Employers Ins. of Wausau v. Martinez
| Decision Date | 24 May 2001 |
| Docket Number | No. 1999-SC-1008-D.,1999-SC-1008-D. |
| Citation | 54 S.W.3d 142 |
| Parties | EMPLOYERS INSURANCE OF WAUSAU, Appellant, v. Joyce MARTINEZ and Marguerite Brookings (individually and on behalf of all others similarly situated); Clifford Amos; Robert Copley; Richard T. Hunter; Charles M. Alexander, Jr.; William A. Kinman; Clayton Logsdon; Drury Malloy; John W. Koernner; Addah S. Herdt; and Margaret A. Myer, Administrator of the Estate of Ralph Allen, deceased, (individually and in their official capacities as Officers and Directors of Louisville Crematory and Cemeteries Company, Inc.); Lawrence R. Handley, Sr.; Mary Handley; Betty Jo Handley; Carolyn Graves; Elaine Hickman; Lawrence Handley, Jr.; James Lee Handley; Marcus Ray Handley; Gregory Handley; Charles Handley; Marie Cox; Norma Mitchell; Patricia Effinger; Louisville Crematory and Cemeteries Co., Inc.; Omnia Church of God, Inc.; Christ Church United Methodist, Inc.; Karl E. Rothrock; Unknown Trustees of Trinity Temple United Methodist Church, Appellees. |
| Court | United States State Supreme Court — District of Kentucky |
Elizabeth U. Mendel, Woodward, Hobson & Fulton, LLP, Lexington, for Appellant.
Cecil Davenport, Leesburg, FL, David S. Davis, J. Leonard Rosenberg, Laura L. Spaulding, Perry Adanick, C.A. Dudley Shanks, Gary R. Hillerich, Randolph Noe, Mark C. Webster, Grover C. Potts, Jr., Wyatt, Tarrant & Combs, Mary Janice Lintner, Louisville, Garry R. Kaplan, Lexington, for Appellees.
This Court granted discretionary review to resolve the issues of whether an insurance policy's exclusion of coverage for willful violation of a penal statute requires a criminal conviction of an insured in order for the exclusionary clause within the insurance policy to be invoked, even though the exclusion contains no such requirement. We hold that the provisions of the insurance policy do not require that the insured be convicted of the offense. The insured's knowing violation of the penal statute is sufficient to invoke the exclusionary clause.
This case involves a claim for civil damages, arising from cemetery mismanagement and misconduct by the Louisville Crematory and Cemeteries Company, Inc. (hereinafter, "LCC"). Since the early 1900s, the cemetery had interred bodies in already occupied graves, with as many as seven infants being discovered in one site. In some circumstances, the cemetery removed remains and headstones to make room for the more recently departed. Excavations suggest that the improper practices had occurred since 1907, when the site reached maximum capacity, and that some 80,000 individuals had been buried in a cemetery designed to hold 15,000. Although the cemetery's corporate personnel, Appellees herein, faced criminal charges, the charges were dismissed when the defendants agreed to participate in a diversion program.
Appellant, Employers Insurance of Wausau, issued several policies to the cemetery corporation and was allowed to intervene in a subsequent civil suit to obtain a ruling on whether it owed coverage. At issue is an exclusion that reads:
Exclusions. This insurance does not apply:
. . .
(B) To bodily injury caused by willful violation of a penal statute or ordinance committed by or with the knowledge of an insured or of a manager employed by the named insured.
We note that the above exclusion applies to bodily injury only and does not apply to property damage.
Jefferson Circuit Judge Ken Conliffe granted Appellant's motion for summary judgment. He noted that the cemetery acknowledged the practice of overburial:
[T]he parties also agree that the practice of overburying the cemetery, reusing grave sites, removing remains and memorials from graves, digging in occupied graves, and selling already-occupied graves, as well as the other alleged practices in this claim, were accepted and established practices occurring in the LCC cemeteries since the turn of the century, and that such actions were obviously intended and done with the knowledge of the officers and directors of the cemetery corporation; however there is a dispute as to whether the officers directors specifically named in this proceeding were aware of and accepted such practices.
Judge Conliffe stated that the determination of whether the exclusion was applicable depended on whether the defendants' actions would be considered willful violations of certain specific statutes. (KRS 525.110, desecration of venerated objects, second degree; KRS 525.115, violating graves; KRS 525.120, abuse of a corpse), but found that the insurance policy provisions did not require a conviction of one or more of these offenses. As these actions were: (1) obviously intentional, and (2) done with the cemetery corporation's officers' and directors' knowledge, the trial court found that the coverage under the policy was excluded:
Viewing the underlying stipulated facts, LCC, at some point in time, through its officers and directors, did accept and adopt the practices of overburying the cemetery, [etc.] Accepting and adopting such practices would clearly be a willful violation of a penal statute committed by or with the knowledge of the officers and directors of LCC....
Since it is admitted for purposes of this motion that the alleged acts were willfully committed by or with knowledge of the officers and directors of LCC, Wasau's cemetery professional liability coverage is excluded.
The Court of Appeals reversed, basing its decision on Healthwise of Kentucky, Ltd. v. Anglin, Ky., 956 S.W.2d 213 (1997), which dealt with exclusions for committing a crime and being under the influence of alcohol ("legal intoxication as defined by Kentucky law", according to the policy). Healthwise held that the term "crime" did not exclude coverage under the facts of the case because the wrongful acts mentioned in the policy, including drag-racing, were traffic violations, and qualified neither as felonies nor as misdemeanors. According to the Kentucky Penal Code, "crime" is defined as a misdemeanor or a felony. KRS 500.080(2). Healthwise also held that the term "under the influence" did not require exclusion under the facts because this term referred to a status and not an act. That status is attained when there is an adjudication of intoxication at a criminal trial.
In the instant case, the Court of Appeals found that coverage existed pursuant to the holding in Healthwise, because defendants are presumed to be innocent of committing a crime until they are proven guilty beyond a reasonable doubt in a criminal trial. Because Appellees never answered the charges in court, this would never happen.
We agree with Appellant that the Court of Appeals incorrectly interpreted and misapplied Healthwise, supra, and that it is inappropriate to find coverage in a policy that is meant to cover professional errors or mistakes, when the claims made arise from deliberate and systematic wrongful acts. The criminal conviction which the Court of Appeals would require is not expressed by the terms of the policy. We required an adjudication of the alcohol intoxication "status" in Healthwise, supra, because, while the use of alcohol alone did not trigger the exclusion, intoxication did. Because intoxication was not defined expressly in the penal code, it required a court determination. In this case, no question exists as to whether LCC violated a penal statute; such violations were admitted. This case is analogous to Travelers Indemnity Company v. Nieman, Ky. App., 563 S.W.2d 724 (1977), in which, under a similar exclusion, two pharmacists were denied coverage after they pled guilty to violations stemming from illegally dispensing amphetamines. The exclusion applies to LCC as clearly as the exclusion applied to the pharmacists in Travelers Indemnity, supra.
Judge Conliffe, as part of his grant of summary judgment, made a determination that the violations were willful, based on the almost one century of overburial. Although we noted in James Graham Brown Foundation, Inc. v. St. Paul Fire & Marine Insurance, Co., Ky., 814 S.W.2d. 273 (1991), that questions of intent are usually more appropriately left for the fact-finder and not for disposal in summary judgment, we did not foreclose the possibility. We stated, Id. at 276 (internal citations omitted). It was within Judge Conliffe's discretion to determine that violations committed for such a length of time, which evidence showed were actually described in procedures initiated by the directors, were undertaken willfully.
It is settled law in Kentucky that insurance companies are strictly accountable for the language in their policies because they are generally standard-form contracts without the option of arms' length negotiations with the insureds. See Wolford v. Wolford, Ky., 662 S.W.2d 835, 838 (1984). In instances of ambiguity, such contracts are...
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