Auto Club Property-Casualty Insurance v. B.T. Ex Rel. Thomas

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0034n.06
No. 14-5195
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
AUTO CLUB PROPERTY-CASUALTY ) FILED
INSURANCE COMPANY, ) Jan 12, 2015
)
DEBORAH S. HUNT, Clerk
Plaintiff-Appellee, )
)
ON APPEAL FROM THE
v. )
UNITED STATES DISTRICT
)
COURT FOR THE WESTERN
B.T., by and through his parent and next friend )
DISTRICT OF KENTUCKY
Shelita Thomas, )
)
Defendant-Appellant. )
BEFORE: BATCHELDER, GILMAN, GIBBONS, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. Auto Club Property-Casualty Insurance
Company sought a declaration that it is not liable to defend or indemnify insured parties after a
firework struck B.T. in the eye as a result of the insured parties’ alleged negligence. The district
court granted summary judgment in Auto Club’s favor, holding that the policy specifically
excluded payment for the injury suffered in this case. For the following reasons, we reverse.
I.
On July 5, 2010, ten-year-old B.T. was playing with other children at Brad and Melissa
Cambron’s house in Louisville, Kentucky. The Cambrons’ eight-year-old son, D.C., asked Brad
if he could play with the sparklers that were in Brad’s truck. Brad agreed and unlocked the truck
No. 14-5195
Auto Club Property-Casualty
from the house with his keyless remote. After D.C. returned outside, Brad did not supervise the
children’s activities.
When D.C. and the other children opened the truck, they saw a number of bottle rockets.
The bottle rockets and sparklers—which Brad had recently bought in Indiana—remained in the
truck following the Cambrons’ family Fourth of July celebrations. The children removed some
sparklers, some bottle rockets, and a lighter from the truck. Some of the children then ignited a
number of the bottle rockets. At one point, a child identified as J.J. lit the fuse of a bottle rocket
while B.T. was standing near the garage door. Before exploding, the rocket struck B.T.’s left
eye. The resulting injuries required medical treatment, including surgery.
B.T. sought damages for his injuries in a suit in Kentucky state court against Brad and
Melissa Cambron, D.C., and J.J. Among the causes of action were negligence claims against all
four defendants and claims against Brad and Melissa for negligent entrustment and negligent
supervision. The state court action remains pending.
The Cambrons sought defense and indemnification under a homeowners’ insurance
policy issued by Auto Club for the period March 3, 2010 to March 3, 2011. The policy provided
liability coverage for Melissa and Brad (who were listed on the policy’s Declaration Certificate),
and also D.C. (because he was a “resident relative,” and is therefore defined as an “Insured
Person” under the plan).
Auto Club then brought this declaratory judgment action in the Western District of
Kentucky, seeking a declaration that it has no duty to defend or indemnify the Cambrons. In
addition to Brad and Melissa Cambron, the suit named B.T. and J.J. as defendants. Auto Club
claimed that the events of July 5, 2010, fell within four specific exclusions in the policy. First,
Auto Club pointed to a provision excluding coverage for criminal acts (the “Criminal-Act
-2-
No. 14-5195
Auto Club Property-Casualty
Exclusion”), and claimed that the Cambrons and J.J. committed criminal acts by possessing and
using the bottle rockets without a license. Second, the policy contains an exclusion for conduct
intended to or reasonably expected to cause injury (the “Intentional-Act Exclusion”), and Auto
Club argued that allowing access to the bottle rockets would be reasonably expected to cause
injury. Third, Auto Club claimed that Brad and Melissa’s failure to supervise the children fell
within the policy’s “Negligent-Supervision Exclusion.” Finally, the company argued that the
“Negligent-Entrustment Exclusion” applied because Brad and Melissa Cambron negligently
entrusted the fireworks to the children.
The parties filed cross-motions for summary judgment and the district court granted
summary judgment in Auto Club’s favor. The court found that the Cambrons’ possession of the
bottle rockets and J.J.’s use or explosion of the bottle rocket each constituted a “criminal act”
within the meaning of the Criminal-Act Exclusion. As a result, the court held that Auto Club has
no obligation to defend or indemnify the Cambrons. Having found coverage barred under the
Criminal-Act Exclusion, the court found it unnecessary to determine whether the other three
exclusions applied. B.T. timely appealed.
II.
A.
This court reviews a district court’s grant of summary judgment de novo. Keith v. Cnty.
of Oakland, 703 F.3d 918, 923 (6th Cir. 2013). Summary judgment is proper where no genuine
issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(c). In considering a motion for summary judgment, we construe all reasonable
inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
-3-
No. 14-5195
Auto Club Property-Casualty
B.
We must first interpret the scope of the exclusions in the Cambrons’ insurance policy.
That task—as both parties agree—is governed by Kentucky law. Terms of an insurance policy
are given their plain and ordinary meaning and, when the terms are clear and unambiguous, must
be enforced as drafted. Crutchfield v. Transamerica Occidental Life Ins. Co., 527 F. App’x 339,
342 (6th Cir. 2013) (citing City of Louisville v. McDonald, 819 S.W.2d 319, 320–21 (Ky. Ct.
App. 1991)). Whether a term is ambiguous is a question of law. Cogent Solutions Group, LLC
v. Hyalogic, LLC, 712 F.3d 305, 310 (6th Cir. 2013) (citing Cantrell Supply, Inc. v. Safeco Ins.
Co. of Am., Inc., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002)). A contract is ambiguous “if a
reasonable person would find it susceptible to different or inconsistent interpretations.” Lexicon,
Inc. v. Safeco Ins. Co. of Am., Inc., 436 F.3d 662, 670 (6th Cir. 2006) (quoting Cantrell,
94 S.W.3d at 662).
When the terms are ambiguous, Kentucky’s reasonable-expectations doctrine applies: the
court interprets the terms “in favor of the insured’s reasonable expectations and construe[s]
[them] as an average person would construe them.” Crutchfield, 527 F. App’x at 342 (citing
Hugenberg v. W. Am. Ins. Co., 249 S.W.3d 174, 185–86 (Ky. Ct. App. 2006)). In other words,
“the insured is entitled to all the coverage he may reasonably expect to be provided under the
policy.” Wolford v. Wolford, 662 S.W.2d 835, 838 (Ky. 1984). “Only an unequivocally
conspicuous, plain and clear manifestation of the company’s intent to exclude coverage will
defeat that expectation.” Id. at 838–39.
The reasonable-expectations doctrine complements Kentucky’s public policy favoring
broad coverage in insurance contracts. When the terms of the contract are ambiguous, any
exclusions should be read to give maximum coverage, with any doubts resolved in the insured’s
-4-
No. 14-5195
Auto Club Property-Casualty
favor. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 564 (6th Cir. 2008) (citing Dowell v.
Safe Auto Ins. Co., 208 S.W.3d 872, 878 (Ky. 2006); St. Paul Fire & Marine Ins. Co. v. Powell–
Walton–Milward, Inc., 870 S.W.2d 223, 227 (Ky. 1994); K.M.R. v. Foremost Ins. Group, 171
S.W.3d 751, 753 (Ky. Ct. App. 2005)).
C.
The Cambrons’ policy contained the following exclusion:
Under Part II, we will not cover:
…
10. bodily injury or property damage resulting from:
a. a criminal act or omission committed by anyone; or
b. an act or omission, criminal in nature, committed by an
insured person even if the insured person lacked the
mental capacity to:
(1) appreciate the criminal nature or wrongfulness
of the act or omission; or
(2) conform his or her conduct to the requirements
of the law; or
(3) form the necessary intent under the law.
This exclusion will apply whether or not anyone, including the
insured person:
a. is charged with a crime;
b. is convicted of a crime whether by a court, jury or plea
of nolo contendere; or
c. enters a plea of guilty whether or not accepted by the
court . . . .
We must first determine whether the exclusion was ambiguous. In making this inquiry,
this court must apply Kentucky law in accordance with the controlling decisions of the Supreme
Court of Kentucky. OneBeacon Am. Ins. Co. v. Am. Motorists Ins. Co., 679 F.3d 456, 460 (6th
Cir. 2012) (citing Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir.
2001). This court’s own prior published decisions interpreting Kentucky law are also
controlling, unless Kentucky law “has measurably changed in the meantime.” Rutherford v.
-5-
No. 14-5195
Auto Club Property-Casualty
Columbia Gas, 575 F.3d 616, 619 (6th Cir. 2009) (quoting Big Lots Stores, Inc. v. Luv N’ Care,
Ltd., 302 F. App’x 423, 427 (6th Cir. 2008)).
Controlling precedent establishes that the Criminal-Act Exclusion in the Cambrons’
policy does not exclude coverage for the events of July 5, 2010. First, the language of the
exclusion is ambiguous. In Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d 213 (Ky. 1997),
the Supreme Court of Kentucky held that an exclusion for “losses suffered . . . while committing
. . . a crime” was ambiguous. Id. at 216. Even though the court hypothesized that the average
person would likely view the relevant conduct—drag racing—as criminal, the exclusion was still
ambiguous because it was susceptible to more than one reasonable interpretation. Id. at 216.
Similarly, in American Family Life Assurance Co. v. Bilyeu, 921 F.2d 87 (6th Cir. 1990), this
court found ambiguity in an exclusion for injuries that occurred “during the commission of a
crime” when seeking to determine whether the policy covered injuries sustained while drunk
driving. Id. at 89–90. In both of these controlling cases, the exclusion for “crimes” or “criminal
acts” was ambiguous when applied to particular acts that were not quintessentially criminal. The
Cambrons’ policy contains exclusions for “a criminal act or omission” and “an act or omission,
criminal in nature.” If this language is ambiguous when applied to drag racing and drunk
driving, it is also ambiguous when applied to possessing and igniting fireworks without a license.
There are at least two reasonable interpretations of the exclusion in this situation, one covering
injuries and one excluding coverage for injuries. Just like in Anglin and Bilyeu, the Cambrons’
exclusion is ambiguous.
Next, we must determine whether, under Kentucky’s reasonable expectations doctrine,
the Cambrons may reasonably expect coverage for the events of July 5. Again, precedent
dictates the outcome. In Bilyeu, the insured was driving while intoxicated when he crashed and
-6-
No. 14-5195
Auto Club Property-Casualty
died. Id. at 88. The company that issued his life insurance policy refused to pay benefits on the
ground that the accident occurred “during the commission of a crime.” Id. This court held that
the insured would not have reasonably expected an accident to be excluded from coverage
simply because it occurred while drunk driving. Id. at 89. This court agreed with the district
court that an insured, reading the term “crime” in a policy exclusion, “is more likely to
understand it to mean[,] for example[,] burglary, armed robbery, or murder than for it to mean
drunk driving.” Id. at 89 (alterations in original). As a result, the exclusion could not serve as a
basis for the denial of coverage. Id. at 90.
Similarly, here, the Cambrons would have reasonably expected to be covered for injuries
resulting from their possession of the bottle rockets, despite the Criminal-Act Exclusion. The
Cambrons allegedly committed the offense of possessing fireworks without a license, and J.J. the
offense of using or exploding a firework without a license, in violation of the then-existing
versions of Kentucky Revised Statutes (“KRS”) sections 227.702, 227.708, and 227.710. These
are types of conduct that an insured person, reading the policy, would reasonably believe were
covered. They are far from the core criminal offenses—burglary, armed robbery, and murder—
that an insured, according to the Bilyeu court, would believe to be within the exclusion. Bilyeu,
921 F.2d at 89.
This does not mean that the Criminal-Act Exclusion only excludes burglary, armed
robbery, and murder. But Kentucky favors interpreting ambiguous terms in a way that provides
maximum coverage, see Flowers, 513 F.3d at 564, and requires exclusions from coverage to be
“unequivocally conspicuous, plain and clear.” Wolford, 662 S.W.2d at 838–39. It is unclear that
the unlicensed possessing or exploding of fireworks falls within the exclusion in the Cambrons’
policy.
-7-
No. 14-5195
Auto Club Property-Casualty
The district court declined to follow Anglin and Bilyeu, finding neither “applicable to the
facts of the case at bar.” However, each of the four bases on which the district court
distinguished those cases is unavailing. First, the court stated that “[t]hose cases involved
[employee health] and accidental death policies [respectively], as opposed to homeowner’s
insurance policies.” The method of interpreting the exclusion in the Cambrons’ policy is not
reserved for homeowners’ policies. While the type of policy may be relevant in analyzing
ambiguity and reasonable expectations in a particular case, Bilyeu and Anglin both focused on
the ambiguity of excluding coverage for damage sustained during the commission of a “crime”
in a policy issued to an individual consumer. Bilyeu, 921 F.2d at 89–90; Anglin, 956 S.W.2d at
216. Bilyeu also ruled that such a consumer would reasonably expect coverage when engaging
in conduct that does not fall within the scope of crimes such as burglary, robbery, or murder.
Bilyeu, 921 F.2d at 89. Nothing about these analyses suggests that the Cambrons’ Criminal-Act
Exclusion is any less ambiguous because it is in a homeowners’ policy rather than a medical or
life insurance policy. Nor do these prior opinions indicate that the insureds’ reasonable
expectations regarding an exclusion for crimes would be any different in the contexts of medical
or life insurance than in the context of homeowners’ insurance. The district court did not offer,
and we cannot find, any reasoned bases to analyze these exclusions differently.
Second, the district court noted that the exclusions in the prior cases excluded coverage
“if the insured ‘committed’ a crime.” There is no material difference in the language of the
exclusions. The Anglin and Bilyeu decisions focused on the ambiguity of the word “crime”
within those policies, and the reasonable expectations that the word creates. Bilyeu, 921 F.2d at
89–90; Anglin, 956 S.W.2d at 216–17. The Cambrons’ policy excludes coverage for “a criminal
act or omission” or “an act or omission, criminal in nature.” The same ambiguity exists and the
-8-
No. 14-5195
Auto Club Property-Casualty
Cambrons’ reasonable expectations will be no different from the insured parties in Anglin and
Bilyeu.
Third, the district court explained that “in both cases the insured was alleged to have
violated traffic regulations by driving under the influence of alcohol and drag racing,
respectively,” and “such violations are specifically excluded from the . . . Penal Code’s definition
of ‘crime.’” This improperly characterizes the Bilyeu opinion, which concedes that “drunk
driving appears to be a crime in Kentucky.” Bilyeu, 921 F.2d at 87. This is consistent with other
authority, which recognizes drunk driving as a crime rather than a mere traffic infraction. See
KRS § 189A.010(5) (providing, consistently with the version in force on July 5, 2010, for fines
and imprisonment for the first three drunk-driving offenses, and designating the fourth offense as
a felony); see also Heath v. Commonwealth, 761 S.W.2d 630, 630–31 (Ky. 1988) (referring to
“the crime of drunk driving”); Keller v. Commonwealth, 719 S.W.2d 5, 6 (Ky. Ct. App. 1986)
(same). Although the Bilyeu court treated drunk driving as a crime, the court still found the word
“crime” ambiguous and decided that the insured would have reasonably expected to have been
covered for injuries suffered while driving drunk. Bilyeu, 921 F.2d at 89.
The ambiguity and reasonable-expectation inquiries do not focus solely on the definition
of “crime” in the Penal Code. If there is more than one reasonable interpretation, the reasonable-
expectations doctrine applies and, if in doubt, “the interpretation favorable to the insured is
adopted.” Anglin, 956 S.W.2d 213 (citing St. Paul Fire & Marine Insurance Co. v. Powell–
Walton–Millward, Inc., 870 S.W.2d 223, 226 (Ky. 1994)). Whether or not the Cambrons and J.J.
committed “crimes,” this does not detract from the ambiguity of the exclusion or the Cambrons’
reasonable expectation of being covered for injuries caused by the fireworks.
-9-
No. 14-5195
Auto Club Property-Casualty
Finally, the district court explained that Anglin and Bilyeu do not control because “when
confronted with language identical to that used in the Cambrons’ Policy, courts in other
jurisdictions found such language to be unambiguous.” Kentucky law governs in this case and
thus these decisions are inapposite. Anglin and Bilyeu are controlling, no matter how they
compare to decisions from other jurisdictions. Controlling precedent leads to the conclusion that
the Criminal-Act Exclusion does not provide a basis for denying coverage for the injuries that
B.T. suffered on July 5, 2010.
D.
The district court did not address the remaining exclusions in the Cambrons’ policy and
neither party briefed the issue of whether any other exclusion applies. Nonetheless, this court
can affirm a district court’s grant of summary judgment on any basis supported by the record.
EA Management v. JP Morgan Chase Bank, N.A., 655 F.3d 573, 575 (6th Cir. 2011). Here, the
Intentional-Act, Negligent-Entrustment, and Negligent-Supervision Exclusions appear, at first
glance, to be potentially applicable. However, further scrutiny demonstrates that genuine issues
of material fact remain as to each of the three exclusions. Summary judgment on any of these
bases would therefore be inappropriate.
The applicability of an exclusion in the specific circumstances of a case is a question of
fact. See James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d
273, 276–77 (Ky. 1991). In particular, issues related to the insured’s state of mind are questions
of fact. Id. at 276 (“The determination of whether an insured expected or intended the damage
resulting in the claim is for the jury.”). Thus, these questions are not generally appropriate for
summary judgment. See Kennedy v. City of Villa Hills, 635 F.3d 210, 218 (6th Cir. 2011)
(“[C]laims involving proof of a defendant’s intent seldom lend themselves to summary
-10-
No. 14-5195
Auto Club Property-Casualty
disposition.”). They may be resolved on summary judgment only “when the evidence is ‘so one-
sided that no reasonable person could decide the contrary.’” See In re Classic Star Mare Lease
Program, 727 F.3d 473, 484 (6th Cir. 2013) (quoting GenCorp, Inc. v. Am. Int’l Underwriters,
178 F.3d 804, 819 (6th Cir. 1999). That is not the case here.
First, the Intentional-Acts Exclusion applies if the injury results “from an act or omission
by an insured person which is intended or could reasonably be expected to cause bodily injury or
property damage.” Auto Club does not allege that Brad Cambron intended the injury to B.T, but
it does claim that, by granting the children access to the truck and failing to supervise them, his
acts or omissions could reasonably be expected to cause injury to B.T. However, viewed in the
light most favorable to the nonmoving parties, Brad Cambron could reasonably expect that the
children would be safe because they did not have permission to access the bottle rockets. Given
this genuine issue of material fact, summary judgment cannot be granted on the basis of the
Intentional-Act Exclusion.
Next, the Negligent-Entrustment and Negligent-Supervision Exclusions are respectively
triggered when injury results “out of negligent entrustment by any insured person of
any . . . object, instrument or device,” or “out of negligent supervision by any insured person.”
These conditions are not sufficient, however. These two exclusions only exclude coverage when
the conduct of those who are negligently entrusted or negligently supervised:
a. is not an occurrence under Part II of this Policy; or
b. is an intentional or criminal act excluded from coverage
under Part II of this Policy . . . .
An “occurrence” means an “accident,” which in turn is defined as “a fortuitous event that is
neither reasonably anticipated nor reasonably foreseen from the standpoint of both any insured
person and any person suffering injury or damages as a result.”
-11-
No. 14-5195
Auto Club Property-Casualty
Genuine issues of fact remain as to whether Brad Cambron—the insured—was negligent
in his supervision of the children, or his entrustment of his car keys to D.C. The evidence is
certainly not so one-sided as to necessitate judgment in Auto Club’s favor. No Kentucky case
holds that facts similar to these establish negligence as a matter of law. Perhaps the closest
analog is Spivey v. Sheeler, 514 S.W.2d 667, 671 (Ky. Ct. App. 1974), in which the Kentucky
Court of Appeals held that a genuine issue of fact remained in determining whether parents were
negligent by allowing their son access to a loaded pistol. The court quoted approvingly from the
American Law Reports:
Evidence that defendant left a loaded gun in a place which he knew
or should have known to be accessible to a child too immature or
indiscreet to exercise the required care in the control of such an
instrument, has frequently been held to raise a jury question as to
defendant’s responsibility for injuries caused by a child with a gun
so left.
Spivey, 514 S.W.2d at 671 (quoting 68 A.L.R. 2d 785). Although Kentucky courts have not
directly addressed the question of whether it may be negligent as a matter of law to allow
children access to fireworks, the principle related to loaded firearms would seem to apply equally
here. Like guns, fireworks have the potential to cause serious injuries if entrusted to children, or
if children are left unsupervised around them. And yet, neither Spivey nor any other Kentucky
case contemplates that leaving guns, fireworks or other similar dangerous articles is negligent as
a matter of law. A reasonable jury could find that Brad Cambron was negligent. Given this
genuine issue of material fact, summary judgment on the Negligent-Entrustment and Negligent-
Supervision Exclusions would be inappropriate.
Moreover, genuine issues of material fact remain as to the other prerequisite for the
application of the Negligent-Entrustment and Negligent-Supervision Exclusions: whether the
accident was reasonably anticipated or reasonably foreseen from the perspective of Brad,
-12-
No. 14-5195
Auto Club Property-Casualty
Melissa, D.C., or B.T. It would be reasonable to conclude that the incident was not reasonably
foreseen or anticipated from some or all of these individuals’ perspectives.
Although the district court did not address the Intentional-Act, Negligent-Entrustment,
and Negligent-Supervision Exclusions, our analysis reveals that it would not have been
appropriate to grant summary judgment on any of these bases. We therefore remand these issues
to the district court for trial.
III.
For the above reasons, we reverse the district court’s grant of summary judgment and
remand to the district court for further proceedings consistent with this opinion.
-13-
No. 14-5195
Auto Club Property-Casualty
ALICE M. BATCHELDER, Circuit Judge, dissenting. My agreement with the
majority begins—and ends—with its holding that, under Kentucky law, the Criminal-Act
Exclusion in the Cambrons’ policy is ambiguous. A finding of ambiguity requires that we then
use the definition of the ambiguous term most likely to effect coverage, provided the definition is
a reasonable one. Instead of choosing among reasonable definitions, however, the majority
invokes the “reasonable expectations of the insured” doctrine, concluding that “here, the
Cambrons would have reasonably expected to be covered for injuries resulting from their
possession of the bottle rockets, despite the Criminal-Act Exclusion.” Maj. Op. 7. The closest
the majority comes to saying what the term “criminal act” actually means is that it encompasses
only “core criminal offenses.” Ibid.
Even if we use the definition of “criminal act” most favorable to the insured, J.J.
committed a “criminal act.” The majority tries to escape this conclusion by obscuring the
relevant “act,” borrowing from—but not applying—the definition of “criminal act” in Kentucky
Revised Statutes Annotated §§ 216.710 and 500.080. Instead, the majority looks to American
Family Life Assurance Co. v. Bilyeu, 921 F.2d 87 (6th Cir. 1990). But even under Bilyeu, the
Criminal-Act Exclusion is triggered because the record shows that J.J. deliberately set off the
firework that injured B.T.
The Criminal-Act Exclusion is one of four potentially applicable exclusions. Because the
district court held that it applies here, the district court found it unnecessary to address the other
three. After reversing on the Criminal-Act Exclusion, the majority holds that summary judgment
for the insurer is also inappropriate on the other three exclusions, and thus the case should be
remanded for trial. Despite acknowledging that the applicability of exclusions in insurance
policies is a fact-intensive inquiry, the majority decides the exclusions are not applicable,
-14-
No. 14-5195
Auto Club Property-Casualty
without the district court’s having developed the appropriate facts and without the parties’
having briefed the issues on appeal. I would affirm the district court’s granting of summary
judgment to the insurer because the Criminal-Acts Exclusion applies here. But we should at very
least afford the district court the first opportunity to decide whether the Intentional-Acts,
Negligent-Entrustment, and Negligent-Supervision Exclusions apply.
I.
A.
At the outset I would note that there is some confusion over when recourse to the
“reasonable expectations of the insured” doctrine is appropriate under Kentucky law. The
majority says that “[w]hen the terms are ambiguous, Kentucky’s reasonable-expectations
doctrine applies.” Maj. Op. 4. Some cases agree. See, e.g., Hugenberg v. W. Am. Ins. Co./Ohio
Cas. Grp., 249 S.W.3d 174, 185 (Ky. Ct. App. 2006) (“Under the reasonable expectation
doctrine, ambiguous terms in an insurance contract must be interpreted in favor of the insured’s
reasonable expectations and construed as an average person would construe them.”). But the
Kentucky Supreme Court has said instead that the doctrine is integral to a threshold inquiry,
“[a]n essential tool in deciding whether an insurance policy is ambiguous, and consequently
should be interpreted in favor of the insured . . . .” Simon v. Cont’l Ins. Co., 724 S.W.2d 210,
212 (Ky. 1986) (emphasis added). But here there is no debate about whether the policy is
ambiguous; the “reasonable expectations” doctrine is irrelevant.
Once we find a term in an insurance contract ambiguous, we use the definition of the
term most favorable to the insured—the definition most likely to effect coverage. A cardinal
principle of Kentucky insurance law is that “[w]here an exclusion is susceptible to two
reasonable interpretations, the interpretation favorable to the insured is adopted.” St. Paul Fire
-15-
No. 14-5195
Auto Club Property-Casualty
& Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 226 (Ky. 1994). I have no
disagreement with the majority opinion and other courts to the extent they use the “reasonable
expectations” doctrine as a proxy for “reasonableness” in narrowing the scope of potentially
applicable definitions of an ambiguous term.
But the majority instead invokes the “reasonable expectations” doctrine to avoid defining
“criminal act.” To be fair, we did something similar in American Family Life Assurance Co. v.
Bilyeu, 921 F.2d 87 (6th Cir. 1990), where we held that the insured “would not have thought that
accidents that occurred while under the influence of alcohol were excluded from coverage as a
result of” an exclusion for criminal acts because “the insured is more likely to understand it to
mean[,] for example[,] burglary, armed robbery, or murder than for it to mean drunk driving.”
921 F.2d at 89 (internal quotation marks omitted). The majority here is confident that J.J.’s use
and setting off of a firework and the Cambrons’ possession of fireworks are the “types of
conduct that an insured person, reading the policy, would reasonably believe were covered.
They are far from the core criminal offenses—burglary, armed robbery, and murder—that an
insured, according to the Bilyeu court, would believe to be within the exclusion.” Maj. Op. 7–8.
Although one could read the majority opinion as defining “criminal act” in the negative (in other
words, the exclusion is not triggered because the acts did not involve burglary, armed robbery, or
murder), the majority then admits that Bilyeu “does not mean that the Criminal-Act Exclusion
only excludes burglary, armed robbery, and murder.” Maj. Op. 8. But what then does it mean?
The majority never tells us, reasoning that the “reasonable expectations” doctrine requires
a finding of coverage even though the majority does not decide what the term “criminal act”
actually means. This may have worked in Bilyeu where drunk driving was “far from the core
criminal offenses,” but surely the deliberate exploding of a firework with people nearby is not as
-16-
No. 14-5195
Auto Club Property-Casualty
“far from the core criminal offenses” as drunk driving is. After all, “driving” is rather a core life
activity, and one for which in most states, drivers are required to obtain insurance. It is perhaps
reasonable that the average driver would expect that all of his driving, even driving while drunk,
illegal though it may be, is within the coverage of that insurance. But would the average
homeowner really expect that his homeowner’s policy, that contains an exclusion for criminal
acts, would cover injury resulting from the illegal possession, use, and explosion of fireworks
purchased out-of-state? Without a definition of “criminal act,” it is impossible to determine
whether J.J.’s and the Cambrons’ conduct is closer to drunk driving or to the “core criminal
offenses.”
B.
Even using the definition of “criminal act” most favorable to the insureds, J.J. committed
a “criminal act” and the exclusion is triggered. There are four definitions of “criminal act”
offered by the parties. B.T. points to two definitions contained in the Kentucky Revised Statutes,
the first defining “crime” for campus safety and security purposes, Ky. Rev. Stat. Ann.
§ 164.948(3), and the second defining “crime” for health facilities and services purposes, Ky.
Rev. Stat. Ann. § 216.710(3). Both definitions would effect coverage, but we should apply
neither. Although a definition need not be contained in a statute or dictionary for us to use it in
interpreting an insurance policy, the definition must at least be reasonable. See St. Paul Fire &
Marine Ins. Co., 870 S.W.2d at 227 (“As long as coverage is available under a reasonable
interpretation of an ambiguous clause, the insurer should not escape liability . . . .”). It is
unreasonable to use these definitions here because they are context-specific definitions exported
from portions of the Kentucky Revised Statutes unrelated to the facts of this case. Section
216.710, for instance, would require a conviction or guilty plea before finding that a “criminal
-17-
No. 14-5195
Auto Club Property-Casualty
act” has occurred, while excluding from the definition’s ambit such quintessentially criminal acts
as murder or arson.
A third definition offered by B.T. is the Kentucky Penal Code’s definition of “crime” as
“a misdemeanor or a felony.” Ky. Rev. Stat. Ann. § 500.080(2).1 A misdemeanor, in turn, is
defined as “an offense, other than a traffic infraction, for which a sentence to a term of
imprisonment of not more than twelve (12) months can be imposed.” Id. § 500.080(10). And
“offense” means “conduct for which a sentence to a term of imprisonment or to a fine is
provided by any law of this state.” Id. § 500.080(11).
One who violates § 227.710’s prohibition on the “use” or possession of fireworks “shall
be fined not more than one thousand dollars ($1,000), or imprisoned in the county jail for not
more than thirty (30) days, or both.” Id. § 227.990(4). This “offense” is not a traffic infraction,
and a term of imprisonment of thirty days “can be imposed.” B.T. responds that neither the
statute prohibiting the possession or use of fireworks nor the statute penalizing such activity is
part of the Penal Code. Def.’s Br. 13. Section 532.020(3) makes clear, however, that an offense
located elsewhere in the Kentucky Revised Statutes may still be criminal in nature: “Any
offense defined outside this code for which a law outside this code provides a sentence to a
definite term of imprisonment with a maximum of less than ninety (90) days shall be deemed a
Class B misdemeanor.” Accordingly, possession or use of fireworks is a “misdemeanor” and
thus a “crime” under § 500.080(2). Under this definition, both J.J. and the Cambrons committed
a “criminal act.”
1
Although the Kentucky Supreme Court in Healthwise of Ky., Ltd. v. Anglin adopted the Penal Code
definition of “crime,” it did so because it was the interpretation “favorable to the insured.” 956 S.W.2d 213, 216
(Ky. 1997); see also id. (“We therefore adopt Anglin’s definition of ‘crime’ as the correct definition.”). Anglin does
not mandate a specific definition.
-18-
No. 14-5195
Auto Club Property-Casualty
The last definition suggested by B.T. is the one we used in Bilyeu. We said that “the
insured is more likely to understand [“crime”] to mean[,] for example[,] burglary, armed
robbery, or murder than for it to mean drunk driving.” 921 F.2d at 89. Bilyeu, by prefacing its
enumerated list of “crimes” with “for example,” tells us that the Criminal-Act Exclusion here
encompasses more than burglary, armed robbery, and murder. Drunk driving is, in the
majority’s parlance, “far from the core criminal offenses,” Maj. Op. 7, of burglary, armed
robbery and murder, presumably because the former does not exhibit the deliberate conduct
indicative of the latter. Reading Bilyeu as defining “criminal act” in this way, when “J.J. lit the
fuse of a bottle rocket” with B.T. nearby, Maj. Op. 2, he committed a “criminal act” within the
meaning of the Exclusion because he engaged in a deliberate act that posed a serious potential
risk of injury to persons or property.
C.
The majority characterizes the illegal actions of J.J. and the Cambrons thus: “The
Cambrons allegedly committed the offense of possessing fireworks without a license, and J.J. the
offense of using or exploding a firework without a license . . . .” Maj. Op. 7 (emphasis added).
The error in the majority’s approach lies in its failure to recognize that the prohibition codified in
§ 227.710 is the possession, explosion, and use of fireworks. That section contains some specific
exceptions to these prohibitions, including an exception for licensed fireworks displays, but the
prohibited conduct is the possession, explosion, and use of the fireworks. And because this
activity violates § 227.710, it is a “criminal act” under § 500.080(2). Both the Cambrons (by
possessing) and J.J. (by using and exploding) fireworks committed criminal acts under
Kentucky’s statutes.
-19-
No. 14-5195
Auto Club Property-Casualty
And J.J. and the Cambrons committed criminal acts even if, as the majority believes, the
criminal act is the possession, use, or explosion of fireworks without a permit. Neither J.J. nor
the Cambrons had any kind of permit to do anything with fireworks. Neither took the
precautions that the statute requires permit holders to take to prevent injury from the fireworks.
Acting without a permit could well have “resulted in” B.T.’s injury because the permit required
the holder to be competent and to take safety precautions.
Regardless of which definition we use, summary judgment is warranted because J.J.
deliberately set off a firework, a “criminal act” under both § 227.710 and Bilyeu.
II.
Beyond reversing the district court on the one potentially applicable exclusion the district
court actually addressed, the majority holds that summary judgment for the insurer is also
inappropriate on the Intentional-Act, Negligent-Entrustment, and Negligent-Supervision
Exclusions. In the majority’s words, the district “court found it unnecessary to determine
whether the other three exclusions applied.” Maj. Op. 3. Nor were these three exclusions
briefed on appeal by either party.
“As a general rule, appellate courts do not consider any issue not passed upon below.” In
re Morris, 260 F.3d 654, 663 (6th Cir. 2001). While Morris is often cited in cases involving
waiver, it is equally applicable here. Although some “circumstances [] justify departure from the
general rule,” City of Pontiac Retired Emps. Ass’n v. Schimmel, 726 F.3d 767, 783 (6th Cir.
2013) (Griffin, J., dissenting), reh’g en banc granted, vacated (Nov. 8, 2013), reh’g en banc, 751
F.3d 427 (6th Cir. 2014), none warrants a departure from this general rule here. First, the issues
have not been “presented with sufficient clarity.” Ibid. To meet this exception, we have
-20-
No. 14-5195
Auto Club Property-Casualty
required that “[b]oth parties have extensively briefed the issues at stake.” United States v.
Pickett, 941 F.2d 411, 415 (6th Cir. 1991); see also Carrier Corp. v. Outokumpu Oyj, 673 F.3d
430, 446 (6th Cir. 2012) (holding that the issue was “presented with sufficient clarity and
completeness” where both parties “fully briefed” the issue on appeal). Neither party in this case
has addressed these three other exclusions in their appellate briefing. See Pl.’s Br. 14; Def.’s Br.
26.
Second, the issues involved are not “wholly legal.” Pickett, 941 F.2d at 415. As the
Ninth Circuit has noted, affirming the district court on an alternative basis is only appropriate
where the record is adequate and the issues involved are purely legal. Golden Nugget, Inc. v.
Am. Stock Exch., Inc., 828 F.2d 586, 590 (9th Cir. 1987). The majority describes as “a question
of fact” “[t]he applicability of an exclusion in the specific circumstances of a case.” Maj. Op.
11. “[I]ssues related to the insured’s state of mind” are also questions of fact. Ibid. While
questions of fact do not preclude summary judgment where “the evidence is so one-sided that no
reasonable person could decide the contrary,” In re ClassicStar Mare Lease Litig., 727 F.3d 473,
484 (6th Cir. 2013) (internal quotation marks omitted), granting summary judgment on an
alternative basis is inappropriate where further factual development may be necessary. See City
of Pontiac Retired Emps. Ass’n, 726 F.3d at 783 (Griffin, J., dissenting); Golden Nugget, Inc.,
828 F.2d at 590.
The majority’s merits analysis is a case in point. The majority analyzes only the
Cambrons’ actions under the Intentional-Acts Exclusion, even though J.J.’s setting off of a
firework “could reasonably be expected to cause bodily injury.” Maj. Op. 11. The majority
holds that summary judgment would be inappropriate under the Negligent-Entrustment and
Negligent-Supervision Exclusions on the basis of Spivey v. Sheeler, even though Spivey involved
-21-
No. 14-5195
Auto Club Property-Casualty
injuries that occurred after an eleven-year-old boy climbed up on something, found the key to his
parent’s gun safe, unlocked the safe, and then discharged a weapon, all when his parents were
away. 514 S.W.2d 667, 669 (Ky. 1974). Here, by contrast, Brad Cambron unlocked the vehicle
from which J.J. retrieved the fireworks, despite knowing that the fireworks were in the vehicle.
While the fact-intensive nature of this inquiry may make summary judgment unlikely, we ought
not deny summary judgment upon the “further scrutiny,” Maj. Op. 11, of issues the district court
never scrutinized in the first place.
I respectfully dissent.
-22-