Liberty Mutual Insurance Company et al v. The Estate of Hugo J. Bobzien, Jr. et al
Filing
36
MEMORANDUM OPINION by Senior Judge Charles R. Simpson III on 3/28/2019 - For the reasons stated in the Memorandum Opinion, Liberty's motion for summary judgment will be granted and Hugo's Estate's motion for summary judgment will be de nied. The court will enter a declaratory judgment that there is no possibility of coverage under the policies for claims made in the FAC and that Liberty has no duty to defend or indemnify Hugo's Estate in the underlying state court action. Please see Memorandum Opinion for further details. cc: Counsel (KD)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
LIBERTY MUTUAL INSURANCE COMPANY, et al.
vs.
PLAINTIFFS
CIVIL ACTION NO. 3:17-CV-599-CRS
THE ESTATE OF HUGO J. BOBZIEN, JR.
By and through his personal Representative
and Administratrix, THERESA B. HART, et al.
DEFENDANT
MEMORANDUM OPINION
This matter is before the court for consideration of cross-motions for summary judgment
in this declaratory judgment action. The plaintiffs, Liberty Mutual Insurance Company, Liberty
Insurance Corporation, Liberty Mutual Fire Insurance Company, and LM Insurance Corporation
(collectively herein “Liberty” or the “Liberty entities”), contend that there is diversity of
citizenship between the parties and the amount in controversy exceeds $75,000.00 excluding
interest and costs, satisfying the requirement that independent subject matter jurisdiction exist for
this court to “declare the rights and other legal relations” of the parties. 28 U.S.C. § 2201(a);
Brotherhood Mut. Ins. Co. v. United Apostolic Lighthouse, Inc., 200 F.Supp.2d 689, 691 (E.D.Ky.
2002). The defendants, the Estate of Hugo J. Bobzien, Jr. (“Hugo’s Estate,” “Hugo,” or the
“father” herein, as appropriate) and Michael J. Bobzien (“Michael” or the “son” herein), do not
challenge the assertion of subject matter jurisdiction.
The Liberty entities are each alleged to be organized under the laws of states other than
Kentucky and to have principal places of business outside the Commonwealth. Complaint, DN 1,
pp. 2, PageID #2. They are all licensed to do business in Kentucky. Hugo’s Estate is capable of
being sued by and through its Administratrix, Theresa B. Hart, who is a citizen of Kentucky.
Michael is a citizen of the state of Florida and the plaintiff in the underlying lawsuit brought in the
Jefferson County, Kentucky, Circuit Court. The court thus finds that there is complete diversity
between the parties.
The allegation that the amount in controversy exceeds $75,000.00 is
unchallenged and will therefore be accepted for purposes of finding that this court has subject
matter jurisdiction over this matter. We note that the allegations in the underlying state court
complaint claim Michael suffered numerous and significant bodily injuries which could yield a
damage award in excess of $75,000.00.
Upon a finding of subject matter jurisdiction, the court must determine, in its discretion,
whether the case is an appropriate one for declaratory relief under the Declaratory Judgment Act,
28 U.S.C. §§ 2201, et seq.
The principal considerations in making this determination are (1)
whether the judgment would settle the controversy; (2) whether the declaratory action would serve
a useful purpose in clarifying the legal relations in issue; (3) whether the declaratory remedy is
being used merely for purposes of “procedural fencing” or “to provide an arena for a race for res
judicata”; (4) whether the use of a declaratory action would increase friction between our federal
and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an
alternative remedy that is better or more effective. Am. Home Assurance Co. v. Evans, 791 F.2d
61, 63 (6th Cir. 1986)(citing Grand Trunk Western R.R. v. Consolidated Rail Corp., 746 F.2d 323,
326 (6th Cir. 1984)). The parties are in agreement that the court should exercise its discretion to
render a declaratory judgment. For the reasons set forth below, the court will entertain the summary
judgment arguments and render a declaratory judgment in this case.
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A. Undisputed Facts1 - State Court Litigation
Michael was born in 1958 and is the biological son of Hugo. Michael resided in his father’s
household under his father’s care, control and dominion, from birth until he reached the age of
majority in approximately 1976. In the FAC, Michael recites the following events:
From the date of his birth until he reached the age of majority, [Michael] was
repeatedly, forcibly, knowingly, intentionally, wantonly, chronically, recklessly,
grossly negligently and/or negligently exposed and subjected to [his father’s]
hazardous cigarette smoke while he necessarily lived at his childhood residence
under the exclusive control and dominion of [his father], primarily in this county.
As a direct, natural and foreseeable result of [Hugo’s] decisions to repeatedly,
forcibly, knowingly, intentionally, wantonly, chronically, recklessly, grossly
negligently and/or negligently expose and subject [Michael] to his hazardous
cigarette smoke, and as a substantial factor and proximate cause of such decisions,
[Michael] has recently, and within one year from commencement of this action,
been caused to develop chronic obstructive pulmonary disease, osteopenia (with 2
chronic compression fractures of his L2 and T2 vertebrae, osteoarthritis in hips and
knees, chronic back pain and/or degenerative disc disease, cataracts, past and future
medical costs, past and future pain and suffering, past and future loss of enjoyment
of life, permanent impairment of the power to labor and earn money, loss of future
life expectancy, past and future inconvenience and other serious injuries and harms.
The conduct of [Hugo] as herein alleged was committed intentionally, knowingly,
wantonly, recklessly and/or with gross negligence.
Hugo died on March 30, 2016. After his father’s death, Michael filed claims for bodily
injury in the probate action, but his claims were disallowed. He then filed a state court action [Civ.
Action No. 17-CI-002751] containing the above factual allegations and presenting three claims for
relief: negligence, negligence per se, and premises liability. Each claim articulates a duty owed
by the father to the son: a common law duty owed by Hugo to exercise ordinary care for the
These “facts” are primarily gleaned from the allegations in the First Amended Complaint (“FAC”) in
Michael J. Bobzien v. Estate of Hugo J. Bobzien, Jr., Civ. Action No. 17-CI-002751 filed, with leave, on
October 14, 2017, and are taken as true for purposes of our “eight corners” analysis; that is, our
comparison of the allegations of fact within the four corners of the Amended Complaint with the terms of
coverage found within the four corners of the insurance policies in issue. The FAC can be found at DN
23-2, PageID #289-295.
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protection of his son (negligence); a statutory duty owed by Hugo to exercise ordinary care for the
protection of his son (negligence per se); and a duty owed by Hugo to exercise ordinary care to
make his property reasonably safe for invitees, including his then minor son (premises liability).
The claims are identically written, with the exception of the particular duty to which the claim
refers. Representative of the claims, Count 1 – Negligence alleges:
At all times relevant, [Hugo] had a common law duty to exercise ordinary care for
the protection of his son, [Michael], which included the duty to refrain from
repeatedly, forcibly, knowingly, intentionally, wantonly, chronically, recklessly,
grossly negligently and/or negligently exposing and subjecting his minor son, the
Plaintiff, to unsafe, dangerous, neglectful, abusive and/or harmful conditions,
including his hazardous cigarette smoke.
At all times relevant, [Hugo] breached the foregoing common law duty by
repeatedly, forcibly, knowingly, intentionally, wantonly, chronically, recklessly,
grossly negligently and/or negligently exposing and subjecting his son to his
hazardous cigarette smoke.
As a direct, natural, foreseeable, factual and proximate cause of [Hugo’s] breaches
of the foregoing common law duty, [Michael] has been seriously injured and
harmed as herein previously alleged.
The conduct of [Hugo] as herein alleged was undertaken intentionally, knowingly,
wantonly, recklessly and/or with gross negligence, thereby entitling [Michael] to
an award of punitive damages.
DN 23-2. Michael’s illnesses and conditions allegedly resulted from his childhood exposure to
secondhand smoke. The FAC frames the claims to allege breaches of duty as a result of Hugo’s
decisions to expose his son to that hazardous condition. Hugo’s Estate has answered and denied
these claims. The state action is ongoing.
Hugo’s Estate provided notice of the suit to the Liberty entities. They are defending the
state court action under a reservation of rights while seeking a declaration from this court that they
have no obligation to indemnify or further defend Hugo’s Estate under any of the policies issued
to Hugo.
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B. Exercise of Jurisdiction – Considerations
The parties assert that adjudicating the coverage issues “by comparing the allegations in
the underlying complaint with the terms of the insurance policy”2 will not require any fact-finding.
The question as to the obligations, if any, of the insurer to the insured are generally matters of law,
and thus may be decided by this court. Cincinnati Ins. Co. v. Motorist Mutual Ins. Co., 306 S.W.3d
69, 73 (Ky. 2010).
A declaration of “no coverage” would clearly settle the dispute as between the Liberty
entities and Hugo’s Estate. So, too, would a finding in favor of Hugo’s Estate3 that the grounds
articulated by the Liberty entities do not constitute an impediment to the Estate’s demand for a
defense and indemnification. In the event the court were to conclude that one or more of Michael’s
claims “potentially, possibly or might come within the coverage of the policy,” 4 the Liberty
entities’ duty to defend would be clear with respect to all of Michael’s claims in the state court
suit. James Graham Brown Found., 814 S.W.2d at 279-80; Martin County Coal Corp. v.
Universal Underwriters Ins. Servs., 792 F.Supp.2d 598 F.3d 257 (6th Cir. 2010)(the duty to defend
applies to all claims, once duty is triggered). Of course, this court cannot find that indemnity is
owed to Hugo’s Estate. If the policy terms are not preclusive, any obligation to indemnify would
flow from the state court action. The parties recognize this and seek only a determination whether
any of the policy terms preclude indemnity and relieve the Liberty entities of the duty to defend.
2
Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 507 (6th Cir. 2003)(applying Kentucky law).
Michael joins in the motion for summary judgment filed by Hugo’s Estate. (DN 25). He offers some
additional argument in his own brief styled “Reply of the Defendant, Michael J. Bobzien, in Support of the
Motion for Summary Judgment of the Defendant, the Estate of Hugo J. Bobzien (Doc. No. 24).” Despite
his acknowledgment that he is only derivatively invested in declaratory judgment on the coverage
questions, Michael’s brief has been considered and addressed herein to the extent it rounds out the
factual bases for the action against his father.
4 James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279 (Ky.
1991)(citing O’Bannon v. Aetna Cas. & Sur. Co., 678 S.W.2d 390, 392 (Ky. 1984)).
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Therefore, this action serves a useful purpose in clarifying the legal relations between
insurer and insured. A declaratory judgment in this regard would not encroach upon the state
court’s functions.
There is no question of “procedural fencing here” or a “race for res judicata.” The Liberty
entities simply wish to know whether they must remain engaged. The fleche5 has occurred in the
state court action. The matter before this court is no feint,6 but rather a parry7 from which the
Liberty entities can discern their obligations to their insured.
There are no novel questions of state law raised in this declaratory action. There is
sufficient Kentucky case law from which we can readily discern the principles upon which our
analysis must be based, as well as the policy considerations undergirding those state court
decisions. Further, the issues of coverage are not dependent upon any resolution of facts in the
state court. Thus, we conclude that state court would be no better equipped than this court to
decide the questions before us.
The court also concludes that there is no alternative to this declaratory action which is
superior to the declaratory judgment process. The Liberty entities could file a declaratory action
in the state court, either separately or by intervention in the state case, or wait and file an indemnity
action after the liability question has been determined in the state court action. Neither option
offers any advantage over the declaratory relief sought presently in this forum. See Scottsdale Ins.
Co. v. Flowers, 513 F.3d 546 (6th Cir. 2008).
5
An explosive running attack. Glossary of Fencing Terms, www.usafencing.org
A false attack, intended to get a defensive reaction from the opposing fencer, thus creating the
opportunity for a genuine attack. Id.
7 A defensive action in which a fencer blocks his opponent’s blade. Id.
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Having found that the Grand Trunk factors militate in favor of the request by both parties
that we endeavor to render a declaratory judgment herein, we proceed to consider the crossmotions for summary judgment.
C. Undisputed Facts and Michael’s Contentions – Declaratory Judgment Action
1. The Policies
There are five insurance policies8 in issue in this litigation. Three are homeowners’
policies, one is a condominium policy,9 and one is a personal excess liability policy. The following
policies were issued to Hugo in Kentucky as follows:
(1) Liberty Mutual Fire Insurance Company issued a homeowners’ policy for the residence
located at 2602 Cave Spring Place, Louisville, Kentucky, for successive periods beginning
March 31, 2003 and ending March 31, 2011. (Policy No. H3228143799190).
(2) LM Insurance Corporation issued a condominium policy for the residence located at 727
Savoy Road, Louisville Kentucky, for continuing and successive periods beginning on
March 31, 2011 and ending March 31, 2018. (Policy No. H6528149649140).
(3) Liberty Mutual Fire Insurance Company issued homeowners’ policies for the residence
located at 362 Sandy Beach Road, McDaniels, Kentucky, for successive periods beginning
October 31, 2003 and ending October 31, 2006. (Policy Nos. H3228193162400 and
H3228193162401).
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The policies are attached as exhibits A through E to the Complaint for Declaratory Judgment (DN 1).
There is no apparent distinction for our purposes between a policy of coverage for a home or a
condominium. We note the difference solely for factual accuracy.
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(4) Liberty Insurance Corporation issued a homeowners’ policy for the residence located 1045
Sandy Beach Lane, McDaniels, Kentucky, for successive periods beginning on September
15, 2010 and ending September 15, 2017. (Policy No. H3728145310740).
(5) Liberty Mutual Insurance Company issued a personal excess liability insurance policy for
successive periods beginning September 13, 2003 and ending September 13, 2017. (Policy
No. LJ128146130990).
(collectively the “Liberty policies” or the “policies” herein).
All of the homeowners’ policies contain personal liability coverage provisions, various
exclusions, and a set of definitions which are virtually identical. We quote the language in the
Cave Spring Place policy, in pertinent part, as representative:
Section II – Liability Coverages
Coverage E – Personal Liability
If a claim is made or a suit is brought against an “insured” for damages because of “bodily
injury”…caused by an “occurrence” to which this coverage applies, we will:
1. Pay up to our limit of liability for the damages for which the “insured” is legally liable…
and
2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless,
false or fraudulent…
Section II – Exclusions
1. Coverage E – Personal Liability…do[es] not apply to “bodily injury”:
…k. Arising out of sexual molestation, corporal punishment or physical or mental abuse…
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2. Coverage E – Personal Liability, does not apply to:
…f. “Bodily injury” to you or an “insured” within the meaning of …“insured” as defined.
Sections I and II – Conditions
1. Policy Period. This policy applies only to…“bodily injury”…in Section II, which occurs
during the policy period.
Definitions
…[C]ertain words and phrases are defined as follows:
1. “Bodily injury” means bodily harm, sickness or disease…
3. “Insured” means you and residents of your household who are…your relatives…
5. “Occurrence” means an accident, including continuous or repeated exposure to substantially
the same general harmful conditions, which results, during the policy period, in… “Bodily
injury”…
The excess liability policy provides, in pertinent part:
II. Coverage – Personal Excess Liability
We will pay all sums in excess of the retained limit and up to our limit of liability for damages
because of personal injury…to which this policy applies and for which the insured is legally
liable.
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Exclusions
This policy does not apply to personal injury…
a. Which is intended by the insured.
This policy also does not apply to:
h. personal injury to any insured.
V. Conditions
1. Policy Period
This policy applies only to personal injury…which occurs during the policy period…
5. Loss Payable – Other Insurance
This policy applies only to damages in excess of the retained limit for an occurrence. If
collectible insurance with any other insurer is available for a loss also covered by this policy,
this policy will be excess and will not contribute with such other insurance.
An additional exclusion was added by addendum to the policy’s Section II. Coverage – Personal
Excess Liability; Exclusions:
This policy also does not apply to:
1. Personal injury…arising out of sexual molestation, corporal punishment or physical or
mental abuse, including failure to detect, prevent, stop or report such molestation,
punishment or abuse by others.
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The Definitions state, in pertinent part:
I. Definitions
…3. “insured” means you and…
a. Residents of your household, but only if:
(1) Related to you by blood…
b. Any person…insured under any underlying policy for bodily injury…, but only when
the limits of the underlying policy are exhausted…
5. “personal injury” means all forms of personal injury. This also includes bodily injury
and sickness or death at any time resulting therefrom…
9. “retained limit” means as to each occurrence to which this policy applies the sum of:
a. all amount payable under any underlying policy, if any, which would be payable under
such policy but for the breach of policy conditions; and
b. all amounts payable under any other insurance available to the insured, or which would
be payable under such a policy in the absence of this policy…
11. “occurrence” means an accident, including continuous or repeated exposure to
substantially the same general harmful conditions, which results, during the policy period,
in:
a. “Personal injury”…10
Despite the use of the term “occurrence,” the policy form in use from 9/13/2003 through the end of the
first renewal period on 9/13/2005 did not contain a definition of that term. A definition of “occurrence” was
first included in the policy beginning with the policy period 9/13/2005-9/13/2006 and remained through the
last renewal period ending 9/13/2017. No party has suggested that the pre-9/13/2005 policy language
would mandate a different analytical result for the period 9/13/2003-9/13/2005 from that which is sought
with respect to the later version. We will therefore address all the policies, issued and renewed, as falling
under one analytical rubric, as argued by the parties in their cross-motions.
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2. Michael’s Contentions
Michael’s claims are premised upon his diagnosis in 2016 with illnesses and conditions
which he contends are “secondhand smoke-related injuries.” DN 33, p. 9, PageID # 379. He
states that he “was never aware of any harm, injury or potential claim against his father’s Estate
until many years after he was no longer a resident of his father’s household.” Id. He attaches
the affidavit of Vincent M. Ivers., M.D. to his supplemental brief on summary judgment which
supports his assertion of these 2016 diagnoses and Dr. Ivers’ opinion that they are secondhand
smoke-related. Dr. Ivers avers, in pertinent part:
In my professional medical opinion as his treating physician, and based on
the relevant patient history, Mr. Bobzien’s COPD and osteopenia have
been most likely caused by his exposure to second-hand tobacco smoke
while he was a minor growing up in a smoking household.
In my professional medical opinion as his treating physician, and based on
the relevant patient history, the heavy second-hand tobacco smoke
generated by Mr. Bobzien’s now-deceased father, Hugo Bobzien, Jr., to
which Mr. Bobzien was exposed throughout his minor years in the Bobzien
household was a substantial factor in causing Mr. Bobzien’s COPD and
osteopenia.
DN 33-1, p.2, PageID # 383.11
D. Overview of Coverage Arguments on Cross-Motions for Summary Judgment
Liberty seeks a declaration that the policy precludes coverage for all of Michael’s claims
and, concomitantly, Liberty has no duty to defend Hugo’s Estate in the state court action. Liberty
asserts three grounds for the relief it seeks.
First, Liberty notes that Michael alleges in the FAC that he was repeatedly exposed to
secondhand cigarette smoke while he was a resident of his father’s household many years prior to
The Ivers Affidavit and Michael’s own statements in a legal brief regarding his state case fall outside
the four corners of Michael’s state court complaint. This material is quoted solely for purposes of
providing context for our analysis of the coverage issues.
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issuance of any of the policies in question. It contends that Michael claims he was harmed during
his childhood by the repeated exposure to secondhand smoke, despite the fact that he received
diagnoses of various illnesses which developed after he reached adulthood and was no longer
living in the family home. Thus, Liberty contends that the “occurrence” Michael alleges resulted
in his “bodily injury” occurred before the effective dates of the policies. Liberty contends that
scientific evidence supports a finding that harm occurs immediately upon exposure to secondhand
smoke. It contends, therefore, that “bodily injury,” defined as “harm, sickness or disease,” occurred
outside the policy periods, regardless of later developments of illness.12
Hugo’s Estate counters that Liberty conflates exposure with injury in order to conclude
that the FAC alleges “bodily injury” which occurred outside the policy period. The Estate argues
that the focus must be on Michael’s “bodily injury” in 2016, not the exposure when he was a child.
It notes that an “occurrence” under the policies is an “accident” which results in “bodily injury”
during the policy period. It contends that an “accident” is an unintended and unexpected result,
and that the development of Michael’s illnesses and conditions was unexpected and unintended by
Hugo, and thus Michael’s later development of illnesses and conditions was an “accident.” The
Estate contends that, despite the repeated exposure to a harmful condition decades before any
policy period, there is potential for coverage because he does not allege he suffered any “bodily
injury” from the exposure until 2016 and thus his “bodily injury” occurred during the policy period,
as required as a condition for potential coverage.
Liberty rejoins that “bodily injury” under the policies must result from an “occurrence.” In
this instance, the only event alleged in the FAC was Hugo’s act of repeatedly exposing Michael to
secondhand smoke when Michael was a minor living in his father’s household. The Estate
12
Citing Ins. Co. of N. Am. V. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980).
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contends that no event is alleged to have occurred after the exposure to secondhand smoke.
Therefore, the exposure is the only possible “occurrence” alleged in the FAC causing Michael’s
“bodily injury.” The fact that Hugo’s Estate contends that Hugo never intended for his son to
become ill does not alter the fact that Hugo’s smoking was an intentional act, not a fortuitous event.
Further, Liberty notes that an “insured” under the policies includes a relative residing in
the “insured”’s (Hugo’s) household.
It argues that Michael would have been excluded from
coverage for any “bodily injury,” had any one of the policies been in effect at the time of the
repeated exposure to this harmful condition, and therefore a finding of possible coverage would
essentially afford “claims made” coverage under these “occurrence-based” policies in
contravention of the intent of the parties.13
The parties disagree on the appropriate authority for determining whether an “accident”
has been alleged, under the definition of “occurrence.” Liberty contends that the FAC does not
allege “bodily injury” caused by an “occurrence,” as required for coverage under the policies,
because the complaint does not allege that Hugo’s exposure of his son to secondhand smoke was
a fortuitous event, as defined by Kentucky’s most recent case addressing what constitutes an
“accident.”14
Hugo’s Estate counters that, under Kentucky law, the term “occurrence” is to be construed
broadly and liberally in favor of extending coverage to the insured. 15 It argues that the injury, not
the negligent act, is the “accident.”16 It contends that it was never part of Hugo’s plan, design or
13
Citing State Farm Fire & Cas. Co. v. Estes, 133 F.Supp.3d 893 (W.D.Ky. 2015) and Kentucky Farm
Bureau Mut. Ins. Co. v. Thompson, 1 S.W.3d 475 (Ky. 1999).
14 Citing Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.w.3d 69 (Ky. 2010), as corrected, (July 19,
2011) and Martin/Elias Properties, LLC v. Acuity, 2018 WL 1960872 (Ky. April 26, 2018).
15 Citing James Graham Brown Found., 814 S.W.2d at 278.
16 Citing Monticello Ins. Co. v. Ky. River Community Care, Inc., 173 F.3d 855 (E.D.Ky. 1999)(table);
Asbury College v. Ohio Ins., No. 2004-CA-001044-MR, 2005 WL 1252331 (Ky.App. May 27, 2005);
Stillwell v. Brock Bros., Inc., 736 F.Supp. 201 (S.D.Ind. 1990).
14
intent to cause injury to any of his children by exposing them to secondhand smoke, and that he
could not have so planned or intended because such harm was not yet known to medical science.
It argues that if the resulting damages were unintended, they were accidental, even though the
original acts were intentional.17
Finally, Liberty argues that the FAC alleges “bodily injury” arising from “physical abuse,”
a term with a common dictionary definition of “physical maltreatment,” conduct which is excluded
from coverage under the policies.18
The Estate urges that Michael does not allege cruelty in his father’s smoking habits, and
thus his father’s smoking around his children does not meet the common and ordinary
understanding of “abuse.” Further, he contends that the term “physical abuse” connotes an illegal
activity in common thought.
It contends that even if it was reasonable to construe the term
“physical abuse” as physical maltreatment also, two reasonable interpretations exist, and therefore
the court must construe the term in a manner favorable to the insured.19
E. Legal Framework for Decision
1. Summary Judgment Standard
Before granting a motion for summary judgment, the court must find that “there is no
genuine issue of material fact such that the moving party is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). The Court must view the evidence in a light most favorable to the
non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007).
17
Citing Bituminous Cas. Corp.v. Kenway Constr., Inc., 240 S.W.3d 633, 638 (Ky. 2007).
Citing Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809 (Ky.App. 2000) and Thiele v. Ky.
Growers Ins.Co., 522 S.W.3d 198 (Ky. 2017).
19 Citing Louisville Gas & Elec. Co. v. Am. Ins. Co., 412 F.2d 908, 911 (6th Cir. 1969).
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The moving party bears the initial burden to demonstrate “the absence of a genuine issue
of material fact on at least one element” of the non-moving party’s claims or defenses. Stiles ex
rel D.S. v. Grainger County, Tenn., 819 F.3d 834, 848 (6th Cir. 2016)(citing Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986)).The non-moving party “must do more than simply show that
there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must then show that a genuine
factual issue exists by “citing to particular parts of materials in the record” or by “showing that
the materials cited do not establish the absence ... of a genuine dispute[.]” Fed. R. Civ. P.
56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party’s]
position will be insufficient; there must be evidence on which the jury could reasonably find for
the [non-moving party].” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).
When both parties move for summary judgment, this Court “must evaluate each motion
on its merits and view all facts and inference in the light most favorable to the nonmoving party.”
Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003).
2. Choice of Law
The parties agree that Kentucky law applies herein.
As a federal court sitting in diversity, this court must apply the choice-of-law rules of
Kentucky. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)(A federal court
exercising diversity jurisdiction must apply the choice-of-law rules of the state in which it sits);
Security Ins. Co. of Hartford v. Kevin Tucker & Assoc., Inc., 64 F.3d 1001,1005 (6th Cir.
1995)(same).
In the insurance context, Kentucky applies the law of the state with the most significant
relationship to the transaction and the parties, giving weight to the state understood to be the
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“principal location of the insured risk” during the policy period. See Lewis v. Am. Family Ins.
Group, 555 S.W.2d 579, 582 (Ky. 1977).
The policies were all apparently purchased through a Kentucky insurance agent and were
delivered to Hugo in Kentucky. The homeowners’ policies insured Kentucky properties and the
excess policy related to certain homeowners’ policies.20 The claims for Michael’s bodily injuries
upon which the coverage claims are premised have been asserted in a lawsuit in a Kentucky state
court.
Kentucky appears to have the most significant relationship to the transactions and parties,
and thus the strongest interest in the outcome of this declaratory judgment action. Kentucky law
will therefore be applied.
3. Kentucky Law
The interpretation of insurance contracts in Kentucky is a matter of law for the court, and
in the absence of factual disputes, may be determined on summary judgment. McFerrin v.
Allstate Prop. & Cas. Co., 29 F.Supp.3d 924, 929 (E.D.Ky. 2014)(citations omitted). Insurers
must provide a defense in a suit if any of the allegations potentially, possibly, or might be
covered. Aetna Cas. & Surety Co. v. Commonwealth of Kentucky, 179 S.W.3d 830, 841 (Ky.
2005). If the insurer establishes that the policy does not cover the claims, there is no duty to
defend. Ky. Assoc. of Counties All Lines Fund Trust v. McClendon, 157 S.W.3d 626, 635 (Ky.
2005).
Insurance policies “should be interpreted according to the parties’ mutual understanding
at the time they entered into the contract and [s]uch mutual intention is to be deduced, if possible
from the language of the contract alone.” Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129,
20
The excess policy lists the Cave Spring Place policy and the 362 Sandy Beach Road policy are listed
along with an automobile policy in the Underlying Policy Schedule.
17
131-32 (Ky. 1999)(citations omitted). Policies must be read as a whole “without disregarding or
inserting words or clauses and seeming contradictions should be harmonized if reasonably
possible.” Kemper Nat’l Ins.Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 871 (Ky.
2002)(citations omitted). “[W]here not ambiguous, the ordinary meaning of the words chosen by
the insurer is to be followed.” James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins.
Co., 814 S.W.2d 273, 279 (Ky. 1991)(citations omitted).
Terms of insurance contracts “have no technical meaning in law and are to be interpreted
according to the usage of the average man and as they would be read and understood by him in
the light of the prevailing rule that uncertainties and ambiguities must be resolved in favor of the
insured.” Id. But “this rule of strict construction against an insurance company certainly does
not mean that every doubt must be resolved against it and does not interfere with the rule that the
policy must receive a reasonable interpretation consistent with…the plain meaning and/or
language in the contract.” McClendon, 157 S.W.3d at 630 (quoting St. Paul Fire & Marine Ins.
Co. v. Walton-Milward, Inc., 870 S.W.2d 223, 226 (Ky. 1994)). When the terms of an insurance
contract are unambiguous and not unreasonable, they will be enforced. Id.
We note that the policies under which coverage is sought herein are homeowners’
policies, not comprehensive general liability (“CGL”) policies. Bituminous Cas. Corp. v.
Kenway Contracting, Inc., 240 S.W.3d 633 (Ky. 2007), a case upon which Hugo’s Estate heavily
relies, quoted extensively from the Brown Foundation case:
“The primary purpose of a comprehensive general liability policy is to provide
broad, comprehensive insurance.” See Brown Found., 814 S.W.2d at 278. Further,
“the very name of the policy suggests the expectation of maximum coverage.” Id.
To that end, this Court stated that “[a]ll risks not expressly excluded [under the
CGL policy] are covered, including those not contemplated by either party.” Id.
18
240 S.W.3d at 638. Hugo’s Estate cites Brown Found. for the proposition that the term
“occurrence” is to be broadly and liberally construed in favor of extending coverage.
In Lemming v. Commercial Union Ins. Co., 260 F.3d 574, 583-584 (6th Cir. 2001), the
court quoted the same language from Brown Found. in acknowledging the broad and liberal
construction of policy terms affording insureds coverage under CGL policies in Kentucky.
However, the court concluded that since Lemming had purchased a homeowners’ insurance
policy, she was “not therefore entitled to such broad protections.”
Before we embark on our analysis, we resolve the parties’ disagreement as to which
Kentucky cases control in determining whether a claimant has alleged an “accident” under the
definition of “occurrence” in the policies for purposes of evaluating potential personal liability
coverage.
The court will follow Martin/Elias Properties, LLC v. Acuity, 544 S.W.3d 639
(Ky. 2018) which refined the legal analysis to be used in Kentucky to determine “whether
something constitutes an accident for issues of CGL coverage.” Martin/Elias, 544 S.W.3d at
643. The court specifically noted that the doctrine of fortuity, encompassing the concepts of
both intent and control, is the construct to be employed, stating:
Three years after Bituminous,21 we unanimously decided Cincinnati.22 Once again
we were asked to address the term accident in a CGL policy. Cincinnati involved
the faulty workmanship of a newly constructed house. The homeowners purchased
it from Elite Homes, but after only five years, the house had to be completely razed
because it was so poorly built. The homeowners made a claim against Elite Homes’
CGL policy, claiming that the resulting damage was an occurrence under the policy.
In deciding Cincinnati, we established a test different from the one articulated in
Bituminous. Rather than asking, as we did in Bituminous, if the damage was outside
the “plan, design or intent of the insured,” we instead focused on a concept widely
accepted in insurance law, the doctrine of “fortuity” of the event. [Cincinnati, 306
S.W.3d at 74]. In doing so, we recognized that there are two aspects of fortuity:
intent and control. We held that the faulty-workmanship claim brought by the
homeowners was not covered by the builder’s CGL policy because the builder was
Bituminous Cas. Corp., 240 S.W.3d 633 cited herein and relied upon by Hugo’s Estate as controlling
authority.
22 Cincinnati Ins. Co. v. Motorist Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010).
21
19
in control of the construction of the residence and that the builder fully intended to
take the action that he took on the project such that finding liability under the CGL
policy would be tantamount to converting the builder’s CGL policy into a
performance bond or unconditional guarantee…
…[I]n determining whether an event constitutes an accident so as to afford the
insured CGL policy coverage, courts must analyze this issue according to the
doctrine of fortuity: 1) whether the insured intended the event to occur; and 2)
whether the event was a ‘chance event’ beyond the control of the insured.
[Cincinnati, 306 S.W.3d at 76 (internal citations omitted)]. If the insured did not
intend the event or result to occur, and if the event or result that occurred was a
chance event beyond the control of the insured, then CGL coverage covering
accidents will apply to the benefit of the insured.
Martin/Elias, 544 S.W.3d at 642-643.
In applying this analysis in the case and finding that the resulting damage did not occur as a result
of an accident, the court stated that
Like Gosney [Martin/Elias’ subcontractor], the homebuilders in Cincinnati had full
control over their work and executed their work according to their own plan. We
held the resulting damage to the home was not of an accidental nature creating a
fortuitious event, but rather an unintended consequence of poor workmanship…
While the trial court was Solomonic in its partial summary judgment splitting
liability for this unfortunate loss, it failed to focus on the proper elements from
Cincinnati. Instead of focusing on the fact that Gosney fully intended to do what
he did and had complete control over the work to excavate the basement and
stabilize the foundation, it focused instead on the fact that Gosney never intended
to bring the entire house down. Because the actions taken by Gosney, which led to
the property damage, were entirely under his control, and he fully intended to
execute the plan as he did, we cannot say that the resulting damage throughout the
property was an accident.
Id. at 644-645.23
23
While Bituminous and the authorities cited therein were not expressly overruled by Cincinnati or
Martin/Elias, we focus on the explicit direction provided by Martin/Elias for our analysis, inasmuch as the
court there addressed the same “accident” language in the definition of “occurrence:” an “accident,”
including repeated exposure to a harmful condition. The policies at issue, however, further define
“occurrence” as an accident which results, during the policy period, in “bodily injury.”
20
The distinction drawn in Lemming described hereinabove is worthy of note. We agree
that since we are addressing homeowners’ policies rather than CGL policies in this action, the
purposes underlying a ‘broad and liberal construction’ do not apply. However, though we are
not liberally construing these homeowners’ policies, as a general proposition, the more specific
rule still applies that ambiguities, to the extent they exist, are to be construed in favor of the
insured when more than one construction of the policy language is reasonable. See Nat’l
Underwriters v. Lexington Flying Club, Inc., 603 S.W.2d 490, 494 (Ky.App. 1979); See also,
Auto Club Property-Casualty Ins. Co. v. B.T. ex rel. Thomas, 596 Fed.Appx. 409, 412 (6th Cir.
2015)(“When terms are ambiguous, Kentucky’s reasonable-expectations doctrine applies: the
court interprets the terms ‘in favor of the insured’s reasonable expectations and construe[s]
[them] as the average person would construe them.’ [citations omitted].”). However, “to provide
for more coverage than was anticipated or bargained for by either party at the time of contracting
is not reasonable.” Id.; See also, Mclendon, 157 S.W.3d at 633, n. 19 (“Courts cannot make a
different insurance contract for the parties by enlarging the risks contrary to the natural and
obvious meaning of the existing contract. [citation omitted].”).
In ascertaining whether there is potential coverage under the Liberty policies, the court
must consider the issues within the “eight corners” of the documents, as the parameters are
sometimes called.
As the name of the rule suggest, only two documents are ordinarily relevant
to the determination of the duty to defend: the policy and the pleadings of
the underlying claimant…If the four corners of a [complaint] allege facts
stating a cause of action which potentially falls within the four corners of
the policy’s scope of coverage, the insurer has a duty to defend. If all of the
facts alleged in the underlying [complaint] fall outside the scope of
coverage, then there is no duty to defend.
21
Auto-Owners Ins. Co. v. Car Wash Sys., 184 F.Supp.3d 625, 628 (E.D.Tenn. 2016)(quoting the
“eight corners” rule described in Liberty Mut. Ins. Co. v. Graham, 473 F.3d 596, 599 (5th Cir.
2006); See also, Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 507 (6th Cir.
2003)(“…compar[e] the allegations in the underlying complaint with the terms of the insurance
policy. [citation omitted]. An insurance company has a duty to defend its insured if the language
of an underlying complaint against the insured brings the action within the scope of the insurance
contract.”). The court looks to any analogous Kentucky cases interpreting the policy language. In
a matter of first impression in Kentucky, the court must predict how the Supreme Court of
Kentucky would resolve the issue. Westfield Ins. Co., 336 F.3d at 508.
Finally, we note that “there must be an actual ambiguity [for the court to afford a
reasonable construction of the term in favor of the insured]. ‘The mere fact that [a party]
attempt[s] to muddy the water and create some question of interpretation does not necessarily
create an ambiguity.’ [citations omitted]…’Every accident is an occurrence. But not every
occurrence is, strictly speaking, an accident.’ In the context of an insurance policy, ‘occurrence’
is ‘construed as synonymous with an accident or kindred act—an unforeseen occurrence
resulting in bodily injury to a person other than the one indemnified which may give rise to a
claim against the insured.’ [citation omitted]. Davis v. Ky. Farm Bureau Mut. Ins. Co., 495
S.W.3d 159, 162 (Ky.App. 2016).
F. Analysis
1. Does the FAC allege an “occurrence” within the policies’ periods?
22
The policies’ Personal Liability coverage provision states that Liberty will provide a
defense and, potentially, indemnity if a “suit is brought against an “insured” for damages because
of “bodily injury” caused by an “occurrence” to which this coverage applies.”24
“Bodily injury” is defined in the policies as “bodily harm, sickness or disease…”25
An “occurrence” is “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions, which results, during the policy period,
in…‘[b]odily injury’…”26
A plain reading of the Personal Liability coverage provision and the definition of
“occurrence” evidences that an “accident” and a “bodily injury” cannot be one and the same
under Liberty’s policies. “Bodily injury” must be caused by an “occurrence,” and an
“occurrence” must result in “bodily injury.” One cannot be permitted to swallow up the other lest
the causative element be lost. There is no ambiguity in the term “occurrence” or “bodily injury,”
and no ambiguity in the way in which these terms relate to one another.
An “occurrence” is an “accident, including…repeated exposure to…harmful
conditions…”27 Thus repeated exposures may, in some instances, be “accidents.” The FAC
alleges that Michael was “repeatedly…exposed…to [Hugo’s] hazardous cigarette smoke while
he…lived at his childhood residence…”28 Thus the FAC alleges that Michael suffered repeated
exposure to a hazardous condition during his childhood years, long before Hugo had a
homeowners’ policy.
Coverage E – Personal Liability, DN 1-1, PageID # 19.
Definitions, 1. “Bodily injury,” DN 1-1, PageID # 19.
26 Definitions, 5. “Occurrence,” DN 1-1, PageID # 19.
27 Id.
28 FAC, DN 23-2, ¶ 8, PageID # 289.
24
25
23
Michael has brought suit against Hugo, the “insured,”29 for damages for bodily injury the
FAC alleging that Michael “has recently…been caused to develop chronic obstructive
pulmonary disease, osteopenia (with chronic compression fractures of his L2 and T2 vertebrae,
osteoarthritis in hips and knees, chronic back pain and/or degenerative disc disease, [and]
cataracts…”30 The FAC alleges that Michael developed the illnesses and conditions there listed
“within one year from the commencement of this action…”31
However, the FAC does not allege all that an “occurrence” under the policies requires. It
does not allege that the repeated exposure to secondhand smoke resulted in his “bodily injury.”
The FAC avoids such an explicit allegation which would allege an “occurrence” falling outside
the policies’ periods. The parties agree that these occurrence-based policies, “provide[] coverage
for incidents that occur during the specified period regardless of when the claim is made.” State
Farm Fire and Cas. Co. v. Estes, 133 F.Supp.3d 893, 897 (W.D.Ky.2015)(quoting C.A. Jones
Mgmt. Grp., LLC v. Scottsdale Indem. Co., No. 5:13CV-00173, 2014 WL 811654, at *6
(W.D.Ky. Feb. 28, 2014)(citations omitted)) .32 The parties also agree that the insurer’s duty to
defend is limited to suits “in which the language of the complaint would bring it within the
policy regardless of the merit of the action.” Brown Found., 814 S.W.2d at 279.
The FAC, as written, does not allege an “occurrence” for which there might be coverage
under the policies.
The FAC states:
As a direct, natural and foreseeable result of [Hugo’s] decisions to
repeatedly…expose…[Michael] to…hazardous cigarette smoke, and as a
substantial factor and proximate cause of such decisions,…[Michael] has recently,
In pertinent part, Definitions, 3. “Insured” means “you…” In this policy, “you” and “your” refer to the
“named insured” shown on the Declarations…” Hugo Bobzien, Jr. is the “named insured.”
30 DN 23-2, ¶ 10, PageID # 290.
31 Id.
32 DN 23, p. 19, PageID # 267; DN 24-1, p. 8, PageID # 307.
29
24
and within one year from commencement of this action, been caused to develop
[various illnesses].33
The FAC alleges that Michael’s bodily injury resulted from Hugo’s decisions, and that
Hugo’s decisions were the proximate cause of Michael’s bodily injury. Decisions to act and
actions are not synonymous. An “occurrence” under the policies is a happening or event which
constitutes an “accident” resulting in “bodily injury.” The “accident” and the “bodily injury”
cannot be separated, as the causal element that one result in the other is an integral component of
the definition. Decisions not acted upon are a nullity and thus allege no connection to “bodily
injury.” Had Hugo made the decision to smoke in the presence of his son, but not gotten around
to buying cigarettes, for example, there would be no act by Hugo having any connection to the
development of Michael’s illnesses and conditions, and coverage under the policy would not be
implicated at all. While negligent decisions can, from a legal standpoint, be found to have
proximately caused or have been a substantial factor in bringing about an act or event that results
in bodily injury, the fact that the FAC articulates a legal theory alleging tort liability for Hugo’s
decisions does not answer the question whether the FAC alleges a covered “occurrence.” It is not
the allegation of a theory of tort liability or the potential success or failure of such a claim which
is relevant. To conclude there is potential coverage, there must be an allegation of an
“occurrence” during the policy period alleged in the FAC. The facts alleged must articulate a
happening or event constituting an “accident,” something which can result in “bodily injury.”
We agree with Liberty that if the FAC is not read as marrying the exposure to the bodily injury,
it lacks any connection to Hugo’s decision to smoke, and thus does not meet the definition of
“occurrence” under the policies.
33
DN 23-2, ¶ 10, PageID #290 (emphasis added).
25
Liberty argues that a finding that the “occurrence” alleged in the FAC was the exposure
to secondhand smoke when Michael was a child is supported by scientific evidence that
immediate harm occurs from such exposure. Hugo’s Estate contends that the scientific evidence
on the effects of secondhand smoke is contested and thus a fact not within the province of this
court to decide. We agree. However, resolution of this fact is unnecessary to a determination of
the coverage issue.
Under no plain reading of the FAC does Michael allege an “occurrence” under the
policies. While he alleges an act of exposure (Hugo’s exposure of Michael to secondhand smoke
during Michael’s childhood) and “bodily injury” (illnesses and conditions which developed in
2016), the FAC does not allege that the one caused the other. Thus the requisite allegation of an
“occurrence” is absent.
Even under a reading of the FAC that accepts as implicit that Hugo’s alleged negligent
decision to smoke in the presence of his children resulted in his smoking,34 it is not the
metaphysical decision to smoke per se, but rather the physical act of smoking to which the FAC
alleges Michael was exposed. Even if negligence in deciding to smoke around the son is alleged
to set the stage, so to speak, for his action in actually smoking, the repeated exposure to
secondhand smoke during Michael’s childhood is the only event alleged in the FAC, and thus the
only event to result from Hugo’s decisions from which the later-developed illnesses and
conditions could possibly be alleged to flow.
Taken to its logical extreme, many decisions (the decisions to get married, have children,
buy a house, or to address a tobacco addiction, to name a few) could all be said to have in some
34
A step not difficult to take, but for the fact that the FAC does not explicity connect the decision to smoke
to Hugo’s smoking. While the Estate may argue that this is splitting hairs, it is insistent in its own
argument that the court may not stray from the language of the FAC in determining whether the claims
are possibly covered under the policy terms.
26
way influenced the course of the family’s life events. However, the personal liability coverage
contained in Hugo’s homeowners’ policies is not insurance for Hugo’s wise “life choices” except
to the extent that any of those life choices are alleged to have proximately resulted in an
“‘accident’ which resulted in ‘bodily injury’” occurring during the policy period to someone who
may recover under the policy.
The Estate notes that the FAC alleges that Michael suffered “bodily injury” in 2016 and
not before. But the FAC must present some allegation by which Hugo’s decision to smoke
resulted in “bodily injury” to Michael, otherwise Hugo’s personal liability coverage is not
implicated. “The primary purpose of a homeowner’s policy is to provide package coverage for
the insured in the insured’s capacity as a homeowner. [citation omitted]. The general liability
provisions of a homeowner’s policy provide insurance against liability arising from the condition
of the insured premises, and liability stemming from the insured’s tortious personal conduct
which may occur at any place on or off the insured premises. [citation omitted].” 46 C.J.S.
Insurance § 1354, XVI. Risks or Causes of Loss, G. Homeowner’s Insurance, 1. In General
(2019). The FAC embodies no such theory, even taking the allegations to the limit of reasonable
interpretation.
Hugo’s Estate argues, under a series of cases, that there was no “occurrence” until 2016
because there was no “accident” until Michael developed various illnesses and conditions in that
year, and his tort claim for “bodily injury” then became ripe. Under basic tort principles, an
injury must occur before a cause of action in tort accrues; that is, a compensable bodily injury
must exist for which the injured party may seek compensation. However, as noted in Forty-Eight
Insulations, “There is a clear distinction between when bodily injury occurs and when the bodily
injury which has occurred becomes compensable.” 633 Fed.2d at 1223.
27
The Estate urges that the development of various illnesses and conditions alleged in the
FAC constitutes the “accident” which resulted in illnesses and conditions constituting Michael’s
“bodily injury.” Thus, it contends that the FAC alleges a covered “occurrence.” For the
following reasons, we conclude that the Estate’s argument under the cases cited cannot be
squared with the facts alleged in the FAC.
While the court is limited to the facts alleged in the FAC, it is not required to accept
conclusions drawn from those facts in the parties’ summary judgment arguments. Additionally,
the court cannot add to or alter the facts alleged in the FAC.
A reasonable reading of the FAC
as a whole does not reveal an allegation on an “occurrence” which potentially, possibly or might
come within the terms of the policy.
The Estate relies on Monticello Ins. Co. v. Ky. River Comm. Care, Inc., 173 F.3d 855 (6th
Cir. 1999)(table) for the proposition that the “time of the occurrence of an accident” is when the
complaining party was actually damaged and not at the time the wrongful act was committed.
In Monticello, Kentucky River, a provider of resident care for mentally disabled persons,
placed a disabled man into an in-home setting and, knowing that he had been accused of sexual
assault at a prior time, failed to inform the home of this fact. Kentucky River had insurance
coverage at the time of placement that potentially provided coverage for claims arising from
negligent placements. The policy in force three years later when the disabled individual allegedly
sexually assaulted a young boy in the home, contained exclusions precluding coverage for
Kentucky River’s placement of the individual.
Kentucky River sought coverage under the policy in force at the time of the placement,
rather than at the time of the assault. A federal court applying Kentucky law held, however, that
the sexual assault constituted the “occurrence” resulting in the injury for which damages were
28
sought, explaining that the determination of the time of the occurrence of an accident is akin to
the determination of the ripeness of a tort claim, noting that “Tort liability is contingent upon
damages from a destructive occurrence.” Monticello Ins., 173 F.3d at *4.
The Estate cites to Asbury College v. Ohio Cas. Ins. Co., No.2004-CA-001044-MR, 2005
WL 1252331 (Ky.App. May 27, 2005), an unpublished decision from the Court of Appeals of
Kentucky, which involved the alleged negligent hiring of a college student to a position at the
college. The employee allegedly sexually abused, assaulted, battered, and falsely imprisoned a
13-year-old boy. Twenty-four years after the alleged abuse, the victim sued the college,
members of the college disciplinary committee, and the alleged perpetrator. In prior years, the
college had CGL coverage, but, at the time of the alleged sexual assault, the coverage had lapsed.
The court held that to determine when an accident triggering insurance coverage occurs, the
“occurrence trigger” is the time the claimant is injured. Asbury Coll., Id. at *2. As the sexual
assault occurred after the CGL policy had lapsed, there was no coverage for claims against
Asbury College or its affiliates for the negligent hiring.
Finally, the Estate cites to Stillwell v. Brock Bros. Inc., 736 F.Supp. 201 (S.D.Ind. 1990)
in which an Indiana federal district court applied Kentucky law and held that the term “accident”
was not ambiguous and “refers to the fruits of a negligent act, not to the sowing of the seeds. It
is the consequence, not cause, that constitutes an accident.” Id. at 206.
The Stillwells had hired Brock Brothers to re-roof their home. Brock Brothers performed
the work improperly, apparently blocking a furnace gas vent or vents. Five months after the
completion of the work, the Stillwells turned their furnace on and were injured when furnace
gases were emitted into the house. Brock Bros. had CGL coverage at the time of the work, but
the policy lapsed before the Stillwells were injured by furnace gas emissions. The Brock
29
Brothers sought coverage under the lapsed policy, urging that the policy had been in force at the
time of the roofing work and therefore should provide coverage for the claims against them.
The court found that there was no coverage because there was no policy in force at the
time the Stillwells were injured. The court reasoned:
…[T]he time an accident “occurs” is the time when the complaining party is
actually injured…The plaintiffs admit that they sustained no damages until
October of 1987 when they turned on their furnace…Because the Transamerica
policy only covers “occurrences” that occur within the policy period, and the
plaintiffs did not sustain an injury within that period, Transamerica is not
obligated either to defend or indemnify against the plaintiffs’ claims. Id. at 205.
With regard to Stillwell and its holding, the Estate suggests that “the same rationale [for
determining when an accident occurs] holds true, but the effect for the insurer and insured is the
opposite.” DN 24-1, p. 11, PageID # 310. This attempt at turning the Stillwell case on its head,
and its comparison to “negligent decision” cases does not work, and here is why.
In Stillwell, the re-roofing occurred when there was coverage for Brock Brothers’
negligent roofing job, but no coverage for Brock Brothers at a later time when the furnace was
turned on and resulted in injury caused by furnace gases. Thus the alleged negligent re-roofing
by Brock Brothers would have potentially been covered, but for the fact that the roofing job did
not injure the Stillwells directly and immediately. Rather, the act of re-roofing set the stage for
the furnace gas accident which directly injured them. The claim against the Brock Brothers was
for the roofing job which covered the furnace exhaust vents, making the accident and resulting
injury possible, but there was no Brock Bros. policy in force at the time of the accident.
Similarly, in Monticello and Asbury College, the alleged negligent placement and
negligent hiring, respectively, set the stage for a later sexual assault by the alleged perpetrator
negligently placed or hired. The decision to place or hire which resulted in the hiring of alleged
30
sexual predators did not directly cause injury. The alleged sexual assaults enabled by the
placement/hiring resulted in “bodily injury” to the victims. There was potential coverage for the
placement and the hiring which was unavailable when the event causing the “bodily injury”
occurred.
By contrast, there was never potential coverage for the exposure to secondhand smoke
during Michael’s childhood as there was no policy in force during that time. The FAC seeks to
create a covered “occurrence” which falls under the later-purchased policies. In the Monticello,
Asbury College, and Stillwell cases, the intent of the parties to provide coverage for the events in
question was clear, but the causes of action did not accrue until after the policies lapsed. Here,
there was no coverage at the time of exposure and the policy clearly precludes coverage under
these homeowners’ policies for “occurrences” outside the policy period. The cases cited by the
Estate thus do not support the proposed “inverse theory” of their application in this case.
We thus come full circle to our prior reasoning that the FAC does not allege an
“occurrence” within the policy period.
In Monticello, a negligent decision to place resulted in a placement which enabled the
placed individual to commit the injury-producing sexual assault. In Asbury College, the
decision to hire resulted in a hiring which enabled the employee to commit the injury-producing
sexual assault.
In Michael’s case, the FAC alleges a negligent decision to repeatedly expose Michael to
secondhand smoke. The decision to expose resulted in the exposure during his childhood when
Hugo had no personal liability coverage. The FAC alleges that Michael was “caused to develop”
various illnesses and conditions in 2016 when there was personal liability coverage for
“occurrences” during the policies’ periods.
31
Hugo’s Estate alleges that the covered “accident” identified in the FAC is Michael’s
development of illness and disease in 2016, and the illness and disease which thus developed is
the “bodily injury” he suffered from the development, all occurring during the policy periods,
and thus affording him potential coverage. The FAC alleges that Michael was “caused to
develop” the listed illnesses and conditions. The Estate contends that the development
constitutes an “accident” because it was unintended and unexpected from Hugo’s standpoint.
The Estate’s classification of the FAC’s allegations of the “development of disease” and
the “disease thus developed” as “accident” and “resulting bodily injury,” respectively, is
problematic under the cases relied upon by the Estate. In each of those cases, there was an act by
the insured which enabled a subsequent, separately identifiable accident to occur which resulted
in bodily injury for which the injured party sought to hold the insured liable.
In Monticello, the negligent placement of the perpetrator set the stage for the sexual
assault which caused the bodily injury for which compensation was sought from the insured.
Similarly, in Asbury College, the negligent hiring of the perpetrator set the stage for the sexual
assault which injured the victim. In Stillwell, the negligent re-roofing enabled the furnace gas
exposure incident to occur.
The FAC states that “As a direct, natural and foreseeable result of [Hugo’s]
decisions…to…expose…[Michael] to his hazardous cigarette smoke, and as a substantial factor
and proximate cause of such decisions, [Michael] has recently, and within one year from
commencement of this action, been caused to develop [various illnesses and conditions]…” and
he alleges that [Hugo] did, repeatedly expose Michael to secondhand smoke. The FAC identifies
the causative agent of the development of the illnesses, repeated exposure to secondhand smoke,
which is akin to the sexual assaults in Asbury College and Monticello, and the trapped furnace
32
gases from the use of the furnace, which resulted in injuries in those cases. The problem is that
the exposure to secondhand smoke occurred outside the policy period and cannot therefore
constitute a covered “occurrence” in this case.
But the Estate urges the court to find that the “accident” was the development of the
illnesses themselves. The language of the FAC cuts across the Estate’s “accident” argument as
it alleges that Michael was “caused to develop [various illnesses and conditions]” as “a direct,
natural and foreseeable result of [Hugo’s] decisions…” If the development of Michael’s
maladies was the direct, natural and foreseeable result of anything, how could the development
be an “accident?”
Further, the Estate cannot manipulate the timing of the “occurrence” by employing the
passive voice in the FAC in such a way that Michael’s “bodily injury” is alleged to have resulted
from unidentified causes, thus avoiding a verbal collision between the exposure and the later
development of illnesses and conditions. The FAC must allege sufficient facts from which to
find that a covered “occurrence” is alleged. The only “decision” made by Hugo for which the
FAC seeks to hold him responsible is the decision to repeatedly expose Michael to secondhand
smoke. The FAC indicates that the decision was acted upon by Hugo, as he is alleged to have, in
fact, exposed Michael to secondhand smoke. This exposure occurred at a time prior to the
policies’ periods. The FAC alleges that Michael was “caused to develop” the listed maladies
later in life without explicitly identifying what caused the development. This use of the passive
voice in describing Michael being “acted upon” cannot alter the fact that nothing other than
exposure to secondhand smoke is alleged by the FAC to have been the subject of a decision by
Hugo related to Michael. Therefore, either (1) Hugo’s decision to smoke in the presence of his
children resulted in repeated exposure to secondhand smoke which played a substantial role in
33
Michael’s later development of illnesses and conditions, but the exposure constitutes an
“occurrence” outside the policies’ periods or (2) the development of illnesses and conditions in
2016 was not causally connected to the repeated exposure to secondhand smoke which would
then not implicate any responsibility flowing from Hugo’s decision to smoke in the presence of
his children and there could be no liability coverage therefore. In either event, a reasonable
reading of the FAC as a whole does not reveal an allegation which potentially, possibly or might
come within the coverage of the policies.
As noted in Liberty Ins. Corp. v. Bowles, 36 F.Supp.3d 756 (E.D.Mich. 2014), a case in
which the court struggled in addressing whether there was a covered “occurrence” alleged in a
state court complaint that outlined two separate theories as to what occurred, “Either something
happened between Defendants at Bowles’ home on September 7, 2010 or it did not. If nothing
happened, there would be no “occurrence” to trigger coverage in the first place. But if
something did happen, the only facts available to the Court are those set forth in…the First
Amended Complaint.” Id. at 759-760 (emphasis in original). Either something occurred
between Hugo and his son which gives rise to potential coverage under Hugo’s personal liability
coverage or it did not. The Estate cannot have it both ways under the factual allegations of the
FAC.
The fact that the insurer has a duty to defend “based on allegations in the complaint, even
if the allegations are groundless, false or fraudulent,” does not mean that any allegations will do
because we are not to address whether the claims are potential meritorious. To read the insurer’s
duty in this way would require insurers to always provide a defense. Rather, the duty to defend
only kicks in when the allegations of the complaint allege an “occurrence” for which there is
potential coverage. We note that “[t]he obligation to defend arises out of the insurance contract,
34
not from the allegations of the complaint against the insured.” Thompson v. West Am.Ins.Co.,
839 S.W.2d 579, 581 (Ky.App. 1992).
The Estes case cited infra¸ provides some support for our conclusion. In Estes, a young
girl was sexually abused by her grandfather in her grandparents’ home from 2001 to 2004. He
pled guilty to criminal charges in 2010. Three years later, the victim, then an adult, filed an
action against her grandfather for willful sexual abuse and against her grandmother for failure to
properly supervise and/or to protect her from the abuse. The grandparents had no homeowners’
insurance during the period of the abuse. They obtained a “Condominium Unitowners” policy
from State Farm which became effective in 2007 and was renewed annually. State Farm sought
a declaratory judgment that it need not indemnify or defend the grandparents in the underlying
suit against them.
State Farm argued, among other grounds, that the harm to the victim occurred outside the
policy period and thus there was no coverage, despite the victim’s contention that she continued
to suffer injury in the form of mental anguish through 2009 at the hands of her grandmother.
The granddaughter, contending that she suffered bodily injury at the hands of her grandfather,
claimed that her grandmother’s invitations to the home where the abuse occurred from 2001
through the period of abuse and, thereafter, through 2009 caused her to suffer mental anguish
associated with the physical abuse during and beyond the period of physical abuse. The court
held, in part, that the emotional harms were connected to physical injuries which occurred years
before the policy came into effect. Therefore, as the claim for bodily injury at the hand of her
grandfather were outside the policy period, “there [wa]s no bridge that would bring the latersuffered emotional harm [at the hands of her grandmother] under the Policy’s umbrella.” Estes,
133 F.Supp.3d at 898.
35
2.
Does the FAC allege an “accident” for which Hugo potentially has coverage?
Liberty contends that the exposure to secondhand smoke cannot constitute an
“occurrence” under the policies because Hugo’s smoking was an intentional act, not an accident.
The Supreme Court of Kentucky stated in Martin/Elias Properties35 that the court is to
apply the doctrine of fortuity “to determine whether something constitutes an ‘accident’ for
issues of CGL coverage…” The court must determine “whether the insured intended the event
to occur” and “whether the event was a ‘chance event’ beyond the control of the insured.”36
The FAC alleges that Michael was “repeatedly, forcibly, knowingly, intentionally,
wantonly chronically, recklessly, grossly negligently and/or negligently exposed and subjected to
[Hugo’s] hazardous cigarette smoke…”37 While the FAC includes, on the one hand, negligent
conduct, in each instance that it does so, there follows a paragraph that states: “The conduct of
[Hugo] as herein alleged was committed intentionally, knowingly, wantonly, recklessly, and/or
with gross negligence.”38 Clearly, the allegations of the FAC indicate that Hugo intended to
smoke in the presence of his children. That his decision to do so has been labeled as negligent
does not change the intentional nature of the act. “A volitional act does not become an accident
simply because the insured’s negligence prompted the act.” Ind. Gas Co., Inc. v. Aetna Cas. &
Sur. Co., 951 F.Supp. 780, 784 (N.D.Ind. 1996), vacated on other grounds, 143 F.3d 314 (7th
Cir. 1988)(citations omitted). We conclude that the FAC alleges intentional conduct by Hugo in
exposing his son to secondhand smoke.
The Estate urges that Michael’s development of various illnesses and conditions was an
“accident” as he was randomly unlucky in becoming sick. However, Liberty urges that there is
35
544 S.W.3d at 642.
544 S.W.3d at 643.
37 DN 23-2, ¶¶ 8, 22, 27, 32.
38 DN 23-2, ¶¶ 11, 24, 29, 34.
36
36
no “chance event” alleged in the FAC because it states that “as a direct, natural, and foreseeable
result of [Hugo’s] decision to…expose and subject [Michael] to his hazardous cigarette smoke,
and as a substantial factor and proximate cause of such decisions, [Michael] has recently…been
caused to develop [various illnesses and conditions].”39
We reiterate our earlier conclusion that whatever the cause of Michael’s maladies, the
FAC clearly alleges that his “bodily injury” was directly, naturally and foreseeably caused, and
not mere happenstance. As an “accident” under Martin/Elias must be both unintended by the
insured and a chance event, the court concludes that the FAC does not allege a happening or
event which constitutes an “accident,” and thus there is no covered “occurrence” under the
policies.
3. Should coverage be excluded for claims brought by a relative of the insured who
resided in the insured’s household at the time of the “occurrence?”
Liberty contends that there should be a declaration of no coverage for Michael’s claims
against Hugo because at the time Hugo exposed him to secondhand smoke Michael lived in his
father’s home and thus was, an “insured” within the meaning of the policy’s definition.
Hugo’s Estate argues that the household exclusion reads in the present tense. However,
the exclusion states that Coverage E – Personal Liability does not apply to:…Bodily injury to
you or an ‘insured’ within the meaning of part a…of ‘insured’ as defined.”40 “Insured” is
defined as “you and residents of your household who are your relatives…”41
The parties both recognize that the purpose for such household exclusions is to prevent
collusive claims. See Tower Ins. Co. of N.Y. v. Horn, 472 S.W.3d 172, 176-177 (Ky.
39
DN 23-2, ¶ 10, PageID #290.
Section II – Exclusions, 2. Coverage E – Personal Liability, f.
41 Definitions, 3., a.
40
37
2015)(noting “the purpose of the household exclusion was to protect the insurer from ‘overfriendly lawsuits’ [citations omitted]”).
Liberty argues, and we agree, that it is not a reasonable interpretation of “occurrence” to
create coverage for later-developed injuries that would have been excluded from coverage at the
time of the exposure.
We note many cases in which, for purposes of addressing the household exclusion, a
determination was made whether the injured party was a resident of the insured’s household at
the time of the occurrence. State Farm Fire & Cas. Co. v. Odom, 799 F.2d 247 (6th Cir. 1986);
State Farm Fire & Cas. Co. v. Keegan, 209 F.3d 767 (6th Cir. 2000); Country Mutual Ins. Co. v.
Cronin, 17 F.Supp.3d 900 (E.D.Mo. 2014); Met. Prop. & Cas. Ins. Co. v. McCarthy, 43 F.Supp.
3d 1157 (W.D.Wash. 2014).
While this is a retrospective look to a time, decades ago, when Hugo had no
homeowners’ coverage, it makes no sense to look at residency at any other time than the time of
the occurrence, as the purpose of a household exclusion is to preclude “over-friendly” claims for
the particular “occurrence” in issue. We conclude that the household exclusion evidences an
intent to exclude the type of relational claim raised here and therefore coverage should be
precluded in this case.
4. Does the physical abuse exclusion preclude coverage in this case?
Finally, Liberty argues that the FAC alleges injuries resulting from physical abuse and
thus Michael’s claims are subject to the exclusion for “sexual molestation, corporal punishment
or physical or mental abuse.”
38
Liberty contends that the dictionary definitions of “abuse” include “physical
maltreatment,” which is alleged in the FAC as “repeatedly,” “forcibly,” and “chronically”
exposing Michael to “hazardous cigarette smoke.” The FAC alleges that Hugo breached various
duties to properly care for and protect his son, alleging that “he expos[ed] and subject[ed] his
minor son…to unsafe, dangerous, neglectful, abusive and/or harmful conditions[.]”
While a plain reading of the FAC reveals allegations of reprehensible conduct, as artfully
described through the employment of numerous adjectives. However, the question is whether
the term “physical abuse” under the policies is clear and unambiguous, and if not, whether more
than one reasonable understanding of the term exists.
The court agrees with the Estate that the meaning of the term “physical abuse,” undefined
in the policy, is not clear and unambiguous and is susceptible to more than one reasonable
ordinary meaning. The term may constitute, as suggested by Liberty, physical maltreatment in
the generic sense, and thus might arguably include Hugo’s repeated exposure of Michael to
secondhand smoke. However, it is also reasonable to ascribe a more specific meaning with a
criminal overtone, as the term is included in a string of actions (“sexual molestation, corporal
punishment, or physical or mental abuse”) the commission of which may, and often do, have
criminal ramifications. The exposure of a child to secondhand smoke may or may not meet a
more restrictive definition of the term, were it to be applied.
As the term “physical abuse” is undefined in the policies, and the common usage unclear,
we find that coverage is not precluded by application of the exclusion.
39
G. Summary
Summing up, the court concludes that the FAC does not allege a covered “occurrence,”
as Michael’s exposure to secondhand smoke occurred outside the policy period and no event
alleged in the FAC constitutes an “accident” resulting in “bodily injury” under the policies’
terms. Hugo’s conduct in exposing his son to secondhand smoke was an intentional act and the
FAC alleges that Michael’s “bodily injury” was a “direct, natural and foreseeable result” of
Hugo’s decisions to smoke, thus precluding a finding that the FAC alleges a “chance event.”
In keeping with the purpose and intent of the homeowners’ policies, the household
exclusion should operate to preclude coverage for claims made by Michael against Hugo for
exposure to secondhand smoke which occurred while Michael was a child residing in his father’s
home.
Finally, we conclude that despite the language in FAC, the “physical abuse” exclusion
would not prevent coverage under the policy for an “occurrence,” as the term “physical abuse” is
undefined and more than one reasonable meaning exists, neither of which clearly indicate that
secondhand smoke exposure would constitute “physical abuse” under the policy.
For these reasons, Liberty’s motion for summary judgment will be granted and Hugo’s
Estate’s motion for summary judgment will be denied. The court will enter a declaratory
judgment that there is no possibility of coverage under the policies for claims made in the FAC
and that Liberty has no duty to defend or indemnify Hugo’s Estate in the underlying state court
action.
IT IS SO ORDERED.
March 28, 2019
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