Great American Assurance Company v. American Casualty Company of Reading, Pennsylvania
Filing
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MEMORANDUM OPINION & ORDER; 1)Pla's 19 MOTION for Judgment on the Pleadings is DENIED; 2)Def to file a Status Report/and or motion within 10 days of entry of this order addressing the posture of its counterclaims in light of the above ruling. Signed by Judge William O. Bertelsman on 10/4/11.(LST)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON
CIVIL ACTION NO. 2010-276 (WOB-JGW)
GREAT AMERICAN ASSURANCE
CO.
VS.
PLAINTIFF
MEMORANDUM OPINION AND ORDER
AMERICAN CASUALTY CO.
OF READING, PA.
DEFENDANT
This is a diversity action involving a dispute as to
coverage available under two separate insurance policies.
This matter is presently before the court on plaintiff’s
motion for judgment on the pleadings (Doc. 19).
The court
finds that oral argument is not necessary to the resolution
of this motion.
Background
Plaintiff Great American Assurance Company (“Great
American”) issued a general liability insurance policy to
the Redwood School & Rehabilitation Center, Inc. in Ft.
Mitchell, Kentucky (“Redwood”) for the period January 1,
2008 to January 1, 2009.
Redwood is a licensed day care
center that provides services for medically fragile
children.
In the “Exclusions” section of the Great American
policy, subsection (h) excludes:
Damages which are covered by other insurance in any
other insurance policy whether collectible or not.
(Great American Policy GA000044) (Exh. A to Motion for
Judgment on Pleadings).
Defendant American Casualty Co. of Reading,
Pennsylvania (“American Casualty”) issued “Healthcare
Providers Professional Liability” policies to Tracy M.
Roell (“Roell”) and Amie Kristine Rich (“Rich”) for the
periods October 9, 2007 to October 9, 2008 and September 1,
2007 to September 1, 2008, respectively.
Motion for Judgment on the Pleadings).
(Exhs. B & C to
Roell and Rich were
nurses at the Redwood facility.
The American Casualty policies contain, in a section
titled “Other Insurance and Risk Transfer Arrangements,” a
provision which states, in relevant part:
It is the intent of this policy to apply only to the
amounts covered under this Policy which exceed the
available limit of all deductibles, limits of
liability or self-insured amounts of the other
insurance, whether primary, contributory, excess,
contingent, or otherwise.
(American Casualty Policy at GA000048).
On March 23, 2009, an individual named Elisabeth
Collins sued Redwood, Rich, Roell and two other individuals
named Mary Spare (“Spare”) and Pam Millay (“Millay”) in
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Kenton Circuit Court alleging that her son, a special needs
child, died while in the custody or care of Redwood and the
individual defendants. 1
Great American appointed legal counsel and defended
Redwood, Spare and Millay from the Collins suit.
American
Casualty appointed counsel and defended Roell and Rich from
the Collins suit.
Although American Casualty made demands
on Great American to defend and indemnify Roell and Rich,
Great American took the position that it had no such duty.
The Collins suit was mediated in October 2010, during
which the parties attempted to agree upon the allocation of
financial responsibility between the insurers for any
settlement.
They were unable to reach an agreement.
In December 2010, Great American settled the claims
against Redwood, Spare, and Millay.
American Casualty
continued to negotiate on behalf of Roell and Rich, and in
March 2011 it reached a settlement on their behalf.
Great American filed this action on December 7, 2010,
alleging claims for contribution, declaratory judgment
breach of contract, and unjust enrichment.
Great American
alleges that it was not obligated to defend or indemnify
Roell or Rich in the Collins suit and that it paid more
1
A copy of the Collins complaint is attached as Exhibit E to
Great American’s motion.
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than its fair share towards its settlement with Collins.
Great American alleges that American Casualty owes it more
than $75,000 in contribution towards that settlement.
American Casualty counterclaims that Great American
was the primary insurer for Nurses Roell and Rich and that
the American Casualty policy was, in effect, excess and
triggered only if the Great American policy was exhausted.
American Casualty counterclaims for breach of
contract/estoppel, equitable recovery, and declaratory
relief, asserting that it is entitled to recover the
defense and indemnity costs it paid on behalf of Roell and
Rich.
On June 24, 2011, Great American filed a Motion for
Judgment on the pleadings, which is fully briefed.
Although American Casualty has not filed a cross motion,
the parties treat these issues as being purely questions of
law on the interpretation of the two policies in question.
Analysis
A.
Coverage
The question of coverage for the Roell and Rich claims
will be addressed first because, unless coverage exists,
issues of exclusion or priority do not arise.
See Great
Am. Ins. Co. v. Lawyers Mut. Ins. Co. of Ky., 492 F.
Supp.2d 709, 712 (W.D. Ky. 2007) (“Only after the Court
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defines the nature of each coverage does the operation of
the ‘excess’ or ‘escape’ clauses become relevant.”).
First, the parties agree that the claims against Roell
and Rich in the Collins action fall within the coverage
grant of the American Casualty professional liability
policy inasmuch as the claims arose out of the nurses’
performance of their professional duties.
The next question is whether the claims fall within
the coverage of the Great American policy issued to
Redwood.
Although Great American alludes to a possible
lack of coverage under its policy, noting that Roell and
Rich never paid premiums to Great American, the claims
alleged against them in the Collins lawsuit do, for the
following reasons, fall within the coverage of that policy.
The Great American policy lists “Redwood School &
Rehabilitation Center, Inc.” as the named insured.
American Policy GA000001).
(Great
In addition, however, the
section titled “Who is an Insured” states:
Any employee while occupying a position shown in the
Declaration[s] Page but only with respect to their
duties while acting within the scope of employment for
that position by the Named Insured.
No person is an insured for damages arising out of
health care activities unless the position of the
person performing the services is shown on the
Declarations Page.
(Id. at GA 000045).
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It is undisputed that the Declarations Page to the
Health Care Services part of this policy lists LPNs and RNs
employed by Redwood as insureds within the “Health Care
Services” coverage.
(Id. at GA000005).
The Collins action
alleged, and Great American does not dispute here, that the
claims against Roell and Rich in that case arose out of
actions they took or failed to take within the scope of
their duties as LPNs or RNs at Redwood.
Therefore, on the face of the Great American policy,
Roell and Rich are covered against the claims asserted
against them in the Collins lawsuit.
B.
Exclusion or Priority of Coverage
Because the Collins claims against Roell and Rich are
within the scope of coverage of both the Great American and
American Casualty policies, the next question is whether
any provision in those policies excludes coverage or
renders one policy excess to the other.
Great American first argues that subsection (h) in its
“Exclusions” section precludes coverage for the claims
against Roell and Rich.
That subsection, which stands
alone, purports to exclude:
Damages which are covered by other insurance in any
other insurance policy whether collectible or not.
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(Great American Policy GA000044).
This argument is not
well taken.
Although found in the “Exclusions” section of the
Great American policy, this provision does not operate, as
do most exclusions, to “restrict and shape the coverage
otherwise afforded” according to the risks insured against.
Kemper Nat’l Ins. Co. v. Heaven Hill Distilleries, Inc., 82
S.W.3d 869, 871 (Ky. 2002).
Instead, subsection (h) purports to exclude coverage,
not on the basis of a specific risk or activity, but solely
on the basis of the existence of other insurance.
This is
illustrated by the fact that Great American did provide
coverage to Nurses Spare and Millay, who stood in exactly
the same shoes as Roell and Rich with respect to the
Collins claims, the only difference being that those two
women did not have other insurance coverage.
Cf. Universal
Underwriters Ins. Co. v. The Travelers Ins. Co., 451 S.W.2d
616 (Ky. App. 1970) (finding that clause precluding
coverage for any operations performed by independent
contractors was an enforceable exclusion). 2
2
Great American’s reliance on the Universal Underwriters
decision as support for its argument that coverage is
excluded is thus misplaced because the provision in that
case functioned as a true exclusion.
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For these reasons, subsection (h) is not, in
substance, a true exclusion.
Instead, it functions as an
“other insurance” escape clause.
See Gov’t Employees Ins.
Co. v. Globe Indem. Co., 415 S.W.2d 581, 582 (Ky. 1967)
(explaining that an “escape” clause negates any liability
if other insurance is available to the insured).
The next question then is which clause – the Great
American escape clause or the American Casualty excess
clause – shall be given effect?
In Kentucky, the answer
depends on whether the escape clause is a “standard” or
“non-standard” escape clause.
Id.
If the Great American
escape clause is a “standard” one, the excess clause in the
American Casualty policy will prevail; if the escape clause
is “non-standard,” it will prevail.
Id.
See also Great
Am. Ins. Co. v. Lawyers Mut. Ins. Co. of Ky., 492 F.
Supp.2d 709, 712-14 (W.D. Ky. 2007); Empire Fire and Marine
Ins. Co. v. Haddix, 927 S.W.2d 843, 845 (Ky. App. 1996)
(“Where two insurance companies are contesting primary
liability, and one policy contains a non-standard escape
clause while the other contains an excess clause, the
escape clause prevails over the excess clause.”).
A “general or ‘standard’ escape clause is one which
creates a general disclaimer of risk solely due to the
presence of other insurance.”
Great Am. Ins., 492 F.
8
Supp.2d at 714 (citation omitted).
“Such clauses are
viewed as contrary to public policy because they could
operate to create a complete forfeiture of coverage.”
Id.
In contrast, a “non-standard” escape clause is “more
specific” in that it “specifically contemplates the
existence of other insurance coverage.”
Id. at 713.
See,
e.g., Empire Fire, 927 S.W.2d at 845 (holding that escape
clause was “non-standard” where it stated that insurance
was excess to “any other collectible insurance or ‘selfinsurance’ available . . . whether such insurance or ‘selfinsurance’ is primary, excess or contingent”); Globe
Indem., 415 S.W.2d at 582 (holding that escape clause was
“non-standard” where it denied liability “if other
insurance, either primary or excess, is available to the
driver”).
Here, there is no question that the Great American
escape clause creates a general disclaimer of coverage due
solely to the presence of any other insurance.
It is
therefore a “standard” escape clause which, under the above
authority, must yield to the excess clause in the American
Casualty policy.
Great American attempts to transform this clause into
a “non-standard” escape clause by linking it artificially
with adjacent exclusions (f) and (g), thereby analogizing
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it to the clause found to be non-standard in Great Am.
Ins., supra.
This argument is without merit because
subsection (h) in the policy here is a stand-alone
provision and is in no way interdependent on the previous
two subsections.
In contrast, the escape clause found to
be “non-standard” in Great Am. Ins. was a three-part
provision comprised of interdependent, conjunctive phrases
which had to be read together to derive the complete
meaning of the clause.
Great Am. Ins., 492 F. Supp.2d at
710.
In sum, therefore, the Great American escape clause is
a “standard” one, and thus the American Casualty excess
clause prevails under Kentucky law.
This means that Great
American owed Roell and Rich a primary duty of defense and
indemnification in the Collins matter, and that American
Casualty’s coverage was triggered only if and when the
Great American policy was exhausted.
Therefore, having reviewed this matter, and the court
being otherwise advised,
IT IS ORDERED that (1) plaintiff’s motion for judgment
on the pleadings (Doc. 19) be, and is hereby, DENIED; and
(2) defendant shall file a status report and/or motion
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within ten (10) days of entry of this order addressing the
posture of its counterclaims in light of the above ruling.
This 4th day of October, 2011.
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