United States District Court, E.D. Kentucky
OPINION AND ORDER
KAREN K. CALDWELL, Chief District Judge.
This matter is before the Court on cross motions for summary judgment in whole or in part by the parties. For the reasons stated below, the motion of Defendant, Motorists Mutual Ins. Co. ("Motorists") will be granted, and the motion of Plaintiff Preferred Automotive Sales, Inc. ("Preferred") will be denied.
The issue in this case is interpretation of an Auto Dealers Legal Defense Coverage endorsement to a Garage Coverage insurance policy. At this stage, there is no dispute regarding the facts. The only dispute is the legal question of whether Motorists had a duty to defend Preferred when it was sued by its customer, Charles Allen ("Allen").
On February 23, 2004, Motorists issued Preferred a business insurance policy, which included a "Commercial Property Coverage Form, Commercial General Liability Coverage Form [and] Commercial Garage Coverage Form." DE 20-1, CM/ECF p. 3. An Endorsement to the Garage Form added Broad Form Garage Insurance Coverage, which included the Legal Defense Coverage. DE 20-3, pp. 11-16.
On January 29, 2005, Allen purchased a 1998 Mercedes Benz from Preferred Automotive. He soon complained that the vehicle had mechanical and cosmetic issues. Tafel Motors subsequently determined that the vehicle had previous damage to the front end, passenger side, rear, frame and braking system. On September 7, 2005, Allen sued Preferred (the "Allen Suit"), alleging that Preferred provided a false Damage Disclosure Notice saying that the automobile had sustained no prior damage. DE 21-2, p.2, ¶ 6. In Count I, the Allen Suit alleged a willful violation of the Consumer Protection Act. Count II alleged fraud, saying Preferred "knowingly and recklessly made material misrepresentations and omissions, upon which Plaintiff relied to his detriment and injury." Id., p. 4, ¶ 19. Count III alleged breach of contract/estoppel/unjust enrichment. Id., pp. 4-5. Count IV alleged negligence. Id., p. 5.
Preferred was served with a summons on June 26, 2006 and demanded that Motorists indemnify and/or defend Preferred in the Allen Suit. By letter dated July 14, 2006, Motorists denied coverage because Allen's "claims do not arise to bodily injury' or property damage' caused by either an accident' or occurrence' as defined in the policy." DE 1-2, p. 16. The denial further noted that coverage was excluded for "intentional conduct, breach of contract and damages to your work' or your product.'" Id.
The Allen Suit was resolved May 16, 2008 by a jury verdict that Preferred intentionally misrepresented the condition of the car to Allen, who relied on those misrepresentations to his detriment. The jury also found that Preferred engaged in unfair, false, misleading or deceptive practices in selling the vehicle to Allen. The jury awarded Allen $55, 114.35 in compensatory damages and $111, 000.00 in punitive damages.
The Preferred insurance policy issued by Motorists consists of three coverage forms: (1) Commercial Property Coverage Form; (2) Commercial General Liability Coverage Form; and (3) Garage Coverage Form. DE 20-1, p. 3. The Property Coverage lists two buildings in Nicholasville - a frame building occupied by "used autos and trucks, " and a non-combustible building occupied by a "mechanic shop." Id., pp. 19-20. Among the items excluded from property damage coverage are "[a]utomobiles held for sale." Id., p. 24, ¶ 2.c.
The Commercial General Liability Coverage "applies to bodily injury' and property damage' only if: (1) The bodily injury' or property damage' is caused by an occurrence' that takes place in the coverage territory.'" DE 20-2, p. 16, ¶ 1.b. Excluded from coverage are: "property damage' to your product' arising out of it or any part of it" and "property damage' to your work' arising out of it or any part of it and included in the products-completed operations hazard.'" DE 20-2, p. 20, ¶¶ 2.k., l. The definitions section of the General Liability Coverage contains the following definitions: "Occurrence' means an accident...." DE 20-2, p. 29, ¶ 13. "Your product' means [a]ny goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by you." DE 20-2, p. 30, ¶ 21.a. (1)(a).
These other forms of coverage place in context the Garage coverage with its Legal Defense Coverage provision, on which Preferred bases its argument that Motorists was obligated to defend it. The Broad Form Garage endorsement states on its introductory pages that the "coverages provided by this endorsement are applicable only to garage operations' other than the ownership, maintenance or use of the covered autos.'" DE 20-3, p. 11.
The Garage Operations' Liability Coverage provides that it will pay "damages because of bodily injury' or property damage' to which this insurance applies caused by an accident' and resulting from garage operations'...." DE 20-3, p. 21, ¶ A.1.a. Excluded from coverage is any liability "assumed under any contract or agreement." Id., p. 23, ¶ B.2. Also excluded is "property damage' to work you performed' if the property damage' results from any part of the work itself or from the parts, materials or equipment used in connection with the work." Id., p. 25, ¶ B.13. "Garage operations" is defined as "the ownership, maintenance or use of locations for garage business...." DE 20-4, p. 8, ¶ H. "Products" are defined as the "goods or products you made or sold in a garage business." Id., p. 9, ¶ N.a. "Suit" is defined as "a civil proceeding in which damages because of bodily injury' or property damage'... to which this insurance applies, are claimed." Id., ¶ P. The Legal Defense Coverage provision states: "We have the right and duty to defend any suit' brought against you by or on behalf of a customer of yours that results from damage to your product' or work you performed.'"
A. Summary Judgment ...