KENTUCKY SCHOOL BOARDS INSURANCE TRUST v. BOARD OF EDUCATION OF WOODFORD COUNTY, KENTUCKY
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RENDERED:
NOVEMBER 7, 2003; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO. 2002-CA-001748-MR
KENTUCKY SCHOOL BOARDS
INSURANCE TRUST
v.
APPELLANT
APPEAL FROM WOODFORD CIRCUIT COURT
HONORABLE PAUL F. ISAACS, JUDGE
CIVIL ACTION NO. 02-CI-00022
BOARD OF EDUCATION
OF WOODFORD COUNTY, KENTUCKY
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: EMBERTON, Chief Judge; McAnulty, Judge; and HUDDLESTON,
Senior Judge.1
1
Senior Judge Joseph R. Huddleston sitting as Special Judge
by assignment of the Chief Justice pursuant to Section 110(5)(b)
of the Kentucky Constitution and Ky. Rev. Stat. (KRS) 21.580.
HUDDLESTON, Senior Judge:
action
are
Liability
two
At issue in this declaratory judgment
exclusions
Coverage
contained
Document”2
in
pursuant
the
to
“Educators
which
the
Legal
Kentucky
School Boards Insurance Trust3 is “legally obligated to pay for
any civil claims made against [members of the Board of Education
of Woodford County] because of a Wrongful Act . . . ,”4 subject
to
“all
of
therein.
the
terms,
Because
it
conditions
and
determined
exclusions”
that
the
set
claims
forth
in
the
underlying litigation which prompted the instant case “involve
the loss of civil rights of a student through the failures of
the
[Board]
allege
any
in
hiring
assault
and
and
supervising
battery,
bodily
a
teacher
harm,
or
and
do
physical
not
or
2
The coverage document was effective from July 1, 1999, to
July 1, 2000.
3
In its own words, KSBIT “is a non-profit organization that
administers a self-insured liability pool for member school
districts.”
“As the administrator of a self-insurance group
under KRS 304.48-050, KSBIT provides ‘coverage’ under ‘coverage
documents’” as opposed to being an “insurer” that provides
“insurance coverage” and issues “insurance policies.”
Although
KSBIT is presumably attempting to draw a distinction between
“insurance” and “coverage” so as to argue that insurance law is
inapplicable here, for the purposes of our analysis, it is a
distinction without a difference.
4
“Wrongful Act shall mean any actual or alleged error or
misstatement or misleading statement or act or omission or
neglect or breach of duty by a Member in the performance of
duties for the Educational Entity.”
KSBIT concedes that “[i]f
the coverage analysis stopped here, [it] arguably would owe the
[Board] coverage” against the underlying claims because the
allegations “could reasonably be construed to allege a “breach
of duty by [the Board] in the performance of [its] duties.”
2
mental injury directly caused by the Board,” the circuit court
concluded
that
the
exclusions
were
not
applicable.
KSBIT
appeals from the summary judgment granted in favor of the Board
on
that
basis
as
summary judgment.5
the
underlying
well
as
the
denial
of
its
own
motion
for
On appeal, the dispositive issue is whether
negligence
claim
“aris[es]
out
of”
a
bodily,
mental or emotional injury or assault and battery.
The current dispute stems directly from a civil action
initiated by Dale Moore, a former student at Woodford County
High School, against the Board, in the United States District
Court
for
the
Eastern
District
of
Kentucky
Woodford County Board of Education.6
styled
Moore
v.
Moore characterized his
lawsuit as “an action for violation of a substantive due process
interest
pursuant
to
the
Fourteenth
Amendment
of
the
United
States Constitution and the abuse of state power pursuant to 42
U.S.C.A. § 1983.”
substantive
due
He sought “money damages for violation of his
process
interest
to
be
free
from
sexual
molestation by his teacher [Pat Davis]; for violation of his
5
Although the circuit court did not grant the Board’s motion
as to the allegation that the denial of coverage by KSBIT was
made in bad faith and granted KSBIT’s motion as to that issue
because KSBIT “made a very reasonable legal argument in this
case concerning coverage,” the Board has not appealed from that
determination.
Accordingly, our sole function on review is to
interpret and apply the exclusionary language.
6
Civil Action No. 00-451.
3
right
to
bodily
integrity;
and
for
the
[Board’s]
failure
to
provide a safe school environment.”7
Moore first met Davis in August 1999 at which time he
was enrolled in an English course Davis was teaching at Woodford
County High School.
Near the end of that month, Moore was
transferred into a U.S. history course that was being taught by
Davis.
During
that
class
period,
Davis
also
began
tutoring
Moore in mathematics which resulted in Moore having Davis as an
instructor in three of the four special education classes he was
taking.
Davis began taking a “personal interest” in Moore, and
the two had conversations regarding their shared interest in
horseback riding.
During the last week of September 1999, Davis invited
Moore to her house to ride one of her horses and, approximately
one week later, Davis again invited Moore to go horseback riding
with
her
at
her
residence.
During
the
latter
visit,
Davis
approached Moore and, without any provocation by Moore, began to
sexually
manipulate
performed
oral
sex
his
on
genitals.
Moore
and
Davis
demanded
sexual intercourse with her, which he did.
then
that
he
undressed,
engage
in
Moore then dressed
and went home but “was too embarrassed and fearful about his
7
Because the underlying facts are undisputed for purposes of
review, our factual summary is derived largely from Moore’s
complaint.
4
relationship”
with
feared
expelled,
being
Davis
to
inform
Moore
did
his
not
parents.
report
Davis
Because
to
he
school
officials.
Davis
continued
having
a
sexual
relationship
with
Moore throughout October and November 1999, with Davis arranging
encounters between the two that involved numerous incidents of
both oral sex and sexual intercourse.
During this period, Davis
also began purchasing beer and tobacco products for Moore who
was not legally old enough to purchase the items for himself.
In early December 1999, their relationship was discovered by
Chris Henderson, Moore’s mother, who immediately notified the
Board and took measures to control her son’s behavior.
Word of
the
causing
relationship
spread
throughout
the
school
system
Moore “such humiliation and embarrassment” that he refused to
complete the remainder of the fall semester.
Moore did return
for “a less than successful spring semester” but chose not to
enroll for the fall term in August 2000.
Henderson has been
informed that during September, October and November of 1999,
Davis
falsified
Moore’s
scholastic
and
attendance
records
in
order to make it appear that he was performing well in her
classes and ensure that he would remain her student.
5
In Count I of his complaint, Moore alleged as follows:8
13.
States
and
[Moore]
Kentucky.
Title
is
a
is
a
resident
citizen
of
the
of
the
United
Commonwealth
of
He brings this action pursuant to U.S.C.A.,
42,
Sections
1983
et
seq.,
to
redress
the
deprivation by [The Board], under color of state law,
of rights, privileges, and immunities secured by the
statutes and the Constitution of the United States of
America.
A
special
relationship
exists
between
students who are required to attend school because of
truancy
laws
schools.
and
the
government
Specifically,
[Moore]
who
provides
alleges
that
the
[the
Board] acting under color of state law, and acting
recklessly in a gross and negligent manner, and with
deliberate
indifference
to
[Moore’s]
rights,
privileges, and immunities, failed to protect [Moore]
from
harm,
school
steps
failed
to
environment,
to
protect
provide
and
failed
[Moore’s]
[Moore]
to
bodily
with
take
a
safe
reasonable
integrity.
The
[Board] failed to follow its own statutory requirement
and regulations designed to protect [Moore], failed to
8
Because the nature of the claims made by Moore necessarily
determines their implications, we have set forth both counts of
his complaint in their entirety.
6
provide [Moore] with the level of care and protection
required by law, and comparable to that which was made
available to other similarly situated minors under the
jurisdiction of the Board [].
14.
[The Board] knew, or should have known,
prior to [Davis’s] sexual molestation of [Moore], that
she was totally unfit for a position which required
work and personal contact with students.
Pat
Davis
was
hired
by
[The
Board]
At the time
as
a
special
education teacher, she had a history of drug abuse,
alcohol abuse, domestic violence, child neglect, antisocial
behavior
and
professional
misconduct.
[Davis’s] history of chemical dependence and criminal
acts was widely known throughout Woodford County; it
was
common
attorney
knowledge
who
had
that
received
[Davis]
was
extensive
a
disbarred
medical
and
psychological treatment for her many problems.
15.
As a direct result of the actions and
inactions of [The Board] as set forth above, [Moore]
has
stopped
relationship
attending
with
his
school[,]
family[,]
severed
become
a
his
management
and discipline problem for his mother and lost all
interest in pursuing his education.
subjected
to
extreme
7
emotional
[Moore] has been
and
psychological
distress
in
humiliation,
that
he
mental
has
anguish
suffered
and
and
fear.
endured
[Moore]
has
suffered permanent emotional and psychological damage
which has manifested itself in mental and character
disorders,
loss
of
self-esteem
and
permanent
impairment of his learning capacity.
Moore later amended his complaint to include a second
count
entitled
“State-created
danger,”
which
consists
of
the
following allegations:
16.
The policy and custom of [the Board] in
not supervising its teachers affirmatively produced a
“state-created
danger”
by
allowing
[Davis]
to
establish and maintain a perverse sexual relationship
with
[Moore].
[Moore]
was
placed
in
danger
of
contracting a debilitating venereal disease and could
have been fatally exposed to the AIDS virus by the
sexual acts of [Davis], an agent of [the Board].
17.
endangered
the
The Board’s policy of non-supervision
lives
of
all
Woodford
County
High
School students when [Davis] permitted her unattended
students to “light fires in the classroom.”
18.
The Board’s actions have also exposed
[Moore] to the danger he will never be able to compete
8
economically with his fellow students.
Burdened by
shame and ridiculed by his classmates, [Moore] dropped
out
of
[high
school]
with
little
receiving a high school diploma.
prospect
of
ever
[Moore] is now in
danger of holding menial jobs and of not being able to
provide for his family in later years.
[Moore] will
be exposed to this economic danger for the rest of his
life as a result of the Board’s policies and customs.
Upon
receiving
notice
of
Moore’s
claims,
requested coverage from KSBIT for its defense.
the
Board
KSBIT denied
coverage and refused to defend the Board because the “claims for
bodily injury and/or personal injury” presented by Moore are
properly classified as “general liability claims” and the Board
“was not a member of KSBIT’s general liability program during
the period in question.”
member
of
its
Acknowledging that the Board was a
“Educators
Legal
Liability
self-insurance
pool
during this time,” KSBIT concluded that the coverage document
“specifically excludes from coverage the type of claim asserted
in the Complaint,” citing the following exclusions:
This
Coverage
Document
does
not
apply
to,
and the Trust will not be liable for Loss related to
or arising out of:
. . .
9
3.
Any
claim
based
upon
or
arising
out
of
bodily injury, sickness, disease or death, mental or
emotional injury or distress;
. . .
5.
Any claim based upon or arising out of false
arrest,
assault
and
battery,
Board
contended
detention
or
imprisonment.9
In
response,
the
that
the
policy
covers an allegation of “negligent hiring” such as that made by
Moore.
According
to
KSBIT,
however,
“this
potential
claim
directly arises from the bodily/personal injury claim, i.e., but
for the molestation,” Moore would not have made the negligent
hiring claim.
“In the interest of fairness,” KSBIT sought and
received a formal legal opinion from outside counsel regarding
the coverage issue.
position
that
any
Based on that opinion, KSBIT maintained its
“negligent
hiring”
allegation
resulted
directly from the alleged sexual assault and bodily injury and,
therefore, is expressly excluded by the terms of the coverage
document.
9
These exclusions will be referred to at times
assault and battery and bodily/mental injury exclusions.
10
as
the
At that point, the Board presented KSBIT with its own
legal
analysis
of
the
coverage
issue,
emphasizing
that
“the
issue in a negligent hiring case is whether the employee was
unfit for the job for which he was employed and whether his
placement or retention in that job created an unreasonable risk
of harm to the victim,” which, “in a nutshell,” is precisely the
case here.
In its view, KSBIT is obligated to defend the entire
action “if even one allegation of the Complaint arguably falls
with[in] the policy coverage.”
Upon
position
consulting
remained
with
outside
unchanged.
With
counsel
regard
again,
to
its
KSBIT’s
“duty
to
defend,” KSBIT pointed out that “both the duty to defend and the
duty to indemnify exist only where there is coverage under the
insurance policy,” reiterating that the express language of the
subject
exclusions
closing,
KSBIT
operates
noted
that
to
exclude
“arising
out
Moore’s
of”
claim.
is
In
interpreted
broadly in Kentucky.
Due to the parties’ inability to agree on the coverage
issue,
the
Board
filed
a
petition
seeking a declaration of rights.
circuit
court,
the
“issue
in
in
Woodford
Circuit
Court
As correctly observed by the
this
case
comes
down
to
the
definition of the words ‘arising out of’” in the context of the
coverage agreement between the parties.
Agreeing with the Board
that “Kentucky requires any ambiguity in an insurance contract
11
to be liberally construed and resolved in favor of coverage,”
the
court
viewed
the
ambiguity
exists
in
concluded
that
the
ambiguous,
the
connection
between
threshold
the
inquiry
subject
policy.
exclusionary
determinative
the
to
language
issue
underlying
be
whether
Because
the
in
became
events
and
court
question
“whether
the
any
is
the
actual
litigation are sufficient” to render the exclusions applicable.
In support of its theory that the exclusionary language
must be interpreted expansively, KSBIT relied upon Corken v.
Corken Steel Products, Inc.10 and Kentucky School Boards Ins.
Trust v. State Farm Mut’l Automobile Ins. Co.,11 neither of which
the court deemed persuasive.
According to the court, Corken is
10
Ky., 385 S.W.3d 949 (2002).
In Corken, the Supreme Court
concluded that the death of a salesman “arose out of” his
employment for purposes of a workers’ compensation claim,
accepting the view “that causal connection [as opposed to
proximate cause or foreseeability] is sufficient if the exposure
results from the employment.” Id. at 950.
11
21 F.3d 428 (6th Cir. 1994)(designated not for full text
publication).
At issue in KSBIT v. State Farm was whether the
death of a student “arose from the use” of a school bus.
Id.
Citing Insurance Company of North America v. Royal Indemnity Co.
429 F.2d 1014, 1017 (6th Cir. 1970), the Sixth Circuit Court of
Appeals observed that “arising out of the use of” in an
automobile
insurance
policy
are
“’broad,
general
and
comprehensive terms meaning ‘originating from,’ or ‘having its
In
origin in,’ ‘growing out of’ or flowing from.’”
Id.
concluding that the student’s death “arose from the use” of the
school bus, the Court held that only a causal connection between
the injury and the use of the vehicle need be shown to come
within the meaning of “arising out of the use of”; proximate
causation is not required although the connection must be more
than incidental. Id.
12
distinguishable since “it is clear from reading the opinion”
that the Supreme Court expanded coverage in that context due to
the unique nature of workers’ compensation.
With respect to
State Farm, the court concluded that the Sixth Circuit Court of
Appeals adopted an expansive view of the phrase “arising out of”
“because of the requirement that liability insurance contracts
are to be read in favor of inclusions rather than exclusions.”
In the court’s view, however, “it is clear that the other side
of the rule is that exclusions are to be narrowly drawn in order
to provide coverage.”
Guided by “the underlying policy of inclusion” adopted
in Kentucky law, the court narrowly interpreted “arising out of”
as excluding only those claims resulting from “direct actions by
defendants” which, in turn, cause bodily, mental or emotional
injury, or assault and battery.
As Moore did not allege that
the Board was directly responsible for any harm or injury he
suffered, the court held that the exclusions were not implicated
meaning
KSBIT
was
obligated
to
defend
the
Board
against
his
claim that it was negligent in hiring and failing to properly
supervise Davis.
KSBIT appeals from that determination.
On appeal, KSBIT frames the issue presented for review
as follows:
The
bodily/mental
injury
and
assault-and-
battery exclusions in the [Board’s] Coverage Document
13
with KSBIT exclude coverage for claims “based upon or
arising out of” bodily, mental, or emotional injury
and assault or battery.
Dale
Moore
alleged
In the underlying lawsuit,
that
the
[Board]
negligently
allowed a teacher to sexually assault him and cause
him bodily, mental, and emotional injury.
Considering
these allegations, was the circuit court correct in
holding
that
Moore’s
negligence
claims
against
the
[Board] did not arise out of an assault or out of a
bodily, mental, or emotional injury?
According
policy
exclusions
to
KSBIT,
“as
a
Moore’s
matter
of
claims
plain
fall
within
English,”
the
the
same
result is dictated by both binding and persuasive authority, and
the circuit court erred by holding otherwise.
National
KSBIT
Ins.
argues
Cos.
that
“bargain”
between
“directly”
into
fundamental
v.
the
circuit
KSBIT
the
principle
Heaven
and
two
that
Hill
court
the
Board
exclusions
a
policy
Citing Kemper
Distilleries,
materially
by
altered
inserting
thereby
should
Inc.,12
the
the
word
violating
the
be
enforced
as
written when the terms are clear and unambiguous as is the case
here.
12
Ky., 82 S.W.3d 873 (2002).
14
Relying upon Minnesota case law,13 KSBIT contends that
“arising out of” requires only a causal connection between the
negligence claim and the alleged assault or battery as opposed
to proximate cause in order for coverage to be excluded because
the
“focus
theory.”14
is
on
the
origin
of
the
damages,
not
the
legal
As further support for this position, KSBIT cites
Wayne Township Bd. of School Commissioners v. Indiana Ins. Co.15
and Foreman v. Continental Casualty Co.,16 both of which involved
the
sexual
assault
of
a
student
with
coverage
being
denied
pursuant to exclusions which, in large part, parallel those in
question.
subject
In each of the aforementioned cases, however, the
exclusion
contained
modifying
language
absent
here.17
13
Roloff v. Taste of Minnesota, 488 N.W.2d 325 (Minn. App.
1992); Ross v. City of Minneapolis, 408 N.W.2d 910 (Minn. App.
1987).
14
Continental Casualty Co. v. McAllen Independent School
District, 850 F.2d 1044, 1046 (5th Cir. 1988); Ross, id., at
913.
15
650 N.E.2d 1205 (Ind. App. 1995).
16
770 F.2d 487 (5th Cir. 1985).
17
In Roloff, the policy excluded coverage for assault and
battery “whether or not committed by or at the direction of the
Insured.”
Supra, n. 13, at 326.
Likewise, the relevant
exclusion in Ross applied to any “claims for bodily injury or
death caused by or arising directly or indirectly out of or from
an assault or batter of any nature whatsoever whether or not
committed by or at the direction of the insured.”
Id. at 912.
In McAllen, the policy excluded coverage “[f]or any damage,
direct or consequential, arising from bodily injury, sickness,
disease or death of any person.”
Supra, n. 14, at 1046.
Similarly, in Wayne Township the policy excluded coverage for
15
“Just as the trial court did in Foreman,” KSBIT contends, the
circuit
court
“improperly
focused
on
the
nature
of
Moore’s
allegations against the [Board] (negligence)” rather than on the
sexual assaults allegedly perpetrated by Davis or the injuries
allegedly suffered by Moore and its decision must therefore be
reversed.
The Board argues to the contrary that under Kentucky
law, “this Court must look to the pleadings of Moore’s complaint
-
not
the
underlying
facts
to
determine
whether
[affords protection to the Board] in this matter.”
the
policy
As authority
for this proposition, the Board relies on Board of Public Educ.
of the School Dist. of Pittsburgh v. National Union Fire Ins.
Co.18 and James Graham Brown Foundation, Inc. v. St. Paul Fire &
Marine Ins. Co..19
protection
based
According to the Board, it is entitled to
on
the
“plain
language”
of
the
policy,
its
“reasonable expectations” and the ambiguity of the exclusions
any damages, “whether, direct, indirect, or consequential,
arising from, or caused by, bodily injury, personal injury,
sickness, disease or death . . . .” were excluded.
Supra, n.
15, at 1211.
In Foreman, the insurer was not liable for any
loss in connection “with any claim against the Assureds (3) for
any damages, direct or consequential, arising from bodily
injury, sickness, disease or death of any person . . . .”
Supra, n. 16, at 488.
18
709 A.2d 910 (Penn. 1997).
19
Ky., 814 S.W.2d 273 (1991).
16
upon which KSBIT relies which “must be narrowly construed in
favor of coverage” and, further, its position is supported by
“[c]ontrolling case law.”
In its view, the case law upon which
KSBIT relies “demonstrates the kind of qualifying language it
could have used” to eliminate any ambiguity.
Since Kentucky has “repeatedly looked to Pennsylvania
law for guidance”20 in deciding insurance cases and Pennsylvania
has consistently adhered to the rule set forth in James Graham
Brown, the Board argues that it is “appropriate and in fact
necessary”
to
apply
Pennsylvania
law
here.
While
relying
heavily upon District of Pittsburgh, the Board also observes
that both North Carolina and New York have reached the same
result.21
Kentucky Rules of Civil Procedure (CR) 56.03 authorizes
summary
judgment
“if
the
pleadings,
depositions,
answers
to
interrogatories, stipulations, and admissions on file, together
with the affidavits, if any, show that there is not a genuine
issue as to any material fact and that the moving party is
20
As examples, the Board cites Ronalco, Inc. v. Home Ins.
Co., Ky., 606 S.W.2d 160 (1980), and Simpsonville Wrecker
Service, Inc. v. Empire Fire and Marine Ins. Co., Ky. App., 793
S.W.2d 825 (1990).
21
Durham City Board of Educ. v. National Union Fire Ins. Co.,
109 N.C. App. 152, 426 S.E.2d 451 (1993); Watkins Glen Central
School Dist. v. National Union Fire Ins. Co., 732 N.Y.S.2d 70,
286 A.D.2d 48 (App. Div. 2001).
17
entitled to a judgment as a matter of law.”
Summary judgment is
only proper “where the movant shows that the adverse party could
not
prevail
opposing
a
under
any
properly
circumstances.”22
supported
summary
However,
judgment
“a
party
motion
cannot
defeat that motion without presenting at least some affirmative
evidence demonstrating that there is a genuine issue of material
fact
requiring
trial.”23
In
ruling
on
a
motion
for
summary
judgment, the circuit court must view the record “in a light
most
favorable
to
the
party
opposing
the
motion
for
summary
judgment and all doubts are to be resolved in his favor.”24
On appeal from a summary judgment, we must determine
“whether
the
trial
court
correctly
found
that
there
were
no
genuine issues as to any material fact and that the moving party
was entitled to judgment as a matter of law.”25
findings
are
at
issue,
deference
to
the
Since no factual
trial
court
is
not
required.26
Although KSBIT is appealing from the summary judgment
granted in favor of the Board, it is likewise appealing from the
22
Steelvest, Inc. v. Scansteel Service Center, Inc., Ky., 807
S.W.2d 476, 480 (1991), reaffirming Paintsville Hospital Co. v.
Rose, Ky., 683 S.W.2d 255 (1985).
23
Hubble v. Johnson, Ky., 841 S.W.2d 169, 171 (1992).
24
Steelvest, supra, n. 22, at 480.
25
Scifres v. Kraft, Ky. App., 916 S.W.2d 779, 781 (1996).
26
Id.
18
denial of its own motion for summary judgment.
the
general
rule
is
that
such
a
denial
Under CR 56.03,
is,
“first,
not
appealable because of its interlocutory nature and, second, is
not
reviewable
on
appeal
from
a
final
judgment
where
the
question is whether there exists a genuine issue of material
fact.”27
However, there is an exception to the general rule that
applies when, as is the case here, the following criteria are
met:
“(1)
the facts are not in dispute, (2)
the ruling is a matter of law, (3)
motion, and (4)
the only basis of
there is a denial of the
there is an entry of a final judgment with an
appeal therefrom.”28
“Interpretation
and
construction
of
an
insurance
contract [coverage document] is a matter of law for the court.”29
In
Kentucky,
the
proper
standard
to
insurance contract is a subjective one.30
apply
in
analyzing
an
Said another way, the
terms of an insurance contract “have no technical meaning in law
and are to be interpreted according to the usage of the average
man and as they would be read and understood by him in the light
27
Commonwealth of Kentucky, Transportation Cabinet, Bureau of
Highways v. Leneave, Ky. App., 751 S.W.2d 36, 37 (1988).
28
Id.
29
Kemper, supra, n. 12, at 871.
30
James Graham Brown, supra, n. 19, at 279 (citation
omitted).
19
of the prevailing rule that uncertainties and ambiguities must
be resolved in favor of the insured.”31
Although
an
insurance
policy
should
be
liberally
construed in favor of the insured, an insurance policy will be
enforced as written if its terms are clear and unambiguous.32
Exclusions operate to restrict and shape the coverage otherwise
afforded.33
are
not
Under Kentucky law, clearly drafted exclusions which
unreasonable
are
enforceable.34
Because
coverage
exclusions are “contrary to the fundamental protective purpose
of insurance,” however, they are “strictly construed against the
insurer”
and
meaning.”35
“plain,
will
not
be
extended
beyond
their
“unequivocal
But, that strict construction should not overcome
clear
construction.”36
language
resulting
in
a
strained
or
forced
Guided by these general principles, we turn our
attention to the issue of whether KSBIT was obligated to defend
the Board against the claim brought by Moore which necessarily
involves a determination of whether his claim is “based upon or
31
Id. See also Eyler v. Nationwide Mut’l Fire Ins. Co., Ky.,
824 S.W.2d 855 (1992) and Ronalco, supra, n. 20, at 163.
32
Kemper, supra, n. 12, at 873 (citation omitted).
33
Id. at 871.
34
Id. at 873.
35
Id. (Citation omitted).
36
Id.
20
arises out of” bodily, mental, or emotional injury or assault
and battery.
As correctly observed by both parties and the circuit
court, this is a case of first impression in Kentucky.
we
are
not
without
guidance.
In
James
Graham
However,
Brown,
the
Kentucky Supreme Court conclusively resolved the dispute as to
whether the allegations or the underlying facts are controlling
in favor of the Board:
The insurer has a duty to defend if there is
any
allegation
which
potentially,
possibly
come within the coverage of the policy.
or
might
The insurance
company must defend any suit in which the language of
the
complaint
would
bring
it
within
the
policy
coverage regardless of the merit of the action.
The
determination of whether a defense is required must be
made at the outset of the litigation.
defend
continues
to
the
point
of
The duty to
establishing
that
liability upon which plaintiff was relying was in fact
not covered by the policy and not merely that it might
not be.37
37
James Graham Brown,
citations omitted).
See
supra, n. 20.
supra, n. 19, at 279 (internal
also Simpsonville Wrecker Service,
21
Accordingly, the circuit court did not err in focusing
on
the
nature
of
the
allegations
facts as asserted by KSBIT.
used
the
approach
authority.38
dictated
rather
than
the
underlying
To the contrary, the circuit court
by
both
binding
and
persuasive
Since KSBIT concedes that the subject claims sound
in negligence which constitutes a “wrongful act” as defined in
the policy, the applicability of the exclusions hinges on the
meaning of “arising out of.”
Although there appears to be no
Kentucky case directly on point, the Supreme Court did confront
this question in Eyler, albeit in a different context.
At
personal
issue
liability
in
Eyler
and
was
medical
a
provision
payments
for
that
an
excluded
occurrence
“arising out of premises owned or rented to an insured but not
an insured location.”39
exclusion
did
not
In concluding that the “other premises”
defeat
coverage
for
personal
injuries
sustained by Eyler on the premises of the insured, the Court
engaged in the following analysis:
Immediately,
this
phrase
suggests
the
necessity for a causal connection between the premises
and the injury.
Ordinarily, “arising out of” does not
38
Id. See also Westfield Ins. Co. v. Tech Dry, Inc.; 336 F.3d
503 (6th Cir. 2003); District of Pittsburgh, supra, n. 18;
Durham City Bd. of Educ., supra, n. 21; Watkins Glen School
Dist., supra, n. 21.
39
Supra, n. 31.
22
mean merely occurring on or slightly connected with
but
connotes
the
need
responsible condition.
for
a
direct
consequence
or
As we view it, to satisfy the
“arising out of” exclusion in the policy, it would be
necessary to show that the premises apart from the
insured’s conduct thereon, was causally related to the
occurrence.40
In light of the foregoing, the circuit court correctly
interpreted the exclusionary language in question as implicitly
requiring that the claim result directly from the assault and
battery
or
exclusion
to
resulting
apply.
bodily/mental
injury
However,
decision
our
in
order
in
for
the
Kentucky Farm
Bureau Mut’l Ins. Co. v. Hall,41 in which the question to be
decided was “whether Hall’s injury arose out of the use of a
motor
vehicle
under
Kentucky’s
no-fault
seemingly conflicts with Eyler in that regard.
insurance
law,”
In upholding the
award of basic reparation benefits to Hall, we held that the
causal connection requirement is satisfied “if the injury is
40
Id. at 857.
It is noteworthy that Eyler recognizes a
distinction in the construction given to ”arising out of” for
purposes of workers’ compensation law thereby validating the
circuit court’s position that Corken is limited in its
application.
41
Ky. App., 807 S.W.2d 954 (1991).
23
reasonably identifiable with the normal use or maintenance of a
vehicle and is reasonably foreseeable.”42
Acknowledging
the
implications
of
Hall,
the
Board
agrees that “when a policy’s general coverage or insuring clause
uses terms like ‘arising out of’ and ‘based upon,’” we must
liberally construe those terms to see if “virtually any causal
connection exists [so] as to trigger coverage in favor of the
insured.”
Likewise,
the
Board
contends,
when
exclusionary
provisions are at issue we must narrowly construe those terms to
accomplish the same controlling purpose of rendering insurance
effective consistent with the lesson of Eyler.
with
this
logic
and
believe
that
Hall
While we agree
and
Eyler
can
be
reconciled in this manner, our analysis does not end there.
Recently, the Sixth Circuit Court of Appeals applied
Kentucky law in resolving a related issue of first impression.
In
Westfield,
the
Kentucky
Supreme
negligent
hiring
Court
was
called
upon
to
would
decide
the
question
retention
of
Court
and
an
predict
employee
of
how
the
whether
constitutes
a
qualifying “occurrence” in the context of a general liability
policy.43
Upon making the initial determination that the term
“occurrence” was not ambiguous in the subject policy, the Court
42
Id. at 956.
43
Westfield, supra, n. 38, at 508.
24
observed
that
most
policies
exclude
coverage
for
injuries
“expected or intended from the standpoint of the insured.”44
Relevant
that:
they
for
present
purposes,
the
Court
concluded
“When courts deny coverage in negligent hiring cases,
arguably
transform
an
employer’s
negligent
acts
into
intentional acts, dissolving the distinction between negligent
and intentional conduct.”45
To avoid that problem, the Court
looked to the actions of the insured and not the perpetrator of
the intentional act in determining whether the subject policy
afforded
coverage
to
the
employer
for
the
hiring and retention of its employee.46
alleged
negligent
Noting the Kentucky
Supreme Court’s recognition that the term “occurrence” is to be
broadly and liberally construed in favor of providing coverage,
the
Sixth
Circuit
Court
of
Appeals
predicted
that
the
Court
would hold that the employer “is entitled to coverage because
[its] negligent hiring and retention of the employee constitutes
an ‘accident,’ and therefore, an ‘occurrence’ under the plain
meaning of the governing policy.”47
Westfield
strengthens
44
Id. at 509.
46
Id. at 510.
47
position
Id.
45
the
Id.
25
While not determinative,
of
the
Board
and
is
consistent with both Kentucky case law and foreign jurisprudence
which
parallels that of Kentucky in the realm of insurance law.
As
previously
recognized,
other
jurisdictions
have
directly addressed the issue presented with conflicting results.
In our estimation, District of Pittsburgh not only represents
the sounder view but is a logical extension of both James Graham
Brown and Westfield.
behalf
of
a
minor
In that case, a complaint was filed on
student
alleging,
in
relevant
part,
that
various enumerated shortcomings of the Board enabled an officer
of a school’s parent-teacher organization to sexually molest the
student in violation of the student’s civil rights.48
When the
Board informed its insurer, National Union, of the allegations
and
requested
that
National
Union
provide
a
defense
on
its
behalf, National Union disclaimed coverage and refused to defend
the Board, citing the following exclusions:
The policy does not apply:
to any claim involving allegations of . . .
criminal acts . . .
to any claims arising out of . . . (3)
battery . . .
48
District of Pittsburgh, supra, n. 18, at 911.
26
assault or
to any claim arising out of bodily injury to . . . any
person . . . .49
After
construction,
setting
the
court
forth
general
observed
that
principles
an
of
“insurer’s
policy
duty
to
defend is distinct from, and broader than, its duty to indemnify
an insured.”50
Consistent with James Graham Brown, the Court
also clarified that “an insurer is not obligated to defend all
claims against its insured; its duty is determined by the nature
of
the
allegations
in
the
underlying
complaint.”51
More
precisely, if the underlying complaint alleges facts which, if
true, would actually or potentially bring the claims within the
49
Id. at 912.
Under the policy, National Union agreed to
provide coverage for “Any Wrongful Act (as herein defined) . .
.” and to “defend any action or suit brought against the Insured
alleging a Wrongful Act, even if such action or suit is
groundless, false or fraudulent.”
Id. at 913.
Significantly,
the “Defense, Investigation and Settlement of Claims” section of
the policy issued by KSBIT contains identical language:
As respects such coverage as
Coverage Document, the Trust shall:
is
afforded
by
this
a.
Have the right and duty to select counsel and to
defend any suits against the Members seeking damages for
Loss, even if any of the allegations are groundless, false
or fraudulent. (Emphasis supplied).
50
Id. at 913 (citation omitted).
51
Id.
27
policy coverage, the insurer must defend its insured.52
Such is
the case here.
As emphasized by the Court:
“An insurer who refuses
to defend its insured from the outset [as KSBIT did] does so at
its peril, because the duty to defend remains with the insurer
until it is clear the claim has been narrowed to one beyond the
terms of the policy.”53
Further, an insurer who disclaims its
duty to defend based on a policy exclusion “bears the burden of
proving the applicability of the exclusion.”54
KSBIT has failed
to meet that burden here.
Just as KSBIT does in the instant case, National Union
argued
that
injury
cannot
negligence
allegations
in
be
separated
failing
personal injury.55
of
to
assault
from
prevent
and
battery
underlying
the
assault
and
personal
allegations
of
and
or
battery
Upon determining that the allegations were
clearly “wrongful acts” under the policy, the court examined the
allegations set forth in the complaint.
included
allegations
of
negligence
and
Since the complaint
the
policy
did
not
expressly exclude coverage for claims of negligent supervision,
control or hiring, or for civil rights violations, the Court
52
Id.
53
Id.(Citation omitted).
54
Id.
55
Id.
28
reasoned
there
was
“a
legitimate
prospect
that
negligence,
rather than intentional assault or battery caused the injury.”56
Therefore, the exclusion did not excuse the insurer’s duty to
defend, and the Court declined to “supply exclusionary terms
neither bargained for nor agreed to by the parties,” as do we.57
With
respect
to
the
exclusion
regarding
“criminal
acts,” the Court concluded that the “criminality alleged is one
party removed from the insured; it is not alleged the claim
involved
criminality
by
the
insured
[Board]
itself.”58
In
rejecting National Union’s position that the claim against the
Board “involve[d]” criminal acts because its negligence allowed
the officer’s criminal acts to occur and the student suffered
thereby, the Court demonstrated the flaw in this reasoning:
Thus
the
insurer,
to
avail
itself
of
this
exclusion, would interpret the policy to mean “We will
defend you against claims of your own negligence, and
claims your negligence allowed others to cause injury
negligently,
but
if
by
reason
of
that
identical
negligence any other person acts criminally, you’re on
your own.”59
56
Id. at 914.
57
Id.
58
Id. at 915.
59
Id.
29
Although the exclusions in question do not refer to
“criminal acts,” we find this reasoning equally applicable to
assault
and
battery
and
bodily
injury.
Of
particular
significance here, the Court went on to reject the construction
of “arising out of” proposed by National Union in relation to
the assault and battery exclusion and bodily injury exclusion:
The
pleadings,
injuries
to
which
arise,
we
are
according
the
from
restricted,
to
the
[Board’s] negligent acts and omissions; the omissions
and negligence (the “claim”) did not arise from the
molestation.
That is, [Davis’s] acts “arose out of”
the failings of [the Board], not the other way around.
The
complaint
tending
of
[Davis’s]
of
the
[Moore]
garden
misconduct
challenged
from
grew,
which
but
it
latter which arose from the former.
the
the
is
improper
weeds
clearly
of
the
The weeds give
proof of the bad gardening, but the claim, the ability
to hold the gardener responsible, arises from the acts
and omissions of the gardener, not the mere presence
of the weeds.
Likewise, [Davis’s] acts alone do not
create or give rise to a claim against appellants;
that
claim
cannot
stand
30
on
allegations
of
assault
alone.
It
arises,
if
at
all,
from
other
facts,
grounded in negligence.60
Because we find this reasoning dispositive, the same
outcome must follow.
As observed by the Court, however, recent
cases in other jurisdictions have involved errors and omissions
policies61
question
with
with
exclusionary
opposite
language
results,
a
paralleling
review
of
that
which
in
further
validates the reasoning we have adopted.
Just
as
KSBIT
does
here,
National
Union
cited
Winnacunnet Cooperative School Dist. v. National Union Fire Ins.
Co.62 in support of its position.
In Winnacunnet, three high
school students pled guilty to the murder of the husband of the
school’s media director, Pamela Smart, who had enlisted their
help in planning and executing the murder.63
Despite the fact
that the underlying complaints did not allege such acts, the
U.S. Court of Appeals for the First Circuit held that National
Union had no duty to defend the school district based on the
60
Id. at 916.
61
As explained in Watkins Glen Central School Dist., an
errors and omissions policy is “intended to insure a member of a
designated calling against liability arising out of the mistakes
inherent in the practice of that particular profession or
business” and such policies are common in the field of
education. Supra, n. 21, at 72 (citation omitted).
62
84 F.3d 32 (1st Cir. 1996).
63
Id. at 33.
31
exclusions precluding recovery for claims arising out of assault
and battery and bodily injury or death of “any person.”64
In
reaching that conclusion, the First Circuit Court of Appeals
interpreted the concept embodied in the phrase “arising out of”
as being even more comprehensive than proximate cause and looked
“beyond the conclusory pleadings to determine the applicability
of the disputed exclusions.”65
As noted in District of Pittsburgh, however, the First
Circuit looked well beyond the pleadings in determining that the
exclusions
precluded
coverage
in
Winnacunnet
and,
under
Pennsylvania law, “an insurer’s duty to defend is determined
solely by the allegations of the underlying complaint.”66
Since
the same approach is required under Kentucky law, we agree that
this distinction is critical.
Likewise, we disagree with the
First Circuit’s determination that the negligence arises from
the subsequent crime and share the opposing view espoused in
District of Pittsburgh that when negligence allows a crime to
occur, the claim against the negligent party arises from the
negligence rather than the criminality.67
64
Id. at 38.
65
Id. at 35.
66
Supra, n. 18, at 916.
67
Id. at 917.
32
In contrast to Winnacunnet, the Court in Durham City
Bd.
of
Educ.
concluded
that
the
relevant
exclusion
was
inapplicable based on policy language that, in relevant part,
mirrors that at issue in District of Pittsburgh and here.68
In
that case as in District of Pittsburgh, National Union refused
to defend the school board against allegations of negligence
following
the
rape
of
a
student
by
a
basketball
coach.69
Distinguishing between omnibus clauses in automobile insurance
policies
and
exclusionary
clauses
in
errors
and
omissions
insurance policies, the court concluded that the policy reasons
for interpreting “arising out of” broadly in the former category
of cases is not present in the latter and, thus, employed a
strict construction of the exclusionary language.70
Because
the
allegations
against
the
Board
employees
were “for money damages suffered as a result of their negligent
supervision” and did not “arise out of” an assault and battery
68
Id.
For a discussion of why Texas law dictates a result
contrary to that reached in Durham City Bd. of Educ., see
Canutillo Independent School Dist. v. National Union Fire Ins.
See Amos v. Campbell, 593
Co., 99 F.3d 708 (5th Cir. 1996).
N.W.2d 263 (Minn. App. 1999)(affirming Roloff and Ross, supra,
n. 13) for a discussion of why both District of Pittsburgh and
Durham City Bd. of Educ. are “distinguishable and unpersuasive”
under Minnesota law.
Id. at 268.
In Amos, the Court
acknowledges that the duty of the insurer to defend could have
been triggered by the facts of the case but only the more narrow
duty to indemnify was at issue. Id.
69
Durham City Bd. of Educ., supra, n. 21, at 155.
70
Id. at 161.
33
or
bodily
injury,
the
Court,
like
the
Court
in
District
of
Pittsburgh, held that the exclusionary language did not preclude
coverage
for
the
Board.71
We
agree
with
the
District
of
Pittsburgh court that this reasoning is more persuasive than the
Winnacunnet decision.
Although an assault and battery allegedly
occurred, it was not the act of the Board.
“To deny the [Board]
a defense against claims that do not allege excluded conduct by
the [Board] would be intolerable.”72
The
purpose
of
an
errors
and
omissions
policy is to protect an insured who commits an act of
professional negligence.
If an act of professional
negligence causes actionable damage to another, but []
the insured’s right to protection depends not on the
nature of the act but rather on the nature of the
resulting damage, we believe that the stated policy
objective would be substantially nullified.73
Consistent with the foregoing, we conclude that the
negligence
and
civil
rights
claims
brought
by
Moore
“arise out of” an assault and battery or bodily injury.
71
Id.
72
District of Pittsburgh, supra, n. 18, at 917.
73
Id. (Citation omitted).
For
34
did
not
Because
the
alleged
liability
of
the
Board
is
predicated
upon
its
conceptually independent negligent supervision, application of
the subject exclusions would “effectively eviscerate the errors
and
omissions
policy
altogether”74
contrary
to
Kentucky
law.
Accordingly, the judgment declaring that KSBIT has a duty to
defend the Board in the underlying action under the terms of the
governing policy is affirmed.
EMBERTON, Chief Judge, CONCURS.
McANULTY, Judge, DISSENTS by separate opinion.
McANULTY, Judge, DISSENTING: Respectfully, I dissent.
I
believe the plain language of the policy is not ambiguous and
that neither coverage nor indemnification is required.
In my
opinion, the reliance by the trial court and the majority on the
allegation of negligent hiring creating both the duty to defend
and the duty to indemnify is misplaced.
If that is true, a
clear exclusion may be eviscerated by pleading a theory of
coverage that allows coverage when not contracted for by these
sophisticated parties.
See Winnacunnet Co-op. School Dist. v.
National Union Fire Ins. Co. of Pittsburgh, Pa., 84 F.3d 32, 35
-36 (1st Cir. 1996) (“While a duty to defend may be found solely
on the facts pleaded in the cause of action, a court may inquire
into the underlying facts ‘to avoid permitting the pleading
74
Watkins Glen Central School Dist., supra, n. 21, at 74.
35
strategies, whims, and vagaries of third party claimants to
control the rights of parties to an insurance contract.’").
In
this case, Dale Moore’s injuries are entirely related to the
sexual relationship between Moore and Patricia Davis, such
injuries being excluded from coverage under the coverage
document.
Apparently, the coverage at issue would have been
available under a general liability policy, however the WCBE did
not obtain that coverage from KSBIT.
Because I believe the
trial court’s decision materially altered the bargain between
WCBE and KSBIT, I would reverse the ruling below with
instructions to enter judgment in favor of KSBIT.
BRIEF AND ORAL ARGUMENT
FOR APPELLANT:
BRIEF AND ORAL ARGUMENT
FOR APPELLEE:
Robert E. Stopher
BOEHL STOPHER & GRAVES, LLP
Louisville, Kentucky
Kevin G. Henry
STURGILL, TURNER, BARKER &
MOLONEY, PLLC
Lexington, Kentucky
ON BRIEF:
ON BRIEF:
Robert D. Bobrow
BOEHL STOPHER & GRAVES, LLP
Louisville, Kentucky
Patricia T. Bausch
Joshua M. Salsburey
STURGILL, TURNER, BARKER &
MOLONEY, PLLC
Lexington, Kentucky
36
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