United States District Court, W.D. Kentucky, Bowling Green Division
MEMORANDUM OPINION AND ORDER
N. Stivers, United States District Court Judge
a declaratory judgment action involving an underlying
personal injury claim against Defendants M&M Service
Station Equipment Specialist, Inc.'s
(“M&M”) and Chad Henry
(“Henry”) by Defendant Taylor Montgomery
(“Montgomery”) in Rowan Circuit Court. This
matter is before the Court on Plaintiff's Motion for
Summary Judgment (DN 32). The motion has been fully briefed
by the parties and is ripe for adjudication. For the reasons
outlined below, the motion is GRANTED IN
PART and DENIED IN PART.
STATEMENT OF FACTS AND CLAIMS
West American Insurance Company (“West American”)
seeks a declaratory judgment regarding its duty to defend or
indemnify M&M in connection with personal injury claims
asserted by Montgomery against M&M and its former
employee, Henry, following a motor vehicle accident on August
28, 2015 in Rowan County, Kentucky. (Compl. ¶ 2, DN 1;
Compl. Ex. B, ¶¶ 4-5, DN 1-3 [hereinafter
Montgomery Compl.]). In that action, (the “Montgomery
suit”) Montgomery has alleged that Henry negligently
operated a vehicle owned by M&M which collided with her
vehicle and that M&M is both vicariously and directly
liable for Henry's negligence. (Montgomery Compl.
¶¶ 5-8, 10; Pl.'s Mot. Summ. J. Ex. F, ¶
2, DN 32-7 [hereinafter Montgomery Am. Compl.]).
is the named insured on a business auto policy (the
“Policy”) issued by West American for the period
from May 1, 2015, to May 1, 2016. (Compl. ¶ 18;
Pl.'s Mot. Summ. J. 2-3). The Policy contains the
following provision for liability coverage:
We will pay all sums an “insured” legally must
pay as damages because of “bodily injury” or
“property damage” to which this insurance
applies, caused by an “accident” and resulting
from the ownership, maintenance or use of a covered
“auto.” . . .
We have the right and duty to defend any
“insured” against a “suit” asking for
such damages . . . . However, we have no duty to defend any
“insured” against a “suit” seeking
damages for “bodily injury” or “property
damage” . . . to which this insurance does not apply.
We may investigate and settle any claim or “suit”
as we consider appropriate. Our duty to defend or settle ends
when the Liability Coverage Limit of Insurance has been
exhausted by payment of judgments or settlements.
(Pl.'s Mot. Summ. J. 4; Pl.'s Mot. Summ. J. Ex. A
(PageID # 615), DN 32-1 & 32-2 [hereinafter Policy]). The
Policy's limit of insurance for covered damages resulting
from a single accident is $1, 000, 000, regardless of the
number of covered vehicles, drivers, premiums paid, claims
made, or vehicles involved. (Pl.'s Mot. Summ. J. 4;
Policy (PageID # 619)). The Policy defined the term
“insured” to include “[a]nyone else while
using with your permission a covered ‘auto' you
own, hire, or borrow . . . .” (Pl.'s Mot. Summ. J. 4;
Policy (PageID # 615, 669)). Further, it contains an
exclusion for “punitive or exemplary damages, ”
Regardless of any other provision of this policy, this policy
does not apply to (and no coverage is provided for)
“punitive or exemplary damages” or any costs,
attorney's fees, interest, “damages” or any
other amounts attributable to “punitive or exemplary
damages.” However, if a suit is brought against an
“insured” arising out of a claim which alleges
both compensatory damages and “punitive or exemplary
damages”, we will defend the entire suit despite the
fact that coverage only applies to (and we will only pay for)
the covered compensatory damages.
(Policy (PageID # 668)). “Punitive or exemplary
damages” are defined as “includ[ing] damages
which are intended to punish or deter wrongful conduct, to
set an example, to fine, penalize or impose a statutory
penalty, and damages which are awarded for any purpose other
than as compensatory damages for ‘bodily injury' or
‘property damage'.” (Policy (PageID # 668)).
Policy was a renewal of insurance previously issued to
M&M by West American. (Pl.'s Mot. Summ. J. 5). Henry
and another M&M employee were excluded from M&M's
coverage under the prior year's policy (beginning May 1,
2014). (Pl.'s Mot. Summ. J. 5). M&M's President
informed Henry by email of his exclusion from M&M's
insurance; Henry was thus prohibited from operating any
M&M vehicle and was routinely so reminded. (Pl.'s
Mot. Summ. J. 6-7). Henry did not remember receiving the
email, but acknowledged being told he could not drive M&M
vehicles and testified that he understood the prohibition.
(Def.'s Mem. Opp. Pl.'s Mot. Summ. J. 7, DN 38
[hereinafter Montgomery Resp.]; C. Henry Dep. 91:13-19, Jan.
26, 2017, DN 38-2; Pl.'s Mot. Summ. J. 6-7; Pl.'s
Mot. Summ. J. Ex. D, at 6, DN 32-5; Def.'s Mem. Opp.
Pl.'s Mot. Summ. J. 2, DN 37 [hereinafter M&M
to issuing the Policy, West American informed M&M that it
would be required to remove Henry from its list of authorized
drivers and sign an “Exclusion of Named Person”
endorsement for Henry. (Pl.'s Mot. Summ. J. 5). This
endorsement, signed by M&M's vice president, stated
in relevant part:
In consideration of the issuance and/or continuance of this
policy, it is hereby agreed that the insurance provided by
this policy does not apply to any person or entity for any
“accident” or “loss” of any kind
arising out of the operation or use of a covered
“auto” by the following person(s):
1. CHAD HENRY
. . . In the event that this endorsement excludes liability
coverage for the Named Insured or others in violation of any
law, then this exclusion shall apply to the extent the limits
indicated in the declarations exceed the minimum limits
required by law at the time of “loss”.
(Pl.'s Mot. Summ. J. Ex. C, at 2, DN 32-4). This
endorsement, as added to the Policy, was in addition to a
Kentucky-specific exclusion of Henry contained within the
Policy which provided:
It is agreed the Company shall not be liable for loss, damage
and/or liability due to the operation of a covered auto by
the following person(s):
1. CHAD HENRY
. . . The limit of the Company's liability shall not be
more than the limit of the financial responsibility law of
the state in which such finding was made. All other
coverages, including no fault and physical damage coverages
will remain in effect at limits thereby specified within the
(Policy (PageID # 917, 918)).
August 28, 2015, Henry drove an M&M vehicle and was
involved in the collision with Montgomery's vehicle.
(Pl.'s Mot. Summ. J. 7). According to Defendants, Henry
drove the M&M vehicle after a fellow M&M employee,
Davey Steagall/Stigall (“Steagall”), told him that he
could drive himself home. Henry did not drive himself
directly home, however, but detoured for “personal
reasons” before he was involved in the collision with
Montgomery.(M&M Resp. 3; Montgomery Resp. 8).
November 13, 2015, Montgomery filed suit against Henry and
M&M, alleging Henry's negligence in operating the
vehicle and M&M's liability for such negligence under
the doctrine of respondeat superior. (Montgomery
Compl. ¶¶ 6-8, 10). In addition, Montgomery seeks
punitive damages stemming from Henry's admission to
police that he had smoked marijuana prior to the collision.
(Montgomery Compl. ¶ 9). Montgomery has also added a
direct negligence claim against M&M alleging M&M knew
or should have known that Henry was an “incompetent or
reckless driver” due to his criminal record, and that
M&M “failed to put sufficient safeguards in place
and failed to take sufficient action” to prevent
Henry's operation of M&M vehicles. (Montgomery Am.
Compl. ¶¶ 2(B), 2(H)-2(O)). The Montgomery suit is
still pending in Rowan Circuit Court. (M&M Resp. 3).
American has defended both M&M and Henry in the
Montgomery suit, subject to a reservation of rights.
(Pl.'s Mot. Summ. J. 8). West American acknowledges its
liability for Henry's operation of a covered vehicle up
to the amount required by Kentucky's motor vehicle
financial responsibility law but filed the instant action on
April 13, 2016, asking the Court for a judgment as a matter
of law on various issues, which are discussed below.
Court has subject matter jurisdiction under 28 U.S.C.
§§ 2201 and 1332(a) because there is diversity of
citizenship between the parties and the amount in controversy
exceeds $75, 000, exclusive of interest and costs.