United Financial Casualty Company v. Milton Hardware, LLC et al

Filing 82

MEMORANDUM OPINION AND ORDER granting the 76 MOTION by United Financial Casualty Company for Summary Judgment on Remaining Coverage Issue; declaring the Employee Indemnification and Employer's Liability exclusion in United Financial's pol icy is unenforceable up to the minimum insurance coverage required by state law but operative as to any amount above the state's mandatory minimum limits; directing the parties to confer and report to the Court within fourteen days on how they intend to resolve any remaining issues in this case. Signed by Judge Robert C. Chambers on 3/31/2020. (cc: counsel of record; any unrepresented parties) (jsa)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION
UNITED FINANCIAL
CASUALTY COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 3:17-2002

MILTON HARDWARE, LLC,
BUILDERS DISCOUNT, LLC,
RODNEY PERRY, and
GREG ALLEN BALL,
Defendants.
MEMORANDUM OPINION AND ORDER
On October 30, 2019, the Fourth Circuit vacated and remanded this Court’s entry of
summary judgment in favor of United Financial Casualty Company. The parties disagree on how
to apply the Fourth Circuit’s opinion, and United Financial filed a Motion for Summary Judgment
to resolve the dispute. ECF No. 76. For the reasons below, the Court now GRANTS United
Financial’s Motion.
I. BACKGROUND
The parties do not dispute the underlying facts of this case. In October 2016, Milton
Hardware LLC was performing a construction job at Rodney Perry’s home. United Fin. Cas. Co.
v. Ball, 941 F.3d 710, 712 (4th Cir. 2019). At one point, Milton Hardware’s owner gave Perry
permission to move a company truck. Id. As Perry backed up, he accidentally hit Milton Hardware
employee Greg Ball and caused severe injuries. Id. At the time of the accident, Milton Hardware
had a commercial automobile liability insurance policy with United Financial. Id. at 13. The policy

provided liability coverage to Milton Hardware and anyone using the company’s vehicles with
permission. Id. Based on this provision, Ball demanded United Financial indemnify him for the
injuries. Id. United Financial denied coverage and commenced this action against the named
insureds, Milton Hardware and Builders Discount, LLC, as well as Perry and Ball. Id. United
Financial argued the policy’s Worker’s Compensation exclusion and Employee Indemnification
and Employer’s Liability exclusion barred coverage for Perry’s liability to Ball. Id.
On cross-motions for summary judgment, the parties asked this Court to determine their
rights and liabilities. See ECF Nos. 25, 28, 40. The Court concluded that because Ball sustained
his injuries while working within the course of his employment with Milton Hardware, the
Worker’s Compensation exclusion applied and the policy barred him from liability coverage. ECF
No. 60, at 5–8. The Court also rejected Ball’s argument that the state’s motor vehicle “omnibus
clause,” West Virginia Code § 33-6-31(a), required United Financial to extend liability coverage
to Perry as a permissive user of an insured automobile. Id. at 8–9. Because the Court concluded
the Workers’ Compensation exclusion barred Ball from liability coverage, the Court did not reach
Ball’s arguments regarding the policy’s Employee Indemnification and Employer’s Liability
exclusion. Id. at 9.
On appeal, the Fourth Circuit reversed and held that United Financial cannot deny liability
coverage to Perry based on the Worker’s Compensation exclusion or the Employee
Indemnification and Employer’s Liability exclusion. United Fin. Cas. Co., 941 F.3d at 717. The
parties now dispute how to apply the Fourth Circuit’s ruling regarding the Employee
Indemnification and Employer’s Liability exclusion, and United Financial filed a motion for
summary judgment to resolve the remaining issue. ECF No. 76. United Financial argues the
exclusion is unenforceable only up to the limits of financial responsibility required by West

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Virginia Code § 17D-4-2. ECF No. 77, at 3–6. This section sets the minimum “proof of ability to
respond in damages for liability” at $25,000 for bodily injury to a person in a motor vehicle
accident. W. Va. Code § 17D-4-2. United Financial claims the exclusion is enforceable beyond
that minimum. Id. In response, Ball and Perry argue the exclusion is entirely unenforceable, even
beyond the mandatory minimum limit. ECF Nos. 78, 80.
II. LEGAL STANDARD
A court will “grant summary judgment if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). “Facts are ‘material’ when they might affect the outcome of the case, and a ‘genuine issue’
exists when the evidence would allow a reasonable jury to return a verdict for the nonmoving
party.” The News & Observer Publ’g Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576
(4th Cir. 2010). “The moving party is ‘entitled to judgment as a matter of law’ when the nonmoving
party fails to make an adequate showing on an essential element for which it has the burden of
proof at trial.” Id. (citing Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 804 (1999)). At
summary judgment, the Court will not “weigh the evidence and determine the truth of the matter,”
nor will it make credibility determinations. Anderson v. Liberty Lobby, Inc., 447 U.S. 242, 249
(1986); Gray v. Spillman, 925 F.2d 90, 95 (4th Cir. 1991). Instead, “the nonmoving party’s
evidence is to be believed, and all justifiable inferences are to be drawn in that party’s favor.” Hunt
v. Cromartie, 526 U.S. 541, 552 (1999) (internal quotations omitted).

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III. DISCUSSION
A. The Fourth Circuit did not resolve whether the Employee Indemnification and
Employer’s Liability exclusion applies above the mandatory minimum limits in West
Virginia Code § 17D-4-2.
Ball first argues that the Fourth Circuit held the Employee Indemnification and Employer’s
Liability exclusion is completely unenforceable, so United Financial cannot relitigate the issue.
ECF No. 80, at 4–6. However, the Fourth Circuit’s ruling that the exclusion is “unenforceable”
must be understood in context. See United Fin. Cas. Co., 941 F.3d at 717. The issue before the
court was whether the omnibus clause overrode the Employee Indemnification and Employer’s
Liability exclusion. Id. at 715–17. Because the court found the exclusion violated the omnibus
clause, the exclusion could not operate to outright deny Perry coverage. Id. In this situation, where
“the language of an insurance policy is contrary to statute and therefore void, the policy should be
construed to contain the coverage required by West Virginia law.” Adkins v. Meador, 494 S.E.2d
915, 920 (W.Va. 1997). The Fourth Circuit, however, did not address what level of coverage West
Virginia law requires here, so the Court properly addresses that issue now.
B. The Employee Indemnification and Employer’s Liability exclusion applies above the
mandatory minimum limits in West Virginia Code § 17D-4-2.
The Supreme Court of Appeals of West Virginia has held that policy exclusions that violate
the state’s minimum coverage requirements set in the omnibus clause and Safety Responsibility
Law (W. Va. Code § 17D-1-1 et seq.) are void. However, the court has permitted these voided
exclusions to apply above the minimum coverage requirements. For example, in Jones v. Motorists
Mutual Insurance Company, the court held a policy’s named driver exclusion violated § 17D-412(b)(2), which requires automobile liability insurance policies to cover people driving with the
insured’s permission. 356 S.E.2d 634, 637 (W.Va. 1987). Yet, the court held the named driver
exclusion was only void up to the mandatory minimum limits in § 17D-4-2. Id.; see also Ward v.
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Baker, 425 S.E.2d 245, 249 (W.Va. 1992) (“Erie has already paid into court the mandatory
minimum $20,000 bodily injury coverage for the Plaintiff. Therefore, due to the existence of the
valid named driver exclusion, Erie is not responsible for any damages in excess of the $20,000.”);
Burr v. Nationwide Mut. Ins. Co., 359 S.E.2d 626, 633 n.10 (W.Va. 1987) (noting that, although
the court found the exclusion of vehicles with dealer plates prohibited by the omnibus clause, it
would have reached the same result under a Jones analysis that “a driver exclusion in an
automobile policy is inoperative up to the limits of liability insurance required under W.Va.Code,
17D-4-12”). Based on its reasoning in Jones, the court also held a named insured exclusion was
invalid as to the minimum limits in § 17D-4-2 but enforceable above those limits. Dairyland Ins.
Co. v. East, 425 S.E.2d 257, 262 (W.Va. 1992). Similarly, the court held in Dotts v. Taressa J.A.
that the Safety Responsibility Law precluded an intentional tort exclusion in a motor vehicle
liability insurance policy but only up to the limits in § 17D-4-2. 390 S.E.2d 568, 592 (W.Va. 1990).
And, in Imgrund v. Yarborough, the court held an “owned but not insured” exclusion to uninsured
motorist coverage cannot preclude recovery of the mandatory minimum limits but is enforceable
above those limits. Syl. pt. 3, 483 S.E.2d 533, 534 (W.Va. 1997). Together, these cases support
the general principle that policy exclusions violating state law are generally enforceable above the
state’s minimum limits.
The Fourth Circuit adopted this interpretation in Nationwide Mutual Insurance Company
v. Continental Insurance Company. Nos. 90-1785, 90-1786, 1991 WL 181130, at *3 (4th Cir.
1991) (per curiam) (unpublished). Citing the Supreme Court of Appeals decisions in Jones, Dotts,
and Burr, the court summarized: “When West Virginia has found that an attempt to exclude or
restrict coverage violated state law, it has voided the restriction or exclusion only up to the level
of minimum coverage. It has permitted it to operate above this minimum.” Id. Thus, the court held

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that even though West Virginia requires automobile dealerships to insure cars driven by customers,
a dealership’s policy could lawfully refuse to insure customers beyond the state’s mandatory
minimum coverage. Id.
This Court observed the same governing principal in Howard v. Property & Casualty
Insurance Company of Hartford. No. 2:09-1027, 2011 WL 4596715 (S.D.W. Va. Sept. 30, 2011).
There, the plaintiff argued his policy’s family member exclusion was invalid and demanded
payment of his policy’s full liability limits. Id. at *1. The Court ruled the family member exclusion
was void only within the state’s mandatory limits for two reasons. First, an informational letter by
the state’s Insurance Commissioner had already clarified the issue. Id. at *2. And second, the Court
explained that “although the West Virginia Supreme Court of Appeals has made clear that ‘the
mandatory requirement of insurance coverage under W. Va. Code, 17D-4-2, takes precedence over
any contrary or restrictive language in an automobile liability insurance policy,’ . . . it has
consistently found exclusionary policy language to be enforceable above the statutorily mandated
minimum limit in other contexts.” Id. at *3.
Ball argues two cases have altered this trajectory of caselaw and formed a new rule: a
policy exclusion that violates state law is void above the mandatory minimum limits unless a
statute or public policy affirmatively allows the exclusion. ECF No. 80, at 7–12. Ball first relies
on Gibson v. Northfield Insurance Company. 631 S.E.2d 598 (W.Va. 2005). In Gibson, the court
held a “defense within limits” provision in a city’s automobile liability insurance policy violated
the omnibus clause and public policy. Id. at 609. Ball claims that, as a result, the court held the full
amount of the policy’s liability limit was available. ECF No. 80, at 8. However, in Gibson, the
policy’s liability limit and the statutory minimum limit were both $1,000,000. 631 S.E.2d at 601,

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603. Therefore, Ball’s suggestion that Gibson deviates from prior cases by voiding an exclusion
above the minimum mandatory limits is unsupported.
Ball next relies Jenkins v. City of Elkins. ECF No. 80, at 9–11; 738 S.E.2d 1 (W.Va. 2012).
In Jenkins, the parties asked the court to decide whether an uninsured motor vehicle policy
exclusion for government-owned vehicles violated public policy. Id. at 14. The court first looked
to other jurisdictions and found that a majority had concluded exclusions for government-owned
vehicles were contrary to their uninsured insurance laws because these laws expressed a strong
public policy to protect innocent insureds harmed by uninsured tortfeasors. Id. at 16. Because an
insured is as susceptible to harm by a government vehicle as one privately owned, many courts
found no logical reason for the exclusion. Id. The court next determined whether the governmentowned vehicle exclusion violated the public policy of West Virginia by ascertaining the legislative
intent underlying the state’s uninsured motorist coverage statute, West Virginia Code § 33-6-31(b).
Id. at 17. The court explained:
[T]he legislature has articulated a public policy of full indemnification or
compensation underlying . . . uninsured . . . motorist coverage in the State of West
Virginia. That is, the preeminent public policy of this state in uninsured . . . motorist
cases is that the injured person be fully compensated for his or her damages not
compensated by a negligent tortfeasor, up to the limits of the uninsured . . . motorist
coverage.
Id. (citing State Auto. Mut. Ins. Co. v. Youler, 396 S.E.2d 737, 745 (W.Va. 1990)) (emphasis in
original). The court also noted that none of the state’s motor vehicle statutes affirmatively
permitted a government-owned vehicle exclusion. Id. Thus, the court held the exclusion was
against public policy and unenforceable, even above the mandatory minimum limits of uninsured
motorist coverage. Id.
While Jenkins did void a policy exclusion above the state’s mandatory minimum limits, it
did so based on the legislative intent behind the state’s uninsured motorist statute. Jenkins must
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therefore be understood within the context of the uninsured motorist statute and its unique public
policy that an “injured person be fully compensated for his or her damages not compensated by a
negligent tortfeasor, up to the limits of the uninsured . . . motorist coverage.” 738 S.E.2d at 17
(citation omitted) (emphasis in original). The court’s holding in Jenkins is not broad enough to
support Ball’s sweeping interpretation that any policy exclusion in violation of state law is void
above the mandatory limits unless a statute or public policy affirmatively allows the exclusion.
ECF No. 80, at 11.
Lastly, Ball argues that public policy dictates the Employee Indemnification and
Employer’s Liability exclusion should not apply in this case. ECF No. 80, at 13–14. In Jenkins,
the court modeled a two-step process for analyzing a public policy challenge to a motor vehicle
policy exclusion. 738 S.E.2d at 14–17. Yet, unlike in Jenkins, Ball cited no other jurisdictions that
have found an Employee Indemnification and Employer’s Liability exclusion was contrary to a
state’s motor vehicle statute. See id. at 16. Regarding the second step, Ball’s only support that the
exclusion violates the legislative intent behind the omnibus clause comes from Universal
Underwriters Insurance Company v. Taylor. 408 S.E.2d 358 (W.Va. 1991). There, the Supreme
Court of Appeals held “the legislature’s enactment of the omnibus clause evinces an unmistakable
intent to maximize insurance coverage for the greater protection of the public and that effectuation
of such intent requires a broad interpretation of the statute . . . .” Id. at 363–64. But “maximiz[ing]
insurance coverage” refers to the court’s liberal approach to defining coverage under the state’s
omnibus clause and minimum financial responsibility law. Id. The court did not hold this principle
governs the applicability of policy exclusions above the state’s minimum coverage limits. To the
contrary, West Virginia Code § 33-6-31(k) permits insurers to incorporate “such terms, conditions
and exclusions as may be consistent with the premium charged.” And, this Court has affirmed that

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“[t]he usual and most important function of the courts of justice is rather to maintain and enforce
contracts, than to enable parties thereto to escape from their obligations on the pretext of public
policy, unless it clearly appears that they contravene public right or the general welfare.” CAMICO
Mut. Ins. Co. v. Hess, Stewart & Campbell, P.L.L.C., 240 F. Supp. 3d 476, 486 (S.D.W. Va. 2017)
(citation omitted). Ball’s general complaint that applying the exclusion will result in an inadequate
recovery does not meet this standard. See ECF No. 80, at 14.
IV. CONCLUSION
Having found Ball’s and Perry’s arguments without merit, the Court GRANTS United
Financial’s Motion for Summary Judgment, ECF No. 76, and DECLARES the Employee
Indemnification and Employer’s Liability exclusion in United Financial’s policy is unenforceable
up to the minimum insurance coverage required by state law but operative as to any amount above
the state’s mandatory minimum limits. The Court DIRECTS the parties to confer and report to
the Court within fourteen days on how they intend to resolve any remaining issues in this case.
The Court DIRECTS the Clerk to send a copy of this Memorandum Opinion and Order to
counsel of record and any unrepresented parties.
ENTER:

March 31, 2020

ROBERT C. CHAMBERS
UNITED STATES DISTRICT JUDGE

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