Everest Indemnity Insurance Company v. Jake's Fireworks, Inc. et al

Filing 117

MEMORANDUM AND ORDER granting 19 Motion for Summary Judgment by Plaintiff Everest Indemnity Insurance Company; granting 87 Motion for Summary Judgment by Intervenor Plaintiff James River Insurance Company, Counter Defendant James River Insuranc e Company; granting 92 Motion for Summary Judgment by Intervenor Plaintiff Maxum Indemnity Company; denying 90 Motion for Summary Judgment by Defendant Jake's Fireworks, Inc.; denying 95 Motion for Summary Judgment by Defendant Howard O . Harper. It is further ordered denying as moot 94 Motion for Leave to File Sur-reply; denying as moot 100 Objection to Order of Magistrate Judge. See order for further details. Signed by Chief District Judge Julie A. Robinson on 11/19/2020. (hw)

Case 2:19-cv-02620-JAR-ADM Document 117 Filed 11/19/20 Page 1 of 50

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
EVEREST INDEMNITY INSURANCE
COMPANY,
Plaintiff,
Case No. 19-CV-2620-JAR-ADM
v.
JAKE’S FIREWORKS, INC. and
HOWARD O. HARPER,
Defendants.
MAXUM INDEMNITY COMPANY and
JAMES RIVER INSURANCE COMPANY,
Intervenor Plaintiffs,
v.
JAKE’S FIREWORKS, INC. and
HOWARD O. HARPER,
Defendants.

MEMORANDUM AND ORDER
This matter concerns whether Defendant Jake’s Fireworks, Inc. (“Jake’s”) has insurance
coverage for a state court lawsuit arising from a tragic accident on August 12, 2014, in which
Defendant Howard Harper (“Harper”) was grievously injured. Plaintiff Everest Indemnity
Insurance Company (“Everest”) filed this action seeking a declaratory judgment, pursuant to 28
U.S.C. § 2201 and Fed. R. Civ. P. 56, that a commercial general-liability insurance policy it
issued to Jake’s, Lone Star Management, LLC (“Lone Star”), and other entities does not provide
liability coverage for Harper’s bodily injury claim and lawsuit filed against Jake’s in the District
Court of Crawford County, Kansas. Excess insurers Maxum Indemnity Company (“Maxum”)
and James River Insurance Company (“James River”) were granted leave to intervene in this

Case 2:19-cv-02620-JAR-ADM Document 117 Filed 11/19/20 Page 2 of 50

action and also seek declaratory judgment that they are not liable under commercial excess
liability policies issued to Jake’s.
This case is now before the Court on Everest’s Motion for Summary Judgment (Doc. 19),
James River’s Motion for Summary Judgment (Doc. 87), Jake’s Motion for Summary Judgment
(Doc. 90), Maxum’s Motion for Summary Judgment (Doc. 92), Harper’s Motion for Summary
Judgment (Doc. 95), Jake’s Motion for Leave to File a Sur-Reply to Plaintiff Everest Indemnity
Company’s Reply in Support of its Motion for Summary Judgment (Doc. 94), and Jake’s
Objections to the Magistrate Judge’s Order Denying Jake’s Motion for Leave to Amend its
Currently Pending Amended Answer and Counter-Claim to Plaintiff Everest’s Complaint for
Declaratory Judgment and Motion for Leave to Amend its Amended Answer and Counter-Claim
to Intervenor Plaintiff Maxum Indemnity Company’s Complaint for Declaratory Judgment (Doc.
100). The motions are fully briefed, and the Court is prepared to rule. For the reasons explained
in detail below, Everest’s, Maxum’s, and James River’s motions for summary judgment are
granted, Jake’s and Harper’s motions for summary judgment are denied, and judgment is entered
in favor of the insurers. Jake’s motion for leave to file a sur-reply and objections the magistrate
judge’s order are denied as moot.
I.

Summary Judgment Standard
Summary judgment is appropriate if the moving party demonstrates “that there is no

genuine dispute as to any material fact” and that it is “entitled to judgment as a matter of law.”1
In applying this standard, the Court views the evidence and all reasonable inferences therefrom
in the light most favorable to the nonmoving party.2 “There is no genuine [dispute] of material

1

Fed. R. Civ. P. 56(a).

2
City of Herriman v. Bell, 590 F.3d 1176, 1181 (10th Cir. 2010) (citing Somoza v. Univ. of Denver, 513
F.3d 1206, 1210 (10th Cir. 2008)).

2

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fact unless the evidence, construed in the light most favorable to the non-moving party, is such
that a reasonable jury could return a verdict for the non-moving party.”3 A fact is “material” if,
under the applicable substantive law, it is “essential to the proper disposition of the claim.”4 A
dispute of fact is “genuine” if “there is sufficient evidence on each side so that a rational trier of
fact could resolve the issue either way.”5
The moving party initially must show the absence of a genuine dispute of material fact
and entitlement to judgment as a matter of law.6 To prevail on a motion for summary judgment
on a claim upon which the moving party also bears the burden of proof at trial, the moving party
must demonstrate that “no reasonable trier of fact could find other than for the moving party.”7
A movant who does not bear the ultimate burden of persuasion at trial need not negate the
nonmovant’s claim; rather, the movant need simply “point[] out to the court a lack of evidence
for the nonmovant on an essential element of the nonmovant’s claim.”8
Once the movant has met its initial burden of showing the absence of a genuine dispute of
material fact, the burden shifts to the nonmoving party to “set forth specific facts showing that
there is a genuine issue for trial.”9 The nonmoving party may not simply rest upon its pleadings

3

Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248, 255 (1986)).
4

Wright ex rel. Tr. Co. of Kan. v. Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001) (citing Adler
v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998)).
5

Adler, 144 F.3d at 670 (citing Anderson, 477 U.S. at 248).

6

Spaulding v. United Transp. Union, 279 F.3d 901, 904 (10th Cir. 2002) (citing Celotex Corp. v. Catrett,
477 U.S. 317, 322–23 (1986)).
7

Leone v. Owsley, 810 F.3d 1149, 1153 (10th Cir. 2015) (emphasis omitted) (collecting cases).

8

Adams v. Am. Guar. & Liab. Ins. Co., 233 F.3d 1242, 1246 (10th Cir. 2000) (quoting Adler, 144 F.3d at
671); see also Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010).
9
Anderson, 477 U.S. at 256; Celotex, 477 U.S. at 324; Spaulding, 279 F.3d at 904 (quoting Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

3

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to satisfy its burden.10 Rather, the nonmoving party must “set forth specific facts that would be
admissible in evidence in the event of trial from which a rational trier of fact could find for the
nonmovant.”11 In setting forth these specific facts, the nonmovant must identify the facts “by
reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.”12 If
controverted, the facts are construed in the light most favorable to the non-movant.13 However,
to successfully oppose summary judgment, the nonmovant must bring forward “more than a
mere scintilla of evidence” in support of his position.14 A nonmovant “cannot create a genuine
issue of material fact with unsupported, conclusory allegations.”15 “Where, as here, the parties
file cross-motions for summary judgment, [the court is] entitled to assume that no evidence
needs to be considered other than that filed by the parties, but summary judgment is nevertheless
inappropriate if disputes remain as to material facts.”16
Finally, summary judgment is not a “disfavored procedural shortcut”; on the contrary, it
is an important procedure “designed to secure the just, speedy and inexpensive determination of
every action.”17

10

Anderson, 477 U.S. at 256; accord Eck v. Parke, Davis & Co., 256 F.3d 1013, 1017 (10th Cir. 2001).

11

Mitchell v. City of Moore, Okla., 218 F.3d 1190, 1197–98 (10th Cir. 2000) (quoting Adler, 144 F.3d at
670–71); see also Kannady, 590 F.3d at 1169.
12

Adler, 144 F.3d at 671 (citing Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th
Cir. 1992)).
13

Frank v. U.S. W., Inc., 3 F.3d 1357, 1361 (10th Cir. 1993) (citing Anderson, 477 U.S. at 255).

14

Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir. 1993).

15

Tapia v. City of Albuquerque, 170 F. App’x 529, 533 (10th Cir. 2006) (citing Annett v. Univ. of Kan., 371
F.3d 1233, 1237 (10th Cir. 2004)).
16

James Barlow Family Ltd. P’ship v. David M Munson, Inc., 132 F.3d 1316, 1319 (10th Cir. 1997)
(citation omitted).
17

Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).

4

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II.

Uncontroverted Facts
Guided by the foregoing framework, the Court turns to the parties’ statements of fact,

keeping in mind that factual disputes about immaterial matters are not relevant to a summary
judgment determination; rather, immaterial facts and factual averments not supported by the
record are omitted.18
A.

Relationship Between Jake’s, Lone Star, and Harper

Jake’s and multiple other businesses, including Lone Star and Firework’s Leasing, LLC
(“Fireworks Leasing”), are owned and controlled by the Marietta Family. Jake’s business
involves the import, retail sale, and wholesale distribution of 1.4G consumer fireworks. Jake’s
corporate representative testified that the Marietta Family decided to form Lone Star for
administrative efficiency in handling human resources functions for employees of Mariettaowned ventures. Thus, Lone Star was formed in November 2011 to employ the staff and “handle
all the HR things, payroll, benefits, insurance, and then . . . lease out the employees back to the
Marietta entities.”19 Lone Star has employees provided to work for Marietta-owned entities in
several states across the country in addition to Kansas, including Washington, where Jake’s
operates a distribution center. Jake’s corporate representative estimated in 2017 that Lone Star
was leasing out approximately 200 workers in multiple states. Lone Star has never held itself out
as a staffing agency to provide services to the general public.
On March 1, 2012, Jake’s and Lone Star entered into a Staffing Services Agreement
(“SSA”).20 The initial term of the SSA was for a period of one year, but the agreement provided
that it would automatically renew unless either party provided written notice of termination
18

Frank, 3 F.3d at 1361 (citing Anderson, 477 U.S. at 248).

19

Baker Dep., Doc. 20-4 at 32:21−24.

20

Doc. 20-4, Ex. 2 at 41−44.

5

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within thirty days preceding the anniversary of its commencement. The SSA provided that
Jake’s “wishes to contract with [Lone Star] for the providing [of] staff for management and
services necessary to operate [Jake’s] business. [Lone Star] is willing and able to provide such
staff for services as may be required by [Jake’s.]”21
Per the SSA, Lone Star was responsible for handling wages, salaries, fringe benefits,
employment taxes or assessments, and other human resources functions for the staff it provided
to Jake’s, including the provision of “all require[d] worker’s compensation insurance, employee
benefit coverage or any other required insurance coverage for all individuals performing staffing
services to [Jake’s].”22 The SSA required that Jake’s
pay [Lone Star] the sum of $1,000 per month plus the full amount
of all gross wages, all employer contributions for employee benefit
plans, social security, unemployment, Medicare and all contractor
payments and salaries, if any, paid by [Lone Star] for all staff
services provided to [Jake’s] . . . . Additionally, [Jake’s] shall pay
monthly three percent (3%) of all gross wages of staff services
used by [Jake’s] for the supervision and management of staffing
personnel provided.23
Under “Relationship of the Parties,” the SSA provided that Lone Star was “an independent
contractor and not an agent, representative or employee of [Jake’s].”24 The SSA further provided
that the “cost, number, duration, and function of staffing personnel provided by [Lone Star] and
used by [Jake’s] shall be determined by [Jake’s] in its sole discretion and approval at all times.”25
Before Lone Star was founded in 2011, Harper had been an employee of Jake’s for
several years. When Lone Star was formed, Harper became an employee of Lone Star and was

21

Id. at 41.

22

Id. at 42.

23

Id. at 41.

24

Id. at 43.

25

Id. at 41.

6

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leased back to Jake’s under the terms of the SSA. Jake’s corporate representative testified that
Harper
was leased to Jake’s, so . . . control of all his work and whatever he
did came through Jake’s. He was an employee before Lone Star
took over, and he was in the warehouse and production . . .
working for Jake’s until it turned over. Nothing changed for those
people except who wrote their paycheck and who covered their
insurance. [W]hat they did, who supervised them, what functions
they performed, same as before, all for Jake’s, so if the Mariettas
directed [Harper] to do something, it would be through Jake’s.26
While provided to work for Jake’s, Harper primarily worked in production during the
busy season; during the off season, he would do “anything that [came] up.”27 Harper testified
that his work varied from day to day and that he handled a variety of tasks, such as assembling
packages of fireworks, loading storage trailers with fireworks, taking inventory of fireworks in
storage, loading fireworks onto semitruck trailers for shipping, and cleaning the premises. He
also testified that in addition to doing work for Jake’s, he sometimes performed personal tasks
for at least one member of the Marietta Family, such as caring for dogs and cleaning out a
private garage.
B.

Lone Star’s Workers’ Compensation Insurance Policy

Lone Star purchased a workers’ compensation and employer’s liability insurance policy
through Technology Insurance Company (“TIC”), Policy No. TARKS42414-02 (“TIC Policy”).
Part I of that policy provides coverage for benefits paid under the workers’ compensation laws of
several states, including Kansas. Part II of the TIC Policy is titled “Employers Liability
Insurance” and states that, subject to certain exclusions, it provides coverage for “bodily injury

26

Baker Dep., Doc. 20-4 at 53:17−54:3.

27

Id. at 60:10.

7

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by accident or bodily injury by disease . . . aris[ing] out of and in the course of the injured
employee’s employment by you.”28
C.

The Everest Commercial General Liability Insurance Policy

Everest issued to Jake’s, Lone Star, and thirty-nine other entities and individuals, a
commercial general liability insurance policy, Policy No. S18GL00320141, with effective dates
of February 15, 2014 to February 15, 2015 ( “Everest Policy”). Jake’s paid a premium of
$209,800 for the Everest Policy, which Everest delivered to Jake’s at Jake’s headquarters in
Pittsburg, Kansas. Subject to certain provisions, conditions, definitions, limitations, and
exclusions, the Everest Policy provided commercial general-liability insurance with a liability
limit of $1,000,000 per occurrence. The Everest Policy’s “coverage territory” included the entire
“United States of America . . . provided that the insured’s responsibility to pay damages is
determined in a ‘suit’ on the merits.”29 Costs paid for the investigation and defense of a claim
under the Everest Policy do not reduce the Policy’s limits.
The Everest Policy contained the following provisions, among others:
COMMERCIAL GENERAL LIABILITY COVERAGE FORM
...
Throughout this policy the words “you” and “your” refer to the
Named Insured shown in the Declarations, and any other person or
organization qualifying as a Named Insured under this policy. The
words “we”, “us” and “our” refer to the company providing this
insurance.
The word “insured” means any person or organization qualifying as
such under Section II — Who Is An Insured.
...

28

Doc. 109-1 at 11.

29

Doc. 20-1 at 33.

8

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SECTION I — COVERAGES
COVERAGE A — BODILY INJURY AND PROPERTY DAMAGE
LIABILITY
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 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. . . .

SECTION II — WHO IS AN INSURED
1.
If you are designated in the Declarations as:
...
c.

A limited liability company, you are an insured. . . .

d.

An organization other than a partnership, joint venture, or
limited liability company, you are an insured. . . .

...
SECTION IV – COMMERCIAL GENERAL LIABILITY
CONDITIONS
...
7.

Separation of Insureds

Except with respect to the Limits of Insurance, and any rights or
duties specifically assigned in this Coverage Part to the first Named
Insured, this insurance applies:
a.

As if each Named Insured were the only Named Insured;
and

b.

Separately to each insured against whom claim is made or
“suit” is brought.

...

9

Case 2:19-cv-02620-JAR-ADM Document 117 Filed 11/19/20 Page 10 of 50

SECTION V — DEFINITIONS
...
5.

“Employee” includes a “leased worker”. “Employee” does not
include a “temporary worker”.

...
10.

“Leased worker” means a person leased to you by a labor
leasing firm under an agreement between you and the labor
leasing firm, to provide duties related to the conduct of your
business. “Leased worker” does not include a “temporary
worker”.

...
19.

“Temporary worker” means a person who is furnished to you
to substitute for a permanent “employee” on leave or to meet
seasonal or short-term workload conditions.30

Both Jake’s and Lone Star are identified in the Declarations of the Everest Policy as named
insureds, pursuant to Endorsement No. ILU 003 (0589), and are “insureds” under the Everest
Policy.
Under Section I, Coverage A, the Everest Policy originally set forth following
“Employer’s Liability” exclusion, stating that the insurance did not apply to:
e.

Employer’s Liability
“Bodily injury” to:
(1)

An “employee” of the insured arising out of in and
in the course of:
(a)

Employment by the insured; or

(b)

Performing duties related to the conduct the
insured’s business; . . . .

This exclusion applies whether the insured may be liable as an
employer or in any other capacity and to any obligation to share

30

Id. at 21-33.

10

Case 2:19-cv-02620-JAR-ADM Document 117 Filed 11/19/20 Page 11 of 50

damages with or repay someone else who must pay damages
because of the injury. 31
...
However, per Endorsement ECG 21 740 09 11, that exclusion was deleted and replaced by the
following language (“EL Endorsement”), stating that the insurance does not apply to:
“Bodily injury” to:
(1)

Any “employee” of any insured, to any contractor hired or
retained by or for any insured or any “employee” or subcontractor of any such contractor for any claim arising out
of and in the course of:
(a)

Employment or retention by or for any insured, any
contractor or any subcontractor; or

(b)

Performing duties related to the conduct of any
insured’s or any contractor or subcontractor’s
business; . . . .

This exclusion applies:
(1)

Whether any insured, contractor or subcontractor may be
liable as an employer or in any other capacity; and

(2)

To any obligation to share damages with or repay someone
else who must pay damages because of the injury.32

Thus, among other changes, the EL Endorsement changed the term “the insured” to “any
insured.”
The Everest Policy also contained a Stop Gap Coverage Endorsement Provision (“StopGap Endorsement”). The Stop-Gap Endorsement provides, in part, that Everest:
will pay those sums that the insured becomes legally obligated to
pay as damages because of “bodily injury” to any of your
“employees” that arises out of and in the course of employment by
you, provided such “employee” is reported and declared under the
Workers Compensation Fund of a state designated in the Schedule
31

Id. at 22.

32

Id. at 71.

11

Case 2:19-cv-02620-JAR-ADM Document 117 Filed 11/19/20 Page 12 of 50

of this endorsement. The “bodily injury” must take place in the
coverage territory”. “Bodily injury” by accident must occur during
the policy period. The last day of last exposure of an “employee”
to the conditions causing or aggravating “bodily injury” by disease
must occur during the policy period.33
Everest did not designate any particular state under whose workers’ compensation laws Jake’s
was to report and declare employees. The paragraph of the Stop-Gap Endorsement in question
reads:
Subject to the other provisions applicable to this endorsement, the
insurance afforded by this endorsement will apply to your legal
liability for “bodily injury” of any “employee” who is reported and
declared under the “Workers’ Compensation Law” of the state of
____________, if that “employee” is injured in the course of and
arising out of their employment by you and if your legal liability is
in lieu of or in addition to the liability under an applicable
“Workers’ Compensation Law”.34
The Everest Policy’s Coverage Part Schedule lists the premiums Jake’s paid for different
classes of coverage. For stop-gap coverage, the “Premium” box lists the amount of $400.00, and
the box titled “Location” is completed with the word, “ALL.”35 On the Everest Policy’s Final
Audit page, the stop-gap coverage is included in a list of coverages that apply in all states.36
Finally, the Stop-Gap Endorsement in the Everest Policy and the Employers Liability Insurance
provision in the TIC Policy issued to Lone Star have some similarities, including the types of
damages that will be paid and several exclusions from coverage.

33

Doc. 20-1 at 67.

34

Id. at 67.

35

Id. at 19.

36

Id. at 72.

12

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D.

The Maxum and James River Commercial Excess Liability
Insurance Policies

In addition to the Everest Policy, Jake’s was issued two commercial excess liability
insurance policies. Maxum issued the first-layer excess liability policy, Policy No. EXC
6018367-03, to Jake’s as the Named Insured, with effective dates of February 15, 2014 to
February 15, 2015 (“Maxum Policy”). Maxum delivered the policy to Jake’s at Jake’s
headquarters in Pittsburg, Kansas.
The Maxum Policy states that “[t]hroughout this policy, the words ‘you’ and ‘your’ refer
to the Named Insured shown in the Declarations, and any other person qualifying as a Named
Insured under this policy,” and defines “insured” to mean “any person or organization qualifying
as such under the controlling underlying insurance.”37 In addition to Jake’s, Lone Star is also an
“insured” under the Maxum Policy. The Maxum Policy defines “controlling underlying
insurance” to mean “any policy of insurance or self-insurance listed in the Declaration under the
Schedule of ‘controlling underling insurance.’”38 Terms “that are not defined under the [Maxum
Policy] but defined in the ‘controlling underlying insurance’ will have the meaning described in
the policy of ‘controlling underlying insurance.’”39 Although the Maxum Policy Declarations
erroneously refer to a prior underlying insurer rather than Everest in the “Underlying Insurance”
section, no party disputes that the Everest Policy is the underlying insurance to the Maxum
Policy as it applies to this case.40

37

Doc. 93-2 at 17.

38

Id. at 21.

39

Id. at 17.

40

See Ames Aff., Doc. 93-2 at 3−4.

13

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The Maxum Policy provides that it “will follow the same provisions, exclusions and
limitations that are contained in the applicable ‘controlling underlying insurance’, unless
otherwise directed by this insurance. To the extent such provisions differ or conflict, the
provisions of this Coverage Part will apply.”41 With respect to exclusions, the Maxum Policy
states that “the exclusions applicable to any ‘controlling underlying insurance’ apply to this
insurance unless superseded by the following exclusions or superseded by any other exclusions
added by endorsement to this Coverage Part.”42 The Maxum Policy provides excess commercial
liability insurance to Jake’s—provided that the underlying Everest insurance would apply—with
a limit of $5,000,000 for each occurrence and in the aggregate, but only for “ultimate net loss” in
excess of the $1,000,000 “retained limit” in the Everest Policy.43
James River issued a second-layer excess insurance policy, Policy No. 00052017-2, to
Jake’s as the Named Insured, with effective dates of February 15, 2014 to February 15, 2015
(“James River Policy”). James River delivered the policy to Jake’s at Jake’s headquarters in
Pittsburg, Kansas.
The James River Policy states that “[t]hroughout this policy, the words ‘you’ and ‘your’
refer the Named Insured shown in the Declarations and any other person or organization
qualifying as an Insured under the ‘underlying insurance’.”44 The James River Policy defines
“underlying insurance” as “[t]he policy or policies or self insurance listed in the Schedule of

41

Doc. 93-2 at 17.

42

Id. at 18.

43

Id. at 13, 18.

44

Doc. 88-1 at 7.

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Underlying Insurance,” which lists both the Everest and Maxum Policies.45 In addition to Jake’s,
Lone Star is an “insured” under the James River Policy.
The James River Policy states that it shall “follow the terms, definitions, conditions and
exclusions of the scheduled ‘underlying insurance(s)’, subject to the policy period, policy limits,
premiums and all other terms, definitions, conditions and exclusions of this policy. If any
provisions of the scheduled ‘underlying insurance(s)’ conflict with any provisions of this policy,
the provisions of this policy will apply.”46 The James River Policy provides excess liability
insurance to Jake’s with a limit of $5,000,000 each occurrence and in the aggregate—in excess
of the $6,000,000 in underlying coverage from the Everest and Maxum Policies—provided that
the underlying insurances would apply.47
E.

August 12, 2014 Accident

In August 2014, Jake’s was preparing to sub-let a commercial property located near the
69 Highway bypass in Pittsburgh, Kansas (“Bypass Property”) to DEPCO, an unrelated entity.
Fireworks Leasing owned the Bypass Property and was leasing it to Jake’s in August 2014,
though Jake’s had abandoned the property approximately two years earlier and was no longer
using it for the storage of consumer fireworks in the regular course of business. Jake’s continued
to make lease payments on the Bypass Property even after moving its operations elsewhere. The
work being performed at the Bypass Property in August 2014, including cleanup and
remodeling, was in preparation for occupation by the new tenant. As Jake’s corporate
representative explained, “Jake’s leased the property from Fireworks Leasing. Jake’s was sub-

45

Id. at 5−6, 9.

46

Id. at 7.

47

Id. at 2, 5−7.

15

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leasing to DEPCO, so Jake’s was responsible for cleaning up the property and getting it set for
the new tenant.”48
Jake’s corporate representative also testified that warehouse workers such as Harper “do
all sorts of things. There’s no specific job assignments or duties. They do whatever they’re told,
including clean-up, remodeling, painting, moving.”49 In preparation for Jake’s sub-leasing the
Bypass Property to DEPCO, Harper was “pulled over to the bypass to clean.”50 Harper testified
that at the direction of another employee, Scott Moutz,51 he and a coworker went to the Bypass
Property on multiple occasions in early August 2014 to assess what needed to be done; Harper
and his coworker inventoried storage trailers to determine which materials could be salvaged and
brought to Jake’s new location to be sold, and which materials needed to be discarded.
On August 12, 2014, at Moutz’s direction, Harper and his coworker were unloading and
cleaning out a particular trailer that contained expired consumer fireworks, which were to be
discarded. Both the trailer and the fireworks belonged to Jake’s. As Harper’s colleague was
operating a liquid propane-powered forklift, which was also owned by Jake’s, a fire started in the
trailer and Harper was severely injured. The cause of the fire, or what material may have ignited
to start the fire, has never been conclusively determined. Harper’s injury occurred by accident,
while he was employed by Lone Star, within the Everest Policy coverage territory, and within
the Everest, Maxum, and James River Policy periods.

48

Baker Dep., Doc. 20-4 at 46:23−47:1.

49

Id. at 46:11−14.

50

Id. at 60:12.

51

Moutz’s “primary job duty [was to] run[] production” for Jake’s but, like Harper, Moutz was not
employed by Jake’s because Jake’s has had no direct employees since Lone Star was formed. Id. at 32:13−33:6,
44:23−25, 53:16−54:3.

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F.

State Court Litigation Arising from August 12, 2014 Accident

Harper filed a workers’ compensation claim against Lone Star, and Lone Star’s workers’
compensation insurer settled that claim. On July 29, 2016, Harper filed a lawsuit against Jake’s
in state court for the burn injuries he sustained on August 12, 2014. That action—styled Howard
Harper v. Jake’s Fireworks., Inc., Case Number 2016-CV-000086P, and pending in the District
Court of Crawford County, Kansas—includes claims for negligence, negligence per se,
premises-liability, and loss of services and consortium for Harper’s wife (“State Court Action”).
Harper claims damages in excess of $10,000,000 in the State Court Action, and Jake’s is at risk
of becoming legally obligated to pay damages because of Harper’s injury, including damages
that would be in excess of the retained limits of the Everest and Maxum Policies, if those policies
were to apply.
Jake’s made a tender of defense and indemnity to Everest under the Everest Policy, and
also put Maxum and James River on notice of the State Court Action. Everest has been and is
currently providing Jake’s a defense against Harper’s State Court Action under a reservation of
rights (“ROR”). In the ROR letter that Everest sent to Jake’s on October 3, 2016, Everest cited
the entire text of the EL Endorsement and expressly stated its position that Harper was an
“employee” of Jake’s because he was a “leased worker” and, therefore, coverage likely did not
apply.52

52

Doc. 72-2 at 4−5. The Everest ROR letter also stated: “Please be advised that no actions taken by
Everest during the investigation of this claim should be considered by anyone to be a waiver of any of Everest’s
rights and defenses under any applicable policy of insurance and under applicable law. There may be other
provisions of the policies of insurance Everest issued to Jake’s Fireworks, though not cited herein, that preludes [sic]
or bar coverage for the claims that have been asserted against Jake’s Fireworks in the pending lawsuit. Everest
expressly reserves any and all rights and defenses it possesses under the policy of insurance and under applicable
law.” Id. at 5−6.

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On November 1, 2019, Maxum issued an ROR letter to Jake’s, relying upon and
reproducing in its entirety the Everest Policy’s EL Endorsement, as incorporated by the Maxum
Policy. The Maxum ROR letter stated that under the EL Endorsement, coverage was precluded
for
bodily injury to any “employee” of Jake’s Fireworks or any other
insured; any contractor hired or retained by or for Jake’s Fireworks
or any insured; or to any “employee” or sub-contractor of any such
contractor for any claim arising out of in in the course of: (a)
employment or retention by or for Jake’s Fireworks or any insured
or (b) performing duties related to the conduct of Jake’s Firework’s
business or the business of any other insured. The term
“employee” includes a “leased worker.”53
The Maxum ROR letter then expressly stated that coverage was excluded because Harper was an
employee of Lone Star, an insured, and also potentially because he was “leased worker” and
therefore employee of Jake’s.54 On June 2, 2020, James River notified Jake’s that it was
declining coverage for the State Court Action.
In the State Court Action, Jake’s argued for summary judgment in its favor on the basis
that it was Harper’s “statutory employer” and, therefore, immune from civil suit under Kansas’s
workers’ compensation scheme. Harper argued that while he was acting in the course and scope
of his employment for Lone Star at the time of his injury, he did not qualify as Jake’s statutory
employee under Kansas law. The judge in that case issued a letter ruling on September 5, 2019,
denying Jake’s motion for summary judgment on the basis that disputed issues of material fact
remained as to whether Harper was Jake’s statutory employee at the time of his injury.55

53

Doc. 93-3 at 63.

54

Id. at 63−64. The Maxum ROR letter further asserted that there might be other terms or provisions of the
policy that precluded coverage, and that Maxum did not intend to waive any rights or defenses that Maxum might
possess under the policy and applicable law. Id. at 67−68.
55

Doc. 107-1.

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On October 9, 2019, Everest filed this declaratory judgment action seeking a declaration
of its rights and obligations under the Everest Policy and raising three policy interpretations,
discussed below, in support of its argument that it does not owe coverage. Maxum and James
River moved to intervene, and their motions were granted on March 30 and May 28, 2020,
respectively.
III.

Discussion
A.

The Parties’ Positions

Everest, Maxum, and James River on one side, and Jake’s and Harper on the other, have
all filed cross-motions for summary judgment, each arguing that under the terms of the Everest
Policy—and the excess policies, where applicable—summary judgment should be awarded in its
favor. Everest, Maxum, and James River assert that coverage for the State Court Action is
precluded under the Everest Policy’s EL Endorsement because: (1) Harper was a “leased
worker” and therefore an “employee” of Jake’s, an insured under the Policy; (2) Harper was an
“employee” of Lone Star, which was also an insured under the policy; and (3) Harper was an
“employee” of Lone Star, a contractor hired by Jake’s, an insured under the policy.
Jake’s argues that coverage for the State Court Action is not precluded by the EL
Endorsement, and that it has coverage under the Everest Policy’s Stop-Gap Endorsement in any
event. Jake’s further asserts that: (1) Everest is estopped from arguing that the latter two policy
interpretations preclude coverage because it failed to raise them in its ROR letter; (2) Maxum is
estopped from advancing the third policy interpretation as a bar to coverage because it failed to
raise it in its ROR letter; and (3) James River is estopped from denying coverage for any reason
whatsoever because it did not issue a declination of coverage letter until June 2, 2020, nearly
four years after Harper initiated the State Court Action.

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Everest and Maxum rejoin that Jake’s has waived its estoppel and stop-gap coverage
arguments by failing to raise them as affirmative defenses in its answers and in its counterclaims
to their complaints. James River contends that Jake’s cannot establish the elements of estoppel
because, as an excess insurer, it had no immediate obligation to issue its coverage position, and
because Jake’s cannot establish prejudice by James River’s silence.
Jake’s filed a motion for leave to amend its answers and counterclaims to Everest’s and
Maxum’s complaints to expressly add defenses based on estoppel and stop-gap coverage, which
United States Magistrate Judge Angel D. Mitchell denied.56 Jake’s has now filed objections to
Judge Mitchell’s order denying leave to amend, as well as a motion for leave to file a sur-reply
addressing the estoppel and stop-gap coverage issues, both of which are opposed. All of the
insurers argue that stop-gap coverage does not apply.
For his part, in response to the insurers’ summary judgment motions, Harper
admits . . . that he was employed by Lone Star at the time of his
injury, and that Lone Star appears to be a named insured on the
Everest Policy. To any extent that judgment would flow from
those facts alone, Harper would concede judgment in Everest’s
favor on that narrow basis only.57
Harper argues against Everest’s other two interpretations of the Everest Policy on the basis that
he was not performing the business of Jake’s at the time of his injury, and asserts that this Court
should not decide issues pertaining to the nature of his employment because they have been or
are being litigated in the State Court Action. Harper further argues that his affirmative defenses

56

Doc. 89.

57

Doc. 63 at 14. In fact, Harper admits in his Answer that because he “was an ‘employee’ of any insured
(Lone Star), the ‘Employer’s Liability’ exclusion applies to bar coverage for [his] injury claim.” Doc. 20-2 ¶ 31;
Doc. 20-3 ¶ 31. Jake’s argues that these admissions by Harper are not binding upon it.

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based on abstention doctrines, collateral estoppel, laches, and collusive joinder preclude
summary judgment in the insurers’ favor.
B.

Kansas Contract Law

“A federal court exercising diversity jurisdiction must apply the choice of law rules of the
state in which it sits.”58 “In Kansas, the construction of a contract is governed by the law of the
state in which the contract was made.”59 A contract is made where the last act necessary for its
formation occurs.60 There appears to be no dispute here that the contracts at issue were made in
Kansas and are to be interpreted under Kansas law.
Kansas law provides that the interpretation and legal effect of an insurance contract is a
matter of law to be determined by the court.61 “In construing an insurance policy, a court should
consider the instrument as a whole and endeavor to ascertain the intention of the parties from the
language used, taking into account the situation of the parties, the nature of the subject matter,
and the purpose to be accomplished.”62 Kansas law requires the court to “consider the relevant
provisions of an insurance policy together, rather than in isolation, and give them effect.”63 And
it is well established that “judicial interpretation should not render any [contract] term

58
Phila. Indem. Ins. Co. v. Kan. City Home Care, Inc., 139 F. Supp. 2d 1194, 1197 (D. Kan. 2001) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)).
59

Id. (citing Simms v. Metro. Life Ins. Co., 685 P.2d 321, 324 (Kan. Ct. App. 1984)).

60

See Found. Prop. Invs., LLC v. CTP, LLC, 159 P.3d 1042, 1046 (Kan. Ct. App. 2007) (citation omitted).

61
Gerdes v. Am. Family Mut. Ins. Co., 713 F. Supp. 2d 1290, 1295 (D. Kan. 2010) (quoting Goforth v.
Franklin Life Ins. Co., 449 P.2d 477, 481 (Kan. 1969)); Am. Media, Inc. v. Home Indem. Co., 658 P.2d 1015, 1018
(Kan. 1983).
62
Iron Horse Auto, Inc. v. Lititz Mut. Ins. Co., 156 P.3d 1221, 1225−26 (Kan. 2007) (citing O’Bryan v.
Columbia Ins. Grp., 56 P.3d 789, 792 (Kan. 2002)); see also Magnus, Inc. v. Diamond State Ins. Co., 101 F. Supp.
3d 1046, 1054 (D. Kan. 2015) (citing Brumley v. Lee, 963 P.2d 1224, 1226 (Kan. 1998)).
63

U.S. Specialty Ins. Co. Inc. v. Steele, 458 F. Supp. 3d 1310, 1315 (D. Kan. 2020) (first citing Brumley,
963 P.2d at 1226; then citing Hernandez v. Elec. Ins. Co., No. 15-1170-JTM, 2015 WL 7274038, at *4 (D. Kan.
Nov. 17, 2015), aff’d, 659 F. App’x 500 (10th Cir. 2016)).

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meaningless.”64 Regarding endorsements to an insurance policy, “the endorsement and the
policy must be read together. The policy remains in full force and effect except as altered by the
words of the endorsement. Conversely, the endorsement modifies, to the extent of the
endorsement, the terms and conditions of the original insurance contract.”65
An insurer has a “duty to define limitations to an insured’s coverage in clear and explicit
terms. To restrict or limit coverage, an insurer must use clear and unambiguous language.”66 If
the policy language is clear and unambiguous, the court must interpret it in its “plain, ordinary,
and popular sense,” and “enforce the contract as made.”67 A policy is ambiguous “when it
contains language of doubtful or conflicting meaning based on a reasonable construction of the
policy’s language.”68 An insurance policy is not ambiguous merely because the parties disagree
as to its interpretation.69 Rather, ambiguity appears only when “the application of pertinent rules
of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or
more meanings is the proper meaning.”70 Whether policy language is ambiguous is a question of
law, and the proper test is “not what the insurer intends the language to mean, but what a

64

LDF Food Grp., Inc. v. Liberty Mut. Fire Ins. Co., 146 P.3d 1088, 1095 (Kan. Ct. App. 2006) (first citing
Marshall v. Kan. Med. Mut. Ins. Co., 73 P.3d 120, 130 (Kan. 2003); then citing Farm Bureau Mut. Ins. Co. v.
Horinek, 660 P.2d 1374, 1378 (Kan. 1983)).
65

Ashton v. Nat’l Farmers Unions Prop. & Cas. Co., No. 11-4002-SAC, 2012 WL 2814129, at *7 (D. Kan.
July 10, 2012) (quoting Thornburg v. Schweitzer, 240 P.3d 969, 976 (Kan. Ct. App. 2010)).
66

Kemper Ins. Cos. v. Weber, 168 P.3d 607, 611 (Kan. Ct. App. 2007).

67

O’Bryan, 56 P.3d at 792 (citing First Fin. Ins. Co. v. Bugg, 962 P.2d 515, 519 (Kan. 1998); then citing
Patrons Mut. Ins. Ass’n v. Harmon, 732 P.2d 741, 746 (Kan. 1987)); see also Magnus, 101 F. Supp. 3d at 1054.
68

Kemper Ins. Cos., 168 P.3d at 610 (first citing Marshall, 73 P.3d 120, 130; then citing Jones v. Reliable
Sec., Inc., 28 P.3d 1051, 1059 (Kan. 2011)).
69

Id. at 611 (citations omitted).

70

Am. Family Mut. Ins. Co. v. Wilkins, 179 P.3d 1104, 1109–10 (Kan. 2008) (quoting O’Bryan, 56 P.3d at

793).

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reasonably prudent insured would understand the language to mean.”71 If the policy language is
ambiguous, then it must be liberally construed in favor of the insured.72
“The insured has the burden to prove coverage under the policy. The insurance company
has the duty to show that a specific provision of the policy excludes coverage.” 73
C.

Is the EL Endorsement Ambiguous Due to its Use of the Term “Any
Insured” and the Conjunction “Or,” and/or When Read in Conjunction
with the Everest Policy’s Separation-of Insureds Clause?

The only interpretation of the Everest Policy advanced by the insurers that is not subject
to Everest, Maxum, and Jake’s competing estoppel and waiver arguments is that Harper was a
“leased worker” and therefore an “employee” of Jake’s, and was performing work related to the
conduct of Jake’s business at the time of his injury, thereby precluding coverage under the EL
Endorsement. Jake’s and Harper argue that the EL Endorsement is rendered ambiguous by its
use of the term “any insured” and the conjunction “or,” as well as by the Everest Policy’s
separation-of-insureds clause. They contend that because Everest attempted to restrict and limit
coverage through the EL Endorsement, Everest’s failure to use clear and unambiguous language,
combined with the fact that the terms of the Everest Policy are uncertain, conflicting, or
susceptible to more than one interpretation, means that the exclusion must be construed against
Everest and in favor of Jake’s. In fact, Jake’s at times appears to argue that the Policy’s
ambiguity requires more than that the EL Endorsement be given the construction most favorable
to the insured by contending that it should have no effect at all. The insurers counter that the EL

71

Id. at 1110 (quotation omitted).

72
Magnus, 101 F. Supp. 3d at 1054 (citing Brumley v. Lee, 963 P.2d 1224, 1226 (Kan. 1998)); O’Bryan, 56
P.3d at 793 (first citing Catholic Diocese of Dodge City v. Raymer, 840 P.2d 456, 459 (Kan. 1992), aff’d 840 P.2d
456 (Kan. 1992); then citing Patrons, 732 P.2d at 746).
73
Cincinnati Ins. Co. v. Gage Ctr. Dental Grp., P.A., No. 12-2387-KHV, 2013 WL 5913751, at *9 (D.
Kan. Nov. 1, 2013) (citing Shelter Mut. Ins. Co. v. Williams, 804 P.2d 1374, 1383 (Kan. 1991)).

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Endorsement is clear and unambiguous, and that even if it must be given its narrowest
construction due to the Everest Policy’s separation-of-insureds clause, it still precludes coverage
for Harper’s injury.
The Everest Policy originally included an employer’s liability exclusion that used the
term “the insured” rather than “any insured,” stating that coverage was excluded for “[b]odily
injury” to “[a]n ‘employee’ of the insured arising out of in an in the course of . . . [e]mployment
by the insured; or [p]erforming duties related to the conduct the insured’s business . . . .” 74 Per
Endorsement ECG 21 740 09 11, however, that exclusion was expanded to provide instead that
coverage was excluded for “[b]odily injury” to
[a]ny “employee” of any insured, to any contractor hired or
retained by or for any insured or to any “employee” or subcontractor of any such contractor for any claim arising out of in
and in the course of . . . [e]mployment or retention by or for any
insured, any contractor or any subcontractor; or . . . [p]erforming
duties related to the conduct of any insured’s or any contractor or
subcontractor’s business . . . .75
Relying on the Kansas Supreme Court’s decision in Brumley v. Lee,76 as well as this Court’s
recent decision in Auto Club Family Insurance Co. v. Moroney,77 Jake’s argues that the use of
the term “any insured” in the EL Endorsement renders the exclusion ambiguous, and that Jake’s
is therefore entitled to summary judgment as a matter of law that coverage is not excluded.
Jake’s further argues that the EL Endorsement’s use of the conjunction “or” ten times to expand
the exclusion to many different scenarios further compounds its ambiguity, as does the Policy’s
separation-of-insureds provision.

74

Doc. 20-1 at 22 (emphasis added).

75

Id. at 71 (emphasis added).

76

963 P.2d 1224 (Kan. 1998).

77

No. 2:16-cv-02789-JAR-JPO, 2018 WL 898741 (D. Kan. Feb. 15, 2018).

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In Brumley, the parents of a young child brought a wrongful-death claim against a
caregiver, David Lee, and his wife after the child suffered fatal injuries in their care.78 Lee filed
a third-party petition against the insurer of his home, seeking indemnification.79 Although Lee’s
wife inflicted the fatal blow, the child’s parents alleged that Lee acted negligently in allowing her
to do so.80 Lee’s insurance policy had an intentional-act exclusion stating that the policy did not
cover bodily injury or property damage “which [was] expected or intended by any insured.”81
The policy also had a severability clause, which stated “[t]his insurance applies separately to
each insured.”82 The insurance company argued that coverage was excluded because Lee’s wife
was “any insured” and had intentionally harmed the child.83 But the child’s parents argued that
the severability clause rendered the language “any insured” ambiguous, and that the policy
should therefore be construed in favor of coverage.84
On appeal from judgment in favor of the insurer, the Kansas Supreme Court found that
that Catholic Diocese of Dodge City v. Raymer85 controlled the matter before it.86 In Raymer,
homeowners sought coverage for the intentional act of their child under a policy that precluded
coverage for damages caused intentionally by “an insured.”87 The Kansas Court of Appeals
adopted a broad definition of both “an insured” and “any insured,” finding that those terms refer

78

Brumley, 963 P.2d at 1226.

79

Id.

80

Id.

81

Id. at 1227 (emphasis added).

82

Id. (emphasis omitted).

83

Id. at 1226.

84

Id. at 1227.

85

825 P.2d 1144 (Kan. Ct. App.), aff’d 840 P.2d 456 (Kan. 1992).

86

Brumley, 963 P.2d at 1227.

87

Raymer, 825 P.2d at 1146.

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to “any and all insureds under the policy, not just ‘the insured’ seeking coverage.”88 However,
the court ultimately found that the insurer’s “insertion into the policy of a severability of interest
clause ma[de] ambiguous the otherwise unambiguous language of the exclusion for intentional
acts by an insured,” and ruled in favor of coverage.89
In Brumley, then, the Kansas Supreme Court stated that “the words ‘an’ and ‘any’ are
inherently indefinite and ambiguous,”90 and that the ambiguity of the term “any insured” in the
policy exclusion for intentional acts was more obvious when read in conjunction with the
policy’s severability clause.91 The effect of the severability clause was that each insured
essentially had his or her own policy.92 The court noted that the policy’s severability clause
would ordinarily cause the exclusion to apply only against the individual insured for whom
coverage was sought, but in view of its finding that the word “any” was ambiguous, found that
the insurance company’s attempt to expand the exclusion by using the term “any insured”
rendered the entire clause ambiguous and construed it in favor of coverage.93
In Auto Club, this Court relied on Raymer and Brumley in finding similar ambiguity in a
homeowner’s insurance policy exclusion when combined with a separation-of-insureds
provision. In that case, the heirs of a man killed by an intoxicated, minor driver filed suit against
the driver and his parents, claiming damages arising from the parents’ alleged negligent
entrustment of the vehicle to their son.94 The homeowner’s policy at issue included both parents

88

Id. at 1148 (collecting cases).

89

Id. at 1151.

90

Brumley, 963 P.2d at 1227.

91

Id. at 1228.

92

Id.

93

Id.

94
Auto Club Family Ins. Co. v. Moroney, No. 2:16-cv-02789-JAR-JPO, 2018 WL 898741, at *2 (D. Kan.
Feb. 15, 2018).

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and son as insureds, and a negligent-entrustment exclusion providing that the insurer would not
cover “bodily injury or property damage arising out of any insured’s . . . entrustment to any other
person . . . of any motorized vehicle.”95 The policy also included a severability clause providing
that “[t]his insurance applies separately to each insured,” meaning that each insured effectively
had his or her own policy.96 However, the severability clause further defined “any insured” by
stating that “[a]ny limiting or exclusionary provision in the policy indicating that it applies to
‘any insured’ means that such limiting or exclusionary provision is applicable as to any insured
under this policy.”97
In granting summary judgment in favor of coverage, this Court noted the Brumley
holding regarding the ambiguity of the phrase “any insured” in the context of an intentional acts
exclusion, and stated that “[i]n construing the meaning of ‘any other person’ opposite ‘any
insured,’ . . . it is not immediately clear whether ‘any other person’ includes other insureds or
not.”98 Interpreting the policy as a whole, the Court found that the severability clause
introduced additional confusion about the meaning of the terms “any insured” and “any other
person” in the negligent-entrustment exclusion, particularly in light of its expanded definition of
“any insured”—by broadening the scope of “any insured,” the clause narrowed the meaning of
“any other person” in the negligent-entrustment exclusion, making it logical to interpret the latter
term as not including anyone insured under the policy.99 Because the negligent-entrustment

95

Id. at *3.

96

Id. at *4, 6.

97

Id. at *4.

98

Id. at *5.

99

Id. at *7.

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provision was ambiguous in the context of the entire policy and as applied to the facts, the Court
construed the policy to provide coverage.100
It would go too far for this Court to hold that Brumley stands for the proposition that the
term “any insured” is ambiguous each and every time it is used and in all contexts. As the Tenth
Circuit has stated,
in asking whether or not an ambiguity exists, our analysis does not
turn on whether a word could be used ambiguously, or has been
used ambiguously in other contexts. Rather, we must ask whether
the word is used ambiguously within the actual contractual context
in which it appears. After all, when interpreting a contract or
statute, we derive meaning not just from abstract words in
isolation, but from their context and from the document as a
whole.101
As many courts have recognized, the type of policy at issue here
is not an employers’ liability policy or a worker’s compensation
policy; rather, it is a commercial general-liability policy, and
“[u]nlike worker’s compensation insurance or employers’ liability
insurance, which exist to provide employers with coverage for
injuries that occur to employees during the scope of employment,
the sole purpose of commercial general liability insurance is to
provide coverage for injuries that occur to the public-at-large.”102
The purpose of an employer’s liability exclusion in a commercial general-liability policy is to
make clear that the only coverage intended is for liability to the general public, not employees.103
This case is therefore unlike Brumley and Auto Club, in that the EL Endorsement excludes

100

Id.

101

Payless Shoesource, Inc. v. Travelers Cos., Inc., 585 F.3d 1366, 1374 (10th Cir. 2009) (citations

omitted).
102

LM Ins. Corp. v. Criss for Estate of Szuhay, 716 F. App’x 530, 534 (6th Cir. 2017) (quoting W. World
Ins. Co. v. Hoey, 773 F.3d 755, 763 (6th Cir. 2014)); see also, e.g., Hanover Ins. Co. v. Jones, 979 F. Supp. 2d 1210,
1217 (D. Kan. 2013) (“The CGL Policy is designed to protect [the insured] from liability for injuries to third parties
and is not designed to protect . . . for lawsuits by employees.”).
103

See, e.g., Scottsdale Ins. Co. v. GFM Operations, Inc., 789 F. Supp. 2d 1278, 1288 (S.D. Fla. 2011)
(explaining that purpose of employer’s liability exclusion is to make clear that the only coverage intended is for
liability to the general public, not employees) (citation omitted)).

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coverage for bodily injury to an entire class of persons regardless of the theory of liability; there
is no question here regarding what “any insured” means in the context of an intentional-act
exclusion or when that term is juxtaposed with the phrase “any other person” in a negligententrustment exclusion.
Further, the Court cannot find that the use of the term “any insured” in the EL
Endorsement—standing alone—is ambiguous merely because there are many insureds or
because the exclusion uses the conjunctive “or” multiple times, resulting in the exclusion’s
application to bodily injury to any employee, contractor, or employee or subcontractor of such a
contractor, hired by or for any insured to perform duties related to the conduct of any insured’s
business. The exclusion is not so broad as to make it ambiguous or to render coverage illusory;
rather, the exclusion makes sense given the purpose to be accomplished by the commercial
general-liability policy at issue.104

Under Kansas law, “‘an insured’ or ‘any insured’ refers to

any and all insureds under the policy,”105 which here encompasses both Jake’s and Lone Star.
However, the Court must also consider the effect of the Everest Policy’s separation-ofinsureds (or severability-of-interests) clause. Though Everest apparently intended to preclude
coverage for bodily injury to any employee (or contractor, subcontractor, or employee of a
contractor or subcontractor) of any one of the forty-one insureds under the policy, the separationof-insureds clause states that the insurance applies: (1) “As if each Named Insured were the only

104

See generally, e.g., Atl. Ave. Assocs. v. Cent. Sols., Inc., 24 P.3d 188, 191−92 (Kan. Ct. App. 2001)
(rejecting insured’s argument that definition of “pollutants” was so broad as to render pollution exclusion
ambiguous); Safeco Ins. Co. of Am. v. Mares, 71 F. App’x 808, 812 (10th Cir. 2003) (finding, under New Mexico
law, that exclusion was “not so broad or nebulous that it swallows and effectively nullifies a broad insuring clause”);
Nat’l Cas. Co. v. Young, No. 07-cv-4836, 2009 WL 2170105, at *6 (E.D. Pa. July 17, 2009) (“Contrary to
Defendant’s position, a broad contractual provision does not mean that the provision is ambiguous.”) (citations
omitted)).
105

Catholic Diocese of Dodge City v. Raymer, 825 P.2d 1144, 1148 (Kan. Ct. App.), aff’d 840 P.2d 456
(Kan. 1992) (collecting cases); see also Pink Cadillac Bar & Grill, Inc. v. U.S. Fidelity & Guar. Co., 925 P.2d 452,
458 (Kan. Ct. App. 1996).

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Named Insured”; and (2) “Separately to each insured against whom claim is made or “suit” is
brought.”106
The insurers point out that the Everest Policy’s employer’s liability exclusion would have
used the term “the insured,” but that the EL Endorsement altered that term to “any insured.”
They argue that courts in other states have held that the use of “any insured” rather than “the
insured” in an exclusion “should be read to supersede the separation of insureds language in
order both to effectuate [the exclusion’s] plain meaning, and to avoid rendering the clause a
nullity.”107 In fact, “[t]his reading . . . is in agreement with the majority of cases that have
analyzed an exclusion using the language ‘any insured’ in conjunction with a separation of
insureds clause.”108 It is true that the Kansas Supreme Court, prior to Brumley, noted that the
term “the insured” is “obviously . . . not the same as ‘named insured’ or ‘any insured.’”109
However, the parties have not cited and the Court has not identified any Kansas authority
holding that a change from “the insured” to “any insured” in a coverage exclusion should be read
to supersede a severability clause, and Brumley would seem to require the opposite result.
Having found that the EL Endorsement is not ambiguous when considered on its own—but
taking into account the Brumley holding—the Court assumes without deciding that the
combination of the term “any insured” in the EL Endorsement with the Policy’s separation-of-

106

Doc. 20-1 at 33.

107
Nautilus Ins. Co. v. Barfield Realty Corp., No. 11-cv-7425 (JPO), 2012 WL 4889280, at *10 (S.D.N.Y.
Oct. 16, 2012) (citations omitted); see also, e.g., Petrozziello v. Thermadyne Holdings Corp., 211 So.3d 1199, 1203
(La. Ct. App. 2017); Am. Nat. Prop. & Cas. Co. v. Clendenen, 793 S.E.2d 899, 917−18 (W. Va. 2016); Am. Fam.
Mut. Ins. Co. v. Wheeler, 842 N.W.2d 100, 104−108 (Neb. 2014); Nautilus Ins. Co v. K. Smith Builders, Ltd., 725 F.
Supp. 2d 1219, 1229−30 (D. Haw. 2010); Evanston Ins. Co. v. OEA, Inc., Nos. CIVS02-1505DFL PAN, CIVS021981DFL PAN, 2005 WL 1828796, at *8 (E.D. Cal. July 25, 2005); BP Am., Inc. v. State Auto Prop. & Cas. Ins.
Co., 148 P.3d 832, 839−42 (Okla. 2005).
108

Evanston Ins. Co., 2005 WL 1828796, at *8 (collecting cases); see also Brumley v. Lee, 963 P.2d 1224,
1234−36 (Kan. 1998) (Six, J., dissenting).
109

Rose Constr. Co., Inc. v. Gravatt, 642 P.2d 569, 571 (Kan. 1982).

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insureds clause creates ambiguity about the circumstances under which the EL Endorsement will
apply.
While a policy that is rendered ambiguous due to provisions with doubtful or conflicting
meaning must be given the construction most favorable to the insured,110 Jake’s initially does not
articulate what construction of the EL Endorsement would result in coverage other than to imply
that it should have no effect at all. In a later portion of its briefing, Jake’s acknowledges that
“[a]pplying the Separation of Insureds provision . . . , Jake’s is to be treated as the only insured
under the Policy for purposes of determining whether the Employer’s Liability Exclusion bars
coverage to Jake’s for the State Court Action”111 a position with which both Harper and this
Court agree.112
The Court finds that a reasonable person in the position of the insured would have
understood the language of the Everest Policy’s EL Endorsement to have its narrowest
construction when read with the separation-of-insureds provision. Thus, adhering to Brumley’s
holding that a severability clause means that each insured has his or her own policy, and in the
context of Harper’s claim against Jake’s, the EL Endorsement provides only that there is no
coverage only for “bodily injury” to:
(1)

Any “employee” of [Jake’s], to any contractor hired or retained
by or for [Jake’s] or any “employee” or sub-contractor of any
such contractor for any claim arising out of and in the course
of:
(a)

Employment or retention by or for [Jake’s], any
contractor or any subcontractor; or

110

Brumley, 963 P.2d at 1227.

111

Doc. 72 at 43−44; see also Doc. 103 at 52; Doc. 110 at 64−65.

112
Doc. 107 at 42 (“Liberally construing the language in favor of Jake’s results in the ‘any insured’
language applying to just a single insured—the insured Jake’s.”); see also Doc. 102 at 24.

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(b)

Performing duties related to the conduct of [Jake’s] or
any contractor or subcontractor’s business . . . .

Under this narrow construction, if Harper qualifies as Jake’s “employee” because he was its
“leased worker,” and his injury arose out of and in the course of performing duties related to the
conduct of Jake’s business, then the exclusion applies to preclude coverage.113
D.

Does the EL Endorsement Apply to Bar Coverage for the State Court Action
on the Facts of this Case?
1.

Does Harper Qualify as a “Leased Worker” and Therefore an
“Employee” of Jake’s?

There is no dispute that Harper was an employee of Lone Star, but the parties disagree on
whether Harper qualifies as Jake’s “employee” within the meaning of the Everest Policy. The
Policy provides that the term “employee” includes a “leased worker.”114 “Leased worker,” in
turn, is defined to mean “a person leased to you by a labor leasing firm under an agreement
between you and the labor leasing firm, to provide duties related to the conduct of your business.
‘Leased worker’ does not include a ‘temporary worker.’”115 Jake’s primary argument that
Harper was not Jake’s “employee” is that he cannot qualify as a “leased worker” because Lone
Star is not a “labor leasing firm,” which is not a defined term in the Everest Policy.
Jake’s contends that because Lone Star was created by the Marietta family to provide
workers only to family-owned businesses and does not hold itself out to the public as a labor
leasing firm, a reasonably prudent insured would not understand Lone Star to qualify as a “labor

113

Under this construction, the exclusion would not apply to employees of Lone Star injured while
performing duties related to Lone Star’s business. The exclusion would apply, however, if Harper was an employee
of any contractor hired by or for Jake’s, and the insurers argue that Lone Star qualifies as Jake’s contractor. Because
this interpretation of the Everest Policy is subject to the parties’ competing estoppel arguments, among others, the
Court considers first whether Harper qualifies as an employee of Jake’s.
114

Doc. 20-1 at 33.

115

Id. at 34.

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leasing firm” under the Everest Policy. In support of this argument, Jake’s relies on several
cases addressing the meaning of the term “labor leasing firm” when it is undefined in the
insurance contract at issue. However, the cases Jake’s relies upon are either distinguishable or
ultimately unhelpful to its position.
For example, in JNJ Logistics, L.L.C. v. Scottsdale Ins. Co., JNJ Express (“Express”), a
long-haul trucking company, provided one of its drivers to JNJ Logistics (“Logistics”), which
provided local hostling services, for seasonal work.116 The worker, Grove, was injured while
performing hostling services for a client of Logistics.117 Express and Logistics had the same
ownership, and while Grove was performing hostling work for Logistics, his wages were paid by
Express—Logistics later repaid those wages plus a fee to Express in an “intercompany settleup.”118 The owner of both companies testified that “Grove was hired by JNJ Express and
worked at JNJ Logistics through an agreement between the two companies, not through an
agreement between JNJ Logistics and a labor-leasing firm.”119 Thus, the court found that Grove
was not a “leaser worker.”120 JNJ Logistics is distinguishable from this case in that Express did
not exist for the purpose of placing its employees at client companies; rather, Express was a
trucking firm that temporarily provided one of its employees to another firm under common
ownership.
Similarly, in Telamon Corp. v. Charter Oak Fire Insurance Co., the Seventh Circuit
found that the company through which the insured obtained a worker’s services was not a “labor

116

No. 2:10-cv-02741-JPM-cgc, 2013 WL 6903937, at *4−6 (W.D. Tenn. Dec. 31, 2013).

117

Id. at *1.

118

Id. at *4−6.

119

Id at *15.

120

Id.

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leasing firm.”121 In that case, Telamon engaged Juanita Berry to work for it through a series of
consulting agreements with J. Starr Communications, which was “Berry’s one-woman company
through which she provided her services.”122 After discovering that Berry had embezzled a large
sum, Telamon sought to recover under an insurance policy covering theft by “employees,”
including “leased workers” leased from a “labor leasing firm.”123 The court accepted Telamon’s
definition of a “labor leasing firm” as one that places its employees at client companies for a fee,
but held that “J. Starr was not a firm in the business of leasing labor; it was just Berry’s vehicle
for providing her own services. To classify her corporate alter ego as a ‘labor leasing firm’
would be to elevate form over substance.”124 Telamon is plainly distinguishable from the present
matter, where Lone Star employed hundreds of people and leased them to client companies while
maintaining the rights and obligations of an employer.
The foregoing cases support the concept that a labor leasing firm is an entity “in the
business of placing its employees at client companies for varying lengths of time in exchange for
a fee.”125 A “labor leasing firm” generally “retain[s] the rights and obligations of an employer—
including determining rate of pay, procuring workers’ compensation insurance and processing
payroll—while the client company direct[s] the employees daily activities.”126 In this action, the
facts are that under the SSA, Lone Star was responsible for handling wages, benefits,
employment taxes, and other human resources functions for the staff it provided to Jake’s,

121

850 F.3d 866, 870 (7th Cir. 2017).

122

Id. at 869.

123

Id. at 870.

124

Id.

125

Pac. Emp’rs Ins. Co. v. Wausau Bus. Ins. Co., No. 3:05-cv-850-J-32TEM, 2007 WL 2900452, at *8
(M.D. Fla. Oct. 2, 2007).
126

Scottsdale Ins. Co. v. Torres, 561 F.3d 74, 78 (1st Cir. 1009) (citation omitted).

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including the provision of workers’ compensation insurance and other required insurance. In
turn, the SSA required that Jake’s pay Lone Star a monthly fee in addition to the amount of gross
wages and all employer contributions. Although use of the term “lease” in the controlling
agreement is not determinative of whether an entity is a “labor leasing firm,”127 Jake’s own
corporate representative testified that Lone Star was formed to “lease out the employees” to
Marietta entities, and that function is Lone Star’s only business.128 Under these facts, a
reasonable insured would understand an exclusion for bodily injury to “employees,” including
“leased workers,” to include workers employed by Lone Star and leased to Jake’s, particularly
given that Jake’s has no employees of its own. Jake’s lacks support for its argument that Lone
Star cannot be a “labor leasing firm” because it only leased employees to businesses affiliated
with the Marietta family.
Finally, Jake’s briefly suggests that Harper may have been a “temporary worker” and
therefore not Jake’s “employee,” but fails to develop this argument with case law or factual
support. It is undisputed that Harper worked for Jake’s for several years prior to Lone Star’s
formation, and that after Lone Star was created in 2011, he was employed by Lone Star and
leased to Jake’s on a continuous basis until the time of his injury in 2014. Although Harper’s job
tasks may have varied from season to season, there is nothing in the record to suggest that
Harper’s work for Jake’s was short-term or temporary. The Court finds that Lone Star qualifies
as a “labor leasing firm,” and that Harper qualifies as a “leased worker” and therefore Jake’s
“employee,” within the meaning of the Everest Policy.

127

See id.

128

Baker Dep., Doc. 20-4 at 32:21−24.

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2.

Did Harper’s Injury Arise Out of and in the Course of Performing
Duties Related to the Conduct of Jake’s Business?

The EL Endorsement provides that there is no coverage for bodily injury to an employee
“arising out of and in the course of . . . performing duties related to the conduct of Jake’s
business.”129 Jake’s and Harper contend that the Court should abstain from ruling on whether
Harper was performing work related to the conduct of Jake’s business at the time of his injury
because that question is still in play in the State Court Action. The Court has already addressed,
and therefore briefly disposes of, this argument.
Shortly after Everest moved for summary judgment in this case, Jake’s and Harper
moved for a stay pending resolution of the underlying State Court Action. In the State Court
Action, Jake’s is arguing, as an affirmative defense, that the “exclusive remedy” provision of the
Kansas Worker’s Compensation Act (“KWCA”) applies to bar Harper’s tort claims against it
because Jake’s was Harper’s “statutory employer” within the meaning of that statute. The judge
in the State Court Action denied Jake’s motion for summary judgment based on this affirmative
defense, finding that genuine disputes of material fact remained.130
In this action, then, Jake’s and Harper argued in their motions to stay that factual issues
with respect to Jake’s liability-determinative exclusive-remedy affirmative defense in the State
Court Action would overlap with the question of Harper’s employment status in this action and,
therefore, that a determination by this Court of whether the Everest Policy’s EL Endorsement
applies would encroach on the state court’s jurisdiction.

129
Doc. 20-1 at 71. Jake’s contends that Everest is estopped from arguing against coverage on the basis of
Section 1(a) of the EL Endorsement (pertaining to injury arising out of or in the course of employment or retention
by or for Jake’s) because Everest did not raise that precise provision in its ROR letter; Everest does not directly
address this argument, but focuses instead on Section 1(b) (pertaining to injury arising out of or in the course of
performing duties related to the conduct of Jake’s business) in arguing that coverage is precluded.
130

Doc. 107-1.

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Under the KWCA’s exclusive-remedy provision, “a worker may not maintain a commonlaw negligence action against an employer if the worker may recover benefits for an injury from
that employer under the Act.”131 K.S.A. § 44-503(a) provides that the KWCA “extends . . . to
certain individuals or entities who are not the immediate employers of the injured workers, but
rather are ‘statutory employees.’”132 The effect of this provision is
to allow an employee of a contractor to recover workers
compensation benefits from either his immediate employer or the
principal contractor, so long as the work being done by the
employee is either an integral part of the principal’s trade or
business or is work that would ordinarily have been done by an
employee of the principal.133
“A statutory employer is immune from a common-law suit for damages due to the exclusive
remedy provision even when the injured employee chooses to receive workers compensation
benefits from his or her immediate employer rather than the statutory employer because the
employee could have recovered compensation from the statutory employer.”134
As set forth in this Court’s April 27, 2020 Memorandum and Order, a Crawford County
jury will have to determine whether, according to the Kansas Supreme Court’s so-called “Hanna
tests,” Jake’s qualifies as Harper’s statutory employer within the meaning of the KCWA by
deciding: (1) whether similar businesses use their own employees to perform the kind of work
that Harper was doing at the time of his injury; or (2) whether Jake’s would normally do the
work Harper was performing at the time of his injury through its own employees.135 In contrast,
131

Bright v. Cargill, Inc., 837 P.2d 348, 355 (Kan. 1992) (citing Zehring v. Wickham, 658 P.2d 1004, 1006
(Kan. 1983)); K.S.A. § 44-501(d).
132

Robinett v. Haskell Co., 12 P.3d 411, 414 (Kan. 2000) (citing Bright, 837 P.2d 348, 355−56); K.S.A. §

44-503(a).
133

Robinett, 12 P.3d at 415 (citation omitted).

134

Id. (first citing Bright, 837 P.2d at 355−56; then citing Zehring, 658 P.2d at 1006).

135
Bright, 837 P.2d at 356 (clarifying Hanna v. CRA, Inc., 409 P.2d 786, 789 (Kan. 1966)); Stottlemyre v.
Sunflower Elec. Power Corp., 107 F. Supp. 3d 1182, 1188−89 (D. Kan. 2015) (applying “Hanna test”).

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this case involves the broader question of whether Harper’s injury “[arose] out of and in the
course of . . . performing duties related to the conduct of Jake’s business.”136
In arguing that the Court should refrain from ruling on the nature of the work Harper was
performing at the time of his injury because that question is for the state court to decide, Jake’s
and Harper ignore the fact that the Hanna tests do not apply in determining whether the EL
Endorsement bars coverage. While it certainly could be said that if the Hanna tests are
satisfied—as Jake’s is expressly arguing they are in the State Court Action—then the broader EL
Endorsement would also apply, “an employer’s liability exclusion for bodily injury to an
employee ‘arising out of and in the course of employment’ encompasses claims that are
potentially broader than workers’ compensation obligation and may only have a limited causal
relationship to employment.”137 The Court declines to alter its prior ruling on this issue and will
proceed to construe the EL Endorsement on the facts of this case.
The Kansas Supreme Court has stated that “[t]he terms ‘arising out of’ and ‘in the course
of’ . . . employment have, by judicial [decision], acquired definite meanings which are generally
recognized.”138
The term “in the course of” employment . . . relates to the time,
place and circumstances under which the accident occurred, and
means the injury happened while the workman was at work in his
employer’s service. If personal injury by accident befalls a
workman while he is doing what a man so employed may
reasonably do within a time during which he is employed, and at a
136

Doc. 20-1 at 71.

137

Scottsdale Ins. Co. v. GFM Operations, Inc., 789 F. Supp. 2d 1278, 1288 (S.D. Fla. 2011) (quoting Sinni
v. Scottsdale Ins. Co., 676 F. Supp. 2d 1319, 1333 (M.D. Fla. 2009)); see also Ohio Cas. Ins. Co. v. Garden of Eat’n
of Tampa, Inc., No. 8:10-cv-2602-T-33TBM, 2011 WL 3879512, at *6−7 (M.D. Fla. Sept. 2, 2011) (noting that
employer’s liability exclusion may apply to bar coverage regardless of whether injury creates obligation under
worker’s compensation statute).
138

Bienz v. John Hancock Mut. Life Ins. Co., 407 P.2d 222, 225 (Kan. 1965). The court stated that when
those terms are used in an insurance policy, “we see no reason to doubt that they were intended to have the same
meaning which they have in our Workmen’s Compensation Act.” Id.

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place where he may reasonably be during that time, the injury
occurs “in the course of” employment.
The term “arising out of” employment . . . points to the cause or
origin of the accident and requires some casual connection
between the injury and the employment. An injury arises out of
employment if it arises out of the nature, conditions, obligations or
incidents of employment.139
Under Kansas law, the phrase “arising out of,” when used in insurance contracts, requires “more
than a remote connection.”140 However, the phrase denotes a more liberal standard than
proximate cause, and is a “broad and inclusive” concept.141 Similarly, “[t]he words ‘relate’ or
‘related’ are commonly understood terms in everyday usage. They are defined in the dictionary
as meaning a ‘logical or causal connection between’ two events.”142
Considering the foregoing definitions and the facts of this case, the Court finds that there
is no genuine dispute of material fact regarding whether Harper’s bodily injury arose out of and
in the course of performing duties related to Jake’s business. In August 2014, Harper was
assisting in preparing the Bypass Property for sub-leasing. As the lessee of the Bypass Property,
Jake’s was solely responsible for readying it for the new tenant. This project involved Harper
and his co-worker taking inventory of storage trailers on the property to determine what
materials Jake’s could salvage for use in its business. On the day of the injury, Harper and his
co-worker were in the process of removing expired fireworks from a storage trailer; Jake’s
owned the expired fireworks, the trailer, and the forklift Harper’s co-worker was operating when

139

Id. (quoting Pinkston v. Rice Motor Co., 303 P.2d 197, 203 (Kan. 1956)); see also Kindel v. Ferco
Rental, Inc., 899 P.2d 1058, 1063 (Kan. 1995).
140

Dillon Cos., Inc. v. Royal Indem. Co., 369 F. Supp. 2d 1277, 1288 (D. Kan. 2005) (citing Farm Bureau
Mut. Ins. Co., Inc. v. Evans, 637 P.2d 491, 494 (Kan. Ct. App. 1981)).
141

Id. (citation omitted).

142
Cont’l Cas. Co. v. Wendt, 205 F.3d 1258, 1262 (11th Cir. 2000) (citing Webster’s Third New
International Dictionary (1981)).

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the explosion occurred. Although Harper argues that the work he was performing was “property
management outside and apart from the fireworks distribution business,”143 the circumstances
here support that regardless of whether the narrower Hanna tests are satisfied, Harper was
injured at a time, place, and under circumstances in which he was performing tasks related to
Jake’s business, including the cleanup and salvage of fireworks. The EL Endorsement therefore
applies to bar coverage for the State Court Action, and because Jake’s lacks coverage under the
Everest Policy, it also lacks coverage under the Maxum and James River Policies.
E.

Does Jake’s Have Coverage Under the Everest Policy’s Stop-Gap
Endorsement?

Jake’s and Harper argue that despite the EL Endorsement, Jake’s has coverage under the
Everest Policy’s Stop-Gap Endorsement, which provides, in part, that Everest will cover
sums that the insured becomes legally obligated to pay as damages
because of “bodily injury” to any of your “employees” that arises
out of and in the course of employment by you, provided such
“employee” is reported and declared under the Workers
Compensation Fund of a state designated in the Schedule of this
endorsement.144
The Stop-Gap Endorsement also provides that it applies where Jake’s “legal liability is in lieu of
or in addition to the liability under an applicable ‘Workers’ Compensation Law.’”145
Jake’s and Harper contend that the insurers have conceded that Harper qualifies as Jake’s
“employee” and that his bodily injury arose out of and in the course of performing duties related
to Jake’s business through their arguments pertaining to the EL Endorsement, and that the only
remaining requirement for Stop-Gap Endorsement to apply is that Harper was “reported and
declared under the Workers Compensation Fund of a state designated in the Schedule of this
143

Doc. 63 at 16.

144

Doc. 20-1 at 67.

145

Id.

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endorsement.”146 Jake’s and Harper contend, however, that Everest failed to make this reporting
requirement clear—they argue that the Stop-Gap Endorsement is ambiguous and must be
construed in favor of coverage because Everest did not fill in the blank where it could have
required reporting to a workers’ compensation fund of a particular state or states, failed to
designate any specific state in the Schedule of the Stop-Gap Endorsement, and did not explain
what is meant by the phrase “reported and declared.”
The insurers counter first that Jake’s has waived the argument that the Stop-Gap
Endorsement provides coverage because Jake’s did not raise this provision in its pleadings prior
opposing Everest’s motion for summary judgment. The insurers further argue that the Stop-Gap
Endorsement has no application here because it does not apply to workers in Kansas, Harper has
not been reported or declared to any workers’ compensation fund in Kansas or elsewhere, Jake’s
liability to Harper is not in lieu of or in addition to its liability under applicable workers’
compensation laws, and Jake’s and Harper’s interpretation of the Stop-Gap Endorsement must be
rejected as unreasonable.
The insurers explain their argument that the Stop-Gap Endorsement cannot apply here by
providing background on the purpose of such provisions. They point out that
[e]mployer’s liability coverage is traditionally written in
conjunction with workers’ compensation insurance and is
intended to fill gaps by providing protection in those situations in
which [the] employee has [the] right to bring [a] tort action
despite provisions of [the] workers’ compensation statute, or
[where the] employee is not subject to workers’ compensation
law, and generally these two types of coverage are mutually
exclusive.147

146

Id.

147
16 Couch on Ins. § 225:157 n.2 (3d Ed. June 2020 Update); see also Erie Ins. Prop. & Cas. Co. v. Stage
Show Pizza, JTS, Inc., 553 S.E.2d 257, 262 (W. Va. 2001) (citing 1 Appleman on Insurance § 1.17 (2d Ed. 1996)).

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The insurers argue that in most states, workers’ compensation insurance is sold by private
insurers; in several so-called “monopolistic” states, however, employers are required to purchase
workers’ compensation coverage directly from a state fund.148 They state that because state
workers’ compensation funds do not provide coverage for employer’s liability, an insured in a
monopolistic state will typically purchase a stop-gap endorsement to its workers’ compensation
or commercial general-liability policy. The insurers argue that stop-gap coverage does not apply
in a non-monopolistic state such as Kansas, and that this explains why Kansas courts have not
interpreted such provisions.149 They hypothesize that “Jake’s undoubtedly purchased Stop Gap
coverage with its Everest Policy to ensure that it had employer’s liability coverage for workers in
Washington, a monopolistic state in which it has operations.”150
Regardless of whether stop-gap employer’s liability provisions may apply in Kansas
under circumstances not present here, the Court finds that even if Jake’s has not waived this
argument, it has failed to meet its burden to prove coverage under the Stop-Gap Endorsement of
the Everest Policy on the facts of this case. Jake’s and Harper argue that a reasonably prudent
insured would understand stop-gap coverage to apply in all states because the Stop-Gap
Endorsement itself does not identify any particular state, and because the Everest Policy’s
Commercial General Coverage Part Schedule and Final Audit state that the provision’s coverage
location is “ALL.”151 In focusing on where the endorsement applies, however, Jake’s and
Harper ignore how it applies.

148

See 4 Compensation and Benefits § 44:123 (Nov. 2020 Update).

149

See Muncy v. Criswell, No. 3:07-0563, 2008 WL 11379931, at *1 (S.D. W. Va. July 16, 2008) (finding
that commercial general-liability policy provision providing employer’s liability coverage only applied to
monopolistic states, not competitive-fund states).
150

Doc. 112 at 32.

151

Doc. 20-1 at 19, 72.

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The Stop-Gap Endorsement expressly states that it applies where the injured worker is
“reported and declared under the Workers Compensation Fund of a state designated in the
Schedule of this endorsement.”152 In the Coverage Part Schedule and Final Audit, the coverage
location is listed as “ALL” for this provision, meaning that Harper could have been reported and
declared in any state that has such a fund. However, there is no evidence in this case that Harper
was reported or declared to any workers’ compensation fund, which is logical because while
Harper was employed and injured in Kansas, the Kansas Workers’ Compensation Fund is only
liable under limited circumstances that do not appear applicable here.153 Jake’s contention that
the Stop Gap Endorsement applies in all states actually supports the insurers’ argument that
Harper could have been reported to any applicable workers’ compensation fund but was not.
The Court also cannot credit Jake’s argument that the phrase “reported or declared” is
ambiguous. Failing to define a contract term does not, under Kansas law, automatically render it
ambiguous,154 and the Court finds that according to its plain meaning, that phrase requires that
Harper’s “employer must have made known that he would collect benefits from [a workers’
compensation] fund.”155 Nor does the Court credit Jake’s argument that the insurers are

152

Id. at 67.

153

See K.S.A. § 44-566a(e) (providing that Kansas Workers’ Compensation Fund shall be liable for
payment of (1) awards to handicapped employees for claims arising prior to July 1, 1994; (2) benefits to an
employee whose employer is uninsured or insufficiently self-insured; (2) reimbursement of an employer or
insurance carrier for amounts paid in excess of the award ordered in a full hearing on the workers’ compensation
claim; (4) payment of the actual expenses of the commissioner of insurance incurred for administering the fund; and
(5) other payments or disbursements provided by law). Further, in cases where the Kansas Workers’ Compensation
fund may be available, “the commissioner . . . shall be impleaded in such proceedings and shall represent and defend
the workers compensation fund.” K.S.A. § 44-566a(c)(1). The only parties to Harper’s workers’ compensation
action were Harper, Lone Star, and TIC. See Doc. 83-1, Ex. A.
154

See Speth v. State Farm Fire & Cas. Co., 35 P.3d 860, 862 (Kan. 2001).

155

Caliber One Indem. Co. v. O & M Constr. Co., No. 1:04-CV-00417-LJM-VS, 2004 WL 2538646, at *4
(S.D. Ind. Sept. 29, 2004) (adding that “the words “reported’ and ‘declared’ are common English words and should
be given their plain meaning”); but see Quality Signs & Serv., Inc. v. Westfield Cos., Inc., No. 02-Cl-1396, 2004 WL
1047914, at *3 (Ky. Cir. Ct. Feb. 16, 2004) (finding term “reported and declared” ambiguous when “buried in a
lengthy, highly technical provision”).

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estopped from denying coverage under the Stop-Gap Endorsement—Jake’s has the burden to
prove that coverage under this provision exists, and “waiver and estoppel will not expand a
policy’s coverage.”156 Finally, Jake’s interpretation of the Stop-Gap Endorsement would render
the EL Endorsement meaningless, which is not a result favored by Kansas law.157 Having found
that Jake’s has failed to meet its burden of establish coverage under the Stop-Gap Endorsement
because it has not shown that Harper was “reported and declared” under the workers’
compensation fund of any state, the Court does not reach the insurers’ additional argument that
Jake’s cannot show that its liability in the State Court action “is in lieu of or in addition to”
liability under an applicable workers’ compensation law.
F.

Do Defendants’ Affirmative Defenses Preclude Summary Judgment in the
Insurers’ Favor?

The Court has not decided this case based on any interpretation of the EL Endorsement
that is subject to the parties’ competing waiver and estoppel arguments, and therefore will not
further address Jake’s motion for leave to file a sur-reply on these issues and its objections to
Judge Mitchell’s order denying it leave to amend its answers and counterclaims as to Everest and
Maxum to assert estoppel as a defense.158 Further, as noted above, the Court need not consider

156

Ashton v. Nat’l Farmers Unions Prop. & Cas. Co., No. 11-4002-SAC, 2012 WL 2814129, at *7 (D.
Kan. July 10, 2012) (quoting Russell v. Farmers Ins. Co., Inc., 163 P.3d 1266, 1268−69 (Kan. Ct. App. 2007)).
157
See LDF Food Grp., Inc. v. Liberty Mut. Fire Ins. Co., 146 P.3d 1088, 1095 (Kan. Ct. App. 2006);
Dillard Dept. Stores, Inc. v. State, Dept. of Human Res., 13 P.3d 358, 364 (Kan. Ct. App. 2000).
158

The Court is not persuaded by Jake’s argument that James River is estopped from denying coverage on
any basis whatsoever because it did not decline coverage until June 2020. “Kansas courts recognize that estoppel
may arise from an insurer’s failure to make a timely and proper reservation of rights . . . [i]f a liability insurer, with
knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action
brought against the insured, without disclaiming liability and giving notice of its reservation of rights.” Lone Star
Steakhouse & Saloon, Inc. v. Liberty Mut. Ins. Grp., 343 F. Supp. 2d 989, 1009 (D. Kan. 2004) (quoting Snedker v.
Derby Oil Co., 192 P.2d 135, 137 (Kan. 1948)). Jake’s does not argue that James River, the second-level excess
insurer, played any role in Jake’s defense in the State Court Action, nor has Jake’s established that James River’s
“acts, representations, admissions, or silence” induced it to believe that coverage existed despite the fact that Everest
has been defending Jake’s in the State Court Action under a reservation of rights that includes the basis on which
this case is decided in the insurers’ favor. Id. at 1010.

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whether Jake’s has waived its Stop-Gap Endorsement argument because, even if it has not,
Jake’s has failed to meet its burden to show that the Stop-Gap Endorsement provides coverage
for the State Court Action. Jake’s motion for leave to file a sur-reply and its objections to Judge
Mitchell’s order are denied as moot given the findings set forth above. In opposition to Everest’s
motion for summary judgment, Harper raises additional affirmative defenses—specifically,
multiple abstention doctrines, collateral estoppel on the issue of Harper’s employment status,
laches, and collusive joinder. The Court finds that none of these defenses prevent judgment in
the insurers’ favor.
In seeking summary judgment on its claim for declaratory judgment, Everest “is
necessarily also moving for summary judgment on any affirmative defenses to that claim.”159 In
response, “a defendant that wishes to prevent entry of summary judgment on the claim [must]
come forward with evidence showing the existence of a genuine factual dispute concerning
an affirmative defense that, if ultimately successful, would defeat the claim.”160 If the defendant
fails to do so and summary judgment in the plaintiff’s favor is otherwise warranted, “then
the affirmative defense is extinguished.”161
Harper argues, again, that the Court should abstain from hearing this declaratory
judgment action on the basis of the Rooker-Feldman, Younger, and Colorado River doctrines and
collateral estoppel. The shared premise of Harper’s arguments in support of the application of
each of these doctrines is that this Court should not rule on whether the nature of the work

159

United Cent. Bank v. Wells St. Apartments, LLC, 957 F. Supp. 2d 978, 987 (E.D. Wis. 2013), aff'd sub
nom. United Cent. Bank v. KMWC 845, LLC, 800 F.3d 307 (7th Cir. 2015).
160

Id. at 987−88; see also Int’l Sch. Servs., Inc. v. AAUG Ins. Co., No. 10-62115-CIV, 2012 WL 5635590,
at *8 (S.D. Fla. Nov. 15, 2012); McCollough v. Johnson, Rodenberg & Lauinger, 587 F. Supp. 2d 1170, 1176 (D.
Mont. 2008), aff’d, 637 F.3d 939 (9th Cir. 2011).
161

United Cent. Bank, 957 F. Supp. 2d at 988.

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Harper was performing at the time of his injury makes Jake’s his statutory employer under the
Hanna tests because that is an issue that the state court has decided or will decide. However, as
Everest aptly notes, the Court has already ruled that it will not abstain from hearing this case
because interpretation of the EL Endorsement does not decide the narrower statutory-employer
question in the State Court Action. In deciding this insurance-coverage declaratory judgment
action, the Court has not ruled on whether the Hanna tests are satisfied.162
Further, the Rooker-Feldman doctrine cannot apply here for the additional reason that the
state court proceedings are not final.163 The Younger abstention doctrine does not apply because
although Harper argues that the State Court Action is a civil proceeding that implicates the State
of Kansas’s interest in enforcing the orders and judgments of its courts, he cites no persuasive
authority to support that his state tort action meets this definition.164 Finally, the Colorado River
abstention doctrine only applies where there are “parallel” state and federal proceedings,
meaning that “the same parties litigate substantially the same issues in different forums.”165
[T]o grant a stay or dismissal under the Colorado River doctrine
would be “a serious abuse of discretion” unless “the parallel statecourt litigation will be an adequate vehicle for the complete and
prompt resolution of the issues between the parties. . . . [T]he
decision to invoke Colorado River necessarily contemplates that

162
See Doc. 49 at 7−8 (stating that the issues presented in this action are neither dependent on nor interfere
with Jake’s statutory-employer affirmative defense in the State Court Action); see also, e.g., Joseph A. ex rel.
Corrine Wolfe v. Ingram, 275 F.3d 1253, 1267 (10th Cir. 2002) (stating that Younger abstention only applies where
federal proceedings will “interfere with an ongoing state judicial proceeding”) (citing J.B. v. Valdez, 186 F.3d 1280,
1291 (10th Cir. 1999))).
163
See Guttman v. Kahlsa, 446 F.3d 1027, 1032 (10th Cir. 2006) (collecting cases); Farris v. Burton, Case
No. 15-1286-EFM-GLR, 2016 WL 4015032, at *3 (D. Kan. July 27, 2016).
164

See, e.g., Sprint Commc’ns v. Jacobs, 571 U.S. 69. 72−73 (2013) (stating that although Younger
abstention has been extended to state civil proceedings “that implicate a State’s interest in enforcing the orders and
judgments of its courts,” cases that fit within the doctrine are “exceptional” and courts should “ordinarily . . .
entertain and resolve on the merits an action within the scope of a jurisdictional grant, and should not ‘refuse[e] to
decide a case in deference to the States’”) (alteration in original) (citations omitted)).
165
Fox v. Maulding, 16 F.3d 1079, 1081 (10th Cir. 1994) (quoting New Beckley Mining Corp. v. Int’l
Union, UMWA, 946 F.2d 1072, 1073 (4th Cir. 1991)).

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the federal court will have nothing further to do in resolving any
substantive part of the case whether it stays or dismisses.”166
As set forth in this and a prior order, this declaratory judgment action and the State Court Action
are not parallel—the state court will not determine insurance coverage under the Everest Policy,
and this action does not determine the application of the KWCA’s exclusive-remedy defense.
Harper’s argument that collateral estoppel prevents re-litigation of his “employment
status” fails for the same reason.167 Under Kansas law, collateral estoppel first requires “a prior
judgment on the merits which determined the rights and liabilities of the parties on the issue
based upon ultimate facts as disclosed by the pleadings and judgment.”168 The “issue” in this
case and in the “issue” in the State Court Action are not the same, nor has there been a final
judgment on the merits in the State Court Action. Further, collateral estoppel requires the parties
to be the same or in privity,169 yet Harper’s contention that Everest is in privity with Jake’s
because it provided Jake’s state-court defense under a reservation of rights appears contrary to
Kansas law.170
Harper also argues that the affirmative defense of laches precludes summary judgment in
the insurers’ favor. The doctrine of laches “is an equitable device designed to bar stale
claims.”171 While courts may look unfavorably on claims asserted after a lengthy passage of
time, “[d]elay, by itself, . . . does not constitute laches and an action generally will not be
166

Id. (second alteration in original) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 360
U.S. 1, 28 (1983)).
167

Doc. 63 at 20.

168

In re City of Wichita, 86 P.3d 513, 526 (Kan. 2004) (emphasis added) (quoting Waterview Resolution
Corp. v. Allen, 58 P.3d 1284, 1290 (Kan. 2002)); see also Tholen Supply Co., Inc. v. Cont’l Cas. Co., No. 93-2224JWL, 1998 WL 259898, at *1−2 (D. Kan. Apr. 15, 1998).
169

In re City of Wichita, 86 P.3d at 526 (citation omitted).

170

See Davin v. Athletic Club of Overland Park, 96 P.3d 687, 691 (Kan. Ct. App. 2004) (finding privity
between insured and insurer severed where insurer hired attorney to defend insured under a reservation of rights).
171

United Cities Gas Co. v. Brock Exploration Co., 995 F. Supp. 1284, 1298 (D. Kan. 1998).

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defeated by laches alone unless some prejudice has resulted therefrom to the rights or interests of
the adverse party.”172 In determining whether the defense applies, “the court must consider the
totality of the circumstances surrounding the filing of the lawsuit.”173
Harper’s only argument to support that he has been prejudiced here is that Everest
“allowed over three years of significant litigation to go forward before [it] sprung the present
action disclaiming coverage for Harper’s serious, lifelong injuries.”174 Harper does not explain,
however, how Everest seeking a declaratory judgment sooner on the coverage issue would have
avoided Harper’s drawn-out litigation with Jake’s in the State Court Action, and other courts
have found that the laches doctrine does not prevent an insurer from seeking declaratory
judgment on coverage while defending the insured under a reservation of rights.175 Harper has
not established that Everest failed to assert its rights for an unreasonable length of time or in a
manner that caused him prejudice.
Finally, Harper argues—in one paragraph and without citation to case law—that Jake’s
and Everest have “an identical interest . . . in any determination that Harper was an employee of
Jake’s at the time Harper was injured,” and that Everest collusively joined both Jake’s and

172

Id. (quoting Cosgrove v. Young, 642 P.2d 75, 86 (Kan. 1982)).

173

Id. (citing Gillespie v. Seymour, 823P.2d 782, 792 (Kan. 1991)).

174

Doc. 63 at 21.

175

See, e.g., Mut. Benefit Ins. Co. v. R. Gates Constr. Co., Inc., No. RDB-20-0069, 2020 WL 5798069, at
*2 (D. Md. Sept. 29, 2020) (stating that where insurer seeks declaratory relief while defending insured under
reservation of rights, defense of laches is inapplicable); Firemen’s Ins. Co. of Washington D.C. v. Glen-Tree Invs.,
LLC, No. 7:11-CV-59-D, 2012 WL 4191383, at *8 (E.D.N.C. Sept. 19, 2012) (“Adequate notice of an insurer’s
reservation of rights generally precludes an insured from alleging prejudice from the insurer’s subsequent denial of
coverage.”) (collecting cases)); Hartford Fire Ins. Co. v. Gandy Dancer, LLC, No. CIV 10-0137 JB/RHS, 2011 WL
1336523, at *20 n.6 (D.N.M. Mar. 30, 2011) (finding no laches where insured was on notice, through insurer’s
reservation of rights, that insurer would seek declaratory relief); Am. Fam. Ins. Co. v. Chamunda Inc., No. 23524,
2008 WL 1808335, at *3−4 (Ohio Ct. App. Apr. 23, 2008) (finding laches not applicable where, before undertaking
defense of suit, insurer sent reservation of rights letter contesting coverage and stating intent to offer defense only
until its rights could be determined).

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Harper as party defendants in this case to establish diversity jurisdiction.176 Harper contends that
“this collusive joinder requires that Jake’s be designated as a plaintiff along with Everest and
deprives this Court of diversity jurisdiction.”177 This argument is unavailing.
“This Circuit has held that ‘courts will scrutinize the interests of the parties in order to
determine if their positions as plaintiffs and defendants conform to their real interests.’”178
“When appropriate, parties will be realigned; however, this is to be done only after real rather
than apparent interests have been ascertained,”179 and “is proper if the Court determines that no
actual, substantial controversy exists between the relevant parties.”180
Harper ignores the fact that in this action, Everest seeks a judgment that its policy
provides no coverage for his injury, while Jake’s seeks a judgment precisely to the contrary.
Harper fails to explain how this scenario results in Jake’s and Everest having an “identical
interest,” rather than directly opposed interests, in whether the Everest Policy’s EL Endorsement
applies to bar coverage for Harper’s injury and whether the Stop-Gap Endorsement provides
coverage, which are the issues before this Court. Harper has not shown the existence of a
genuine factual dispute concerning any affirmative defense that, if ultimately successful, would
defeat Everest’s claim for declaratory judgment.

176

Doc. 63 at 22.

177

Id.

178

Smith v. City of Wellsville, Kan., No. 19-2431-JWB-KGG, 2020 WL 6544585, at *4 (D. Kan. Nov. 6,
2020) (citing Farmers Alliance Mut. Ins. Co. v. Jones, 570 F.2d 1384, 1387 (10th Cir. 1978)).
179

Id.

180
Martinez v. City of Santa Fe, No. 14-cv-0016-SMV/KBM, 2014 WL 12495375, at *2 (D.N.M. Apr. 4,
2014) (citing Price v. Wolford, 608 F.3d 698, 705 (10th Cir. 2010)).

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IT IS THEREFORE ORDERED BY THE COURT that Everest’s Motion for
Summary Judgment (Doc. 19), Maxum’s Motion for Summary Judgment (Doc. 92), and James
River’s Motion for Summary Judgment (Doc. 87) are granted, and the Court shall enter
declaratory judgment that the Everest, Maxum, and James River Policies do not provide liability
coverage for Harper’s bodily injury claim and lawsuit filed against Jake’s in the District Court of
Crawford County, Kansas. Jake’s Motion for Summary Judgment (Doc. 90) and Harper’s
Motion for Summary Judgment (Doc. 95) are denied.
IT IS FURTHER ORDERED that Jake’s Motion for Leave to File a Sur-Reply to
Plaintiff Everest Indemnity Company’s Reply in Support of its Motion for Summary Judgment
(Doc. 94) and Jake’s Objections to the Magistrate Judge’s Order Denying Jake’s Motion for
Leave to Amend its Currently Pending Amended Answer and Counter-Claim to Plaintiff
Everest’s Complaint for Declaratory Judgment and Motion for Leave to Amend its Amended
Answer and Counter-Claim to Intervenor Plaintiff Maxum Indemnity Company’s Complaint for
Declaratory Judgment (Doc. 100) are denied as moot.
IT IS SO ORDERED.
Dated: November 19, 2020
S/ Julie A. Robinson
JULIE A. ROBINSON
CHIEF UNITED STATES DISTRICT JUDGE

50