Court Opinion

ID: 9634994
Source: CourtListenerOpinion
Date Created: 2023-08-22 13:31:57.752488+00
Date Added: 2024-06-11T09:49:42.511412
License: Public Domain

*636Dissenting Opinion by
Chief Justice LAMBERT.
The pivotal question that this Court has failed to address is whether a claim in tort or a claim for breach of fiduciary duty was brought against Appellees, magistrates of the Pulaski County Fiscal Court, thereby contractually obligating Kentucky Association of Counties, All Lines Fund Trust (KALF), to indemnify and to provide them a legal defense. The majority opinion erroneously concludes that the underlying action brought by People for Ethical Government against Appellees did not sound in tort, a contractual exclusion from KALF’s legal obligation to defend and indemnify Appellees. Because People for Ethical Government’s complaint can be characterized to allege tortious conduct and a potential breach of fiduciary duties, and because indemnity and liability insurance coverage should be broadly applied, I would affirm the Court of Appeals.
The People for Ethical Government opposed the self-approved salary increase of members of the Pulaski County Fiscal Court and filed a declaration of rights action alleging that the magistrates had tortiously exercised dominion and control over funds belonging to the Pulaski County government or to the taxpayers. The People for Ethical Government also alleged that the magistrates violated their fiduciary duties. Appellees immediately contacted KALF, their insurer, and requested legal defense and indemnification for any damages assessed. KALF refused to indemnify or defend Appellees. In 1998, this Court held that the magistrates’ salary increases were improper.1 On remand, the Pulaski Circuit Court ordered Appellees to pay money damages and required them to refund the amount of the salary increases. Appellees again requested that KALF provide a defense and indemnification for the amount of money damages, and KALF filed this declaration of rights action.
The duty of an insurer to fulfill the terms of its contract to defend is broad and extends to “any allegation which potentially, possibly or might come within the coverage of the policy.”2 Whether a potential action is actually pursued or proves meritorious is immaterial to the insurer’s duty to defend.3 “The duty to defend continues to the point of establishing that liability upon which plaintiff was relying was in fact not covered by the policy, and not merely that it might not be.”4 Moreover, public policy mandates that the language of an insurance contract be liberally construed so as to afford coverage with respect to defense and indemnification.5
In Brown Foundation, we held that an insurer was required to provide a defense for a wood preservation treatment plant where the cause of action for environmental claims by a federal agency could possibly come within terms of the contract provisions.6 We denied application of coverage exclusions for intentional acts contained within the insurance agreement.7 We noted that such exclusions cannot subvert an insurer’s duty to defend be*637cause the “insured is entitled to all coverage he may reasonably expect under the policy”, and only a clear manifestation of an insurer’s intention to exclude coverage on that grounds will defeat its contractual obligation to provide coverage.8 Here, there was no clear manifestation of intent to exclude coverage for the Pulaski County magistrates while acting in their capacities as public officials. Notably, several jurisdictions enforce insurance agreements to provide legal defense and indemnification for public officials’ unauthorized salary increases.9
Moreover, this is a specific case where it is possible to characterize the complaint to allege tortious conduct or breaches of duty. The Pulaski Circuit Court held that the magistrates had made an error, but that it was not a breach of fiduciary duty. The specific tort or fiduciary duty claim against Appellees stems from their failure to adequately research statutory law and the law applicable to decisions of members of a fiscal court, ie., KRS 64.530, and §§ 2, 161, and 235 of the Kentucky Constitution. Such decisions require a certain amount of expertise and diligence before being made. In this case, the magistrates’ actions were not intentionally tortious. Their actions were more akin to negligence in that they made an uninformed decision. While the members of the fiscal court are fiduciaries of the county and the people for whom they serve, they are required to exercise due care and act in the best interests of the county when making decisions, they are not held to a standard of perfection.10 Permitting an insurance company that charged and received premiums to avoid coverage of public officials exercising their best judgment, regardless of the outcome of the decision, would stalemate public business from being conducted. Public officials deserve the peace of mind to know that when they conduct public affairs within their official capacities they will be afforded a legal defense and indemnity even if those decisions prove to be imprudent.
The exclusion from coverage is also inapplicable because this was not a case of intentional tort. The magistrates relied upon an order of the Pulaski Circuit Court granting summary judgment when they decided to retain the salary increases. And there is no indication in the record of any willful or knowing violation of law. However, even if the Appellees committed an intentional tort and suffered a judgment to that effect, KALF still would be required to defend them up and until that judgment was satisfied.11 I agree with the Court of Appeals that the record shows that money damages were sought in this case and that KALF has a contractual obligation to both defend and provide indemnification to Appellees. The only windfall in this situation is the one improperly bestowed on KALF,12 as it has eluded *638a contractual obligation to defend and indemnify several public officials who exercised imprudent judgment.

. Allen v. McClendon, 967 S.W.2d 1, 3-4 (Ky.1998).

. James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky.1991).

. Id.

. Id. citing 1C Appelman, Insurance Law and Practice § 4683.01 at 69 (Berdal Ed.1979).

. Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d 213 (Ky.1997).

. Id. at 275.

. Id. at 277.

. Id.

. Busbee v. Reserve Ins. Co., 243 Ga. 371, 254 S.E.2d 324 (1979) (holding that insurance surety bond had an obligation to indemnify a state board of corrections officer for failure to relinquish sums of money received following an improper salary increase, which constituted a failure to properly account for “monies received by virtue of his position or employment”). See Elizabeth v. Fumero, 143 N.J.Super. 275, 362 A.2d 1279 (1976); Graham v. James F. Jackson Assoc., Inc., 84 N.C.App. 427, 352 S.E.2d 878 (1987).

. Chicago Park Dist. v. Kenroy, Inc., 78 Ill.2d 555, 37 Ill.Dec. 291, 402 N.E.2d 181 (1980); United States v. Holzer, 816 F.2d 304 (7th Cir.1987) rev’d on other grounds by Holzer v. United States, 484 U.S. 807, 108 S.Ct. 53, 98 L.Ed.2d 18 (1987).

. Id.

. This Court has noted that insurance law should apply equally to parties capable of affording the burden of a legal defense as well as those that are unable. We held in Brown Foundation that “[t]he vast majority of Ken*638tucky insurance policy holders are not able to accept such a burden, and it may well be that they are unable financially to defend a claim and prosecute an action on the policy. The doctrine of reasonable expectations remains a viable one in Kentucky.” 814 S.W.2d at 280.