 GLOBAL FITNESS HOLDINGS, LLC,                  )                            May 11, 2021
                                                )                        DEBORAH S. HUNT, Clerk
        Plaintiff-Appellant,                    )
                                                )
                v.                              )
                                                                ON APPEAL FROM THE
                                                )
                                                                UNITED STATES DISTRICT
 NAVIGATORS MANAGEMENT COMPANY, )
                                                                COURT FOR THE EASTERN
 INC., NAVIGATORS PRO, a division of Navigators )
                                                                DISTRICT OF KENTUCKY
 Management Company, and NAVIGATORS )
 INSURANCE COMPANY,                             )
                                                )
        Defendants-Appellees.

BEFORE: COLE, CLAY, and GRIFFIN, Circuit Judges.

       GRIFFIN, Circuit Judge.

       Plaintiff Global Fitness Holdings, LLC, operated a chain of fitness clubs. In 2011, the

company faced a class action filed by its customers, alleging that it engaged in unfair practices

when selling membership and personal-training contracts. Global Fitness sought defense from its

insurer, Navigators Insurance Company,1 but Navigators determined that the suit was excluded

from Global Fitness’s “claims-made” policy. Global Fitness settled the class action then sued

Navigators, seeking the defense costs that it believes Navigators wrongfully withheld. The district

       1
        Global Fitness also named affiliates of Navigators Insurance Company as defendants. For
simplicity’s sake, we refer to defendants collectively as “Navigators.”
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

court granted summary judgment in the insurance company’s favor. Because we agree that

Navigators had no duty to defend Global Fitness, we affirm.

                                                I.

        Global Fitness operated gyms and fitness clubs under the name “Urban Active” in Ohio,

Kentucky, and other states. Its business model was membership-based; to use its facilities,

customers had to purchase a membership contract. Global Fitness also marketed and sold

personal-training services to its members. But Global Fitness’s methods for selling memberships

and training services attracted criticism. In 2011, a putative class of Global Fitness members sued

the company, alleging that it had misrepresented and concealed the material terms of its

membership and training contracts, overcharged customer accounts for the services provided under

these contracts, and made cancellation of the contracts “as difficult as possible” (“the Gascho

litigation”).

        The putative Gascho class was comprised of all persons in Ohio who had bought a Global

Fitness membership or personal-training contract on or after March 27, 2000, as well as all persons

who had cancelled a Global Fitness membership or personal-training contract on or after March 27,

2000 and continued to be charged after cancellation. After several amendments to its complaint,

the putative class pursued seven claims: (1) false and deceptive consumer practices, in violation

of the Ohio Consumer Sales Practices Act (“OCSPA”); (2) unconscionable consumer sales

practices, in violation of the OCSPA; (3) violation of the OCSPA’s requirements for “prepaid

entertainment contracts”; (4) violation of the Ohio Deceptive Trade Practices Act; (5) unjust

enrichment; (6) conversion; and (7) breach of contract.

        When the Gascho litigation was filed, Global Fitness sought defense from Navigators

under its “claims-made” insurance policy, which required Navigators to defend Global Fitness

                                                -2-
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

from certain lawsuits filed against it. Navigators reviewed the claims alleged in the Gascho

litigation and determined that they fell within a policy exclusion that applied to any claim “in any

way involving any liability under any contract or agreement.” After extensive litigation, Global

Fitness settled the Gascho claims. See generally Gascho v. Global Fitness Holdings, LLC, 822
F.3d 269 (6th Cir. 2016). Global Fitness then sued Navigators in Kentucky state court, arguing

that the insurance company had misinterpreted the scope of the contractual-liability exclusion and

that, even if the exclusion applied, an exception to the exclusion still required Navigators to defend

against the Gascho litigation. After Navigators removed the action to federal court, the district

court held that the contractual-liability exclusion applied and granted summary judgment in favor

of Navigators. Global Fitness now appeals.

                                                 II.

       We review the district court’s grant of summary judgment de novo, Wilmington Tr. Co. v.

AEP Generating Co., 859 F.3d 365, 370 (6th Cir. 2017), and apply Kentucky law in this diversity

action, Armisted v. State Farm Mut. Auto. Ins. Co., 675 F.3d 989, 995 (6th Cir. 2012). Because

no facts (let alone no material facts) are disputed, this case turns on the “[i]nterpretation and

construction of an insurance contract,” which is a “matter of law for the court.” Kemper Nat. Ins.

Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 871 (Ky. 2002). “When the terms of an

insurance contract are unambiguous and not unreasonable, they will be enforced.” Ky. Ass’n of

Counties All Lines Fund Tr. v. McClendon, 157 S.W.3d 626, 630 (Ky. 2005) (footnote omitted).

But if terms are ambiguous, all doubt must be resolved in favor of the insured and against the

insurer. See Ky. Farm Bureau Mut. Ins. Co. v. McKinney, 831 S.W.2d 164, 166 (Ky. 1992).

                                                 -3-
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

       To decide whether Navigators had a duty to defend against the Gascho litigation, we must

examine the interrelated parts of the insurance policy it sold to Global Fitness, specifically the

policy’s initial grant of coverage, an exclusion to that coverage, and an exception to that exclusion.

       At the outset, it is clear that—absent exclusions—Navigators would have had a duty to

defend under the policy. As part of Global Fitness’s Directors and Officers Liability Coverage,

(“D&O Coverage”), Navigators agreed to “pay to or on behalf of [Global Fitness] all Loss which

[Global Fitness is] legally obligated to pay as a result of a Claim first made against [it] . . . for a

Wrongful Act by [Global Fitness].” And in a different section of the policy, Navigators accepted

the “duty to defend any Claim against any Insured covered under this Policy, even if the allegations

in such Claim are groundless, false or fraudulent.” Thus, at least initially, the Gascho litigation

appears to have qualified for coverage under Global Fitness’s policy.

       Despite this seemingly broad grant of coverage, the policy included several exclusions, one

of which is important here. Under an exclusion to the D&O Coverage, Navigators was not required

to pay or defend against claims that arose from “any contract or agreement” entered into by Global

Fitness:

       [Navigators] will not be liable . . . to make any payment of Loss, including Costs
       of Defense, in connection with any Claim made against [Global Fitness] . . . based
       upon, arising out of, relating to, directly or indirectly resulting from or in
       consequence of, or in any way involving any liability under any contract or
       agreement; provided, however, that this exclusion will not apply to the extent
       [Global Fitness] would have been liable in the absence of such contract or
       agreement[.]

Whether this exclusion applies is the dispositive issue in this case. Global Fitness mounts two

challenges to applying this exclusion.

       First, it argues that the exclusion cannot apply because of a “severability of exclusions”

clause, which provides that, “for the purpose of determining the applicability” of the exclusions,

                                                 -4-
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

“only the Wrongful Acts of any president, chief executive officer or chief financial officer of

[Global Fitness] shall be imputed to the Company.” Because the Gascho litigation only alleged

wrongful acts committed by its lower-level employees, Global Fitness argues that these acts cannot

be imputed to it. But to accept this argument we would have to recast the Gascho litigation as a

vicarious-liability suit. The plaintiffs in that case did not attempt to impute any employee’s

wrongful acts to Global Fitness. Rather, they alleged that Global Fitness engaged in “common

polic[es] and practice[s]” that harmed them by misrepresenting contractual terms, overcharging

members’ accounts, and avoiding cancellations. To be sure, lower-level employees allegedly

carried out these policies and practices. But the allegations regarding these employees’ acts

merely support the conclusion that the company was engaged in an organized, deliberate pattern

of misconduct. The Gascho plaintiffs alleged that Global Fitness itself harmed them—not some

employee whose actions should be imputed to the company—so the “severability of exclusions”

clause does not bar application of the contractual-liability exclusion.

       Global Fitness’s second argument against application of the contractual-liability exclusion

relies on the exception that it shall not apply “to the extent [Global Fitness] would have been liable

in the absence of such contract or agreement.” The company contends that, because each Gascho

claim is based on some wrongful conduct it allegedly committed independent of its contractual

obligations, the Gascho litigation could have been filed absent the membership and personal-

training contracts.

       This argument ignores the breadth of the contractual-liability exclusion and the true nature

of the Gascho claims. The exclusion is “staggeringly broad.” US HF Cellular Commc’ns, LLC,

v. Scottsdale Ins. Co., 776 F. App’x 275, 289 (6th Cir. 2019) (applying a nearly identical

exclusion). It excludes any claim that is “based upon, arising out of, relating to, directly or

                                                 -5-
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

indirectly resulting from or in consequence of, or in any way involving any liability under any

contract or agreement.” All of the Gascho claims fit comfortably within this broad exclusion. See

Westfield Ins. Co. v Tech Dry, Inc., 336 F.3d 503, 507 (6th Cir. 2003) (“[A] court should

determine . . . whether an insurance company has a duty to defend its insured by comparing the

allegations in the underlying complaint with the terms of the insurance policy.”).

       The Gascho plaintiffs’ breach-of-contract claim, by definition, falls within the exclusion.

And although Ohio statutes provide the cause-of-action for the first four Gascho counts, they all

relate to Global Fitness’s contracts with its members. The “unfair and deceptive conduct”

complained of in the first count consisted of Global Fitness “knowingly misrepresenting the terms

and conditions of its membership contracts, personal training contracts, and contracts for other

services.” The second count’s “unconscionable acts” included Global Fitness entering into

contracts it knew were “substantially one-sided” in its favor, entering into contracts it “knew

customers were unable to receive a substantial benefit from,” and entering into contracts “in which

consumers were being charged a price substantially in excess of the price at which similar services

were being obtained by similar consumers.” Count three alleged that Global Fitness “engaged in

a pattern and practice of conduct prohibited by [the OSCPA]” related to its “prepaid entertainment

contracts.” And the fourth count alleged that Global Fitness violated the Ohio Deceptive Trade

Practices Act by misrepresenting the price and standard of the services it sold under its contracts.

       Finally, the two common law claims were also defined by the contracts. The plaintiffs’

unjust-enrichment and conversion claims alleged that Global Fitness made deductions from its

customers’ accounts “without any basis in the contracts or any agreement,” and that these

deductions were “taken outside the terms of their contracts and/or after their contracts have been

                                                -6-
No. 20-5774, Global Fitness, LLC, v. Navigators Mgmt. Co., Inc.

terminated[.]” Moreover, to be a putative Gascho class member, a plaintiff must have had a

contract with Global Fitness.

       Thus, every aspect of the Gascho litigation was premised on the existence of the contracts

between Global Fitness and its customers. Absent these contracts, that class action could not have

been brought, which forecloses Global Fitness’s reliance on the exception to the exclusion. The

contractual-liability exclusion applied to the Gascho litigation and therefore relieved Navigators

of its duty to defend under the policy.

                                                III.

       Because Navigators correctly concluded that the contractual-liability exclusion applied to

the Gascho litigation, we affirm the district court’s judgment.

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