Nationwide Mutual Insurance Company et al v. Smith et al

Filing 113

MEMORANDUM AND OPINION denying 56 Motion to Strike; denying 58 Motion for Summary Judgment; finding as moot 60 Motion to Strike. See Order for details. Signed by Chief District Judge Julie A Robinson on 9/29/17. (kao)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

NATIONWIDE MUTUAL INSURANCE
COMPANY and AMCO INSURANCE
COMPANY,

)
)
)
)
)
Plaintiffs,
)
)
)
v.
)
)
MONTE JEAN SMITH, individually;
)
MONTE JEAN SMITH, as trustee of the
)
Monte Jean Smith Revocable Trust dated
)
April 17, 2001; HY GRADE CONSTRUCTION )
AND MATERIALS, INC.; MARY JO
)
BRADSHAW; and STEPHEN L. BRADSHAW, )
as Special Administrator for the Estate of
)
Lewis K. Bradshaw,
)
)
Defendants.
)
_________________________________________ )

Case No. 11-1266-JAR-GLR

MEMORANDUM AND OPINION
Plaintiffs Nationwide Mutual Insurance Company and AMCO Insurance Company filed
this lawsuit, seeking a declaration that certain farm liability policies do not provide coverage for
the losses arising from a fatal injury suffered by Lewis J. Bradshaw on property owned by Hy
Grade Construction and Materials while he was working for Hy Grade, or for any of the claims,
injuries and damages alleged in Neosho County Case No. 2010 CV 109, and that Plaintiffs have
no contractual duty to defend Defendants in that state court action. On February 28, 2014, this
Court granted Defendants’ Motion for Stay of Declaratory Judgment Proceedings pending the
state court determination of liability (Doc. 92). After the Kansas Court of Appeals affirmed the
district court’s grant of summary judgment in favor of defendants Monte Jean Smith and Hy

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Grade Construction and Materials, Inc., and the Kansas Supreme Court denied the Bradshaw
plaintiffs’ Petition for Review,1 the Court held a status conference with the parties in this
declaratory judgment proceeding. The parties advised the Court that the duty to defend issue has
been resolved, but because the Policies at issue include a provision for reimbursement of
attorney’s fees for defending this action, the issue remains for this Court to determine whether
coverage extends to Defendants.
Accordingly, this matter is again before the Court on Plaintiffs’ Motion for Summary
Judgment (Doc. 58) and Motion to Strike its Demand for Jury Trial (Doc. 56). For the reasons
explained in detail below, the Court denies Plaintiffs summary judgment on the issue of coverage
and denies without prejudice its motion to strike demand for jury trial.2
I.

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

issue as to any material fact and that [it] is entitled to judgment as a matter of law.”3 A fact is
only material under this standard if a dispute over it would affect the outcome of the suit.4 An
issue is only genuine if it “is such that a reasonable jury could return a verdict for the nonmoving
party.”5 The inquiry essentially determines if there is a need for trial, or whether the evidence “is
so one-sided that one party must prevail as a matter of law.”6
The moving party bears the initial burden of providing the court with the basis for the
1

Doc. 109.

2

Because the only remaining issue before the Court is coverage under the Policies, the Bradshaw
Defendants’ Motion to Strike the Affirmative Defense of Smith and Hy Grade (Doc. 60) is moot.
3

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

4

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

5

Id.

6

Id. at 251–52.

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motion and identifying those portions of the record that show the absence of a genuine issue of
material fact.7 Where, as here, the movant bears the burden of proof on a claim or defense, it
must show that the undisputed facts establish every element of the claim entitling it to judgment
as a matter of law.8 If the moving party properly supports its motion, the burden shifts to the
non-moving party, “who may not rest upon the mere allegation or denials of his pleadings, but
must set forth specific facts showing that there is a genuine issue for trial.”9 In setting forward
these specific facts, the nonmovant must identify the facts “by reference to affidavits, deposition
transcripts, or specific exhibits incorporated therein.”10 If the evidence offered in opposition to
summary judgment is merely colorable or is not significantly probative, summary judgment may
be granted.11 A party opposing summary judgment “cannot rely on ignorance of the facts, on
speculation, or on suspicion, and may not escape summary judgment in the mere hope that
something will turn up at trial.”12 Put simply, the nonmoving party must “do more than simply
show there is some metaphysical doubt as to the material facts.”13
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.”14

7

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

8

See id. at 331 (“If the moving party will bear the burden of persuasion at trial, that party must support its
motion with credible evidence—using any of the materials specified in Rule 56(c) that would entitle it to a directed
verdict if not controverted at trial.”).
9

Muck v. United States, 3 F.3d 1378, 1380 (10th Cir. 1993).

10

Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998).

11

Cone v. Longmont United Hosp. Ass’n, 14 F.3d 526, 533 (10th Cir. 1994).

12

Conaway v. Smith, 853 F.2d 789, 793 (10th Cir. 1998), aff’d 939 F.2d 910 (10th Cir. 1991).

13

Matushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986).

14

Celotex, 477 U.S. at 327 (quoting Fed. R. Civ. P. 1).

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II

Uncontroverted Facts
The following facts are either uncontroverted, stipulated to, or viewed in the light most

favorable to the non-moving parties.
Hy Grade Construction and Materials, Inc. (“Hy Grade”) was started by Monte Jean
Smith’s (“Smith”) father as a construction company in the 1950’s. Hy Grade’s main asset is land
consisting of a pecan grove (the “Ponderosa”), some land leased for cattle, and a small amount of
land leased for farming. Hy Grade was held in a trust set up by Smith’s father; after his death in
2001 or 2002, Hy Grade was transferred to Smith, who took over as President of the company.
Nationwide Mutual Insurance Company (“Nationwide”) issued a farm liability policy
(the “Farm Liability Policy”) to Smith, listing Hy Grade and the Trust as additional insureds.
AMCO Insurance Company (“AMCO”) issued a farm umbrella liability policy (the “Farm
Umbrella Liability Policy”) to Smith listing Hy Grade and the Trust as additional insureds. The
Ponderosa was listed as part of the insured premises under both policies, and both policies had a
term of April 11, 2008 to April 11, 2009.
The Farm Liability Policy excluded coverage for:
Employers’ Liability
“Bodily injury” sustained by:
1)

Any “employee” (other than a “residence employee”) as a
result of his or her employment by the insured;

2)

any “residence employee”, unless the “employee” makes a
written claim or brings “suit” no later than 36 months after
the end of the policy period; or

3)

The spouse, child, parent, brother or sister of any
“employee” as a consequence of “bodily injury” to that
“employee”.

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This exclusion applies whether the insured may be held liable as an
employer or in any other capacity and to any obligation to share damages
with or repay someone else who must pay damages because of the injury.
The only exceptions to this exclusion are in “occurrences” of
“bodily injury” for which the insured has assumed liability under
an “insured contract”.
The Farm Umbrella Liability Policy excluded coverage for:
Employee Injury
a.
any injury to an “employee” of the “insured”
arising out of and in the course of
employment by the “insured”; or
b.

any injury to the spouse, child, parent,
brother, or sister of that “employee” as a
consequence of a. above.

Both policies include a “Separation of Insureds” clause, which state:
Except with respect to the Limits of Insurance, and any rights or
duties specifically assigned . . . 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.
On November 8, 2008, Lewis J. Bradshaw (“Bradshaw”) was clearing brush between
rows of pecan trees on the Ponderosa and was burning a brush pile. While clearing and burning
the brush, there was an explosion that caused Bradshaw to suffer “major injury” that ultimately
resulted in his death the next day.
On November 5, 2010, Mary Jo Bradshaw, the widow of Bradshaw, and Stephen L.
Bradshaw, the Special Administrator of Bradshaw’s estate, filed suit against Smith, the Trust and
Hy Grade in Neosho County District Court (the “State Court Action”), seeking survival and
wrongful death damages as a result of Bradshaw’s accident. Smith and Hy Grade contend that

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Bradshaw was using explosives without the permission of either Smith or Hy Grade.
Bradshaw had a business relationship with Hy Grade since 1950 or 1952, having started
with the company right out of high school. Bradshaw worked for Hy Grade at the Harry Byers
rock quarry, and continued to work for Harry Byers after Hy Grade transferred its interest prior
to the time Smith acquired her interest in Hy Grade. At the time of his injury, Bradshaw worked
for Michael Beacher at a rock quarry in Coffeyville, Kansas. When Smith took over the
operations of Hy Grade, Bradshaw was doing work for Hy Grade one to three days per month,
except during the mowing season. Bradshaw maintained the equipment, changed oil, cleared
brush, and bulldozed. Smith testified that Bradshaw was his own boss because he had worked
for the company for so many years that he knew what needed to be done. Bradshaw determined
the number of hours that he worked on any given day or during any given month, and would
determine how many hours he needed to work in order to finish the job or duties Smith expected
him to complete. Bradshaw would turn his hours in to the office, and was paid an hourly wage
every two weeks, if he worked any hours. Hy Grade also paid Bradshaw to cover his health
insurance; it did not maintain a health insurance plan. Hy Grade issued Bradshaw a W-2 at the
end of each year and he was listed on the company’s payroll records for 2008. Bradshaw did not
share in Hy Grade’s profits or losses. When Bradshaw did work for Hy Grade, he used the
company’s equipment.
Hy Grade did not have a written agreement with Bradshaw concerning the work he was
to do for Hy Grade after Smith took over the business. Smith testified that she could not be
Bradshaw’s boss because he had a better working knowledge and understanding of what needed
to be done than she did. Bradshaw did what he wanted to do, for the benefit of Hy Grade. Smith
never gave Bradshaw any directions or instructions about how to do his job, nor did anyone else.

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Hy Grade did not have a policy, procedure, or instructions for Bradshaw regarding what work to
do. Hy Grade was not unhappy with Bradshaw’s work. Bradshaw would from time to time hire
a company to grind tree stumps, and Hy Grade would pay that company.
Smith makes the overall management decisions for the operation of Hy Grade. As
president of Hy Grade, Smith did not exercise her right to tell Bradshaw what to do because he
knew more about his work than she did. Smith believed that she had the right to terminate the
relationship between Hy Grade and Bradshaw, if she wanted to, but would not have because of
his longevity, and because Bradshaw was the “backbone” of the company. Likewise, Bradshaw
could have ended his relationship with Hy Grade by telling Smith he was no longer going to
work for Hy Grade. Smith testified that when she bought the insurance policies at issue in this
case, she wanted to make sure an incident like Bradshaw’s injury would be covered, and
specifically asked for that.
Smith testified that had she known that Bradshaw intended to use explosives, she would
not have allowed it. Smith is not aware of anyone having previously used explosives on the Hy
Grade property. From the time Smith became president of Hy Grade, Bradshaw never used
explosives for clearing brush on Hy Grade property. Smith did not tell Bradshaw that he was
forbidden from using explosives while doing work for Hy Grade.
The underlying State Court Action was filed November 5, 2010, and at the time Plaintiffs
filed their motion for Summary Judgment, was scheduled for trial in November 2013. Plaintiffs
have never refused to provide a defense in the State Court Action, and the attorney hired by
Plaintiffs continues to represent Smith and Hy Grade in that case. After the matter went under
advisement, the State Court trial was continued until September 2014, and the Smith Defendants’
motion to stay the proceedings was granted. The state district court granted summary judgment

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to Hy Grade and Smith, and the Bradshaws appealed. The Kansas Court of Appeals affirmed the
district court’s ruling, finding no breach of the landowner’s duty of reasonable care and no
evidence the landlord engaged in an abnormally dangerous activity.15
III.

Discussion
A.

Coverage Under the Policies

Under Kansas law, “[a]n insurance company seeking to avoid liability under an
exclusionary clause in its policy for a loss which is otherwise covered has the burden of proving
that the loss falls within the exclusion.”16 Plaintiffs thus have the burden to prove that this case
falls under the employee injury exclusion in their policies. To do so, Plaintiffs must establish
that Lewis Bradshaw was a Hy Grade employee at the time of his injury, and that his injury arose
and resulted from such employment.
Plaintiffs argue that the employee injury exclusion applies because Bradshaw was an
employee of Hy Grade; Defendants counter that a reasonable trier of fact could conclude that
Bradshaw was an independent contractor at the time of his injury. Whether an individual is an
employee or an independent contractor generally is a question of fact for the jury.17 In Falls v.
Scott,18 the Kansas Supreme Court defined an independent contractor and stated how the
determination is to be made as follows:
An independent contractor is defined as one who, in exercising an
independent employment, contracts to do certain work according
to his own methods, without being subject to the control of his
employer, except as to the results or product of his work. The
15

Bradshaw v. Smith, 382 P.3d 467 (Table), 2016 WL 4413956 (Kan. Ct. App. 2016), rev. denied (May 24,

16

Alliance Life Ins. Co. v. Ulysses Volunteer Fireman’s Relief Ass’n, 529 P.2d 171, 173 (Kan. 1974).

17

McCubbin v. Walker, 886 P.2d 790, 795 (Kan. 1994).

18

815 P.2d 1104 (Kan. 1991).

2017).

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primary test used by the courts in determining whether the
employer-employee relationship exists is whether the employer has
the right of control and supervision over the work of the alleged
employee, and the right to direct the manner in which the work is
to be performed, as well as the result which is to be accomplished.
It is not the actual interference or exercise of the control by the
employer, but the existence of the right or authority to interfere or
control, which renders one a servant rather than an independent
contractor.19
In addition to the general rule, the Restatement (Second) of Agency § 220(2) sets out
several relevant factors to be considered in deciding whether one is an employee or an
independent contractor:
(a) the extent of control which, by the agreement, the master may
exercise over the details of the work;
(b) whether or not the one employed in engaged in a distinct
occupation or business;
(c) the kind of occupation, with reference to whether, in the
locality, the work is usually done under the direction of the
employer or by a specialist without supervision;
(d) the skill required in the particular occupation;
(e) whether the employer or the workman supplies the
instrumentalities, tools, and the place of work for the person doing
the work;
(f) the length of time for which the person is employed;
(g) the method of payment, whether by the time or by the job;
(h) whether or not the work is a part of the regular business of the
employer;
(i) whether or not the parties believe they are creating the relation
of master and servant; and
(j) whether the principal is or is not in business.20
The Kansas Supreme Court has indicated that the Restatement factors should be considered in
determining the issue in question.21
“Where the facts are undisputed or the evidence is susceptible of only a single

19

Id. at 1112 (citing Wallis v. Sec’y of Kan. Dep’t of Human Res., 689 P.2d 787, Syl. ¶¶ 3, 5 (Kan. 1984)).

20

Restatement (Second) of Agency § 220 (1958).

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conclusion, it is a question of law for the court whether one is an employee or an independent
contractor. However, generally speaking, the question of whether an individual is an employee
or an independent contractor is considered a question of fact for the jury or trier of facts.”22
Applying this standard to the present matter, and applying the relevant inferences in
favor of Defendants as the non-moving parties, the Court finds that summary judgment in favor
of Plaintiffs is not appropriate. Although Plaintiffs contend that “without question,” Smith had
the ability to control Bradshaw’s day-to-day tasks, there is also evidence that Bradshaw was his
own boss, and was “driving his own bus.” There is also evidence that Bradshaw had the ability
and authority to control how he performed his work, specifically when he chose, how much he
chose and how he chose. Hy Grade had no policies, rules or procedures that Bradshaw was
required to follow, and there is no evidence that anyone with Hy Grade had any ability to direct
his work except as to the results. Smith’s testimony regarding whether Bradshaw was authorized
to use explosives on the Ponderosa and that she would have “minded” or not approved if he had
hired out his work to third parties is subject to conflicting interpretation. Moreover, there is
testimony that Bradshaw had hired third parties to do stump removal. Accordingly, viewed in
the light most favorable to Defendants, the record does not establish as a matter of law that Smith
controlled Bradshaw’s manner and method of performance.
As to the other factors, there is evidence that the work Bradshaw performed on the
Ponderosa required particular skills that were performed without supervision. Indeed, Smith
testified that Bradshaw knew more about what to do on the pecan grove than she did. Bradshaw
did not work exclusively for Hy Grade, but had a full-time job with a rock quarry, a distinct
21

See Brillhart v. Scheier, 758 P.2d 219, 223 (Kan. 1998).

22

Mitzner ex rel. Bishop v. State, 891 P.2d 435, 437–38 (Kan. 1995) (citations omitted).

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business from the business of Hy Grade at the time of his injury. Although Smith testified that
she was not aware of Bradshaw holding himself out to the public for farm-related work, there is
no evidence in the record regarding whether he in fact did such work for anyone else. While
Bradshaw used Hy Grade’s equipment, the circumstances surrounding his form of compensation
are less than clear. According to Defendants, Bradshaw received a W-2 from Hy Grade for
many years while he was a full-time employee for the company’s construction business, and
continued to do so after Hy Grade’s business changed “because it had always been done that
way,” not because Smith made an informed and deliberate decision to pay Bradshaw as a W-2
employee.
Reviewing all of the evidence in the light most favorable to Defendants, a rational trier of
fact could conclude there was an independent contractor relationship between Hy Grade and
Bradshaw. Moreover, Plaintiffs do not argue, nor does the record show, that Bradshaw’s injuries
were sustained within the scope of the alleged employment with Hy Grade, as required by the
terms of the policies. Because Plaintiffs bear the burden of proving the exclusion applies, it
would be improper for the Court to grant summary judgment on these disputed material issues of
fact.
B.

Motion to Strike Demand for Jury Trial

Plaintiffs move pursuant to Federal Rules of Civil Procedure 12(f) and 39(a)(2) to strike
their demand for jury trial. Although Plaintiffs initially requested a jury trial, after discovery
they concluded a jury trial was not appropriate and seek to withdraw their request. The Smith
Defendants object, arguing that Plaintiffs’ motion does not comply with Rule 38(d) and is an
improper attempt to deprive Defendants of their right to a trial by jury. Given the extensive
amount of time that has transpired pending resolution of the state court proceedings, as well as

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the current posture of the case and limited nature of the dispute, the Court will deny Plaintiffs’
motion without prejudice to renew its request at the Final Pretrial Conference.
IT IS THEREFORE ORDERED BY THE COURT that Plaintiffs’ Motion for
Summary Judgment (Doc. 58) is denied; Plaintiffs’ Motion to Strike Demand for Jury Trial
(Doc. 56) is denied without prejudice;
IT IS FURTHER ORDERED that the Bradshaw Defendants’ Motion to Strike
Affirmative Defense (Doc. 60) is moot.
IT IS SO ORDERED.
Dated: September 29, 2017
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

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