American Media, Inc. v. Home Indem. Co., 54065

• Citation: 658 P.2d 1015,232 Kan. 737
• Decision Date: 19 February 1983
• Docket Number: No. 54065,54065
• Parties: AMERICAN MEDIA, INC., Appellee, v. The HOME INDEMNITY COMPANY, Appellant.
• Court: United States State Supreme Court of Kansas

Page 1015

658 P.2d 1015

232 Kan. 737

AMERICAN MEDIA, INC., Appellee, v. The HOME INDEMNITY COMPANY, Appellant.

No. 54065.

Supreme Court of Kansas.

Feb. 19, 1983.

Syllabus by the Court

1. In construing an insurance policy a court should consider the instrument as a whole and endeavor to ascertain the intention of the parties from the language used, taking into account the situation of the parties, the nature of the subject matter and the purpose to be accomplished.

2. Insurance policies must be construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense.

3. As a general rule, the construction and effect of a written contract of insurance is a matter of law to be determined by the court. If the facts are admitted, then it is for the court to decide whether they come within the terms of the policy.

4. The language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties. Where the terms of a policy of insurance are ambiguous or uncertain, conflicting or susceptible of more than one construction, the construction most favorable to the insured must prevail.

5. If the language of a policy of insurance is clear and unambiguous, the words are to be taken and understood in their plain, ordinary and popular sense, and there is no need for judicial interpretation or the application of rules of liberal construction; the court's function is to enforce the contract according to its terms.

6. The test to be applied in determining the intention of the parties to an insurance policy is not what the insurer intended the policy to mean, but what a reasonable person in the position of the insured would understand it to mean.

7. The intention of the parties to a workers' compensation insurance contract is pertinent to the determination of coverage as between the insured and the insurer.

8. A workers' compensation insurer is not liable for a risk which it did not insure; the policy risk is ordinarily confined to the employees of the insured, and ordinarily does not include employees of other employers.

9. The normal meaning of the word "required" is to demand; to claim as by right and authority; to exact.

Roger M. Theis, of Render & Kamas, Wichita, argued the cause, and Paul L. Thomas, Wichita, of the same firm, was with him on the brief, for appellant.

David A. Gripp, of Crockett & Gripp, Wichita, argued the cause, and David G. Crockett, Wichita, of the same firm, was with him on the brief, for appellee.

MILLER, Justice:

This is an appeal by defendant, The Home Indemnity Company (The Home) from a judgment of the Sedgwick District Court finding that plaintiff, American Media, Inc. (AMI), an insured, was entitled to recover a judgment for some $34,000 against The Home under the provisions of a policy of insurance issued by the defendant.

The matter was presented to the trial court on a written stipulation of fact, which is substantially as follows: American Media, Inc., was a holding company owning stock in three subsidiary corporations. Each of the subsidiary corporations was incorporated separately and was a different corporate entity. AMI owned 93.65 percent of the stock of Mr. D's Radio, Inc., which operated radio stations KBUL and KEYN-FM in Wichita, Kansas; 93.1 percent of the stock in American Radio Corporation (ARC), an Oklahoma corporation, which operated radio station KOFM-FM in Oklahoma City, Oklahoma; and 96.7 percent of the stock in American Radio Corporation of Kansas (ARCK), which operated radio stations KCSJ and KDJQ (FM) in Pueblo, Colorado. AMI was created specifically to hold the stock of and to manage the other three corporations. All the corporations had identical officers and directors.

The Home Indemnity Company issued its policy to Mr. D's Radio, Inc., providing workers' compensation coverage to Mr. D's in the State of Kansas for the policy period April 17, 1975, to April 17, 1976. An All States Endorsement attached to the policy further provides:

"A. In the event the insured undertakes operations in any state [other than Kansas] ... the company agrees as follows:

"1. To reimburse the insured for all compensation and other benefits required of the insured under the workmen's compensation or occupational disease law of such state." (Emphasis supplied.)

On April 25, 1975, AMI was endorsed as an additional insured on the policy.

On July 28 or 29, 1975, during the policy period, Gloria Saldana, an employee of ARCK, was injured in the course and scope of her employment with radio station KCSJ in Pueblo, Colorado. At that time, ARCK carried no workers' compensation insurance. At the conclusion of proceedings (brought by Saldana against ARCK before the Colorado workers' compensation authority, the Colorado Division of Labor), ARCK was ordered to pay Gloria Saldana compensation, medical expenses and penalty in the amount of $32,176.35.

Because of limited funds on the part of ARCK, portions of the judgment were paid by AMI directly by AMI checks; other portions of the judgment were paid by KCSJ check using funds which had been forwarded to it by AMI.

In addition to the written stipulation set forth above, the parties orally stipulated that an employee of The Home audited the payroll records of AMI and Mr. D's on May 25, 1976. Policy premiums were calculated, based on those payrolls. The auditor was not shown the payroll records of ARC or ARCK, and the employees of those two corporations were not considered in fixing the policy premium. Had they been included, the premium would have been larger.

The trial court stated the controlling question in the case as follows:

"Were the benefits paid to the employee of a wholly-owned subsidiary corporation of the plaintiff required to be paid by plaintiff under Colorado law?"

The court then quoted the All States Endorsement of the policy, and concluded:

"The key to examination of this situation is not whether the plaintiff would benefit by piercing the corporate veil, but whether the plaintiff could invoke that veil to escape liability for the loss of the subsidiary's employee. In my opinion, the Colorado Court would pierce that veil in an instant if it were necessary to do so in order for the worker to recover."

The court thus based its resolution of the lawsuit on what it thought a Colorado court would do if it were necessary, in order for the worker to recover. We conclude that this was error.

Before going further, we should first review the general rules for construction of insurance policies. In the case of Mah v. United States Fire Ins. Co., 218 Kan. 583, 586-87, 545 P.2d 366 (1976), we said:

" 'In construing an insurance policy a court should consider the instrument as a whole and endeavor to ascertain the intention of the parties from the language used, taking into account the situation of the parties, the nature of the subject matter and the purpose to be accomplished....

" 'Policies must be construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense ....' (Bramlett v. State Farm Mutual Ins. Co., 205 Kan. 128, 130, 468 P.2d 157.)

" '... As a general rule, the construction and effect of a written contract of insurance is a matter of law to be determined by the court. If the facts are admitted, ... then it is for the court to decide whether they come within the terms of the policy....' (Goforth v. Franklin Life Ins. Co., 202 Kan. 413, 416, 449 P.2d 477.)

" 'The language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties. Where the terms of a policy of insurance are ambiguous or uncertain, conflicting or susceptible of more than one construction, the construction most favorable to the insured must prevail. Since the insurer prepares its own contracts, it has a duty to make the meaning clear. If the insurer intends to restrict or limit coverage provided in the policy, it must use clear and...