Gregory v. Navigators Insurance Company

Background

Thomas L. Gregory, an employee of Tarter Gate Company, LLC, sought coverage under Tarter Gate’s directors-and-officers liability policy with Navigators Insurance Company. The policy covered, among other things, defense costs for claims against insured directors and employees. Gregory requested coverage for the 2018 Lawsuit, which was brought by three Tarter Gate security holders, including at least one insured, and also involved C-Ville Fabricating, Inc., a non-insured and non-shareholder entity.

Navigators denied coverage based in part on the policy’s “IvI Exclusion.” That exclusion barred coverage for losses, including defense costs, connected to a claim against an insured brought by or on behalf of another insured or a Tarter Gate security holder. The policy also contained an Assistance Provision, which restored coverage for a security-holder claim only if the security holder acted totally independently of the company and its insured persons. An Allocation Clause addressed claims involving both covered and uncovered matters.

Claim-Preclusion Issue

The court separately considered whether claim preclusion, also called res judicata, barred Gregory’s case because an earlier related insurance case had been brought by Josh Tarter. The court explained that Kentucky law generally required the same parties or their legal representatives, the same cause of action, and a prior decision on the merits. Because Gregory was not the plaintiff in the earlier case, Navigators needed to show that Josh Tarter adequately represented Gregory’s interests.

The court held that Navigators had not shown that applying claim preclusion would protect Gregory’s due-process rights. In particular, Navigators did not adequately address whether the parties’ interests were aligned, whether Tarter understood himself to be representing Gregory, or whether Gregory had received the required protections. The court therefore did not dismiss the action on claim-preclusion grounds.

Failure to State a Claim

The court analyzed Gregory’s breach-of-contract claim under Kentucky law. To state such a claim, Gregory had to allege a contract, a breach, and damages resulting from the breach. An insurer generally has a duty to defend when an underlying allegation potentially falls within the policy’s coverage, but no duty exists for claims expressly excluded by the policy.

The court concluded that the IvI Exclusion applied because the 2018 Lawsuit was brought by Tarter Gate security holders and at least one insured. The Assistance Provision did not restore coverage because Anna Lou Tarter Smith, an insured, had spearheaded the litigation from its beginning. The security-holder plaintiffs therefore had not acted totally independently of an insured person.

The court also rejected Gregory’s argument that the Allocation Clause required Navigators to cover the portion of the lawsuit attributable to C-Ville. The court held that the IvI Exclusion specifically governed a lawsuit brought with the participation of an insured, while the Allocation Clause did not override that exclusion. The court also explained why decisions involving different policy language or different facts did not change its interpretation.

Disposition

The court held that Gregory failed to state a claim for breach of contract because the policy did not require Navigators to provide coverage for the 2018 Lawsuit. The court granted Navigators’ motion to dismiss, dismissed Gregory’s case for failure to state a claim, and directed the clerk to close the motion and the case. The court did not address Navigators’ other coverage arguments, including the Specific Person Exclusion, alleged misrepresentation, the fortuity doctrine, and the scope of coverage for certain causes of action.