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First Mercury Insurance Company, Inc. v. Russell

Supreme Court of West Virginia

October 19, 2017

FIRST MERCURY INSURANCE COMPANY, INC., Defendant Below, Petitioner
v.
JEFFREY RUSSELL AND ANITA RUSSELL, Plaintiffs Below, Respondents, and KIMES STEEL, INC., Defendant Below, Respondent

          Submitted: September 12, 2017

         Appeal from the Circuit Court of Mason County Civil Action No. 14-C-18 Honorable David W. Nibert, Judge

          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.

         SYLLABUS

         1. "A circuit court's entry of summary judgment is reviewed de novo" Syllabus point 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).

         2. "'"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)." Syllabus point 2, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).

         3. "The 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." Syllabus point 2, Riffe v. Home Finders Associates, Inc., 205 W.Va. 216, 517 S.E.2d 313 (1999).

         4. "Employers' liability insurance applies to actions brought by an employee against an employer, when the employer and the employee are not entitled to the benefits and protections under any workers' compensation law, or when, even though covered by a workers' compensation law, the employee has a right to bring an action for common law damages against the employer." Syllabus point 3, Erie Insurance Property & Casualty Co. v. Stage Show Pizza JTS, Inc., 210 W.Va. 63, 553 S.E.2d 257 (2001).

         5. "It is well settled law in West Virginia that ambiguous terms in insurance contracts are to be strictly construed against the insurance company and in favor of the insured." Syllabus point 4, National Mutual Insurance Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), overruled on other grounds by Parsons v. Halliburton Energy Services, Inc., 237 W.Va. 138, 785 S.E.2d 844 (2016).

         6. "Where ambiguous policy provisions would largely nullify the purpose of indemnifying the insured, the application of those provisions will be severely restricted." Syllabus point 9, National Mutual Insurance Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), overruled on other grounds by Parsons v. Halliburton Energy Services, Inc., 237 W.Va. 138, 785 S.E.2d 844 (2016).

         7. "Where the policy language involved is exclusionary, it will be strictly construed against the insurer in order that the purpose of providing indemnity not be defeated." Syllabus point 5, National Mutual Insurance Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), overruled on other grounds by Parsons v. Halliburton Energy Services, Inc., 237 W.Va. 138, 785 S.E.2d 844 (2016).

          OPINION

          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 ...


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