265 Kan. 317
(961 P.2d 1213)
No. 78,661
KEITH MARQUIS, et al., Appellees, v. STATE FARM FIRE AND CASUALTY COMPANY, Appellant.
SYLLABUS BY THE COURT
1. The interpretation of a settlement agreement, like other written contracts, is a question of law, and regardless of the construction given to the agreement by the trial court, an appellate court may construe the instrument and determine its effect.
2. The primary rule when interpreting a written contract is to ascertain the intent of the parties. As a general rule, if the language of the written instrument is clear, there is no room for rules of construction.
3. The meaning of a written agreement should always be ascertained by a consideration of all pertinent provisions and not by the critical analysis of a single or isolated provision.
4. A contract is ambiguous if it contains provisions or language of doubtful or conflicting meaning. In determining whether ambiguity exists, the language of the contract is to receive a fair, reasonable, and practical construction. Construction of the contract is one that makes the contract fair, customary, and such as prudent persons would intend. Ambiguity does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more possible meanings is the proper meaning.
5. Generally, exceptions, limitations, and exclusions to insurance policies require narrow construction on the theory that the insurer, having affirmatively expressed coverage through broad promises, assumes the duty to define any limitations on that coverage in clear and explicit terms. If an insurer intends to restrict or limit coverage, it must use clear and unambiguous language in doing so; otherwise, the insurance policy will be liberally construed in favor of the insured. The burden is on the insurer to prove facts which bring a case within the specified exception.
6. Under Kansas law, the theory of liability asserted, rather than the underlying cause of the accident, governs coverage.
7. Theories of negligent supervision or control and negligent hiring or negligent retention of employees are separate and distinct from theories of liability of negligent entrustment.
8. Negligent supervision includes not only the failure to supervise but also includes the failure to control persons with whom the defendant has a special relationship, including the defendant's employees or persons with dangerous propensities.
9. Under Kansas law, an admission that an employee was acting within the scope of his or her employment when the employee negligently caused injuries to another does not preclude an action for both respondeat superior and negligent entrustment or negligent hiring, retention, or supervision.
Appeal from Johnson district court, LARRY McCLAIN, judge. Opinion filed June 5, 1998. Affirmed.
Michael J. Dutton, of Wallace, Saunders, Austin, Brown & Enochs, Chtd., of Overland Park, argued the cause, and Arlen L. Tanner, of the same firm, was with him on the briefs for appellant.
Edward M. Boyle, of Payne & Jones, Chtd., of Overland Park, argued the cause, and John H. Johntz, Jr., and Donald R. Whitney, of the same firm, were with him on the brief for appellee.
The opinion of the court was delivered by
DAVIS, J.: Barbi Marquis was severely injured in an automobile collision. Jerry Auck, driving a vehicle within the scope of his employment by his wife, caused Marquis' injuries. State Farm Fire and Casualty Company (State Farm) appeals from a declaratory judgment that Marquis' claims of negligent hiring, retention, or supervision were permitted by the parties' settlement agreement and covered under its contractor's policy. We affirm.
On September 14, 1993, Barbi Marquis was injured when the car that she was driving was struck by a Mitsubishi pickup driven by Jerry Auck, which had run a red light. Jerry Auck's blood alcohol level was found to be .20 following the accident. The truck was owned by State Farm's insured, Sharon Auck, the wife of Jerry Auck. She was the owner of a sole proprietorship, Fresh Approach Cleaning Professionals (Fresh Approach). Fresh Approach was insured by State Farm Fire and Casualty Company under a contractor's policy. Jerry Auck was an hourly employee of Fresh Approach, earning approximately $5.50 per hour. At the time of the accident, Jerry Auck was acting in the course and scope of his employment with Fresh Approach.
Keith Marquis, both as conservator for his wife, Barbi, and individually (plaintiffs), filed the following action against Jerry and Sharon Auck in Johnson County District Court:
"COUNT I
"1. Keith Marquis is the husband and conservator for Barbi L. Marquis. He brings this lawsuit on her behalf and on his own behalf.
"2. Jerry L. Auck, defendant, is a resident of Johnson County, Kansas . . . .
"3. On the 14th day of September, 1993, at approximately 5:37 p.m. in the evening, Barbi Marquis was operating a 1987 Suzuki Jeep in the outside left-turn lane of the northbound Strang Line Road at 119th Street.
"4. At about the same time and place as alleged above, Jerry Auck was operating a 1989 Mitsubishi westbound on 119th Street, in the city of Olathe, Johnson County, Kansas.
"5. As Barbi Marquis made her left turn with a left-turn arrow, Jerry Auck, coming westbound on 119th Street, ran a red light and struck Barbi Marquis' vehicle.
"6. As a result of the collision, Barbi Marquis sustained permanent brain injury and other serious personal injury, which has [sic] totally disabled her. She has incurred past medical bills and will incur future medical expenses. Her earnings capacity has been destroyed, and she has suffered great pain of mind and body.
"7. Keith Marquis has lost the consortium and services of Barbi Marquis as a result of the negligence of Jerry Auck.
"WHEREFORE, plaintiffs pray that they be granted judgment in a sum in excess of $50,000 against the defendants and for their costs and such other relief as to the court appears just and proper.
"COUNT II
"8. Plaintiffs reallege the allegations contained in Paragraphs 1 through 7 of Count I as if fully set forth hereafter.
"9. Jerry L. Auck and/or Sharon Auck own and operate a janitorial company called Fresh Approach. Sharon Auck was the owner of the 1989 Mitsubishi which Jerry Auck was driving on the 14th day of September, 1993.
"10. Jerry Auck was an agent, employee, and/or otherwise working within the scope and employment of Fresh Approach and/or his wife, Sharon Auck, d/b/a Fresh Approach.
"WHEREFORE, plaintiffs pray that they be granted judgment in a sum in excess of $50,000 against the defendants and for their costs and such other relief as to the court appears just and proper."
The Aucks answered the petition, admitting that Jerry Auck ran the red light and struck the Marquis vehicle. They also admitted that Jerry Auck was an employee of Fresh Approach at the time of the accident.
At the time of the accident, Sharon Auck's vehicle was covered by a State Farm Mutual Auto insurance policy with a $100,000 limit, which covered Jerry Auck's use of the vehicle. Sharon Auck's business was covered by a State Farm Fire and Casualty Company contractor's insurance policy with a $1,000,000 policy limit. Sharon Auck was also covered by a State Farm Fire and Casualty Company homeowner's extra policy with a policy limit of $300,000.
The plaintiffs and both State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company entered into a settlement agreement in late 1994. The agreement was drafted by counsel retained to represent the Aucks under Sharon Auck's State Farm Mutual Automobile Insurance Company policy. It provided:
"WHEREAS, Keith Marquis, individually, and in his capacities as husband of Barbi L. Marquis and Conservator of the Estate of Barbi L. Marquis, has caused a lawsuit to be filed against Jerry L. Auck and Sharon Marie Auck in the District Court of Johnson County, Kansas, as the result of an automobile accident which occurred on or about the 14th day of September, 1993 at or near the intersection of 119th Street and Strangline Road in Olathe, Johnson County, Kansas, all as more specifically set forth in the Petition in the case styled Keith Marquis, as Conservator and Husband and in Such Capacities and on behalf of Barbi L. Marquis, and Keith Marquis, Individually, Plaintiffs, v. Jerry L. Auck and Sharon Auck, Defendants, Case No. 94-C-5244, which is now pending in the District Court of Johnson County, Kansas; and
"WHEREAS, Jerry L. Auck and Sharon Marie Auck are covered for the aforesaid accident by an automobile insurance policy, No. 2816-322-810-16C, issued by State Farm Mutual Automobile Insurance Company; and
"WHEREAS, there may be additional liability coverage in the amount of $1,000,000.00 for the aforesaid accident and claims under a Contractors policy issued by State Farm Fire and Casualty Company, Policy No. 91-03-6775-5, and in the amount of $300,000.00 under a Homeowners policy issued by State Farm Fire and Casualty Company, Policy No. 16-B7-8051-2; and
"WHEREAS, State Farm Mutual Automobile Insurance Company has offered to pay its full bodily injury liability limits of $100,000.00 in settlement of the claims set forth in the aforesaid Petition; and
"WHEREAS, State Farm Fire and Casualty Company has agreed that it is willing to participate in a declaratory judgment action to determine whether or not it owes coverage under either or both of its aforesaid policies, and has further agreed that if it should be determined by the court that it owes coverage under said policy or policies, it will forthwith pay the full amount of the liability limits of said policy or policies in settlement of the claims arising out of the aforesaid accident, and will make no effort to litigate the issue of fault or the amounts of coverage under the said policies;
"NOW, THEREFORE, the parties hereto agree as follows:
"1. In consideration of the payment of the sum of One Hundred Thousand and no/100 ($100,000.00) Dollars, the receipt and sufficiency of which is hereby acknowledged, the undersigned, Keith Marquis, in his individual capacity, and in his capacity as husband of Barbi L. Marquis, and in his capacity as Conservator of the Estate of Barbi L. Marquis, hereby releases and forever discharges Jerry L. Auck, Sharon Marie Auck, Sharon Marie Auck d/b/a Fresh Approach, the State Farm Mutual Automobile Insurance Company, their heirs, executors, successors, agents and assigns, and all other persons, firms or corporations, liable or who might be claimed to be liable, except State Farm Fire and Casualty Company, none of whom admit liability to the undersigned but all expressly deny any liability, from any and all claims, demands, damages, actions, causes of action or suits of any kind or nature whatsoever, and particularly on account of all injuries to Barbi L. Marquis, known and unknown, and all pain, suffering and disability resulting from said injuries which have resulted or may in the future develop from the aforesaid automobile accident which occurred on or about the 14th day of September, 1993, at or near the intersection of 119th Street and Strangline Road in Olathe, Johnson County, Kansas.
"2. Keith Marquis and State Farm Fire and Casualty Company agree that they will participate in a declaratory judgment action for the purpose of determining whether or not State Farm Fire and Casualty Company owes coverage for the aforesaid accident under its Contractors policy No. 91-03-6775-5 and/or its Homeowners policy No. 16-B7-8051-2.
"3. State Farm Fire and Casualty Company agrees that if it should be determined in the declaratory judgment action that it owes coverage under either or both of the aforesaid policies, it will forthwith pay the full liability limits of such policy or policies in settlement of the claims arising out of the aforesaid accident and injuries, and that it will make no effort to litigate the issue of fault or the amounts of coverage.
"4. Keith Marquis agrees that he will, prior to the filing of the declaratory judgment action, dismiss with prejudice the case of Keith Marquis, as Conservator and Husband and in Such Capacities and on behalf of Barbi L. Marquis, and Keith Marquis, Individually, Plaintiffs, v. Jerry L. Auck and Sharon Auck, Defendants, Case No. 94-C-5244, which is now pending in the District Court of Johnson County, Kansas.
"5. The undersigned hereby declare that the terms of the settlement have been completely read and are fully understood and voluntarily accepted for the purpose of making a full and final compromise adjustment and settlement of any and all claims, disputed or otherwise, on account of the injuries and damages above mentioned , and for the express purpose of precluding forever any further or additional claims arising out of the aforesaid accident."
According to the terms of the agreement, the plaintiffs dismissed their petition and filed a declaratory judgment action to determine whether there was coverage under either the homeowner's or contractor's policy. On September 13, 1995, State Farm filed a motion for summary judgment, claiming that under the plain language of both policies there was no coverage for the accident. On October 24, 1998, the plaintiffs filed a cross-motion for summary judgment. As part of their motion, the plaintiffs argued that coverage existed under the contractor's policy for the tort liability of Sharon Auck under the theory of negligent hiring, retention, or supervision of Jerry Auck. The plaintiffs argued that under the settlement agreement, as long as reasonable facts existed which would support their claim, State Farm was precluded from arguing that no negligent hiring, retention, or supervision had occurred.
At the hearing on the motions, State Farm argued that the plaintiffs could not make any claims against Sharon Auck for negligent hiring, retention, or supervision because such claims had not been included in the petition on which the settlement agreement had been based. According to State Farm, the settlement agreement excluded any claims other than those raised in the petition.
The trial court concluded that the homeowner's policy excluded liability and entered summary judgment in favor of State Farm on that policy. The plaintiffs did not appeal from this determination. However, the trial court determined that the contractor's policy did provide coverage for negligent hiring, retention, or supervision and that there was a question of fact as to whether Sharon Auck was negligent in her hiring or supervision of Jerry Auck. The court, therefore, permitted additional discovery on this issue.
On November 21, 1996, State Farm moved for reconsideration and filed a supplemental motion for summary judgment. State Farm requested that the trial court reconsider its determination that the plaintiffs could raise claims of negligent hiring, retention, or supervision. State Farm also asked in the alternative that the court enter judgment on its behalf because there was no factual basis for the claims of negligent hiring, retention, or supervision. In support of this contention, State Farm included 153 additional statements of fact.
The plaintiffs responded and filed their own motion for reconsideration. They objected to State Farm's filing of a supplemental motion for summary judgment on the basis that the motion was out of time and not authorized by the court. The plaintiffs further asked the court to reconsider its determination that a factual question existed as to the claim of negligent hiring, retention, or supervision. They argued that once the court determined coverage was owed, State Farm was barred under the terms of the agreement from contesting whether such negligence had occurred.
Upon final consideration, the trial court changed its ruling on its earlier interpretation of the agreement. Leaving intact its ruling on the question of coverage, the court determined that the settlement agreement was unambiguous and provided that once a determination had been made that coverage was owed for claims of negligent hiring, retention, or supervision under the contractor's policy, State Farm was precluded from litigating the issue of fault. Accordingly, the court entered judgment for the plaintiffs in the amount of $1,000,000, with interest, against State Farm on its contractors policy.
State Farm contends on appeal that (1) the settlement agreement between the parties prohibits the plaintiffs from proceeding on the new theory of negligent hiring, retention, or supervision; (2) the contractor's policy excludes such claims because plaintiffs' injuries arise out of the use of a motor vehicle operated by an insured; (3) the plaintiffs' claims of negligent hiring, retention, or supervision are without factual basis; and (4) the tortfeasor was an employee acting within the scope of his employment, which precludes claims of negligent hiring, retention, or supervision.
(1) The Agreement
State Farm contends that contrary to the trial court's determination, the settlement agreement bars the plaintiffs from raising new claims of negligent hiring, retention, or supervision. According to State Farm's interpretation, the settlement agreement limits claims to those raised in the petition filed by the plaintiffs. Moreover, State Farm argues that the statute of limitations and equitable considerations preclude new, further, and additional claims such as negligent hiring, retention, or supervision.
The interpretation of a written instrument is a question of law, and regardless of the construction given to a written instrument by the trial court, we may construe the instrument and determine its effect. See Galindo v. City of Coffeyville, 256 Kan. 455, 467, 885 P.2d 1246 (1994). The primary rule when interpreting a written contract such as the one in this case is to ascertain the intent of the parties. 256 Kan. at 467. As a general rule, if the language of the written instrument is clear, there is no room for rules of construction. Simon v. National Farmers Organization, Inc., 250 Kan. 676, 680, 829 P.2d 884 (1992). We first examine the settlement agreement as a whole to determine whether it permits the plaintiffs to maintain an action for negligent hiring, retention, or supervision. See Arnold v. S.J.L. of Kansas Corp., 249 Kan. 746, 749, 822 P.2d 64 (1991) (holding that the meaning of a written agreement should always be ascertained by a consideration of all pertinent provisions and not by the critical analysis of a single or isolated provision). If we are unable to ascertain the parties' intent from such an examination, we then must determine whether the agreement is ambiguous.
A contract is ambiguous if it contains provisions or language of doubtful or conflicting meaning. In determining whether ambiguity exists, the language of the contract is to receive a fair, reasonable, and practical construction. Weber v. Tillman, 259 Kan. 457, 476, 913 P.2d 84 (1996). A reasonable construction of the contract is one that makes the contract fair, customary, and such as prudent persons would intend. 259 Kan. at 476. Ambiguity does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more possible meanings is the proper meaning. 259 Kan. at 476.
According to paragraph 2 of the agreement, the plaintiffs and State Farm agreed to participate in a declaratory judgment action for a judicial determination of "whether or not State Farm Fire and Casualty Company owes coverage for the aforesaid accident" under either its homeowner's or contractor's policies. Paragraph 3 provides that if it should be determined in the declaratory judgment action that State Farm owes coverage under either or both of the aforesaid policies, "it will forthwith pay the full liability limits of such policy or policies in settlement of the claims arising out of the aforesaid accident and injuries, and that it will make no effort to litigate the issue of fault or the amounts of coverage."
According to State Farm, paragraph 5 bars the plaintiffs' claims of negligent hiring, retention, or supervision. Paragraph 5 provides that the settlement was made for the purpose of "precluding forever any further or additional claims arising out of the aforesaid accident." State Farm argues that the new claims for negligent hiring, retention, or supervision are "additional claims," expressly precluded under the purpose of the agreement. However, the trial court determined that the contract was not ambiguous and that the claims of negligent hiring, retention, or supervision were not excluded. We agree.
The agreement itself essentially takes the facts out of the case. We have set forth the full text of the agreement in the statement of facts. Paragraph 1 settles the suit on file for the $100,000 coverage under the State Farm auto policy owned by Sharon Auck, except as to State Farm Fire and Casualty Company. Paragraph 2 simply states that the parties will participate in a declaratory judgment action to determine whether State Farm "owes coverage for the aforesaid accident under its Contractors policy." Paragraph 3 provides that if it is determined that coverage is owed, "it will forthwith pay the full liability limits of such policy or policies in settlement of the claims arising out of the aforesaid accident and injuries, and that it will make no effort to litigate the issue of fault or the amount of coverage." (Emphasis added.) Had the parties intended to limit exposure to claims originally filed in the petition, it seems clear to this court that such limitation would have been expressed.
Paragraph 5, relied upon by State Farm, fails to support its claim that there was an intent to limit claims to those set forth in the petition. The claims set forth in the petition were dismissed with prejudice, and the parties were free to "determine whether claims were covered under the remaining policies." The plaintiff accepted the terms
"for the purpose of making a full and final compromise adjustment and settlement of any and all claims, disputed or otherwise, on account of the injuries and damages above mentioned, and for the express purpose of precluding forever any further or additional claims arising out of the aforesaid accident."
This language, properly interpreted as a part of the whole agreement, makes it clear that plaintiffs are settling for all claims arising out of the accident, "disputed or otherwise," and not just those claims articulated in the petition filed. The agreement contemplates that the plaintiff may advance additional claims. Once the court determines whether coverage is owed, the cause is forever settled, "precluding forever any further or additional claims arising out of the aforesaid accident."
We agree with the trial court that the agreement is not ambiguous and that the plaintiffs are not precluded from raising claims of negligent hiring, retention, or supervision. The agreement provides that
"if it should be determined by the court that [State Farm] owes coverage under either or both of the aforesaid policies [homeowner's and contractor's], it will forthwith pay the full amount of the liability limits of said policy or policies in settlement of the claims arising out of the aforesaid accident." (Emphasis added.)
Had the parties intended to limit claims to those raised in the petition filed, the agreement would have tied claims to those raised in the petition. Instead, after settling the claims raised by the petition, the parties refer thereafter to all claims arising out of the accident, which necessarily includes claims not raised in the petition filed. Absent an express limitation, "claims arising out of the . . . accident" covers the plaintiffs' claims of negligent hiring, retention, or supervision.
(2) Claims of Negligent Hiring, Retention, or Supervision.
State Farm contends that even if the settlement agreement does not bar the plaintiffs' claims for negligent hiring, retention, or supervision, such claims are excluded by the express terms of the contractor's insurance policy. State Farm argues that the contractor's policy specifically excludes coverage for bodily injury or property damage arising from the use or entrustment of an automobile.
Resolution of this issue necessarily involves the interpretation of an exclusion in the contractor's insurance policy issued by State Farm. Generally, exceptions, limitations, and exclusions to insurance policies require narrow construction on the theory that the insurer, having affirmatively expressed coverage through broad promises, assumes the duty to define any limitations on that coverage in clear and explicit terms. Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 695, 840 P.2d 456 (1992). If an insurer intends to restrict or limit coverage, it must use clear and unambiguous language in doing so, otherwise the insurance policy will be liberally construed in favor of the insured. Farm Bureau Mut. Ins. Co. v. Old Hickory Cas. Ins. Co., 248 Kan. 657, 659, 810 P.2d 283 (1991). The burden is on the insurer to prove facts which bring a case within the specified exception. Upland Mutual Insurance, Inc. v. Noel, 214 Kan. 145, 150, 519 P.2d 737 (1974).
By way of background, we look to the decision made by the trial court in this regard. The trial court was faced with determining whether either the homeowner's policy or the contractor's policy provided coverage for negligent hiring, retention, or supervision. In addressing this question, the trial court reviewed both policies and concluded that the contractor's policy did provide coverage.
The provisions of the homeowner's policy provided the following exclusions:
"Coverage L and Coverage M do not apply to:
. . . .
"e. Bodily injury or property damage arising out of the ownership, maintenance, use, loading or unloading of:
. . . .
(2) a motor vehicle owned or operated by or rented or loaned to any insured; or
. . . .
"f. bodily injury or property damage arising out of:
(1) the entrustment by any insured to any person;
(2) the supervision by any insured of any person;
(3) any liability statutorily imposed on any insured; or
(4) any liability assumed through an unwritten or written agreement by an insured;
with regard to ownership, maintenance or use of any aircraft, watercraft, or motor vehicle (or any other motorized land conveyance) which is not covered under Section II of this policy."
The exclusion contained in the contractor's policy upon which State Farm relies provides under coverage L that the coverage does not apply
"7. to bodily injury or property damage arising out of the ownership, maintenance, use or entrustment of others of any aircraft, auto, or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and loading or unloading."
After reviewing both policies, the trial court construed the exclusion under the homeowner's policy to bar coverage for negligent supervision, hiring, or retention. The language of the homeowner's policy so provides. However, in reviewing the policy provisions of the contractor's policy, the court found that the exclusion, unlike that contained in the homeowner's policy, fails to clearly and unambiguously exclude coverage for negligent supervision, hiring, or retention and, thus, such claims were covered.
State Farm, in its homeowner's policy, clearly and unambiguously excluded negligent supervision, hiring, or retention. State Farm did not clearly and unambiguously exclude negligent supervision, hiring, or retention in its contractor's policy. Nevertheless, State Farm argues that the general exclusion in a contractor's policy, covering the use or entrustment to others of an automobile owned or operated by any insured, excludes a claim for negligent supervision, hiring, or retention because the claims arose out of the use of an automobile owned by the insured.
In Upland Mutual Insurance, Inc. v. Noel, 214 Kan. 145, we held that a homeowner's policy exclusion for bodily injury or property damage arising from the ownership, maintenance, operation, use, loading, and unloading of automobiles did not exclude coverage for the insured's liability for negligent entrustment of an automobile to another. "[E]ven though the immediate cause of the injury . . . was . . . operation of the automobile," the legal theory of liability, which was well recognized under Kansas law, was not excluded by the policy. 214 Kan. at 150. Thus, the rule taken from Upland is that the theory of liability rather than the cause of the accident governs coverage. Where a policy seeks to exclude coverage for an accident arising out of the use of an automobile, coverage will still be found if the theory of liability establishes negligence independent of the use of the automobile, which negligence is covered under the policy.
Although Upland was a negligent entrustment case, its rule applies to claims based on negligent hiring, retention, or supervision. In this case, State Farm's contractor's policy excludes coverage for accidents arising from the use or negligent entrustment of an automobile, but does not exclude coverage for the negligent hiring, retention, or supervision of an employee. Under Upland, it makes no difference that the accident was causally related to the use of an automobile because the theory of liability is negligent hiring, retention, or supervision based on the independent negligence of Sharon Auck. Upland is the rule in Kansas.
The negligence alleged in this case is that of negligent supervision, hiring, or retention, which is negligence separate and distinct from negligence of the driver whose action caused the injury. Negligent supervision, hiring, or retention is a recognized cause of action under Kansas law; its focus is upon the actions of someone other than the person whose negligence caused the injury. In Upland, where the insured's liability was premised upon a legal theory separate and distinct from the liability excluded by the policy, the policy provided coverage for that claim. Thus, under Upland, we recognized that the policy provisions excluded coverage for negligent claims against the driver but it did not exclude coverage for the distinct and separate liability theory of negligent entrustment.
State Farm contends that our decision in Upland should be limited and has been limited by the Court of Appeals