Court Opinion

ID: 9371984
Source: CourtListenerOpinion
Date Created: 2023-02-17 15:04:19.814038+00
Date Added: 2024-06-11T17:16:31.617097
License: Public Domain

RENDERED: FEBRUARY 10, 2023; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                              NO. 2022-CA-0338-MR

BERNARD TEW, PH.D.; ANDREA
TEW; STEPHANIE TEW; AND
VINCENT TEW                                                         APPELLANTS

                APPEAL FROM WOODFORD CIRCUIT COURT
v.                 HONORABLE BRIAN PRIVETT, JUDGE
                        ACTION NO. 20-CI-00066

KENTUCKY FARM BUREAU
MUTUAL INSURANCE COMPANY;
AND ACUITY, A MUTUAL
INSURANCE COMPANY                                                     APPELLEES

                                    OPINION
                                   AFFIRMING

                                  ** ** ** ** **

BEFORE: CETRULO, JONES, AND MCNEILL, JUDGES.

CETRULO, JUDGE: This is an appeal from summary judgments granted in favor

of two insurers. The trial court ruled that there was no duty to defend nor any

obligation to indemnify the appellants under any of the applicable insurance

policies. Because the facts are somewhat convoluted, we begin there.
               Dr. Bernard Tew and his wife, Andrea, (“the Tews”) ran a small

investment management limited liability company, Bluegrass Investment

Management Company (“Bluegrass”), which they started to provide financial

services for several retirement funds for businesses owned by George Hofmeister.

Through a rather complex investment strategy called dividend arbitrage, the Tews1

associated with a London-based investment banker, ED&F Man Capital Markets

Limited (“ED&F”), to purchase shares of stock in European businesses just prior to

the stock’s dividend payment. After the dividend was paid to retirement fund

accounts, the shares were promptly sold.

               Pursuant to Danish law, the Customs and Tax Administration of

Denmark (“SKAT”) withholds a 27% tax on dividend payments made to

retirement fund accounts. Tax treaties between the United States and Denmark

allowed those U.S. funds to obtain a tax refund of any dividend tax withheld. To

obtain those tax refunds, documentation had to be provided to SKAT. The Tews,

as U.S.-based fiduciaries of the retirement funds, provided Internal Revenue

Service (“IRS”) forms and power of attorney forms to the payment agent in

Europe. SKAT then approved the refund request and paid the dividend tax refunds

into the retirement accounts.

1
  Andrea Tew, Vincent Tew, and Stephanie Tew Campbell, children of the Tews, moved to
intervene in this suit as fiduciaries of three separate retirement accounts. While there are some
separate issues as to their potential coverage, we will simply refer to all appellants as the Tews.

                                                -2-
               However, in 2015, SKAT discovered that the tax refund requests it

processed and paid to numerous U.S. retirement funds exceeded the amount of

taxes that had actually been withheld. SKAT contends that it transferred billions

of Danish Kroner (Danish currency) to accounts that were not entitled to receive

them. The Tews claim that the retirement fund accounts were being manipulated

fraudulently by insiders at ED&F.

               Regardless of whether the Tews had knowledge of those actions, they

were sued along with others in 15 complaints filed by the Kingdom of Denmark.

Those actions were heard in the United States District Court for the Eastern

District of Kentucky. In short, the suits alleged that the Tews had negligently

misrepresented facts and provided inaccurate information and misrepresentations

to SKAT to process a tax refund claim, which SKAT relied upon, and made

corresponding payments into the Tews’ retirement accounts/entities.2

               The Tews initially sought bankruptcy protection as a result of the

SKAT litigation and reached a confidential agreement with SKAT as part of the

bankruptcy proceedings. Thereafter, the Tews filed this action in Woodford

Circuit Court, seeking a declaratory judgment that Acuity, a Mutual Insurance

Company (“ACUITY”) and Kentucky Farm Bureau (“KFB”) had a duty to defend

2
  Although there were also allegations of fraud, here, the parties agree that there would be no
coverage under any policy for those claims.

                                               -3-
the Tews against SKAT’s allegations and that one or both of them were liable for

the damages that were being sought against the Tews. This leads us to a discussion

of the policies alleged to be in effect at the time of those allegations.

                                 I. The Acuity Policy

             ACUITY issued a commercial general liability policy to Bluegrass,

which was in effect from January of 2013 until January of 2014 (“Acuity Policy”).

The parties agree that Bernard and Andrea Tew were the named members and only

employees of the named insured, Bluegrass. That policy provided that

             1. If you are designated in the Declarations as:

             ....

                    c. A limited liability company, you are an
                    insured. Your members are also insureds,
                    but only with respect to the conduct of your
                    business. Your managers are insureds, but
                    only with respect to their duties as your
                    managers.

             ....

             The parties agree that the policy and/or its endorsements clearly

define the scope of “property damage” and “occurrence,” as follows:

             1. Insuring Agreement

                     a. We will pay those sums that the insured
                        becomes legally obligated to pay as damages
                        because of . . . property damage to which this
                        insurance applies. We will have the right and
                        duty to defend the insured against any suit

                                           -4-
                        seeking those damages. However, we will
                        have no duty to defend the insured against any
                        suit seeking damages for . . . property damage
                        to which this insurance does not apply. . . .

                     b. This insurance applies to bodily injury and
                        property damage only if:

                        (1) The bodily injury or property damage is caused by an
                            occurrence that takes place in the coverage territory;

                        (2) The bodily injury or property damage occurs during the
                            policy period, . . . .

(Emphasis added.)

           The Acuity Policy defined the following terms:

           17. “Property Damage” means:

           ...

                    b. Loss of use of tangible property that is
                    not physically injured. All such loss of use
                    shall be deemed to occur at the time of the
                    “occurrence” that caused it. . . .

           18. “Suit” means a civil proceeding in which damage
           because of . . . [property damage] to which this insurance
           applied is alleged. . . .
(Emphasis added.)
           Further, it defined “occurrence” in the base policy using an

Amendatory Endorsement Form No IL – 7092(2-11), which provided, in pertinent

part:

                                         -5-
             Occurrence means an accident, including continuous or
             repeated exposure to the same general harmful
             conditions. Occurrence includes:

             ...

                   B. Property damage to property other than your
                      work that arises out of your work. . . . ROA
                      2240-2265.

             The Tews contend that ACUITY had a duty to defend them in relation

to the complaints filed by SKAT in the United States District Court for the Eastern

District of Kentucky. They assert that the foregoing definition of “occurrence”

provides coverage for accidental conduct and that there is at least one allegation in

the SKAT complaints that the Tews did something accidentally, resulting in

property damage. ACUITY contends the conduct of the Tews was not covered

under the terms of the policy and does not constitute an “occurrence” as defined in

the Acuity Policy. ACUITY further contends that the loss of use of money

asserted in the SKAT complaints does not constitute “property damage” caused by

an occurrence.

                    II. The Kentucky Farm Bureau Policies

             The trial court initially found that the only possible effective policy

that KFB had issued to the Tews at the time of the loss was a farm policy on

property owned in Lyon County, Kentucky. The order specifically stated that at

the time of the losses claimed by SKAT, the Tews resided in Woodford County

                                         -6-
and had separate liability coverage on that residence with a different carrier. The

trial court held there was no coverage owed nor any duty to defend under that farm

policy.

             The Tews’ briefs, however, make no reference to the farm policy and

instead address only purported claims under a KFB homeowner’s policy, first

issued to the Tews in October 2018 to cover their Woodford County home (“KFB

Homeowner’s Policy”). We are “without authority to review issues not raised in or

decided by the trial court.” Util. Mgmt. Grp., LLC v. Pike Cnty. Fiscal Ct., 531

S.W.3d 3, 13 n.8 (Ky. 2017) (citing Ten Broeck DuPont, Inc. v. Brooks, 283

S.W.3d 705, 734 (Ky. 2009)). While the trial court did find that there was no duty

to defend nor any coverage owed under any policy issued by KFB, we will review

only the applicability of the KFB Homeowner’s Policy as that is the only argument

the Tews raise here.

             The KFB Homeowner’s Policy defines the following terms:

             An “occurrence” means an accident, including
             continuous or repeated exposure to substantially the same
             general harmful conditions, which results, during the
             policy period, in:
             ...

                    6. “Property damage” means physical injury to,
                    destruction of, or loss of use of tangible property.
(Emphasis added.)

                                          -7-
             Section II of the KFB Homeowner’s Policy provided liability

coverage, and Coverage E provided personal liability coverage. The insuring

agreement provides:

              SECTION 11 – LIABILITY COVERAGES
              COVERAGE E – Personal Liability

              If a claim is made or a suit is brought against an
              “insured” for damages because of “bodily injury” or
              “property damage” caused by an “occurrence” to which
              this coverage applies, we will:

             1. Pay up to our limits of liability for damages for which
                the “insured” is legally liable. Damages include pre-
                judgment interest awarded against the “insured”; and

             2. Provide a defense at our expense by counsel of our
                choice, even if the suit is groundless, false or
                fraudulent. We may investigate and settle any claim
                or suit that we decide is appropriate. Our duty to
                settle or defend ends when the amount we pay for
                damages resulting from the “occurrences” equals our
                limit of liability.

             The Tews maintain that they were insureds, as named individuals

residing in the residence, along with their son, who still lives in the residence.

They also assert that one of their daughters resided there during the period that the

transactions at issue were ongoing and could also qualify under the definitions.

They asserted that the KFB Homeowner’s Policy language does not limit coverage

in terms of the date the suit was filed or when the accidental occurrence happened.

It was further their position that the KFB Homeowner’s Policy definition of

                                          -8-
“occurrence” does not require the “accident” to occur during the policy period, but

requires only the “property damage” caused by the accident to result during the

policy period.

             As they claimed in regard to ACUITY, the Tews argue that the

allegations of five of the SKAT complaints, i.e., of negligent misrepresentation

resulting in a loss of use of tangible property, are sufficient to require KFB to

defend them. KFB maintains that the KFB Homeowner’s Policy defines an

“occurrence” as an accident that results during the policy period in property

damage that must occur during the policy period. KFB further maintains that the

transactions at issue took place years before the policy was effective. Finally, KFB

asserts that none of the allegations involve an “occurrence” or “accident” as those

terms are defined. The parties agree that the “occurrence,” “accident,” or

“property damage,” if applicable at all, was the loss of Danish Kroner alleged by

SKAT, which took place in 2013 to 2014 and was discovered by the Danish tax

authority in 2015. KFB also asserts that even if there were any coverage afforded

under any of the policies, it is specifically excluded by multiple exclusions within

each of the policies.

                            STANDARD OF REVIEW

             When a trial court grants summary judgment in a declaratory

judgment action with no bench trial, as it did here, “we use the appellate standard

                                          -9-
of review for summary judgments.” Foreman v. Auto Club Prop.-Cas. Ins. Co.,

617 S.W.3d 345, 349 (Ky. 2021) (citation omitted). “Because summary judgment

involves only legal questions and the existence of any disputed material issues of

fact, an appellate court need not defer to the trial court’s decision and will review

the issue de novo.” Lewis v. B&R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001)

(citation omitted).

             For insurance claims, specifically, the Kentucky Supreme Court has

recently held:

             Foremost in interpreting an insurance contract we are
             bound by the specific language of the contract before us.
             We apply certain rules of construction to insurance
             contracts, including a rule that when the terms of an
             insurance contract are unambiguous and not
             unreasonable, they will be enforced as written.
             Unambiguously defined terms are “interpreted in the
             light of usage and understanding of the average person.”
             Ambiguous terms and the language of exclusions are
             strictly construed against the insurer so as not to defeat
             the policyholder’s reasonable expectation of coverage.
             But “this rule of strict construction certainly does not
             mean that every doubt must be resolved against the
             insurer and does not interfere with the rule that the policy
             must receive a reasonable interpretation consistent with
             the plain meaning in the contract.”

Foreman, 617 S.W.3d at 349-50 (citations omitted).

                                         -10-
                                 LEGAL ANALYSIS

               Here, we must (1) determine whether the insurance providers were

obligated to provide coverage, and therefore had a duty to defend the Tews; and (2)

interpret the terms of the policies. We begin with the duty to defend.

               The Kentucky Supreme Court outlined the basic duties of an

insurance company to defend its insured in James Graham Brown Foundation,

Inc., v. St. Paul Marine & Fire Insurance Company, 814 S.W.2d 273 (Ky. 1991).

There, the Kentucky Supreme Court held that an “insurer has a duty to defend if

there is any allegation which” could come within the coverage of the policy. Id. at

279 (citing O’Bannon v. Aetna Cas. & Sur. Co., 678 S.W.2d 390 (Ky. 1984)).

Under those circumstances, where the policy appears to provide coverage, the

appropriate course of action for the insured is to commence a declaration of rights

action. See, e.g., Thompson v. W. Am. Ins. Co., 839 S.W.2d 579 (Ky. App. 1992).

In this case, the Tews commenced multiple actions to declare rights under various

policies, but coverage must be found before there is a corresponding duty to defend

any insured.

               The Tews maintain that only a single allegation needs to fall within

the scope of coverage for the duty to defend to kick in; therefore, they focus on the

negligent misrepresentation allegations. They assert that such allegations involve

the paperwork the Tews submitted, which resulted in the loss of use of a set

                                          -11-
amount of Danish Kroner. Further, they claim that loss of use of money

constituted loss of use of tangible property as defined by the KFB Homeowner’s

Policy. According to the Tews, the same allegations constitute an “occurrence

resulting in property damage” under the Acuity Policy. Thus, they maintain that

both carriers had a duty to defend under Brown Foundation.

             However, the allegations in the complaint are not by themselves

sufficient to create a duty if the terms of the policy do not potentially provide

coverage. Brown Found., 814 S.W.2d at 279. An insurer does not always have to

“defend against a claim it believes falls outside the policy it issued.” Cincinnati

Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 79. (Ky. 2010). It is well

established that terms of a policy must be given their plain meaning and enforced

as drafted with a reasonable interpretation. See St. Paul Fire & Marine Ins. Co.

Powell-Walton-Milward, Inc., 870 S.W.2d 223, 226 (Ky. 1994).

             Thus, we must interpret the words and terms of the policies at issue.

As delineated in the provisions of both policies, the coverage is generally available

only if there is “property damage” caused by an “occurrence” to which coverage

applies. In that instance alone, the insurers would have a duty to defend. This

Court simply cannot agree that the SKAT complaints allege any cause of action

that would constitute an “occurrence” under either of the policies.

                                         -12-
             First, the SKAT complaints allege that the Tews had a duty to provide

accurate and complete information and that they materially misrepresented or

misstated applications that they knew or should have known were inaccurate. The

Tews argue that these are allegations of “accidental” conduct, not intentional

conduct.

             However, Kentucky courts have taken a narrow approach when

defining “accidents.” In Stone v Kentucky Farm Bureau Mutual Insurance

Company, 34 S.W.3d 809, 812 (Ky. App. 2000), this Court stated that an accident

is not something that results “from a plan, design, or an intent on the part of the

insured.” There must be some reasonable limitation and interpretation as to what

constitutes an accident or occurrence. See Cincinnati, 306 S.W.3d 69. An

“accident” is generally seen as a fortuitous event. See id. at 73-74. Because

“accident” has not been given a technical meaning in the many cases interpreting

insurance policies, the courts have given “accident” its plain meaning. Id. at 74

(citing Fryman for Fryman v. Pilot Life Ins. Co., 704 S.W.2d 205 (Ky. 1986)).

             Regardless of the degree to which the information provided or

documents filed were scrutinized or assessed by the Tews in its preparation, there

was no evidence suggesting it was an accident that it was provided and filed. What

the Tews did in the early stages should be distinguished from what may have later

come to light. In their brief, the Tews reference some information as what “[t]he

                                         -13-
Tews learned, long after this litigation began.” Specifically, the Tews maintain

that they only learned afterward that large blocks of shares were being purchased

by insiders at ED&F, who then fraudulently cycled those shares between multiple

fund accounts on the dividend date and manipulated the accounts to hide this

activity. Even if the Tews did not intend to participate in the fraudulent activity,

they intended to execute the documents. The Tews may have later learned that the

water in the SKAT pool, so to speak, was contaminated; however, it was no

accident that they chose to dive into that pool in the beginning.

              Secondly, the complaints by SKAT alleged loss of use of money due

to this fraudulent tax scheme. In a creative discussion of fiat money and how

Danish Kroner is not backed by gold or any commodity, the Tews assert that the

monetary damages SKAT sought in its filings constituted loss of use of “tangible

property,” as defined by each of the policies.

              This raises an interesting discussion as to whether money is tangible

property. Several courts in other states have largely held that it is not.3 We have

not found, nor has any party referred us to, any Kentucky caselaw which directly

addresses whether money constitutes tangible property. However, the federal

3
 See, e.g., Mack v. Nationwide Mut. Fire Ins. Co., 517 S.E.2d 839 (Ga. Ct. App. 1999);
Travelers Indem. Co. of Am. v. Jim Coleman Auto. of Columbia, LLC, 236 F. Supp. 2d 513 (D.
Md. 2002); Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538 (5th Cir. 1992); Johnson v. Amica
Mut. Ins. Co., 733 A.2d 977 (Me. 1999); Walker v. State Farm Fire and Cas. Co., 569 N.W.2d
542 (Minn. Ct. App. 1997).

                                            -14-
district court for the Eastern District of Kentucky, called to determine coverage

and/or any duty to defend the Tews on a separate claim against a different

insurance carrier, did a thorough analysis of this very argument. Travelers Indem.

Co. of Am. v. Tew, No. 5:20-cv-292-JMH, 2021 WL 5380944, at *5 (E.D. Ky.

Nov. 17, 2021).

             Having reviewed these policies and briefs before us, we do not believe

we could state our view any better than what was stated therein:

             [M]oney is not tangible property. Instead, money is
             intangible property, as it does nothing more than
             represent value while having no intrinsic value of its
             own. This is exemplified by the fact that money can be
             deposited and transferred electronically, which
             unquestionably makes money intangible. That money
             may also come in a physical form, such as a United
             States Dollar, or in this case, a Danish Kroner, is
             inconsequential regarding whether money is tangible
             property because the tangible embodiment of money can
             be converted to an inarguably intangible medium without
             losing its value, meaning the Danish Kroner itself is not
             what has value. Since money is not tangible property,
             there was no loss of tangible property triggering [the
             insurance company’s] duty to defend and, thus, no breach
             of that duty entitling [the Tews] to either defense costs or
             damages.

Travelers Indem. Co. of Am. v. Tew, No. 21-6129, 2022 WL 3696676, at *1-2 (6th

Cir. Aug. 26, 2022) (quoting Travelers Indem. Co. of Am. v. Tew, 2021 WL

5380944, at *5).

                                        -15-
             We agree and conclude that the damages alleged by SKAT did not

implicate either of the policies, as there simply was no loss of tangible property.

The alleged conversion of refunds in this case resulted in an intangible economic

loss, rather than a loss of use of tangible property.

             The insurers both make further arguments pertaining to the various

exclusions from coverage under the respective policies. The Kentucky Supreme

Court has held that if an event does not fall within the terms of the coverage, then

there is no need to determine whether the exclusions apply because coverage is

already denied. Cincinnati, 306 S.W.3d at 78 n.35 (Ky. 2010) (citation omitted)

(“[A] court need not consider the applicability of an exclusion if there is no initial

grant of coverage under the policy.”).

             The Tews make further arguments pertaining to the “occurrence”

period of the KFB Homeowner’s Policy and whether there would be any coverage

owed if there was property damage that occurred during the policy period (even

though that policy was not in effect until three years after the alleged acts). Having

already concluded that the loss of money alleged by SKAT was not a loss of

tangible property, so as to invoke property damage coverage, we need not address

that argument either. As a matter of law, the policies did not cover the SKAT

litigation and the insurance companies had no duty to defend or indemnify the

Tews.

                                          -16-
            The trial court found the same. Specifically, the court found no cause

of action that would constitute an “occurrence” under either policy and found no

“property damage” occurred, as defined in the Acuity Policy. As to the KFB

Homeowner’s Policy, the loss of use of money would not constitute “damage to

tangible property.” We hereby affirm the rulings of the Woodford Circuit Court,

finding there was no disputed material issue of fact. The Woodford Circuit Court

properly granted summary judgment, finding the insurance companies’ policies did

not cover any portion of the SKAT litigation.

            ALL CONCUR.

BRIEFS FOR APPELLANTS:                   BRIEF FOR APPELLEE ACUITY, A
                                         MUTUAL INSURANCE
Justin S. Peterson                       COMPANY:
Kellie M. Collins
Taylor M. Shepherd                       Jason S. Morgan
Lexington, Kentucky                      Betsy R. Catron
                                         Lexington, Kentucky

                                         BRIEF FOR APPELLEE KENTUCKY
                                         FARM BUREAU MUTUAL
                                         INSURANCE COMPANY:

                                         R. Craig Reinhardt
                                         Lexington, Kentucky

                                       -17-