Atl. Specialty Ins. Co. v. Stanley

• Decision Date: 19 February 2019
• Docket Number: No. 6:17-CV-308-REW,6:17-CV-308-REW
• Parties: ATLANTIC SPECIALTY INSURANCE COMPANY, Plaintiff, v. BILL STANLEY, Administrator of the Estate of Brandon Stanley, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

ATLANTIC SPECIALTY INSURANCE COMPANY, Plaintiff, v. BILL STANLEY, Administrator of the Estate of Brandon Stanley, et al., Defendants.

No. 6:17-CV-308-REW

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY SOUTHERN DIVISION LONDON

February 19, 2019

OPINION AND ORDER*** *** *** ***

Atlantic Specialty Insurance Company (ASIC) seeks summary judgment in this declaratory judgment action. DE #22 (Motion). Bill Stanley opposed.¹ DE #40 (Response).² ASIC replied. DE #41 (Reply). The matter is ripe for consideration. For the following reasons, the Court fully GRANTS DE #22 and declares that ASIC has no duty to defend or indemnify Bobby Joe Smith, in his individual and official capacities, regarding any insurance form at issue, as to case no. 6:16-CV-264-REW.

I. BACKGROUND

In this suit, ASIC "seeks a ruling that it is not obligated to defend Smith or to indemnify him from liability arising from the shooting death of [Brandon] Stanley." DE #22, at 5. The relevant facts are straightforward. On March 1, 2016, Brandon³ fled arrest by Smith, a Laurel County Constable. Three days later, Smith received a tip of Brandon's whereabouts and went to the purported location to investigate. In the course of attempting to arrest Brandon for outstanding warrants, Smith ultimately shot and killed Brandon. Based on the events, a Kentucky jury, in April 2017, convicted Smith of reckless homicide. See DE #22-3, at 2; see generally DE ##22-1, 22-2 (Newspaper articles). A related civil case pends. See case no. 6:16-CV-264-REW (Stanley seeking damages from Smith (and another)⁴). ASIC, in this case, seeks a declaration concerning its coverage obligations, relative to Smith, concerning case no. 16-264.

II. STANDARD

A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A reviewing court must construe the evidence and draw all reasonable inferences from the underlying facts in favor of the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 106 S. Ct. 1348, 1356 (1986); Lindsay v. Yates, 578 F.3d 407, 414 (6th Cir. 2009). Additionally, the court may not"weigh the evidence and determine the truth of the matter" at the summary judgment stage. Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2511 (1986).

The burden of establishing the absence of a genuine dispute of material fact initially rests with the moving party. Celotex Corp. v. Catrett, 106 S. Ct. 2548, 2553 (1986) (requiring the moving party to set forth "the basis for its motion, and identify[] those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate an absence of a genuine issue of material fact"); Lindsay, 578 F.3d at 414 ("The party moving for summary judgment bears the initial burden of showing that there is no material issue in dispute."). If the moving party meets its burden, the burden then shifts to the nonmoving party to produce "specific facts" showing a "genuine issue" for trial. Celotex Corp., 106. S. Ct. at 2253; Bass v. Robinson, 167 F.3d 1041, 1044 (6th Cir. 1999). However, "Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 106 S. Ct. at 2552; see also id. at 2557 (Brennan, J., dissenting) ("If the burden of persuasion at trial would be on the non-moving party, the party moving for summary judgment may satisfy Rule 56's burden of production in either of two ways. First, the moving party may submit affirmative evidence that negates an essential element of the nonmoving party's claim. Second, the moving party may demonstrate to the Court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim." (emphasis in original)).

A fact is "material" if the underlying substantive law identifies the fact as critical. Anderson, 106 S. Ct. at 2510. Thus, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Id. A "genuine" issue exists if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 2511; Matsushita Elec., 106 S. Ct. at 1356 ("Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'") (citation omitted). Such evidence must generally be suitable for admission at trial. Alexander v. CareSource, 576 F.3d 551, 557-59 (6th Cir. 2009).⁵

III. ANALYSIS

The parties agree that three "coverage forms" define the insurance parameters at issue: (1) the Law Enforcement Liability Coverage Form ("LEL form"), see DE #5-1, (2) the Public Officials Errors and Omissions Coverage Form ("E&O form"), see DE #5-3, and (3) the Commercial General Liability Coverage Form ("GL form"), see DE #5-2.⁶ The Court considers each, accounting for the parties' arguments, in turn.⁷

A. Legal Principles

"[T]he proper interpretation of insurance contracts generally is a matter of law to be decided by a court[.]" Thiele v. Ky. Growers Ins. Co., 522 S.W.3d 198, 199 (Ky. 2017).⁸ The analysis "begins with the text of the policy itself." Pryor v. Colony Ins., 414 S.W.3d 424, 430 (Ky. Ct. App. 2013). The Kentucky Supreme Court has "consistently held that the words employed in insurance policies, if clear and unambiguous, should be given their plain and ordinary meaning." Thiele, 522 S.W.3d at 200 (internal quotation marks and alteration removed). "Where the terms of an insurance policy are clear and unambiguous, the policy will be enforced as written." Kemper Nat'l Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 873 (Ky. 2002). The Court "must give effect to what the parties expressly agreed upon[.]" Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129, 131 (Ky. 1999).

However, "when interpreting insurance policies, the contract should be liberally construed and any doubts as to coverage should be resolved in favor of the insured." MGA Ins. Co., Inc. v. Glass, 131 S.W.3d 775, 778 (Ky. Ct. App. 2004) (internal quotation marks and alteration removed). "Where an exclusion is susceptible to tworeasonable interpretations, the interpretation favorable to the insured is adopted." St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 226 (Ky. 1994). But, a "liberal interpretation is not synonymous with a strained one." K.M.R. v. Foremost Ins. Grp., 171 S.W.3d 751, 753 (Ky. Ct. App. 2005). "The rule of strict construction against an insurance company," thus, "does not mean that every doubt must be resolved against it and does not interfere with the rule that the policy must receive a reasonable interpretation consistent with the parties' object and intent or narrowly expressed in the plain meaning and/or language of the contract." St. Paul Fire, 870 S.W.2d at 226. Indeed—importantly—the parties' intent "is to be deduced, if possible, from the language of the contract alone." Nolan, 10 S.W.3d at 131-32; K.M.R., 171 S.W.3d at 753 (same); Ky. Unemployment Ins. Comm'n v. Wilson, 528 S.W.3d 336, 340 (Ky. 2017) (same principle).

Exclusions "do not grant coverage; rather, they subtract from it." Kemper Nat'l Ins. Cos., 82 S.W.3d at 872; see also id. at 871 (describing the "function" of "exclusions" to be "to restrict and shape the coverage otherwise afforded" in the policy). "Because coverage exclusions are contrary to the fundamental protective purpose of insurance, they are strictly construed against the insurer and will not be extended beyond their clear and unequivocal meaning. But that strict construction should not overcome plain, clear language resulting in a strained or forced construction." Id. at 873-74 (internal quotation marks removed). "[A] clearly worded exclusion is not treated as ambiguous," and "[t]ortured constructions of clauses in an attempt to create an aura of ambiguity are unavailing to create coverage." Holzknecht v. Ky. Farm Bureau Mut. Ins. Co., 320 S.W.3d 115, 121-22 (Ky. Ct. App. 2010); see also, e.g., Transamerica Ins. Co. v. DuroBag Mfg. Co., 50 F.3d 370, 372-73 (6th Cir. 1995); Am. Nat'l Bank & Trust Co. v. Hartford Accident & Indem. Co., 442 F.2d 995, 999-1000 (6th Cir. 1971); Owners Ins. Co. v. Frontier Housing, Inc., 291 F. Supp. 3d 810, 815 (E.D. Ky. 2017).

B. LEL Form

The LEL form plainly excludes (in a section titled "EXCLUSIONS") from coverage ("This insurance does not apply to") "[a]ny 'claim' arising directly or indirectly out of, or in any way related to a . . . criminal act, or the willful violation of any statute, ordinance or regulation committed by or with the knowledge of the insured." DE #5-1, at 3 (Section III.4). "However," ASIC did commit to "defend[ing] the insured for a 'suit' . . . until either a judgment or final adjudication established such an act or the insured confirms such an act." Id.⁹

The Court holds that the criminal act exclusion, in this situation and on this record, is clear and unambiguous. See Kemper Nat'l Ins. Cos., 82 S.W.3d at 873-74. Accordingly, the Court "give[s] effect to what the parties expressly agreed upon," Nolan, 10 S.W.3d at 131, and deduces the parties' intent "from the language of the contract alone." Id. at 131-32. The Court, thus, enforces the contract "as written." Kemper Nat'lIns. Cos., 82 S.W.3d at 873-74 (holding the exclusion at issue was "unambiguous" because it "clearly defines the coverage").

Stanley's claims in 16-264 unquestionably fall under the umbrella of the criminal act exclusion—i.e., they arise directly or indirectly out of, or in some way relate to, a...