University of Louisville v. Kentucky School Boards Insurance Trust

• Court: Court of Appeals of Kentucky
• Decided: August 19, 2022
• Docket: 2021 CA 001066
• Status: Unknown

Opinion

RENDERED: AUGUST 19, 2022; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals

NO. 2021-CA-1066-MR

UNIVERSITY OF LOUISVILLE APPELLANT

APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 21-CI-00009

KENTUCKY SCHOOL BOARDS INSURANCE TRUST AND CYRIL WILLIAM HELM APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: DIXON, LAMBERT, AND MCNEILL, JUDGES.

LAMBERT, JUDGE: University of Louisville (the University) has appealed from

the August 16, 2021, summary judgment of the Franklin Circuit Court in favor of

Kentucky School Boards Insurance Trust (KSBIT) regarding KSBIT’s duty to

provide a defense and indemnification in a separate circuit court case pursuant to a

policy of insurance. We affirm. KSBIT is a domestic insurer that was created in 1978 to provide

liability coverage to educational entities via a non-profit self-insurance pool of

funds. KSBIT went into rehabilitation under the supervision of the Commissioner

of the Department of Insurance in 2013. In 2006, KSBIT issued a general liability

insurance policy (GL 7/2006 Edition) to the University, which was renewed for

several years. The Coverage B section of the policy addresses coverage for

personal and advertising liability, and Section I(B)(1)(a) provides in relevant part

that “[w]e [KSBIT] will pay those sums that the Member [the University] becomes

legally obligated to pay as damages because of ‘personal injury’ or ‘advertising

injury’ to which this coverage part applies.” In the definitional section of the

policy, Section V(10) defines “personal injury” as:

[I]njury, other than ‘bodily injury,’ arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of a private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor;

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

-2- e. Oral or written publication of material that violates a person’s right of privacy; or

f. Mental injury, mental anguish, shock, humiliation, defamation, and damage to professional reputation.

A renewed policy was in place from July 1, 2009, through July 1, 2010.

The underlying matter began with the filing of a petition for a

declaratory judgment by KSBIT in the Franklin Circuit Court, Division I, in

January 2021 related to the above policy. In this action, KSBIT sought a

declaration pursuant to Kentucky Revised Statutes (KRS) 418.040 that it did not

have any obligation under the insurance policy to defend or indemnify the

University as a result of a Kentucky Whistleblower Act claim filed by Dr. Cyril

Helm (Helm v. University of Louisville, Jefferson Circuit Court Case No. 15-CI-

01410). Dr. Helm’s dispute with the University began in 2009, after his colleagues

had alleged he had committed plagiarism or other misconduct in his research. Dr.

Helm went on to file several lawsuits against the University and his colleagues

arising from the misconduct allegations and the University’s investigation into

whether he had engaged in misconduct, including the one noted above.

As to the subject lawsuit, Dr. Helm alleged that he had suffered a

personal injury, and KSBIT provided a defense to the University subject to a

reservation of rights. In his fourth amended complaint, Dr. Helm pled a Kentucky

Whistleblower Act claim for which he alleged damages, including substantial

-3- losses in earnings, job experience, and benefits; damage to his academic

reputation; and emotional and physical stress. He sought compensatory and

punitive damages as well as costs and attorney fees. On September 18, 2018, the

Jefferson Circuit Court ruled that Dr. Helm could not recover damages for mental

anguish/pain and suffering, front pay, or from having to sell his house in a certain

market. It also dismissed Dr. Helm’s claim for punitive damages. The only

remaining claims were for back pay and attorney fees. Because Dr. Helm’s claims

for back pay and attorney fees did not arise from a personal injury as defined in the

policy, KSBIT alleged in the declaratory action that there was no longer any

factual or legal basis under the policy requiring it to defend or indemnify the

University in Dr. Helm’s underlying suit. Therefore, KSBIT sought a declaration

of rights that it did not have an obligation to further defend or indemnify the

University for the claims Dr. Helm asserted in his underlying action.

In its response to the petition for declaratory judgment, the University

disputed KSBIT’s allegations and pled several affirmative defenses, including the

failure to state a cause of action against it or to name indispensable parties. It

sought dismissal of the petition. In a separate response, Dr. Helm also defended

against the petition.

In April 2021, KSBIT filed a motion for summary judgment, arguing

that there were no disputed issues of material fact to resolve and that it was entitled

-4- to a judgment as a matter of law. In the memorandum in support of the motion,

KSBIT argued that the damages Dr. Helm was legally permitted to recover did not

implicate the policy’s definition of personal injury, meaning that there was no

longer any factual or legal basis for it to provide coverage.

In its response, the University argued that the plain language of the

policy required KSBIT to provide coverage, pointing to the “arising out of”

language in the policy; that summary judgment was premature as it had not had

ample opportunity to complete discovery; and that the order granting summary

judgment by the Jefferson Circuit Court was interlocutory as it was not final and

appealable and was therefore subject to revision.

In reply, KSBIT argued that a Whistleblower action arises out of

retaliation, not slander or libel. Because Dr. Helm’s Whistleblower claim arose

from the non-renewal of his contract, not from slanderous allegations made by

another professor, the insurance policy did not trigger any duty for KSBIT to

defend or indemnify the University. It also argued that there were no factual

disputes and that the interpretation of an insurance contract is a matter of law to be

decided by the court. Therefore, no discovery was necessary to resolve the legal

matter before the court. Finally, KSBIT argued that there was no likelihood that

the Jefferson Circuit Court decision would be reversed on appeal.

-5- The motion was scheduled to be heard on August 9, 2021. Counsel

for the University appeared in Division I, but no one appeared on behalf of KSBIT.

The court opted to take the matter under submission, with the proviso that it might

call the parties back for oral arguments after it had reviewed the briefs. A few

minutes later in Division II, counsel for KSBIT (but not for the University)

appeared in Division II to address the pending motion for summary judgment,

noting that the matter had been fully briefed. The court indicated that it would take

the matter under submission.

Shortly thereafter, on August 13, 2021, the declaratory judgment

action was sua sponte transferred from Division I to Division II. And on August

16, 2021, the circuit court (in Division II) entered an order granting summary

judgment to KSBIT, rejecting the University’s arguments and holding that KSBIT

was not required to provide a continuing defense to the University. This appeal

now follows.

Our standard of review is set forth in Patton v. Bickford, 529 S.W.3d

717, 723 (Ky. 2016):

Summary judgment is a remedy to be used sparingly, i.e. “when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor and against the movant.” Shelton v. Kentucky Easter Seals Society, Inc., 413 S.W.3d 901, 905 (Ky. 2013) (citations omitted). We frequently caution, however, the term “impossible” is to be used in a practical sense, not

-6- in an absolute sense. See id. (citing Perkins v. Hausladen, 828 S.W.2d 652, 654 (Ky. 1992)). The trial court’s primary directive in this context is to determine whether a genuine issue of material fact exists; if so, summary judgment is improper, Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). This requires that the facts be viewed through a lens most favorable to the party opposing summary judgment, here the Estate. Id. It is important to point out that “a party opposing a properly supported summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing that there is a genuine issue of material fact for trial.” Id. at 482.

A motion for summary judgment presents only questions of law and “a determination of whether a disputed material issue of fact exists.” Shelton, 413 S.W.3d at 905. Our review is de novo, and we afford no deference to the trial court’s decision.

As KSBIT states, there are no issues of material facts to decide. Therefore, we

shall review the circuit court’s decision de novo.

We shall first address the University’s argument that summary

judgment was premature as it had not had the opportunity to complete discovery.

The circuit court rejected this argument because the issue before it only involved

the interpretation of an insurance contract, and there were no factual disputes to

decide. In addition, the University failed to provide any information about what

discovery it intended to obtain.

In its brief, the University cites to Suter v. Mazyck, 226 S.W.3d 837,

841 (Ky. App. 2007), to argue that summary judgment “is proper only after the

-7- party opposing the motion has been given ample opportunity to complete discovery

and then fails to offer controverting evidence.” And the University states that it

provided controverting evidence from the Jefferson Circuit Court case

demonstrating that KSBIT was not entitled to summary judgment. However, we

agree with KSBIT that the issue before the circuit court in the present case

addressed the interpretation of contractual language, which is a matter of law to be

decided by a court. See Stone v. Kentucky Farm Bureau Mut. Ins. Co., 34 S.W.3d

809, 810 (Ky. App. 2000) (“As a general rule, interpretation of an insurance

contract is a matter of law for the court.”).

The University also argues that it was not provided with the

opportunity to orally argue its position before the circuit court or request a hearing.

While the circumstances were certainly strange, with counsel for the parties

originally appearing before different divisions, the University did not move the

circuit court to hear oral arguments once the matter was transferred to Division II,

nor did it seek reconsideration once the summary judgment was granted. As this

issue was not raised below, we shall not consider it on appeal.

It has long been this Court’s view that specific grounds not raised before the trial court, but raised for the first time on appeal will not support a favorable ruling on appeal. Most simply put, “[a] new theory of error cannot be raised for the first time on appeal.” Springer v. Commonwealth, 998 S.W.2d 439, 446 (Ky. 1999) (discussing

-8- specifically a directed verdict issue); see, e.g., Harrison v. Leach, 323 S.W.3d 702, 708-09 (Ky. 2010); Ten Broeck Dupont, Inc. v. Brooks, 283 S.W.3d 705, 734 (Ky. 2009) (“More importantly, this precise argument was never made in the trial court. An appellate court ‘is without authority to review issues not raised in or decided by the trial court.’”) (quoting Regional Jail Authority v. Tackett, 770 S.W.2d 225, 228 (Ky. 1989)); Combs v. Knott County Fiscal Court, 283 Ky. 456, 141 S.W.2d 859, 860 (1940) (“[A]ppellant is precluded from raising that question on appeal because it was not raised or relied upon in the court below. It is an unvarying rule that a question not raised or adjudicated in the court below cannot be considered when raised for the first time in this court.”).

Fischer v. Fischer, 348 S.W.3d 582, 588 (Ky. 2011) [abrogated on other grounds by Nami Resources Company, LLC v. Asher Land and Mineral, Ltd., 554 S.W.3d 323 (Ky. 2018)]. “The appellate court reviews for errors, and a nonruling is not reviewable when the issue has not been presented to the trial court for decision.” Turner v. Commonwealth, 460 S.W.2d 345, 346 (Ky. 1970); see also Hatton v. Commonwealth, 409 S.W.2d 818, 819-20 (Ky. 1966). “[I]t is the accepted rule that a question of law which is not presented to or passed upon by the trial court cannot be raised here for the first time.” Hutchings v. Louisville Trust Co., 276 S.W.2d 461, 466 (Ky. 1955); Benefit Ass’n of Ry. Employees v. Secrest, 239 Ky. 400, 39 S.W.2d 682, 687 (1931). “The underlying principle of the rule is to afford an opportunity to the trial court, before or during the trial or hearing, to rule upon the question raised.” Hartsock v. Commonwealth, 382 S.W.2d 861, 864 (Ky. 1964).

Jones v. Livesay, 551 S.W.3d 47, 52 (Ky. App. 2018).

-9- Accordingly, we hold that the circuit court’s summary judgment in

favor of KSBIT was not prematurely entered.

Next, we shall consider the University’s main argument that it was

entitled to coverage under the policy. In its summary judgment, the circuit court

rejected the University’s argument that the back pay and attorney fees grew out of,

flowed from, or had an incidental relationship with Dr. Helm’s claimed damages.

It agreed with KSBIT that Dr. Helm’s remaining alleged damages did not arise

from the policy’s definition of personal injury based upon the Jefferson Circuit

Court’s September 18, 2018, order and that Dr. Helm’s claim under the Kentucky

Whistleblower Act did not arise from alleged slander but from the non-renewal of

his contract. The court therefore held that under the policy’s definition of personal

injury, KSBIT was not required to continue to provide a defense to the University

against Dr. Helm’s claims.

At the outset, we reject the University’s argument that, with the

proposed interpretation of the policy, KSBIT sought to eliminate a key provision

from the policy and therefore it ran afoul of the prohibition against illusory

coverage. As with its argument above regarding its ability to orally argue the

motion, the University did not first raise this issue before the circuit court.

Therefore, we shall not address this argument as it was not preserved for our

review.

-10- We shall now consider the University’s remaining coverage argument.

In James Graham Brown Foundation, Inc. v. St. Paul Fire & Marine Insurance

Company, 814 S.W.2d 273, 279 (Ky. 1991), the Supreme Court of Kentucky

recognized:

The proper standard for the analysis of insurance contracts in Kentucky is a subjective one. Fryman v. Pilot Life Insurance Company, Ky., 704 S.W.2d 205 (1986) holds that terms of insurance contracts have no technical meaning in law and are to be interpreted according to the usage of the average man and as they would be read and understood by him in the light of the prevailing rule that uncertainties and ambiguities must be resolved in favor of the insured.

See also Motorists Mut. Ins. Co. v. RSJ, Inc., 926 S.W.2d 679, 681 (Ky. App.

1996) (“terms used in insurance contracts ‘should be given their ordinary meaning

as persons with the ordinary and usual understanding would construe them.’ City

of Louisville v. McDonald, Ky. App., 819 S.W.2d 319, 320 (1991).”).

The University contends that it was entitled to coverage based upon

the holding in James Graham Brown Found., supra, that “[t]he insurer has a duty

to defend if there is any allegation which potentially, possibly or might come

within the coverage of the policy.” 814 S.W.2d at 279 (citing O’Bannon v. Aetna

Casualty and Surety Company, 678 S.W.2d 390 (Ky. 1984)). “The duty to defend

continues to the point of establishing that liability upon which plaintiff was relying

was in fact not covered by the policy and not merely that it might not be.” James

-11- Graham Brown Found., 814 S.W.2d at 279 (citing 7C JOHN APPLEMAN & JEAN

APPLEMAN, Insurance Law and Practice § 4683.01 at 69 (Berdal Ed. 1979)).

The University argues that the phrase “arising out of” in the policy is

expansive enough to encompass the assertion that the alleged slander and

disparagement did not have to be the sole or proximate cause of Dr. Helm’s

claimed damages to trigger coverage under the policy; those actions merely had to

have an incidental relationship or connection to do so. As stated above, Section

V(10) defines “personal injury” in relevant part as:

[I]njury, other than ‘bodily injury,’ arising out of one or more of the following offenses:

...

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

f. Mental injury, mental anguish, shock, humiliation, defamation, and damage to professional reputation.

Because the retaliatory employment actions of which Dr. Helm complained arose

from the publication and dissemination of allegedly slanderous and disparaging

material and information, the University asserts that KSBIT continues to owe

coverage to it.

-12- On the other hand, KSBIT cites to Kentucky Association of Counties

All Lines Fund Trust v. McClendon, 157 S.W.3d 626, 635 (Ky. 2005), for this

statement of the law: “In Kentucky, an insurer has a duty to defend if there is an

allegation which might come within the coverage terms of the insurance policy, but

this duty ends once the insurer establishes that the liability is in fact not covered by

the policy.” Once the Jefferson Circuit Court ruled that Dr. Helm was not able to

recover damages for mental anguish, pain and suffering, front pay, or having to sell

his house in a certain market, he was only able to recover damages for six months

of back pay and attorney fees. These items of damages, KSBIT argues, are not

covered under the policy.

We agree with KSBIT that its duty to provide coverage ended once

the Jefferson Circuit Court ruled that Dr. Helm’s damages were limited to back pay

and attorney fees. These items of damages do not represent the type that would

arise from mental injury, mental anguish, shock, humiliation, defamation, and

damages to a professional reputation, as personal injury is defined in the policy.

And we agree with KSBIT’s citation to Mo-Jack Distributor, LLC v.

Tamarak Snacks, LLC, 476 S.W.3d 900, 906 (Ky. App. 2015), that the policy does

not cover Dr. Helm’s claim for attorney fees, as the policy only covers damages:

Not only are attorney fees typically not recoverable, but Kentucky has taken the view that attorney fees are not compensatory damages. “Compensatory damages are designed to equal the wrong

-13- done by the defendant.” Gibson v. Kentucky Farm Mutual Insurance Company, 328 S.W.3d 195, 204 (Ky. App. 2010) (quoting Jackson v. Tullar, 285 S.W.3d 290, 297-98 (Ky. App. 2007)). Attorney fees are not compensatory damages because any award “does not compensate the plaintiff for any wrong done by the defendant.” Id.

The Court went on to explain:

[A]ttorney fees in this Commonwealth are not compensatory in nature. Because the exception is grounded in equity, the issue of whether attorney fees are recoverable is one exclusively within the discretion of the trial court and not properly submitted to the jury as an element of compensatory damages. Unless agreed to by the parties, equitable issues are not triable by juries. Smith[] v. Bear, Inc., 419 S.W.3d 49, 58 (Ky. App. 2013). Even if permitted, unless otherwise directed by statute, whether attorney fees are available and the amount of such fee “is the responsibility of the trial court, and not the jury[.]” Gibson, 328 S.W.3d at 204.

The existing precedent is clear that absent statutory authority, attorney fees incurred to either bring or defend an action cannot be submitted to a jury as an item of compensatory damages.

Id. at 906.

In addition, KSBIT disputes the University’s argument that Dr.

Helm’s claim arose from the plagiarism allegations made by his colleague, as his

claim under the Kentucky Whistleblower Act arose from retaliation resulting in the

non-renewal of his contract. For the reasons set forth in KSBIT’s brief, we agree

that because Dr. Helm’s claim arose from retaliation, not from allegedly slanderous

-14- or libelous materials, paragraph (d) of the policy’s definition of personal injury

does not trigger any duty on KSBIT’s part to defend or indemnify the University.

Therefore, we hold that the circuit court did not err as a matter of law

in concluding that KSBIT was not required to continue to provide coverage based

upon the policy’s definition of personal injury.

Finally, the University argues that because the Jefferson Circuit

Court’s order was interlocutory and subject to revision, KSBIT’s duty to defend

continued. The University relies upon the former Kentucky Court of Appeals’

opinion in Ursprung v. Safeco Insurance Company of America, 497 S.W.2d 726,

730-31 (Ky. 1973), in which the Court stated, “the contractual obligation to defend

carries with it an obligation to prosecute an appeal from a judgment against an

insured where there are reasonable grounds for appeal.” Therefore, it asserts that

only after the appellate process had been completed (or waived) could that order

become final and act as a bar to coverage.

We disagree and hold that the circuit court properly relied upon the

holding in McClendon, supra, that “an insurer has a duty to defend if there is an

allegation which might come within the coverage terms of the insurance policy, but

this duty ends once the insurer establishes that the liability is in fact not covered by

the policy.” 157 S.W.3d at 635. As KSBIT argued, the decision in Ursprung

involved an established duty to defend, which would require an insurer to

-15- prosecute an appeal on behalf of its insured if the insured lost at the trial court

level. Here, on the other hand, KSBIT’s coverage was in dispute, and the Jefferson

Circuit Court held that Dr. Helm could not recover damages for the claim upon

which the duty to defend was premised. The circuit court noted that KSBIT had

provided a defense in Dr. Helm’s action and won, meaning that there was no need

to prosecute an appeal on the University’s behalf. Based upon the holding in

McClendon, supra, there was no continuing duty for KSBIT to provide coverage to

the University in Dr. Helm’s action.

For the foregoing reasons, the summary judgment of the Franklin

Circuit Court is affirmed.

ALL CONCUR.

BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE KENTUCKY SCHOOL BOARDS Susan D. Phillips INSURANCE TRUST: Patricia C. Le Meur William O. Orberson Jeffrey C. Mando Louisville, Kentucky Jennifer L. Langen Covington, Kentucky

-16-