Grange Insurance Company v. Georgetown Chicken Coop, LLC

RENDERED: OCTOBER 20, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0101-MR
GRANGE INSURANCE COMPANY APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE JULIE M. GOODMAN, JUDGE
ACTION NO. 19-CI-01315
GEORGETOWN CHICKEN COOP,
LLC; ANTHONY CRISH; CHAD
GIVENS; COCK-A-DOODLE-DOO,
LLC; PRESTON RESTAURANT “A,”
LLC; AND ROBERT GAUTHIER APPELLEES
OPINION
REVERSING
** ** ** ** **
BEFORE: EASTON, LAMBERT, AND MCNEILL, JUDGES.
EASTON, JUDGE: This appeal involves a dispute about insurance coverage,
specifically coverage under an “umbrella” policy. We will refer to the Appellees
collectively as “Roosters,” which is the name of the business owned or operated by
the limited liability companies or individuals named as Appellees.1 The Appellant,
Grange Insurance Company (“Grange”) issued two insurance policies for Roosters
– a Business Owners’ Policy (“BOP”), and a Commercial Umbrella Policy
(“CUP”). All agree the BOP provides coverage. Having reviewed the record, we
do not find an ambiguity in the CUP, which does not provide coverage. We
reverse the circuit court and direct entry of a declaratory judgment in favor of
Grange.
FACTUAL BACKGROUND
On the night of January 5, 2019, Joey Lee Bailey (“Bailey”), was
served and consumed alcohol at Roosters in Georgetown. After leaving Roosters,
Bailey went to another place called “Horseshoes” in Lexington, where Bailey
continued to drink.2 Then, during the early morning hours of January 6, 2019,
Bailey was driving the wrong direction on Interstate 75. Bailey’s truck hit a
vehicle carrying the five-member Abbas family. All six people were killed.
The estates of the Abbas family filed suit3 against Roosters and others.
Roosters filed a third-party petition for declaratory judgment against their insurer,
1
Because of the resolution we reach, we need not address Grange’s assertion that the circuit
court erred in granting summary judgment for certain individuals rather than specified insureds.
2
Medical records in the file indicate Bailey’s post-mortem blood alcohol level was over .30.
3
This record illustrates violation of Kentucky Rules of Civil Procedure (“CR”) 8.01(1) which
mandates “a short and plain statement of the claim” made. The Sixth Amended Complaint
contains 342 numbered paragraphs and is 60 pages long.
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Grange. Grange then sought a legal determination concerning their insurance
coverage under the CUP. Roosters sought summary judgment, which was granted
and designated as final and appealable pursuant to CR 54.02. Grange appeals to
this Court as a matter of right. For the following reasons, we reverse.
STANDARD OF REVIEW
When a trial court grants summary judgment in a declaratory
judgment action with no bench trial, as it did here, “we use the appellate standard
of review for summary judgments.” Foreman v. Auto Club Prop.-Cas. Ins. Co.,
617 S.W.3d 345, 349 (Ky. 2021) (citation omitted). “Because summary judgment
involves only legal questions and the existence of any disputed material issues of
fact, an appellate court need not defer to the trial court’s decision and will review
the issue de novo.” Lewis v. B&R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001)
(citation omitted).
In this case, the underlying facts and the terms of the applicable
policies are undisputed. The remaining interpretation and construction of an
insurance contract is a matter of law, which again we review de novo. Auto-
Owners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298, 301
(Ky. App. 2009). As review is de novo, “no deference is given to the decisions of
lower tribunals, even as to the existence of an ambiguity.” Kentucky Employers’
Mutual Ins. v. Ellington, 459 S.W.3d 876, 881 (Ky. 2015).
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ANALYSIS
Instead of drafting individual word-for-word policies, the process for
constructing insurance policies begins with standard provisions in a form policy.
The process then relies upon other standard phrases, easily added, or deleted,
which serve to add or exclude coverage with identified exceptions. Finally,
endorsements may govern whether any provision within the form policy applies.
We are required to consider the entirety of the various combined provisions
together. KRS4 304.14-360.5 See Kemper Nat’l Ins. Companies v. Heaven Hill
Distilleries, Inc., 82 S.W.3d 869 (Ky. 2002) (applying the substantive provisions of
an endorsement to exclusions in the preceding form policy). This traditional
approach usually requires careful perusal and comparison by insureds to be sure of
their coverage.6
By finding an ambiguity, the courts may not rewrite the plain
language of a policy examined as a whole. Pryor v. Colony Insurance, 414 S.W.3d
424, 430 (Ky. App. 2013), abrogated on other grounds by Estate of Bramble v.
4
Kentucky Revised Statutes.
5
“Every insurance contract shall be construed according to the entirety of its terms and
conditions as set forth in the policy, and as amplified, extended, or modified by any rider,
indorsement, or application attached to and made a part of the policy.”
6
In this digital age, one wonders why this practice continues. Policies could arguably be crafted
individually as one document rather than through a process of forms and exceptions and
endorsements cobbled together. Even so, we must proceed under the law for policy
interpretation with the existing practice.
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Greenwich Insurance Company, 671 S.W.3d 347 (Ky. 2023). In the present case,
the circuit court declared an ambiguity in Paragraph 12 of the Summary Judgment
at Pages 7-8. The circuit court stated there were two reasonable interpretations
from the language but then did not further illustrate how the interpretations are
supported when all language of the policy is considered together. The circuit court
also made a general observation about umbrella policies. Essentially, the
ambiguity declared became contextual by comparing underlying coverage and the
overall terms of the “umbrella” policy.
The difficulty flows from the following paragraph in the circuit
court’s Conclusions of Law:
In analyzing the contract, the Court also
acknowledges that it cannot ignore the purpose of an
umbrella policy, that it is created to supplement the
underlying policy. Acknowledging that, then, the Court
understands that when an insured purchases both an
underlying and umbrella policy, the intent is for them to
work in concert. There is no purpose for an umbrella
policy if not to supplement the underlying policy if
exhausted.
The primary insurance for Roosters was provided by Grange with the BOP.
Liquor liability coverage was provided by an endorsement to the BOP. No one
argues about that coverage. Roosters decided also to purchase the CUP, an
umbrella policy with Grange. Policies providing excess coverage include what are
often called umbrella policies, but, as in a real-life thunderstorm, some umbrellas
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provide more coverage than others: your feet may still get wet with the best
umbrella.
The parties cite no case applying Kentucky law addressing conflict
between primary coverage and an exclusion in an umbrella policy. We have found
no Kentucky case on point. Authorities from other states help provide an answer.
As a general statement, umbrella policies, as one form of excess
coverage, follow the primary policy and provide additional coverage. Such
policies often provide additional coverage for some claims not in the primary
policy. 46 C.J.S. Insurance § 1627 (2023). An umbrella is not necessarily a
mirror image of the primary coverage. If a mirror image is the intent, the practice
of a clear “broad as primary” endorsement could be used. See, e.g., McDonald’s
Corp. v. American Motorists Ins. Corp., 748 N.E.2d 771, 774 (Ill. App. 2001).
An umbrella policy may have its own exclusions. We find no
authority for the proposition that an umbrella cannot exclude additional coverage
for certain claims covered by a primary policy. When an umbrella policy is called
upon to provide coverage for claims, “an umbrella policy does not automatically
drop down; in order for it to do so, none of its exclusions can apply.” 46 C.J.S.
Insurance, supra. In support of this statement the author of this CJS section cited
Boggs v. Camden-Clark Memorial Hospital Corporation, 693 S.E.2d 53 (W. Va.
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2010). This case includes a collection of cases independently examining
exclusions in umbrella policies. Id. at 69 n.28.
One of the cases collected in Boggs is Weitz v. Allstate Insurance
Company, 642 A.2d 1040 (N.J. Super. Ct. App. Div. 1994). In Weitz, the court
held an umbrella policy which excluded injuries to members of the insured’s
household prevented coverage even though the claim was covered by a primary
auto liability policy. The court further explained:
The [umbrella] policy should not be read as simply an
endorsement to basic policies to raise their dollar limits.
It provides coverages unavailable in auto and
homeowners’ policies, for example, for defamation,
malicious prosecution, false arrest, invasion of privacy,
and violation of civil rights. As its coverages depart from
auto and homeowners’ policies, it should not be a
surprise that its exclusions are also different.
Id. at 1041.
In the specific context of an umbrella policy with a liquor liability
exclusion, we have found only one unpublished case addressing an umbrella
exclusion of liquor liability, even though a primary policy provided such
coverage. Berkhouse v. Great American Assurance Company, No. 13-0264, 2013
WL 6152414 (W. Va. Nov. 22, 2013) (umbrella exclusion upheld). While the
circumstances of any cited case may be distinguishable, the general principle
applies – an umbrella policy may exclude additional coverage for specific claims
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covered by a primary policy. With this understanding of this general principle,
we should again examine the undisputed facts of this case regarding the CUP.
The first paragraph of the CUP at issue states: “Various provisions in
this policy restrict coverage. Read the entire policy carefully to determine rights,
duties and what is and is not covered.” The body of the policy contains Section I –
Coverages, Subsection 2. Exclusions, with subsection c. Liquor Liability. This
Section I 2 c excludes Liquor Liability but makes an exception for liability arising
from the business of the insured of serving alcohol. The language then indicates
the umbrella coverage will follow the primary policy, “unless otherwise directed
by this insurance.”
An otherwise direction is provided by Endorsement CU 47:
Endorsement CU 47
LIQUOR LIABILITY EXCLUSION
This Endorsement Changes The Policy. Please Read
It Carefully.
This Endorsement modifies insurance provided under the
following:
COMMERCIAL LIABILITY UMBRELLA PART
Exclusion c. of Paragraph 2. Exclusions of SECTION I-
Coverage A - Bodily Injury and Property Damage
Liability is replaced by the following:
c. Liquor Liability
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“Bodily injury” or “property damage” for which any
insured may be held liable by reason of:
(1) Causing or contributing to the intoxication of
any person;
(2) The furnishing of alcoholic beverages to a
person under the legal drinking age or under
the influence of alcohol; or
(3) Any statute, ordinance or regulation relating
to the sale, gift, distribution or use or
alcoholic beverages.
This exclusion applies only if you are in the business of
manufacturing, distributing, selling, serving or furnishing
alcoholic beverages.
The words, as they appear above, except for the last sentence, repeat the already
existing language in the same section of the underlying umbrella policy, but most
of the additional two paragraphs, which are clearly part of Section I 2 c. in the
body of the policy, is gone.
The word replace has an unambiguous meaning. Merriam-Webster
defines replace as, “1. To restore to a former place or position; 2. To take the
place of especially as a substitute or successor; 3. To put something new in the
place of.” Replace, MERRIAM-WEBSTER, https://www.merriam-webster.com/
dictionary/replace (last visited Oct. 16, 2023). The CU 47 endorsement replaced
the entirety of Section I 2 c of the policy, intentionally deleting the paragraphs
which otherwise would have provided coverage.
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The parallel wording of the endorsement and original document, along
with the word “replace,” plainly indicate that the only reason this endorsement
existed was to remove the paragraphs in the policy form which otherwise would
have followed the more limited language in CU 47. The longer version of this
section of the policy was to be replaced in its entirety by the shorter version. The
shorter and more limited language in CU 47 was intended to be the full and
complete language of Section I 2 c.
It does not make sense for CU 47 to be considered a supplement for
the extra language found in the form policy, because the plain language of CU 47
was to replace all the original language. The text left was essentially the same as
the text replaced except for the deleted paragraphs. Finding no ambiguity within
the CUP itself and recognizing an umbrella does not have to mirror a primary
policy, there is no ambiguity when the entire CUP is read. The replacement of the
entire section modified the overall coverage of the policy.
The word replace is not technical. When batteries run down, we
replace them. When we do so, we do not chop up parts of the old batteries and
graft them to newer parts. The old batteries are removed completely, and the new
ones replace them. The same is true with the policy language here. The entire
section in the form policy was removed and replaced by the language of the
endorsement.
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Without an ambiguity, the expectations of the insured do not control.
True v. Raines, 99 S.W.3d 439, 443 (Ky. 2003). This record does not tell us
whether or why Roosters did or did not seek the additional umbrella coverage for
liquor liability. The circuit court and this Court could equally assume Roosters just
thought there would be more coverage because of their idea of an “umbrella.” But
they could have decided not to pay the cost for such additional coverage. Grange
may have decided to limit its liability by not extending liquor liability by an
umbrella.
But courts are not in the business of assumptions. Rather, we apply
facts to the law. None of these referenced assumptions have evidentiary support in
the record. But it is at least curious that there was no response to Grange’s clear
denial of umbrella coverage for two years – no letter or other communication
documented to suggest anyone with Roosters felt misled or confused about the lack
of liquor liability coverage in the umbrella they had purchased.
CONCLUSION
For the foregoing reasons, we REVERSE the Fayette Circuit Court
and direct a declaratory judgment that the CUP does not provide coverage and thus
also does not impose a duty under the CUP to defend the claims in this case.
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LAMBERT, JUDGE, CONCURS.
MCNEILL, JUDGE, DISSENTS AND FILES SEPARATE
OPINION.
MCNEILL, JUDGE, DISSENTING: I respectfully dissent. First, I believe that the
circuit court reached the proper result with sufficient explanation. The record
reflects that the trial judge has been immersed in this difficult case for years, and is
certainly well-acquainted with the underlying issues and facts. Moreover, the trial
court observed that “[i]n analyzing the contract, the Court also acknowledges that
it cannot ignore the purpose of an umbrella policy, that it is created to supplement
the underlying policy.” (Emphasis added.) Although the majority cites this
finding, it does not discuss the remainder of the circuit court’s reasoning. In any
event, even if the underlying judgment lacked support, our de novo standard
requires this Court to conduct a fresh review of the matters presented, without
reliance upon the underlying judgment. And like our standard of review, the
substantive law is clear, “[i]f the contract language is ambiguous, it must be
liberally construed to resolve any doubts in favor of the insured.” Wolford v.
Wolford, 662 S.W.2d 835, 838 (Ky. 1984) (citation omitted).
As to the merits, the majority reverses the circuit court on the basis
that there is no ambiguity in the relevant contractual provisions. In support, the
majority discusses umbrella coverage generally, supported in part by citation to
non-binding authority. However, the present issue is not novel. And the question
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posed is purely legal – is there ambiguity? I find in the affirmative. Although, I
acknowledge that reasonable minds may differ – as occurred here. More precisely,
four judges have reviewed this matter. Two have found ambiguity, and two have
not. While the latter conclusion mandates the present disposition, the disagreement
between the reasonable minds having pondered this issue is, at least, a facial
indication of ambiguity. Yet, the ambiguity here is more than cosmetic.
For example, the majority does not address the exception to the
exclusion language also contained in the CUP. In other words, negation language
replaces such prior language, but says nothing of the affirmative language
following the original exclusion. Unless it is made abundantly clear that all such
language abrogates all prior language, which was not the case here, there is
ambiguity. This is essentially the same reason advanced by the circuit court. And
when buttressed with the circuit court’s relevant observation that the purpose of
this umbrella policy is to supplement the underlying policy, I agree with the circuit
court’s conclusion that “two reasonable interpretations could be made of the
language . . . .” Therefore, I would affirm.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
Robert L. Steinmetz Donald L. Cox
Louisville, Kentucky William H. Mooney
Louisville, Kentucky
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