United Financial Casualty Co. v. Greg Ball

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1657
UNITED FINANCIAL CASUALTY COMPANY,
Plaintiff - Appellee,
v.
GREG ALLEN BALL,
Defendant - Appellant,
and
MILTON HARDWARE, LLC; BUILDERS DISCOUNT, LLC; RODNEY
PERRY,
Defendants.
Appeal from the United States District Court for the Southern District of West Virginia, at
Huntington. Robert C. Chambers, District Judge. (3:17-cv-02002)
Argued: September 18, 2019 Decided: October 30, 2019
Before WILKINSON, NIEMEYER, and AGEE, Circuit Judges.
Vacated and remanded by published opinion. Judge Niemeyer wrote the opinion, in which
Judge Wilkinson and Judge Agee joined.
ARGUED: Stephen Brooks Farmer, FARMER, CLINE & CAMPBELL, PLLC,
Charleston, West Virginia, for Appellant. Susan Renee Snowden, JACKSON KELLY,
PLLC, Martinsburg, West Virginia, for Appellee. ON BRIEF: Jennifer D. Roush,
FARMER, CLINE & CAMPBELL, PLLC, Charleston, West Virginia, for Appellant.
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NIEMEYER, Circuit Judge:
In this appeal, we determine whether the Worker’s Compensation exclusion or the
Employee Indemnification and Employer’s Liability exclusion in a standard commercial
automobile insurance policy excludes coverage for the liability of a third-party permissive
user of an insured vehicle who caused personal injuries to an employee of a named insured.
While employees of Milton Hardware, LLC, including Milton Hardware’s owner,
were performing construction work at the home of Rodney Perry in Milton, West Virginia,
Milton Hardware’s owner authorized Perry to move one of Milton Hardware’s trucks,
which was blocking the driveway. In doing so, however, Perry accidentally struck a Milton
Hardware employee, Greg Ball, causing him serious injuries.
When Ball requested indemnification from Milton Hardware’s insurer, United
Financial Casualty Company, United Financial denied coverage and commenced this
action for a declaratory judgment that the policy it issued to Milton Hardware did not cover
Perry’s liability for Ball’s injuries. The district court agreed. While the court recognized
that Perry was a permissive user of the truck and therefore an “insured,” as defined in
United Financial’s policy, the court concluded that the Worker’s Compensation exclusion
in the policy eliminated coverage because Ball was an employee of a named insured and
the policy excluded coverage for “[a]ny obligation for which an insured . . . may be held
liable under workers’ compensation . . . law.” Because of this holding, the court did not
directly address the Employee Indemnification and Employer’s Liability exclusion, on
which United Financial had also relied to deny coverage.
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We conclude that because Ball’s negligence claim against Perry was a claim against
a third party, rather than a claim against his employer for workers’ compensation, the
Worker’s Compensation exclusion did not apply. We also conclude that the policy’s
broader exclusion for Employee Indemnification and Employer’s Liability, which on its
face would apply to exclude coverage for Perry’s liability to Ball, was inoperable because
its limitation of coverage contravened West Virginia Code § 33-6-31, which requires motor
vehicle insurance policies issued in the State to provide liability coverage to individuals
using an insured vehicle with the owner’s consent, except when the injured person can
claim workers’ compensation in connection with an accident for which his employer is
liable. Because we conclude that neither the Worker’s Compensation exclusion nor the
Employee Indemnification and Employer’s Liability exclusion bar coverage to Perry as an
insured, we vacate the district court’s judgment and remand for further proceedings
consistent with this opinion.
I
The accident that caused Greg Ball’s injuries occurred on October 25, 2016, at the
home of Rodney Perry, where Milton Hardware was performing construction work on
Perry’s carport. At one point during the work, Milton Hardware’s owner directed Ball and
another employee to load debris into a Milton Hardware truck, but another Milton
Hardware truck was in the driveway blocking their ability to do so. Milton Hardware’s
owner then gave Perry, the homeowner, permission to move that truck. As Perry was
backing up, he accidentally hit Ball, temporarily pinning him between the truck Perry was
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driving and another Milton Hardware truck. As a result, Ball sustained serious injuries that
required hospitalization.
At the time of the accident, Milton Hardware had a commercial automobile liability
insurance policy issued by United Financial, which provided liability coverage to Milton
Hardware and to any person using Milton Hardware’s vehicles with its permission. Based
on this provision, Ball demanded that United Financial indemnify him for the injuries that
he claimed were caused by Perry’s negligence. United Financial denied coverage and
commenced this action against the named insureds, Milton Hardware and Builders
Discount, LLC, as well as Perry and Ball, asserting that coverage for Perry’s liability to
Ball was barred by both the policy’s Worker’s Compensation exclusion and its Employee
Indemnification and Employer’s Liability exclusion. Ball filed a crossclaim against Perry,
seeking damages for his negligence, and a counterclaim against United Financial, asserting
several claims. Specifically, he sought a declaratory judgment (1) that the Worker’s
Compensation exclusion did not apply; (2) that the Employee Indemnification and
Employer’s Liability exclusion violated West Virginia Code § 33-6-31(a) and therefore did
not apply; (3) alternatively, that he was entitled to Uninsured Motorist coverage under the
policy; and (4) that he was entitled to Medical Payments coverage under another provision
of the policy. In addition, Ball sought money damages from United Financial, alleging
breach of contract, breach of the covenants of good faith and fair dealing, unfair trade
practices, and common law bad faith.
On cross-motions for summary judgment, the district court granted United
Financial’s motion and denied Ball’s and Perry’s motions by order dated May 14, 2018.
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The court concluded that because Ball “sustained his injuries while he was working within
the course of his employment with Milton Hardware,” his injuries fell within the scope of
the Worker’s Compensation exclusion and “that, as a result, he [was] barred from liability
coverage under the policy.” The court also rejected Ball’s argument that West Virginia
Code § 33-6-31(a) required United Financial to extend liability coverage to Perry as a
permissive user of an insured automobile, reasoning that the exception in § 33-6-31(h)
applied to eliminate this requirement. See W. Va. Code § 33-6-31(h) (providing that
subsection (a) does “not apply to any policy of insurance to the extent that it covers the
liability of an employer to his or her employees under any workers’ compensation law”).
While the court acknowledged Ball’s argument that the exception in § 33-6-31(h) was
inapplicable because his tort claim was against a third party and not his employer, the court
adhered to its position because “it would be unreasonable” to “give Perry greater coverage”
under the policy than Milton Hardware would have received “had Ball brought his claims
directly against his employer.” Giving the same reasons, the court also denied Ball
coverage under the policy’s Medical Payments provisions and its Uninsured Motorist
provisions. In its order granting summary judgment to United Financial, the court
dismissed all of Ball’s counterclaims against United Financial, including his state law
claims for damages. Finally, the court declined to exercise supplemental jurisdiction over
Ball’s state law tort claim against Perry.
From the district court’s judgment, Ball filed this appeal.
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II
At the core of the district court’s holding is its conclusion that Ball’s negligence
claim against Perry, who was a permissive user of a Milton Hardware truck, was not
covered by United Financial’s liability policy because of the policy’s Worker’s
Compensation exclusion. The court reasoned that because Ball was a Milton Hardware
employee who was injured during the course of his employment, any coverage for his
injuries, regardless of who caused them, must be denied.
Challenging the district court’s ruling, Ball notes that the coverage he seeks is not
for or in regard to any workers’ compensation claim or liability, but for third-party Perry’s
liability to him for negligence under the common law. And because that claim is not for
workers’ compensation, he argues, the policy’s Worker’s Compensation exclusion is
inapplicable.
The United Financial policy at issue, which was issued to Milton Hardware and
Builders Discount, provided $1 million in liability coverage, including liability “because
of an accident arising out of the ownership, maintenance or use of [an] insured auto.” The
coverage extended to the named insureds, Milton Hardware and Builders Discount, and
also to “[a]ny person while using, with [a named insured’s] permission, and within the
scope of that permission, an insured auto [that a named insured] own[s].” In addition, the
policy specifies that “the coverage afforded applies separately to each insured who is
seeking coverage or against whom a claim or lawsuit is brought.”
The policy, however, contains several exclusions, including the Worker’s
Compensation exclusion and the Employee Indemnification and Employer’s Liability
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exclusion. The Worker’s Compensation exclusion provides that the policy’s liability
coverage does not extend to “[a]ny obligation for which an insured or an insurer of that
insured, even if one does not exist, may be held liable under workers’ compensation . . . or
any similar law.” As noted, the district court concluded that the accident in question
implicated workers’ compensation law and therefore relied on this exclusion in denying
coverage to Perry for his alleged liability to Ball, who was a Milton Hardware employee.
The West Virginia Workers’ Compensation Act provides that an employer subject
to the Act must compensate its employees — directly, through an insurance company, or
through the State — for “personal injuries [sustained] in the course of and resulting from
their covered employment” without regard to fault. W. Va. Code § 23-4-1(a). And the
benefits provided by the Act supplant common law remedies, making an employer in
compliance with the Act immune from common law liability to its employees for
negligently causing injuries. Id. § 23-2-6; see also Canterbury v. Valley Bell Dairy Co.,
95 S.E.2d 73, 75 (W. Va. 1956); Smith v. Monsanto Co., 822 F. Supp. 327, 329–30 (S.D.
W. Va. 1992). As the West Virginia Supreme Court of Appeals has explained, the workers’
compensation system was “designed to release both an employer and its employees from
common-law rules of liability and damage, protect an employer from expensive and
unpredictable litigation, and provide compensation for injuries to employees without the
burdensome requirements of proving common-law negligence.” Erie Ins. Prop. &
Casualty Co. v. Stage Show Pizza, JTS, Inc., 553 S.E.2d 257, 262 (W. Va. 2001).
But the scope of the workers’ compensation immunity from common law suits is
not unlimited. If the employee’s work-related injury is caused entirely or in part by the
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negligence of a third party, the employee is entitled to sue the third party under the common
law, see W. Va. Code § 23-2A-1, and such suit is not a workers’ compensation claim, see
Jones v. Appalachian Elec. Power Co., 115 S.E.2d 129, 133 (W. Va. 1960) (noting that
“an employee who [has] received compensation for an injury [under the Workers’
Compensation Act] [is] not thereby estopped from maintaining an action for damages for
the same injury against a third person not his employer whose negligence caused his
injury”). But if the employee recovers from the third person, then the employer or other
entity that paid workers’ compensation benefits on behalf of the employer is subrogated to
the employee’s claim to the extent of benefits paid. See W. Va. Code § 23-2A-1.
In sum, while a claim that an injured employee asserts against his employer for
injuries arising in the course of and resulting from his employment is generally a workers’
compensation claim, a claim brought by that employee against a third party for the same
injuries is a common-law claim that does not arise under the Workers’ Compensation Act.
Thus, Perry’s liability for Ball’s injuries would not be, in the words of the Worker’s
Compensation exclusion, an “obligation for which [Perry as an insured] . . . may be held
liable under workers’ compensation . . . law.” Perry was not Ball’s employer; Ball was not
Perry’s employee; and Ball’s claim against Perry therefore does not arise under workers’
compensation law.
Accordingly, we conclude that the Worker’s Compensation exclusion in the policy
does not eliminate United Financial’s duty to provide liability coverage to Perry
with respect to Ball’s negligence claim, and the district court erred in holding that
the Worker’s Compensation exclusion applied. See Miralles v. Snoderly, 602 S.E.2d 534,
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540–41 (W. Va. 2004) (recognizing that the workers’ compensation exclusion to
uninsured/underinsured motorist coverage in an employer’s commercial automobile policy
did not apply because the employee’s “work-related injuries were caused by a third party”).
III
United Financial also relied on the Employee Indemnification and Employer’s
Liability exclusion to deny Perry liability coverage. That exclusion provides that liability
coverage does not extend to “[b]odily injury to . . . [a]n employee of any insured arising
out of or within the course of . . . [t]hat employee’s employment by any insured” or to such
employee “[p]erforming duties related to the conduct of any insured’s business.”
(Emphasis added). It also provides that “[t]his exclusion applies . . . [w]hether the insured
may be liable as an employer or in any other capacity.” (Emphasis added).
While Ball appears to acknowledge that the broad language of this exclusion would,
on its face, bar coverage to Perry, he contends that the exclusion is inconsistent with West
Virginia Code § 33-6-31(a) and therefore is trumped by that provision. That statute
provides in relevant part:
No policy or contract of bodily injury liability insurance . . . covering liability
arising from the ownership, maintenance or use of any motor vehicle, may
be issued or delivered in this state to the owner of such vehicle . . . unless it
contains a provision insuring the named insured and any other person,
except a bailee for hire and any persons specifically excluded by any
restrictive endorsement attached to the policy, . . . using the motor vehicle
with the consent, expressed or implied, of the named insured . . . against
liability for death or bodily injury sustained or loss or damage occasioned
within the coverage of the policy or contract as a result of negligence in the
operation or use of such vehicle by the named insured or by such person.
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W. Va. Code § 33-6-31(a) (emphasis added); see also Burr v. Nationwide Mutual Ins. Co.,
359 S.E.2d 626, 632 (W. Va 1987) (recognizing that with “the mandatory omnibus
requirements imposed by W. Va. Code, 33-6-31(a), . . . the legislature has demonstrated a
clear intent to afford coverage to anyone using a vehicle with the owner’s permission as a
means of giving greater protection to those who are involved in automobile accidents”).
United Financial, however, seizes on the district court’s conclusion that West
Virginia Code § 33-6-31(a) does not apply because of the workers’ compensation
exception in subsection (h), which provides that the requirement imposed in subsection (a)
does “not apply to any policy of insurance to the extent that it covers the liability of an
employer to his or her employees under any workers’ compensation law.” W. Va. Code
§ 33-6-31(h); see also Henry v. Benyo, 506 S.E.2d 615, 620 (W. Va. 1998) (holding that
“[t]he plain language of subsection (h) prohibits an employee from collecting from his/her
employer’s [motor vehicle insurance policy] if his/her injuries are already covered by
workers’ compensation and if the accident is a result of the employer’s or a coemployee’s
actions (i.e., ‘the employer’s liability’)” (emphasis in original)). Yet because we have
concluded that Ball’s claim against Perry is not a workers’ compensation claim, but rather
a third-party common law tort claim, the exception in § 33-6-31(h) does not apply, and
§ 33-6-31(a) continues to override the restrictions of the Employee Indemnification and
Employer’s Liability exclusion. See Henry, 506 S.E.2d at 620 (recognizing that where “an
employee’s work-related injuries are caused by a third-party, . . . subsection (h) does not
apply because the employer is not ‘liable’ for the accident” (emphasis added)).
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To be sure, the factual circumstances in Henry are somewhat distinguishable from
those at issue here. There, an employee was injured in the course of his employment when
the work vehicle he was operating collided with a third party’s vehicle. After the employee
collected workers’ compensation benefits, he sought damages from the potentially
underinsured third-party driver. The issue presented was whether the employee could
“recover underinsured motorist benefits under his employer’s motor vehicle insurance
policy” to the extent a judgment against the third party exceeded the limits of that driver’s
coverage. Henry, 506 S.E.2d at 617. The court concluded that such coverage was not
blocked by the exception in § 33-6-31(h) because “it [was] the third-party who
[was] technically ‘at fault’ for the collision and resultant damages,” not the employer. Id.
at 620–21 (emphasis added). Thus, despite the slightly different context in Henry, its
central lesson remains applicable here — namely, that whether § 33-6-31(h) applies turns
on whether the driver who caused the employee’s work-related injuries was, on the one
hand, a third party or, on the other, the employer or a coemployee.
The district court, however, refused to accept Henry’s reasoning, concluding that
because Perry, as an additional insured, stood in the same shoes as Milton Hardware, a
named insured, Perry could enjoy no greater coverage than would Milton Hardware. As a
result, the court held that since Milton Hardware’s coverage was limited by § 33-6-31(h),
so too was Perry’s. But this analysis failed to recognize that Milton Hardware was Ball’s
employer, whereas Perry was not, placing the two in different positions vis-à-vis the
application of § 33-6-31(h). Again, under that provision, motor vehicle insurance policies
need not “cover[] the liability of an employer to his or her employees under any workers’
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compensation law,” W. Va. Code § 33-6-31(h) (emphasis added), meaning that “if the
employee’s injuries were caused by the employer [or] a coemployee, . . . the employee
cannot collect workers’ compensation benefits and then seek an additional recovery from
the employer just because the employer has motor vehicle insurance that . . . also covers
the employee’s injuries,” Henry, 506 S.E.2d at 620. But because Ball’s common law tort
claim against Perry is a third-party claim, § 33-6-31(h) has no effect.
At bottom, we conclude that while the language of the Employee Indemnification
and Employer’s Liability exclusion, considered alone, is sufficiently broad to deny Perry
coverage for his liability to Ball, such a limitation of coverage for a permissive user of an
insured vehicle contravenes West Virginia Code § 33-6-31(a) and thus renders the
exclusion unenforceable. See Universal Underwriters Ins. Co. v. Taylor, 408 S.E.2d 358,
363 (W. Va. 1991) (recognizing “that any provision in an insurance policy which attempts
to contravene W. Va. Code, 33-6-31(a) is of no effect” (cleaned up)); see also Burr,
359 S.E.2d at 631. Accordingly, we hold that the Employee Indemnification and
Employer’s Liability exclusion cannot operate to deny Perry coverage under United
Financial’s policy for his liability to Ball.
IV
Because we conclude that United Financial may not deny liability coverage to Perry
by reason of either the Worker’s Compensation exclusion or the Employee Indemnification
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and Employer’s Liability exclusion, we vacate the district court’s judgment and remand
for further proceedings as to any unresolved issues raised by the parties.
VACATED AND REMANDED
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