Julie G. Thomas, Individually v. State Farm Fire and Casualty Company ( 2021 )


Menu:
  •                                                      RENDERED: JUNE 17, 2021
    TO BE PUBLISHED
    Supreme Court of Kentucky
    2020-SC-0061-DG
    JULIE G. THOMAS, INDIVIDUALLY AND                                 APPELLANTS
    AS NEXT FRIEND FOR S.T., A MINOR;
    DONALD F. THOMAS, INDIVIDUALLY AND
    AS NEXT FRIEND FOR S.T., A MINOR;
    ELIZABETH RENNER, AS NEXT FRIEND
    AND PARENT OF C.R., A MINOR AND
    JEFFERY RENNER AS NEXT FRIEND AND
    PARENT OF C.R., A MINOR
    ON REVIEW FROM COURT OF APPEALS
    V.               NOS. 2017-CA-1875 & 2014-CA-1876
    MADISON CIRCUIT COURT NOS. 16-CI-0133 & 16-CI-0169
    STATE FARM FIRE AND CASUALTY                                       APPELLEES
    COMPANY; BESSIE PERKINS AND JERRY
    PERKINS
    OPINION OF THE COURT BY JUSTICE VANMETER
    AFFIRMING
    The issue in this case is whether Jerry and Bessie Perkinses’
    homeowner’s insurance with State Farm Fire and Casualty Insurance
    Company provided coverage as to Bessie’s in-home child care services. The
    Madison Circuit Court granted summary judgment in favor of State Farm, and
    the Court of Appeals affirmed. We likewise affirm.
    I. Factual and Procedural Background
    Two couples, Donald and Julie Thomas and Jeffrey and Elizabeth
    Renner, were each expecting a child. Jerry Perkins informed Donald Thomas
    that Jerry’s wife, Bessie, had been recently dismissed from her position at ABC
    Daycare and was looking to provide childcare services in her home at a rate of
    eighty dollars per week. Jerry told Donald that Bessie’s termination was a
    result of the company’s decision to terminate older employees because they
    commanded higher compensation. This statement was a lie. Shortly
    thereafter, Donald informed Jeffrey Renner of the Perkinses’ offer.
    Both couples agreed to the proposed arrangement and Bessie Perkins
    began caring for S.T. and C.R. in the summer of 2015. In November 2015,
    Jeffrey noticed that C.R. appeared sick when he collected the child from the
    Perkinses’ home. When C.R. had not improved by the morning, the Renners
    took him to the pediatrician, where C.R. began twitching. Following a battery
    of tests, the pediatrician diagnosed C.R. with “shaken baby syndrome.” The
    diagnosis prompted a report to social services and a law enforcement
    investigation, in which a forensic physician diagnosed the Thomas child, S.T.,
    with two leg fractures.
    In the resulting civil action against Bessie and Jerry Perkins, the
    Renners claimed that C.R. suffered permanent brain damage, among other
    2
    conditions, which was the direct result of the Perkinses’ conduct.1 As the
    Perkinses’ insurer, State Farm filed an intervening complaint, seeking
    summary judgment on grounds that the Perkinses’ behavior implicated the
    “child care services exclusion,” relieving State Farm of liability. Meanwhile, the
    Thomases filed a separate complaint against the Perkins, alleging negligent
    behavior by both Perkins and grossly negligent behavior by Bessie. State
    Farm, similarly, sought summary judgment as to the Thomases’ case. The
    Madison Circuit Court entered a declaratory judgment in State Farm’s favor as
    to both sets of plaintiffs, finding that the child care services exclusion applied.2
    In the consolidated appeal which followed, the appellants challenged only
    the coverage determinations as to Jerry Perkins. The Court of Appeals affirmed
    the trial court’s application of the child care exclusion as to him. Thereafter,
    this Court granted discretionary review.
    II. Standard of Review
    On appeal, the standard of review for a summary judgment is to
    ascertain whether the trial court correctly determined that no genuine issue of
    material fact existed, entitling the moving party to judgment as a matter of law.
    Coomer v. CSX Transp., Inc., 
    319 S.W.3d 366
    , 370–71 (Ky. 2010). In
    1  The concurrent criminal action against Bessie Perkins ended when she pled
    guilty to assault in the first degree and two counts of criminal abuse in the first degree
    for which she is currently serving a prison sentence.
    2 Additionally, the trial court determined that State Farm’s “intentional acts
    exclusion” precluded coverage for claims regarding Bessie’s conduct. The trial court
    also granted summary judgment in favor of State Farm on the bad faith claims.
    Neither plaintiff appealed either decision.
    3
    conducting our review, we give no deference to the rulings below because only
    legal questions are involved. De novo review extends to the trial court’s
    interpretation of the insurance contract as a matter of law. Cincinnati Ins. Co.
    v. Motorists Mut. Ins. Co., 
    306 S.W.3d 69
    , 73 (Ky. 2010).
    Additionally, we adhere to our long-held standard that when we interpret
    insurance contracts, perceived ambiguities and uncertainties in the policy
    terms are generally resolved in favor of the insured. Kentucky Ass’n of Cnties.
    All Lines Fund Tr. v. McClendon, 
    157 S.W.3d 626
    , 630 (Ky. 2005). When
    analyzing challenged terms for clarity we note that the terms of insurance
    contracts have no technical legal meanings and must be reasonably interpreted
    as they would be understood by a lay reader. 
    Id.
     If, after our analysis, we
    determine that the policy is unambiguous and reasonable, then the contract
    terms will be enforced. 
    Id.
    III. Analysis
    Appellants assert that because they only appealed with regards to Jerry,
    we must interpret the policy exclusion at issue as either inclusive, providing
    coverage; or ambiguous, providing coverage.3 We disagree.
    3 Notably, neither Jerry nor Bessie Perkins is claiming insurance coverage in
    this appeal.
    4
    Our analysis begins by addressing the relevant policy language.4 In
    section II of the policy—entitled EXCLUSIONS— State Farm excludes coverage
    for:
    [A]ny person who makes a claim because of bodily injury to any
    person who is in the care of any insured because of child care
    services provided by or at the direction of:
    (a) any insured;
    (b) any employee of any insured; or
    (c) any other person actually or apparently act[]ing on behalf of any
    insured.
    This exclusion does not apply to the occasional child care services
    provided by any insured, or to the part-time child care services
    provided by any insured who is under 19 years of age[.]
    Despite Appellants’ assertions to the contrary, the term “any insured” is
    unambiguous. Applying the analytical framework laid out in McClendon, that
    insurance terminology does not carry the imprimatur of a legal definition, we
    must interpret the policy as a reasonable lay consumer would. 157 S.W.3d at
    630. In doing so we note that no ambiguity exists as to who the “insured[s]”
    are because both Jerry and Bessie were specifically named in the policy
    declarations as an “insured”. Similarly, in context, “any” cannot be defined
    arcanely, as Appellants insist, to apply to Jerry and Bessie as if they carried
    two identical, but separate, policies from State Farm.
    Instead, the far more natural reading of the exclusion is that it applies to
    either Perkins in providing regular child care services at their home. The
    The policy also includes a more general “business pursuits” exclusion.
    4
    However, State Farm has chosen not to rely on that exclusion in its defense and
    consequently we do not review the applicability of the provision.
    5
    regularity of care, for profit, and at the Perkinses’ home by Bessie clearly
    invoked the policy exclusion. Given these facts, Jerry’s actions are quite
    simply immaterial to the question before us.
    Our reasoning comports with long-standing federal and state court
    precedent. Sales v. State Farm Fire & Casualty Co. defined “any insured” as
    “unambiguously express[ing] a contractual intent to create joint obligations
    and to prohibit recovery by an innocent co-insured.” 
    849 F.2d 1383
    , 1385
    (11th Cir. 1988) (citing Spezialetti v. Pacific Emps. Ins. Co., 
    759 F.2d 1139
     (3rd
    Cir. 1985)). See also State Farm Fire & Casualty Co. v. Davis, 
    612 So.2d 458
    ,
    466 (Ala. 1993).
    In Thoele v. Aetna Cas. & Sur., 
    39 F.3d 724
     (7th Cir. 1994), the Seventh
    Circuit faced a similar factual scenario. In that case, Sharon Thoele was
    operating a child care service out of her home when a child began choking.
    Her husband, who had no connection to her business, attempted to provide
    emergency care. Although the child survived, she suffered permanent injuries
    because of the incident. 
    Id. at 725
    . Just as the Perkins, the Thoeles only
    carried a homeowner’s policy. 
    Id.
    The district court dismissed the plaintiff’s action in Thoele reasoning
    that, despite Sharon’s husband having no relationship with her business, the
    policy’s language excluded coverage for injuries “arising out of business
    pursuits of any insured.” 
    Id. at 726
    . The Seventh Circuit affirmed, agreeing
    with the district court’s reasoning that by using the term “any” the insurance
    company “broadened the exclusion to include injuries triggered by one insured
    6
    in connection with the business pursuit of another.” 
    Id. at 727
    . We find that
    reasoning persuasive.5
    Next, Appellants argue that the inclusion of the severability clause in the
    Perkins’s homeowner’s policy operates to return coverage at least for Jerry.6
    We disagree. In K.M.R. v. Foremost Ins. Group, our Court of Appeals upheld an
    exclusion despite the existence of a severability clause. 
    171 S.W.3d 751
    , 755
    (Ky. App. 2005). In doing so the court reasoned that “a clearly worded
    exclusion is not treated as ambiguous or rendered unclear by the mere
    existence of a severability provision.” 
    Id.
     The court’s reasoning continued,
    stating, “the purpose of severability clauses . . . is not to negate bargained-for
    exclusions which are plainly worded.” 
    Id.
     (quoting Natl. Ins. Underwriters v.
    Lexington Flying Club, Inc., 
    603 S.W.2d 490
    , 492 (Ky. App. 1980) (internal
    citation omitted)).
    Five years later, our appeals court revisited the question of severability
    clauses. Holzknecht v. Kentucky Farm Bureau Mut. Ins. Co., 
    320 S.W.3d 115
    (Ky. App. 2010). Another case involving an at-home daycare service, Sarah
    Holzknecht sued the Mays when her daughter was mauled by the Mays’ family
    dog. As in the present case, the insurer sought summary judgment based on
    an exclusionary provision in their homeowner’s policy. The trial court granted
    5 Although no longer material to the case, we note that the exception to the
    exclusionary language is inapplicable here because our conclusion is based on
    Bessie’s actions and does not require us to resolve whether the exception for
    “occasional” childcare would reinstate Jerry’s coverage.
    6 The severability clause reads: “This insurance applies separately to each
    insured. This condition shall not increase our limit of liability for any one occurrence.”
    7
    summary judgment and the Court of Appeals denied Holzknecht’s claims,
    reasoning that a severability clause does not operate to expand coverage or
    shrink valid, bargained for, exclusions. 
    Id. at 122
    . The panel concluded that
    “[s]ince severability clauses are not drafted to negate policy exclusions, the
    existence of that clause in [the insurer’s] policy does not render the exclusion
    ambiguous.” 
    Id.
     We endorse this reasoning. Likewise, here, the severability
    clause does not fill the gaps in coverage created by the Perkinses’ own conduct.
    Finally, we address Appellants’ concern that by affirming the trial court
    we are rendering insurance coverage illusory and negating the Perkinses’
    reasonable expectations when they purchased their homeowner’s insurance.7
    Neither argument is persuasive. Illusory coverage applies when an insurer’s
    interpretation of a contract term would deny the insured “most if not all of a
    promised benefit.” Sparks v. Trustguard Ins. Co., 
    389 S.W.3d 121
    , 128 (Ky.
    App. 2012) (internal citations omitted). The child care exclusion was clear, and
    no testimony was presented by either policy holder that the coverage was
    intended to extend to a daycare service in the home. Similarly, Appellants’
    reasonable expectations claim fails because, as we have already discussed, the
    childcare exclusionary language was not ambiguous, and the reasonable
    expectations doctrine “applies only to policies with ambiguous terms.” Metzger
    7 Appellants’ public policy claim is similarly ineffective. While we agree that
    promoting the health and safety of our children is always paramount, Appellants have
    categorically failed to show how making State Farm liable under these facts would
    effectuate such an outcome.
    8
    v. Auto-Owners Ins. Co., 
    607 S.W.3d 695
    , 699 (Ky. 2020) (quoting True v.
    Raines, 
    99 S.W.3d 439
    , 443 (Ky. 2003)).
    IV. Conclusion
    For the reasons discussed above, the Court of Appeals’ opinion affirming
    the trial court’s summary judgment in favor of State Farm is affirmed.
    All sitting. All concur.
    COUNSEL FOR APPELLANTS,
    JULIE G. THOMAS AND DONALD
    F. THOMAS, INDIVIDUALLY AND
    AS NEXT FRIEND FOR S.T., A MINOR:
    Kevin Crosby Burke
    Jamie Kristin Neal
    Burke Neal, PLLC
    Michael Faulkner Eubanks
    Shumate, Flaherty, Eubanks & Baechtold, P.S.C.
    COUNSEL FOR APPELLANTS,
    ELIZABETH RENNER AND
    JEFFERY RENNER, AS NEXT FRIEND
    AND PARENT OF C.R., A MINOR:
    Kevin Crosby Burke
    Jamie Kristin Neal
    Burke Neal, PLLC
    Zachary LeRoy Taylor
    Taylor Couch, PLLC
    COUNSEL FOR APPELLEE,
    STATE FARM FIRE AND CASUALTY:
    David T. Klapheke
    Boehl Stopher & Graves, LLP
    9
    COUNSEL FOR APPELEES,
    BESSIE PERKINS AND
    JERRY PERKINS:
    Douglas Loy Hoots
    Miller, Griffin & Marks, P.S.C
    Joseph Stan Lee
    Sturgill, Turner, Barker & Moloney, PLLC
    10