RENDERED: FEBRUARY 18, 2021 TO BE PUBLISHED
Supreme Court of Kentucky 2018-SC-0618-DG
BRENT FOREMAN, KATHLEEN FOREMAN, APPELLANTS AND LOGAN FOREMAN
ON REVIEW FROM COURT OF APPEALS V. NO. 2016-CA-1949 JEFFERSON CIRCUIT COURT NO. 14-CI-004773
AUTO CLUB PROPERTY-CASUALTY APPELLEE INSURANCE COMPANY
OPINION OF THE COURT BY CHIEF JUSTICE MINTON
AFFIRMING
Brent and Kathleen Foreman brought a declaratory judgment action in
the circuit court to establish that Auto Club Property-Casualty Insurance
Company owed payment under a homeowner’s insurance policy for property
damage caused by a house fire started by their teenage son, Logan, in a suicide
attempt. Auto Club denied liability based on the intentional-loss exclusion in
the policy.
The circuit court granted summary judgment in the Foremans’ favor.
The trial court’s judgment declared the exclusion inoperative because Logan
was “of such unsound mind as to render him incapable of forming an intent to
cause a loss as defined under [the Auto Club policy].” The Court of Appeals reversed the judgment, holding that the trial court’s
summary judgment erroneously ignored unambiguous policy language that
stated an objective component for judging Logan’s reasonable expectation of
property damage when he ignited gasoline-soaked furniture in the basement of
the home. Viewed objectively, undisputed evidence triggered the exclusion.
Citing with approval the reasoning from Nationwide Mutual Insurance Company
v. May,1 the Court of Appeals remanded the case to the trial court for further
proceedings, holding the Foremans have the burden of proof to overcome the
exclusion with evidence that Logan lacked mental capacity to understand the
physical consequences of his act, regardless of whether he could discern right
from wrong, and noting substantial evidence already of record that precluded
summary judgment in favor of the Foremans under that objective standard.
On discretionary review, we agree with the Court of Appeals’ analysis
that the trial court’s grant of summary judgment in favor of the Foremans was
erroneous. However, we remand this case to allow the Foremans an
opportunity to litigate a potential lack of capacity defense consistent with Stone
v. Kentucky Farm Bureau Mutual Insurance Co.2
I. FACTUAL AND PROCEDURAL BACKGROUND
It is undisputed that Logan, Brent and Kathleen’s then sixteen-year-old
son lived at home with them when he set fire to the family home in a suicide
attempt. In a disturbed mental state only few days after his release from a
1 860 F.2d 219 (6th Cir. 1988). 2 34 S.W.3d 809, 811 (Ky. App. 2000).
2 psychiatric hospitalization, while his family slept, Logan piled his school books
onto a couch in the basement of the family home and doused the couch and
books with gasoline before returning to his bedroom on the second floor. Early
the next morning before the family arose, he returned to the basement, set the
couch ablaze, and returned to his upstairs bedroom to await the outcome.
Logan later admitted to investigators that he started the fire to take his own
life. The resulting fire damaged the home to the point that it was
uninhabitable for an extended period. Brent and Kathleen made a property-
damage claim under their Auto Club homeowner’s policy, and Auto Club
denied payment, relying upon the intentional-loss exclusion in the policy.
The pertinent policy provisions read:
EXCLUSIONS
We do not insure under Part 1 [Property Insurance Coverages] - Property Insurance Coverages for loss caused directly or indirectly by any of the following, regardless of the cause of the excluded event or damage; other causes of the loss; whether any other cause or event acts produce the loss; or whether the loss or event occurs suddenly or gradually, involves isolated or widespread damage or occurs as a result of any combination of these.
***
9. Any action by or at the direction of an insured person committed with the intent to cause a loss, or that could be reasonably expected to cause a loss.3
3 (emphasis supplied) At all relevant times Brent, Kathleen, and their son, Logan, were considered “insured persons” as defined in the homeowner’s policy. The policy also contained a “joint obligations” clause, which provided: “The terms of this policy impose joint obligations on all persons defined as insured persons. This means that the responsibilities, acts and failures to act of any person defined as an insured person will be binding upon any other person defined as an insured person.
3 However, this exclusion does not apply to loss to the covered property of an innocent co-insured if the loss:
a. arose out of a pattern of domestic violence; and
b. the perpetrator of the loss is criminally prosecuted for the act of causing the loss.
Brent and Kathleen sued Auto Club in the circuit court for a declaration
of rights under the terms of their policy. When Logan reached the age of
majority during the pendency of the suit, Auto Club asserted a separate
indemnity claim against him. Logan then asserted his own claim against Auto
Club, denying any liability.
All three Foremans moved for summary judgment, and the trial court
granted it, focusing on Logan’s lack of mental capacity to form intent to be
responsible for intentionally causing damage to the property. Auto Club
appealed the judgment, and the Court of Appeals reversed and remanded the
case to the trial court for further proceedings.
II. ANALYSIS
A. Standard of Review.
A party seeking a declaratory judgment “may, at any time . . . move with
or without supporting affidavits for a summary judgment in his favor.”4 In
This does not apply to loss to covered property of an innocent co-insured if the loss arose out of a pattern of domestic violence and abuse, and the perpetrator of the loss is criminally prosecuted for the act causing the loss.” Importantly, Brent and Kathleen Foreman concede that if the exclusion applies to Logan, it also precludes them from receiving coverage under the policy. See also American Hardware Mut. Ins. Co. v. Mitchell, 870 S.W.2d 783, 785 (Ky. 1993) (explaining homeowners' insurance policies may be written to preclude innocent co- insureds from coverage). 4 Kentucky Rule of Civil Procedure (CR) 56.01.
4 cases in which the trial court has granted summary judgment in a declaratory
judgment action and no bench trial is held, we use the appellate standard of
review for summary judgments.5
When reviewing a trial court’s grant of summary judgment, we determine
whether the record supports the trial court’s conclusion that there is “no
genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law.”6 “Because summary judgment does not require
findings of fact but only an examination of the record to determine whether
material issues of fact exist, we generally review the grant of summary
judgment without deference to the trial court's assessment of the record or its
legal conclusions.”7
The interpretation of insurance contracts is a matter of law, so our
review is de novo.8 Foremost in interpreting an insurance contract we are
bound by the specific language of the contract before us.9 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
5 Ladd v. Ladd, 323 S.W.3d 772, 776 (Ky. App. 2010). 6 Kentucky Rule of Civil Procedure (CR) 56.03. 7Hammons v. Hammons, 327 S.W.3d 444, 448 (Ky. 2010) (citing Malone v. Kentucky Farm Bureau Mut. Ins. Co., 287 S.W.3d 656, 658 (Ky. 2009)). 8 Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69, 73 (Ky. 2010). 9 Nationwide Mut. Ins Co. v. Hatfield, 122 S.W.3d 36 (Ky. 2003) (“In Kentucky, the exclusionary or limiting language in policies of automobile insurance must be clear and unequivocal and such policy language is to be strictly construed against the insurance company and in favor of the extension of coverage.”).
5 will be enforced as written.10 Unambiguously defined terms are “interpreted in
the light of usage and understanding of the average person.”11 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.12 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.”13 In our interpretation, therefore, we consider what
could be reasonably expected by the insured from the plain contract language,
as it is controlling.
B. The Court of Appeals correctly reversed and remanded for examination of the insured’s reasonable expectation of loss.
Relying upon its reading of this Court’s application of the reasonable-
expectations doctrine as discussed in James Graham Brown Foundation, Inc. v.
St. Paul Fire and Marine Insurance Company,14 the trial court ruled the
10 Wehr Constructors, Inc. v. Assurance Co. of America, 384 S.W.3d 680, 685
(Ky.2012). 11 Stone v. Kentucky Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 811 (Ky.App. 2000). 12 Id. Tower Ins. Co. of N.Y. v. Horn, 472 S.W.3d 172, 174 (Ky. 2015) (citing 13
Kentucky Ass’n of Counties All Lines Fund Trust v. McClendon, 157 S.W.3d 626, 630 (Ky. 2005)). 814 S.W.2d. 273 (Ky. 1991). This, in turn, leads to why the circuit court 14
achieved an illogical result. Here, there is no dispute that the objective component of the intentional-acts exclusion is satisfied. As the appellees themselves concede on page thirteen of their collective brief, “It is obvious to this Court and to counsel that lighting a fire in the basement would require some burning the [sic] home in order reach [sic] a second (2nd) floor bedroom. A rational person would, of course, foresee that the fire in the basement would spread to the other parts of the home.”
6 disputed exclusion inapplicable, reasoning that the reasonable expectation of
loss must be viewed from Logan’s subjective viewpoint: when he set the fire,
the trial court reasoned, Logan lacked mental capacity to form the intent to
damage the home.
We agree with the Court of Appeals’ that the trial court misapplied
Brown Foundation, holding instead the coverage exclusion must be read from
an objective viewpoint to exclude from coverage a “loss . . . caused directly or
indirectly by any action by . . . an insured person . . . that could be reasonably
expected to cause a loss.” The Court of Appeals correctly concluded that, when
viewed objectively, Logan’s act of setting fire to the couch he soaked with
gasoline was an intentional act that “could reasonably be expected to cause”
some physical damage to, or destruction of, tangible property.15
In ascertaining the meaning of contract language, as previously
discussed, we begin with the text of the policy so that “the words employed in
insurance policies, if clear and unambiguous, should be given their plain and
ordinary meaning.”16 We find the contract language here to unambiguously
exclude coverage for acts that, when judged objectively, could be reasonably
expected by the insured to cause a loss. As a result, we find, as the Court of
Appeals found, that an insured would reasonably expect that igniting a
15 The policy defines loss as physical injury to, or destruction of, tangible property. 16 Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129, 131 (Ky. 1999).
7 gasoline-soaked couch, as Logan unquestionably did, could reasonably be
expected to burn. So, summary judgment in favor of the Foremans was error.
But, as the Court of Appeals discussed, despite that error in granting
summary judgment to the Foremans, they may still be able to pursue payment
under their policy. Courts generally hold that intentional-act exclusions do not
apply if the insured was suffering from a lack of mental capacity at the time of
the act.17 This Court has not directly encountered the lack-of-mental-capacity
defense to defeat intentional-act exclusions, but we do so today.
Allowing a mental-incapacity defense potentially to defeat an intentional-
act exclusion accords with the reasonable-expectation principle that all
insurance contracts are to be construed to give effect to the coverage the
insured reasonably expected while allowing insurers to protect themselves from
unreasonable exposure.18 Intentional-act exclusions are included in contracts
to prevent the insured from manipulating the risk and thereby receiving a
financial benefit from the consequences of the loss a loss intended or expected
by the insured.19 In contrast, though, an individual who lacks mental capacity
to conform his conduct will not be influenced by the existence or nonexistence
17 Steven Plitt & Aeryn E. Heidemann, Are You Crazy?: Determining Mental Capacity As A Pre-Requisite To The Attachment of an Intentional Act Exclusion, 32 Ins. Litig. Rep. 623, 623 (2010). 18 Steven Plitt et al., 13 Couch on Ins. § 186:50 (3rd ed 2020) (“Insurance
companies have the right to limit coverage in any manner the insurer desires so long as the limitations do not conflict with statutory provisions or public policy.”). 19 Plitt & Heidemann, supra note 15.
8 of coverage.20 So it seems consistent with our reasonable-expectations policy
to protect insureds from conduct no one could foresee in the rare instance
where mental incapacity may apply.
Although the current contract provision is to be judged objectively, a
mental-incapacity defense remains available to the Foremans. An objective
analysis requires us to ask what loss, when judging the circumstances
objectively, could Logan reasonably expect to result from his intentional
actions.21 The insured’s intention may be “proven either by direct evidence of
‘actual’ intent, or it may be ‘inferred by the nature of the act and the
accompanying reasonable foreseeability of harm.’”22
Determining whether loss could reasonably be expected requires a
determination of what results were reasonably foreseeable to the insured at the
time the insured acted.23 This includes considering the insured’s knowledge
20 Id. 21 May, 860 F.2d at 223 (“Kentucky courts have more generally concluded that an intentional act exclusion will be invoked when the injury is a foreseeable or expected consequence of the actor’s volitional acts, and not merely fortuitous or accidental.”) (See, e.g., Woods v. Provident Life & Accident Ins. Co., 240 Ky. 398, 42 S.W.2d 499, 501–02 (Ky. 1931)). 22 Id. at 223 (citing Willis v. Hamilton Mut. Ins. Co., 614 S.W.2d 251 (Ky. App. 1981) (quoting Pachucki v. Republic Ins. Co., 89 Wis.2d 703, 278 N.W.2d 898, 901 (Wis. 1979)). 23 Shelton v. Kentucky Easter Seals Soc., Inc., 413 S.W.3d 901, 917 (Ky. 2013) (discussing foreseeability in negligence actions the Court found that one cannot have a duty, or be expected to foresee the unforeseeable) (citing A.W. v. Lancaster County School District 0001, 280 Neb. 205, 784 N.W.2d 907, 918 (Neb. 2010)) (“To say, as we have in the past, that a defendant had no duty, under particular circumstances, to foresee a particular harm is really no different from saying that the defendant's duty to take reasonable care was not breached, under those circumstances, by its failure to foresee the unforeseeable.”).
9 “that his conduct involves a risk of [property damage] if a reasonable [person]
would do so while exercising such attention, perception of the circumstances,
memory, knowledge of other pertinent matters, intelligence, and judgment as a
reasonable [person] would have.”24
The comprehension of pertinent matters refers to an actor’s ability to recognize the risk. To have the ability to make such a recognition “he is required to know (a) the qualities and habits of human beings and animals and the qualities, characteristics, and capacities of things and forces in so far as they are matters of common knowledge at the time and in the community; and (b) the common law, legislative enactments, and general customs in so far as they are likely to affect the conduct of the other or third persons.”25
However, as the Court of Appeals in Stone stated, mental incapacity
prevents the actor from forming “mind enough to know the nature and quality
of his act” and “[a] person’s actions will not be considered intentional if he is
unable to comprehend the physical nature of their consequences[.]”26 Mental
incapacity renders a person unable to have knowledge of the matters pertinent
to assessing foreseeability of risk because it prevents the actor from being able
to understand the nature and quality of their actions. Since a mentally
incapacitated actor cannot ascertain the foreseeability of risks, it is impossible
24 Lee v. Farmer’s Rural Elec. Co-op. Corp., 245 S.W.3d 209, 213 (Ky. App. 2007) (“In determining whether an injury was foreseeable, we look to whether a reasonable person in a defendant's position would recognize undue risk to another, not whether a reasonable person recognized the specific risk to the injured party.”). 25 Id. at 213. 26 Stone, 34 S.W.3d 809 at 813 (Ky. App. 2000) (citing Nationwide Mut. Fire Ins. Co. v. May, 860 F.2d 219, 223–25 (6th Cir. 1988)) (“to determine whether an act was intentional hinged on whether the actor understood the physical nature of the consequences of his actions, regardless of whether he could discern right from wrong.”).
10 to judge objectively what an insured acting under delusion could have
reasonably expected to result from his actions.
As a result, we adopt the standard set forth in Stone and hold today that
an intentional-act exclusion will be defeated if the insured shows at the time of
the act, not just that he did not know right from wrong, but that he did not
understand the nature and quality of his actions so that he was rendered
unable to understand the physical nature of their consequences.27 Only when
the insured provides evidence of his lack of understanding will the intentional-
acts exclusion provision be defeated, and the insurer be required to provide
coverage.28 This results in a high burden on the insured but adequate
protection for the insured’s reasonable expectation of insurance coverage for
property damage.
As previously stated, summary judgment was erroneously granted here,
but because we find that an insured’s mental-incapacity defense applies to
intentional-act exclusion provisions, summary judgment in favor of Auto Club
may be inappropriate at this juncture. The record reflects evidence that would
permit an inference that Logan was aware of the nature of his actions. For
example, as the Court of Appeals notes, Logan told the official arson
investigator that he obtained gasoline from the basement earlier in the evening,
27 Id. at 813 (finding that an exclusion provision will not be defeated with mere “proof of a mental illness, such as an insane impulse, that merely precluded the actor from controlling his actions or knowing right from wrong . . .”). 28 Id. (“In this case, there was substantial medical evidence to support the conclusion that Michael was capable of forming an intent to act and that he knew the nature and quality of his acts.”).
11 poured the gas around the couch and placed his books on it. A fact-finder
could reasonably infer that Logan was able to understand the nature of his
actions and had either the subjective intent to start a fire to end his life in a
way that would cause damage to the home or that it was at least reasonably
foreseeable that damage to the couch, if not destruction of the family home
could happen. We affirm the Court of Appeals’ decision reversing the trial
court’s grant of summary judgment in favor of the Foremans, but we remand
this case to the trial court allow the insureds an opportunity to litigate a lack-
of-capacity defense consistent with the standard set forth in this opinion.
III. CONCLUSION
We affirm the Court of Appeals and remand this matter for further
proceedings consistent with this opinion.
All sitting. Minton, C.J.; Conley, Hughes, Keller, Nickell, and VanMeter,
JJ., concur. Lambert, J., concurs in result only. Keller, J., concurs by
separate opinion, in which Conley and Nickell, JJ., join.
KELLER, J., CONCURRING: Brent and Kathleen Foreman argue to this
Court that, as a matter of public policy, Auto Club Property-Casualty
Insurance Company should be prohibited from denying them insurance
coverage, as they are innocent co-insureds. As it appears this public policy
argument was not made to the trial court, I concur with the majority’s well-
written opinion in all aspects. However, I write separately to address two
points. First, I want to draw attention to this Court’s previous opinion in
American Hardware Mutual Insurance Company v. Mitchell, 870 S.W.2d 783
12 (Ky. 1993). Second, I write to emphasize the need for more protection for
innocent co-insureds.
In Mitchell, we were tasked with determining whether the obligations of
married co-insureds were joint and several. Id. at 784. In that case, the insurer
denied coverage to the wife for losses attributed to the husband’s act of arson.
Id. We said that “the proper rule should be that an innocent spouse should not
be denied coverage under any policy of insurance simply because of the marital
relationship.” Id. at 785. Although we acknowledged that “the policy could have
been written to negate the collection of insurance by a co-insured,” we went on
to direct that “[a]n insurance policy which covers the interests of more than one
insured should be considered several or separate as to each person insured.”
Id. Accordingly, we affirmed the Court of Appeals’ reversal of the trial court’s
granting of summary judgment against the wife. Id. We further held that
factual issues existed as to “whether the [wife] actually set the fire; had
knowledge and authorized its setting; or later ratified the intentional act.” Id.
Notably, a three-justice dissent would have reversed the Court of Appeals
because the husband and wife were both listed as a “named insured” on the
policy and the acts of one could reasonably be attributed to the other. Id. at
786 (Leibson, J., dissenting). However, the dissent noted that it would have
agreed with the majority if the arson had merely been committed by “an
insured.” Id. (Leibson, J., dissenting). In the dissent’s view, the broad,
unqualified word “insured” where it includes “any relative in the same
household or even nonrelatives who are children residing in the same
13 household” is too attenuated from the intentional loss exclusion to provide
adequate notice “that coverage is excluded for a fire set intentionally by
persons who fit within this broad definition of an insured, where she has no
knowledge and no complicity in setting the fire.” Id. (Leibson, J., dissenting).
The dissent went on to say that “[t]o extend the exclusion so broadly would
exclude coverage beyond the reasonable expectations of the policyholder.” Id.
(Leibson, J., dissenting).
Although the Foremans have not yet contested that if the exclusion
applies to Logan, it also precludes them from receiving coverage, it is difficult to
imagine that a parent reasonably expects to be excluded from homeowners’
insurance coverage if his or her child, struggling with mental health issues,
starts a fire in the house during an attempted suicide. In the case before us,
Logan was admitted, by his parents, to The Brook Hospital less than a week
prior to the events in this case because he was threatening suicide. He was
discharged on September 13, 2013, just a few days later, because the
Foremans’ health insurance declined to continue to pay for treatment. The
events giving rise to this case occurred only a day and a half later, in the early
morning hours of September 15, 2013.
I am mindful that parties to a contract should receive the contract for
which they bargained. Further, insurers can write policies “to negate the
collection of insurance by a co-insured.” Id. at 785. However, they can only do
so to the extent permitted by statute. Our current statutory scheme protects
innocent co-insureds “if the loss arose out of a pattern of domestic violence and
14 abuse and the perpetrator of the loss is criminally prosecuted for the act
causing the loss.” KRS 304.12-211(2)(b). Victims of domestic violence receive
this extra protection, at least in part, because we, as a society, do not want to
victimize them any further. If the abuser starts a fire in the home as an act of
domestic violence and is prosecuted for that action, the victim can still receive
payment under his or her insurance policy for the damage.
I see strong parallels between victims of domestic violence and parents of
children who struggle with mental illness. Parents may find themselves raising
children with mental illness or even developmental challenges which may
render the child more likely to engage in destructive behaviors. Most parents
will not abandon their child because he or she struggles with mental illness or
other challenges even when those challenges may have unforeseen
consequences. Encouraging parents to seek treatment, if necessary, for their
children and supporting them in maintaining their family unit is sound public
policy.
The facts of this case are noteworthy and compelling. Logan has
struggled with mental health issues for years. His family has repeatedly and
continually sought mental health treatment for him, including regular
outpatient treatment with a therapist. On September 10, 2013, just five days
before the fire, Logan made suicidal threats and was admitted as an inpatient
to The Brook Hospital. On September 13, 2013, he was discharged from The
Brook, not because he completed a specific treatment program, but because
his health insurance refused to pay for inpatient treatment any longer. He was
15 referred to an intensive outpatient program but had not yet begun that
program when, in the early morning hours of September 15, he set fire to a
couch in his basement in a suicide attempt. Following the suicide attempt, he
received outpatient treatment at The Brook. Logan was eventually criminally
prosecuted for arson and entered into a diversion agreement whereby he was
required to continue with his mental health treatment and enroll in and
complete the National Guard Youth Challenge Program. These facts draw
striking parallels to the factual scenarios in which KRS 304.12-211 provides
relief to the innocent-victim spouse.
Changes in public policy should not be made by judicial fiat. They must
be determined by our legislature. That process will allow all interested in this
issue to have a voice. However, I maintain it is time to enact greater protections
for innocent co-insureds so that insurance coverage better aligns with the
reasonable expectations of the insured.
Conley and Nickell, JJ., join.
16 COUNSEL FOR APPELLANTS:
Cyrus Gilmore Dutton, III Cole Tanner Tomlinson Dutton and Associates, PLLC
COUNSEL FOR APPELLEE:
Donald J. Haas Smith & Hoskins
COUNSEL FOR AMICUS CURIAE: THE INSURANCE INSTITUTE OF KENTUCKY:
Thomas Frederick Glassman Bonezzi Switzer Polito & Hupp CO LPA