First Mercury Insurance v. Jeffrey and Anita Russell
239 W. Va. 773
W. Va.2017Background
- Kimes Steel purchased a Commercial General Liability (CGL) policy and excess policy from First Mercury; the CGL contained the typical employer-employee bodily-injury exclusion but included a "Stop Gap – Employers Liability Coverage Endorsement – West Virginia."
- The Stop Gap endorsement is headed to provide employers’ liability (stop gap) coverage but limits covered injury to "bodily injury by accident" or "bodily injury by disease."
- The Stop Gap endorsement also contains an exclusion (Exclusion l) expressly denying coverage for actions "determined to be of deliberate intention" under W. Va. Code § 23-4-2.
- Jeffrey Russell was severely injured at work and the Russells sued Kimes Steel under West Virginia’s statutory deliberate-intent cause of action.
- First Mercury denied coverage and refused a defense; the circuit court granted partial summary judgment for the Russells and Kimes Steel on coverage, finding the policy ambiguous; First Mercury appealed.
- The Supreme Court of Appeals affirmed, holding the Stop Gap endorsement and the deliberate-intent exclusion are internally inconsistent and ambiguous, so the endorsement must be construed in favor of the insured, yielding coverage (and a duty to defend).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Stop Gap endorsement provides coverage for a statutory deliberate-intent claim | Russells/Kimes: the endorsement titled "Stop Gap" (employers’ liability) should be read to provide coverage for deliberate-intent claims; ambiguity resolved for insured | First Mercury: endorsement limits coverage to "bodily injury by accident" or "disease," and Exclusion l plainly excludes deliberate-intent actions | Court: endorsement heading and purpose indicate stop gap coverage for deliberate-intent claims; language ambiguous and construed for insured — coverage exists |
| Whether Exclusion l unambiguously bars deliberate-intent coverage | Plaintiffs: exclusion conflicts with Stop Gap endorsement and thus is ambiguous | First Mercury: Exclusion l is plain, clear, and conspicuous (similar to Summit Point) and therefore excludes deliberate-intent claims | Court: although Exclusion l alone is clear, its presence alongside a Stop Gap endorsement creates an internal conflict; ambiguity resolved for insured — exclusion not enforced |
| Whether the insurer has a duty to defend Kimes Steel | Plaintiffs: coverage exists, so duty to defend follows | First Mercury: no coverage, so no duty to defend | Court: because policy provides coverage the insurer owes a duty to defend (duty broader than indemnity) |
| Whether doctrines like reasonable expectation, illusory coverage, or estoppel independently decide coverage | Plaintiffs: additional equitable doctrines support coverage | First Mercury: disputes these doctrines | Court: did not need to decide those doctrines because policy-language ambiguity resolved the case in favor of insured; those issues unnecessary to address |
Key Cases Cited
- Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (W. Va. 1994) (summary-judgment de novo review standard)
- Riffe v. Home Finders Assocs., Inc., 205 W. Va. 216, 517 S.E.2d 313 (W. Va. 1999) (insurance-contract interpretation and ambiguity reviewed de novo)
- Erie Ins. Prop. & Cas. Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 553 S.E.2d 257 (W. Va. 2001) (explaining "stop gap" employers’ liability coverage fills gap for employee claims not covered by workers’ compensation)
- National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488 (W. Va. 1987) (ambiguous insurance terms construed against insurer; exclusionary provisions strictly construed)
- W. Va. Emp’rs’ Mut. Ins. Co. v. Summit Point Raceway Assocs., Inc., 228 W. Va. 360, 719 S.E.2d 830 (W. Va. 2011) (exclusionary language that specifically references § 23-4-2 is plain and excludes deliberate-intent coverage when no conflicting endorsement exists)