FIRST MERCURY INSURANCE COMPANY, INC., Defendant Below, Petitioner
JEFFREY RUSSELL AND ANITA RUSSELL, Plaintiffs Below, Respondents, and KIMES STEEL, INC., Defendant Below, Respondent
Submitted: September 12, 2017
from the Circuit Court of Mason County Civil Action No.
14-C-18 Honorable David W. Nibert, Judge
A. Parker Charity K. Lawrence Spilman Thomas & Battle,
PLLC Charleston, West Virginia Attorneys for the Petitioner,
First Mercury Insurance Company
K. Kesner Ernest G. Hentschel, II Kesner & Kesner, PLLC
Charleston, West Virginia Attorneys for the Respondents,
Jeffrey and Anita Russell
A. Nelson Ashley W. French Dinsmore & Shohl, LLP
Charleston, West Virginia Attorneys for the Respondent, Kimes
"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).
"'"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).
"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).
"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).
"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).
"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
"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).
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.
AND PROCEDURAL HISTORY
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. Ultimately, First Mercury, a surplus lines
carrier, responded to the solicitation by submitting
a bid to provide the coverage required by James River Coal.
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"). The First Mercury
excess policy includes a standard "follow form"
provision, which incorporates the terms of the underlying
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). 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
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.
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.
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.