Case Information

FIRST MERCURY INSURANCE COMPANY, INC., Defendant Below, Petitioner v. Jeffrey RUSSELL and Anita Russell, Plaintiffs Below, Respondents, and Kimes Steel, Inc., Defendant Below, Respondent

No. 16-0596

Supreme Court of Appeals of West Virginia

October 19, 2017

806 S.E.2d 429

Submitted: September 12, 2017

... phin, 195 W.Va. 551, 563, 466 S.E.2d 402, 414 (1995) ("[W]e have repeatedly recognized that when codified procedural rules ... of West Virginia are patterned after the corresponding federal rules, federal decisions interpreting those rules are persuasive guides in the interpretation of our rules." (citations omitted)). Consequently, we hold that a circuit court does not have jurisdiction to rule upon the merits of a motion for reduction of a sentence under Rule 35(b) of the West Virginia Rules of Criminal Procedure when the motion is filed outside the 120-day filing period set out under that rule.

In the instant proceeding, the record shows that Mr. McFarland's petition for appeal of his original sentencing order was refused by this Court on January 28, 2010. Under the terms of Rule 35(b), Mr. McFarland had 120 days from the date of the denial of his petition for appeal to file a motion for reduction of his sentence. However, the Rule 35(b) motion that Mr. McFarland relied upon to obtain relief was filed on December 17, 2014, nearly four years after his petition for appeal was denied. This motion clearly was untimely. Therefore, the circuit court was without jurisdiction to rule on the merits of the motion. Consequently, prohibition is appropriate to prevent enforcement of the circuit court's order reducing Mr. McFarland's original sentence.

IV. CONCLUSION

The petition for a writ of prohibition in case No. 17-0275 is granted. The circuit court is prohibited from enforcing its order reducing the criminal sentence of Mr. Wilkerson. This case is remanded for the circuit court to give the State notice of a hearing and an opportunity to be heard on the motion to correct Mr. Wilkerson's sentence. In case No. 17-0214, the petition for a writ of prohibition is granted. The circuit court is prohibited from enforcing its order reducing the criminal sentence of Mr. McFarland. Finally, this case is remanded with instructions to dismiss Mr. McFarland's Rule 35(b) motion as untimely filed.

Writs granted.

Don C. A. Parker, Charity K. Lawrence, Spilman Thomas & Battle, PLLC, Charleston, West Virginia, Attorneys for the Petitioner, First Mercury Insurance Company

Brent K. Kesner, Ernest G. Hentschel, II, Kesner & Kesner, PLLC, Charleston, West Virginia, Attorneys for the Respondents, Jeffrey and Anita Russell, Kevin A. Nelson, Ashley W. French, Dinsmore & Shohl, LLP, Charleston, West Virginia, Attorneys for the Respondent, Kimes Steel, Inc.

Davis, Justice:

This appeal was brought by the Petitioner, First Mercury Insurance Company, Inc. ("First Mercury"), defendant below, from an order of the Circuit Court of Mason County that denied First Mercury's motion for partial summary judgment and, in turn, granted partial summary judgment as to coverage to Respondents Jeffrey Russell and Anita Russell ("Mr. Russell" or "the Russells"), plaintiffs below, and Respondent Kimes Steel, Inc. ("Kimes Steel"), defendant below. The dispositive issue herein is whether coverage exists for a statutory deliberate intent action when the employer's commercial general liability policy is amended by an endorsement that includes a "Stop Gap—Employers Liability Coverage Endorsement—West Virginia" that expressly provides coverage for bodily injury to employees, as well as an exclusion for statutory deliberate intent claims. After careful review of the circuit court's order, the briefs, the record submitted on appeal, and the oral arguments of the parties, we find the policy at issue in this case to be internally inconsistent and therefore ambiguous. Accordingly, we interpret the policy in favor of the insured and affirm the circuit court's partial summary judgment rulings.

I. FACTUAL AND PROCEDURAL HISTORY

In 2012, Kimes Steel sought to purchase various types of insurance coverage in order to meet the insurance requirements for a potential client contract with James River Coal. Specifically, among other things, James River Coal required $1,000,000.00 of coverage for commercial general liability ("CGL") (combined single limit) and employer's liability (per accident), and $5,000,000.00 of excess liability coverage. Mr. Shannon Kimes, the principal of Kimes Steel, worked with an independent insurance agent who solicited quotes for the required insurance coverage based upon a list provided by James River Coal.1 Ultimately, First Mercury, a surplus

lines carrier,2 responded to the solicitation by submitting a bid to provide the coverage required by James River Coal.

Thereafter, Kimes Steel purchased two insurance policies from First Mercury. The first policy purchased from First Mercury provides primary CGL coverage. The second policy purchased provides excess coverage. The First Mercury CGL policy contains a standard exclusion for employer's liability for injuries to employees. However, the standard exclusion is modified by an endorsement identified as "Stop Gap—Employers Liability Coverage Endorsement—West Virginia" ("Stop Gap").3 The First Mercury excess policy includes a standard "follow form" provision, which incorporates the terms of the underlying policy.

The two First Mercury policies were in place when Mr. Russell was involved in a workplace accident at Kimes Steel on May 3, 2013. The accident resulted in severe injuries to Mr. Russell's dominant hand and the amputation of a finger. On February 4, 2014, the Russells filed their complaint alleging that Kimes Steel acted with "deliberate intention" as defined in W. Va. Code § 23-4-2 (2005) (Repl. Vol. 2010).4 The Russells alleged that Kimes Steel required its employee, Jeffrey Russell, to perform his job duties without required safety equipment, instructions, and precautions for working with table saws, and subjected him to a specific unsafe working condition that presented a high degree of risk and strong probability of serious injury or death.

First Mercury issued a denial of coverage letter to Kimes Steel on May 5, 2014. The letter informed Kimes Steel that First Mercury would "not provide ... a legal defense to the lawsuit, nor [would] it indemnify Kimes Steel as to any damages for which Kimes Steel may be liable to Jeffrey or Anita Russell." First Mercury also filed a declaratory judgment action in the United States District Court for the Southern District of West Virginia seeking a declaration that the policies provide no coverage for the Russells' claims. The declaratory judgment action was dismissed by the district court. Thereafter, in June 2014, the Russells amended their complaint by adding a declaratory judgment claim against First Mercury alleging that First Mercury is obligated to provide a defense and indemnification to Kimes Steel under the subject insurance policies. In October 2014, Kimes Steel filed a cross-claim against First Mercury asserting breach of contract and bad faith arising from First Mercury's denial of coverage to Kimes Steel with respect to the Russells' claims.

On March 18, 2015, the circuit court entered an agreed order vacating a previously entered scheduling order and staying discovery of the underlying Russell tort claim allegations pending resolution of the coverage issues. Subsequently, First Mercury moved for partial summary judgment on the coverage issues. Kimes Steel and the Russells responded by also filing separate motions for partial summary judgment as to the coverage issues.

Following briefing and arguments, the circuit court entered its May 18, 2016, "Order Denying Defendant First Mercury Insurance Company's Motion for Partial Summary Judgment and Granting Plaintiffs' Cross-Motion and Defendant Kimes Steel's Motion for Partial Summary Judgment on Coverage Is-

sues." The circuit court's order can be sum-marized as finding coverage based upon its conclusion that the Stop Gap endorsement language is ambiguous with respect to cover-ing the Russells' deliberate intent action. Ad-ditionally, the circuit court concluded that Kimes Steel had a reasonable expectation of coverage for the Russells' claims, that the policy language rendered the stop gap cover-age illusory, that First Mercury was es-topped from denying coverage, and, further, that First Mercury owed a duty to defend Kimes Steel. It is from this order that First Mercury now appeals.

II. STANDARD OF REVIEW

First Mercury appeals the order of the circuit court granting partial summary judgment in favor of the Russells and Kimes Steel and denying First Mercury's motion for partial summary judgment. It is well settled that "[a] circuit court's entry of summary judgment is reviewed de novo." Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994). In undertaking our de novo review, we apply the same standard for grant-ing summary judgment that is applied by the circuit court:

"A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963)." Syllabus Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).

Syl. pt. 2, Painter, 192 W. Va. 189, 451 S.E.2d 755.

Additionally, it is well recognized that "[t]he interpretation of an insurance contract, including the question of whether the con-tract is ambiguous, is a legal determination that, like a lower court's grant of summary judgment, shall be reviewed de novo on ap-peal." Syl. pt. 2, Riffe v. Home Finders As-socs. Inc., 205 W. Va. 216, 517 S.E.2d 313 (1999). Mindful of the de novo standard gov-erning our review, we proceed to consider the substantive issues raised.

III. DISCUSSION

First Mercury advances four assignments of error challenging the circuit court's con-clusion that the Stop Gap endorsement and related exclusion were ambiguous. On the other hand, the Russells and Kimes Steel assert that the circuit court properly found First Mercury's policy to be inherently am-biguous. Accordingly, this appeal is resolved by considering the policy language.5

The First Mercury CGL policy issued to Kimes Steel contains a typical insuring agreement accompanied by an exclusion of coverage for bodily injury to an employee.6 Neither of these provisions is disputed in this appeal. This case turns on a stop gap en-dorsement appended to the CGL policy and titled "Stop Gap—Employers Liability Cov-erage Endorsement—West Virginia." The Stop Gap endorsement modifies the exclusion of bodily injury coverage to an employee that is contained in the First Mercury CGL poli-cy. The Stop Gap endorsement provides, in relevant part:

A. The following is added to Section I—Coverages:

COVERAGE—STOP GAP—EMPLOYERS LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated by West Virginia Law to pay as damages because of "bodily injury by accident" or "bodily injury by disease" to your "employee" to which this insurance applies....

To put into perspective the Stop Gap endorsement set out above, it is important to first understand the meaning this Court has ascribed to the term "stop gap" cover-age. This Court addressed that term in Erie Insurance Property & Casualty Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 553 S.E.2d 257 (2001), wherein the Court ob-served that, "[i]n many states, insurance companies offer businesses three types of insurance coverage: commercial general lia-bility coverage; workers' compensation cov-erage; and 'stop gap' employers' liability coverage." Id. at 67, 553 S.E.2d at 261. In explaining the three coverage types, the Court noted that a CGL policy protects a business against a variety of liability claims but typically does not provide coverage for employee bodily injury arising out of em-ployment. Id. As to workers' compensation coverage, the Court observed that "[w]ork-ers' compensation coverage is designed to release both an employer and its employees from common-law rules of liability and dam-age, protect an employer from expensive and unpredictable litigation, and provide compensation for injuries to employees with-out the burdensome requirements of proving common-law negligence." Id. at 68, 553 S.E.2d at 262 (citing Jones v. Laird Found., Inc., 156 W. Va. 479, 489, 195 S.E.2d 821, 827 (1973) (Sprouse, J., concurring)). Finally, the Court in Stage Show Pizza recognized that "[b]etween these two types of protec-tion lies a 'gap' in coverage. In this gap are claims made against a business by injured employees whose claims are not generally compensable under the workers' compensa-tion system." Id. at 68, 553 S.E.2d at 262. Significantly, the Court described em-ployers' liability stop gap coverage as the gap filler intended for the purpose of provid-ing coverage for employers when employees are able to bring an action for injury despite workers' compensation immunity. Id. Perti-nent to the instant case, the Court expressly held:

Employers' liability insurance applies to actions brought by an employee against an employer, when the employer and the em-ployee are not entitled to the benefits and protections under any workers' compensa-tion law, or when, even though covered by a workers' compensation law, the employee has a right to bring an action for common law damages against the employer.

Syl. pt. 3, Stage Show Pizza, 210 W. Va. 63, 553 S.E.2d 257. See also Luikart v. Valley Brook Concrete & Supply, Inc., 216 W. Va. 748, 754, 613 S.E.2d 896, 902 (2005) (per curiam) (recognizing "stop gap employers' liability policy exists to cover 'claims made against a business by injured employees whose claims are not generally compensable under the workers' compensation system'" (quoting Stage Show Pizza, 210 W. Va. at 68, 553 S.E.2d at 262)).

With this understanding of the mean-ing of stop gap coverage, we consider the language of the First Mercury Stop Gap endorsement. We first note that the coverage endorsement, which undisputedly modifies the insuring agreement in the First Mercury CGL policy, expressly utilizes the term "Stop Gap" in its heading: "Coverage—Stop Gap—Employers Liability." Pursuant to West Vir-ginia law as described above, the utilization of the term "Stop Gap" in this heading plain-ly indicates that the policy provides Kimes Steel with coverage for a deliberate intent action brought by an employee. However, the language that follows attempts to limit cover-age to "'bodily injury by accident' or 'bodily injury by disease' to your 'employee' to which this insurance applies...." (Emphasis add-ed). Thus, the more prominently displayed

heading to this provision conveys a clear, yet different, message than the policy language that follows.

The heading indicates that the policy provides stop gap coverage, which, under West Virginia law, plainly means coverage for "claims made against a business by in-jured employees whose claims are not gener-ally compensable under the workers' com-pensation system." Stage Show Pizza, 210 W. Va. at 68, 553 S.E.2d at 262. Nevertheless, the policy language purports to limit employ-ee claims to only those arising "by accident" or "disease." Under these circumstances, we find this portion of the Stop Gap endorse-ment to be ambiguous. Accordingly, this pro-vision must be interpreted in favor of Kimes Steel, and we find that it provides coverage for the Russells' deliberate intent claims. "It is well settled law in West Virginia that ambiguous terms in insurance contracts are to be strictly construed against the insurance company and in favor of the insured." Syl. pt. 4, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488 (1987), overruled on other grounds by Parsons v. Halliburton Energy Servs., Inc., 237 W. Va. 138, 785 S.E.2d 844 (2016). Accord Riffe v. Home Finders Assocs., Inc., 205 W. Va. 216, 221, 517 S.E.2d 313, 318 (1999). However, our analysis does not end here.

The Stop Gap endorsement in the First Mercury policy also contains its own exclu-sionary language providing, in relevant part in Exclusion 1, as follows:

2. Exclusions

This insurance does not apply to:

l. West Virginia Workers Compensa-tion Law, Sect. 23-4-2

"Bodily injury by accident" or "bodily injury by disease" caused by any ac-tion determined to be of deliberate intention as specified under West Vir-ginia Workers Compensation Law, Sect. 23-4-2.

As First Mercury correctly notes, the case of West Virginia Employers' Mutual Insur-ance Co. v. Summit Point Raceway Associ-ates, Inc., 228 W. Va. 360, 719 S.E.2d 830 (2011), is directly on point with a similar exclusion and unquestionably controls our analysis of this language. In Summit Point, this Court considered the following exclu-sionary language:

C. Exclusions

This insurance does not cover

5. Bodily injury caused by your inten-tional, malicious or deliberate act, whether or not the act was intended to cause injury to the employee injured, or whether or not you had actual knowl-edge that an injury was certain to occur, or any bodily injury for which you are liable arising out of West Virginia Anno-tated Code § 23-4-2.

Id., 228 W. Va. at 372, 719 S.E.2d at 842. The Summit Point Court first acknowledged West Virginia law pertaining to exclusionary clauses. In this regard, it has been estab-lished that

[a]n insurer wishing to avoid liability on a policy purporting to give general or com-prehensive coverage must make exclusion-ary clauses conspicuous, plain, and clear, placing them in such a fashion as to make obvious their relationship to other policy terms, and must bring such provisions to the attention of the insured.

Syl. pt. 6, id. (internal quotations and cita-tions omitted). With respect to the exclu-sionary language at issue therein, the Court in Summit Point then concluded that the exclusion was conspicuous, plain, clear, and obvious in excluding coverage for deliber-ate intent actions. By stating that the in-surance did not cover "any bodily injury for which you are liable arising out of West Virginia Annotated Code § 23-4-2," it is clear that there was no coverage for delib-erate intent liability.... 228 W. Va. at 373, 719 S.E.2d at 843. Our examination of the similarly worded language used in First Mercury's exclusion compels the same conclusion. The language used in First Mercury's Exclusion 1, which expressly excludes coverage for "any action determined to be of deliberate intention as specified un-der West Virginia Workers Compensation Law, Sect. 23-4-2," is "plain, clear, and obvi-ous in excluding coverage for deliberate in-tent actions." Summit Point, 228 W. Va. at 373, 719 S.E.2d at 843.

Thus, our analysis of the First Mercury policy issued to Kimes Steel reveals that it contains a Stop Gap endorsement that provides coverage for deliberate intent ac-tions, and an accompanying plain and clear exclusion denying the very same coverage. The inclusion of both the Stop Gap endorse-ment and Exclusion l in the First Mercury policy creates an additional ambiguity.7 As noted above, "ambiguous terms in insurance contracts are to be strictly construed against the insurance company and in favor of the insured." Syl. pt. 4, in part, McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488. Indeed, in McMahon & Sons, we concluded that "[w]here ambiguous policy provisions would largely nullify the purpose of indemni-fying the insured, the application of those provisions will be severely restricted." Syl. pt. 9, id. Moreover, this Court specifically held that "[w]here the policy language in-volved is exclusionary, it will be strictly con-strued against the insurer in order that the purpose of providing indemnity not be de-feated." Syl. pt. 5, id. This circumstance com-pels the conclusion that the exclusionary lan-guage is inherently inconsistent with the Stop Gap endorsement providing coverage such that it nullifies the purpose of the policy endorsement and operates so as to defeat indemnification. See, e.g., Cramer v. National Cas. Co., 690 Fed.Appx. 135, 138 (4th Cir. 2017) ("[A]mbiguous or conflicting terms in an insurance policy must be construed lib-erally in favor of the insured and strictly against the insurer." (internal quotations and citation omitted)); Diamond State Ins. Co. v. Homestead Indus., Inc., 318 S.C. 231, 236, 456 S.E.2d 912, 915 (1995) (same).

By purporting to exclude deliberate intent actions from the Stop Gap endorsement, the First Mercury policy largely nullifies the purpose of the coverage, which is to fill the gap in the CGL policy and provide protection for employees' bodily injury claims. Such am-biguous policy language must be construed against the insurance company and in favor of the insured so as to support the purpose of indemnity. Syl. pts. 4 & 9, McMahon & Sons, Inc., 177 W. Va. 734, 356 S.E.2d 488. Thus, we find that the First Mercury explicitly titled Stop Gap endorsement operates to pro-vide coverage for the deliberate intent claims of the Russells against Kimes Steel, and the conflicting exclusion may not be enforced.8

IV. CONCLUSION

For the reasons stated, we affirm the cir-cuit court's "Order Denying Defendant First Mercury Insurance Company's Motion for Partial Summary Judgment and Granting Plaintiffs' Cross-Motion, and Defendant Kimes Steel's Motion for Partial Summary Judgment on Coverage Issues."

Affirmed.

Footnotes

1 James River Coal also required workers' compensation coverage. Kimes Steel previously maintained a basic workers' compensation and employer's liability insurance policy with BrickStreet Mutual Insurance Company ("BrickStreet"). In order to comply with James River Coal's liability requirements as to workers' compensation, Kimes Steel increased its limits of liability with BrickStreet.

2 A surplus lines carrier is an insurance company that is not admitted or not licensed to engage in insurance business in West Virginia. See W. Va. Code §§ 33-12C-3(e), (p), and (w) (2011) (Repl. Vol. 2017).

3 In fact, the Kimes Steel application for the CGL policy specifically requested stop gap coverage.

4 Pursuant to W. Va. Code § 23-4-2(c) (2005) (Repl. Vol. 2010), a cause of action may be had against an employer "[i]f injury or death result to any employee from the deliberate intention of his or her employer to produce the injury or death...." The statutory elements required to prevail in a claim for deliberate intent are set out in W. Va. Code § 23-4-2(d)(2)(ii). This statute was amended effective June 12, 2015. Thus, we cite to the statute in effect at the time of Mr. Russell's injury in 2013.

5 First Mercury raises additional assignments challenging the circuit court's rulings pertaining to the doctrine of reasonable expectations, illuso-ry coverage, estoppel, and First Mercury's duty to defend. Because this appeal is resolved by the policy language, it is unnecessary to address these issues. See infra note 8.

6 "Section I" of the First Mercury CGL policy, under the heading "Coverage A Bodily Injury and Property Damage Liability," provides:

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property dam-age" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.

However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply....

The policy goes on to set out the following exclu-sion:

2. Exclusions

This insurance does not apply to:

e. Employer's Liability

"Bodily injury" to:

(1) An "employee" of the insured arising out of and in the course of:

(a) Employment by the insured; or

(b) Performing duties related to the conduct of the insured's business[.]

7 Thus, this case differs substantially from Summit Point to the extent that there was no ambigu-ity in the Summit Point policy. See West Virginia Emp'rs' Mut. Ins. Co. v. Summit Point Raceway Assocs., Inc., 228 W. Va. 360, 372, 719 S.E.2d 830, 842 (2011) ("Nothing in the plain language quoted above leads to a reasonable conclusion that deliberate intent coverage is included in this policy."). Furthermore, the language of the poli-cy in Summit Point did not include any reference to stop gap coverage. It was made clear that the employer in Summit Point did not pay a premi-um to obtain deliberate intent coverage and, therefore, did not have such coverage. Id. at 371 n.14, 719 S.E.2d at 841 n.14 (stating "[i]t is undisputed that Summit Point did not have [de-liberate intent] coverage, and Summit Point nev-er paid any premiums to obtain such coverage" (emphasis added)).

Here, Kimes Steel sought coverage through an agent; First Mercury made an offer of CGL cov-erage with a Stop Gap endorsement; an applica-tion specifying stop gap coverage was completed; Kimes Steel paid the premium; and First Mercu-ry accepted the premium. Thus, it is clear from the parties' own actions that the terms of the policy were conflicting and ambiguous.

8 Because our analysis of the policy language compels us to affirm the circuit court's finding of coverage, it is unnecessary for us to address First Mercury's challenges to the circuit court's find-ings as to Kimes Steel's reasonable expectations of coverage, illusory coverage, or estoppel. Addi-tionally, because we have found the subject poli-cy provides coverage, there necessarily is a duty to defend on the part of First Mercury. See State ex rel. Nationwide Mut. Ins. Co. v. Wilson, 236 W. Va. 228, 234, 778 S.E.2d 677, 683 (2015) ("[A]n insurer's duty to indemnify its insured under a CGL policy is narrower than its duty to provide a defense.").