Kentucky Farm Bureau Mutual Insurance Company v. William N. Walters ( 2022 )

RENDERED: DECEMBER 2, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-0976-MR
KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY APPELLANT
APPEAL FROM BOYD CIRCUIT COURT
v. HONORABLE GEORGE W. DAVIS, III, JUDGE
ACTION NO. 15-CI-00328
WILLIAM N. WALTERS AND RYAN
BREWER APPELLEES
OPINION
REVERSING AND
REMANDING
** ** ** ** **
BEFORE: COMBS, MCNEILL, AND K. THOMPSON, JUDGES.
COMBS, JUDGE: This is a declaratory judgment action between an insurance
company and its insured. Kentucky Farm Bureau Mutual Insurance Company
(Kentucky Farm Bureau) appeals from an order of the Boyd Circuit Court. The
circuit court concluded that the terms of a commercial general liability (CGL)
policy issued to William Walters required Kentucky Farm Bureau to defend a civil
action against him and to pay damages caused by a landslide (or landslip) on
property that Walters had graded and prepared as a building lot. After our review,
we reverse and remand.
This appeal marks the parties’ third appearance before this Court.
Once again, we set forth the relevant facts and procedural history of the dispute
expanding upon our earlier recitations as time and subsequent events have made
necessary.
Walters operates an excavation business. In September 2000, he
purchased property in Catlettsburg. He built a road through the property and sold
the standing timber. According to Walters, he undertook various erosion control
measures while the timber was being harvested. Once the timber was removed,
Walters graded the property and otherwise prepared it for development. He
subdivided the acreage into 40 residential lots and named it Mountain View
Estates.
During the development process, Walters was cited for his failure to
prevent erosion which was washing away large amounts of sediment.
Furthermore, an inspection report prepared by Kentucky’s Environmental and
Public Protection Cabinet indicated specifically that “several acres of slopes show
severe erosion because they have not been stabilized.”
-2-
Ryan Brewer became interested in building a home in Mountain View
Estates in August 2014. He and his parents met with Walters and Walters’s realtor
at the development in September 2014. In his deposition, Brewer explained that he
saw an excavator at the property and it was obvious that Lot 52 and Lot 54 had
been recently excavated; he asked Walters if there was any reason to be concerned
about building on either of the lots. According to Brewer, Walters explained that a
portion of Lot 54 had slipped down the hill and that he (Walters) had undertaken
steps to restabilize the ground. Lot 52 had been partially excavated to “tie
everything back in.” (At his deposition, Walters remembered that he had also
excavated in order to repair a sewer-line leak on Lot 50, which he did not consider
an attempt to restabilize the ground following a landslip.)
Approximately one week later, because he felt that Lot 52 had a better
view, Brewer contracted to purchase it. Brewer decided to forego his right to have
the property inspected “because as the developer of the lot, I thought [Walters]
would have been the professional to talk to. He was the one to know everything
about it.” While no soil stabilization test had ever been conducted, Brewer stated
that his conversations with the realtor and Walters persuaded him that the property
was suitable for building. The transaction closed on November 13, 2014.
-3-
After he purchased the property, Brewer decided upon a house plan
that he found online, and he visited Lot 52 with his builder, Millard Chaffins.
Chaffins began construction of the home in February 2015.
Walters was hired by Chaffins to dig the footings according to
dimensions supplied by Chaffins. Walters excavated the footings to bedrock,
completing his work. Construction was then interrupted by severe winter weather.
Then, in March 2015, the land slipped about three feet beyond the edge of the
footing. The slip was nearest the slope at the rear of the property. In his
deposition, Brewer stated that it was his understanding that the slip began at Lot 54
and migrated to his Lot 52.
In April 2015, Brewer’s attorney corresponded with Walters advising
him of the slip at Lot 52. Counsel alleged that Walters had represented to Brewer
that the property was suitable for home construction and claimed that excavation
work performed by Walters led to the landslip. Brewer hired soil engineers with
Alternative Building Concepts to study the problem. The company suggested that
piers be constructed to stabilize the foundation of the house. Another geotechnical
engineering firm was hired in May 2015 to study the foundation. That firm
concluded that the foundation had not been impacted by the slip and that the
structure was at a low risk of being adversely affected in the future.
-4-
On April 28, 2015, Brewer filed his complaint against Walters in
Boyd Circuit Court. It included eleven causes of action alleging variously that
Walters was: negligent and grossly negligent in his excavation and development
of Lot 52; that he was negligent and grossly negligent in failing to disclose
conditions that he knew or reasonably should have known made Lot 52 unsuitable
for construction; and that he was negligent per se with respect to the excavations
undertaken at Mountain View Estates. The complaint also alleged fraud, negligent
misrepresentation, unjust enrichment, breach of contract, and finally, breach of the
covenant of good faith and fair dealing.
At the time the claim was made, Walters (doing business as William
Walters Heavy Equipment) had two insurance policies with Kentucky Farm
Bureau -- a farm-owner policy and the CGL policy. The policies provide that
Kentucky Farm Bureau will pay sums that the insured becomes legally obligated to
pay as damages because of property damage but only where the property damage is
caused by an “occurrence.” “Occurrence” is defined by the policies as “an
accident.”
After Walters notified Kentucky Farm Bureau of Brewer’s claim,
Kentucky Farm Bureau sent Walters correspondence informing him that it was
reserving its right to deny coverage because of the delay in reporting the loss and
because the claims might not be covered by the policy. Nevertheless, Kentucky
-5-
Farm Bureau employed counsel to represent Walters in the civil action against him.
Walters answered and denied the allegations made by Brewer.
In May 2015, Walters filed a third-party complaint against Chaffins,
the home builder. Walters alleged that the slip at Lot 52 had occurred as a result of
the delay in construction once the footings had been excavated. Additionally, he
alleged that Chaffins’s decision to place a footing beyond the slope of the lot
contributed to the slip. As an alternative, Walters alleged that the combined
negligence of Brewer, Chaffins, and him (Walters) caused the “accident” and the
damages claimed by Brewer. Construction of the house was completed in late-
summer of 2015.
Discovery and pre-trial litigation continued. Throughout the
litigation, Walters continued to be represented by counsel employed on his behalf
by Kentucky Farm Bureau.
At his deposition in June 2016, Walters explained that a small slip had
appeared at Lot 52 three or four months before Brewer purchased it. Walters
repaired it and “had it fixed perfect, and grass coming up.” He denied talking with
Brewer about any slip before Brewer purchased the lot because, as he stated,
“[n]obody asked me.” He believed that his realtor was aware of the slip at Lot 52
and felt sure that the excavation and attempt to re-stabilize the land was obvious to
everyone who viewed the property. According to Walters, “there was nothing
-6-
wrong with [Lot 52] . . . there wasn’t no cracks, there wasn’t nothing. There
wasn’t a crack in that hill until they stuck the footer over the hill and it filled full of
water.”
Additionally, Walters felt that the dwelling’s footprint was too large
for Lot 52, but “[he] wasn’t hired to build that house.” He alleged that Chaffins
was in a rush to get the footing excavated and the foundation prepared so that he
[Chaffins] could take a draw from Brewer’s loan. He attributed the slip to
Chaffins’s decisions -- “If Mr. Chaffins hadn’t dug the footer and walked off and
left it, [Lot 52] would have been fine. You can’t dig a nine-foot footer 50 foot
long, fill it full of nine feet of water, come freezing rain, it lay up there for six
weeks, and not expect the hill below it not to slip.”
On August 4, 2017, Kentucky Farm Bureau filed an intervening
petition for declaratory judgment concerning the coverage offered by its policies.
Walters filed an answer to the petition, requesting the court to declare that the
terms of the policy afforded him coverage for the claims asserted against him by
Brewer. Kentucky Farm Bureau filed a motion for summary judgment. By its
order entered April 20, 2018, the circuit court declared that Kentucky Farm Bureau
was estopped to deny coverage under its policies because of its delay in pursuing
the issue. The first appeal to this Court followed.
-7-
By our opinion rendered February 21, 2020, in Kentucky Farm
Bureau Mutual Insurance Company v. Brewer, 596 S.W.3d 620 (Ky. App. 2020),
the order of the Boyd Circuit Court was reversed. We concluded that the mere
passage of time between Kentucky Farm Bureau’s correspondence to Walters
reserving its rights and the declaratory judgment proceedings was insufficient to
preclude it from contesting coverage. Id. We held that the court erred by failing to
consider whether Kentucky Farm Bureau ever misrepresented to Walters that it
was no longer defending under a reservation of rights and whether Walters was
prejudiced by Kentucky Farm Bureau’s failure to assert its no-coverage position
earlier. Id. Consequently, we remanded for these factual findings. We expressly
declined to decide whether the Kentucky Farm Bureau policies afford coverage for
Brewer’s claims.
On remand, Kentucky Farm Bureau argued: 1) that it was not
estopped from pursuing the coverage issue because it had never misrepresented its
position concerning its reservation of rights; and 2) that Walters had not been
prejudiced by the timing of its decision to dispute coverage. Moreover, it
contended that neither policy issued to Walters provided coverage for the claims
asserted against him by Brewer.
In its order entered January 12, 2021, the circuit court concluded that
liability attributable to Walters’s alleged acts of intentional conduct and grossly
-8-
negligent conduct “would not be covered under the [CGL] Policy[.]” However, it
concluded that “alleged acts of negligent conduct, . . . if found [to be] true by the
trier of fact, would constitute an ‘occurrence’” under Kentucky Farm Bureau’s
CGL policy and that Walters would, in that event, be entitled to liability coverage.
The circuit court’s order did not reference the estoppel issue addressed by our
opinion reversing and remanding. Nor did it specifically reference the terms of the
farm owner policy issued to Walters by Kentucky Farm Bureau.
Kentucky Farm Bureau filed its notice of appeal. Walters did not
cross-appeal the circuit court’s judgment with respect to coverage of the damages
allegedly caused either by his acts of intentional conduct or grossly negligent
conduct.
By our order entered on June 17, 2021, we dismissed the second
appeal. While the circuit court had designated its order as final and appealable, the
order did not recite that “there is no just cause for delay.” On that basis, a motion
panel of the Court concluded that we lacked jurisdiction to consider the appeal.
CR1 54.02. On August 6, 2021, the circuit court revised its order to indicate that it
had made the omitted determination and that there was, in fact, no just cause for
delay. This third appeal followed. Again, Walters did not cross-appeal.
1
Kentucky Rules of Civil Procedure.
-9-
On appeal, Kentucky Farm Bureau argues that no cause of action
asserted by Brewer against Walters could trigger the liability coverage afforded by
its policies. We agree that the circuit court erred by concluding that Walters could
be entitled to coverage under the terms of the CGL policy.
A party seeking a declaratory judgment may move (with or without
supporting affidavits) for a summary judgment in his favor. Foreman v. Auto Club
Property-Casualty Insurance Company, 617 S.W.3d 345 (Ky. 2021). Upon our
review, we determine whether the record supports the trial court’s conclusion that
there is “no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” CR 56.03. Because the interpretation of
insurance contracts is a matter of law, our review is de novo. Foreman, supra.
Where provisions of an insurance contract are unambiguous and reasonable, they
are enforced as written. Id.
By their terms, Walters’s policies cover his liability for property
damage caused only by an accident. Kentucky Farm Bureau argues that the
allegations upon which Brewer relies -- referring to Walters’s negligence and other
wrongful conduct in preparing Lot 52 for sale -- were not an accidental cause of
the alleged property damage. The Supreme Court of Kentucky has analyzed
identical policy language under similar facts. It has held, as a matter of law, that
coverage is not triggered under these CGL policy provisions where an insured had
-10-
control over the disputed event -- even if he did not intend to cause the resulting
damage. The disputed event in this case is Walters’s preparation of the ground at
Mountain View Estates.
In Bituminous Casualty Corporation v. Kenway Contracting, Inc., 240
S.W.3d 633 (Ky. 2007), an employee of a construction company was sent to
demolish a carport. He misunderstood the scope of the project and, instead, he tore
down much of an adjoining structure. The Kentucky Supreme Court held that even
though the employee intentionally undertook demolition, the construction company
never intended to destroy anything but the carport. This event was characterized as
an accident that triggered coverage under the terms of the policy.
In Cincinnati Insurance Company v. Motorists Mutual Insurance
Company, 306 S.W.3d 69 (Ky. 2010), the Court considered whether faulty
construction undertaken at a home constituted an accident covered by the builder’s
CGL policy. The Court refined its analysis. It noted that the term “accident” had
not acquired a technical meaning in the law and had to be interpreted according to
its ordinary meaning. Id. at 74. “Inherent in the plain meaning of ‘accident’ is the
doctrine of fortuity.” Id. Examining the facts as alleged by the plaintiff, the Court
concluded that the disputed construction -- even where it ultimately proved faulty -
- had been undertaken in accordance with the builder’s plan and intention and
“[did] not involve the fortuity required to constitute an accident.” Id. at 80
-11-
(citation omitted). The builder had intended to undertake the construction just as
he saw fit and the resulting property damage was not the result of chance or
fortuity. The builder retained full control over the operation with no intervening
accidental occurrence.
In Martin/Elias Properties, LLC v. Acuity, 544 S.W.3d 639 (Ky.
2018), the Supreme Court of Kentucky again applied the concept of fortuity.
Where a subcontractor undertaking renovations in a basement rendered the entire
house unstable, the Court observed that the subcontractor had exercised control of
his work even though it ultimately proved faulty. The Court concluded that the
property damage was not caused by an accident but rather was an unintended
consequence of the subcontractor’s poor workmanship. Coverage for an accident
is available to protect the insured only where the insured did not intend the event or
result to occur, and the result was a chance event beyond anyone’s control. Under
these circumstances, the Court held that the subcontractor’s liability coverage had
not been triggered.
In the case before us, Walters’s allegedly improper preparation of the
building site was not an “accident” because Walters was in control of the grading
and other preparation of the development. That he might have undertaken his
work negligently -- with natural and foreseeable consequences -- does not
transform the landslip into an accident. The undisputed evidence indicates that
-12-
Walters was aware of the soil conditions at Mountain View Estates. He had been
cited for his failure to prevent erosion from washing away large amounts of
sediment; he had also been made aware by environmental officials that the slopes
had become severely eroded because he failed to take necessary steps to stabilize
them. By his own admission, Walters had become aware of the instability of Lot
52 before he sold it to Brewer and had tried again to prevent it from slipping.
In light of these undisputed facts, Walters could not deny that damage
to the property resulting from his grading and soil preparation -- if undertaken
negligently -- was reasonably to be anticipated. Landslips under these conditions
are not unusual or unexpected. Therefore, under these specific circumstances, the
landslip, if it were caused by Walters’s negligent workmanship, cannot be
characterized as an accident. Consequently, the coverage provisions of the policy
were not triggered.
Based upon the forgoing, the judgment of the Boyd Circuit Court is
reversed and remanded for entry of an order consistent with this Opinion.
THOMPSON, K., JUDGE, CONCURS.
MCNEILL, JUDGE, CONCURS IN RESULT ONLY AND FILES
SEPARATE OPINION.
MCNEILL, JUDGE, CONCURRING IN RESULT ONLY: In consideration of the
majority’s well-written Opinion, I must respectfully concur in result only. There
are two core claims at issue here. First, there is the tort claim arising from
-13-
Walters’s alleged errors in excavating Brewer’s property. Second, there is a
contract claim concerning denial of insurance coverage brought by Kentucky Farm
Bureau.
The only reasoning advanced by the circuit court in denying Kentucky
Farm Bureau’s motion for summary judgment is that “Plaintiff has nonetheless
alleged acts of negligent conduct, which if found true by the trier of fact, would
constitute an ‘occurrence’ under sad [sic] policy.” It therefore appears that the
court erroneously conflated the two claims. The CGL policy covers accidents, not
negligence.
“Generally, the interpretation of a contract, including determining
whether a contract is ambiguous, is a question of law for the courts and is subject
to de novo review.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381,
385 (Ky. App. 2002). See also Martin/Elias Properties, LLC v. Acuity, 544
S.W.3d 639, 641-42 (Ky. 2018) (“Interpretation of a contract is ordinarily a
question of law for a court’s determination.”); Lewis v. Monumental Life Ins. Co.,
No. 2006-CA-000914-MR, 2007 WL 1207153, at *2 (Ky. App. Apr. 20, 2007)
(“The construction and interpretation of an insurance policy is a question of law for
the Court.”); and Foster v. Kentucky Hous. Corp., 850 F. Supp. 558, 560-61 (E.D.
Ky. 1994) (“Since there are no relevant factual disputes, the interpretation and
construction of the insurance policy is a matter of law for the court.”).
-14-
Whether there was an “occurrence” under the policy is most
appropriately a matter of law to be decided in the first instance by the circuit court.
Therefore, I respectfully concur in result only because I believe the circuit court
erred by conflating the two claims, and by concluding that the trier of fact must
determine whether there was an “occurrence” under the CGL policy. I would
reverse the circuit court and remand for the court to enter an order on the
occurrence issue as a matter of law. Upon remand, if the court determines that
there are genuine issues or material of fact that negate a judgment as a matter of
law, then there is of course nothing prohibiting the court from so holding. In any
event, I believe the circuit court should have the opportunity to revisit this issue
with the guidance provided herein.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE WILLIAM
WALTERS:
John J. Ellis
Morehead, Kentucky Robert T. Renfroe
Greenup, Kentucky
-15-