Tower Ins. Co. of N.Y. v. Horn

• Decision Date: 29 October 2015
• Docket Number: 2014–SC–000015–DG
• Citation: 472 S.W.3d 172
• Parties: Tower Insurance Company of New York, Appellant v. Brent Horn; Mickayla Sesco, as Administratrix of the Estate of Bradley E. Stafford, Deceased; and Bridgefield Casualty Insurance Company, Inc., Appellees
• Court: United States State Supreme Court — District of Kentucky

472 S.W.3d 172

Tower Insurance Company of New York, Appellant

v.Brent Horn; Mickayla Sesco, as Administratrix of the Estate of Bradley E. Stafford, Deceased; and Bridgefield Casualty Insurance Company, Inc., Appellees

2014–SC–000015–DG

Supreme Court of Kentucky.

RENDERED: OCTOBER 29, 2015

APPELLANT: Joseph Stan Lee, Donald Markam Wakefield, Bowles Rice, LLP

COUNSEL FOR APPELLEES: Gregory Lee Monge, VanAntwerp, Monge, Jones, Edwards & McCann, LLP, John C. Bowlin, Osborne & Bowlin, P.S.C., Anthony Charles Donahue, Forrest Waylon Brock, Donahue Law Group, P.S.C.

OPINION OF THE COURT BY JUSTICE KELLER

Tower Insurance Company of New York (Tower) appeals the Court of Appeals's reversal of summary judgment and finding of coverage. The issue is whether an injured employee policy exclusion bars coverage of a permissive user. After reviewing the policy, law, and arguments, we hold that it does not and affirm the Court of Appeals.

I. BACKGROUND.

The facts are undisputed. On September 26, 2011, B & B Contracting, LLC (B & B) was engaged in its normal course of business: highway mowing and landscaping. Because the work crew was short-staffed that day, Brent Horn, a retired coal miner and friend of B & B's management, volunteered to drive one of the company's trucks. Horn was not an employee of B & B and did not receive compensation for his work. Tragically, while Horn was driving a B & B truck, Bradley Stafford, an employee of B & B, fell from Horn's truck and was fatally injured.

The administratrix of Stafford's estate filed a wrongful death action against Horn. Horn asserted that the Tower liability policy insuring B & B's trucks covered the claim against him. Tower filed an intervening complaint, seeking a declaration of rights regarding its obligation to defend and indemnify Horn.

After discovery and cross-motions for summary judgment, the Martin Circuit Court granted Tower's motion and denied coverage to Horn. The court found that although Horn was not a B & B employee, he was a permissive user of B & B's truck and, thus, was an insured under Tower's policy. However, the court concluded that the "Employee Indemnification And Employer's Liability" provision (the employee exclusion), which excluded any coverage for bodily injury to an employee of the insured, precluded coverage for Stafford's death because he was an employee of B & B. The court was not persuaded that the policy's severability clause negated this exclusion.

Horn appealed to the Court of Appeals, and a divided Court reversed. The Court agreed that Horn was an insured and that the policy's exclusion undoubtedly created an exception to the duty of Tower to cover B & B's liability to Stafford's estate. Nonetheless, the Court found that the severability clause applied coverage separately to each insured, thereby rendering the employee exclusion ineffective as to Horn, who was not Stafford's employer. The Court concluded that Horn enjoyed a "unique status" under the policy and was not barred from coverage for purposes of defense and indemnification.

Tower appealed to this Court, and we granted discretionary review. For the reasons stated herein, we affirm. We set forth additional facts as necessary below.

II. STANDARD OF REVIEW.

On appeal of summary judgment, our standard of review is whether the trial court correctly found that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Inter–Tel Technologies, Inc. v. Linn Station Properties, LLC, 360 S.W.3d 152, 165 (Ky.2012) ; CR 56.03. Because the facts are undisputed and because we are only faced with questions of law, we review the opinion of the Court of Appeals de novo. Samons v. Kentucky Farm Bureau Mut. Ins. Co., 399 S.W.3d 425, 427 (Ky.2013).

III. ANALYSIS.

When the terms of an insurance contract are unambiguous and reasonable, they will be enforced. Kentucky Ass'n of Counties All Lines Fund Trust v. McClendon, 157 S.W.3d 626, 630 (Ky.2005). Policy exceptions and exclusions are strictly construed to make insurance effective. Kentucky Farm Bureau Mut. Ins. Co. v. McKinney, 831 S.W.2d 164, 166 (Ky.1992). Any ambiguities in an insurance contract must be resolved in favor of the insured, but this rule of strict construction certainly does not mean that every doubt must be resolved against the insurer and does not interfere with the rule that the policy must receive a reasonable interpretation consistent with the plain meaning in the contract. McClendon, 157 S.W.3d at 630.

Before we address the arguments of the parties, we first lay out the policy provisions and points of agreement.

It is undisputed that Horn was an insured under Tower's policy. Under the "Who Is An Insured" provision, an insured is defined to include the named insured (B & B), as well as "anyone else while using with your permission a covered ‘auto’ you own, hire or borrow...." The truck that Horn was driving was listed as a covered auto under B & B's policy, and Horn was operating the truck with B & B's permission at the time of Stafford's injury. Thus, Horn was an insured.

The policy also elaborates on the definition of an insured, saying:

"Insured" means any person or organization qualifying as an insured in the Who Is An Insured provision of the applicable coverage. Except with respect to the Limit of insurance, the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or "suit" is brought.

(emphasis added). This provision is commonly referred to as a severability clause.

As an insured, Horn was entitled to liability coverage. The policy provides that Tower "will pay all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ [including death] or ‘propery damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of the covered ‘auto.’ " Furthermore, Tower "has the right and duty to defend an ‘insured’ against a ‘suit’ asking for such damages." Therefore, Tower owed Horn a duty of indemnification and defense under the affirmative provisions of the policy.

However, the policy also contains exclusions from coverage. The employee exclusion exempts an insured from coverage for bodily injuries to "[a]n ‘employee’ of the ‘insured’ arising out of and in the course of (1) [e]mployment by the ‘insured;’ or (2) [p]erforming the duties related to the conduct of the ‘insured's' business...." As stated above, it is undisputed that Stafford was an employee of B & B, that Horn was not an employee of B & B, and that Horn was not Stafford's employer. Therefore, the issue is whether the employee exclusion applies to bar coverage of Horn, a permissive user.

Tower argues that the policy excludes coverage for any claim relating to Stafford's death, citing this Court's decision of Brown v. Indiana Ins. Co., 184 S.W.3d 528 (Ky.2005) and the Supreme Court of South Dakota's decision of Northland Ins. Co. v. Zurich Am. Ins. Co., 743 N.W.2d 145 (S.D.2007). Furthermore, Tower relies on Liberty Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 522 S.W.2d 184 (Ky.1975), for its assertion that it would be unreasonable to afford greater coverage to an unnamed insured than to the named insured, who has paid premiums when the unnamed insured has not. Finally, Tower argues that Kentucky law holds that the purpose of severability clauses is not to negate policy exclusions as stated in National Ins. Underwriters v. Lexington Flying Club, Inc., 603 S.W.2d 490 (Ky.Ct.App.1979).

Horn relies on the Court of Appeals's analysis and maintains that the exclusion must be examined independently in order to give meaning to the severability clause. Additionally, Horn distinguishes the Kentucky decisions offered by Tower and provides counterexamples from our sister-states.

As an initial matter, we agree with both parties that Horn was an insured under the plain language of the policy. Horn operated B & B's truck, which was covered under the policy, with B & B's permission. Having determined that Horn is an insured, we apply the severability clause which states that "the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or ‘suit’ is brought." (emphasis added). Because the language of the policy treats insureds individually, so too, must the ensuing analysis.

Accordingly, by substituting Horn's name in place of the term "the insured" it is clear that the employee exclusion does not apply to Horn. The policy "does not apply to ... [b]odily injury to ... [a]n employee of [Horn] arising out of and in the course of [e]mployment by [Horn]; or performing the duties related to the conduct of [Horn]'s business...." Stafford was not an employee of Horn; Stafford's injury did not arise out of and in the course of his employment by Horn; and Stafford's injury and death did not arise out of his performance of duties related to the conduct of Horn's business. Therefore, the employee exclusion does not apply to Horn.

Tower argues that decisions in four previous cases should dissuade us from reaching this conclusion. We address them in turn.

First, Tower claims that this Court is bound by our previous holding in Brown v. Indiana Ins. Co, 184 S.W.3d 528 (Ky.2005). There, two employees were killed in a truck accident during the course and scope of their employment, and their estates brought wrongful death actions against their fellow employee, who was driving the truck. Id. at 531. The fellow employee sought coverage from the employer's auto liability policy. Id. Based on similar policy language to the case at hand, this Court held that there was no coverage. Id. Specifically, this Court applied the "Fellow Employee" exclusion in the policy, holding that it excluded coverage which would have otherwise been provided for the fellow employee-driver by the "permissive user clause." Id. at 536.

Brown is distinguishable from the case at hand for two reasons. First, the driver in Brown was a fellow employee of...