RENDERED: APRIL 28, 2023; 10:00 A.M. TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2022-CA-0385-MR
FIRST SPECIALTY INSURANCE CORP. APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE ERIC JOSEPH HANER, JUDGE ACTION NO. 16-CI-006010
ALLTRADE PROPERTY MANAGEMENT AND MOTORISTS MUTUAL INSURANCE COMPANY APPELLEES
OPINION AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE: JONES, KAREM, AND LAMBERT, JUDGES.
KAREM, JUDGE: First Specialty Insurance Corporation (“First Specialty”)
appeals from the Jefferson Circuit Court’s grant of summary judgment to Motorists
Mutual Insurance Company (“Motorists”) and to Alltrade Service Solutions and Alltrade Property Management ALC (collectively “Alltrade”). The judgment
resolved a dispute between the two insurance companies over their liability for
damages in a wrongful death suit brought against Alltrade and two of its
employees. Upon review, we affirm the circuit court’s holding that Alltrade and its
employees qualify as insureds under the First Specialty policy and reverse its
holding that the two policies contain mutually repugnant excess clauses. The case
is remanded for entry of an order reflecting that the First Specialty policy contains
a nonstandard escape clause that takes precedence over the excess clause in the
Motorists policy.
FACTUAL AND PROCEDURAL BACKGROUND
Victoria Gardens is an apartment complex in Louisville, Kentucky. In
2014, the owner of the complex, Whispering Brook Acquisitions, LLC
(“Whispering Brook”), entered into a Property Management and Service
Agreement (“Agreement”) with Alltrade to manage and maintain the property.
Under the terms of the Agreement, Whispering Brook retained Alltrade “to act as
exclusive agent to lease, operate, manage and service” Victoria Gardens.
On April 15, 2016, Jeremy Tanzilla, an employee of Alltrade, was on
his way to perform maintenance on an air conditioner at a unit in Victoria Gardens.
-2- Tanzilla was driving his own truck and towing a trailer.1 After speaking with his
supervisor, Bruce Key, also an employee of Alltrade, Tanzilla made a right turn
onto a street in the complex and collided with Tyshawn Nuby, Jr., a five-year-old
child. Tragically, Tyshawn later died as a result of his injuries.
On December 5, 2016, the child’s parents, Ceara McDaniel and
Tyshawn Nuby, Sr., brought a wrongful death action in Jefferson Circuit Court,
individually and as the administrators of his estate. Whispering Brook, Victoria
Gardens, Alltrade, Key, and Tanzilla were named as defendants.
Whispering Brook was a named insured on a commercial general
liability policy with First Specialty. The primary named insured, Amalgamated
Loss Management, LLC, was a defendant in the circuit court action but is not a
party to this appeal.
Alltrade was insured under a commercial general liability policy with
Motorists, which defended Alltrade, Tanzilla, and Key throughout the lawsuit.
Motorists also sought coverage for Alltrade from First Specialty, without success.
On July 10, 2018, Motorists filed a motion seeking to intervene in the Jefferson
Circuit Court action in order to determine the rights and duties and priority of
coverage between Motorists and First Specialty for the damages alleged against
Alltrade, Tanzilla, and Key. On September 14, 2018, Alltrade filed a cross-claim,
1 The appellant’s brief claims the trailer was owned by Victoria Gardens, whereas the circuit court’s order states that Alltrade and Motorists both assert the trailer was owned by Alltrade.
-3- seeking similar relief and coverage from First Specialty. Motorists, Alltrade, and
First Specialty ultimately all filed motions for summary judgment to determine
whether First Specialty had a duty to defend and indemnify Alltrade, Tanzilla, and
Key under the terms of its policy with Whispering Brook and, if so, whether First
Specialty’s coverage was primary or excess over coverage provided by Motorists.
The circuit court entered an order on December 11, 2019, granting
judgment in favor of Motorists and Alltrade. It ruled that Alltrade, Tanzilla, and
Key were entitled to coverage under the First Specialty policy, and that Motorists
and First Specialty shared primary liability for the loss and were required to
contribute equal shares to defend and indemnify Alltrade, Tanzilla, and Key.
The defendants ultimately settled the underlying action with the
plaintiffs. First Specialty reserved its right to recoup from Motorists the amount it
paid in the underlying settlement and Motorists reserved its right to recoup from
First Specialty a portion of its defense fees. On March 16, 2022, at First
Specialty’s request, the circuit court entered a final judgment consistent with the
December 11, 2019, order. This appeal by First Specialty followed.
STANDARD OF REVIEW
When we review a grant of summary judgment, we are required to determine:
whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law.
-4- 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.
Lindsey v. Board of Trustees of University of Kentucky, 552 S.W.3d 77, 87-88 (Ky.
App. 2018) (internal quotation marks and citations omitted).
Similarly, because the “[i]nterpretation and construction of an
insurance contract is a matter of law, we review the raised issues de novo, giving
no deference to the trial court.” Isaacs v. Sentinel Insurance Company Limited,
607 S.W.3d 678, 681 (Ky. 2020) (internal quotation marks and citations omitted).
The following principles govern the interpretation of an insurance
contract:
When the terms of an insurance contract are unambiguous and reasonable, they will be enforced. Policy exceptions and exclusions are strictly construed to make insurance effective. Any ambiguities in an insurance contract must be resolved in favor of the insured, 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.
Tower Insurance Company of New York v. Horn, 472 S.W.3d 172, 173-74 (Ky.
2015) (citations omitted).
-5- ANALYSIS
A. The circuit court did not err in determining Alltrade, Tanzilla, and Key were insureds under the First Specialty policy.
First Specialty challenges the circuit court’s conclusion that Alltrade
and its employees, Tanzilla and Key, all qualified for coverage as “insureds” under
the First Specialty policy with Whispering Brook.
The portions of the First Specialty policy which are relevant to this
question consist of the Commercial General Liability Coverage Form (“the CGL
Form”) and an Endorsement for Hired or Non-owned Auto Liability (“the Non-
owned Auto Endorsement”).
The CGL Form contains two pertinent sections: Section I contains
Coverage A, which defines bodily injury and property damage liability. It
provides in part:
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply[.]
-6- ...
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[.]
The parties do not dispute that this case involved a “bodily injury”
caused by an “occurrence” in the “coverage territory” during the “policy period.”
Section I of the CGL Form also contains a series of exclusions to
which the insurance does not apply, including one for Aircraft, Auto, or Watercraft
(“the Auto Exclusion”). It provides as follows:
This insurance does not apply to:
...
g. Aircraft, Auto or Watercraft
“Bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured.
This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage”
-7- involved the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft that is owned or operated by or rented or loaned to any insured.
Section II of the CGL Form contains definitions of who is an insured,
which includes the following:
b. Any person (other than your “employee” or “volunteer worker”), or any organization while acting as your real estate manager.
(Emphasis supplied.)
The Non-owned Auto Endorsement significantly modifies the policy.
For purposes of the Endorsement, an insured is defined as
1. You for any “covered auto.” [“You” is defined elsewhere in the policy as the Named Insured shown in the Declarations; Whispering Brook is a Named Insured.]
2. Anyone else while using with your permission a “covered auto.”
A “covered Auto” is defined to include a “Non-owned auto” which means
any “auto” you do not own, lease, hire, rent or borrow which is used in connection with your business. This includes “autos” owned by your “employees,” your partners (if you are a partnership), your members (if you are a limited liability company), or your “executive officers,” or members of their households, but only while used in your business.
i. Tanzilla is an “insured” under the Non-owned Auto Endorsement.
-8- The circuit court found that Tanzilla qualified as an insured under the
Non-owned Auto Endorsement, because he was using a “covered auto” with the
permission of a named insured, Whispering Brook, when the loss at issue occurred.
Tanzilla’s truck qualified as a “covered auto” because it was not owned, leased,
hired, or borrowed by a named insured (Whispering Brook) and because Tanzilla
was using his truck “in connection with [the] business” of a named insured
(Whispering Brook) within the “coverage territory.”
Under Kentucky law, “the burden is on the beneficiary to establish . . .
by some evidence, his right to recover.” North American Acc. Ins. Co. v. White,
258 Ky. 513, 515, 80 S.W.2d 577, 578 (1935). First Specialty argues that the
circuit court erroneously shifted the burden of proof to First Specialty to prove
Tanzilla was not an insured, because the circuit court improperly assumed that
Tanzilla was using his truck 1) with Whispering Brook’s permission and 2) in
connection with Whispering Brook’s business.
In addressing whether Tanzilla was using his vehicle with the
permission of Whispering Brook, the circuit court stated in a footnote of its order:
“Nothing in the record suggests that Whispering Brook ever objected to Alltrade’s
practice of allowing Tanzilla to use his own personal truck in carrying out his
duties at Victoria Gardens, even though it had the ability to disallow such a
-9- practice under the terms of its property management and service agreement with
Alltrade.”
The circuit court’s approach recognized that, under the broad terms of
the Agreement, Whispering Brook had delegated its authority to allow Tanzilla to
use his personal vehicle to Alltrade. This delegation may be express or implied.
Third Nat’l Bank of Ashland v. State Farm Mut. Auto Ins. Co., 334 S.W.2d 261,
262-63 (Ky. 1960), superseded on other grounds by statute as noted in Lewis by
Lewis v. West American Ins. Co., 927 S.W.2d 829, 835 (Ky. 1996).
[T]he named insured’s grant of authority to the original permittee to delegate to others need not be expressed, but may be implied from the broad scope of the initial permission or from the attending circumstances and the conduct of the parties, and a factual determination must be made in each case to determine whether the scope of the initial grant was broad enough to include an implied authority to delegate to another and thus render the latter an additional insured.
American Mut. Fire Ins. Co. v. Reliance Ins. Co., 233 S.E.2d 114, 117 (S.C. 1977).
Whispering Brook’s Agreement with Alltrade gave Alltrade virtually
complete control over its own employees and independent contractors. The
Agreement required Alltrade to “have in its employ or under independent contract
at all times a sufficient number of persons to enable it to properly, adequately,
safely, and economically manage, operate, maintain and account for the Property.”
The Agreement gave Alltrade the power to determine whether to use its own
-10- employees or contracted labor: “Alltrade shall utilize its employees when
practicable and/or supervise contracted labor such as electricians, plumbers,
maintenance, pest control and similar on-going activities. These services, based on
market rates, will be invoiced by Alltrade and will be paid to Alltrade from the
Operating Account with a full accounting to the Owner [Whispering Brook].”
The Agreement specified that “[a]ll matters pertaining to employment, contracting,
supervision, compensation, promotion and discharge of such employees of
contractors shall be the responsibility of Alltrade.” In giving Alltrade virtually sole
authority to control its employees and contracted labor in the management of the
apartment complex, Whispering Brook gave implied permission to Alltrade to
allow its employees to use their personal vehicles. Alltrade’s decision to allow
Tanzilla to use his own vehicle at work was well within the scope of the extensive
powers delegated to Alltrade by Whispering Brook in the Agreement.
First Specialty argues that this determination is not in accordance with
the concept of permission set forth in American National Fire Insurance Company
v. Aetna Casualty and Surety Company, 476 S.W.2d 183 (Ky. 1972), and
Henderson v. Selective Insurance Company, 242 F. Supp. 48, 51 (W.D. Ky.
1965), aff’d, 369 F.2d 143 (6th Cir. 1966). In the first case, an employee was
furnished with a vehicle by his employer to use in the business to drive to and from
work. The employee allowed his son to use the vehicle to drive to his job, which
-11- was entirely unrelated to the business of his father or his father’s employer. The
son took the vehicle to a garage for repairs authorized by the father’s employer and
was involved in an accident while driving the loaner vehicle provided to him by
the garage. The employer’s insurance policy would cover the loss, provided the
actual use of the automobile was by the named insured (the employer) or with the
employer’s permission. American Nat’l Fire Ins. Co., 476 S.W.2d at 186. The
evidence established that the employer was aware the car had been used by the son
outside the employer’s business but had not objected. There was no evidence,
however, that the employer had granted express permission for the son’s use or
that it knew the extent to which the son was using the car. The Court held that this
was not sufficient to qualify as permission for purposes of coverage under the
insurance policy, because “[m]ere knowledge of the unauthorized use of a
company’s vehicle is not sufficient to give consent for use under the terms of this
policy. Under the . . . ‘Omnibus Clause’ permission to operate the vehicle may be
implied, but as a general rule permission to an employe[e] to use his employer’s
vehicle does not encompass substantial deviations from the purpose of the
permission.” Id.
In the other case relied upon by First Specialty, a car salesman was
given permission by his employer to take one of its cars out of town to visit
relatives and possibly sell the car to his brother-in-law, who had expressed an
-12- interest in it. The brother-in-law was involved in an accident while driving the
vehicle. As with the policy in American National Fire Insurance Company, the
employer’s insurance policy provided coverage to any person using the automobile
with the permission of the insured. The Sixth Circuit Court of Appeals ruled that
the policy did cover the brother-in-law’s accident, because “permission was given
to operate the car for a purpose incidental to the owner’s use of the car. The
temporary operation under conditions so natural as in this case can reasonably be
assumed to be expected by the owner and thus embraced within the authority
conferred on [the employee] by his employer.” Henderson, 242 F. Supp. at 51.
First Specialty argues that these cases stand for the proposition that
absent actual knowledge that Whispering Brook knew Tanzilla was using his
personal vehicle, there is no evidence that Whispering Brook gave permission for
such use to either Tanzilla or Alltrade. But actual knowledge is not a prerequisite
because such permission may be inferred “from the broad scope of the
initial permission or from the attending circumstances and the conduct of the
parties[.]” American Mut. Fire Ins. Co., 233 S.E.2d at 315. In the first case, the
son’s use of the vehicle was not within the scope of the initial permission from the
employer, even though the employer had actual knowledge that the son used the
car on occasion, because it deviated completely from the purpose of that
permission, which was for the father to use the vehicle to commute to work. In the
-13- second case, the brother-in-law’s use of the vehicle was within the scope of the
original permission, which was given on the understanding that the brother-in-law
might purchase the car, in furtherance of the car dealer’s business. Tanzilla’s case
falls squarely into this second category. There is no dispute that under the express
terms of the Agreement, Whispering Brook delegated its authority over the
supervision of employees and independent contractors performing maintenance at
Victoria Gardens to Alltrade. It was reasonably foreseeable that as part of its
supervisory authority, Alltrade would permit its employees to drive their own
vehicles at work. The breadth of the Agreement’s terms fully supports the circuit
court’s conclusion that Whispering Brook gave implied permission to Alltrade to
allow its employees or contractors to use their own vehicles at work.
First Specialty also challenges the circuit court’s determination that
Tanzilla’s truck was “used in connection with” Whispering Brook’s business,
thereby qualifying as a “covered auto” under the Non-owned Auto Endorsement.
As set forth previously, the Endorsement’s definition of a covered auto includes a
“non-owned auto,” which in turn is defined as any auto which Whispering Brook
did not “own, lease, hire, rent or borrow” which was “used in connection with
[Whispering Brook’s] business.” The definition includes, but is not confined to,
autos owned by Whispering Brook’s employees, partners, members, executive
-14- officers, or members of their households, but only when the auto is used in
Whispering Brook’s business.
The circuit court held that the phrase “in connection with your
business,” which is not defined anywhere in the policy, was ambiguous. It agreed
with Motorists and Alltrade’s contention that the phrase was “broad enough to
include the use of an auto by an employee in the course and scope of his
employment with a contractor that has been hired by a named insured to conduct
the business of the named insured.” The circuit court observed that “First
Specialty cannot deny that Whispering Brook’s business involved the types of
activities performed by Alltrade because it never would have hired Alltrade to
perform those activities if they had no connection to its business.” Relying on the
rule of construction that any ambiguity is to be resolved in favor of granting
coverage, the circuit court held that Tanzilla was using his vehicle in connection
with Whispering Brook’s business for purposes of coverage under the Non-owned
Auto Endorsement.
First Specialty argues that the phrase “in connection with your
business” is not ambiguous and that the circuit court construed it far too broadly to
encompass what it characterizes as a tangential relationship between Tanzilla’s
vehicle and Whispering Brook. First Specialty has listed a series of cases,
primarily from other jurisdictions, which have found that the phrase “in connection
-15- with your business” in an insurance policy is not ambiguous. It has focused
particularly on Ohio Security Insurance Company v. Rockford Automotive, Inc.,
509 F. Supp. 3d 960, 962 (W.D. Ky. 2020). In Rockford, Pizzonia, an employee of
Rockford Automotive, a mechanic shop, sold a vehicle to Jackson. Jackson
entrusted the vehicle to Henderson, who while driving the vehicle struck and killed
a motorcyclist, Walker. Walker’s estate brought a wrongful death suit against
Pizzonia, Rockford Automotive, Jackson, and Henderson. Rockford Automotive
was the named insured on a business automobile policy which contained similar
coverage to the First Specialty policy for autos that Rockford did not own, lease,
rent, or borrow that were used in connection with Rockford’s business. The
federal district court held that the coverage would not apply because it required a
connection between the use of the vehicle at the time of the accident and Rockford
Automotive’s garage business which was completely lacking. Id. at 966.
Although the Rockford court did not find the phrase “in connection
with your business” to be ambiguous, its reasoning completely supports the circuit
court’s holding in the case before us. Whispering Brook is the owner of an
apartment complex which generates revenue from the rental of residential units.
Whispering Brook delegated the day-to-day running of this business entirely to
Alltrade in their Agreement. When Tanzilla drove his truck to maintain an air
conditioner at one of the rental units, he was using the vehicle in connection with
-16- and in furtherance of Whispering Brook’s business. By contrast, Henderson’s use
of the vehicle had absolutely nothing to do with Rockford Automotive’s business.
First Specialty further argues that coverage is unavailable because
Tanzilla was an employee of Alltrade, whereas the “in connection with your
business” language in the Endorsement was intended solely to protect the named
insured corporation from vicarious liability for the negligent operation of motor
vehicles by its own employees using non-owned vehicles within the scope and
course of their employment. Although many of the cases analyzing non-owned
auto endorsements involve employees of the insured, the language of the
Endorsement does not confine coverage to employees of the insured. The
following cases cited by First Specialty also take a more expansive view of the
scope of these endorsements.
In Nuvell National Auto Finance, LLC v. Monroe Guaranty Insurance
Company, 736 S.E.2d 463, 469 (Ga. App. 2012), Nuvell, an auto financing
company, had a contract with a repossession management company, Renaissance.
Renaissance’s commercial auto policy limited its coverage to non-owned autos
used in connection with the insured’s business. Nuvell sought to repossess a truck
and contacted Renaissance, which in turn contacted Renovo, a repossession
company, to pick up the truck. The tow truck, which was driven by an
independent contractor, struck and killed an individual during the course of the
-17- repossession. The appellate court ruled that Renaissance was entitled to coverage
under its policy because its business consisted of being a forwarding company that
facilitated communication between finance companies like Nuvell and tow truck
drivers. Thus, even though the tow truck driver was not an employee of
Renaissance or Renovo, he was considered to be using his vehicle in furtherance of
Renaissance’s business.
In Bamber v. Lumbermens Mutual Casualty Company, 680 A.2d 901
(Pa. Super. Ct. 1996), the appellate court held that an employee’s personal vehicle,
when it was used in the course of his employment, was covered by the non-owned
auto provision of his employer’s policy because it was being used in connection
with the employer’s business. But this case does not stand for the proposition that
the non-owned auto provision is confined solely to employees.
In Wausau Underwriters Insurance Company v. Baillie, 281 F. Supp.
2d 1307, 1316 (M.D. Fla. 2002), aff’d sub nom. Wausau Underwriters Insurance v.
Baillie, 82 F. App’x 218 (11th Cir. 2003), the insurance provision at issue specified
that it applied to employees only, stating “[a]ny employee of yours is an ‘insured’
while using in your business or your personal affairs a covered ‘auto’ you don’t
own, hire or borrow[.]” Had Whispering Brook wished to confine liability to its
own employees, similar language could have been incorporated into its policy with
First Specialty.
-18- In Lawler v. Fireman’s Fund Insurance Company, 163 F. Supp. 2d
841, 851 (N.D. Ohio 2001), aff’d, 322 F.3d 900 (6th Cir. 2003), the federal district
court addressed whether a commercial general liability policy qualified as a motor
vehicle policy subject to Ohio statutes, which would have required the insurer to
offer underinsured motorist coverage for non-owned autos that qualified for
coverage under the policy. The language of the policy is significantly
distinguishable from that of the First Specialty policy, in that it expressly defined
insureds “as those employees ‘only for acts within the scope of their employment
for you [the employer][.]’” Id. at 856. The policy specifically narrowed those
insured “to executive officers, directors, and trustees, but only with respect to their
duties as officers, directors, or trustees, and employees, but only for acts within the
scope of their employment.” Id. The First Specialty policy simply does not
contain this type of limiting language.
In Bartolomucci v. Federal Insurance Company, 770 S.E.2d 451, 457
(Va. 2015), the appellate court addressed whether a partner in a law firm involved
in a collision commuting from his home to the firm’s office constituted use in the
affairs of the business under an insurance policy. The appellate court ruled that
driving to work was a private activity for purposes of coverage. By contrast, there
is no dispute that Tanzilla was at work when the accident occurred.
-19- First Specialty’s contention that the Non-owned Auto Endorsement
limits coverage solely to employees of Whispering Brook and cannot extend to the
employee of an independent contractor is not supported by the plain language of
the policy, by our case law, or by the case law of other jurisdictions.
Finally, as further support for its argument that “in your business” is
intended to limit policy coverage solely to employees’ negligence while acting in
the scope of their employment and cannot be extended to include the employee of
an independent contractor, First Specialty points to the fact that the claims against
Whispering Brook were dismissed by the plaintiffs with prejudice in an agreed
order stating that there was no general agency relationship or vicarious liability
between Whispering Brook and Alltrade, Tanzilla, and/or Key. But tort liability is
not synonymous with insurance coverage. The parties’ decision to dismiss certain
claims in the lawsuit does not govern the interpretation of the insurance contract.
“[A]llegations in a complaint are not by themselves sufficient to trigger the duty to
defend [on the part of an insurer], but rather, the obligation to defend arises out [of]
the language of the insurance contract.” Rockford, 509 F. Supp. 3d at 964 (quoting
Dibeneditto v. Medical Protective Co., 3 F. App’x 483, 485 (6th Cir. 2001) (per
curiam) and citing Thompson v. West American Ins. Co., 839 S.W.2d 579, 581
(Ky. App. 1992)). The settlement agreement resolved issues of tort liability. As
Motorists has argued, determining that Tanzilla’s operation of his vehicle was in
-20- connection with Whispering Brook’s business does not require a finding of agency
or of liability on the part of Whispering Brook because there is no such
requirement in the policy.
ii. Key and Alltrade were insureds under the Non-owned Auto Endorsement and Alltrade was entitled to coverage under Coverage A.
First Specialty’s next argument concerns the coverage of Alltrade and
Key under the policy and a conflict between the Auto Exclusion and the Non-
owned Auto Endorsement. The circuit court held that Alltrade qualified as an
“insured” under the definition found in Coverage A, which includes “[a]ny person
(other than your “employee” or “volunteer worker”), or any organization while
acting as your real estate manager” when the loss occurred. The circuit court
further determined that the Auto Exclusion in that section did not apply to Alltrade.
The Auto Exclusion excludes coverage for “bodily injury” arising out of “the
ownership, maintenance, use or entrustment of any . . . ‘auto’ . . . owned or
operated by or rented or loaned to any insured[.]” The circuit court determined
that this Exclusion did not apply to Alltrade because neither Alltrade nor anyone
else meeting the definition of an “insured” under Coverage A owned or operated
the auto that caused the loss. The circuit court acknowledged that this conclusion
appeared to contradict its determination that Tanzilla was an insured under the
Non-owned Auto Endorsement. It concluded, however, that the policy was
ambiguous in failing to specify whether an ‘insured’ under the Non-owned Auto
-21- Endorsement qualifies as ‘any insured’ under the Auto Exclusion. It noted that the
Non-owned Auto Endorsement “does not purport to modify any of the coverages
in Section I (other than by expanding them to include losses arising out of the use
of a ‘non-owned’ auto), which is where Coverage A and the Auto Exclusion are
located.” The circuit court resolved the ambiguity in favor of granting coverage to
Allstate.
The circuit court determined that Alltrade could also qualify as an
insured under the Non-owned Auto Endorsement because it could be held liable
for the conduct of another “insured” (Tanzilla) operating a “covered auto” (his
truck) with the permission of a named insured (Whispering Brook).
In regard to Key, the circuit court found he was entitled to coverage
under the Non-owned Auto Endorsement because, like Alltrade, he could be held
liable for the conduct of another “insured” (Tanzilla) operating a “covered auto”
(Tanzilla’s truck) with the permission of a named insured (Whispering Brook).
First Specialty argues that these determinations are erroneous because
they are dependent on the prior determination that Tanzilla is an insured under the
Endorsement. As we have already affirmed the circuit court’s determination that
Tanzilla was an insured under the Endorsement, this argument is moot. As to the
apparent conflict between the Auto Exclusion in Section I and the Non-owned
Auto Endorsement, under the well-established principle that “ambiguities are
-22- construed in favor of coverage,” Kentucky Association of Counties All Lines Fund
Trust v. McClendon, 157 S.W.3d 626, 635 (Ky. 2005), we affirm the circuit court’s
analysis in regard to both Alltrade and Key.
First Specialty further argues that Alltrade was not covered as a “real
estate manager” under Coverage A by operation of the Auto Exclusion because the
trailer Tanzilla was towing was owned by Victoria Gardens which in turn is owned
by Whispering Brook. There is some dispute about ownership of the trailer. As
noted earlier in this Opinion, the circuit court’s order stated that Alltrade and
Motorists both asserted that the trailer was owned by Alltrade. In any event, the
circuit court rejected First Specialty’s argument because there was no allegation or
evidence that the trailer played any part in causing the collision with the victim.
First Specialty has not offered any evidence to refute the circuit court’s conclusion
and consequently this part of its judgment will not be reversed.
B. The “other insurance” clause in the First Specialty policy is a nonstandard escape clause which takes precedence over the excess clause in the Motorists policy. First Specialty’s next argument concerns the circuit court’s
interpretation of the “other insurance” provisions found in both insurance
contracts. These provisions define liability and priority of coverage if there are
other potential sources of insurance coverage available. For purposes of this
appeal, we are concerned with three types of “other insurance” provisions: the
escape clause, the excess clause, and the nonstandard escape clause.
-23- A standard escape clause simply negates “any liability if ‘other valid
and collectible insurance’ is available to the [insured].” Government Emp. Ins. Co.
v. Globe Indem. Co., 415 S.W.2d 581, 582 (Ky. 1967). “Such clauses are viewed
as contrary to public policy because they could operate to create a complete
forfeiture of coverage.” Great American Ins. Co. v. Lawyers Mut. Ins. Co. of
Kentucky, 492 F. Supp. 2d 709, 714 (W.D. Ky. 2007).
An excess clause provides that the insurer will pay for a loss but only
after any primary coverage available from another insurer has been exhausted.
Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 453 (Ky. 1997), as
modified (Feb. 18, 1999), holding modified by Hollaway v. Direct General
Insurance Company of Mississippi, Inc., 497 S.W.3d 733 (Ky. 2016) (citing Ohio
Cas. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 511 S.W.2d 671, 674 (Ky. 1974)).
Unlike an escape clause, an excess clause “does not attempt to escape liability in
its entirety where other insurance is applicable but merely calls for a reduction of
the policy limits to the extent of payments made by the other insurance[.]” 46
C.J.S. Insurance § 1621.
The third type of “other insurance” provision is the nonstandard
escape clause. It denies liability if other insurance is available, just like a standard
escape clause, but further specifies that this other insurance may be either primary
or excess. This addition “means that the [insurer] anticipated the possibility of the
-24- existence of an ‘excess insurance’ clause in the driver’s insurance policy, and
expressly contracted against liability in that situation.” Government Emp. Ins. Co.
v. Globe Indem. Co., 415 S.W.2d 581, 582 (Ky. 1967) (“Geico”).
In terms of priority of coverage, “where two insurance companies are
contesting primary liability, and one policy contains a non-standard escape clause
while the other contains an excess clause, the escape clause prevails over the
excess clause.” Empire Fire and Marine Ins. Co. v. Haddix, 927 S.W.2d 843, 845
(Ky. App. 1996).
Where both policies contain excess clauses, they “are deemed
mutually repugnant and each policy should provide pro rata coverage.” Great
American Ins. Co. v. Lawyers Mut. Ins. Co. of Kentucky, 492 F. Supp. 2d 709, 712-
13 (W.D. Ky. 2007) (citations omitted).
The “other insurance” clause in the Motorists policy is located in the
Business Auto Coverage Form and provides: “For any covered ‘auto’ you own,
this Coverage Form provides primary insurance. For any covered ‘auto’ you
don’t own, the insurance provided by this Coverage Form is excess over any
other collectible insurance[.]” (Emphasis supplied.)
The First Specialty “other insurance” clause is located in Section IV
of the CGL Form. It states in pertinent part:
-25- 4. Other Insurance
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when Paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in Paragraph c. below.
b. Excess Insurance
(1) This insurance is excess over . . . [a]ny of the other insurance, whether primary, excess, contingent or any other basis . . . if the loss arises out of the maintenance or use of ‘autos’ . . . to the extent not subject to Exclusion g of Section 1 – Coverage A – Bodily Injury and Property Damage Liability.”
The circuit court determined that these are mutually repugnant
“excess” clauses requiring a pro rata division between First Specialty and
Motorists of the costs of defending and indemnifying the insureds.
Neither side disputes that the clause in the Motorists policy is an
excess clause. First Specialty argues that the “other insurance” clause in its policy,
-26- however, is a nonstandard escape clause which takes precedence over the excess
clause in the Motorists policy. We agree. Geico., 415 S.W.2d at 581, and Haddix,
927 S.W.2d at 845.
In Geico, the appellee driver was involved in an accident while
driving a loaner vehicle owned by a car dealer. The driver’s policy contained an
excess insurance clause, which “provided that in the case of a loss arising out of
use by the insured of a nonowned automobile the policy would be ‘excess
insurance over any other valid and collectible insurance.’” Geico, 415 S.W.2d at
581. The dealer’s policy contained an excess clause and also an escape clause in
an endorsement “which provided in effect that the policy would not cover a person
other than the named insured and his employees, if other valid and collectible
insurance, ‘either primary or excess’ . . . was available to such person.” Id.
Kentucky’s highest court held that the nonstandard escape clause in
the owner’s policy took precedence over the excess clause in the driver’s policy. It
stated:
The distinguishing feature of the owner’s policy . . . is that its ‘escape’ clause is not standard; it denies liability if other insurance, [either] primary or excess, is available to the driver. This means that the owner’s insurer anticipated the possibility of the existence of an ‘excess insurance’ clause in the driver’s insurance policy, and expressly contracted against liability in that situation.
Id. at 582.
-27- The Court concluded that “the clause was a valid, express condition
against liability and that the owner’s insurer therefore was not liable where the
driver’s policy contained an ‘excess insurance’ clause.” Id.
The appellee in Haddix was similarly involved in an accident while
driving a loaner vehicle owned by a car dealer. The driver’s auto insurance policy
contained the following clause: “Other Insurance: If there is other applicable
liability insurance we will pay only our share of the loss. Our share is the
proportion that our limit of liability bears to the total of all applicable limits.
However, any insurance we provide for a vehicle you do not own shall be excess
over any other collectible insurance.” Haddix, 927 S.W.2d at 845.
The dealer’s policy stated in pertinent part: “Other Insurance: For
any covered ‘auto,’ the insurance provided by this policy is excess over any other
collectible insurance or ‘self insurance’ available to ‘you,’ any ‘member’ or any
‘insured,’ whether such insurance or ‘self insurance’ is primary, excess or
contingent.” Id.
Relying on Geico, this Court ruled that the nonstandard escape clause
in the dealer’s policy took precedence, stating:
The [dealer’s] policy disclaims liability where there is other applicable insurance, regardless of whether the other available insurance is primary, excess, or contingent. Where two insurance companies are contesting primary liability, and one policy contains a non-standard escape clause while the other contains an
-28- excess clause, the escape clause prevails over the excess clause.
Id.
The “other insurance” clause in the First Specialty policy is virtually
identical to the nonstandard escape clause identified in Haddix. Under this clear
precedent, it must prevail over the excess clause in the Motorists policy.
Finally, First Specialty argues that public policy considerations should
require its policy to be treated as excess over the Motorists policy. This argument
is rendered moot by our decision on the merits.
CONCLUSION
The Jefferson Circuit Court’s grant of summary judgment is affirmed
in full except as to its holding that the First Specialty policy contains an escape
clause which is mutually repugnant with the escape clause in the Motorists policy
and requires First Specialty and Motorists to share primary liability on a pro rata
basis. The matter is remanded for entry of an order reflecting that the First
Specialty policy contains a nonstandard escape clause and consequently its
coverage is excess over the coverage of the Motorists policy.
ALL CONCUR.
-29- BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
J. Phillip Fraley Michell L. Burden John R. Catizone David W. Zahniser Barboursville, West Virginia Fort Mitchell, Kentucky
-30-