UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 11-1222

ROBERT E. GRAHAM,

Plaintiff - Appellant,

v.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,

Defendant - Appellee.

Appeal from the United States District Court for the Southern 

District of West Virginia, at Bluefield. David A. Faber, Senior 

District Judge. (1:10-cv-00453-DAF)

Argued: January 25, 2012 Decided: April 11, 2012

Before KING, GREGORY, and FLOYD, Circuit Judges.

Reversed and remanded by unpublished opinion. Judge Floyd wrote 

the opinion, in which Judge King and Judge Gregory joined.

ARGUED: Michael W. Carey, CAREY SCOTT DOUGLAS & KESSLER, PLLC, 

Charleston, West Virginia, for Appellant. Don C. A. Parker, 

SPILMAN, THOMAS & BATTLE, PLLC, Charleston, West Virginia, for 

Appellee. ON BRIEF: John A. Kessler, David R. Pogue, CAREY 

SCOTT DOUGLAS & KESSLER, PLLC, Charleston, West Virginia, for 

Appellant. Lisa J. Bray, SPILMAN, THOMAS & BATTLE, PLLC, 

Charleston, West Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
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FLOYD, Circuit Judge:

In this appeal we consider whether the district court 

properly granted summary judgment to National Union Fire 

Insurance Company of Pittsburgh, Pennsylvania (National Union), 

holding that the company had no duty to defend Robert Graham in 

a 2004 civil action brought by the State of West Virginia. For 

the reasons stated below, we reverse.

I.

A.

Graham is the former Executive Director of two not-forprofit West Virginia corporations, the Council on Aging, Inc.

and All Care Home and Community Services, Inc. The Council on 

Aging provides social and other services to West Virginia’s 

elderly through state and federal grants, and fees from state 

and federal Medicaid funds. All Care Home provides Medicaid 

case management services to the elderly through fees from state

and federal Medicaid funds. The same individuals compose the 

Board of Directors of each corporation.

During all relevant times, National Union insured both 

corporations under a general liability insurance policy. The 

policy covers, among other things, claims for wrongful acts and 

a defense of the “insured” against such claims. Graham 

qualifies as an “insured” under the policy.
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National Union’s wrongful act coverage includes a litany of 

exclusions, four of which are relevant here:

• Exclusion A, providing that the policy does not cover 

“[a]ny claim based upon or attributable to the ‘insured’ 

gaining in fact any personal profit or advantage to which 

they were not legally entitled, including remuneration paid 

in violation of law as determined by the courts”;

• Exclusion C, providing that the policy does not cover 

“[a]ny claim brought about or contributed to by fraud, 

dishonesty or criminal act of any ‘insured’”;

• Exclusion I, providing that the policy does not cover 

“[a]ny claim[] made against the ‘insured’ for damages 

attributable to wages, salaries and benefits”; and

• Endorsement #14, providing that the policy does not cover 

claims for non-pecuniary relief.

Notably, Exclusion C contains an exception indicating that the 

policy will cover claims “brought about or contributed to by 

fraud, dishonesty or criminal act,” unless and until “a judgment 

or other final adjudication” or “admission of guilt” establishes 

that the insured committed the act(s).

B.

In 2004, West Virginia (the State) filed a civil complaint 

against Graham and the two corporations, alleging that they had 
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breached the public trust in their use of public funds and that,

as a result, Graham had been unjustly enriched at the expense of 

taxpayers. The complaint asserted, among other things, that 

Graham collected excess compensation and benefits related to his 

employment, Graham exploited the Board of Directors, Graham 

breached his legal duty “to make full disclosure of all material 

facts to the Board of Directors when asking their approval of 

expenditures which [would] inure to his personal benefit, or to 

the benefit of his family,” and the Board of Directors breached 

its legal duty “not to make distributions of assets or income 

other than to serve the charitable purposes for which [the 

organizations] were formed.” 

The State sought (1) a preliminary injunction, (2)

appointment of a receiver or court-monitor to oversee the 

operations of the corporations, (3) a complete and independent 

accounting of the corporations and of Graham’s personal assets

and financial dealings, (4) a final injunction removing Graham 

from his position and authority to act on behalf of the 

corporations and requiring implementation of accountability 

mechanisms and procedures, (5) a declaration encumbering 

Graham’s assets by constructive trust to the extent that he was 

unjustly enriched, (6) a judgment requiring Graham “to disgorge 

any excess compensation or other moneys unjustly obtained,” and 

(7) an order requiring that “any moneys . . . collected from 
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Graham pursuant to [a] judgment be expended on the charitable 

purposes for which the defendant corporations were formed.”

Upon receipt of the State’s complaint, Graham’s counsel 

forwarded it to National Union’s agent, AIG Claims Services, 

Inc., requesting coverage. AIG declined, however, indicating 

that Exclusion A, Exclusion I, and Endorsement #14 barred Graham 

from coverage for the State’s claims. Accordingly, Graham 

furnished his own defense throughout the state court 

proceedings. 

Nearly five-and-a-half years after the State filed its 

complaint, the Circuit Court for Kanawha County granted summary 

judgment to Graham and the corporations, holding that the issues 

raised by the State were moot because of changed circumstances.

According to the circuit court, the State’s claims were moot 

because the corporations had removed Graham as Executive 

Director, passed a resolution prohibiting Graham’s “involvement 

in any aspect of the management, business operations or affairs 

of the [c]orporations,” and instituted policies to prevent a 

subsequent executive director from repeating Graham’s conduct. 

Additionally, the State’s claim for repayment of excess 

compensation was moot because the State had filed the claim to 

benefit the corporations, and Graham and the corporations had 

agreed to relinquish any claims against each other.
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C.

On March 3, 2010, Graham filed this lawsuit, alleging that 

National Union had breached its contractual duty to defend him

against the State’s 2004 claims. Graham seeks attorneys’ fees 

incurred in the underlying action and this action, and “damages 

and other relief available under West Virginia law to a 

policyholder who substantially prevails against his insurer.”

The district court, exercising jurisdiction under 28 U.S.C. 

§ 1332, granted summary judgment to National Union, holding that 

the insurer had no duty to defend Graham because Exclusion I of 

its policy barred Graham from coverage for the State’s claims.

Graham now appeals.

 

II.

We review a grant of summary judgment de novo. Brandt v. 

Gooding, 636 F.3d 124, 132 (4th Cir. 2011). We view facts in 

the light most favorable to the nonmoving party when there is a 

genuine issue regarding those facts. Witt v. W. Va. State 

Police, Troop 2, 633 F.3d 272, 277 (4th Cir. 2011). A court

must “grant summary judgment if the movant shows that 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).
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A.

In this diversity action, the parties agree that West 

Virginia law applies. In West Virginia, “an insurer’s duty to 

defend is tested by whether the allegations in the plaintiff’s 

complaint are reasonably susceptible of an interpretation that 

the claim may be covered by the terms of the insurance policy.” 

Aetna Cas. & Sur. Co. v. Pitrolo, 342 S.E.2d 156, 160 (W. Va. 

1986). “Thus, the duty to defend an insured may be broader than 

the obligation to pay under a particular policy.” Tackett v. 

Am. Motorists Ins. Co., 584 S.E.2d 158, 162-63 (W. Va. 2003) 

(quoting Pitrolo, 342 S.E.2d at 160) (internal quotation marks 

omitted). “[I]f part of the claims against an insured fall 

within the coverage of a liability insurance policy and part do 

not, the insurer must defend all of the claims, although it 

might eventually be required to pay only some of the claims.” 

Id. (quoting Horace Mann Ins. Co. v. Leeber, 376 S.E.2d 581, 584 

(W. Va. 1988)) (internal quotation marks omitted).

Here, the district court held that National Union had no 

duty to defend Graham because “[t]he [State’s] complaint in the 

underlying lawsuit focused on Graham’s excessive compensation 

and disproportionately generous benefits package as one of the 

central ways in which Graham abused his position and 

misappropriated his employer’s resources.” Graham v. Nat’l 

Union Ins. Co. of Pittsburgh, Pa., No. 1:10-00453, 2011 WL 
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673945, at *3 (S.D. W. Va. Feb. 17, 2011). The court reasoned 

that the State’s claims were “directly ‘attributable to wages, 

salaries and benefits’” and thus barred from coverage by 

Exclusion I. Id. We disagree.

The State’s complaint alleged acts “attributable to wages, 

salaries and benefits.” But it also asserted that Graham wasted 

taxpayer funds and exploited the Board of Directors.

For example, the complaint averred that Graham used

taxpayer funds to supply the basement of a senior center with 

“state-of-the-art exercise equipment” that the seniors did not 

use and to outfit “[t]he upper floors [of the center], 

accessible only by stairs, . . . with pool tables, and a 

handsomely furnished apartment complete with a large screen 

TV, . . . a tanning bed, and a hot tub.” The complaint also 

alleged that Graham “remove[d] all representation on the Board 

from public agencies” so that the Board “consist[ed] only of 

members (patrons) age 60 and over,” and that it was his practice 

to present the Board with “perfunctory written recommendations” 

that were approved “without full disclosure . . . of the facts” 

and “without appreciation by the Board of the consequences of 

their actions.” 

We think it plain, therefore, that the complaint’s

allegations were not entirely “attributable to wages, salaries 

and benefits,” and consequently, we cannot conclude, as the 
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district court did, that Exclusion I absolved National Union of 

its duty to defend Graham. Rather, we hold that because

Exclusion I applied to some but not all of the State’s claims, 

National Union had a duty to defend Graham unless another 

exclusion precluded coverage. See Tackett, 584 S.E.2d at 163. 

And our review of the policy reveals no other applicable 

exclusions or endorsements. Endorsement #14 fails to bar 

coverage because the State did not confine its requested relief 

to non-pecuniary measures; rather, it requested a judgment that 

required Graham “to disgorge any excess compensation or other 

moneys unjustly obtained.” Exclusion A also fails because it 

requires a determination “by [a] court[]” that the insured 

“gain[ed] . . . personal profit or advantage to which [he was]

not legally entitled.” Here, where the trial court ultimately 

dismissed the State’s claims as moot, the necessary court 

determination is lacking. 

B.

Not only do the exclusions and endorsements in National 

Union’s policy fail to absolve it of a duty to defend Graham, 

the exception to Exclusion C effectively reaffirms the duty.

 Recall that Exclusion C bars coverage for “[a]ny claim 

brought about or contributed to by fraud, dishonesty or criminal 

act of any ‘insured,’” but not until “a judgment or other final 
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adjudication . . . establish[es] that acts of active or 

deliberate fraud, dishonesty or criminal act [were] committed by 

such ‘insured(s)’ or . . . there [is] an admission of guilt by 

the ‘insured.’” Without such an adjudication or admission, 

coverage remains intact.

Graham contends, and National Union does not dispute,* that 

the State’s complaint included allegations that Graham unjustly 

enriched himself through fraud and dishonesty. Thus, National 

Union had a duty to defend Graham until either he admitted guilt 

or the court determined he committed the acts. Because the 

trial court dismissed the State’s claims as moot, however, no

“judgment or other final adjudication” or “admission of guilt”

occurred. Thus, we are compelled to hold that the exception to 

Exclusion C required National Union to defend Graham and that 

National Union breached its contractual duty by not doing so.

In so holding, we recognize that the district court 

concluded otherwise, reasoning instead that the exception to

Exclusion C mandated coverage only to the extent that no other 

policy exclusion applied to the claims. See Graham, 2011 WL 

 * The parties failed to include National Union’s Answer as 

part of the record on appeal. Nevertheless, National Union 

confirmed at oral argument that its Answer did not dispute 

Graham’s charge that the State alleged he committed “fraud,

dishonesty and/or criminal acts in the misappropriation of the 

assets of the [c]orporations to unjustly enrich himself.”
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673945, at *3 (“[The exception in Exclusion C] modifies only the 

scope of the exclusion in which [it] is contained . . . [and]

does not . . . render all other exclusions obsolete.”). But 

this view is contrary to West Virginia law. 

In West Virginia, “[a]n insurer wishing to avoid liability

on a policy purporting to give general or comprehensive coverage 

must make exclusionary clauses conspicuous, plain, and clear, 

placing them in such a fashion as to make obvious their 

relationship to other policy terms.” Marcum Trucking Co. v. 

U.S. Fid. & Guar. Co., 438 S.E.2d 59, 63 (W. Va. 1993) (quoting 

Nat’l Mut. Ins. Co. v. McMahon & Sons, Inc., 356 S.E.2d 488, 491

(W. Va. 1987), overruled on other grounds by Potesta v. U.S. 

Fid. & Guar. Co., 504 S.E.2d 135 (W. Va. 1998)) (internal 

quotation marks omitted). Furthermore, because “insurance 

policies are prepared solely by insurers, any ambiguities in 

the[ir] language . . . must be construed liberally in favor of 

the insured.” Pitrolo, 342 S.E.2d at 160. Such is the case 

here. National Union drafted a policy that fails to 

“conspicuous[ly], plain[ly], and clear[ly]” indicate how the 

exception to Exclusion C operates relative to the other 

exclusions. At best, then, National Union drafted a policy that 

is ambiguous, and we thus construe the language “liberally in 

favor of the insured,” holding that the policy entitled Graham 
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to a defense against the State’s claims and that National Union 

violated its duty to provide one.

III.

For the foregoing reasons, we reverse the district court’s 

grant of summary judgment and remand for further proceedings not 

inconsistent with this opinion.

REVERSED AND REMANDED