Kentucky Employers' Mutual Insurance v. Ellington, 459 S.W.3d 876

Background

Randy Ellington operated R & J Cabinets as a sole proprietorship; at the time of his 2010 on-job injury he had no employees and had not for about a year.
KEMI issued a workers’ compensation policy to “Randy Ellington DBA R & J Cabinets,” renewed annually since 2006 when Ellington had employees.
The policy contained a "Sole Proprietors, Partners, Officers and Others Exclusion Endorsement" specifically listing "Randy Ellington — Sole Proprietor" and stating the policy does not cover bodily injury to any person described in that schedule.
A separate "Schedule of Named Insureds and Work Places" endorsement listed both Randy Ellington and R & J Cabinets (same address), creating the appearance Ellington was a named insured.
Audit forms and the original application indicated Ellington was excluded from coverage and premiums were calculated on employee payroll (excluding Ellington); Ellington reported employee payroll and sought certificates of insurance for contracting work.
ALJ and Workers’ Compensation Board concluded Ellington was not covered; Court of Appeals reversed, finding an ambiguity favoring Ellington; the Supreme Court granted review.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Ellington (sole proprietor) is entitled to workers’ comp benefits under the policy	Ellington argued listing him as a named insured created ambiguity and his reasonable expectations supported coverage	KEMI argued the exclusion endorsement explicitly named Ellington as excluded and audit/application evidence showed he was not covered	Held: Policy unambiguous: exclusion controls; Ellington not entitled to benefits
Whether the named-insured listing creates ambiguity with exclusion endorsement	Ellington: separate listing reasonably reads as personal coverage as an employee	KEMI: named-insured status can reflect liability protection for the business/owner without granting bodily-injury benefits to owner	Held: No ambiguity — insured status can mean liability protection while exclusion denies bodily-injury benefits to owner
Whether reasonable-expectations / contra proferentem doctrines require coverage	Ellington: doctrines resolve ambiguities in favor of insured; he paid premiums and reasonably expected coverage	KEMI: surrounding facts (application, audits, premium calculations, Ellington’s conduct) negate any reasonable expectation of personal coverage	Held: Even applying doctrines, facts show Ellington could not reasonably expect bodily-injury coverage; doctrines do not require coverage here
Whether extrinsic evidence (audits, application, conduct) may be considered	Ellington: court of appeals improperly failed to credit extrinsic evidence for ambiguity in his favor	KEMI: extrinsic evidence supports that owner was excluded and knew premiums based on employee payroll	Held: Extrinsic evidence properly considered and supports exclusion; ALJ’s credibility finding upheld

Key Cases Cited

Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010) (interpretation of insurance contracts is a question of law reviewed de novo)
Simon v. Continental Ins. Co., 724 S.W.2d 210 (Ky. 1986) (reasonable expectations doctrine is a tool to decide policy ambiguity)
Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 880 (Ky. 2005) (insurer cannot rely on technical definitions to defeat reasonable insured expectations)
True v. Raines, 99 S.W.3d 439 (Ky. 2003) (reasonable expectations resolves ambiguities in favor of insured)
Bituminous Cas. Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633 (Ky. 2007) (ambiguous insurance policies construed against the drafter)
St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223 (Ky. 1994) (strict construction against insurer balanced with reasonable interpretation of policy language)
Moore v. Commonwealth Life Ins. Co., 759 S.W.2d 598 (Ky. Ct. App. 1988) (insurer should not collect premiums by creating reasonable expectation of protection then avoid coverage via technicalities)