University of Louisville v. Kentucky School Boards Insurance Trust ( 2022 )

RENDERED: AUGUST 19, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-1066-MR
UNIVERSITY OF LOUISVILLE APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 21-CI-00009
KENTUCKY SCHOOL BOARDS
INSURANCE TRUST AND CYRIL
WILLIAM HELM APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: DIXON, LAMBERT, AND MCNEILL, JUDGES.
LAMBERT, JUDGE: University of Louisville (the University) has appealed from
the August 16, 2021, summary judgment of the Franklin Circuit Court in favor of
Kentucky School Boards Insurance Trust (KSBIT) regarding KSBIT’s duty to
provide a defense and indemnification in a separate circuit court case pursuant to a
policy of insurance. We affirm.
KSBIT is a domestic insurer that was created in 1978 to provide
liability coverage to educational entities via a non-profit self-insurance pool of
funds. KSBIT went into rehabilitation under the supervision of the Commissioner
of the Department of Insurance in 2013. In 2006, KSBIT issued a general liability
insurance policy (GL 7/2006 Edition) to the University, which was renewed for
several years. The Coverage B section of the policy addresses coverage for
personal and advertising liability, and Section I(B)(1)(a) provides in relevant part
that “[w]e [KSBIT] will pay those sums that the Member [the University] becomes
legally obligated to pay as damages because of ‘personal injury’ or ‘advertising
injury’ to which this coverage part applies.” In the definitional section of the
policy, Section V(10) defines “personal injury” as:
[I]njury, other than ‘bodily injury,’ arising out of one or
more of the following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful
entry into, or invasion of the right of a
private occupancy of a room, dwelling or
premises that a person occupies by or on
behalf of its owner, landlord or lessor;
d. Oral or written publication of material
that slanders or libels a person or
organization or disparages a person’s or
organization’s goods, products or services;
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e. Oral or written publication of material that
violates a person’s right of privacy; or
f. Mental injury, mental anguish, shock,
humiliation, defamation, and damage to
professional reputation.
A renewed policy was in place from July 1, 2009, through July 1, 2010.
The underlying matter began with the filing of a petition for a
declaratory judgment by KSBIT in the Franklin Circuit Court, Division I, in
January 2021 related to the above policy. In this action, KSBIT sought a
declaration pursuant to Kentucky Revised Statutes (KRS) 418.040 that it did not
have any obligation under the insurance policy to defend or indemnify the
University as a result of a Kentucky Whistleblower Act claim filed by Dr. Cyril
Helm (Helm v. University of Louisville, Jefferson Circuit Court Case No. 15-CI-
01410). Dr. Helm’s dispute with the University began in 2009, after his colleagues
had alleged he had committed plagiarism or other misconduct in his research. Dr.
Helm went on to file several lawsuits against the University and his colleagues
arising from the misconduct allegations and the University’s investigation into
whether he had engaged in misconduct, including the one noted above.
As to the subject lawsuit, Dr. Helm alleged that he had suffered a
personal injury, and KSBIT provided a defense to the University subject to a
reservation of rights. In his fourth amended complaint, Dr. Helm pled a Kentucky
Whistleblower Act claim for which he alleged damages, including substantial
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losses in earnings, job experience, and benefits; damage to his academic
reputation; and emotional and physical stress. He sought compensatory and
punitive damages as well as costs and attorney fees. On September 18, 2018, the
Jefferson Circuit Court ruled that Dr. Helm could not recover damages for mental
anguish/pain and suffering, front pay, or from having to sell his house in a certain
market. It also dismissed Dr. Helm’s claim for punitive damages. The only
remaining claims were for back pay and attorney fees. Because Dr. Helm’s claims
for back pay and attorney fees did not arise from a personal injury as defined in the
policy, KSBIT alleged in the declaratory action that there was no longer any
factual or legal basis under the policy requiring it to defend or indemnify the
University in Dr. Helm’s underlying suit. Therefore, KSBIT sought a declaration
of rights that it did not have an obligation to further defend or indemnify the
University for the claims Dr. Helm asserted in his underlying action.
In its response to the petition for declaratory judgment, the University
disputed KSBIT’s allegations and pled several affirmative defenses, including the
failure to state a cause of action against it or to name indispensable parties. It
sought dismissal of the petition. In a separate response, Dr. Helm also defended
against the petition.
In April 2021, KSBIT filed a motion for summary judgment, arguing
that there were no disputed issues of material fact to resolve and that it was entitled
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to a judgment as a matter of law. In the memorandum in support of the motion,
KSBIT argued that the damages Dr. Helm was legally permitted to recover did not
implicate the policy’s definition of personal injury, meaning that there was no
longer any factual or legal basis for it to provide coverage.
In its response, the University argued that the plain language of the
policy required KSBIT to provide coverage, pointing to the “arising out of”
language in the policy; that summary judgment was premature as it had not had
ample opportunity to complete discovery; and that the order granting summary
judgment by the Jefferson Circuit Court was interlocutory as it was not final and
appealable and was therefore subject to revision.
In reply, KSBIT argued that a Whistleblower action arises out of
retaliation, not slander or libel. Because Dr. Helm’s Whistleblower claim arose
from the non-renewal of his contract, not from slanderous allegations made by
another professor, the insurance policy did not trigger any duty for KSBIT to
defend or indemnify the University. It also argued that there were no factual
disputes and that the interpretation of an insurance contract is a matter of law to be
decided by the court. Therefore, no discovery was necessary to resolve the legal
matter before the court. Finally, KSBIT argued that there was no likelihood that
the Jefferson Circuit Court decision would be reversed on appeal.
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The motion was scheduled to be heard on August 9, 2021. Counsel
for the University appeared in Division I, but no one appeared on behalf of KSBIT.
The court opted to take the matter under submission, with the proviso that it might
call the parties back for oral arguments after it had reviewed the briefs. A few
minutes later in Division II, counsel for KSBIT (but not for the University)
appeared in Division II to address the pending motion for summary judgment,
noting that the matter had been fully briefed. The court indicated that it would take
the matter under submission.
Shortly thereafter, on August 13, 2021, the declaratory judgment
action was sua sponte transferred from Division I to Division II. And on August
16, 2021, the circuit court (in Division II) entered an order granting summary
judgment to KSBIT, rejecting the University’s arguments and holding that KSBIT
was not required to provide a continuing defense to the University. This appeal
now follows.
Our standard of review is set forth in Patton v. Bickford, 529 S.W.3d
717, 723 (Ky. 2016):
Summary judgment is a remedy to be used
sparingly, i.e. “when, as a matter of law, it appears that it
would be impossible for the respondent to produce
evidence at the trial warranting a judgment in his favor
and against the movant.” Shelton v. Kentucky Easter
Seals Society, Inc., 413 S.W.3d 901, 905 (Ky. 2013)
(citations omitted). We frequently caution, however, the
term “impossible” is to be used in a practical sense, not
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in an absolute sense. See id. (citing Perkins v.
Hausladen, 828 S.W.2d 652, 654 (Ky. 1992)). The trial
court’s primary directive in this context is to determine
whether a genuine issue of material fact exists; if so,
summary judgment is improper, Steelvest, Inc. v.
Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky.
1991). This requires that the facts be viewed through a
lens most favorable to the party opposing summary
judgment, here the Estate. Id. It is important to point out
that “a party opposing a properly supported summary
judgment motion cannot defeat it without presenting at
least some affirmative evidence showing that there is a
genuine issue of material fact for trial.” Id. at 482.
A motion for summary judgment presents only
questions of law and “a determination of whether a
disputed material issue of fact exists.” Shelton, 413
S.W.3d at 905. Our review is de novo, and we afford no
deference to the trial court’s decision.
As KSBIT states, there are no issues of material facts to decide. Therefore, we
shall review the circuit court’s decision de novo.
We shall first address the University’s argument that summary
judgment was premature as it had not had the opportunity to complete discovery.
The circuit court rejected this argument because the issue before it only involved
the interpretation of an insurance contract, and there were no factual disputes to
decide. In addition, the University failed to provide any information about what
discovery it intended to obtain.
In its brief, the University cites to Suter v. Mazyck, 226 S.W.3d 837,
841 (Ky. App. 2007), to argue that summary judgment “is proper only after the
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party opposing the motion has been given ample opportunity to complete discovery
and then fails to offer controverting evidence.” And the University states that it
provided controverting evidence from the Jefferson Circuit Court case
demonstrating that KSBIT was not entitled to summary judgment. However, we
agree with KSBIT that the issue before the circuit court in the present case
addressed the interpretation of contractual language, which is a matter of law to be
decided by a court. See Stone v. Kentucky Farm Bureau Mut. Ins. Co., 34 S.W.3d
809, 810 (Ky. App. 2000) (“As a general rule, interpretation of an insurance
contract is a matter of law for the court.”).
The University also argues that it was not provided with the
opportunity to orally argue its position before the circuit court or request a hearing.
While the circumstances were certainly strange, with counsel for the parties
originally appearing before different divisions, the University did not move the
circuit court to hear oral arguments once the matter was transferred to Division II,
nor did it seek reconsideration once the summary judgment was granted. As this
issue was not raised below, we shall not consider it on appeal.
It has long been this Court’s view that
specific grounds not raised before the trial
court, but raised for the first time on appeal
will not support a favorable ruling on
appeal. Most simply put, “[a] new theory of
error cannot be raised for the first time on
appeal.” Springer v. Commonwealth, 998
S.W.2d 439, 446 (Ky. 1999) (discussing
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specifically a directed verdict issue); see,
e.g., Harrison v. Leach, 323 S.W.3d 702,
708-09 (Ky. 2010); Ten Broeck Dupont, Inc.
v. Brooks, 283 S.W.3d 705, 734 (Ky. 2009)
(“More importantly, this precise argument
was never made in the trial court. An
appellate court ‘is without authority to
review issues not raised in or decided by the
trial court.’”) (quoting Regional Jail
Authority v. Tackett, 770 S.W.2d 225, 228
(Ky. 1989)); Combs v. Knott County Fiscal
Court, 283 Ky. 456, 141 S.W.2d 859, 860
(1940) (“[A]ppellant is precluded from
raising that question on appeal because it
was not raised or relied upon in the court
below. It is an unvarying rule that a
question not raised or adjudicated in the
court below cannot be considered when
raised for the first time in this court.”).
Fischer v. Fischer, 348 S.W.3d 582, 588 (Ky. 2011)
[abrogated on other grounds by Nami Resources
Company, LLC v. Asher Land and Mineral, Ltd., 554
S.W.3d 323 (Ky. 2018)]. “The appellate court reviews
for errors, and a nonruling is not reviewable when the
issue has not been presented to the trial court for
decision.” Turner v. Commonwealth, 460 S.W.2d 345,
346 (Ky. 1970); see also Hatton v. Commonwealth, 409
S.W.2d 818, 819-20 (Ky. 1966). “[I]t is the accepted rule
that a question of law which is not presented to or passed
upon by the trial court cannot be raised here for the first
time.” Hutchings v. Louisville Trust Co., 276 S.W.2d
461, 466 (Ky. 1955); Benefit Ass’n of Ry. Employees v.
Secrest, 239 Ky. 400, 39 S.W.2d 682, 687 (1931). “The
underlying principle of the rule is to afford an
opportunity to the trial court, before or during the trial or
hearing, to rule upon the question raised.” Hartsock v.
Commonwealth, 382 S.W.2d 861, 864 (Ky. 1964).
Jones v. Livesay, 551 S.W.3d 47, 52 (Ky. App. 2018).
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Accordingly, we hold that the circuit court’s summary judgment in
favor of KSBIT was not prematurely entered.
Next, we shall consider the University’s main argument that it was
entitled to coverage under the policy. In its summary judgment, the circuit court
rejected the University’s argument that the back pay and attorney fees grew out of,
flowed from, or had an incidental relationship with Dr. Helm’s claimed damages.
It agreed with KSBIT that Dr. Helm’s remaining alleged damages did not arise
from the policy’s definition of personal injury based upon the Jefferson Circuit
Court’s September 18, 2018, order and that Dr. Helm’s claim under the Kentucky
Whistleblower Act did not arise from alleged slander but from the non-renewal of
his contract. The court therefore held that under the policy’s definition of personal
injury, KSBIT was not required to continue to provide a defense to the University
against Dr. Helm’s claims.
At the outset, we reject the University’s argument that, with the
proposed interpretation of the policy, KSBIT sought to eliminate a key provision
from the policy and therefore it ran afoul of the prohibition against illusory
coverage. As with its argument above regarding its ability to orally argue the
motion, the University did not first raise this issue before the circuit court.
Therefore, we shall not address this argument as it was not preserved for our
review.
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We shall now consider the University’s remaining coverage argument.
In James Graham Brown Foundation, Inc. v. St. Paul Fire & Marine Insurance
Company, 814 S.W.2d 273, 279 (Ky. 1991), the Supreme Court of Kentucky
recognized:
The proper standard for the analysis of insurance
contracts in Kentucky is a subjective one. Fryman v.
Pilot Life Insurance Company, Ky., 704 S.W.2d 205(1986) holds that terms of insurance contracts 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 of the
prevailing rule that uncertainties and ambiguities must be
resolved in favor of the insured.
See also Motorists Mut. Ins. Co. v. RSJ, Inc., 926 S.W.2d 679, 681 (Ky. App.
1996) (“terms used in insurance contracts ‘should be given their ordinary meaning
as persons with the ordinary and usual understanding would construe them.’ City
of Louisville v. McDonald, Ky. App., 819 S.W.2d 319, 320 (1991).”).
The University contends that it was entitled to coverage based upon
the holding in James Graham Brown Found., supra, that “[t]he insurer has a duty
to defend if there is any allegation which potentially, possibly or might come
within the coverage of the policy.” 814 S.W.2d at 279 (citing O’Bannon v. Aetna
Casualty and Surety Company, 678 S.W.2d 390 (Ky. 1984)). “The duty to defend
continues to the point of establishing that liability upon which plaintiff was relying
was in fact not covered by the policy and not merely that it might not be.” James
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Graham Brown Found., 814 S.W.2d at 279 (citing 7C JOHN APPLEMAN & JEAN
APPLEMAN, Insurance Law and Practice § 4683.01 at 69 (Berdal Ed. 1979)).
The University argues that the phrase “arising out of” in the policy is
expansive enough to encompass the assertion that the alleged slander and
disparagement did not have to be the sole or proximate cause of Dr. Helm’s
claimed damages to trigger coverage under the policy; those actions merely had to
have an incidental relationship or connection to do so. As stated above, Section
V(10) defines “personal injury” in relevant part as:
[I]njury, other than ‘bodily injury,’ arising out of one or
more of the following offenses:
...
d. Oral or written publication of material
that slanders or libels a person or
organization or disparages a person’s or
organization’s goods, products or services;
...
f. Mental injury, mental anguish, shock,
humiliation, defamation, and damage to
professional reputation.
Because the retaliatory employment actions of which Dr. Helm complained arose
from the publication and dissemination of allegedly slanderous and disparaging
material and information, the University asserts that KSBIT continues to owe
coverage to it.
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On the other hand, KSBIT cites to Kentucky Association of Counties
All Lines Fund Trust v. McClendon, 157 S.W.3d 626, 635 (Ky. 2005), for this
statement of the law: “In Kentucky, an insurer has a duty to defend if there is an
allegation which might come within the coverage terms of the insurance policy, but
this duty ends once the insurer establishes that the liability is in fact not covered by
the policy.” Once the Jefferson Circuit Court ruled that Dr. Helm was not able to
recover damages for mental anguish, pain and suffering, front pay, or having to sell
his house in a certain market, he was only able to recover damages for six months
of back pay and attorney fees. These items of damages, KSBIT argues, are not
covered under the policy.
We agree with KSBIT that its duty to provide coverage ended once
the Jefferson Circuit Court ruled that Dr. Helm’s damages were limited to back pay
and attorney fees. These items of damages do not represent the type that would
arise from mental injury, mental anguish, shock, humiliation, defamation, and
damages to a professional reputation, as personal injury is defined in the policy.
And we agree with KSBIT’s citation to Mo-Jack Distributor, LLC v.
Tamarak Snacks, LLC, 476 S.W.3d 900, 906 (Ky. App. 2015), that the policy does
not cover Dr. Helm’s claim for attorney fees, as the policy only covers damages:
Not only are attorney fees typically not
recoverable, but Kentucky has taken the view that
attorney fees are not compensatory damages.
“Compensatory damages are designed to equal the wrong
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done by the defendant.” Gibson v. Kentucky Farm
Mutual Insurance Company, 328 S.W.3d 195, 204 (Ky.
App. 2010) (quoting Jackson v. Tullar, 285 S.W.3d 290,
297-98 (Ky. App. 2007)). Attorney fees are not
compensatory damages because any award “does not
compensate the plaintiff for any wrong done by the
defendant.” Id.The Court went on to explain:
[A]ttorney fees in this Commonwealth are not
compensatory in nature. Because the exception is
grounded in equity, the issue of whether attorney fees are
recoverable is one exclusively within the discretion of the
trial court and not properly submitted to the jury as an
element of compensatory damages. Unless agreed to by
the parties, equitable issues are not triable by juries.
Smith[] v. Bear, Inc., 419 S.W.3d 49, 58 (Ky. App.
2013). Even if permitted, unless otherwise directed by
statute, whether attorney fees are available and the
amount of such fee “is the responsibility of the trial court,
and not the jury[.]” Gibson, 328 S.W.3d at 204.
The existing precedent is clear that absent statutory
authority, attorney fees incurred to either bring or defend
an action cannot be submitted to a jury as an item of
compensatory damages.
Id. at 906.
In addition, KSBIT disputes the University’s argument that Dr.
Helm’s claim arose from the plagiarism allegations made by his colleague, as his
claim under the Kentucky Whistleblower Act arose from retaliation resulting in the
non-renewal of his contract. For the reasons set forth in KSBIT’s brief, we agree
that because Dr. Helm’s claim arose from retaliation, not from allegedly slanderous
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or libelous materials, paragraph (d) of the policy’s definition of personal injury
does not trigger any duty on KSBIT’s part to defend or indemnify the University.
Therefore, we hold that the circuit court did not err as a matter of law
in concluding that KSBIT was not required to continue to provide coverage based
upon the policy’s definition of personal injury.
Finally, the University argues that because the Jefferson Circuit
Court’s order was interlocutory and subject to revision, KSBIT’s duty to defend
continued. The University relies upon the former Kentucky Court of Appeals’
opinion in Ursprung v. Safeco Insurance Company of America, 497 S.W.2d 726,
730-31 (Ky. 1973), in which the Court stated, “the contractual obligation to defend
carries with it an obligation to prosecute an appeal from a judgment against an
insured where there are reasonable grounds for appeal.” Therefore, it asserts that
only after the appellate process had been completed (or waived) could that order
become final and act as a bar to coverage.
We disagree and hold that the circuit court properly relied upon the
holding in McClendon, supra, that “an insurer has a duty to defend if there is an
allegation which might come within the coverage terms of the insurance policy, but
this duty ends once the insurer establishes that the liability is in fact not covered by
the policy.” 157 S.W.3d at 635. As KSBIT argued, the decision in Ursprung
involved an established duty to defend, which would require an insurer to
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prosecute an appeal on behalf of its insured if the insured lost at the trial court
level. Here, on the other hand, KSBIT’s coverage was in dispute, and the Jefferson
Circuit Court held that Dr. Helm could not recover damages for the claim upon
which the duty to defend was premised. The circuit court noted that KSBIT had
provided a defense in Dr. Helm’s action and won, meaning that there was no need
to prosecute an appeal on the University’s behalf. Based upon the holding in
McClendon, supra, there was no continuing duty for KSBIT to provide coverage to
the University in Dr. Helm’s action.
For the foregoing reasons, the summary judgment of the Franklin
Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE
KENTUCKY SCHOOL BOARDS
Susan D. Phillips INSURANCE TRUST:
Patricia C. Le Meur
William O. Orberson Jeffrey C. Mando
Louisville, Kentucky Jennifer L. Langen
Covington, Kentucky
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