**UN PUBLISHED** 
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 Di strict 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 re manded by un published 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 & BA TTLE, 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 Ap pellee.
Unpublished opinions are not binding precedent in this circuit.2 FLOYD, Circuit Judge: In this appeal we consider whether the district court properly granted summary judgment to National U nion Fire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

- for

profit We st Virginia corporations, the Council on Aging, Inc. and All Care H ome and Community Services, Inc

. The Council on Aging provides social and other services to West Virginia’s elderly through s tate and federal grants , and fees from state and federal Medica id 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 ins ure d both corporations under a general liability insurance policy. T he policy covers, among other things, claims for wrongful acts and a defense of the “insured” against such claims

. Graham qual i fies as an “insured” under the policy.3 National Union’s wr ongful 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 prof i t 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 ‘i nsured’” ;

• Exclusion I, providing that the policy does not cover “[a]ny claim [] made against the ‘insured’ for damages attributable to wages, salaries and benefit s ” ; and

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

- pecuniary re lief. Notably, Exclusion C contains an exception indicating that the policy will cover claims “brought about or contributed to by fr aud, dishonesty or criminal act, ” unless and until “a judgment or other final adjudication” or “admission of guilt” establi shes 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 had4 breached the public trust in their use of public funds and that , as a result, Graha m had been unjustly enriched at the expense of taxpayers. T he complaint asserted, among other things, that Graham collected excess compensation and benefits related to his employment, Graham e xploited 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 m ake distributions of assets or income other than to serve the charitable purposes for which [the organizations] were formed.”

T he 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 inj u nction removing Graham from his position and authority to act on behalf of the corporations and requiring i mplementation of accountab ility mechanisms and procedures, (5) a declaration encumbering Graham’s asse ts by constructive trust to the extent that he was unjustly enriched, (6) a judgment requiring Graham “ to disgo rge any excess compensation or other moneys unjustly obtained,” and (7) an order requiring that “any moneys . . . collected from5 Graham pursuant to [a] ju dgment be expended on the charit able purposes for which the defend ant corporations were formed.”
U pon receipt of the State’s complaint, Graham’s counsel forwarded it to National Union’s agent, AI G 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 through out the state court proceedings.

N early 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 rai sed 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 e xecutive d irector from repeating Graham’s conduct. Additionally, t he State’s claim for repayment of excess compensation was moot be cause the State had filed the claim to benefit the corporations , and Graham and the corporations had agreed to relinquish any claims against each other.6 C. On March 3, 2010, Graham filed this lawsuit, alleging that National Union had breached its contrac tual 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 h is insurer

. ”
T he district court , exercising jurisdiction under 28 U.S.C. § 1332 , granted summary jud gment 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 appeal s.

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 fac ts. 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.” Fe d. R. Civ. P. 56(a).7 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 interpr etation 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, 16 2

- 6 3 (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, t he dis trict 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 G raham abused his position and misapprop riated his employer’s resources. ” Graham v. Nat’l Union Ins. Co. of Pittsburg h , Pa. , No. 1:10

- 00453, 2011 WL8 673945, at *3 ( S.D. W. Va. Feb. 17, 2011). T he court reasoned that the State’s claims were “directly ‘attr ibutable to wages, salaries and benefits ’ ” and thus barred from coverage by Exclusion I. Id. We disagree.

T he State ’s complaint alleged acts “attributable to wages, salaries and benefits

. ” But it also asserted that Graham wasted taxpayer fund s and expl oit ed the Board of Directors

. For example , the complaint averred that Graham use d 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 ce nter], accessible only by stairs,

. . . with pool tables, and a han d somely 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 pub lic 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 di sclosure

. . . of the facts” and “witho ut 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 the9 district co urt did, that Exclusion I absolved National Union of its duty to defend Graham. Rather, we hold that b ecause Exclusion I applied to some but not all of the State’s claims , National Un ion had a duty to defend Graham unless another exclusion precluded cover age . See Tackett , 584 S.E.2d at 163. And o ur 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, i t requested a judgment that required Graham “ to disgo rge 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 . N ot only do the exclusions and endorsements in National Union’s policy fail to abso lve it of a duty to defend Graham , the exception to Exclusion C effectively reaffirm s 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 final10 adjudication

. . . establish[es] that a cts of active or deliberate frau d, dishonesty or criminal act [were] committed by such ‘insured(s)’ or 

### . . . there [is] an admission of guilt by
the ‘insured.’” Without su ch an adjudication or admission , coverage remains in tact. 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 G raham until either he admitted guilt

or the court determined he committed the acts

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

“ judgm ent or other final adjudication ” or “admission of guilt” occurred . Thus, we are compelled to hold that the exception to Exclusion C require d 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 e xception 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.”11 673945, at *3 (“[The exception in Exclusion C] modifie s only the scope of the exclusion in which [it] is contained

. . . [and ] does not

. . . render all other exclusions obsolete .” )

. But
t his 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 exclusi onary clauses conspicuous, plain, and clear, placing them in such a fashion as to make obvious their rel ationship 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 , b ecause “insurance policies are prepared solely by insurers, a ny ambiguities in the [ir] language

. . . must be construed liberally in favor of the insured.” Pitrolo , 342 S.E. 2 d 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 . A t 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 Graham12 to a defen se against the State’s claims and that National Union violated its duty to provide one

.

III. For the foregoing reasons, we reverse the district co urt’s grant of summary judgment and remand for further proceedings not inconsistent with this opinion.
REV ERSED AND REMANDED