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Kentucky Employers' Mut. Ins. v. Ellington

Supreme Court of Kentucky

May 14, 2015


Released for Publication June 4, 2015.


COUNSEL FOR APPELLANT: Barry Lewis, Lewis and Lewis Law Offices, Hazard, Kentucky.

COUNSEL FOR APPELLEE, RANDY ELLINGTON: Timothy Jay Wilson, Wilson & McQueen, Lexington, Kentucky.

COUNSEL FOR APPELLEE, R & J CABINETS: Scott Mitchell Burns Brown, Ferreri & Fogle, PLLC, Lexington, Kentucky.

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The Appellant, Kentucky Employers' Mutual Insurance (KEMI), appeals from a decision of the Court of Appeals holding that the Appellee, Randy Ellington, was covered by a workers' compensation policy it issued. The policy named Ellington and his business, a sole proprietorship with the assumed name of R & J Cabinets, as " insureds." At the same time, the policy included a specific exclusion from coverage of Ellington as the sole proprietor. The Court of Appeals found the policy to be ambiguous because of these competing terms and construed it in Ellington's favor to provide coverage for his injuries. This Court concludes that the policy as issued, on its face, is clearly not a personal policy, but is rather a business policy purchased by a sole proprietor, and no ambiguity requires a different conclusion. Ellington, as the sole proprietor, was not entitled to benefits under the policy. For that reason, the Court of Appeals is reversed.

I. Background

In December 2010, Ellington slipped on a patch of ice at a job site and broke his femur. Some time later, he filed for workers' compensation benefits under a workers' compensation insurance policy issued to him by KEMI.

Ellington owned and operated R & J Cabinets as a sole proprietorship. At times, R & J Cabinets employed part-time workers, usually one at a time, but at the time of Ellington's work-related injury, only Ellington remained with the business. He does not appear to have had any employees for at least a year leading up to his injury.

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The KEMI policy was originally purchased in 2006. At that time, Ellington had at least one employee, which he reported to KEMI. The original application for the policy stated that Ellington was a " sole proprietor" and that he was not covered by the policy.

The policy itself was issued to " Randy Ellington DBA R & J Cabinets," and was reissued annually. A section of the policy titled " Classifications" laid out how the premium was calculated in part.[1] It included a table showing how the " manual premium" was set. This table included a column titled " CLASS RATING AND MANUAL PREMIUM DETAIL," under which Ellington's name was listed with a code showing the type of work done by the business. Below this was another table showing how the final premium was calculated (i.e., by adding an " expense constant" and a special fund assessment to the manual premium).

At the time of the accident, the policy also included a number of attached endorsements. Most of these endorsements have no bearing on this case, as they lay out things like how tax is assessed on the policy. But two of the endorsements are relevant.

One of these was headed " SOLE PROPRIETORS, PARTNERS, OFFICERS AND OTHERS EXCLUSION ENDORSEMENT" (hereinafter " exclusion endorsement" ). It specifically stated that there was no bodily injury coverage to any person in the attendant schedule.[2] The endorsement further stated that " remuneration" (i.e., salary or other earnings) of any person listed in the schedule was not used to set the policy premium, and that if KEMI was ever required to make any payment for bodily injury to a listed person, then that person agreed to reimburse the company. The only person listed on the attendant schedule was Ellington, whose name was included in a column headed " Excluded Individual Name." The next column of that schedule is headed " Excluded Individual Position," under which is written " Sole Proprietor."

A second endorsement was entitled " SCHEDULE OF NAMED INSUREDS AND WORK PLACES" (hereinafter " named-insured endorsement" ). Under that title, this endorsement listed Randy Ellington and R & J Cabinets separately. The address for both Ellington and R & J Cabinets were the same.

The first policy expired on its anniversary in 2007, but it was renewed annually thereafter. In 2007 and 2008, Ellington completed a " Policyholder's Mail Audit," which is sent out by the insurer at the end of each of the first few policy years to gather additional information upon which the premium was to be calculated. Those audit forms stated that Ellington was not covered. These forms, according to the ALJ's findings, require the business owner to list the number of employees he had during the policy year and the amount of payroll for the employees. This information is then used, in an after-the-fact manner, to calculate the final amount of premium

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the business owner owes for the coverage extended to these employees over the past year. Ellington listed employees and payroll on those forms.

It was this policy under which Ellington made his claim for benefits. KEMI denied his claim, arguing that it was not covered because of the sole-proprietor ...

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