WESTFIELD INSURANCE CO., Plaintiff-Appellant, v. TECH DRY, INC.; GAYLE WILLIAMSON, Defendants-Appellees.
No. 01-6390
United States Court of Appeals for the Sixth Circuit
Decided and Filed: July 15, 2003
2003 FED App. 0230P (6th Cir.); 03a0230p.06
Before: MOORE and GIBBONS, Circuit Judges; SCHWARZER, Senior District Judge.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. Argued: June 10, 2003. Appeal from the United States District Court for the Eastern District of Kentucky at Covington. No. 00-00186—William O. Bertelsman, District Judge.
COUNSEL
OPINION
KAREN NELSON MOORE, Circuit Judge. Plaintiff-Appellant Westfield Insurance Company (“Westfield“) appeals the district court‘s grant of summary judgment to Defendants-Appellees Tech Dry, Inc. (“Tech Dry“) and Gayle Williamson (“Williamson“). When Williamson‘s mother was murdered by a Tech Dry employee who had previously done work at her mother‘s home, Williamson filed an action against Tech Dry. She alleged that Tech Dry proximately caused the death of her mother by negligently hiring and retaining the employee who murdered her mother. Westfield has a duty to defend Tech Dry, its insured, in actions seeking damages for bodily harm if they are caused by an “occurrence.” In the present action, Westfield seeks a declaratory judgment that it is not obligated to defend Tech Dry in Williamson‘s action because Tech Dry‘s negligent hiring and retention of an employee
I. FACTS AND PROCEDURE
Fred Furnish (“Furnish“) performed work at Ramona Williamson‘s (“Ramona“) home while employed as a carpet cleaner for Tech Dry. In early June 1998, Tech Dry terminated Furnish‘s employment. Several weeks later, Furnish broke into Ramona‘s home, where he assaulted and murdered Ramona. Furnish was subsequently convicted of capital murder in Kentucky state court.
After she was named the executor of her mother‘s estate, Williamson filed a wrongful death action against Tech Dry in Kentucky state court. Williamson alleged that an employee of Tech Dry caused her mother‘s death and that Tech Dry was negligent in hiring and retaining Furnish as an employee. Jeff Cheser (“Cheser“), the Tech Dry franchise owner and manager who hired Furnish, admits that he did not perform a criminal background check on Furnish. Moreover, Cheser retained Furnish as an employee even after receiving complaints of theft from customers and learning that Furnish had stolen money from Tech Dry.
Tech Dry, Westfield‘s insured, asked Westfield to provide a defense and indemnity for the claims asserted against Tech Dry in Williamson‘s wrongful death action. The liability policy in question obligates Westfield to provide the following coverage:
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” 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. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result. . . .
* * *
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory;” and
(2) The “bodily injury” or “property damage” occurs during the policy period.
c. Damages because of “bodily injury” include damages claimed by any person or organization for care, loss of services or death resulting at any time from the “bodily injury.”
Joint Appendix (“J.A.“) at 82 (Policy). The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” J.A. at 93 (Policy). The policy excludes from coverage “‘[b]odily injury’ or ‘property damage’ expected or intended from the standpoint of the insured.” J.A. at 82 (Policy).
In response to Tech Dry‘s request for a defense and indemnity, Westfield filed the
The parties submitted a stipulation of facts and filed cross-motions for summary judgment. The district court denied Westfield‘s motion for summary judgment and granted Tech Dry‘s and Williamson‘s motions for summary judgment. Westfield timely appealed.
II. ANALYSIS
A. Standard of Review
We review the district court‘s grant of summary judgment de novo, employing the same legal standard applied by the district court. Equitable Life Assurance Soc‘y of U.S. v. Poe, 143 F.3d 1013, 1015 (6th Cir. 1998). “We also review de novo a district court‘s order denying summary judgment, if the denial is based on purely legal grounds.” Black v. Roadway Express, Inc., 297 F.3d 445, 448 (6th Cir. 2002). When a district court denies summary judgment to one party on the ground that it is granting summary judgment to another party, the denial of summary judgment is based on a legal conclusion rather than the district court‘s finding of a genuine issue of material fact. Id. Because the district court denied summary judgment for Westfield on the purely legal ground that it was granting summary judgment to Tech Dry and Williamson, we therefore review de novo both the district court‘s grant of summary judgment to Tech Dry and Williamson and the district court‘s denial of summary judgment to Westfield.
Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact.”
Because this court is sitting in diversity,1 see
B. Westfield‘s Duty to Defend and Indemnify
Tech Dry‘s policy provides that Westfield will defend Tech Dry in suits seeking damages for bodily injury or property
The interpretation of an insurance contract is a matter of law. Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, 810 (Ky. Ct. App. 2000). Under Kentucky law, a court should determine at the outset of litigation whether an insurance company has a duty to defend its insured by comparing the allegations in the underlying complaint with the terms of the insurance policy. DiBeneditto v. Med. Protective Co., 3 Fed. Appx. 483, 485 (6th Cir. 2001). An insurance company has a duty to defend its insured if the language of an underlying complaint against the insured brings the action within the scope of the insurance contract. Id.
1. Ambiguity
As an initial matter, we must determine whether the policy terms “occurrence” and “accident” are ambiguous. The district court reasoned that “the word ‘accident’ . . . . is inherently ambiguous.” J.A. at 17 (Op. & Order) (noting that Black‘s Law Dictionary gives more than twenty meanings for the word). However, the district court also noted that “[i]f used in an insurance contract, the ordinary meaning of the term is ‘an event which . . . is unusual and not expected by the person to whom it happens.‘” J.A. at 18 (Op. & Order) (quoting Black‘s Law Dictionary (5th ed. 1979)) (emphasis omitted).
Where policy terms are not ambiguous, “the ordinary meaning of the words chosen by the insurer is to be followed.” James Graham Brown Found. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991). In other words, “the terms should be interpreted in light of the usage and understanding of the average person.” Stone, 34 S.W.3d at 811 (citing Fryman v. Pilot Life Ins. Co., 704 S.W.2d 205 (Ky. 1986)).
The Kentucky Supreme Court has addressed the significance of the word “accident” in insurance policies, although in a slightly different context:
The words “accident“, “accidental“, and “accidental means“, as used in insurance policies, have never acquired a technical meaning in law, and must be interpreted according to the usage of the average man and as they would be read and understood by him in the light of the prevailing rule that uncertainties and ambiguities must be resolved in favor of the insured. An accident is generally understood as an unfortunate consequence which befalls an actor through his inattention, carelessness or perhaps for no explicable reason at all. The result is not a product of desire and is perforce accidental. Conversely, a consequence which is a result of plan, design or intent is commonly understood as not accidental.
Fryman, 704 S.W.2d at 206 (citation omitted); see Stone, 34 S.W.3d at 811 (“In the context of an insurance policy, the word ‘accident’ should be interpreted in accordance with its common usage.“). The Kentucky Supreme Court subsequently
The Kentucky Court of Appeals has relied on Fryman‘s articulation of the average man‘s understanding of “accident” to analyze the definition of “occurrence” that is at issue in this case. Interpreting the “occurrence” term of a different policy, the Kentucky Court of Appeals concluded that although the policy did not define “accident,” it should be read “according to the usage of the average person,” as explained in Fryman. Thompson v. W. Am. Ins. Co., 839 S.W.2d 579, 580 (Ky. Ct. App. 1992). The Kentucky Court of Appeals also cited Fryman when interpreting a similar policy provision in Stone, explaining that, “according to its plain meaning, an ‘accident’ denotes something that does not result from a plan, design, or an intent on the part of the insured.” Stone, 34 S.W.3d at 812.
In light of the Kentucky Supreme Court‘s analysis of “accident” in Fryman and the Kentucky Court of Appeals‘s subsequent reliance on Fryman when interpreting the “occurrence” terms of insurance policies, we conclude that these terms were not ambiguous in the policy in question.
2. The Conduct at Issue
Because the term “occurrence” is not ambiguous, we must determine whether the “occurrence” causing Ramona‘s injuries and death was covered by the policy. To do so, we must identify the “occurrence” at issue. See Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d 1291, 1295 (10th Cir. 1996) (“Before we apply the policy‘s definition of ‘occurrence,’ we must first decide what event or events in the causal chain leading to [the injury] should be the focus of our inquiry.“). Williamson‘s complaint in the underlying wrongful death action alleges that Tech Dry‘s negligence was the proximate cause of Ramona‘s wrongful death and Westfield does not dispute it. Our inquiry will therefore focus on whether Tech Dry‘s allegedly negligent decision to hire and retain an employee is a qualifying “occurrence” under the policy.2
The issue of whether negligent hiring and retention of an employee can constitute an “occurrence” in the context of a general liability policy is a matter of first impression in Kentucky. Therefore, we must predict how the Kentucky Supreme Court would resolve this issue. Stalbosky, 205 F.2d at 893-94. Other courts have reached differing conclusions about whether negligent hiring constitutes an accident and, more specifically, about whether negligent hiring claims are covered “where the person hired or supervised has committed an intentional tort.”3 7 Couch on Insurance 3d § 103:31, at 103-74 (1997).
Other courts have reached the opposite conclusion, assuming that negligence is inherently not intentional. See United Fire & Cas. Co. v. Shelly Funeral Home, 642 N.W.2d 648, 654 (Iowa 2002) (listing cases in which “other courts faced with similar facts and the identical ‘occurrence’ and intentional act provisions before us have found coverage for negligent hiring and supervision“); Silverball Amusement, Inc. v. Utah Home Fire Ins. Co., 842 F. Supp. 1151, 1165 (W.D. Ark. 1994) (“[A]n insurer must provide coverage and a legal defense to an insured where a complaint alleges that an employer was negligent in hiring and supervision of an employee who subsequently committed an intentional tort. An insurance policy would require an exceedingly precise exclusionary clause to avoid that fundamental principle, and there is no such clause in the instant case. . . . The policy covers negligent acts.“), aff‘d, 33 F.3d 1476 (8th Cir. 1994).
These courts caution against confusing the evaluation of an employee‘s intentional conduct and the employer‘s negligent conduct. For example, one court reasoned,
In refusing to separate the employer‘s alleged negligence from the employee‘s intentional conduct, . . . courts impermissibly ignored the employer‘s independent acts which gave rise to the alleged tort. Consequently, in holding that the employee‘s intentional conduct places the insured‘s negligence outside the definition of “occurrence,” . . . courts read the exclusion too broadly.
U.S. Fid. & Guar. Co. v. Open Sesame Child Care Ctr., 819 F. Supp. 756, 760 (N.D. Ill. 1993).4 When courts deny coverage
In analyzing whether Tech Dry‘s conduct was an “occurrence,” we note the Kentucky Supreme Court‘s recognition that “[c]ourts and commentators alike are in agreement that the term ‘occurrence’ is to be broadly and liberally construed in favor of extending coverage to the insured.” Brown Found., 814 S.W.2d at 278; see Thompson, 839 S.W.2d at 580 (“Our Supreme Court has pronounced that ‘occurrence’ is to be given broad and liberal construction in favor of extending coverage.“). However, “[w]e must give the policy its plain meaning and are constrained from enlarging the risks contrary to the natural and obvious meaning of the insurance contract.” Walker v. Econ. Preferred Ins. Co., 909 S.W.2d 343, 346-47 (Ky. Ct. App. 1995).
Under Kentucky law, even if Tech Dry‘s conduct in hiring and retaining Furnish was intentional and the injury to Ramona was foreseeable, the policy in question nevertheless provides coverage to Tech Dry as long as “the injury was not actually and subjectively intended.” Thompson, 839 S.W.2d at 580. An insurer cannot deny coverage on grounds that conduct was intentional rather than accidental if the insured did not possess the requisite intent to do injury. Brown Found., 814 S.W.2d at 277. Kentucky courts will infer intent to injure from “inherently injurious” acts, such as sexual molestation, Thompson, 839 S.W.2d at 581, or punching someone in the face, Walker, 909 S.W.2d at 345. But conduct is not considered inherently injurious unless it is “substantially certain to result in some injury.” Thompson, 839 S.W.2d at 581. By nature, negligently hiring and retaining an employee is not substantially certain to result in some injury and therefore is not inherently injurious.
We therefore conclude that the Kentucky Supreme Court would hold that Tech Dry is entitled to coverage because Tech Dry‘s negligent hiring and retention of Furnish constitutes an “accident,” and therefore an “occurrence,” under the terms of the governing policy.
III. CONCLUSION
For the reasons explained above, we AFFIRM the district court‘s grant of summary judgment for Tech Dry and Williamson. Although the district court erred by concluding that the insurance policy was ambiguous, Tech Dry‘s negligent hiring and retention of Furnish nevertheless constitutes an “occurrence” under the policy.