Court Opinion

ID: 9893485
Source: CourtListenerOpinion
Date Created: 2023-10-27 14:07:20.62808+00
Date Added: 2024-06-11T09:04:19.308391
License: Public Domain

RENDERED: OCTOBER 20, 2023; 10:00 A.M.
                       NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals
                             NO. 2022-CA-0101-MR

GRANGE INSURANCE COMPANY                                            APPELLANT

                 APPEAL FROM FAYETTE CIRCUIT COURT
v.               HONORABLE JULIE M. GOODMAN, JUDGE
                        ACTION NO. 19-CI-01315

GEORGETOWN CHICKEN COOP,
LLC; ANTHONY CRISH; CHAD
GIVENS; COCK-A-DOODLE-DOO,
LLC; PRESTON RESTAURANT “A,”
LLC; AND ROBERT GAUTHIER                                            APPELLEES

                                   OPINION
                                  REVERSING

                                 ** ** ** ** **

BEFORE: EASTON, LAMBERT, AND MCNEILL, JUDGES.

EASTON, JUDGE: This appeal involves a dispute about insurance coverage,

specifically coverage under an “umbrella” policy. We will refer to the Appellees

collectively as “Roosters,” which is the name of the business owned or operated by
the limited liability companies or individuals named as Appellees.1 The Appellant,

Grange Insurance Company (“Grange”) issued two insurance policies for Roosters

– a Business Owners’ Policy (“BOP”), and a Commercial Umbrella Policy

(“CUP”). All agree the BOP provides coverage. Having reviewed the record, we

do not find an ambiguity in the CUP, which does not provide coverage. We

reverse the circuit court and direct entry of a declaratory judgment in favor of

Grange.

                                 FACTUAL BACKGROUND

                 On the night of January 5, 2019, Joey Lee Bailey (“Bailey”), was

served and consumed alcohol at Roosters in Georgetown. After leaving Roosters,

Bailey went to another place called “Horseshoes” in Lexington, where Bailey

continued to drink.2 Then, during the early morning hours of January 6, 2019,

Bailey was driving the wrong direction on Interstate 75. Bailey’s truck hit a

vehicle carrying the five-member Abbas family. All six people were killed.

                 The estates of the Abbas family filed suit3 against Roosters and others.

Roosters filed a third-party petition for declaratory judgment against their insurer,

1
 Because of the resolution we reach, we need not address Grange’s assertion that the circuit
court erred in granting summary judgment for certain individuals rather than specified insureds.
2
    Medical records in the file indicate Bailey’s post-mortem blood alcohol level was over .30.
3
 This record illustrates violation of Kentucky Rules of Civil Procedure (“CR”) 8.01(1) which
mandates “a short and plain statement of the claim” made. The Sixth Amended Complaint
contains 342 numbered paragraphs and is 60 pages long.

                                                 -2-
Grange. Grange then sought a legal determination concerning their insurance

coverage under the CUP. Roosters sought summary judgment, which was granted

and designated as final and appealable pursuant to CR 54.02. Grange appeals to

this Court as a matter of right. For the following reasons, we reverse.

                            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

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).

             In this case, the underlying facts and the terms of the applicable

policies are undisputed. The remaining interpretation and construction of an

insurance contract is a matter of law, which again we review de novo. Auto-

Owners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298, 301

(Ky. App. 2009). As review is de novo, “no deference is given to the decisions of

lower tribunals, even as to the existence of an ambiguity.” Kentucky Employers’

Mutual Ins. v. Ellington, 459 S.W.3d 876, 881 (Ky. 2015).

                                          -3-
                                              ANALYSIS

                Instead of drafting individual word-for-word policies, the process for

constructing insurance policies begins with standard provisions in a form policy.

The process then relies upon other standard phrases, easily added, or deleted,

which serve to add or exclude coverage with identified exceptions. Finally,

endorsements may govern whether any provision within the form policy applies.

We are required to consider the entirety of the various combined provisions

together. KRS4 304.14-360.5 See Kemper Nat’l Ins. Companies v. Heaven Hill

Distilleries, Inc., 82 S.W.3d 869 (Ky. 2002) (applying the substantive provisions of

an endorsement to exclusions in the preceding form policy). This traditional

approach usually requires careful perusal and comparison by insureds to be sure of

their coverage.6

                By finding an ambiguity, the courts may not rewrite the plain

language of a policy examined as a whole. Pryor v. Colony Insurance, 414 S.W.3d

424, 430 (Ky. App. 2013), abrogated on other grounds by Estate of Bramble v.

4
    Kentucky Revised Statutes.
5
  “Every insurance contract shall be construed according to the entirety of its terms and
conditions as set forth in the policy, and as amplified, extended, or modified by any rider,
indorsement, or application attached to and made a part of the policy.”
6
  In this digital age, one wonders why this practice continues. Policies could arguably be crafted
individually as one document rather than through a process of forms and exceptions and
endorsements cobbled together. Even so, we must proceed under the law for policy
interpretation with the existing practice.

                                                -4-
Greenwich Insurance Company, 671 S.W.3d 347 (Ky. 2023). In the present case,

the circuit court declared an ambiguity in Paragraph 12 of the Summary Judgment

at Pages 7-8. The circuit court stated there were two reasonable interpretations

from the language but then did not further illustrate how the interpretations are

supported when all language of the policy is considered together. The circuit court

also made a general observation about umbrella policies. Essentially, the

ambiguity declared became contextual by comparing underlying coverage and the

overall terms of the “umbrella” policy.

             The difficulty flows from the following paragraph in the circuit

court’s Conclusions of Law:

                   In analyzing the contract, the Court also
             acknowledges that it cannot ignore the purpose of an
             umbrella policy, that it is created to supplement the
             underlying policy. Acknowledging that, then, the Court
             understands that when an insured purchases both an
             underlying and umbrella policy, the intent is for them to
             work in concert. There is no purpose for an umbrella
             policy if not to supplement the underlying policy if
             exhausted.

The primary insurance for Roosters was provided by Grange with the BOP.

Liquor liability coverage was provided by an endorsement to the BOP. No one

argues about that coverage. Roosters decided also to purchase the CUP, an

umbrella policy with Grange. Policies providing excess coverage include what are

often called umbrella policies, but, as in a real-life thunderstorm, some umbrellas

                                          -5-
provide more coverage than others: your feet may still get wet with the best

umbrella.

             The parties cite no case applying Kentucky law addressing conflict

between primary coverage and an exclusion in an umbrella policy. We have found

no Kentucky case on point. Authorities from other states help provide an answer.

             As a general statement, umbrella policies, as one form of excess

coverage, follow the primary policy and provide additional coverage. Such

policies often provide additional coverage for some claims not in the primary

policy. 46 C.J.S. Insurance § 1627 (2023). An umbrella is not necessarily a

mirror image of the primary coverage. If a mirror image is the intent, the practice

of a clear “broad as primary” endorsement could be used. See, e.g., McDonald’s

Corp. v. American Motorists Ins. Corp., 748 N.E.2d 771, 774 (Ill. App. 2001).

             An umbrella policy may have its own exclusions. We find no

authority for the proposition that an umbrella cannot exclude additional coverage

for certain claims covered by a primary policy. When an umbrella policy is called

upon to provide coverage for claims, “an umbrella policy does not automatically

drop down; in order for it to do so, none of its exclusions can apply.” 46 C.J.S.

Insurance, supra. In support of this statement the author of this CJS section cited

Boggs v. Camden-Clark Memorial Hospital Corporation, 693 S.E.2d 53 (W. Va.

                                         -6-
2010). This case includes a collection of cases independently examining

exclusions in umbrella policies. Id. at 69 n.28.

                One of the cases collected in Boggs is Weitz v. Allstate Insurance

Company, 642 A.2d 1040 (N.J. Super. Ct. App. Div. 1994). In Weitz, the court

held an umbrella policy which excluded injuries to members of the insured’s

household prevented coverage even though the claim was covered by a primary

auto liability policy. The court further explained:

                The [umbrella] policy should not be read as simply an
                endorsement to basic policies to raise their dollar limits.
                It provides coverages unavailable in auto and
                homeowners’ policies, for example, for defamation,
                malicious prosecution, false arrest, invasion of privacy,
                and violation of civil rights. As its coverages depart from
                auto and homeowners’ policies, it should not be a
                surprise that its exclusions are also different.

 Id. at 1041.

                In the specific context of an umbrella policy with a liquor liability

 exclusion, we have found only one unpublished case addressing an umbrella

 exclusion of liquor liability, even though a primary policy provided such

 coverage. Berkhouse v. Great American Assurance Company, No. 13-0264, 2013

 WL 6152414 (W. Va. Nov. 22, 2013) (umbrella exclusion upheld). While the

 circumstances of any cited case may be distinguishable, the general principle

 applies – an umbrella policy may exclude additional coverage for specific claims

                                            -7-
 covered by a primary policy. With this understanding of this general principle,

 we should again examine the undisputed facts of this case regarding the CUP.

             The first paragraph of the CUP at issue states: “Various provisions in

this policy restrict coverage. Read the entire policy carefully to determine rights,

duties and what is and is not covered.” The body of the policy contains Section I –

Coverages, Subsection 2. Exclusions, with subsection c. Liquor Liability. This

Section I 2 c excludes Liquor Liability but makes an exception for liability arising

from the business of the insured of serving alcohol. The language then indicates

the umbrella coverage will follow the primary policy, “unless otherwise directed

by this insurance.”

             An otherwise direction is provided by Endorsement CU 47:

             Endorsement                       CU 47

             LIQUOR LIABILITY EXCLUSION

             This Endorsement Changes The Policy. Please Read
             It Carefully.

             This Endorsement modifies insurance provided under the
             following:

             COMMERCIAL LIABILITY UMBRELLA PART

             Exclusion c. of Paragraph 2. Exclusions of SECTION I-
             Coverage A - Bodily Injury and Property Damage
             Liability is replaced by the following:

             c. Liquor Liability

                                         -8-
             “Bodily injury” or “property damage” for which any
             insured may be held liable by reason of:

                    (1) Causing or contributing to the intoxication of
                        any person;

                    (2) The furnishing of alcoholic beverages to a
                        person under the legal drinking age or under
                        the influence of alcohol; or

                    (3) Any statute, ordinance or regulation relating
                        to the sale, gift, distribution or use or
                        alcoholic beverages.

             This exclusion applies only if you are in the business of
             manufacturing, distributing, selling, serving or furnishing
             alcoholic beverages.

The words, as they appear above, except for the last sentence, repeat the already

existing language in the same section of the underlying umbrella policy, but most

of the additional two paragraphs, which are clearly part of Section I 2 c. in the

body of the policy, is gone.

             The word replace has an unambiguous meaning. Merriam-Webster

defines replace as, “1. To restore to a former place or position; 2. To take the

place of especially as a substitute or successor; 3. To put something new in the

place of.” Replace, MERRIAM-WEBSTER, https://www.merriam-webster.com/

dictionary/replace (last visited Oct. 16, 2023). The CU 47 endorsement replaced

the entirety of Section I 2 c of the policy, intentionally deleting the paragraphs

which otherwise would have provided coverage.

                                          -9-
             The parallel wording of the endorsement and original document, along

with the word “replace,” plainly indicate that the only reason this endorsement

existed was to remove the paragraphs in the policy form which otherwise would

have followed the more limited language in CU 47. The longer version of this

section of the policy was to be replaced in its entirety by the shorter version. The

shorter and more limited language in CU 47 was intended to be the full and

complete language of Section I 2 c.

             It does not make sense for CU 47 to be considered a supplement for

the extra language found in the form policy, because the plain language of CU 47

was to replace all the original language. The text left was essentially the same as

the text replaced except for the deleted paragraphs. Finding no ambiguity within

the CUP itself and recognizing an umbrella does not have to mirror a primary

policy, there is no ambiguity when the entire CUP is read. The replacement of the

entire section modified the overall coverage of the policy.

             The word replace is not technical. When batteries run down, we

replace them. When we do so, we do not chop up parts of the old batteries and

graft them to newer parts. The old batteries are removed completely, and the new

ones replace them. The same is true with the policy language here. The entire

section in the form policy was removed and replaced by the language of the

endorsement.

                                        -10-
             Without an ambiguity, the expectations of the insured do not control.

True v. Raines, 99 S.W.3d 439, 443 (Ky. 2003). This record does not tell us

whether or why Roosters did or did not seek the additional umbrella coverage for

liquor liability. The circuit court and this Court could equally assume Roosters just

thought there would be more coverage because of their idea of an “umbrella.” But

they could have decided not to pay the cost for such additional coverage. Grange

may have decided to limit its liability by not extending liquor liability by an

umbrella.

             But courts are not in the business of assumptions. Rather, we apply

facts to the law. None of these referenced assumptions have evidentiary support in

the record. But it is at least curious that there was no response to Grange’s clear

denial of umbrella coverage for two years – no letter or other communication

documented to suggest anyone with Roosters felt misled or confused about the lack

of liquor liability coverage in the umbrella they had purchased.

                                  CONCLUSION

             For the foregoing reasons, we REVERSE the Fayette Circuit Court

and direct a declaratory judgment that the CUP does not provide coverage and thus

also does not impose a duty under the CUP to defend the claims in this case.

                                         -11-
             LAMBERT, JUDGE, CONCURS.

             MCNEILL, JUDGE, DISSENTS AND FILES SEPARATE
OPINION.

MCNEILL, JUDGE, DISSENTING: I respectfully dissent. First, I believe that the

circuit court reached the proper result with sufficient explanation. The record

reflects that the trial judge has been immersed in this difficult case for years, and is

certainly well-acquainted with the underlying issues and facts. Moreover, the trial

court observed that “[i]n analyzing the contract, the Court also acknowledges that

it cannot ignore the purpose of an umbrella policy, that it is created to supplement

the underlying policy.” (Emphasis added.) Although the majority cites this

finding, it does not discuss the remainder of the circuit court’s reasoning. In any

event, even if the underlying judgment lacked support, our de novo standard

requires this Court to conduct a fresh review of the matters presented, without

reliance upon the underlying judgment. And like our standard of review, the

substantive law is clear, “[i]f the contract language is ambiguous, it must be

liberally construed to resolve any doubts in favor of the insured.” Wolford v.

Wolford, 662 S.W.2d 835, 838 (Ky. 1984) (citation omitted).

             As to the merits, the majority reverses the circuit court on the basis

that there is no ambiguity in the relevant contractual provisions. In support, the

majority discusses umbrella coverage generally, supported in part by citation to

non-binding authority. However, the present issue is not novel. And the question

                                          -12-
posed is purely legal – is there ambiguity? I find in the affirmative. Although, I

acknowledge that reasonable minds may differ – as occurred here. More precisely,

four judges have reviewed this matter. Two have found ambiguity, and two have

not. While the latter conclusion mandates the present disposition, the disagreement

between the reasonable minds having pondered this issue is, at least, a facial

indication of ambiguity. Yet, the ambiguity here is more than cosmetic.

             For example, the majority does not address the exception to the

exclusion language also contained in the CUP. In other words, negation language

replaces such prior language, but says nothing of the affirmative language

following the original exclusion. Unless it is made abundantly clear that all such

language abrogates all prior language, which was not the case here, there is

ambiguity. This is essentially the same reason advanced by the circuit court. And

when buttressed with the circuit court’s relevant observation that the purpose of

this umbrella policy is to supplement the underlying policy, I agree with the circuit

court’s conclusion that “two reasonable interpretations could be made of the

language . . . .” Therefore, I would affirm.

BRIEFS FOR APPELLANT:                      BRIEF FOR APPELLEES:

Robert L. Steinmetz                        Donald L. Cox
Louisville, Kentucky                       William H. Mooney
                                           Louisville, Kentucky

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