Westfield Ins. Co. v. Tech Dry, Inc.

• Decision Date: 15 July 2003
• Docket Number: No. 01-6390.,01-6390.
• Citation: 336 F.3d 503
• Parties: WESTFIELD INSURANCE CO., Plaintiff-Appellant, v. TECH DRY, INC.; Gayle Williamson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 503

336 F.3d 503

WESTFIELD INSURANCE CO., Plaintiff-Appellant, v. TECH DRY, INC.; Gayle Williamson, Defendants-Appellees.

No. 01-6390.

United States Court of Appeals, Sixth Circuit.

Argued June 10, 2003.

Decided and Filed July 15, 2003.

John H. Engle (argued and briefed), Kolstein, Engle & Prince, Cincinnati, OH, for Plaintiff-Appellant.

Suzanne Cassidy (argued and briefed), O'Hara, Ruberg, Taylor, Sloan & Sergent, Covington, KY, for Defendants-Appellees.

Before: MOORE and GIBBONS, Circuit Judges; SCHWARZER, Senior District Judge.^*

OPINION

MOORE, Circuit Judge.

Plaintiff-Appellant Westfield Insurance Company ("Westfield") appeals the district court's grant of summary judgment to Defendants-Appellees Tech Dry, Inc. ("Tech Dry") and Gayle Williamson ("Williamson"). When Williamson's mother was murdered by a Tech Dry employee who had previously done work at her mother's home, Williamson filed an action against Tech Dry. She alleged that Tech Dry proximately caused the death of her mother by negligently hiring and retaining the employee who murdered her mother. Westfield has a duty to defend Tech Dry, its insured, in actions seeking damages for bodily harm if they are caused by an "occurrence." In the present action, Westfield seeks a declaratory judgment that it is not obligated to defend Tech Dry in Williamson's action because Tech Dry's negligent hiring and retention of an employee is not an "occurrence" under the terms of Tech Dry's insurance liability contract. Upon cross-motions for summary judgment, the district court granted summary judgment to Tech Dry and Williamson, concluding that because the meaning of the policy term "occurrence" was ambiguous, Westfield was obligated to defend Tech Dry in the underlying action. Westfield appeals. Because the Kentucky courts would likely find that negligent hiring and retention of an employee constitutes an "occurrence" under the terms of the policy in question, we AFFIRM the district court.

I. FACTS AND PROCEDURE

Fred Furnish ("Furnish") performed work at Ramona Williamson's ("Ramona") home while employed as a carpet cleaner for Tech Dry. In early June 1998, Tech Dry terminated Furnish's employment. Several weeks later, Furnish broke into Ramona's home, where he assaulted and murdered Ramona. Furnish was subsequently convicted of capital murder in Kentucky state court.

After she was named the executor of her mother's estate, Williamson filed a wrongful death action against Tech Dry in Kentucky state court. Williamson alleged that an employee of Tech Dry caused her mother's death and that Tech Dry was negligent in hiring and retaining Furnish as an employee. Jeff Cheser ("Cheser"), the Tech Dry franchise owner and manager who hired Furnish, admits that he did not perform a criminal background check on Furnish. Moreover, Cheser retained Furnish as an employee even after receiving complaints of theft from customers and learning that Furnish had stolen money from Tech Dry.

Tech Dry, Westfield's insured, asked Westfield to provide a defense and indemnity for the claims asserted against Tech Dry in Williamson's wrongful death action. The liability policy in question obligates Westfield to provide the following coverage:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result....

* * *

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory;" and

(2) The "bodily injury" or "property damage" occurs during the policy period.

c. Damages because of "bodily injury" include damages claimed by any person or organization for care, loss of services or death resulting at any time from the "bodily injury."

Joint Appendix ("J.A.") at 82 (Policy). The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." J.A. at 93 (Policy). The policy excludes from coverage "`[b]odily injury' or `property damage' expected or intended from the standpoint of the insured." J.A. at 82 (Policy).

In response to Tech Dry's request for a defense and indemnity, Westfield filed the present action in United States District Court. Westfield seeks a declaratory judgment that Tech Dry's insurance policy does not require Westfield to defend Tech Dry or to pay or satisfy any judgment or award rendered to Williamson in the underlying wrongful death action.

The parties submitted a stipulation of facts and filed cross-motions for summary judgment. The district court denied Westfield's motion for summary judgment and granted Tech Dry's and Williamson's motions for summary judgment. Westfield timely appealed.

II. ANALYSIS

A. Standard of Review

We review the district court's grant of summary judgment de novo, employing the same legal standard applied by the district court. Equitable Life Assurance Soc'y of U.S. v. Poe, 143 F.3d 1013, 1015 (6th Cir.1998). "We also review de novo a district court's order denying summary judgment, if the denial is based on purely legal grounds." Black v. Roadway Express, Inc., 297 F.3d 445, 448 (6th Cir. 2002). When a district court denies summary judgment to one party on the ground that it is granting summary judgment to another party, the denial of summary judgment is based on a legal conclusion rather than the district court's finding of a genuine issue of material fact. Id. Because the district court denied summary judgment for Westfield on the purely legal ground that it was granting summary judgment to Tech Dry and Williamson, we therefore review de novo both the district court's grant of summary judgment to Tech Dry and Williamson and the district court's denial of summary judgment to Westfield.

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c). A dispute over a material fact is not considered "genuine" unless a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quotation omitted). When reviewing cross-motions for summary judgment, we must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the nonmoving party. Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991).

Because this court is sitting in diversity,¹ see 28 U.S.C. § 1332, we apply the law, including the choice of law rules, of the forum state. Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir.2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). The parties agree that we should apply Kentucky law. Because the question at issue has not yet been resolved by the Kentucky Supreme Court, we must engage in the challenging task of attempting to predict what the Kentucky Supreme Court would do if confronted with the same issue. Stalbosky v. Belew, 205 F.3d 890, 893-94 (6th Cir.2000).

B. Westfield's Duty to Defend and Indemnify

Tech Dry's policy provides that Westfield will defend Tech Dry in suits seeking damages for bodily injury or property damage caused by an "occurrence." The policy further defines occurrence as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." J.A. at 93 (Policy). The district court found that the term "accident" is "inherently ambiguous," J.A. at 17 (Op. & Order), and construed the ambiguity in favor of finding coverage, Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d 213, 217 (Ky.1997). Westfield contests the district court's finding of ambiguity, contending that negligent hire and retention is clearly not an "occurrence" under the terms of the policy. According to Westfield, the policy therefore does not provide coverage for a wrongful death suit arising under these circumstances.

The interpretation of an insurance contract is a matter of law. Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 810 (Ky.Ct.App.2000). Under Kentucky law, a court should determine at the outset of litigation whether an insurance company has a duty to defend its insured by comparing the allegations in the underlying complaint with the terms of the insurance policy. DiBeneditto v. Med. Protective Co., 3 Fed. Appx. 483, 485 (6th Cir.2001). An insurance company has a duty to defend its insured if the language of an underlying complaint against the insured brings the action within the scope of the insurance contract. Id.

1. Ambiguity

As an initial matter, we must determine whether the policy terms "occurrence" and "accident" are ambiguous. The district court reasoned that "the word `accident'.... is inherently ambiguous." J.A. at 17 (Op. & Order) (noting that Black's Law Dictionary gives more than twenty meanings for the word). However, the district court also noted that "[i]f used in an insurance contract, the ordinary meaning of the term is `an event which ... is unusual and not expected by the person to whom it happens.'" J.A. at 18 (Op. & Order) (quoting Black's Law Dictionary (5th ed.1979)) (emphasis omitted).

Where policy terms are not ambiguous, "the ordinary meaning of the words chosen by the insurer is to be followed." James Graham Brown Found. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky.1991). In...