St. Paul Guardian Ins. Co. v. City of Newport

ST. PAUL GUARDIAN INSURANCE COMPANY; PHOENIX INSURANCE CO.;TRAVELERS INDEMNITY COMPANY OF AMERICA, Plaintiffs-Appellees, v. CITY OF NEWPORT, KY; MARK BRANDT; NORM WAGNER; PAT MOORE;HOWARD NIEMEIER; SARAH TOLLE, fka Sarah Desentz; SERGEANT ROBERT BRADFORD;LIEUTENANT TOM FROMME; RICK SEARS, Defendants-Appellants,WILLIAM R. VIRGIL; LIEUTENANT COLONEL KEN PAGE, Defendants.

No. 19-5948

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

March 30, 2020

NOT RECOMMENDED FOR PUBLICATION

File Name: 20a0181n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY

Before: STRANCH, BUSH, and LARSEN, Circuit Judges.

LARSEN, Circuit Judge. After serving twenty-eight years of his seventy-year sentence for murder, William Virgil was released from prison and granted a new trial on the strength of new DNA evidence. The charges against him were subsequently dismissed. Virgil sued the City of Newport, Kentucky, and various police officers (collectively, Newport) under 42 U.S.C. § 1983, alleging, among other claims, malicious prosecution. But that is not this case; this is an insurance case. St. Paul Guardian Insurance Company, The Phoenix Insurance Company, and The Travelers Indemnity Company of America (collectively, St. Paul) asked the district court for a declaratory judgment that they have no duty to defend or indemnify the City of Newport and its officers from Virgil's lawsuit. The district court granted that judgment. We disagree and therefore REVERSE and REMAND.

I.

Retha Welch was raped and murdered in 1987. In 1988, Virgil was convicted for her murder and sentenced to seventy years in prison. In 2015, Virgil was released from prison in light of new DNA testing that excluded him as the source of the semen found on Welch. When a Kentucky grand jury declined to indict him two years later, the charges against Virgil were dismissed. After his release, Virgil brought a § 1983 action against Newport, raising several claims, including malicious prosecution; due process violations for fabricating evidence and withholding exculpatory evidence; failure to intervene; failure to train, supervise, and discipline the city's police officers; and a conspiracy to "frame" Virgil for Welch's murder.

From July 2007 to July 2010, St. Paul insured Newport via three one-year insurance policies, each of which included an identical law-enforcement liability (LEL) provision.¹ The LEL provision reads as follows:

Law enforcement liability. We'll pay amounts any protected person is legally required to pay as damages for covered injury or damage that:

• results from law enforcement activities or operations by or for you;

• happens while this agreement is in effect; and

• is caused by a wrongful act that is committed while conducting law enforcement operations.

The policies define "injury or damage" as "bodily injury, personal injury, or property damage." Under the policies, "bodily injury" means "any harm to the health of other persons" and "personal injury" means any "injury, other than bodily injury, caused by any of the following wrongful acts[, including] . . . [m]alicious prosecution."²

In accord with its reading of those policies, Newport "demand[ed] that [St. Paul] defend and indemnify [Newport] with respect to [Virgil's] claims." In response, St. Paul sought a declaration from the district court that it had no duty to defend or indemnify Newport under those policies. Both parties moved for summary judgment. St. Paul argued that the LEL provision of the policies did not provide coverage "because the personal injury complained of by Virgil happened decades prior to the [policies' coverage] periods." The district court agreed and granted St. Paul's motion. Newport timely appealed.

II.

"We review a district court's summary judgment decision de novo, applying the same standards the district court used." Franklin Am. Mortg. Co. v. Univ. Nat'l Bank of Lawrence, 910 F.3d 270, 275 (6th Cir. 2018). Summary judgment is proper where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ.P. 56(a). We consider the facts and all related inferences "in the light most favorable to the party against whom summary judgment was entered." Franklin, 910 F.3d at 275 (quoting Villegas v. Metro. Gov't of Nashville, 709 F.3d 563, 568 (6th Cir. 2013)).

The "only contested issue" on appeal is one of contract interpretation—whether Virgil's alleged injuries "happen[ed] while" any of the relevant insurance policies were "in effect." "As a general rule, interpretation of an insurance contract is a matter of law for the court." United Specialty Ins. Co. v. Cole's Place, Inc., 936 F.3d 386, 402 (6th Cir. 2019) (quoting Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 810 (Ky. Ct. App. 2000)). When interpreting insurance contracts in diversity cases, we "apply Kentucky law in accordance with the controlling decisions of the Supreme Court of Kentucky." Id. (quoting Auto Club Prop.-Cas. Ins. Co. v. B.T. ex rel. Thomas, 596 F. App'x 409, 413 (6th Cir. 2015)). If, as here, "the state supreme court has not yet addressed the issue presented, we must predict how the court would rule by looking to all the available data." Id. (quoting Allstate Ins. Co. v. Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 454 (6th Cir. 2001)).

Under Kentucky law, the terms of an insurance contract "which have no technical meaning in law, must be interpreted in light of the usage and understanding of the common man." State Farm Mut. Auto. Ins. Co. v. Slusher, 325 S.W.3d 318, 322 (Ky. 2010) (quoting Bituminous Cas. Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633, 638 (Ky. 2007)). St. Paul must defend Newport if any of Virgil's allegations "potentially, possibly[,] or might come within the coverage of the policy," United Specialty Ins., 936 F.3d at 403 (quoting James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991)). Indeed, "the duty to defend is broader than the duty to indemnify." James Graham Brown Found., 814 S.W.2d at 280. We compare "the allegations in [Virgil's] underlying complaint with the terms of the insurance policy"to make both determinations. United Specialty Ins., 936 F.3d at 403 (quoting Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 507 (6th Cir. 2003)).

The Fifth Circuit recently interpreted the same policy language that we consider here. As that court noted:

The . . . policy provides coverage for "injury or damage that . . . happens while this agreement is in effect." That temporal requirement applies only to the injury. The two other requirements for coverage—that the injury resulted from the insured's "law enforcement activities" and was "caused by a wrongful act that is committed while conducting law enforcement operations"—do not have a temporal limitation. [The insurer] thus bargained for an injury-based trigger of coverage, not an act-based trigger.

Travelers Indem. Co. v. Mitchell, 925 F.3d 236, 241 (5th Cir. 2019) (second alteration in original). We agree with this reading of the policy and with the Fifth Circuit's assessment that, "[u]nder the policy's plain terms, [the insurer] must defend any claim in which covered injuries occurred" while the agreements were in effect (here, between July 2007 and July 2010) "regardless of when the wrongful causal act occurred." Id. St. Paul seems to agree with this reading as well. See Appellee Br. at 20 ("[T]he occurrence which triggers coverage is the claimant's injury, not the policyholder's wrongful act.").

Two questions then, are vital: What are Virgil's alleged injuries? And when did they happen? We look first to what injuries Virgil alleged. See id. Virgil says that he "spent more than 28[ ]years incarcerated for crimes he did not commit," resulting in "emotional pain and suffering" and "loss of a normal life," depriving him of "nearly a decade of life experiences." But St. Paul contends that Virgil suffered a "malicious prosecution injury," which "happened" or was "caused at the time of the wrongful institution of the legal process." In St. Paul's view, the "unlawful detention that follows simply forms part of the damages for the malicious prosecution injury" that happened earlier. But St. Paul's argument misreads the complaint and is contrary to the plain terms of the LEL provision.

First, Virgil did not allege a malicious prosecution injury; he raised, among others, a malicious prosecution claim. The injuries alleged in his complaint are the various harms that were caused by or flowed from that wrongful act.

Second, the policies by their terms cover "damages" that the insured is "legally required to pay" for any "personal injury," i.e., any "injury caused by any of the following wrongful acts[, including] . . . [m]alicious prosecution." Thus, by the plain terms of the LEL Provision, covered personal injuries include any injuries caused by the wrongful act—malicious prosecution. Malicious prosecution cannot, therefore, be the injury. The policy does not define the term "injury" in isolation, but it has been reliably defined elsewhere to mean "a wrong inflicted or suffered," or a "[h]urt or loss caused to or sustained by a person." Injury, Oxford English Dictionary (2d ed. 1989).

We believe that this definition is consistent with how a common person would understand or use the word "injury." See State Farm Mut. Auto. Ins., 325 S.W.3d at 322. It is also consistent with Newport's argument that Virgil's injury was the "loss of personal liberty and attendant emotional pain and suffering caused as those years [of imprisonment] passed Virgil by." And there is no dispute that such injuries were caused by the alleged wrongful act of malicious prosecution.

As to when Virgil's injuries happened, St. Paul contends that they happened when he was "criminally charged or bound over for trial." To support this contention, St. Paul relies on what it calls the "majority rule." Under this rule, St. Paul...