Westfield Ins v. Tech Dry Inc

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206 2 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

ELECTRONIC CITATION: 2003 FED App. 0230P (6th Cir.)

File Name: 03a0230p.06 _________________

COUNSEL

UNITED STATES COURT OF APPEALS

ARGUED: John H. Engle, KOLSTEIN, ENGLE &

FOR THE SIXTH CIRCUIT PRINCE, Cincinnati, Ohio, for Appellant. Suzanne Cassidy,

_________________ O’HARA, RUBERG, TAYLOR, SLOAN & SERGENT,

Covington, Kentucky, for Appellees. ON BRIEF: John H.

Engle, KOLSTEIN, ENGLE & PRINCE, Cincinnati, Ohio,

WESTFIELD INSURANCE CO ., X for Appellant. Suzanne Cassidy, O’HARA, RUBERG,

Plaintiff-Appellant,- TAYLOR, SLOAN & SERGENT, Covington, Kentucky, for

- Appellees.

- No. 01-6390

v. - _________________

>

, OPINION

TECH DRY , INC.; GAYLE - _________________

WILLIAMSON, -

Defendants-Appellees. N KAREN NELSON MOORE, Circuit Judge. Plaintiff-

Appellant Westfield Insurance Company (“Westfield”)

Appeal from the United States District Court appeals the district court’s grant of summary judgment to

for the Eastern District of Kentucky at Covington. Defendants-Appellees Tech Dry, Inc. (“Tech Dry”) and Gayle

No. 00-00186—William O. Bertelsman, District Judge. Williamson (“Williamson”). When Williamson’s mother was

murdered by a Tech Dry employee who had previously done

Argued: June 10, 2003 work at her mother’s home, Williamson filed an action

against Tech Dry. She alleged that Tech Dry proximately

Decided and Filed: July 15, 2003 caused the death of her mother by negligently hiring and

retaining the employee who murdered her mother. Westfield

Before: MOORE and GIBBONS, Circuit Judges; has a duty to defend Tech Dry, its insured, in actions seeking

SCHWARZER, Senior District Judge.* damages for bodily harm if they are caused by an

“occurrence.” In the present action, Westfield seeks a

declaratory judgment that it is not obligated to defend Tech

Dry in Williamson’s action because Tech Dry’s negligent

hiring and retention of an employee is not an “occurrence”

under the terms of Tech Dry’s insurance liability contract.

Upon cross-motions for summary judgment, the district court

granted summary judgment to Tech Dry and Williamson,

*

concluding that because the meaning of the policy term

The Honorable William W Schwarzer, Senior United States District “occurrence” was ambiguous, Westfield was obligated to

Judge for the Northern District of California, sitting by designation.

1

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 3 4 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

defend Tech Dry in the underlying action. Westfield appeals. However, we will have no duty to defend the insured

Because the Kentucky courts would likely find that negligent against any “suit” seeking damages for “bodily injury” or

hiring and retention of an employee constitutes an “property damage” to which this insurance does not

“occurrence” under the terms of the policy in question, we apply. We may, at our discretion, investigate any

AFFIRM the district court. “occurrence” and settle any claim or “suit” that may

result. . . .

I. FACTS AND PROCEDURE

***

Fred Furnish (“Furnish”) performed work at Ramona

Williamson’s (“Ramona”) home while employed as a carpet b. This insurance applies to “bodily injury” and

cleaner for Tech Dry. In early June 1998, Tech Dry “property damage” only if:

terminated Furnish’s employment. Several weeks later,

Furnish broke into Ramona’s home, where he assaulted and (1) The “bodily injury” or “property damage” is

murdered Ramona. Furnish was subsequently convicted of caused by an “occurrence” that takes place in the

capital murder in Kentucky state court. “coverage territory;” and

After she was named the executor of her mother’s estate, (2) The “bodily injury” or “property damage”

Williamson filed a wrongful death action against Tech Dry in occurs during the policy period.

Kentucky state court. Williamson alleged that an employee

of Tech Dry caused her mother’s death and that Tech Dry was c. Damages because of “bodily injury” include damages

negligent in hiring and retaining Furnish as an employee. Jeff claimed by any person or organization for care, loss of

Cheser (“Cheser”), the Tech Dry franchise owner and services or death resulting at any time from the “bodily

manager who hired Furnish, admits that he did not perform a injury.”

criminal background check on Furnish. Moreover, Cheser

retained Furnish as an employee even after receiving Joint Appendix (“J.A.”) at 82 (Policy). The policy defines

complaints of theft from customers and learning that Furnish “occurrence” as “an accident, including continuous or

had stolen money from Tech Dry. repeated exposure to substantially the same general harmful

conditions.” J.A. at 93 (Policy). The policy excludes from

Tech Dry, Westfield’s insured, asked Westfield to provide coverage “‘[b]odily injury’ or ‘property damage’ expected or

a defense and indemnity for the claims asserted against Tech intended from the standpoint of the insured.” J.A. at 82

Dry in Williamson’s wrongful death action. The liability (Policy).

policy in question obligates Westfield to provide the

following coverage: In response to Tech Dry’s request for a defense and

indemnity, Westfield filed the present action in United States

a. We will pay those sums that the insured becomes District Court. Westfield seeks a declaratory judgment that

legally obligated to pay as damages because of “bodily Tech Dry’s insurance policy does not require Westfield to

injury” or “property damage” to which this insurance defend Tech Dry or to pay or satisfy any judgment or award

applies. We will have the right and duty to defend the rendered to Williamson in the underlying wrongful death

insured against any “suit” seeking those damages. action.

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 5 6 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

The parties submitted a stipulation of facts and filed cross- the light most favorable to the nonmoving party. Taft Broad.

motions for summary judgment. The district court denied Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991).

Westfield’s motion for summary judgment and granted Tech

Dry’s and Williamson’s motions for summary judgment. Because this court is sitting in diversity,1 see 28 U.S.C.

Westfield timely appealed. § 1332, we apply the law, including the choice of law rules,

of the forum state. Hayes v. Equitable Energy Res. Co., 266

II. ANALYSIS F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor

Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). The parties agree

A. Standard of Review that we should apply Kentucky law. Because the question at

issue has not yet been resolved by the Kentucky Supreme

We review the district court’s grant of summary judgment Court, we must engage in the challenging task of attempting

de novo, employing the same legal standard applied by the to predict what the Kentucky Supreme Court would do if

district court. Equitable Life Assurance Soc’y of U.S. v. Poe, confronted with the same issue. Stalbosky v. Belew, 205 F.3d

143 F.3d 1013, 1015 (6th Cir. 1998). “We also review de 890, 893-94 (6th Cir. 2000).

novo a district court’s order denying summary judgment, if

the denial is based on purely legal grounds.” Black v. B. Westfield’s Duty to Defend and Indemnify

Roadway Express, Inc., 297 F.3d 445, 448 (6th Cir. 2002).

When a district court denies summary judgment to one party Tech Dry’s policy provides that Westfield will defend Tech

on the ground that it is granting summary judgment to another Dry in suits seeking damages for bodily injury or property

party, the denial of summary judgment is based on a legal damage caused by an “occurrence.” The policy further

conclusion rather than the district court’s finding of a genuine defines occurrence as “an accident, including continuous or

issue of material fact. Id. Because the district court denied repeated exposure to substantially the same general harmful

summary judgment for Westfield on the purely legal ground conditions.” J.A. at 93 (Policy). The district court found that

that it was granting summary judgment to Tech Dry and the term “accident” is “inherently ambiguous,” J.A. at 17 (Op.

Williamson, we therefore review de novo both the district & Order), and construed the ambiguity in favor of finding

court’s grant of summary judgment to Tech Dry and coverage, Healthwise of Kentucky, Ltd. v. Anglin, 956 S.W.2d

Williamson and the district court’s denial of summary 213, 217 (Ky. 1997). Westfield contests the district court’s

judgment to Westfield. finding of ambiguity, contending that negligent hire and

retention is clearly not an “occurrence” under the terms of the

Summary judgment is appropriate “if the pleadings, policy. According to Westfield, the policy therefore does not

depositions, answers to interrogatories, and admissions on provide coverage for a wrongful death suit arising under these

file, together with the affidavits, if any, show that there is no circumstances.

genuine issue as to any material fact.” Fed. R. Civ. P. 56(c).

A dispute over a material fact is not considered “genuine”

unless a reasonable jury could return a verdict for the

nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S.

1

242, 248 (1986) (quotation omitted). When reviewing cross- For diversity pu rposes, W estfield — an O hio co rporation w ith its

motions for summary judgment, we must evaluate each principal place of business in Ohio — is consid ered an O hio citizen, while

motion on its own merits and view all facts and inferences in Williamson and Tech D ry — a K entucky corporation with its principal

place of business in K entuck y — are deemed citizens of Kentucky.

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 7 8 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

The interpretation of an insurance contract is a matter of The words “accident”, “accidental”, and “accidental

law. Stone v. Ky. Farm Bureau Mut. Ins. Co., 34 S.W.3d 809, means”, as used in insurance policies, have never

810 (Ky. Ct. App. 2000). Under Kentucky law, a court acquired a technical meaning in law, and must be

should determine at the outset of litigation whether an interpreted according to the usage of the average man

insurance company has a duty to defend its insured by and as they would be read and understood by him in the

comparing the allegations in the underlying complaint with light of the prevailing rule that uncertainties and

the terms of the insurance policy. DiBeneditto v. Med. ambiguities must be resolved in favor of the insured. An

Protective Co., 3 Fed. Appx. 483, 485 (6th Cir. 2001). An accident is generally understood as an unfortunate

insurance company has a duty to defend its insured if the consequence which befalls an actor through his

language of an underlying complaint against the insured inattention, carelessness or perhaps for no explicable

brings the action within the scope of the insurance contract. reason at all. The result is not a product of desire and is

Id. perforce accidental. Conversely, a consequence which is

a result of plan, design or intent is commonly understood

1. Ambiguity as not accidental.

As an initial matter, we must determine whether the policy Fryman, 704 S.W.2d at 206 (citation omitted); see Stone, 34

terms “occurrence” and “accident” are ambiguous. The S.W.3d at 811 (“In the context of an insurance policy, the

district court reasoned that “the word ‘accident’ . . . . is word ‘accident’ should be interpreted in accordance with its

inherently ambiguous.” J.A. at 17 (Op. & Order) (noting that common usage.”). The Kentucky Supreme Court

Black’s Law Dictionary gives more than twenty meanings for subsequently described Fryman as “hold[ing] that terms of

the word). However, the district court also noted that “[i]f insurance contracts have no technical meaning in law and are

used in an insurance contract, the ordinary meaning of the to be interpreted according to the usage of the average man

term is ‘an event which . . . is unusual and not expected by the and as they would be read and understood by him in the light

person to whom it happens.’” J.A. at 18 (Op. & Order) of the prevailing rule that uncertainties and ambiguities must

(quoting Black’s Law Dictionary (5th ed. 1979)) (emphasis be resolved in favor of the insured.” Brown Found., 814

omitted). S.W.2d at 279.

Where policy terms are not ambiguous, “the ordinary The Kentucky Court of Appeals has relied on Fryman’s

meaning of the words chosen by the insurer is to be articulation of the average man’s understanding of “accident”

followed.” James Graham Brown Found. v. St. Paul Fire & to analyze the definition of “occurrence” that is at issue in this

Marine Ins. Co., 814 S.W.2d 273, 279 (Ky. 1991). In other case. Interpreting the “occurrence” term of a different policy,

words, “the terms should be interpreted in light of the usage the Kentucky Court of Appeals concluded that although the

and understanding of the average person.” Stone, 34 S.W.3d policy did not define “accident,” it should be read “according

at 811 (citing Fryman v. Pilot Life Ins. Co., 704 S.W.2d 205 to the usage of the average person,” as explained in Fryman.

(Ky. 1986)). Thompson v. W. Am. Ins. Co., 839 S.W.2d 579, 580 (Ky. Ct.

App. 1992). The Kentucky Court of Appeals also cited

The Kentucky Supreme Court has addressed the Fryman when interpreting a similar policy provision in Stone,

significance of the word “accident” in insurance policies, explaining that, “according to its plain meaning, an ‘accident’

although in a slightly different context:

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 9 10 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

denotes something that does not result from a plan, design, or general liability policy is a matter of first impression in

an intent on the part of the insured.” Stone, 34 S.W.3d at 812. Kentucky. Therefore, we must predict how the Kentucky

Supreme Court would resolve this issue. Stalbosky, 205 F.2d

In light of the Kentucky Supreme Court’s analysis of at 893-94. Other courts have reached differing conclusions

“accident” in Fryman and the Kentucky Court of Appeals’s about whether negligent hiring constitutes an accident and,

subsequent reliance on Fryman when interpreting the more specifically, about whether negligent hiring claims are

“occurrence” terms of insurance policies, we conclude that covered “where the person hired or supervised has committed

these terms were not ambiguous in the policy in question. an intentional tort.”3 7 Couch on Insurance 3d § 103:31, at

103-74 (1997).

2. The Conduct at Issue

Several courts have held that because the decision to hire or

Because the term “occurrence” is not ambiguous, we must retain an employee is an intentional business decision, even

determine whether the “occurrence” causing Ramona’s when the decision is negligently made, it is not accidental.

injuries and death was covered by the policy. To do so, we See, e.g., Erie Ins. Co. v. Am. Painting Co., 678 N.E.2d 844,

must identify the “occurrence” at issue. See Farmers Alliance 846 (Ind. Ct. App. 1997). As one court explained, “a

Mut. Ins. Co. v. Salazar, 77 F.3d 1291, 1295 (10th Cir. 1996) volitional act — which is always intended — does not

(“Before we apply the policy’s definition of ‘occurrence,’ we constitute an accident, even where the results may be

must first decide what event or events in the causal chain unexpected or unforeseen.” Allstate Ins. Co. v. Norris, 795 F.

leading to [the injury] should be the focus of our inquiry.”). Supp. 272, 275 (S.D. Ind. 1992). Thus, because the employer

Williamson’s complaint in the underlying wrongful death “intended to commit the act that resulted in injury” — here,

action alleges that Tech Dry’s negligence was the proximate the hiring and retention of Furnish — these courts would

cause of Ramona’s wrongful death and Westfield does not conclude that the injury to Ramona was not caused by an

dispute it. Our inquiry will therefore focus on whether Tech accident. Allstate Ins. Co. v. Davis, 6 F. Supp. 2d 992, 996

Dry’s allegedly negligent decision to hire and retain an (S.D. Ind. 1998).

employee is a qualifying “occurrence” under the policy.2

The issue of whether negligent hiring and retention of an

employee can constitute an “occurrence” in the context of a

3

Although some of the cases discussed herein analyze different types

2

of policies and/or slightly different definitions of “occurrence” and

W estfield argues that this court has previously concluded that where “accid ent,” it is nevertheless helpful to consider their analyses of these

an employer negligently hires an emplo yee and the em ployee harm s a terms to resolve the issue at hand. As is the case here, most policies

customer, the em ployee’s actions “co nstitute the o ccurrence resulting in require an “occurrence” to trigger coverage and define that term as an

injury” under a similarly word ed policy. Monticello Ins. Co. v. Ky. River “accid ent.” Furthermore, most policies exclude coverage for injuries

Cmty. Care, Inc., No. 98-5372, 1999 W L 2361 90, at *4 (6th Cir. 1999). “expected or intended from the standpoint of the insured,” J.A. at 82

But Monticello Insurance did not ad dress whether the negligent hiring and (Policy), either by incorporating self-excluding language in the definition

retention of an employee could constitute an “occurrence” under the terms of “occurrence” or in a separate exclusion clause. See N. Sec. Ins. Co. v.

of the general liability policy in question. Rather, it distinguished Perron, 777 A.2d 151, 157-58 (Vt. 2001) (explaining that the effect of

between the employer’s negligent hiring and the emp loyee’s assault only “expected or intended” language is the same regardless of whether it is

for the purpo se of determining whether the “occurrence” in question took included in the definition of “occurrence” or in a separate exclusion

place during the life of a p articular policy. clause).

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 11 12 Westfield Ins. Co. v. Tech Dry et al. No. 01-6390

Other courts have reached the opposite conclusion, coverage in negligent hiring cases, they arguably transform an

assuming that negligence is inherently not intentional. See employer’s negligent acts into intentional acts, dissolving the

United Fire & Cas. Co. v. Shelly Funeral Home, 642 N.W.2d distinction between negligent and intentional conduct. See

648, 654 (Iowa 2002) (listing cases in which “other courts Doe v. Shaffer, 738 N.E.2d 1243, 1247 (Ohio 2000). To

faced with similar facts and the identical ‘occurrence’ and avoid this problem, we will “look to the actions of the insured

intentional act provisions before us have found coverage for and not the perpetrator of the intentional act in determining

negligent hiring and supervision”); Silverball Amusement, whether there is coverage” of Tech Dry for its alleged

Inc. v. Utah Home Fire Ins. Co., 842 F. Supp. 1151, 1165 negligent hiring and retention of Furnish. 14 Couch on

(W.D. Ark. 1994) (“[A]n insurer must provide coverage and Insurance 3d § 201:18, at 201-41 (1999).

a legal defense to an insured where a complaint alleges that an

employer was negligent in hiring and supervision of an In analyzing whether Tech Dry’s conduct was an

employee who subsequently committed an intentional tort. “occurrence,” we note the Kentucky Supreme Court’s

An insurance policy would require an exceedingly precise recognition that “[c]ourts and commentators alike are in

exclusionary clause to avoid that fundamental principle, and agreement that the term ‘occurrence’ is to be broadly and

there is no such clause in the instant case. . . . The policy liberally construed in favor of extending coverage to the

covers negligent acts.”), aff’d, 33 F.3d 1476 (8th Cir. 1994). insured.” Brown Found., 814 S.W.2d at 278; see Thompson,

839 S.W.2d at 580 (“Our Supreme Court has pronounced that

These courts caution against confusing the evaluation of an ‘occurrence’ is to be given broad and liberal construction in

employee’s intentional conduct and the employer’s negligent favor of extending coverage.”). However, “[w]e must give

conduct. For example, one court reasoned, the policy its plain meaning and are constrained from

enlarging the risks contrary to the natural and obvious

In refusing to separate the employer’s alleged negligence meaning of the insurance contract.” Walker v. Econ.

from the employee’s intentional conduct, . . . courts Preferred Ins. Co., 909 S.W.2d 343, 346-47 (Ky. Ct. App.

impermissibly ignored the employer’s independent acts 1995).

which gave rise to the alleged tort. Consequently, in

holding that the employee’s intentional conduct places Under Kentucky law, even if Tech Dry’s conduct in hiring

the insured’s negligence outside the definition of and retaining Furnish was intentional and the injury to

“occurrence,” . . . courts read the exclusion too broadly. Ramona was foreseeable, the policy in question nevertheless

U.S. Fid. & Guar. Co. v. Open Sesame Child Care Ctr., 819

F. Supp. 756, 760 (N.D. Ill. 1993).4 When courts deny

purp ose o f determ ining co verage. See U.S. Fid. & Gua r. v. Towa rd, 734

F. Supp. 465, 470 (S.D. Fla. 1990) (recognizing the tort of negligent

4

hiring and su pervision and exp laining that “[t]he focus of these torts is the

The district court for the Northern District of Illinois emphasized first wrong, the de fendant’s negligence, not the second wrong, the third-

that “[t]he tort of negligen t hiring is a well-recognized claim . . . and is party’s wrongful conduct which leads to the plaintiff’s injury”). Like

brough t against an employer for its negligent hiring of an employee who Illinois and Florida, Kentucky also clearly “recognizes that an employer

intentionally injures a third party,” Un ited States F idelity and G uaranty can be held liable when its failure to exercise ordinary care in hiring or

Co. v. Ope n Sesa me C hild Ca re Center, 819 F. Supp. 756, 760 (N.D . Ill. retaining an employee creates a foreseeab le risk of harm to a third

1993), suggesting that the nature of the tort itself should guide courts in perso n.” Oakley v. Flor-Shin, Inc., 964 S.W.2d 438, 442 (Ky. Ct. App.

distinguishing between the employer’s and employee’s conduct for the 1998).

No. 01-6390 Westfield Ins. Co. v. Tech Dry et al. 13

provides coverage to Tech Dry as long as “the injury was not

actually and subjectively intended.” Thompson, 839 S.W.2d

at 580. An insurer cannot deny coverage on grounds that

conduct was intentional rather than accidental if the insured

did not possess the requisite intent to do injury. Brown

Found., 814 S.W.2d at 277. Kentucky courts will infer intent

to injure from “inherently injurious” acts, such as sexual

molestation, Thompson, 839 S.W.2d at 581, or punching

someone in the face, Walker, 909 S.W.2d at 345. But conduct

is not considered inherently injurious unless it is

“substantially certain to result in some injury.” Thompson,

839 S.W.2d at 581. By nature, negligently hiring and

retaining an employee is not substantially certain to result in

some injury and therefore is not inherently injurious.

We therefore conclude that the Kentucky Supreme Court

would hold that Tech Dry is entitled to coverage because

Tech Dry’s negligent hiring and retention of Furnish

constitutes an “accident,” and therefore an “occurrence,”

under the terms of the governing policy.

III. CONCLUSION

For the reasons explained above, we AFFIRM the district

court’s grant of summary judgment for Tech Dry and

Williamson. Although the district court erred by concluding

that the insurance policy was ambiguous, Tech Dry’s

negligent hiring and retention of Furnish nevertheless

constitutes an “occurrence” under the policy.