RENDERED: DECEMBER 19, 2024 TO BE PUBLISHED
Supreme Court of Kentucky 2023-SC-0239-DG
MOTORISTS MUTUAL INSURANCE APPELLANT COMPANY
ON REVIEW FROM COURT OF APPEALS V. NO. 2022-CA-0385 JEFFERSON CIRCUIT COURT NO. 16-CI-006010
FIRST SPECIALTY INSURANCE CORP. APPELLEE
OPINION OF THE COURT BY CHIEF JUSTICE VANMETER
REVERSING
Frequently, an incident occurs which may be covered by policies issued
by separate insurance companies. In such a situation, each company, through
its policy, may attempt to make the other company primarily responsible for
insuring the incident with its own coverage being secondarily responsible, i.e.,
excess insurance. In this case, the issue involves interpreting the conflicting
“other insurance” provisions between Motorists Mutual Insurance Company
(“Motorists”) and First Specialty Insurance Corporation (“First Specialty”).
Although the two provisions differ somewhat, they are indistinguishable in
meaning and intent, which under our case law results in the clauses being
mutually repugnant and therefore of no effect. Due to these provisions being
mutually repugnant excess clauses, we hold that the Court of Appeals erred in holding that First Specialty’s “other insurance” provision was a nonstandard
escape clause and, additionally, overrule an earlier decision, Empire Fire &
Marine Insurance Co. v. Haddix, 927 S.W.2d 843 (Ky. App. 1996) on which the
Court of Appeals relied. We also hold that these insurance companies share
primary liability—in part because Motorists waved its indemnification
argument before the Court of Appeals—and must contribute equal shares to
defend and indemnify the insureds in the underlying matter, Alltrade, Jeremy
Tanzilla, and Bruce Key.
I. FACTUAL AND PROCEDURAL BACKGROUND
The underlying dispute between the parties arose from the tragic death of
a five-year-old child after he was struck by an Alltrade 1 employee, Tanzilla, as
Tanzilla was driving his vehicle at an apartment complex owned by Whispering
Brook Acquisitions LLC. Alltrade was party to a Service Agreement with
Whispering Brook in which Whispering Brook retained Alltrade to perform work
around the apartment complex. That Service Agreement called for Whispering
Brook to indemnify and hold harmless Alltrade for all liability on account of the
management of the property.
Alltrade was insured under a commercial general liability policy with
Motorists and Whispering Brook was insured under a commercial general
liability policy with First Specialty. Both insurance contracts contained “other
insurance” provisions. Motorists’s “other insurance” provision provided, in
1 Alltrade refers to Alltrade Service Solutions, LLC and Alltrade Property
Management, ALC.
2 relevant part, “[f]or any covered ‘auto’ you don’t own, the insurance provided by
this Coverage Form is excess over any other collectible insurance.” First
Specialty’s “other insurance” provision states in relevant part “[t]his insurance
is excess over: [a]ny of the other insurance, whether primary, excess,
contingent or any other basis[.]”
Following the accident, the child’s family brought a wrongful death suit
in Jefferson Circuit Court against Whispering Brook and Alltrade. 2 Motorists
intervened in the action to determine the rights, duties, and priority of coverage
between Motorists and First Specialty for the damages alleged against Alltrade.
By Order entered December 19, 2019, the trial court first determined
that Alltrade and its employees were insureds under First Specialty’s policy. 3
The court then held that Motorists’ and First Specialty’s “other insurance”
provisions were mutually repugnant excess clauses. With a determination that
the provisions were excess clauses, the trial court granted summary judgment
for Motorists ruling that the companies share primary liability for the loss and
were required to contribute equal shares. In addition, the trial court rejected
Motorists’ argument that First Specialty, as Whispering Brooks’ insurance
company, was primarily liable due to an indemnification provision in favor of
Alltrade from Whispering Brook in those parties’ Service Agreement.
2 The wrongful death lawsuit also named the apartment complex (Victoria
Gardens), Tanzilla, and his supervisor, Bruce Key. 3 First Specialty appealed this issue to the Court of Appeals, which affirmed the
trial court’s decision. First Specialty Ins. Corp. v. Alltrade Prop. Mgmt., No. 2022-CA- 0385-MR, slip op. at 6-23, 2023 WL 3133176, at *2-8 (Ky. App. Apr. 28, 2023). This issue is not presented for our review.
3 Ultimately, the underlying case was settled with the plaintiffs. As noted
by the Court of Appeals, 4 First Specialty reserved its right to recoup from
Motorists the amount it paid in the underlying settlement; Motorists reserved
its right to recoup from First Specialty a portion of its defense fees. The trial
court then made its December 2019 Order final and appealable. First Specialty
filed an appeal with the Court of Appeals. Motorists, however, did not file a
cross-appeal as to its indemnification argument that the trial court rejected.
The Court of Appeals reversed the trial court and held that First
Specialty’s “other insurance” provision was a nonstandard escape clause
because the language was virtually identical to the nonstandard escape clause
identified in Empire Fire & Marine Insurance Co. v. Haddix, 927 S.W.2d 843 (Ky.
App. 1996). The Court of Appeals thus reversed the trial court’s decision that
the parties share primary liability, and ordered Motorists to provide primary
coverage and First Specialty to provide only excess coverage.
Motorists then sought discretionary review on the priority of coverages
from this Court, which we granted.
II. STANDARD OF REVIEW
“The proper standard of review on appeal when a trial judge has granted
a motion for summary judgment is whether the record, when examined in its
entirety, shows there is ‘no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law.’” Bruner v. Cooper,
4 First Specialty Ins. Corp., No. 2022-CA-0385-MR, slip op. at 4, 2023 WL
3133176, at *2.
4 677 S.W.3d 252, 269 (Ky. 2023) (quoting Hammons v. Hammons, 327 S.W.3d
444, 448 (Ky. 2010)). When a motion for summary judgment at the trial court,
and on appeal, presents only a question of law, we review de novo and give no
deference to the lower courts. Patton v. Bickford, 529 S.W.3d 717, 723 (Ky.
2016). The interpretation and construction of an insurance contract is a
matter of law. Isaacs v. Sentinel Ins. Co., 607 S.W.3d 678, 681 Ky. 2020. In
our review of the record in this matter, the parties do not dispute the material
facts but instead present only questions of law. Therefore, we review de novo.
III. ANALYSIS
A. Motorists waived its indemnification argument. At the outset, we must resolve whether this Court should address
Motorists’ indemnification argument. Motorists argues that it should only be
responsible for excess coverage and First Specialty should be responsible for
the primary coverage because Whispering Brook agreed to indemnify Alltrade
in the parties’ Service Agreement. Motorists submits this Court should address
the indemnification argument because Motorists raised it before the trial court
and the Court of Appeals. Motorists further argues that if it failed to properly
preserve the argument, it contends that KRS 5 418.065 gives appellate courts
“discretion to apply controlling law regardless of whether it has been raised by
the litigants or addressed by the trial court in a declaratory judgment action.”
Bowling v. Ky. Dep’t of Corr., 301 S.W.3d 478, 485-86 (Ky. 2009).
5 Kentucky Revised Statutes.
5 The dispute between the parties at the trial court involved two primary
issues: 1) whether Alltrade and its employees were covered under First
Specialty’s policy; and 2) if so, what were the respective liabilities of the
insurance companies. This latter issue entailed two subparts a) determination
of the meaning of the “other insurance” provisions and b) the effect, if any, of
the Service Agreement indemnification provision. As previously noted, the first
issue is not before us. As to indemnification, the trial court reasoned that the
coverage for contractual liability provided in First Specialty’s policy was treated
in the same manner as liability for bodily injury that arises on a non-
contractual basis. Accordingly, First Specialty’s coverage for the Service
Agreement and the liability for bodily injury were subject to the same “other
insurance” provision at issue in this case. The trial court held Motorists’
indemnification argument thus had no effect on the issue of priority of
coverage. Notwithstanding rejection of this argument, the trial court did grant
Motorists’ motion for summary judgment, albeit not awarding all the relief
sought by Motorists. In other words, the trial court ruled that the insurance
companies were to contribute equal shares, as opposed to making Motorists’
coverage excess (as a result of its indemnification argument).
After the trial court’s ruling, First Specialty filed its appeal, but Motorists
did not file a cross-appeal. “A cross appeal is appropriate when the judgment
fails to give the cross-appellant all the relief he has demanded[.]” Brown v.
Barkley, 628 S.W. 2d 616, 618 (Ky. 1982). The Brown Court focused its
6 attention on distinguishing between the instances in which a cross-appeal is
necessary:
Some of our past opinions suggesting the necessity of a cross- appeal in order for an appellee to bring an adverse ruling of the trial court under review by an appellate court appear to have fostered confusion by failing to distinguish between those instances in which the judgment gives the appellee the ultimate relief for which he has contended and those in which the judgment gives him something less. In the latter case he cannot challenge the shortcomings of the judgment without a cross-appeal. He can, however, by way of bolstering the judgment against the possibility that the appellate court may accept the appellant's claim of error, make the point that he was nevertheless entitled to the judgment on a theory that was properly presented but erroneously rejected by the trial court.
Id. at 618-19 (emphasis added). Here, Motorists should have filed a cross-
appeal because its indemnification argument was rejected by the trial court
and the trial court failed to give Motorists all the relief it demanded.
Furthermore, Motorists failed to raise the indemnification issue in its
prehearing statement at the Court of Appeals. Under RAP 22(C)(2), “[a] party
shall be limited on appeal to issues identified in the prehearing statement,
except upon a timely motion demonstrating good cause, the Court of Appeals
may permit additional issues to be raised.” See Sallee v. Sallee, 142 S.W.3d
697, 698 (Ky. App. 2004) (stating an argument not raised in a prehearing
statement was not properly before the Court of Appeals for review). Motorists
provided the following in its prehearing statement:
First Specialty Insurance Corp. (“FSIC”) owed Defendants . . . a duty to defend and indemnify the claims alleged against them pursuant to the relevant policy of insurance. FSIC also owes Motorists one half of defense costs to their mutual insureds. The decision of the trial court in its Order Granting Summary Judgment in the Declaratory Judgment Action should be affirmed. 7 Nowhere in Motorists’ prehearing statement did it request that the Court of
Appeals address a claimed erroneous trial court ruling regarding the effect of
the Service Agreement on the priority of coverage between the parties.
Not only did Motorists fail to file a cross-appeal and fail to raise the
indemnification argument in its prehearing statement, but it also waived that
claim of error by requesting the Court of Appeals affirm the trial court’s
summary judgment finding Motorists and First Specialty shared primary
liability for the loss at issue. Specifically, Motorists requested,
The Trial Court’s Order granting Motorists’ and Alltrade’s Motions for Summary Judgment should be upheld in its entirety. . .. Further, both Motorists’ and [First Specialty]’s policies provide for excess coverage and are mutually repugnant. The Trial Court rightly determined the [First Specialty] policy does not include an escape clause. Accordingly, [First Specialty] shares equal liability to defend and indemnify Alltrade, Tanzilla and Key. For all the reasons stated above, this Court should affirm the Trial Court’s Order.
Motorists’ Brief for Appellees, pp. 21-22.
Under RAP 6 32, both appellants and appellees are required to submit
arguments conforming to points and authorities:
An argument conforming to the statement of points and authorities, with ample references to the specific location in the record and citations of authority pertinent to each issue of law and which shall contain at the beginning of the argument a statement with reference to the record showing whether the issue was properly preserved for review and, if so, in what manner.
6 Kentucky Rules of Appellate Procedure.
8 RAP 32(A)(4), Appellant’s Opening Brief; see also RAP 32(B)(4), Appellee’s
Response Brief (requiring “[a]n argument conforming to the appellee’s
counterstatement of points and authorities, and to the requirements for
appellant’s arguments[]”). Before this Court, in its reply brief, Motorists claims
it raised the indemnification provision and provides a citation to its Court of
Appeals brief, but in that passage, before the Court of Appeals, the
indemnification argument was not asserted to impose primary coverage on
First Specialty with Motorists supplying excess coverage. To the contrary,
Motorists argued to the Court of Appeals that the trial court correctly
determined that the two insurance companies shared primary liability for the
loss and must contribute equal shares to defend and indemnify Alltrade,
Tanzilla, and Key. Motorists requested that the Court of Appeals affirm the
trial court. Nowhere else in Motorists’ Court of Appeals brief did it assert the
indemnification argument was wrongly rejected by the trial court.
Finally, Motorists argues that because its intervention in the case below
was for a declaration of rights, KRS 418.040 to 418.090, its indemnification
argument may nonetheless be addressed under the authority of KRS 418.065.
This statute, in its entirety, states:
The court may refuse to exercise the power to declare rights, duties or other legal relations in any case where a decision under it would not terminate the uncertainty or controversy which gave rise to the action, or in any case where the declaration or construction is not necessary or proper at the time under all the circumstances. The appellate court in its consideration of the case, shall not be confined to errors alleged or apparent in the record. When, in its opinion, further pleadings or proof is necessary to a final and correct decision of the matters involved, or that should be involved, it shall remand the case for that purpose; or if in its opinion the 9 action is prematurely brought, or where a ruling in the appellate court is not considered necessary or proper at the time under all the circumstances, it may direct a dismissal without prejudice in the lower court.
(Emphasis added). While we might agree with Motorists that this statute
provides appellate courts the “discretion” to consider errors not alleged in the
record in a declaratory judgment action, we decline to exercise that discretion
in this case. In Bowling, we cautioned that KRS 418.065 “should not be viewed
as a judicial safety net, relieving litigants of the need to consider carefully their
responsive pleadings.” 301 S.W.3d at 486. Our review of the cases in which
courts appear to have applied the statute as Motorists advocates demonstrates
that they did so in cases involving public questions having potential impact
beyond just the rights of the litigants involved. See Bowling, id. at 481-82
(addressing constitutionality of Kentucky’s lethal injection protocol); Rea v.
Gallatin Cnty. Fiscal Ct., 422 S.W.2d 134 (Ky. 1967) (addressing
constitutionality of certain property tax measures enacted by the legislature).
To be clear, we do not hold that declaratory judgment cases involving public
questions are the only cases appropriate to apply KRS 418.065. We merely
hold that, in this case, Motorists’ specific waiver of its indemnification
argument, by (i) failing to file a cross-appeal; (ii) failing to raise the issue in its
prehearing statement; and (iii) arguing for full affirmance of the trial court’s
summary judgment, makes application of KRS 418.065’s judicial safety net
particularly inappropriate. Under these circumstances, we decline to address
Motorists’ indemnification argument.
10 B. The “other insurance” provisions are excess clauses.
The second issue in this case deals with Motorists and First Specialty
providing “other insurance” provisions in their respective policies. Motorists’
“other insurance” provision states in relevant part “[f]or any covered ‘auto’ you
don’t own, the insurance provided by this Coverage Form is excess over
any other collectible insurance.” (Emphasis added). First Specialty’s “other
insurance” provision states in relevant part “[t]his insurance is excess over:
[a]ny of the other insurance, Whether primary, excess, contingent or any
other basis[.]” (Emphasis added). First Specialty contends that its “other
insurance” provision is not an excess clause but instead a nonstandard escape
clause. This Court disagrees and holds that First Specialty’s and Motorists’
“other insurance” provisions are mutually repugnant excess clauses.
1. Excess Clauses v. Escape Clauses.
Excess clauses and escape clauses have different purposes. An excess
clause limits liability and 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). A standard
escape clause denies liability if other valid and collectible insurance is available
to the insured. Gov’t Emps. Ins. Co. v. Globe Indem. Co., 415 S.W.2d 581, 582
(Ky. 1967). A nonstandard escape clause is different from an escape clause
because it denies liability if other insurance is available but also specifies that
this other insurance may be either primary or excess. Id.
11 In cases wherein one policy has a nonstandard escape clause and the
other an excess clause, the policy with the excess clause bears primary liability
because the nonstandard escape clause policy “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. However, when
both policies have mutually repugnant excess clauses, neither one of them
takes effect and the two insurers share the costs to defend and indemnify their
insureds. See Ohio Cas. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 511 S.W.2d
671, 675 (Ky. 1974) (holding that each insurer was jointly obligated to defend
and indemnify because “both policies attempted to limit coverage to the excess
over the other and that the provision with respect to proration are
irreconcilable[]”).
When courts are tasked with determining the relationship between
conflicting policies it will generally take a two-step approach: (1) determine if
the clauses are mutually repugnant; (2) and then apportion the loss between
each insurer. Ky. Farm Bureau Mut. Ins. Co. v. Shelter Mut. Ins. Co., 326
S.W.3d 803, 807 (Ky. 2010). To be mutually repugnant, the conflicting policies
must be “indistinguishable in meaning and intent, [and] one cannot rationally
choose between them[.]” Id. (quoting Travelers Indem. Co. v. Chappell, 246
So.2d 498, 504 (Miss. 1971)). Whether policies are “indistinguishable in
meaning and intent” can be highly subjective and can result in opposite
conclusions if the policies are not virtually the same. Id. at 808. Here,
12 Motorists’ and First Specialty’s “other insurance” provisions are virtually the
same.
First Specialty distinguishes its “other insurance” provision as a
nonstandard escape clause, but the language does not deny coverage
altogether when other valid and collectible insurance covers the defined risk.
The provision seeks only to limit the amount of liability associated with the
defined risk to the excess over other valid and collectible insurance. Motorists’
“other insurance” provision accomplishes the exact same thing. Both
provisions seek to limit coverage liability in light of other available insurance.
First Specialty’s provision simply lists examples of other collectible insurance.
The two “other insurance” provisions are mutually repugnant excess clauses
because both provisions are indistinguishable in intent and meaning by both
limiting liability associated with the defined risk as excess over other valid and
collectible insurance.
Since Motorists’ and First Specialty’s “other insurance” provisions are
mutually repugnant excess clauses, the loss between the insurers must be
apportioned. Shelter Mut. Ins. Co., 326 S.W.3d at 807. In Shelter, we
recognized “three primary options for pro-rata apportionment: policy limits,
premiums paid, and the equal share method.” Id. (citing Reliance Ins. Co. v. St.
Paul Surplus Lines Ins. Co., 753 F.2d 1288, 1291 (4th Cir. 1985)).
Under the policy limits approach, the court calculates the loss amount between each insurer in accordance with the maximum coverage limits of each insurance policy. The second approach allocates the loss based on the amount of the premium paid by each insured to each insurer. The third approach is a multi-step method, with the loss initially apportioned equally between two 13 insurers until the lesser coverage is exhausted. Thereafter, the remaining loss is absorbed by the insurance company with the larger policy, up to its policy limits.
Id. (internal citations omitted). Although each method has its faults, as
discussed in Shelter, 326 S.W.3d at 807-10, the equal share method should be
applied to Motorists and First Specialty. Id. at 810-11. Unlike Shelter, wherein
the legislative intent and purposes of the Kentucky Motor Vehicle Reparations
Act (MVRA) were key considerations in applying the correct apportionment
method, this case needs only the language from the policies. Id. The policies
include mutually repugnant excess clauses that cancel each other out leaving
them both to provide co-primary coverage. Fortunately, in this case both
policies have identical limits of liability. 7 Therefore, given the identical limits of
liability and the co-primary coverage for both parties, the best apportionment
method is for Motorists and First Specialty to contribute equal shares to defend
and indemnify Alltrade, Tanzilla, and Key.
2. This Court overrules Empire Fire & Marine Insurance Co. v. Haddix, 927 S.W.2d 843 (Ky. App. 1996).
In Haddix, the Court of Appeals held that an “other insurance” provision
including the phrase “whether primary, excess, contingent, or any other basis”
disclaimed liability and was a nonstandard escape clause. 927 S.W.2d at 845.
The Court of Appeals followed that holding and held First Specialty’s “other
insurance” provision to be a nonstandard escape clause because it included
7 First Specialty’s policy has a non-owned auto endorsement that provides
$1,000,000 in coverage and Motorists’ policy provides $1,000,000 in business auto coverage.
14 the same language. As discussed above, however, First Specialty’s “other
insurance” provision is a mutually repugnant excess clause. In addition to
reversing the Court of Appeals decision, this Court must also overrule the
Court of Appeals decision in Haddix because it contradicts this Court’s
analysis as applied under Shelter. The specific language in the two “other
insurance” provisions does not have to be identical for the provisions to be
mutually repugnant excess clauses. To the contrary, the intent and meaning
of the provisions are determinative.
IV. CONCLUSION In conclusion, we reverse the Court of Appeals’ opinion holding that First
Specialty’s “other insurance” provision was a nonstandard escape clause,
overrule Haddix, and hold First Specialty’s and Motorists’ “other insurance”
provisions are mutually repugnant excess clauses. Motorists and First
Specialty are to contribute equal shares to defend and indemnify Alltrade,
Tanzilla, and Key. Motorists failed to preserve its indemnification argument by
not filing a cross-appeal and waiving the argument before the Court of Appeals.
The Jefferson Circuit Court’s summary judgment is affirmed. This matter is
remanded to the Jefferson Circuit Court for such further proceedings as may
be necessary.
All sitting. Bisig, Lambert, and Nickell, JJ., concur. Conley, J., concurs
in part and dissents in part by separate opinion in which Keller and Thompson,
JJ., join.
15 CONLEY, J., CONCURRING IN PART AND DISSENTING IN PART: I fully
concur with the Court’s decision insofar as it overrules Haddix and concludes
the two “other insurance” clauses are mutually repugnant. I, however, dissent
from the Court insofar as it refuses to apply the underlying indemnity clause
between the insureds. From my reading of case law, the indemnity agreement
determines which insurer bears primary coverage; in this case, First Specialty.
The Court declines to consider the indemnity clause question first, because it
believes it was necessary for Motorists to cross-appeal the issue; and second,
because the issue was not identified in the prehearing statement before the
Court of Appeals. But these are functionally two different expressions of the
same principle—that Motorists should have identified the question by
appealing it. I disagree.
This case is a declaratory action. Before the trial court, Motorists sought
either to have the indemnity clause applied and declare First Specialty to owe
primary coverage or have the clauses declared mutually repugnant and both
insurers share primary coverage. I agree that the trial court’s decision based on
the latter argument gives Motorists “something less” than the maximum relief
afforded by the former argument. Brown v. Barkley, 628 S.W.2d 616, 619 (Ky.
1982). But this Court can consider the indemnity issue by virtue of KRS
418.065 and our interpretation of that statute in Rea v. Gallatin Cnty. Fiscal
Court, 422 S.W.2d 134, 138 (Ky. 1967). In declaratory actions, “[t]he appellate
court in its consideration of the case, shall not be confined to errors alleged or
apparent in the record.” KRS 418.065. In Rea, we plainly held, pursuant to this
16 language, “[t]he general rule that matters not raised below may not originally
be raised in this court does not apply[.]” Id. To get around this ruling, the Court
suggests that we have hesitated to apply this rule when not addressing a
constitutional question or a matter of public importance beyond the parties
involved. That is simply not true. Dotson’s Adm’r v. Ferrell, 169 S.W.2d 320 (Ky.
1942) (invoking rule to remand case and await the judgment of an Ohio court
concerning construction of a will). But it is a moot point because in the very
next sentence the Court states it is not necessary to raise a constitutional
question or matter of public concern for a party to avail itself of Rea and KRS
418.065. Thus, the Court reaches the awkward conclusion that KRS 418.065’s
renunciation of the rule of preservation in declaratory actions does not apply
here because Motorists did not properly preserve the indemnity question. I
strongly disagree. As a simple matter of logic, lack of preservation of an
argument cannot be a reason for why the rule disclaiming the need for
preservation does not apply.
While this Court certainly has a discretion when invoking this power, it
is a discretion that must be exercised within and pursuant to the statute. The
Court’s “discretion” here is to ignore the plain text of the statute. Instead, our
discretionary power to not consider an unpreserved error of law should only be
invoked when taking cognizance of such would not alter the substantive
outcome of the case. Here, however, the unpreserved legal error does materially
alter the substance of the outcome. If Motorists is successful on the indemnity
17 issue, then it would be entitled to recoup from First Specialty money it paid
pursuant to the trial court’s order that both were co-primary insurers.
Nor do I find the conclusion that the argument was waived persuasive.
The purpose of the Declaratory Judgment Act is “remedial” and “affording relief
from uncertainty and insecurity with respect to rights, duties and relations[.]”
KRS 418.080. “The intent of the declaratory judgment statutes is not to give
parties greater rights than those which they previously possessed, but to
permit the declaration of those rights before they mature.” 26 C.J.S.
Declaratory Judgments § 8. Yet how can we pretend to declare the legal rights
and duties of Motorists or First Specialty without taking cognizance of the
underlying contract between the insureds? “[I] it is the parties' rights and
liabilities to each other which determine the insurance coverage; the insurance
coverage does not define the parties' rights and liabilities one to the other.”
Chubb Ins. Co. of Canada v. Mid–Continent Casualty Co., 982 F.Supp. 435, 438
(S.D. Miss. 1997).
I do not think Motorists’ defense of the trial court’s judgment before the
Court of Appeals sufficiently constitutes waiver. The trial court’s judgment gave
Motorists a little relief, and it was entitled to defend what little it got. But our
purpose on appeal in declaratory judgment actions is not merely to determine
whether the trial court made legal errors. It is to determine the rights and
duties of Motorists and First Specialty. To do so, we “shall not be confined to
errors alleged or apparent in the record.” KRS 418.065.
18 Since I believe the issue may properly be considered, it takes little
explaining to demonstrate that the indemnity clause between the insureds
governs which of the insurers will be primarily liable. “[A]n indemnity
agreement between the insureds or a contract with an indemnification clause .
. . may shift an entire loss to a particular insurer notwithstanding the existence
of an ‘other insurance’ clause in its policy.” 15 Couch § 219:1. Although
unpublished, the Eastern District of Kentucky has considered this issue and
explained:
the majority of courts appear to have held that such an indemnity agreement is not only relevant, but pivotal to the “excess v. primary” coverage analysis. See, e.g., St. Paul Fire & Marine Ins. Co. v. American Int'l Specialty Lines Ins. Co., 365 F.3d 263, 270 (4th Cir. 2004) (holding that an indemnity agreement between insureds controls in an insurance priority dispute, noting that parties procured the lines of insurance pursuant to agreement); American Indemnity Lloyds v. Travelers Property & Casualty Ins., 335 F.3d 429, 436 (5th Cir. 2003) (similar); Wal–Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583, 587–93 (8th Cir. 2002) (indemnification provisions in contract between supplier and retailer obligated supplier to protect retailer and its primary insurer from liability arising from settlement of products liability action); Chubb Ins. Co. of Canada v. Mid–Continent Casualty Co., 982 F.Supp. 435, 438 (S.D. Miss. 1997) (indemnity agreement controls parties' rights and liabilities to each other, which determine insurance coverage); Federal Ins. Co. v. Gulf Ins. Co., 162 S.W.3d 160, 166 (Mo. App. 2005) (indemnity agreement is relevant in coverage dispute and under circumstances of case it controls obligations of parties' insurers). Chandler, Jr. v. Liberty Mut. Ins. Group, No. CIVA 2005-71 WOB, 2005 WL
5629027, at *4 (E.D. Ky. Nov. 3, 2005), aff'd sub nom. Chandler v. Liberty Mut.
Ins. Grp., 212 F. App'x 553 (6th Cir. 2007) (emphasis added).
As Chubbs succinctly expressed the rule: to not apply the indemnity
agreement between the insureds “would render the indemnity contract between
19 the insureds completely ineffectual and would obviously not be a correct result,
for it is the parties' rights and liabilities to each other which determine the
insurance coverage; the insurance coverage does not define the parties' rights
and liabilities one to the other.” Chubb Ins. Co., 982 F.Supp. at 438. See also
Rossmoor Sanitation, Inc. v. Pylon, Inc., 532 P.2d 97, 104–05 (Cal. 1975) (“to
apportion the loss in this case pursuant to the other insurance clauses would
effectively negate the indemnity agreement . . . .”); Nationwide Mut. Fire Ins. Co.
v. Erie Ins. Exchange, 798 S.E.2d 170, 174 (Va. 2017) (“we agree with the
rationale in St. Paul Fire & Marine, that an indemnification agreement may shift
the loss from one insurer to another . . . .”); Nucor Steel Tuscaloosa, Inc. v.
Zurich American Ins. Co., 343 So.3d 458, 474 (Ala. 2021) (endorsing rule but
finding it inapplicable because indemnity agreement was void for violating
public policy).
Accordingly, I would adopt the majority rule and declare Fire Specialty
owes primary coverage over Motorists Mutual notwithstanding the traditional
rule that where two excess clauses are mutually repugnant neither will be
given effect and both insurers are deemed primarily liable. Ohio Cas. Ins. Co. v.
State Farm Mut. Auto. Ins. Co., 511 S.W.2d 671, 675 (Ky. 1974).
Keller and Thompson, JJ., join.
20 COUNSEL FOR APPELLANT:
Michelle L. Burden Garvey Shearer Nordstrom PSC
Michael D. Risley Bethany A. Breetz Stites & Harbison, PLLC
COUNSEL FOR APPELLEE:
J. Phillip Fraley, Jr. Elkins Ray, PLLC