Lead Opinion
Auto Club Property-Casualty Insurance Company sought a declaration that it is not liable to defend or indemnify insured parties after a firework struck B.T. in the eye as a result of the insured parties’ alleged negligence. The district court granted summary judgment in Auto Club’s favor, holding that the policy specifically excluded payment for the injury suffered
I.
On July 5, 2010, ten-year-old B.T. was playing with other children at Brad and Melissa Cambron’s house in Louisville, Kentucky. The Cambrons’ eight-year-old son, D.C., asked Brad if he could play with the sparklers that were in Brad’s truck. Brad agreed and unlocked the truck from the house with his keyless remote. After D.C. returned outside, Brad did not supervise the children’s activities.
When D.C. and the other children opened the truck, they saw a number of bottle rockets. The bottle rockets and sparklers — which Brad had recently bought in Indiana — remained in the truck following the Cambrons’ family Fourth of July celebrations. The children removed some sparklers, some bottle rockets, and a lighter from the truck. Some of the children then ignited a number of the bottle rockets. At one point, a child identified as J.J. lit the fuse of a bottle rocket while B.T. was standing near the garage door. Before exploding, the rocket struck B.T.’s left eye. The resulting injuries required medical treatment, including surgery.
B.T. sought damages for his injuries in a suit in Kentucky state court against Brad and Melissa Cambrón, D.C., and J.J. Among the causes of action were negligence claims against all four defendants and claims against Brad and Melissa for negligent entrustment and negligent supervision. The state court action remains pending.
The Cambrons sought defense and indemnification under a homeowners’ insurance policy issued by Auto Club for the period March 3, 2010 to March 3, 2011. The policy provided liability coverage for Melissa and Brad (who were listed on the policy’s Declaration Certificate), and also D.C. (because he was a “resident relative,” and is therefore defined as an “Insured Person” under the plan).
Auto Club then brought this declaratory judgment action in the Western District of Kentucky, seeking a declaration that it has no duty to defend or indemnify the Cam-brons. In addition to Brad and Melissa Cambrón, the suit named B.T. and J.J..as defendants. Auto Club claimed that the events of Jüly 5, 2010, fell within four specific exclusions in the policy. First, Auto Club pointed to a provision excluding coverage for criminal acts (the “Criminal-Act Exclusion”), and claimed that the Cambrons and J.J. committed criminal acts by possessing and using the bottle rockets without a license. Second, the policy contains an exclusion for conduct intended to or reasonably expected to cause injury (the “Intentional-Act Exclusion”), and Auto Club argued that allowing access to the bottle rockets would be reasonably expected to cause injury. Third, Auto Club claimed that Brad and Melissa’s failure to supervise the children fell within the policy’s ' “Negligent-Supervision Exclusion.” Finally, the company argued that the “Negligent-Entrustment Exclusion” applied because Brad and Melissa Cam-brón negligently entrusted the fireworks to the children.
The parties filed cross-motions for summary judgment and the district court granted summary judgment in Auto Club’s favor. The court found that the Cam-brons’ possession of the bottle rockets and J.J.’s use or explosion of the bottle rocket each constituted a “criminal act” within the meaning of the Criminal-Act Exclusion. As a result, the court held that Auto Club has no obligation to defend or indemnify the Cambrons. Having found coverage barred under the Criminal-Act Exclusion, the court found it unnecessary to deter
II.
A.
This court reviews a district court’s grant of summary judgment de novo. Keith v. Cnty. of Oakland, 70S F.3d 918, 923 (6th Cir.2013). Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). In considering a motion for summary judgment, we construe all reasonable inferences in favor of the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
B.
We must first interpret the scope of the exclusions in the Cambrons’ insurance policy. That task — as both parties agree — is governed by Kentucky law. Terms of an insurance policy are given their plain and ordinary meaning and, when the terms are clear and unambiguous, must be enforced as drafted. Crutchfield v. Transamerica Occidental Life Ins. Co.,
When the terms are ambiguous, Kentucky’s reasonable-expectations doctrine applies: the court interprets the terms “in favor of the insured’s reasonable expectations and construe[s] [them] as an average person would construe them.” Crutchfield,
The reasonable-expectations doctrine complements Kentucky’s public policy favoring broad coverage in insurance contracts. When the terms of the contract are ambiguous, any exclusions should be read to give maximum coverage, with any doubts resolved in the insured’s favor. See Scottsdale Ins. Co. v. Flowers,
C.
The Cambrons’ policy contained the following exclusion:
Under Part II, we will not cover:
10. bodily injury or property damage resulting from:
a. a criminal act or omission committed by anyone; or
b. an act or omission, criminal in nature, committed by an insured person even if the insured person lacked the mental capacity to:
*413 (1) appreciate the criminal nature or wrongfulness of the act or omission; or
(2) conform his or her conduct to the requirements of the law; or
(3) form the necessary intent under the law.
This exclusion will apply whether or not anyone, including the insured person:
a. is charged with a crime;
b. is convicted of a crime whether by a court, jury or plea of nolo contende-re; or
c. enters a plea of guilty whether or not accepted by the court____
We must first determine whether the exclusion was ambiguous. In making this inquiry, this court must apply Kentucky law in accordance with the controlling decisions of the Supreme Court of Kentucky. OneBeacon Am. Ins. Co. v. Am. Motorists Ins. Co.,
Controlling precedent establishes that the Criminal-Act Exclusion in the Cambrons’ policy does not exclude coverage for the events of July 5, 2010. First, the language of the exclusion is ambiguous. In Healthwise of Kentucky, Ltd. v. Anglin,
Next, we must determine whether, under Kentucky’s reasonable expectations doctrine, the Cambrons may reasonably expect coverage for the events of July 5. Again, precedent dictates the outcome. In Bilyeu, the insured was driving while intoxicated when he crashed and died. Id. at 88. The company that issued his life insurance policy refused to pay benefits on the ground that the accident occurred “during the commission of a crime.” Id. This court held that the insured would not have reasonably expected an accident to be excluded from coverage simply because it occurred while drunk driving. Id. at 89. This court agreed with the district court that an insured, reading the term “crime” in a policy exclusion, “is more likely to understand it to meant,] for examplet,]
Similarly, here, the Cambrons would have reasonably expected to be covered for injuries resulting from their possession of the bottle rockets, despite the Criminal-Act Exclusion. The Cambrons allegedly committed the offense of possessing fireworks without a license, and J.J. the offense of using or exploding a firework without a license, in violation of the then-existing versions of Kentucky Revised Statutes (“KRS”) sections 227.702, 227.708, and 227.710. These are types of conduct that an insured person, reading the policy, would reasonably believe were covered. They are far from the core criminal offenses — burglary, armed robbery, and murder — that an insured, according to the Bilyeu court, would believe to be within the exclusion. Bilyeu,
This does not mean that the Criminal-Act Exclusion only excludes burglary, armed robbery, and murder. But Kentucky favors interpreting ambiguous terms in a way that provides maximum coverage, see Flowers,
The district court declined to follow Anglin and Bilyeu, finding neither “applicable to the facts of the case at bar.” However, each of the four bases on which the district court distinguished those cases is unavailing. First, the court stated that “[tjhose cases involved [employee health] and accidental death policies [respectively], as opposed to homeowner’s insurance policies.” The method of interpreting the exclusion in the Cambrons’ policy is not reserved for homeowners’ policies. While the type of policy may be relevant in analyzing ambiguity and reasonable expectations in a particular case, Bilyeu and Anglin both focused on the ambiguity of excluding coverage for damage sustained during the commission of a “crime” in a policy issued to an individual consumer. Bilyeu,
Second, the district court noted that the exclusions in the prior cases excluded coverage “if the insured ‘committed’ a crime.” There is no material difference in the language of the exclusions. The Anglin and Bilyeu decisions focused on the ambiguity of the word “crime” within those policies, and the reasonable expectations that the word creates. Bilyeu,
The ambiguity and reasonable-expectation inquiries do not focus solely on the definition of “crime” in the Penal Code. If there is more than one reasonable interpretation, the reasonable-expectations doctrine applies and, if in doubt, “the interpretation favorable to the insured is adopted.” Anglin,
Finally, the district court explained that Anglin and Bilyeu do not control because “when confronted with language identical to that used in the Cambrons’ Policy, courts in other jurisdictions found such language to be unambiguous.” Kentucky law governs in this case and thus these decisions are inapposite. Anglin and Bilyeu are controlling, no matter how they compare to decisions from other jurisdictions. Controlling precedent leads to the conclusion that the Criminal-Act Exclusion does not provide a basis for denying coverage for the injuries that B.T. suffered on July 5, 2010.
D.
The district court did not address the remaining exclusions in the Cambrons’ policy and neither party briefed the issue of whether any other exclusion applies. Nonetheless, this court can affirm a district court’s grant of summary judgment .on any basis supported by the record. EA Management v. JP Morgan Chase Bank, N.A.,
The applicability of an exclusion in the specific circumstances of a case is a question of fact. See James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co.,
First, the Intentional-Acts Exclusion applies if the injury results “from an act or omission by an insured person which is intended or could reasonably be expected to cause bodily injury or property damage.” Auto Club does not allege that Brad Cambrón intended the injury to B.T, but it does claim that, by granting the children access to the truck and failing to supervise them, his acts or omissions could reasonably be expected to cause injury to B.T. However, viewed in the light most favorable to the nonmoving parties, Brad Cambrón could reasonably expect that the children would be safe because they did not have permission to access the bottle rockets. Given this genuine issue of material fact, summary judgment cannot be granted on the basis of the Intentional-Act Exclusion.
Next, the Negligent-Entrustment and Negligent-Supervision Exclusions are respectively triggered when injury results “out of negligent entrustment by any insured person of any ... object, instrument or device,” or “out of negligent supervision by any insured person.” These conditions are not sufficient, however. These two exclusions only exclude coverage when the conduct of those who are negligently entrusted or negligently supervised:
a. is not an occurrence under Part II of this Policy; or
b. is an intentional or criminal act excluded from coverage under Part II of this Policy....
An “occurrence” means an “accident,” which in turn is defined as “a fortuitous event that is neither reasonably anticipated nor reasonably foreseen from the standpoint of both any insured person and any person suffering injury or damages as a result.”
Genuine issues of fact remain as to whether Brad Cambrón — the insured— was negligent in his supervision of the children, or his entrustment of his car keys to D.C. The evidence is certainly not so one-sided as to necessitate judgment in Auto Club’s favor. No Kentucky case holds that facts similar to these establish negligence as a matter of law. Perhaps the closest analog is Spivey v. Sheeler,
Evidence that defendant left a loaded gun in a place which he knew or should have known to be accessible to a child too immature or indiscreet to exercise the required care in the control of such an instrument, has frequently been held to raise a jury question as to defendant’s responsibility for injuries caused by a child with a gun so left.
Spivey,
Moreover, genuine issues of material fact remain as to the other prerequisite for the application of the Negligent-Entrustment and N egligent-Supervision Exclusions: whether the accident was reasonably anticipated or reasonably foreseen from the perspective of Brad, Melissa, D.C., or B.T. It would be reasonable to conclude that the incident was not reasonably foreseen or anticipated from some or all of these individuals’ perspectives.
Although the district court did not address the Intentional-Act, Negligent-En-trustment, and Negligent-Supervision Exclusions, our analysis reveals that it would not have been appropriate to grant summary judgment on any of these bases. We therefore remand these issues to the district court for trial.
III.
For the above reasons, we reverse the district court’s grant of summary judgment and remand to the district court for further proceedings consistent with this opinion.
Dissenting Opinion
dissenting.
My agreement with the majority begins — and ends — with its holding that, under Kentucky law, the Criminal-Act Exclusion in the Cambrons’ policy is ambiguous. A finding of ambiguity requires that we then use the definition of the ambiguous term most likely to effect coverage, provided the definition is a reasonable one. Instead of choosing among reasonable definitions, however, the majority invokes the “reasonable expectations of the insured” doctrine, concluding that “here, the Cambrons would have reasonably expected to be covered for injuries resulting from their possession of the bottle rockets, despite the Criminal-Act Exclusion.” Maj. Op. 414. The closest the majority comes to saying what the term “criminal act” actually means is that it encompasses only “core criminal offenses.” Ibid.
Even if we use the definition of “criminal act” most favorable to the insured, J.J. committed a “criminal act.” The majority tries to escape this conclusion by obscuring the relevant “act,” borrowing from — but not applying — the definition of “criminal act” in Kentucky Revised Statutes Annotated §§ 216.710 and 500.080. Instead, the majority looks to American Family Life Assurance Co. v. Bilyeu,
The Criminal-Act Exclusion is one of four potentially applicable exclusions. Because the district court held that it applies here, the district court found it unnecessary to address the other three. After reversing on the Criminal-Act Exclusion, the majority holds that summary judgment for the insurer is also inappropriate on the other three exclusions, and thus the case should be remanded for trial. Despite acknowledging that the applicability of exclusions in insurance policies is a fact-intensive inquiry, the majority decides the exclusions are not applicable, without the district court’s having developed the appropriate facts and without the parties’ having briefed the issues on appeal. I
I.
A.
At the outset I would note that there is some confusion over when recourse to the “reasonable expectations of the insured” doctrine is appropriate under Kentucky law. The majority says that “[w]hen the terms are ambiguous, Kentucky’s reasonable-expectations doctrine applies.” Maj. Op. 412. Some cases agree. See, e.g., Hugenberg v. W. Am. Ins. Co./Ohio Cas. Grp.,
Once we find a term in an insurance contract ambiguous, we use the definition of the term most favorable to the insured — the definition most likely to effect coverage. A cardinal principle of Kentucky insurance law is that “[wjhere an exclusion is susceptible to two reasonable interpretations, the interpretation favorable to the insured is adopted.” St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc.,
But the majority instead invokes the “reasonable expectations” doctrine to avoid defining “criminal act.” To be fair, we did something similar in American Family Life Assurance Co. v. Bilyeu,
B.
Even using the definition of “criminal act” most favorable to the insureds, J.J. committed a “criminal act” and the exclusion is triggered. There are four definitions of “criminal act” offered by the parties. B.T. points to two definitions contained in the Kentucky Revised Statutes, the first defining “crime” for campus safety and security purposes, Ky. Rev.Stat. Ann. § 164.948(3), and the second defining “crime” for health facilities and services purposes, Ky.Rev.Stat. Ann. § 216.710(3). Both definitions would effect coverage, but we should apply neither. Although a definition need not be contained in a statute or dictionary for us to use it in interpreting an insurance policy, the definition must at least be reasonable. See St. Paul Fire & Marine Ins. Co.,
A third definition offered by B.T. is the Kentucky Penal Code’s definition of “crime” as “a misdemeanor or a felony.” Ky.Rev.Stat. Ann. § 500.080(2).
One who violates § 227.710’s prohibition on the “use” or possession of fireworks “shall be fined not more than one thousand dollars ($1,000), or imprisoned in the county jail for not more than thirty (30) days,
The last definition suggested by B.T. is the one we used in Bilyeu. We said that “the insured is more likely to understand [“crime”] to mean[,] for example[,] burglary, armed robbery, or murder than for it to mean drunk driving.”
C.
The majority characterizes the illegal actions of J.J. and the Cambrons thus: “The Cambrons allegedly committed the offense of possessing fireworks without a license, and J.J. the offense of using or exploding a firework without a license. ...” Maj. Op. 414 (emphasis added). The error in the majority’s approach lies in its failure to recognize that the prohibition codified in § 227.710 is the possession, explosion, and use of fireworks. That section contains some specific exceptions to these prohibitions, including an exception for licensed fireworks , displays, but the prohibited conduct is the possession, explosion, and use of the fireworks. And because this activity violates § 227.710, it is a “criminal act” under § 500.080(2). Both the Cambrons (by possessing) and J.J. (by using and exploding) fireworks committed criminal acts under Kentucky’s statutes.
And J.J. and the Cambrons committed criminal acts even if, as the majority believes, the criminal act is the possession, use, or explosion of fireworks without a permit. Neither J.J. nor the Cambrons had any kind of permit to do anything with fireworks. Neither took the precautions that the statute requires permit holders to take to prevent injury from the fireworks. Acting without a permit could well have “resulted in” B.T.’s injury because the permit required the holder to be competent and to take safety precautions.
Regardless of which definition we use, summary judgment is warranted because J.J. deliberately set off a firework, a “criminal act” under both § 227.710 and Bilyeu.
II.
Beyond reversing the district court on the one potentially applicable exclusion the district court actually addressed, the majority holds that summary judgment for
“As a general rule, appellate courts do not consider any issue not passed upon below.” In re Morris,
Second, the issues involved are not “wholly legal.” Pickett,
The majority’s merits analysis is a case in point. The majority analyzes only the Cambrons’ actions under the Intentional-Acts Exclusion, even though J.J.’s setting off of a firework “could reasonably be expected to cause bodily injury.” Maj. Op. 416. The majority holds that summary judgment would be inappropriate under the Negligent-E ntrustment and Negligent-Supervision Exclusions on the basis of Spivey v. Sheeler, even though Spivey involved injuries that occurred after an eleven-year-old boy climbed up on something, found the key to his parent’s gun safe, unlocked the safe, and then discharged a weapon, all when his parents were away.
I respectfully dissent.
Notes
. Although the Kentucky Supreme Court in Health-wise of Ky., Ltd. v. Anglin adopted the Penal Code definition of "crime,” it did so because it was the interpretation "favorable to the insured.”