RENDERED: DECEMBER 18, 2020; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2019-CA-1433-MR
CHRISTODULOS STAVENS; BADR IDBEIS; CARDIOVASCULAR HOSPITALS OF AMERICA; ELI R. HALLAL; AND PAUL NEWSOM1 APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE A. C. MCKAY CHAUVIN, JUDGE ACTION NO. 11-CI-001048
FEDERAL INSURANCE COMPANY APPELLEE
OPINION AFFIRMING
** ** ** ** **
BEFORE: COMBS, DIXON, AND TAYLOR, JUDGES.
COMBS, JUDGE: Christodulos Stavens, Eli R. Hallal, Badr Idbeis, and
Cardiovascular Hospitals of America, LLC (CHA), appeal the summary judgment
of the Jefferson Circuit Court entered in favor of Federal Insurance Company
1 Paul Newsom is listed as an appellant on the notice of appeal, and we have listed him in the caption of this case for that reason. However, he has not participated in the appeal. (Federal Insurance). The circuit court concluded that the terms of an insurance
policy issued by Federal Insurance were unambiguous and excluded coverage for
the claims asserted against Stavens, Hallal, Idbeis, and CHA (referred to
collectively as “the insureds”) by Abdul Buridi, a Louisville physician. After our
review, we affirm the circuit court’s judgment.
Buridi’s claims against the insureds relate to his investment in
Kentuckiana Medical Center, LLC, a physician-owned facility developed and
located in Clarksville, Indiana. Kentuckiana Medical Center (the Hospital) was
formed by two members: CHA and Kentuckiana Investors, LLC (KI).
CHA, a Delaware limited liability company, was headquartered in
Kansas. Badr Idbeis, a Kansas physician, held a majority of the voting shares of
CHA and managed the company. CHA maintained a controlling interest in the
Hospital, and Idbeis served on the Hospital’s board of managers. CHA also
developed or owned and managed other medical facilities.
KI, a Delaware limited liability company, was organized by more than
thirty (30) physician investors. Among its members were Stavens, a Louisville
cardiologist, and Hallal, an internist from New Albany, Indiana -- who together
owned nearly 27% of KI. After the other physician investors, KI held the
remaining minority interest in the Hospital. Stavens and Hallal were managing
members of KI and would eventually become managing members of the Hospital.
-2- Dr. Buridi, a nephrologist practicing in Louisville, also had patients in
the southern Indiana area. In 2007, Buridi purchased a single share of KI
representing a 1.0417% ownership in the company.
The Hospital’s construction loan proceeds and working capital were
exhausted before the project was completed. In order to obtain additional funding,
the physician investors of KI agreed to guarantee personally various loans and
other financial obligations of the Hospital to lenders and equipment providers. The
executed guarantees provided for joint and several liability. In addition, many of
the physician investors loaned cash to KI. Buridi loaned KI and/or the Hospital
$25,000 for which he received a promissory note signed by Stavens and Hallal.
Even with significant infusions of cash and loans by Stavens, Hallal, and others,
the Hospital struggled but finally opened to patients in August of 2009.
Pursuant to the CHA business model developed by Idbeis and used to
solicit prospective investors in the Hospital project, KI’s physician investors were
expected to have staff privileges at the Hospital. Buridi applied for and was
granted privileges to admit patients and to provide clinical care at the Hospital.
Buridi attended to patients there. The majority of the Hospital’s investors were
practicing physicians with staff privileges at the Hospital.
For numerous reasons, the Hospital continued to be plagued by
financial difficulties. Pursuant to their personal guarantees, Buridi and other
-3- investors were eventually pursued by the Hospital’s creditors. In September 2010,
the Hospital initiated Chapter 11 bankruptcy proceedings.
In February 2011, Buridi, in his individual capacity, filed an action in
Jefferson Circuit Court against CHA, Stavens, Hallal, and Idbeis. Along with
claims for conversion and unjust enrichment, Buridi alleged that Stavens and
Hallal engaged in fraudulent misrepresentation and breached their fiduciary duties
to him in the development and management of the Hospital. He also sought to
recover on the promissory note executed by Stavens and Hallal in connection with
his loan of $25,000 to KI. In 2012, Buridi amended his complaint to assert
derivative claims on behalf of KI.
Stavens, Hallal, Newsom, and Idbeis were insured under a policy
issued by Federal Insurance to CHA, which extended to the Hospital’s directors
and officers by virtue of the Hospital’s status as CHA’s subsidiary. The insureds
timely notified Federal Insurance of the action against them. However, Federal
Insurance promptly denied coverage and declined to indemnify its insureds for the
litigation costs incurred as a result of defending the action against them. Federal
Insurance contended that coverage was excluded under both the contractual
liability provision of the policy and the “insured versus insured” provision of the
policy. The insureds argued that the exclusions were inapplicable and/or
unenforceable.
-4- In June 2012, Stavens, Hallal, Idbeis, and CHA filed a third-party
complaint against Willis of Greater Kansas, Inc. (Willis), an insurance broker;
Chubb & Son, Inc. (Chubb), a group of insurance companies of which Federal
Insurance was a subsidiary; and Federal Insurance. Against Federal Insurance and
Chubb, the insureds asserted claims for breach of contract, bad faith, and unfair
claims practices. They also sought a declaratory judgment with respect to the issue
of coverage under the policy provisions. Against Willis, the insureds asserted
claims for misrepresentation, negligence, breach of contract, breach of fiduciary
duty, and breach of the duty of good faith and fair dealing. In May 2012, the
circuit court bifurcated the litigation related to the third-party action against
Federal Insurance and the underlying proceedings related to Buridi’s complaint
against the insureds.
On April 24, 2013, Stavens, Hallal, Idbeis, and CHA filed a motion
for partial summary judgment in the third-party action. Federal Insurance filed a
competing motion for summary judgment on May 31, 2013. In its opinion and
order entered on April 13, 2015, the Jefferson Circuit Court concluded that the
terms of the policy were not ambiguous. It determined that as a member of the
Hospital’s staff, Buridi also qualified as an insured under the terms of the policy
and that the policy provision excluding coverage for “insured versus insured”
actions was applicable and enforceable. The court denied the insureds’ motion for
-5- partial summary judgment and concluded that Federal Insurance was entitled to
judgment as a matter of law.
Buridi’s claims against CHA and Idbeis in the underlying action were
dismissed for lack of personal jurisdiction. The action against them was refiled in
U.S. District Court in Kansas. In the Kansas action, the parties agreed that
Kentucky’s substantive law governed the dispute because Kentucky was the
location of the alleged torts as well as the locus where Buridi allegedly suffered
injury. Applying Kentucky law, the federal court in Kansas ultimately granted
summary judgment to CHA and Idbeis. Buridi v. Idbeis, No. 15-CV-1142-EFM,
2016 WL 6905899 (D. Kan. Nov. 22, 2016).
Buridi’s claims against the insureds proceeded to trial in Jefferson
Circuit Court. The jury found that Stavens and Hallal had fraudulently represented
to Buridi: (1) that the guarantees he signed would render him liable for the loans
and leases on a pro rata basis rather than on a joint and several basis; (2) that
Stavens and Hallal had converted to their own use $225,000 that belonged to KI;
and (3) that KI had no contractual or equitable obligation to repay Stavens and
Hallal for their capital investments. The jury also found that Stavens and Hallal
were obligated, individually, to repay the promissory note to Buridi in the amount
of $25,000. A final judgment was entered reflecting the jury’s findings. Buridi
-6- was also awarded attorney’s fees and prejudgment interest on the derivative claim
and on the promissory note.
The interlocutory summary judgment order entered on April 13, 2015,
was made final and appealable pursuant to the provisions of CR2 54.02 on
September 6, 2019. This appeal followed.
On appeal, the insureds argue that the Jefferson Circuit Court erred by
applying Kentucky law to decide that Federal Insurance was entitled to summary
judgment. They contend that Indiana law governs the dispute and that the policy’s
ambiguous terms purporting to exclude coverage, coupled with facts and
circumstances that create a reasonable expectation of coverage, mean that the
policy must be interpreted to provide them coverage.
Federal Insurance argues that there is no conflict in the substantive
law governing the narrow issue presented on appeal, i.e., whether the terms of its
insurance contract are ambiguous. It contends that the circuit court correctly
determined that Kentucky law governing construction of policy exclusions applied
and that summary judgment was appropriate because the terms of its policy are
unambiguous.
Because the standard that governs an award of summary judgment is
based on the Federal Rules of Civil Procedure, Kentucky, Indiana, and Kansas
2 Kentucky Rules of Civil Procedure.
-7- agree that summary judgment is proper where there exists no genuine issue of
material fact and that the movant is entitled to judgment as a matter of law.
Federal Rule of Civil Procedure 56; CR 56; Indiana Trial Rule 56; Kansas Statutes
Annotated 60-256. Procedural matters such as summary judgment standards are
governed by the law of the forum. Ley v. Simmons, 249 S.W.2d 808, 808 (Ky.
1952).
The substantive law of Indiana and Kansas are in accord with
Kentucky that “the construction and interpretation of a contract, including
questions regarding ambiguity, are questions of law to be decided by the court[.]”
Frear v. P.T.A. Industries, Inc., 103 S.W.3d 99, 105 (Ky. 2003) (citing First
Commonwealth Bank of Prestonsburg v. West, 55 S.W.3d 829, 835 (Ky. App.
2000)); see also Erie Indemnity Co. v. Harris, 99 N.E.3d 625, 629 (Ind. 2018)
(“Matters involving disputed insurance policy terms present legal questions and are
particularly apt for summary judgment.”); Ponds ex rel. Poole v. Hertz Corp., 158
P.3d 369, 370 (Kan. Ct. App. 2007) (“Whether a contract is ambiguous is a matter
of law[.]”).
Federal Insurance issued a Healthcare Portfolio Insurance Policy to
CHA. The parties agree that the policy expressly excludes from coverage claims
brought by insureds against other insureds. The policy’s exclusion provides, in
pertinent part:
-8- 8. The Company shall not be liable under Insuring Clauses 1, 2 or 3 for Loss on account of any Claim:
(a) brought or maintained by, at the behest of, on behalf of, or in the name or right of any Insured in any capacity. . . .
“Insured Person” is defined by the terms of the policy as
(a) a duly elected or appointed director, officer, trustee, trustee emeritus, Manager, department head, executive director, duly constituted committee member, member of the staff or faculty, or the in-house general counsel of any Organization chartered in the United States of America. . . .
(Emphasis original). The parties agree that the policy defines “Insured Person” to
include, among others, a member of the staff of CHA or one of its subsidiaries.
The Hospital is a subsidiary of CHA.
The question on appeal is whether Buridi qualified as a “member of
the staff or faculty” of the Hospital. While the insureds concede that Buridi was
granted and exercised staff privileges at the Hospital, they argue that Buridi was
not really a member of the Hospital staff. They contend that the term is not
specifically defined. They argue that it is susceptible of multiple, reasonable
interpretations and that it is, therefore, ambiguous. Federal Insurance contends that
the term staff is a simple, ordinary word that is not rendered ambiguous in this
context by a failure to define it specifically.
-9- In Kentucky, the terms of an insurance policy have no technical
meaning in law and are to be interpreted according to general usage. Fryman v.
Pilot Life Ins. Co., 704 S.W.2d 205 (Ky. 1986). This rule is equally applicable to
policy exclusions. York v. Kentucky Farm Bureau Mut. Ins. Co., 156 S.W.3d 291
(Ky. 2005). Indiana courts also afford “clear and unambiguous policy language
given its ordinary meaning.” Holiday Hosp. Franchising, Inc. v. AMCO Ins. Co.,
983 N.E.2d 574, 577 (Ind. 2013). And, similarly, where an “exclusion is
unambiguous[,] it should be given its plain and ordinary meaning.” Wright v. Am.
States Ins. Co., 765 N.E.2d 690, 694 (Ind. Ct. App. 2002). Kansas courts, too, hold
that where policy exclusions are defined in clear and explicit terms, they must be
given their plain, ordinary meaning. Pink Cadillac Bar & Grill, Inc. v. U.S. Fid. &
Guar. Co., 925 P.2d 452 (1996). Furthermore, the law of each state cautions that
ambiguity does not arise from the litigants’ mere disagreement over the meaning of
a policy term.
Parties to an insurance contract may not create an ambiguity simply
by asserting an interpretation different from one asserted by an opposing party.
Erie Indemnity Co., 99 N.E.3d 625. “Courts should not strain to create an
ambiguity where, in common sense, there is not one.” Geer v. Eby, 432 P.3d 1001,
1009 (Kan. 2019) (citing American Family Mut. Ins. Co. v. Wilkins, 179 P.3d 1104
(2008)). Courts must not remake contracts for parties by creating ambiguity where
-10- none exists. O.P. Link Handle Co. v. Wright, 429 S.W.2d 842 (Ky. 1968). The
mere fact that a litigant “attempt[s] to muddy the water and create some question
of interpretation does not necessarily create an ambiguity.” Sutton v. Shelter Mut.
Ins. Co., 971 S.W.2d 807, 808 (Ky. App. 1997).
Policy provisions are ambiguous only where they are “susceptible to
more than one reasonable interpretation.” Erie Indemnity Co., 99 N.E.3d at 630
(citing Holiday Hosp. Franchising, 983 N.E.2d at 578). The test in determining
whether an insurance contract is ambiguous is not what the insurer intends the
language to mean, but what a reasonably prudent insured would understand the
language to mean. American Family Mut. Ins. Co. v. Wilkins, 179 P.3d 1104 (Kan.
2008). “[C]ourts should not make a different insurance contract for the parties by
enlarging the risk contrary to the natural and obvious meaning of the existing
contract.” Pierce v. West American Insurance Co., 655 S.W.2d 34, 36 (Ky. App.
1983).
Again, the insureds argue that the failure of the policy to include a
definition of the term staff renders the term ambiguous. They claim that no plain,
ordinary meaning of the word staff applies to Buridi. We disagree with both
assertions.
Because the term staff is not defined in Federal Insurance’s policy, it
has no exclusive, special meaning within its provisions. The term is commonly
-11- used, and it has plain meaning. It is easily understood and patently unambiguous.
The 1993 Edition of The Oxford English Dictionary defines staff broadly to
include “those in authority within an organization.” Legal Thesaurus, Burton,
William C. (2d edition 1992), provides the term “professional force” as an
alternative to staff. Similarly, the insureds, themselves, propose that the term can
refer to “personnel who assist a director in carrying out an assigned task.”
Buridi applied for and was granted staff privileges at the Hospital.
Thus, along with other medical staff, he was authorized to care for patients within
the facility. And although he was not a hospital employee, as a member of the
Hospital’s staff, he was given access to its resources -- including facilities,
equipment, and personnel. Buridi assumed a level of authority there, and he was
integral to the Hospital’s mission of providing patient care. Based on this analysis,
failing to include Buridi as among Hospital “staff” requires us to ignore the
“natural and obvious” meaning of the term. In light of its common usage and the
understanding of an average person, the circuit court did not err by concluding that
the disputed policy provision was unambiguous. Because we conclude that the
“insured versus insured” exclusion clearly bars coverage of the claims asserted by
Buridi, we need not analyze whether the claims also fall within the policy’s
contractual liability exclusion.
-12- In the alternative, the insureds contend that coverage must be
extended because they reasonably expected that the policy would provide liability
coverage for any shareholder derivative action asserted against them. They explain
that “the claims brought by Buridi are precisely those contemplated by virtually
any corporate purchase of a D & O policy” and imply that if coverage is denied
under these circumstances, the coverage is merely illusory. We disagree.
Contrary to the insureds’ suggestion, the “insured versus insured”
exclusion does not render the coverage illusory. Shareholder derivative actions
can commonly be brought by stakeholders who are not insureds under their
company’s coverage policy. The insureds acknowledge in their brief that the
Hospital’s stakeholders were not exclusively physicians with staff privileges.
Therefore, there were shareholders who were not insureds under the policy.
Moreover, Idbeis specifically denied in his deposition that his purpose in securing
coverage under the Federal Insurance policy was related solely to the risk of
shareholder derivative actions.
Finally, the insureds argue that Federal Insurance should be estopped
from denying coverage regardless of what the policy actually covers not only
because they reasonably expected the policy to cover shareholder actions -- but
also because they specifically bargained for such coverage. Federal Insurance
-13- argues that there is no basis upon which it can be estopped from relying on the
unambiguous provisions of its insurance contract.
The insureds concede that Indiana adheres to the general rule that the
doctrine of estoppel is not available to create or extend the scope of coverage of an
insurance contract. Transcontinental Ins. Co. v. J.L. Manta, Inc., 714 N.E.2d 1277
(Ind. Ct. App. 1999). However, they rely upon an exception whereby an insurer
can be estopped from denying coverage: and that is where an insurer
misrepresents the extent of coverage to an insured in order to induce the insured to
purchase coverage which does not actually cover the disputed risk. Employers Ins.
of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015 (Ind. Ct. App. 1999).
The insureds argue that the insurance broker, Willis, expressly
represented to them that they would be covered against shareholder actions. They
contend that under Indiana law, an insurance broker is an agent of the company
from which he secures insurance and that as an agent of Federal Insurance, Willis’s
actions, knowledge, and conduct are attributable to Federal Insurance. Because
Willis and Federal Insurance were aware of their business model, they argue that
the broker and insurer must have been aware of the nature of their coverage needs.
In Indiana, an insurance agent’s duty to procure insurance is distinct
from his duty to advise his client about the adequacy of coverage or any alternative
coverage. Indiana Restorative Dentistry, P.C. v. Laven Ins. Agency, Inc., 27
-14- N.E.3d 260 (Ind. 2015). A breach of the duty to advise creates an action in tort.
Id. (citing Am. Family Mut. Ins. Co. v. Dye, 634 N.E.2d 844 (Ind. Ct. App. 1994)).
An insurer can certainly be liable for the tortious conduct of its agent.
However, under Indiana law, an “insurance broker” is generally an agent of the
insured, and not the insurer. Estate of Mintz v. Connecticut General Life Ins. Co.,
905 N.E.2d 994 (Ind. 2009) (citing Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d
350 (Ind. Ct. App. 1995)). A broker represents the insured by negotiating a
contract of insurance. Id. An insurer is not liable for a broker’s tortious conduct.
The parties do not dispute that Willis, a sophisticated broker, agreed
to procure insurance on CHA’s behalf. Consequently, Willis acted as CHA’s
broker, and CHA was under a duty to use reasonable care to procure the insurance
coverage requested. Willis was not acting as an agent of Federal Insurance.
Therefore, Federal Insurance is not liable for the allegedly tortious failure of Willis
to secure adequate coverage. Federal Insurance did not induce CHA to purchase
coverage for the Hospital’s managers. It did not make any misrepresentations or
mislead the insureds with respect to the scope of coverage provided by the policy,
and the representations made by Willis to CHA cannot be imputed to Federal
Insurance. Whether Willis had a duty to advise its client about the adequacy of the
management liability coverage offered by Federal Insurance (given the ownership
structure of the Hospital or any alternative coverage) is not an issue before us.
-15- The Jefferson Circuit Court did not err by applying the law of the
forum state as there are no significant differences in the relevant laws of Kentucky,
Indiana, and Kansas. Nor did it err by concluding: (1) that Buridi’s claims were
excluded from coverage under the unambiguous provisions of the Federal
Insurance policy and (2) that the policy was binding -- as written -- upon the
insureds. The action against the insureds did not fall within the risks covered by
Federal Insurance. Consequently, Federal Insurance was entitled to judgment as a
matter of law.
We AFFIRM the summary judgment entered by the Jefferson Circuit
Court in this matter.
DIXON, JUDGE, CONCURS.
TAYLOR, JUDGE, CONCURS IN RESULT ONLY.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:
Theodore W. Walton Gary Gassman Louisville, Kentucky Janet R. Davis Chicago, Illinois
Charles H. Cassis Aida Almasalkhi Prospect, Kentucky
-16-