February 14, 2019
Kent Bevan
In Mary Spencer, et al. v. Hartford Casualty, et al., Spencer and thirteen of her classmates (Appellants) in the Applied Sciences of Practical Nursing Program at St. Louis College of Health Careers (SLCHC) sued SLCHC under the Missouri Merchandising Practices Act (MMPA), alleging unfair and deceptive practices in the representation of its program.
Appellants’ Petition alleges that SLCHC sold a program as a sixty-hour degree program for practical nursing at SLCHC. The petition alleges that SLCHC lacked approval to award a degree and could only provide a lesser diploma despite claims to the contrary. Appellants sought recovery of their tuition, attorney fees and punitive damages. SLCHC demanded coverage from Hartford but Hartford denied both coverage and a defense on the basis that the petition did not allege any property damage or any covered claim under the insurance policy. Appellants and SLCHC entered into a Section 537.065 agreement seeking to levy execution only against Hartford. A bench trial ensued, and the trial court found SLCHC did practice deception and fraud in the inducement and entered a judgment for each Appellant in the aggregate amount of over $1,200,000, with post-judgment interest of 5.13% per annum.
Appellants then brought an equitable garnishment action against Hartford to recover the judgment. Appellants argued that the award of a diploma rather a degree was a property loss which Hartford denied. The trial court granted Hartford’s motion for summary judgment which was appealed.
Appellants sole point on appeal is that the trial court erred in granting Hartford’s motion for summary judgment because Hartford had a duty to defend SLCHC. Appellants argued that SLCHC’s failure to deliver the degree as promised was “property damage” and that the petition related to tuition, which included books and supplies. Appellants claimed that books and supplies are known or reasonably ascertainable as being necessary to pursue a degree and that the books and supplies were rendered “useless” when SLCHC did not deliver its promised degree to Appellants. Hartford claimed that there was no property to be damaged since the degree never existed and was never in Appellants’ possession.
The court noted that an insurance company’s duty to defend is broader than its duty to indemnify and that the issue of indemnification must await final resolution in court.
The Missouri Court of Appeals Eastern District determined that the Petition did not allege physical injury to tangible property or the loss of use of tangible property. The court noted that a monetary loss is not tangible property. Appellants asserted at oral argument and in their brief that the loss of use of the books and supplies constituted property damage but the record on appeal revealed that such argument was first made on appeal and was not preserved for review. The policy’s property definition defined “property damage” as physical injury to tangible property, including all resulting loss of use of that property.
In affirming summary judgment for Hartford, the Appellate Court held that the actions of SLCHC, selling and collecting tuition for a non-existent degree are abhorrent but nevertheless, the allegations in Appellants’ petition do not expose Hartford to potential liability under the terms of the insurance policy. Hartford did not owe a duty to defend SLCHC and the trial court’s granting of summary judgment to Hartford was affirmed.