First Mercury Ins. Co. v. Russell

806 S.E.2d 429

FIRST MERCURY INSURANCE COMPANY, INC., Defendant Below, Petitioner

v. Jeffrey RUSSELL and Anita Russell, Plaintiffs Below, Respondents,andKimes Steel, Inc., Defendant Below, Respondent

No. 16-0596

Supreme Court of Appeals of West Virginia.

Submitted: September 12, 2017

Filed: October 19, 2017

Don C. A. Parker, Charity K. Lawrence, Spilman Thomas & Battle, PLLC, Charleston, West Virginia, Attorneys for the Petitioner, First Mercury Insurance Company

Brent K. Kesner, Ernest G. Hentschel, II, Kesner & Kesner, PLLC, Charleston, West Virginia, Attorneys for the Respondents, Jeffrey and Anita Russell, Kevin A. Nelson, Ashley W. French, Dinsmore & Shohl, LLP, Charleston, West Virginia, Attorneys for the Respondent, Kimes Steel, Inc.

Davis, Justice:

This appeal was brought by the Petitioner, First Mercury Insurance Company, Inc. ("First Mercury"), defendant below, from an order of the Circuit Court of Mason County that denied First Mercury's motion for partial summary judgment and, in turn, granted partial summary judgment as to coverage to Respondents Jeffrey Russell and Anita Russell ("Mr. Russell" or "the Russells"), plaintiffs below, and Respondent Kimes Steel, Inc. ("Kimes Steel"), defendant below. The dispositive issue herein is whether coverage exists for a statutory deliberate intent action when the employer's commercial general liability policy is amended by an endorsement that includes a "Stop Gap—Employers Liability Coverage Endorsement—West Virginia" that expressly provides coverage for bodily injury to employees, as well as an exclusion for statutory deliberate intent claims. After careful review of the circuit court's order, the briefs, the record submitted on appeal, and the oral arguments of the parties, we find the policy at issue in this case to be internally inconsistent and therefore ambiguous. Accordingly, we interpret the policy in favor of the insured and affirm the circuit court's partial summary judgment rulings.

I.FACTUAL AND PROCEDURAL HISTORY

In 2012, Kimes Steel sought to purchase various types of insurance coverage in order to meet the insurance requirements for a potential client contract with James River Coal. Specifically, among other things, James River Coal required $1,000,000.00 of coverage for commercial general liability ("CGL") (combined single limit) and employer's liability (per accident), and $5,000,000.00 of excess liability coverage. Mr. Shannon Kimes, the principal of Kimes Steel, worked with an independent insurance agent who solicited quotes for the required insurance coverage based upon a list provided by James River Coal.¹ Ultimately, First Mercury, a surplus lines carrier,² responded to the solicitation by submitting a bid to provide the coverage required by James River Coal.

Thereafter, Kimes Steel purchased two insurance policies from First Mercury. The first policy purchased from First Mercury provides primary CGL coverage. The second policy purchased provides excess coverage. The First Mercury CGL policy contains a standard exclusion for employer's liability for injuries to employees. However, the standard exclusion is modified by an endorsement identified as "Stop Gap—Employers Liability Coverage Endorsement—West Virginia" ("Stop Gap").³ The First Mercury excess policy includes a standard "follow form" provision, which incorporates the terms of the underlying policy.

The two First Mercury policies were in place when Mr. Russell was involved in a workplace accident at Kimes Steel on May 3, 2013. The accident resulted in severe injuries to Mr. Russell's dominant hand and the amputation of a finger. On February 4, 2014, the Russells filed their complaint alleging that Kimes Steel acted with "deliberate intention" as defined in W. Va. Code § 23-4-2 (2005) (Repl. Vol. 2010).⁴ The Russells alleged that Kimes Steel required its employee, Jeffrey Russell, to perform his job duties without required safety equipment, instructions, and precautions for working with table saws, and subjected him to a specific unsafe working condition that presented a high degree of risk and strong probability of serious injury or death.

First Mercury issued a denial of coverage letter to Kimes Steel on May 5, 2014. The letter informed Kimes Steel that First Mercury would "not provide ... a legal defense to the lawsuit, nor [would] it indemnify Kimes Steel as to any damages for which Kimes Steel may be liable to Jeffrey or Anita Russell." First Mercury also filed a declaratory judgment action in the United States District Court for the Southern District of West Virginia seeking a declaration that the policies provide no coverage for the Russells' claims. The declaratory judgment action was dismissed by the district court. Thereafter, in June 2014, the Russells amended their complaint by adding a declaratory judgment claim against First Mercury alleging that First Mercury is obligated to provide a defense and indemnification to Kimes Steel under the subject insurance policies. In October 2014, Kimes Steel filed a cross-claim against First Mercury asserting breach of contract and bad faith arising from First Mercury's denial of coverage to Kimes Steel with respect to the Russells' claims.

On March 18, 2015, the circuit court entered an agreed order vacating a previously entered scheduling order and staying discovery of the underlying Russell tort claim allegations pending resolution of the coverage issues. Subsequently, First Mercury moved for partial summary judgment on the coverage issues. Kimes Steel and the Russells responded by also filing separate motions for partial summary judgment as to the coverage issues.

Following briefing and arguments, the circuit court entered its May 18, 2016, "Order Denying Defendant First Mercury Insurance Company's Motion for Partial Summary Judgment and Granting Plaintiffs' Cross-Motion and Defendant Kimes Steel's Motion for Partial Summary Judgment on Coverage Issues."

The circuit court's order can be summarized as finding coverage based upon its conclusion that the Stop Gap endorsement language is ambiguous with respect to covering the Russells' deliberate intent action. Additionally, the circuit court concluded that Kimes Steel had a reasonable expectation of coverage for the Russells' claims, that the policy language rendered the stop gap coverage illusory, that First Mercury was estopped from denying coverage, and, further, that First Mercury owed a duty to defend Kimes Steel. It is from this order that First Mercury now appeals.

II.STANDARD OF REVIEW

First Mercury appeals the order of the circuit court granting partial summary judgment in favor of the Russells and Kimes Steel and denying First Mercury's motion for partial summary judgment. It is well settled that "[a] circuit court's entry of summary judgment is reviewed de novo." Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994). In undertaking our de novo review, we apply the same standard for granting summary judgment that is applied by the circuit court:

" ‘A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.’ Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963)." Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).

Syl. pt. 2, Painter, 192 W. Va. 189, 451 S.E.2d 755.

Additionally, it is well recognized that "[t]he interpretation of an insurance contract, including the question of whether the contract is ambiguous, is a legal determination that, like a lower court's grant of summary judgment, shall be reviewed de novo on appeal." Syl. pt. 2, Riffe v. Home Finders Assocs. Inc., 205 W. Va. 216, 517 S.E.2d 313 (1999). Mindful of the de novo standard governing our review, we proceed to consider the substantive issues raised.

III.DISCUSSION

First Mercury advances four assignments of error challenging the circuit court's conclusion that the Stop Gap endorsement and related exclusion were ambiguous. On the other hand, the Russells and Kimes Steel assert that the circuit court properly found First Mercury's policy to be inherently ambiguous. Accordingly, this appeal is resolved by considering the policy language.⁵

The First Mercury CGL policy issued to Kimes Steel contains a typical insuring agreement accompanied by an exclusion of coverage for bodily injury to an employee.⁶ Neither of these provisions is disputed in this appeal. This case turns on a stop gap endorsement appended to the CGL policy and titled "Stop Gap—Employers Liability Coverage Endorsement—West Virginia." The Stop Gap endorsement modifies the exclusion of bodily injury coverage to an employee that is contained in the First Mercury CGL policy. The Stop Gap endorsement provides, in relevant part:

A. The following is added to Section I—Coverages:

COVERAGE—STOP GAP—EMPLOYERS LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated by West Virginia Law to pay as damages because of "bodily injury by accident" or "bodily injury by disease" to your "employee" to which this insurance applies....

To put into perspective the Stop Gap endorsement set out above, it is important to first understand the meaning this Court has ascribed to the term "stop gap" coverage. This Court addressed that term in Erie Insurance Property & Casualty Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 553 S.E.2d 257 (2001), wherein the Court observed that, "[i]n many states, insurance companies offer businesses three types of insurance coverage: commercial general liability coverage; workers' compensation coverage; and ‘stop gap’ employers' liability coverage." Id. at 67, 553 S.E.2d at 261. In explaining the three coverage types, the Court noted that a CGL policy protects a business against a variety of liability claims but typically does not provide...