                                                                                        07/23/2018
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                                 May 23, 2018 Session

      AMCO INSURANCE COMPANY v. RALPH W. MELLO, ET AL.

              Appeal from the Chancery Court for Williamson County
                       No. 43604 Joseph Woodruff, Judge
                     ___________________________________

                           No. M2017-01904-COA-R3-CV
                       ___________________________________

This appeal involves a dispute between an insurance company and its insured regarding
the application of exclusion clauses in a homeowners’ insurance policy and a personal
umbrella liability policy. After malicious prosecution and abuse of process claims were
filed against the insured in Alabama by a law firm, the insurance company accepted the
defense under a reservation of rights and filed the present action seeking a declaration
that it is not required to provide coverage for the damages complained of in the Alabama
lawsuit. Following a bench trial held on stipulated facts, the trial court determined that
the insured was, in fact, entitled to certain coverage. We reverse.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
                                  and Remanded

ARNOLD B. GOLDIN, J., delivered the opinion of the Court, in which J. STEVEN
STAFFORD, P.J., W.S., and KENNY ARMSTRONG, J., joined.

Parks T. Chastain and Cory R. Miller, Nashville, Tennessee, for the appellant, AMCO
Insurance Company.

Ralph W. Mello, Nashville, Tennessee, pro se.

                                       OPINION

                 BACKGROUND AND PROCEDURAL HISTORY

      The Appellee Ralph Mello (“Mr. Mello”) is a licensed Tennessee attorney. Over
twenty years ago, in 1994, he undertook legal representation of one Scott Pogue (“Mr.
Pogue”) pursuant to a contingent fee agreement entered into between Mr. Pogue and Mr.
Mello.1 Mr. Mello was retained by Mr. Pogue in order to file a False Claims Act case on
Mr. Pogue’s behalf, and a lawsuit was subsequently filed in the United States District
Court for the Middle District of Tennessee. Over the course of his representation of Mr.
Pogue, Mr. Mello billed in excess of 1,734 hours to the case.

        In 2002, the firm of Hare, Wynn, Newell & Newton, LLP (“Hare, Wynn”) was
brought into the case to help with litigation. At that time, it was agreed that Mr. Mello
would no longer be involved with the case. To replace the previous fee agreement that he
had with Mr. Pogue, Mr. Mello entered into a new agreement on June 25, 2002. This
new fee agreement, to which Hare, Wynn was a party, provided that Mr. Mello was
entitled to statutory fees as well as a contingency fee equal to 7.5% of Mr. Pogue’s total
recovery.

        In 2005, Mr. Pogue agreed to settle a portion of his False Claims Act case, and he
received a portion of that settlement as a relator’s share. Following this partial
settlement, Mr. Mello brought an action to determine the rights of the parties under the
June 25, 2002 fee agreement. Hare, Wynn intervened in the action, and the matter was
ultimately decided via arbitration.2 The decision rendered at arbitration left Mr. Mello
entitled to 7.5% of Mr. Pogue’s relator’s share of the partial settlement. In addition to
claiming an interest in Mr. Pogue’s relator’s share, however, Mr. Mello also claimed an
interest in the potential recovery for the remaining False Claims Act case. He filed an
attorney’s lien on Mr. Pogue’s cause of action and share of any recovery that remained.

       On February 22, 2007, Mr. Pogue filed for bankruptcy protection in the United
States Bankruptcy Court for the Northern District of Alabama. As a result of the
bankruptcy action, all of Mr. Pogue’s rights in the False Claims Act case were transferred
to James G. Henderson as liquidation trustee.

       Before Mr. Henderson was actually appointed as liquidation trustee, Hare, Wynn
had negotiated a settlement of the remaining claims in the False Claims Act case. The
settlement, which was completed on March 31, 2009, provided for a relator’s share of
$8,120,000.00. The proceeds from the settlement were paid to the liquidation trustee.

        Mr. Mello took umbrage at this settlement process. Displeased with the fact that
the settlement funds were deposited with the trustee, Mr. Mello claimed that Hare, Wynn
had intentionally made no provisions in the settlement agreement for the recognition or
satisfaction of his statutory attorney’s lien, equitable lien, or of the assignment he
       1
          This contingent fee agreement provided that if Mr. Pogue prevailed in his lawsuit, Mr. Mello
would be entitled to 20% of any amount recovered. A contingent fee agreement is one in which the
attorney and client agree to a specific fee based on a successful recovery by the client. The attorney
agrees that if there is not a successful recovery by the client, the attorney is not entitled to a fee.
       2
           The June 25, 2002 fee agreement contained an arbitration clause.
                                                   -2-
received in the June 25, 2002 fee agreement. He requested that the bankruptcy court
order the liquidation trustee to disburse his portion of the contingent fee, and on March 2,
2010, he filed a complaint against Hare, Wynn in the Williamson County Chancery
Court. In his chancery court action, Mr. Mello alleged that Hare, Wynn breached duties
and converted funds due to him when it failed to pay him his 7.5% contingency fee from
the additional recovery. In addition to seeking to recover the amount of his fee, Mr.
Mello sought punitive damages against Hare, Wynn. Upon the filing of that action, the
case was removed to the United States District Court for the Middle District of
Tennessee. It was then transferred to the United States District Court for the Northern
District of Alabama, where it was docketed as an adversarial proceeding in connection
with Mr. Pogue’s bankruptcy action. The bankruptcy court subsequently dismissed Mr.
Mello’s claims in November 2010.

       In March 2012, Mr. Mello filed another lawsuit in the chancery court asserting
similar allegations against Hare, Wynn; on April 24, 2012, the action was removed to the
United States District Court for the Middle District of Tennessee. While this latest
lawsuit was pending, the bankruptcy court ordered the bankruptcy trustee to disburse to
Mr. Mello the full amount of his contingency fee. The fee was paid to Mr. Mello.
Although Mr. Mello’s latest action was eventually transferred to the United States
District Court for the Northern District of Alabama, it was dismissed with prejudice in
January 2013.

       As a result of the litigation that had been brought against it, Hare, Wynn filed a
lawsuit against Mr. Mello in the Circuit Court for Jefferson County, Alabama. The
firm’s complaint asserted causes of action for malicious prosecution and abuse of
process. It was specifically alleged that Mr. Mello’s March 2012 lawsuit was “filed with
malice.” Further, Hare, Wynn alleged that Mr. Mello’s lawsuit was filed for an ulterior
purpose, namely to force it to distribute fees prior to receiving an order from the
bankruptcy court.

       As is relevant herein, Mr. Mello tendered the Hare, Wynn complaint to his insurer,
AMCO Insurance Company (“AMCO”). He requested that coverage and a defense be
provided pursuant to both his homeowners’ policy and his personal umbrella liability
policy. Although AMCO appointed defense counsel in Alabama on behalf of Mr. Mello,
it accepted the defense under a reservation of rights.3

        3
           A reservation of rights is necessary for insurers who do not intend to waive their contractual
rights to contest coverage:

                The general rule supported by the great weight of authority is that if a liability
        insuror, with knowledge of a ground of forfeiture or noncoverage under the policy,
        assumes and conducts the defense of an action brought against the insured, without
        disclaiming liability and giving notice of its reservation of rights, it is thereafter
        precluded in an action upon the policy from setting up such ground of forfeiture or
                                                  -3-
       According to AMCO, neither the homeowners’ policy nor the personal umbrella
policy issued to Mr. Mello provided coverage for the injuries and damages complained of
in the Hare, Wynn complaint. Seeking judicial sanction for this position, AMCO
commenced the present litigation by filing an action for declaratory judgment in the
Williamson County Chancery Court. In its complaint, AMCO contended that because the
injuries complained of by Hare, Wynn arose out of the business pursuits of Mr. Mello, no
coverage was available under his contracts of insurance. In support of this position,
AMCO noted that the homeowners’ policy contained an exclusion stating that personal
injury coverage did not apply to injuries “arising out of the ‘business’ pursuits of an
‘insured.’” Moreover, the umbrella policy provided that coverage did not apply to
“‘bodily injury’, ‘personal injury’ or ‘property damage’ arising out of or in connection
with a ‘business’ engaged in by an ‘insured.’” In the view of AMCO, the injuries
complained of by Hare, Wynn arose out of Mr. Mello’s business pursuits inasmuch as the
injuries complained of were those arising out of Mr. Mello’s attempt to collect his
attorney’s fees.

       The litigation below ultimately culminated with a trial being held on stipulated
facts. Subsequently, on August 25, 2017, the trial court entered its “Memorandum and
Order.” Therein, the trial court held that there was no coverage under Mr. Mello’s
insurance policies with regard to the abuse of process claim filed against him by Hare,
Wynn. However, the court did find that coverage existed with regard to Hare, Wynn’s
malicious prosecution claim. In reaching this conclusion, the trial court expressly
rejected AMCO’s argument that a “business pursuit” exclusion applied. This appeal
followed.

                                 ISSUES PRESENTED

       Although AMCO’s appellate brief identifies three issues for our review, the raised
issues all speak to the same concern: whether the trial court erred in holding that the
damages claimed by Hare, Wynn in its suit against Mr. Mello did not arise out of, or were
not connected with, Mr. Mello’s business pursuits.

                               STANDARD OF REVIEW

      A trial court’s factual findings are reviewed de novo upon the record with a
presumption of correctness. Ramsay v. Custer, 387 S.W.3d 566, 568 (Tenn. Ct. App.
2012) (citation omitted). Issues related to the scope of coverage and an insurer’s duty to
defend present questions of law. Standard Fire Ins. Co. v. Chester O’Donley & Assocs.,


       noncoverage.

Maryland Cas. Co. v. Gordon, 371 S.W.2d 460, 464 (Tenn. Ct. App. 1963) (quoting 29A Am. Jur.
Insurance § 1465).
                                           -4-
Inc., 972 S.W.2d 1, 6 (Tenn. Ct. App. 1998) (citations omitted). Questions of law are
reviewed de novo with no presumption of correctness. Walker v. Nationwide Ins. Co.,
813 S.W.2d 135, 140 (Tenn. Ct. App. 1990) (citations omitted).

                                      DISCUSSION

       This appeal concerns what insurance coverage, if any, exists with respect to the
claims filed against Mr. Mello in Alabama by the Hare, Wynn law firm. “Issues
involving an insurance policy’s coverage and an insurance company’s duty to defend
require ‘the interpretation of the insurance policy in light of claims asserted against the
insured.’” Sulphuric Acid Trading Co., Inc. v. Greenwich Ins. Co., 211 S.W.3d 243, 248
(Tenn. Ct. App. 2006) (quoting Allstate Ins. Co. v. Jordan, 16 S.W.3d 777, 779 (Tenn.
Ct. App. 1999)). As noted previously, the complaint filed by Hare, Wynn asserted causes
of action for malicious prosecution and abuse of process. It alleged, among other things,
that Mr. Mello had sued Hare, Wynn without probable cause and that he had attempted to
“force” Hare, Wynn to distribute fees to him prior to receiving an order from the
bankruptcy court despite the fact that the funds at issue were part of the bankruptcy estate
and were paid to the bankruptcy trustee. Although there does not appear to be any
dispute on appeal that Mr. Mello’s insurance policies do not provide coverage for Hare,
Wynn’s abuse of process claim, there is vigorous disagreement concerning whether Mr.
Mello is covered under his policies in light of the asserted malicious prosecution claim.
Whereas AMCO contends in its appellate brief that it is absolved of any duty to defend or
indemnify Mr. Mello, Mr. Mello argues that the trial court’s decision as to his insurance
coverage should be affirmed.

       “In construing insurance policies, the words chosen to express the parties’
intentions should be given their usual, natural and ordinary meaning.” State Farm Fire &
Cas. Co. v. Sparks, No. W2006-01036-COA-R3-CV, 2007 WL 4277454, at *5 (Tenn. Ct.
App. Dec. 7, 2007) (citation omitted). Indeed, as this Court has noted:

       Contracts of insurance, like other contracts, are to be construed according to
       the sense and meaning of the terms which the parties have used, and if they
       are clear and unambiguous, their terms are to be taken and understood in
       their plain, ordinary, and popular sense. The rule of strict construction does
       not authorize a perversion of language, or the exercise of inventive powers
       for the purpose of creating an ambiguity where none exists, nor does it
       authorize the court to make a new contract for the parties or disregard the
       evidence (intention) as expressed, or to refine away terms of a contract
       expressed with sufficient clearness to convey the plain meaning of the
       parties and embodying requirements[.]



                                           -5-
Ballard v. N. Am. Life & Cas. Co., 667 S.W.2d 79, 82 (Tenn. Ct. App. 1983) (quoting
Guardian Life Ins. Co. of Am. v. Richardson, 129 S.W.2d 1107, 1115-116 (Tenn. Ct.
App. 1939)).

       As a general matter, both of Mr. Mello’s policies with AMCO do provide
coverage for malicious prosecution claims. The homeowners’ policy provides such
“personal injury” coverage through “Premier Homeowners Endorsement 12601.”
Moreover, the umbrella policy specifically provides coverage for “malicious prosecution”
and other identified “personal injury” for which an insured becomes legally liable. While
AMCO does not dispute that such provisions exist, it nonetheless argues that coverage is
not available due to exclusions that are present in both policies.

       As AMCO notes, the endorsement in the homeowners’ policy contains an
exclusion specifying that “personal injury” coverage does not apply to “injury arising out
of the ‘business’ pursuits of an ‘insured.’” Similarly, the umbrella policy contains an
exclusion which denies coverage for “‘bodily injury’, ‘personal injury’ or ‘property
damage’ arising out of or in connection with a ‘business’ engaged in by an ‘insured.’”
The definition of “business” under both policies is nearly identical.4 Under the
homeowners’ policy, “business” means:

        a. A trade, profession or occupation engaged in on a full-time, part-time or
           occasional basis; or
        b. Any other activity engaged in for money or other compensation, except
           the following:

        1) Volunteer activities for which no money is received other than payment
           for expenses incurred to perform the activity;
        2) Providing home day care services for which no compensation is
           received, other than the mutual exchange of such services; or
        3) The rendering of home day care services to a relative of an “insured”.

Under the umbrella policy, “business” means:

        1. A trade, profession or occupation engaged in on a full-time or
           occasional basis; or
        2. Any other activity engaged in for money or other compensation, except
           the following:


        4
          The trial court’s order stated that the policies provided identical definitions of “business,” and in
support thereof, the order referenced the policies that were attached as exhibits to AMCO’s complaint for
declaratory judgment. Although the definitions are virtually identical, the referenced exhibits reveal
minor differences.
                                                    -6-
       a. Volunteer activities for which no money is received other than payment
          for expenses incurred to perform the activity;
       b. Providing home day care services for which no compensation is
          received, other than the mutual exchange of such services; or
       c. The rendering of home day care services to a relative of an “insured”.

       Here, the dispute is simply whether Hare, Wynn’s claimed damages for malicious
prosecution fall under one of the exclusions mentioned above. Namely, do the claimed
damages arise out of Mr. Mello’s “‘business’ pursuits” or in connection with a “business”
engaged by him? Answering this type of question has not always been an easy task for
courts in previous cases. See Robinson v. Utica Mut. Ins. Co., 585 S.W.2d 593, 595
(Tenn. 1979) (noting that courts encountering “business pursuit” exclusions have found
the language difficult of application).

        To test whether a “pursuit” is a “business,” courts have typically looked to two
elements: (1) continuity and (2) profit motive. Allstate Ins. Co. v. Godsey, No. 03A01-
9107CV243, 1991 WL 261873, at *3 (Tenn. Ct. App. Dec. 13, 1991). As to the first
element, courts consider whether something is a customary engagement or a stated
occupation. Id. Differentiating between a business pursuit and non-business pursuit is
significant because it distinguishes between those risks that the insurer intended to cover
and those risks which were intended to be excluded. The whole purpose of a business
pursuits exclusion is to “delete coverage which is not essential to the purchasers of the
policy and which would normally require specialized underwriting and rating.” Sparks,
2007 WL 4277454, at *12; see also Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 645
(Tex. 2005) (“[A]s numerous courts have recognized, the purpose of the business pursuits
exclusion is to lower homeowners insurance premiums by removing coverage for
activities that are not typically associated with the operation and maintenance of one’s
home.”). Of course, to determine whether coverage exists, we look to the particular facts
of the case and interpret the insurance policies in conjunction with these facts. Mid-
Century Ins. Co. v. Williams, 174 S.W.3d 230, 240 (Tenn. Ct. App. 2005) (“We are
required to interpret the contract to determine whether it applies to the facts of this
case[.]”).

       In its Alabama action against Mr. Mello, Hare, Wynn sought damages as a result
of the litigation Mr. Mello brought against the firm. Therefore, the central question
before us is whether Mr. Mello’s litigation efforts constituted a business pursuit. If that
question can be answered in the affirmative, then the exclusions at issue are applicable,
and no coverage is available to Mr. Mello.

        In reaching the conclusion that coverage was available to Mr. Mello relative to
Hare, Wynn’s malicious prosecution claim, the trial court determined that Mr. Mello’s
litigation against Hare, Wynn did not satisfy the “profit motive” or “continuity” elements
necessary to establish a “business pursuit.” In the view of the trial court, Mr. Mello was
                                            -7-
not seeking “profit,” but was seeking damages based on Hare Wynn’s failure to distribute
his contractual interest in the relator’s share. Moreover, the trial court pointed out that,
while collecting attorney’s fees is a regular engagement of law practices, Mr. Mello no
longer practices as a private attorney.5

       Respectfully, we are of the opinion that the trial court’s determination on these
matters was in error. The injuries complained of by Hare, Wynn clearly arose out of Mr.
Mello’s “business pursuits”/“business” so as to trigger the applicability of the exclusions
relied upon by AMCO.6 As outlined by Hare, Wynn’s complaint: (1) Mr. Pogue retained
Mr. Mello for legal representation; (2) pursuant to the June 25, 2002 contingency fee
agreement, Mr. Mello was entitled to 7.5% of any recovery; (3) Mr. Pogue filed for
bankruptcy in 2007; (4) when Hare, Wynn negotiated a final settlement of Mr. Pogue’s
lawsuit, settlement proceeds were paid to Hare, Wynn’s trust account and then to the
bankruptcy trustee; (5) Mr. Mello was displeased that the settlement funds had been
deposited with the bankruptcy trustee; (6) Mr. Mello subsequently filed suit against Hare,
Wynn asking, among other things, that he be awarded the amount of his fee; and (7)
following the dismissal of this lawsuit, Mr. Mello filed another lawsuit asserting identical
allegations against Hare, Wynn.7 Based on these facts chronicled in the complaint, it is
clear that Mr. Mello’s litigation against the firm was in furtherance of his attempt to
collect the amount of his attorney’s fees relative to his representation of Mr. Pogue. We
are of the opinion that Mr. Mello’s efforts in this regard squarely qualify as a “business”
matter or “business pursuit” within the meaning of his insurance policies. There was a
clear profit motive inasmuch as Mr. Mello’s litigation attempted to collect attorney’s fees
earned in his private practice of law.

       Regarding the “continuity” element necessary to establish a business pursuit,
although the trial court recognized that “collecting attorney’s fees is a regular
engagement of law practices in Tennessee,”8 it found that the “continuity” element was

        5
          The trial court’s order reflects that Mr. Mello now practices law as in-house counsel for a
corporation.
        6
          Again, whereas Mr. Mello’s homeowners’ policy excluded coverage for certain injuries “arising
out of the ‘business’ pursuits of an ‘insured,’” the umbrella policy excluded coverage for certain injuries
“arising out of or in connection with a ‘business’ engaged in by an ‘insured.’”
        7
         Hare, Wynn’s complaint specifically stated that Mr. Mello’s actions in filing his March 2012
lawsuit were intended to “force Hare, Wynn to disburse fees prior to receiving any Order from the
Bankruptcy Court.”
        8
           Even if the pursuit of attorney’s fees was itself not considered to constitute a “customary
engagement” of Mr. Mello’s, that does not in our view prevent the establishment of the “continuity”
element to the extent that the activity was in furtherance of a regular business interest. See Cambridge
Mut. Fire Ins. Co. v. Sakon, 31 A.3d 849, 856 (Conn. App. Ct. 2011) (noting that although the specific
activity of bringing a lawsuit may not fall within the ordinary scope of the insured’s business, the material
                                                   -8-
not established due to the fact that Mr. Mello no longer practices as a private attorney.
We are of the opinion that this particular consideration is not dispositive of the issue
before us. As AMCO has observed, Mr. Mello’s efforts to secure the amount of his
attorney’s fees are somewhat analogous to the business pursuits engaged in by the
insured in Still v. Great Northern Insurance Co., 254 F. App’x 125 (3d Cir. 2007), and as
such, we will briefly refer to that case as a helpful illustration. In Still, the insured
founded a limited liability company and later served as its President, CEO, and Chairman
of the Board. Id. at 126. A number of years after the company was founded, however, a
dispute arose concerning the insured’s employment and investments. Id. After the
insured was terminated and the company issued additional shares to dilute his interest in
the company, the insured commenced a suit in federal court alleging that the company’s
actions had violated the terms of several agreements. Id. Following the adjudication of
this lawsuit in favor of the company, the insured filed a second action against the
company in state court. Id. This was followed by the company’s assertion of a
counterclaim alleging that the prior federal action constituted wrongful use of civil
process. Id. Believing that his homeowners’ insurance policy provided coverage for
malicious prosecution claims such as the counterclaim asserted by the company, the
insured requested coverage for a defense. Id. His insurer denied coverage, however, on
the basis that the underlying insurance policy precluded coverage for liability arising
from “business pursuits.” Id. The insured thereafter filed a complaint in federal court
seeking a declaratory judgment that his insurer was required to defend the counterclaim,
but the trial court entered judgment in favor of the insurer. Id. When the trial court’s
judgment was affirmed on appeal, the appellate court determined that the asserted
counterclaim fell within the scope of the insurance policy’s “business pursuits” exclusion,
reasoning as follows: “[T]here can be no doubt that [the company’s] counterclaim ‘arose
from’ [the insured’s] business with [the company], as the basis of the counterclaim was
the federal suit that [the insured] pursued against [the company] to secure his
employment and investment rights in the company.” Id. at 127-28 (citations omitted).

        Likewise, here, the malicious prosecution claim asserted by Hare, Wynn arose out
of Mr. Mello’s “business,” as the basis of the malicious prosecution claim was the
litigation that Mr. Mello pursued against Hare, Wynn to vindicate rights stemming from
his private practice of law. Accordingly, we are of the opinion that the trial court erred in
failing to conclude that the “business”/“business pursuits” exclusions from Mr. Mello’s
policies applied in this case. As neither the homeowners’ policy nor umbrella policy
provide coverage for the claims asserted against Mr. Mello in Alabama, we respectfully
reverse the judgment of the trial court.




inquiry in regard to the continuity element is whether the insured is alleged to have acted in furtherance of
his business interests by bringing the lawsuit).
                                                   -9-
                                    CONCLUSION

       For the foregoing reasons, the judgment of the trial court is reversed, and the case
is remanded to the trial court to enter a judgment in accordance with this Court’s Opinion
and for such other matters as may be necessary and consistent with this Opinion.


                                                   _________________________________
                                                   ARNOLD B. GOLDIN, JUDGE




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