CHARLESTON – The West Virginia Supreme Court of Appeals has ruled that an insurance company must provide stop gap coverage to its insureds in a lawsuit following work injuries.
The appeal was brought by First Mercury Insurance Company from an order of Mason Circuit Court that denied First Mercury’s motion for partial summary judgment and, in turn, granted partial summary judgment as to coverage to Jeffrey Russell and Kimes Steel, according to a Oct. 19 opinion.
“The dispositive issue herein is whether coverage exists for a statutory deliberate intent action when the employer’s commercial general liability policy is amended by an endorsement that includes a ‘Stop Gap – Employers Liability Coverage Endorsement – West Virginia’ that expressly provides coverage for bodily injury to employees, as well as an exclusion for statutory deliberate intent claims,” wrote Justice Robin Jean Davis. “After careful review of the circuit court’s order, the briefs, the record submitted on appeal, and the oral arguments of the parties, we find the policy at issue in this case to be internally inconsistent and therefore ambiguous. Accordingly, we interpret the policy in favor of the insured and affirm the circuit court’s partial summary judgment rulings.”
In 2012, Kimes Steel sought to purchase insurance coverage in order to meet the insurance requirements for a potential client contract with James River Coal.
Shannon Kimes, the principal of Kimes Steel, worked with an independent insurance agent who solicited quotes for the required insurance coverage based upon a list provided by James River Coal and, ultimately, First Mercury responded to the solicitation by submitting a bid to provide the required coverage.
Kimes Steel purchased two policies from First Mercury. The two polices were in place with Jeffrey Russell was involved in a workplace accident at Kimes Steel on May 3, 2013. The accident resulted in severe injuries to Jeffrey Russell’s dominant hand and the amputation of a finger.
On Feb. 4, 2014, the Russells filed a complaint alleging Kimes Steel acted with deliberate intention and that it required employees to perform job duties without required safety equipment, instruction and precautions for working with table saws. It also alleged that he was subjected to an unsafe working condition that presented a high degree of risk of strong probability of serious injury or death.
First Mercury issued a denial of coverage to Kimes Steel on May 5, 2014, informing Kimes Steel that it would not provide a legal defense to the lawsuit, nor would it indemnify the company as to any damages that the company may be liable to the Russells.
First Mercury also filed a declaratory judgment action in the U.S. District Court for the Southern District of West Virginia seeking a declaration that the policies provided no coverage for the Russells’ claims. The action was dismissed.
In June 2014, the Russells amended their complaint by adding a declaratory judgment claim against First Mercury. In October 2014, Kimes Steel filed a cross claim against First Mercury, asserting breach of contract and bad faith arising from its denial of coverage.
In 2015, First Mercury moved for partial summary judgment on the coverage issues and, on May 18, 2016, the circuit court entered an order denying First Mercury’s motion for partial summary judgment and granted the Russells’ cross-motion and Kimes Steel’s motion for partial summary judgment on coverage issues.
First Mercury then appealed the order.
Davis said the Supreme Court’s analysis of the First Mercury policy issued to Kimes Steel reveals that it contains a Stop Gap endorsement that provides coverage for deliberate intent actions, and an accompanying plain and clear exclusion denying the very same coverage.
“This circumstance compels the conclusion that the exclusionary language is inherently inconsistent with the Stop Gap endorsement providing coverage such that it nullifies the purpose of the policy endorsement and operates so as to defeat indemnification,” she wrote.
By purporting to exclude deliberate intent actions from the Stop Gap endorsement, the First Mercury policy largely nullifies the purpose of the coverage, which is to fill the gap in the CGL policy and provide protection for employees’ bodily injury claims, according to the opinion.
“Such ambiguous policy language must be construed against the insurance company and in favor of the insured so as to support the purpose of indemnity,” Davis wrote. “Thus, we find that the First Mercury explicitly titled Stop Gap endorsement operates to provide coverage for the deliberate intent claims of the Russells against Kimes Steel, and the conflicting exclusion may not be enforced.”
The petitioner is represented by Don C.A. Parker and Charity K. Lawrence of Spilman Thomas & Battle.
The respondents are represented by Brent K. Kesner, Ernest G. Hentschel II of Kesner & Kesner; and Kevin A. Nelson and Ashley W. French of Dinsmore & Shohl.
W.Va. Supreme Court of Appeals case number: 16-0596