BRENT FOREMAN, KATHLEEN FOREMAN, AND LOGAN FOREMAN v. AUTO CLUB PROPERTY-CASUALTY INSURANCE COMPANY
2018-SC-0618-DG
Supreme Court of Kentucky
FEBRUARY 18, 2021
TO BE PUBLISHED; ON REVIEW FROM COURT OF APPEALS NO. 2016-CA-1949; JEFFERSON CIRCUIT COURT NO. 14-CI-004773
AFFIRMING
Brent and Kathleen Foreman brought a declaratory judgment action in the circuit court to establish that Auto Club Property-Casualty Insurance Company owed payment under a homeowner‘s insurance policy for property damage caused by a house fire started by their teenage son, Logan, in a suicide attempt. Auto Club denied liability based on the intentional-loss exclusion in the policy.
The circuit court granted summary judgment in the Foremans’ favor. The trial court‘s judgment declared the exclusion inoperative because Logan was “of such unsound mind as to render him incapable of forming an intent to cause a loss as defined under [the Auto Club policy].”
On discretionary review, we agree with the Court of Appeals’ analysis that the trial court‘s grant of summary judgment in favor of the Foremans was erroneous. However, we remand this case to allow the Foremans an opportunity to litigate a potential lack of capacity defense consistent with Stone v. Kentucky Farm Bureau Mutual Insurance Co., 34 S.W.3d 809, 811 (Ky. App. 2000).2
I. FACTUAL AND PROCEDURAL BACKGROUND
It is undisputed that Logan, Brent and Kathleen‘s then sixteen-year-old son lived at home with them when he set fire to the family home in a suicide attempt. In a disturbed mental state only few days after his release from a
The pertinent policy provisions read:
EXCLUSIONS
We do not insure under Part 1 [Property Insurance Coverages] Property Insurance Coverages for loss caused directly or indirectly by any of the following, regardless of the cause of the excluded event or damage; other causes of the loss; whether any other cause or event acts produce the loss; or whether the loss or event occurs suddenly or gradually, involves isolated or widespread damage or occurs as a result of any combination of these.
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9. Any action by or at the direction of an insured person committed with the intent to cause a loss, or that could be reasonably expected to cause a loss.3
- arose out of a pattern of domestic violence; and
- the perpetrator of the loss is criminally prosecuted for the act of causing the loss.
Brent and Kathleen sued Auto Club in the circuit court for a declaration of rights under the terms of their policy. When Logan reached the age of majority during the pendency of the suit, Auto Club asserted a separate indemnity claim against him. Logan then asserted his own claim against Auto Club, denying any liability.
All three Foremans moved for summary judgment, and the trial court granted it, focusing on Logan‘s lack of mental capacity to form intent to be responsible for intentionally causing damage to the property. Auto Club appealed the judgment, and the Court of Appeals reversed and remanded the case to the trial court for further proceedings.
II. ANALYSIS
A. Standard of Review.
A party seeking a declaratory judgment “may, at any time . . . move with or without supporting affidavits for a summary judgment in his favor.”4 In
When reviewing a trial court‘s grant of summary judgment, we determine whether the record supports the trial court‘s conclusion that there is “no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.”6 “Because summary judgment does not require findings of fact but only an examination of the record to determine whether material issues of fact exist, we generally review the grant of summary judgment without deference to the trial court‘s assessment of the record or its legal conclusions.”7
The interpretation of insurance contracts is a matter of law, so our review is de novo.8 Foremost in interpreting an insurance contract we are bound by the specific language of the contract before us.9 We apply certain rules of construction to insurance contracts, including a rule that when the terms of an insurance contract are unambiguous and not unreasonable, they
B. The Court of Appeals correctly reversed and remanded for examination of the insured‘s reasonable expectation of loss.
Relying upon its reading of this Court‘s application of the reasonable-expectations doctrine as discussed in James Graham Brown Foundation, Inc. v. St. Paul Fire and Marine Insurance Company,14 the trial court ruled the
We agree with the Court of Appeals’ that the trial court misapplied Brown Foundation, holding instead the coverage exclusion must be read from an objective viewpoint to exclude from coverage a “loss . . . caused directly or indirectly by any action by . . . an insured person . . . that could be reasonably expected to cause a loss.” The Court of Appeals correctly concluded that, when viewed objectively, Logan‘s act of setting fire to the couch he soaked with gasoline was an intentional act that “could reasonably be expected to cause” some physical damage to, or destruction of, tangible property.15
In ascertaining the meaning of contract language, as previously discussed, we begin with the text of the policy so that “the words employed in insurance policies, if clear and unambiguous, should be given their plain and ordinary meaning.”16 We find the contract language here to unambiguously exclude coverage for acts that, when judged objectively, could be reasonably expected by the insured to cause a loss. As a result, we find, as the Court of Appeals found, that an insured would reasonably expect that igniting a
But, as the Court of Appeals discussed, despite that error in granting summary judgment to the Foremans, they may still be able to pursue payment under their policy. Courts generally hold that intentional-act exclusions do not apply if the insured was suffering from a lack of mental capacity at the time of the act.17 This Court has not directly encountered the lack-of-mental-capacity defense to defeat intentional-act exclusions, but we do so today.
Allowing a mental-incapacity defense potentially to defeat an intentional-act exclusion accords with the reasonable-expectation principle that all insurance contracts are to be construed to give effect to the coverage the insured reasonably expected while allowing insurers to protect themselves from unreasonable exposure.18 Intentional-act exclusions are included in contracts to prevent the insured from manipulating the risk and thereby receiving a financial benefit from the consequences of the loss a loss intended or expected by the insured.19 In contrast, though, an individual who lacks mental capacity to conform his conduct will not be influenced by the existence or nonexistence
Although the current contract provision is to be judged objectively, a mental-incapacity defense remains available to the Foremans. An objective analysis requires us to ask what loss, when judging the circumstances objectively, could Logan reasonably expect to result from his intentional actions.21 The insured‘s intention may be “proven either by direct evidence of ‘actual’ intent, or it may be ‘inferred by the nature of the act and the accompanying reasonable foreseeability of harm.‘”22
Determining whether loss could reasonably be expected requires a determination of what results were reasonably foreseeable to the insured at the time the insured acted.23 This includes considering the insured‘s knowledge
The comprehension of pertinent matters refers to an actor‘s ability to recognize the risk. To have the ability to make such a recognition “he is required to know (a) the qualities and habits of human beings and animals and the qualities, characteristics, and capacities of things and forces in so far as they are matters of common knowledge at the time and in the community; and (b) the common law, legislative enactments, and general customs in so far as they are likely to affect the conduct of the other or third persons.”25
However, as the Court of Appeals in Stone stated, mental incapacity prevents the actor from forming “mind enough to know the nature and quality of his act” and “[a] person‘s actions will not be considered intentional if he is unable to comprehend the physical nature of their consequences[.]”26 Mental incapacity renders a person unable to have knowledge of the matters pertinent to assessing foreseeability of risk because it prevents the actor from being able to understand the nature and quality of their actions. Since a mentally incapacitated actor cannot ascertain the foreseeability of risks, it is impossible
As a result, we adopt the standard set forth in Stone and hold today that an intentional-act exclusion will be defeated if the insured shows at the time of the act, not just that he did not know right from wrong, but that he did not understand the nature and quality of his actions so that he was rendered unable to understand the physical nature of their consequences.27 Only when the insured provides evidence of his lack of understanding will the intentional-acts exclusion provision be defeated, and the insurer be required to provide coverage.28 This results in a high burden on the insured but adequate protection for the insured‘s reasonable expectation of insurance coverage for property damage.
As previously stated, summary judgment was erroneously granted here, but because we find that an insured‘s mental-incapacity defense applies to intentional-act exclusion provisions, summary judgment in favor of Auto Club may be inappropriate at this juncture. The record reflects evidence that would permit an inference that Logan was aware of the nature of his actions. For example, as the Court of Appeals notes, Logan told the official arson investigator that he obtained gasoline from the basement earlier in the evening,
III. CONCLUSION
We affirm the Court of Appeals and remand this matter for further proceedings consistent with this opinion.
All sitting. Minton, C.J.; Conley, Hughes, Keller, Nickell, and VanMeter, JJ., concur. Lambert, J., concurs in result only. Keller, J., concurs by separate opinion, in which Conley and Nickell, JJ., join.
KELLER, J., CONCURRING: Brent and Kathleen Foreman argue to this Court that, as a matter of public policy, Auto Club Property-Casualty Insurance Company should be prohibited from denying them insurance coverage, as they are innocent co-insureds. As it appears this public policy argument was not made to the trial court, I concur with the majority‘s well-written opinion in all aspects. However, I write separately to address two points. First, I want to draw attention to this Court‘s previous opinion in American Hardware Mutual Insurance Company v. Mitchell, 870 S.W.2d 783
In Mitchell, we were tasked with determining whether the obligations of married co-insureds were joint and several. Id. at 784. In that case, the insurer denied coverage to the wife for losses attributed to the husband‘s act of arson. Id. We said that “the proper rule should be that an innocent spouse should not be denied coverage under any policy of insurance simply because of the marital relationship.” Id. at 785. Although we acknowledged that “the policy could have been written to negate the collection of insurance by a co-insured,” we went on to direct that “[a]n insurance policy which covers the interests of more than one insured should be considered several or separate as to each person insured.” Id. Accordingly, we affirmed the Court of Appeals’ reversal of the trial court‘s granting of summary judgment against the wife. Id. We further held that factual issues existed as to “whether the [wife] actually set the fire; had knowledge and authorized its setting; or later ratified the intentional act.” Id.
Notably, a three-justice dissent would have reversed the Court of Appeals because the husband and wife were both listed as a “named insured” on the policy and the acts of one could reasonably be attributed to the other. Id. at 786 (Leibson, J., dissenting). However, the dissent noted that it would have agreed with the majority if the arson had merely been committed by “an insured.” Id. (Leibson, J., dissenting). In the dissent‘s view, the broad, unqualified word “insured” where it includes “any relative in the same household or even nonrelatives who are children residing in the same
Although the Foremans have not yet contested that if the exclusion applies to Logan, it also precludes them from receiving coverage, it is difficult to imagine that a parent reasonably expects to be excluded from homeowners’ insurance coverage if his or her child, struggling with mental health issues, starts a fire in the house during an attempted suicide. In the case before us, Logan was admitted, by his parents, to The Brook Hospital less than a week prior to the events in this case because he was threatening suicide. He was discharged on September 13, 2013, just a few days later, because the Foremans’ health insurance declined to continue to pay for treatment. The events giving rise to this case occurred only a day and a half later, in the early morning hours of September 15, 2013.
I am mindful that parties to a contract should receive the contract for which they bargained. Further, insurers can write policies “to negate the collection of insurance by a co-insured.” Id. at 785. However, they can only do so to the extent permitted by statute. Our current statutory scheme protects innocent co-insureds “if the loss arose out of a pattern of domestic violence and
I see strong parallels between victims of domestic violence and parents of children who struggle with mental illness. Parents may find themselves raising children with mental illness or even developmental challenges which may render the child more likely to engage in destructive behaviors. Most parents will not abandon their child because he or she struggles with mental illness or other challenges even when those challenges may have unforeseen consequences. Encouraging parents to seek treatment, if necessary, for their children and supporting them in maintaining their family unit is sound public policy.
The facts of this case are noteworthy and compelling. Logan has struggled with mental health issues for years. His family has repeatedly and continually sought mental health treatment for him, including regular outpatient treatment with a therapist. On September 10, 2013, just five days before the fire, Logan made suicidal threats and was admitted as an inpatient to The Brook Hospital. On September 13, 2013, he was discharged from The Brook, not because he completed a specific treatment program, but because his health insurance refused to pay for inpatient treatment any longer. He was
Changes in public policy should not be made by judicial fiat. They must be determined by our legislature. That process will allow all interested in this issue to have a voice. However, I maintain it is time to enact greater protections for innocent co-insureds so that insurance coverage better aligns with the reasonable expectations of the insured.
Conley and Nickell, JJ., join.
Cyrus Gilmore Dutton, III
Cole Tanner Tomlinson
Dutton and Associates, PLLC
COUNSEL FOR APPELLEE:
Donald J. Haas
Smith & Hoskins
COUNSEL FOR AMICUS CURIAE: THE INSURANCE INSTITUTE OF KENTUCKY:
Thomas Frederick Glassman
Bonezzi Switzer Polito & Hupp CO LPA