author: Justice LANG.

text:
    William G. MAYS, II, Appellant, v. BANK ONE, N.A., Appellee.
    No. 05-04-00245-CV.
    Court of Appeals of Texas, Dallas.
    Dec. 10, 2004.

      Grady R. Thompson, McWilliams & Thompson, P.C., McKinney, for Appellant.
    Martin Wiorda, Lynn Warren Schleinat, Jones Allen & Fuquay, LLP, Dallas, for appellee.
    Before Justices O’NEILL, LANG, and LANG-MIERS.
   OPINION

Opinion by

Justice LANG.

William Mays appeals a summary judgment rendered against him, and in favor of Bank One, on Bank One’s promissory note and guaranty claims. In one issue, Mays contends that the trial court erred in granting the motion for summary judgment since material issues of fact exist. Specifically, Mays argues he is entitled to a determination by the trial court of the fair market value of real property securing the promissory note debt, pursuant to Texas Property Code section 51.005. This analysis is complicated by the fact that Bank One did not foreclose on its lien on the real estate. Rather, the foreclosure was by a prior lien holder, and no proceeds of the sale flowed to Bank One as the junior lien holder. For the reasons set out below, we decide Mays’ issue against him, and affirm the trial court’s judgment.

I. FACTUAL AND PROCEDURAL BACKGROUND

In May 2001, Mays-Frankum Enterprises executed a promissory note for $875,000.00, payable to the order of Bank One. The note was supported by Commercial Guaranty Agreements executed by Max Frankum and Mays. Later, the debt was restructured, and Bank One was granted a second lien, pursuant to a deed of trust, upon certain real property in Collin County. Bank of America held the first lien against that same real property. Bank One’s note matured and was not paid. Bank of America’s note was also in default, and it proceeded with foreclosure of its first lien. The foreclosure satisfied only Bank of America’s debt. No proceeds were left for Bank One. Accordingly, Bank One filed suit on the promissory note and guaranty against Mays, Frankum, and Mays-Frankum Enterprises. The trial court granted Bank One’s motion for summary judgment, holding Mays, Frankum and Mays-Frankum Enterprises jointly and severally liable for the amount due on the note.

In connection with his point on appeal, Mays tells us that when Bank of America foreclosed on its first lien, the real estate was sold for only forty percent of the property’s fair market value. Mays contends that, pursuant to section 51.005, he is entitled to a determination of the property’s fair market value in order to calculate an offset for some or all of the amount owed on Bank One’s note and guarantys. Accordingly, it is Mays’ position that a material issue of fact exists which precludes the granting of Bank One’s summary judgment motion.

II. ENTITLEMENT TO A DETERMINATION OF FAIR MARKET VALUE

Mays claims that Texas Property Code section 51.005 provides him the right to have the property’s fair market value determined in order to calculate an offset against the claimed deficiency. We disagree.

A. Propriety of Motion for Summary Judgment When Defense Not Plead

Bank One contends that Mays did not plead section 51.005 as an affirmative defense. As such, it is argued that Mays could not raise the issue in appealing Bank One’s motion for summary judgment. Texas Rule of Civil Procedure 94 provides that when pleading to a preceding pleading, a party shall set forth affirmatively any matters constituting an avoidance or affirmative defense. Tex.R. Civ. P. 94. The right to an offset is an affirmative defense. The burden of pleading and proving facts necessary to support an affirmative defense of offset rests on the party making the assertion. Brown v. American Transfer and Storage Co., 601 S.W.2d 931, 936 (Tex.1980); see also Columbia Medical Center of Las Colinas v. Bush ex rel Bush, 122 S.W.3d 835, 862 (Tex.App.-Fort Worth 2003, pet. denied) (“Regardless of the merits of Appellant’s argument that they are entitled to an offset, because they did not plead an affirmative defense of offset, this issue is waived.”). Also, Rule 95 requires the party claiming the defense of payment to “file with his plea an account stating distinctly the nature of such payment, ... failing to do so, he shall not be allowed to prove the same, unless it be so plainly and particularly described in the plea as to give the plaintiff full notice of the character thereof.” Tex.R. Civ. P. 95; Rea v. Sunbelt Sav., FSB, Dallas Tex., 822 S.W.2d 370, 372 (Tex.App.-Dallas 1991, no writ).

Mays did not raise as an affirmative defense the right to an offset upon a determination of the property’s fair market value, pursuant to Texas Property Code section 51.005. Furthermore, he did not file an account stating what credits and offsets he relied on in asserting payment. Mays did not specifically deny the amounts sought by Bank One, nor did he claim payment. Instead, Mays affirmatively claimed only estoppel, promissory estop-pel, duress, and coercion. In response to Bank One’s motion for summary judgment, Mays claimed only that he was entitled to a determination of the fair market value, and a determination of any offset, pursuant to property code section 51.003. That section is materially different from section 51.005. We conclude Mays did not properly raise the defense he now argues. Nevertheless, we will determine whether Texas Property Code section 51.005 is applicable to the claims brought by Bank One.

B. Applicability of Section 51.005

In its suit for recovery of the balance due on a promissory note and guaranty agreements, Bank One made no claim to a lien on real property, nor did it claim partial payment by foreclosure on any collateral. It was Bank of America that foreclosed its first lien on the real property against which Bank One held a second lien deed of trust. Bank of America was the successful bidder, yet its bid was sufficient only to satisfy its debt. Mays asserts that Bank of America’s bid was approximately forty percent of the property’s fair market value. In his response to Bank One’s motion for summary judgment, Mays contends that “... since the property was not sold for an amount sufficient to cover both the first and second lien, there is a deficiency.”

1. Applicable Law

In determining a statute’s meaning and application, “our primary objective is to determine and give effect to the Legislature’s intent.” Neal v. SMC Corp., 99 S.W.3d 813, 815 (Tex.App.-Dallas 2003, no pet.); McIntyre v. Ramirez, 109 S.W.3d 741, 745 (Tex.2003). In doing so, we start with the “plain and common meaning of the statute’s words.” Id. (quoting State ex rel. State Dep’t of Highways & Pub. Transp. v. Gonzalez, 82 S.W.3d 322, 327 (Tex.2000)). If the statutory language is unambiguous, we will interpret the statute according to its plain meaning. Id. We will not give an undefined term a meaning that is out of harmony or inconsistent with the other provisions in the statute. Id.

Chapter 51 of the Texas Property Code pertains to the sale of real property “under a power of sale conferred by a deed of trust or other contract lien” by “public sale at auction” or by judicial foreclosure. Tex. PROp.Code Ann. §§ 51.002(a), 51.004 (Vernon 1995). Under section 51.002, notice of the time and place of sale must be sent “by the holder of the debt” to “each debtor who ... is obligated to pay the debt.” Id. at § 51.002(b)(3).

Section 51.005(c) applies to foreclosures under section 51.002, and provides a mechanism for determining the offset, if any, against the unpaid debt secured by that property where the property’s fair market value exceeds the price for which the property was sold at foreclosure. In two pivotal places in section 51.005, reference is made to the term “deficiency.”

Section 51.005(c) provides:

If the finder of fact determines that the fair market value is greater than the sale price of the real property at the foreclosure sale, the persons obligated on the indebtedness, including guarantors, are entitled to an offset against the deficiency in the amount by which the fair market value, less the amount of any claim, indebtedness, or obligation of any kind that is secured by a lien or encumbrance on the real property that was not extinguished by the foreclosure, exceeds the sale price. If no competent evidence of fair market value is introduced, the sale price at the foreclosure sale shall be used to compute the deficiency.

Tex. PROp.Code Ann. § 51.005(c) (emphasis added).

We recognize the well-established rule that following the valid foreclosure of a senior lien, junior liens, if not satisfied from the proceeds of sale, are extinguished. Nat’l W. Life Ins. Co. v. Acreman, 425 S.W.2d 815, 817 (Tex.1968); Conseco Finance Servicing Corp. v. J & J Mobile Homes, Inc., 120 S.W.3d 878, 883 (Tex.App.-Fort Worth 2003, pet. denied); Arnold v. Eaton, 910 S.W.2d 181, 184 (Tex.App.-Eastland 1995, no writ); Houston Inv. Bankers Corp. v. First City Bank, 640 S.W.2d 660 (Tex.App.-Houston [14th Dist.] 1982, no writ). That rule is implicated here.

2. Discussion

Mays seeks to impose the deficiency calculation provided for in section 51.005(c) upon Bank One, based upon a foreclosure sale conducted by Bank of America. Mays does not contend that Bank One or any creditor other than Bank of America instituted a foreclosure action against the subject real estate. It is plain then that the only foreclosure was of the lien held by Bank of America.

The language of section 51.005(c) makes it clear that the calculation of a “deficiency” includes only a lien or encumbrance on the real property “that was not extinguished by the foreclosure.” See Tex. Prop.Code Ann. § 51.005(c) (emphasis added). It is without question that Bank One’s debt, which was secured by a second lien to that of Bank of America, remained wholly unsatisfied from the proceeds of the foreclosure sale conducted by Bank of America. By operation of law, Bank One’s second lien was extinguished when Bank of America foreclosed on its senior lien.

CONCLUSION

The plain language of section 51.005 does not apply to debt secured by liens that were extinguished by a foreclosure. That provision is inapplicable to this claim brought by Bank One against Mays. We decide against Mays on his sole issue, and affirm the trial court’s judgment.

      . Mays-Frankum Enterprises was a co-defendant below, but is not a party to this appeal.

      . Max Frankum was a co-defendant below, but is not a party to this appeal.


source: Caselaw Access Project

author: Justice MAZZANT.

license: Public Domain

text:
    NATIONAL MEDICAL FINANCIAL SERVICES, INC. d/b/a L T C Clinical Labs, Appellant, v. IRVING INDEPENDENT SCHOOL DISTRICT, Appellee.
    No. 05-03-01703-CV.
    Court of Appeals of Texas, Dallas.
    Dec. 13, 2004.

      George White, Irving, for appellant.
    Edward Lopez, Jr., Linebarger Goggan Blair Sampson, LLP, Dallas, James W. Deatherage, Jim Deatherage & Associates, PC, Todd Wyatt Deatherage, Irving, for appellee.
    Before Justices WRIGHT, RICHTER, and MAZZANT.
   OPINION

Opinion by

Justice MAZZANT.

In this tax case tried before the court, National Medical Financial Services Inc, d/b/a LTC Clinical Labs (National) appeals the trial court’s judgment in favor of Irving Independent School District (USD). The court ordered judgment against National for the tax years 2000, 2001, and 2002. In four issues, National appeals the judgment addressing the tax year 2000, contending: (1) USD did not meet its burden of proof to show National was liable for the 2000 taxes; (2) the evidence is legally and factually insufficient to support USD’s judgment for taxes for the year 2000; (3) the court erred in not admitting National’s evidence; and (4) the court erred in faffing to schedule and grant a motion for new trial. We affirm the trial court’s judgment.

Factual Background

USD filed this suit against National to collect delinquent taxes for the years 2000, 2001, and 2002. Both the City of Dallas and Dallas County intervened, alleging delinquent taxes were owed to them for the years 2001 and 2002. During the trial, USD admitted a copy of the delinquent tax roll. Dallas County offered and admitted an exhibit showing delinquent taxes for the years 2001 and 2002. After the exhibits were admitted, USD and the intervenors, Dallas County and the City of Dallas, rested.

William G. McLucas, president of National, testified that National purchased the property in question from the bankruptcy court, clear of all liens, and that National did not own the property on January 1, 2000. After stating the property was free of all liens, though, the court noted that in its consideration of the testimony, the answer called for a legal conclusion.

National offered the bankruptcy order and an affidavit as evidence, and IISD objected, complaining the order was not offered as a certified copy and was incomplete. The order referenced a purchase agreement that was not attached, and the order itself did not describe the property. IISD also objected to the affidavit as insufficient in that it did not describe the property to which it referred. The court sustained the objections.

National then attempted to introduce the documents as business records through MeLucas’s testimony. The court noted that McLucas was the president of National but the documents showed a bill of sale regarding LTC Clinical Laboratories, Inc. and Integrated Health Services, Inc. (IHS). The court sustained USD’s objections to the documents. The court admitted the bankruptcy court order as a business record. However, the court stated, “I’m not going to consider it for very much since the purchase agreement that it keeps talking about in here doesn’t appear anywhere in here.” The court sustained USD’s objection to an affidavit purporting to show IISD was notified of the bankruptcy because the affidavit was unsigned, but the court admitted an affidavit and records showing the court claims register for IHS. National said the records showed (1) which taxing authorities had responded with claims with regard to IHS and (2) IISD had never filed a proof of claim. The court noted, however, that those records did not show that IISD had received notice of the bankruptcy order.

Without admitting any other evidence, National rested its case. The court granted judgment against National.

Motion for New Trial

In its fourth issue, National argues the court erred by failing to schedule and grant its motion for new trial. A party seeking a new trial on the ground of newly discovered evidence must show the trial court that: (1) the evidence has come to his knowledge since the trial; (2) it was not owing to the want of due diligence that it did not come sooner; (3) it is not cumulative; and (4) it is so material that it would probably produce a different result if a new trial were granted. Jackson v. Van Winkle, 660 S.W.2d 807, 809 (Tex.1983), overruled on other grounds by Moritz v. Preiss, 121 S.W.3d 715 (Tex.2003); Dallas Indep. Sch. Dist. v. Finlan, 27 S.W.3d 220, 240 (Tex.App.-Dallas 2000, pet. denied). Whether a motion for new trial on the ground of newly discovered evidence will be granted or refused is generally a matter addressed to the sound discretion of the trial court, and the trial court’s action will not be disturbed on appeal absent an abuse of such discretion. Jackson, 660 S.W.2d at 809.

In its motion for new trial, National states merely that there was a purchase agreement referenced at trial that was “not available at the time of trial.” The affidavit accompanying National’s motion asserts the attorney “was not able to secure the documents attached ... despite diligence to do so.” Neither the affidavit nor the motion, however, state that the knowledge of this evidence did not exist prior to the trial. And neither the affidavit nor the motion state what diligence National employed in securing the documents prior to the trial. Thus, we cannot conclude the court abused its discretion in granting National’s motion for new trial. See Jackson, 660 S.W.2d at 809.

Further, National did not request a hearing on its motion for new trial, and its motion was overruled by operation of law. We cannot conclude the court erred in failing to set a hearing on National’s motion when National never requested the court to do so. See Shamrock Roofing Supply, Inc. v. Mercantile Nat’l Bank, 703 S.W.2d 356, 357-58 (Tex.App.-Dallas 1985, no writ); see also Fluty v. Simmons Co., 835 S.W.2d 664, 667-68 (Tex.App.-Dallas 1992, no writ). Although at the end of National’s motion for new trial, after the certificate of service, National included a section labeled “Notice of Hearing,” we do not read that as a request to the court for a hearing. As we stated in Shamrock:

We are unwilling to hold that an abuse of discretion occurs when the defaulting defendant fads to call his motion to the judge’s attention and allows it to be overruled by operation of law. Trial judges have a heavy load of trials and contested motions. They cannot be expected to examine sua sponte all papers filed in their courts. They must rely on counsel to see that motions are set for hearing.

703 S.W.2d at 357-58. We resolve the fourth issue against National.

Admissibility of Evidence

In its third issue, National complains of the court’s refusal to admit its “Order of the Bankruptcy Court” as evidence during trial. National relies solely on Texas Civil Procedure Rule 59 to assert a party may admit a business record by affidavit attached to the pleadings and eon-tends the rule therefore allows such “to be introduced into evidence unless the other party files an objection within 14 days.” Rule 59, however, addresses exhibits to be used in pleadings. See Tex.R. Civ. P. 59. For exhibits to be considered at trial, they must be properly admitted as evidence, even if already attached to pleadings under rule 59. See Wilson v. Williamson, 586 S.W.2d 148, 150 (Tex.Civ.App.-Houston [1st Dist.] 1979, no writ). National’s argument, therefore, fails. National has not briefed any other argument, having presented no argument or authority otherwise to show the court abused its discretion in not admitting the evidence. Accordingly, we resolve National’s third issue against it.

Sufficiency of the Evidence

In its first and second issues, National (1) argues IISD did not meet its burden of showing National was liable for the taxes for the year 2000 and (2) complains the evidence was legally and factually insufficient. National does not make separate arguments for these two issues; therefore, we will address them together.

Standard of Review

In this case, findings of fact or conclusions of law were neither filed nor requested. Accordingly, the judgment of the trial court implies all necessary findings of fact to support it. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex.1992). A reporter’s record was brought forward, though, and the legal and factual sufficiency of the implied findings may be challenged on appeal. Id. at 84. In reviewing the sufficiency of the evidence, we do not substitute our judgment for that of the fact finder, even if we would have reached a different conclusion. FDIC v. F & A Equip. Leasing, 854 S.W.2d 681, 684 (Tex.App.-Dallas 1993, no writ).

In conducting a review for legal sufficiency, we consider only the evidence and inferences that tend to support the finding, disregarding all evidence and inferences to the contrary. Id.; D & M Vacuum Serv. v. Zavala County Appraisal Dist., 812 S.W.2d 435, 436 (Tex.App.-San Antonio 1991, no writ). If there is more than a scintilla of evidence to support the finding, the legal sufficiency challenge fails. F & A Equip. Leasing, 854 S.W.2d at 684. When a party attacks the factual sufficiency of an adverse finding on an issue on which it had the burden of proof, it must demonstrate on appeal that the adverse finding is against the great weight and preponderance of the evidence. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex.2001); See D & M Vacuum Serv., 812 S.W.2d at 436. We consider and weigh all of the evidence and can set aside a verdict only if the evidence is so weak or if the finding is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. See Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex.1986); D & M Vacuum Serv., 812 S.W.2d at 436.

Applicable Law

Tax code section 33.47(a) addresses evi-dentiary concerns in delinquent tax cases and provides as follows:

(a) In a suit to collect a delinquent tax, the taxing unit’s current tax roll and delinquent tax roll or certified copies of the entries showing the property and the amount of the tax and penalties imposed and interest accrued constitute prima facie evidence that each person charged with a duty relating to the imposition of the tax has complied with all requirements of law and that the amount of tax alleged to be delinquent against the property and the amount of penalties and interest due on that tax as listed are the correct amounts.

Tex. Tax Code Ann. § 33.47(a) (Vernon 2001).

Once the taxing unit introduces the records described above, it establishes a prima facie case as to every material fact necessary to establish its cause of action. See Davis v. City of Austin, 632 S.W.2d 331, 333 (Tex.1982). A rebuttable presumption arises that the taxes in question are due, delinquent and unpaid. Flowers v. Lavaca County Appraisal Dist., 766 S.W.2d 825, 828 (Tex.App.-Corpus Christi 1989, writ denied). This presumption, based on the tax roll showing against whom the taxes were assessed for the year in question, also establishes that the defendant owned the property on January 1 of the year for which the tax was imposed. See GE Capital Corp. v. City of Corpus Christi, 850 S.W.2d 596, 600 (Tex.App.Corpus Christi 1993, writ denied).

After the taxing authority makes its prima facie case by introducing the tax records required by section 33.47(a), the burden then shifts to the taxpayer to show, by introducing competent evidence, that he has paid the full amount of taxes, penalties and interest, or that there is some other defense that applies to his case. See Id. When a taxing authority’s prima facie case is rebutted, although the presumption disappears, the evidence originally offered into evidence is still considered in a legal sufficiency analysis. See D & M Vacuum Serv., 812 S.W.2d at 437. It will not be accorded greater weight simply because it previously created the statutory presumption, and the fact finder resolves matters of weight and credibility among the competing items of evidence. Id. at 438.

Discussion

National admits in its brief that the evidence offered by IISD was sufficient to make a prima facie case that National owed the taxes for the year 2000. It argues that its evidence of McLucas’s testimony that National did not own the property on January 1 Was sufficient to rebut USD’s presumption. The court, though, considered McLucas’s statement that the property was purchased free of all liens to be a legal conclusion. Although the bankruptcy order was admitted as evidence, the court noted it would “not ... consider it for very much” because the purchase agreement referenced in the order was neither attached nor admitted. Although evidence of the court claims register admitted by National showed IISD had not filed a proof of claim regarding the bankruptcy, there was no evidence admitted that showed IISD was notified of the bankruptcy.

Assuming it was sufficient to rebut the presumption, the tax roll continued to be of probative value. Given the power of the court, as fact finder, to believe or disbelieve the evidence and to resolve questions of credibility, we conclude that the evidence is both legally and factually sufficient to support the judgment. See D & M Vacuum Serv., 812 S.W.2d at 488-39. We resolve National’s first and second issues against it.

We affirm the judgment of the trial court.

      . LTC Clinical Labs is referred to as LTC Clinical Laboratories and LTC Medical Laboratories in the record. National does not argue the names represent two distinct entities or that the two names created any confusion in the trial court. Accordingly, we refer to the company only as LTC Clinical Laboratories for purposes of this opinion.

      . The City of Dallas and Dallas County intervened, alleging delinquent taxes were owed also to them for the years 2001 and 2002. Because National complains only of the judgment regarding the tax year 2000, neither the City of Dallas nor Dallas County are before us on appeal.

      .National actually lists its second issue by stating, "The evidence is legally and factually sufficient to support the Judgement granting the Plaintiff USD a judgement for the taxes for the year 2000." We read this issue, however, as a complaint the evidence was legally and factually in sufficient to support a judgment in favor of USD.

      . The “Notice of Hearing” section read:

        Notice of Hearing

      A hearing will be held on the above styled Motion for New Trial on _, 2003, at_
      Signed this_

      Judge Presiding


text:
    WARRIOR COAL COMPANY, LLC, Appellant, v. Billie STROUD; Hon. Roger D. Riggs, Administrative Law Judge; and Workers’ Compensation Board, Appellees.
    No. 2003-SC-0988-WC.
    Supreme Court of Kentucky.
    Dec. 16, 2004.

      John C. Morton, Allison Bowers Rust, Morton & Bach, Henderson, Counsel for Appellant.
    Jerry P. Rhoads, Madisonville,'Counsel for Appellee.
   OPINION OF THE COURT

The claimant was injured after he fell asleep at the wheel on his way to work. The accident occurred on a private access road to the defendant-employer’s coal mine, inside a gate. Applying the “operating premises” exception to the “going and coming” rule, an Administrative Law Judge (ALJ) determined that the injury was work-related, and the decision was affirmed by the Workers’ Compensation Board (Board) and the Court of Appeals. The employer maintains that the application of the operating premises exception on these facts was erroneous, that the claimant’s injuries were not proximately caused by the employment, and that falling asleep was a substantial deviation from the employment. We affirm.

The claimant was born in 1957 and worked primarily as a mechanic or electrician in the mining industry. In 1998, the defendant-employer hired him to work as an electrician in its Cardinal Mine. The claimant was injured on March 29, 2001, while driving his personal vehicle to work. He asserted that the incident was work-related.

The accident occurred on a l/Lmile gravel access road that connected a county road with the parking lot used by mine employees. There was no evidence that the access road served any other purpose. Both the access road and parking lot were located on property that the employer leased and maintained, and both were used solely by employees. Shortly after the turn-off from the county road, a sign that was posted beside the access road stated “Private Road — Do Not Enter.” A gate that could be closed across the access road, impeding access to the parking lot, bore a sign that read, ‘Warrior Coal, L.L.C., Cardinal Mine.” Although there was evidence that the gate may have been closed and locked on weekends, it was usually left open. Adjacent to the parking lot was the bathhouse facility, where workers changed their clothes, received assignments, and boarded a bus that took them to the mine entrance. On March 29, 2001, shortly after passing the gate on his way to report for the third shift, the claimant fell asleep at the wheel and failed to negotiate a curve. His vehicle went off the road and struck several trees before stopping in a ditch. He alleged a disabling neck injury.

The ALJ analyzed the evidence under the “operating premises” exception to the “going and coming” rule, stating as follows:

The coal company made it clear by fences and signs that once a vehicle leaves the public highway it is on private/coal company property. This is not a worn path but a gravel road built and maintained by the employer. Once the plaintiffs vehicle was off the public highway he left the domain of negligence and operating in the general public. He was no longer going to work[;] he was under the domain of his employer. The [employer] had the property rights and in fact exercised total control over the premises in question. This is supported by testimony from its own engineer, Mr. Kelly. These issues are fact specific, and under the facts in question, the evidence supports the conclusion that Mr. Stroud’s accident was work-related.

Chapter 342 requires that an injury must arise out of and in the course of employment to be compensable. See KRS 342.0011(1). In other words, it must be work-related. Although a worker’s negligence may result in decreased benefits under KRS 342.165, it is not a factor in determining whether an injury is work-related. Nor is the fact that the worker has private insurance.

The perils encountered during travel to and from work are no different from those encountered by the general public and are neither occupational nor industrial hazards. Therefore, under a principle known as the “going and coming rule,” injuries that occur during travel to and from work generally are not compensable. Harlan Collieries v. Shell, Ky., 239 S.W.2d 923 (1951). An exception to the rule permits compensation if an injury occurs on the employer’s “operating premises.” Ratliff v. Epling, Ky., 401 S.W.2d 43 (1966). The theory for the exception is that coverage should apply when an injury arises from a peril that is related to the employment, regardless of whether it occurs at the actual worksite. Consistent with the theory, an injury that occurs while the worker is on a personal mission that substantially deviates from the employment is not viewed as being work-related even if it occurs on the employer’s operating premises. Id. In other words, although a worker is viewed as being exposed to the risks of his employment when he crosses the threshold onto private property where the job site is located, the cause of his injury must be considered as well as the place. Hayes v. Gibson Hart Co., Ky., 789 S.W.2d 775, 779 (1990). The cause of the injury may outweigh the place if it represents a significant deviation from normal coming and going activity at that place. Id. But an injury is compensable if the worker is engaged in normal coming and going activity at the time it occurs and has access to the place where it occurs because of his employment. Id.

It was apparent that the claimant was on the employer’s private property when he was injured although the gate through which he passed was neither locked nor guarded. The access road led only to the parking lot/bathhouse area, and there was no evidence that the claimant was on a personal mission when the accident occurred. It occurred shortly before his shift began, while he was making his way towards the parking lot/bathhouse area for the purpose of reporting to work. We are not persuaded that falling asleep at the wheel was a substantial deviation from doing so. Under the circumstances, the ALJ did not err in concluding that any injury that resulted was work-related.

The decision of the Court of Appeals is affirmed.

All concur.


author: /s/ Joseph E. Lambert Chief Justice

text:
    James R. GREGORY, Sr., Movant v. KENTUCKY BAR ASSOCIATION, Respondent.
    No. 2004-SC-0870-KB.
    Supreme Court of Kentucky.
    Dec. 16, 2004.

      James R. Gregory, Sr., Elizabethtown, for Movant.
    Bruce K. Davis, Executive Director, Kentucky Bar Association, Frankfort, Counsel for Respondent.
   OPINION AND ORDER

The Movant, James R. Gregory, Sr. (“Gregory”) moves this Court to suspend him from the practice of law in the Commonwealth of Kentucky for a period of thirty (30) days for the following: (1) his failure to ensure in accordance with SCR 3.130-5.3(b) that his legal assistant/secretary’s conduct was compatible with his professional obligations in maintaining client funds, and (2) his commingling of personal funds with client funds held in his escrow account as prohibited by SCR 3.130-1.15(a). The Kentucky Bar Association does not object to Gregory’s motion.

Gregory, whose address is #2 Public Square, Elizabethtown, Kentucky 42701, delegated the handling of his escrow account and client funds to his legal assistant/secretary. In 1997, Gregory received $5,000.00 as a partial settlement on behalf of his client Sean Rock (“Rock”), whom he represented in an insurance action. At that time, Rock was an inmate at Kentucky State Penitentiary, so Gregory deposited the check in a joint account in their names at First Citizens Bank of Hardin County. A year later Gregory informed Rock that the money was still in the joint account; however, in responding to Rock’s inquiry, Gregory discovered that his legal assistant/secretary had transferred the money to Gregory’s escrow account and had closed the joint account. Gregory then paid the money to Rock.

From 1999 through 2001, Gregory’s legal assistant/secretary commingled Gregory’s personal funds with client funds in his escrow account at First Federal Savings Bank of Hardin County.

By failing to hold his clients’ property separate from his own property, Gregory has violated SCR 3.130-1.15(a). In failing to ensure that his legal assistant/secretary’s conduct comported with his professional obligations as a lawyer, Gregory has violated SCR 3.130-5.3(b). In accordance with SCR 3.130-5.3(c) Gregory is responsible for his legal assistant/secretary’s conduct in violation of the Rules of Professional Conduct because he knew of the conduct, ratified it and failed to take remedial action when the consequences of the conduct could have been avoided.

We would note that although Gregory is not required by SCR 3.390 to notify his clients of his suspension, he has volunteered to do so.

ACCORDINGLY, IT IS HEREBY ORDERED:

(1) The Movant is suspended from the practice of law in the Commonwealth of Kentucky for a period of thirty (30) days. The period of suspension shall commence on the date of entry of this Order.
(2) In accordance with his agreement, Gregory shall notify his clients of his suspension.
(3) In accordance with SCR 3.450, Gregory is ordered to pay all costs associated with these disciplinary proceedings against him, including the amount of $1,387.68 assessed against him as of October 14, 2004, and for which execution may issue from this Court upon finality of this Opinion and Order.

All concur.

Entered: December 16, 2004.

/s/ Joseph E. Lambert Chief Justice


author:
WINTERSHEIMER, Justice.
      COOPER, Justice,

text:
    STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; and State Farm Fire and Casualty Company, Appellants, v. Carma MARLEY, Individually and As Next Friend of Rachel Marley; David Marley, an Unmarried Infant; and Larry Marley, Appellees.
    No. 2002-SC-0846-DG.
    Supreme Court of Kentucky.
    Dec. 16, 2004.
    Barton D. Darrell, Paul T. Lawless, Bell, Orr, Ayers & Moore, P.S.C., Bowling Green, Counsel for Appellants.
    Michael K. Bishop, Harlan E. Judd, III, Bowling Green, Richard Hay, Rhonda Hatfield-Jeffers, Keith A. Upchurch, Somerset, David V. Scott, Scott, Forrest & Bourne, New Albany, IN, Counsel for Ap-pellees.
   WINTERSHEIMER, Justice.

This appeal is from an opinion of the Court of Appeals which determined that the household exclusion contained in the personal liability umbrella policy is void against the public policy of the Commonwealth of Kentucky.

The questions presented are whether the household exclusion in the personal liability umbrella policy should be upheld as valid; whether the personal liability umbrella policy is optional coverage that is not governed by the Motor Vehicle Reparations Act; and whether decisions from courts in foreign jurisdictions support the validity and enforceability of such clauses and should be followed.

On December 17, 1999, Larry Marley, the insured, a resident of Indiana, was en route to Florida in the family van when he fell asleep at the wheel and lost control of the vehicle. One child, Heather, was killed. Sixteen-year-old Rachel received injuries resulting in paraplegia, and her mother, Carma, was seriously injured. David, a 12-year-old twin of Heather, was also injured. Carma, Rachel and David are all residents of Indiana and filed an action for damages against the father in Simpson Circuit Court in Kentucky. A separate declaratory judgment action was brought to determine the amount of liability insurance coverage available to Larry under the automobile policy with limits of $100,000 per person/$300,000 per accident, issued in Indiana by State Farm Mutual Automobile Insurance Company, and a personal liability umbrella policy with limits of $1 million issued in Indiana by State Farm Fire & Casualty Company.

Applying Kentucky law in interpreting both policies, the trial judge found that the household exclusion in the primary automobile policy was unenforceable in Kentucky. That decision has never been appealed. The trial judge also found that the automobile policy contained an “out-of-state” coverage provision, which reduced the amount of Larry Marley’s liability coverage to the minimum policy limits required by the Kentucky Motor Vehicle Reparations Act, KRS 304.39-110. Finally, the trial judge determined that pursuant to Kentucky Farm Bureau Mut. Ins. Co. v. Thompson, Ky., 1 S.W.3d 475 (1999), the household exclusion in Larry Marley’s umbrella policy is valid and enforceable.

The Court of Appeals reversed on the two issues appealed. Distinguishing Thompson, supra, it held that the household exclusion in the umbrella policy as applied to automobile liability coverage was void as against the public policy of this Commonwealth and was unenforceable. It also held that the out-of-state coverage provision does not limit the plaintiffs’ recovery to the minimum liability amount contained in the MVRA. The insurance company sought discretionary review in this Court. While that motion was pending, the parties filed a joint motion stating that all claims relating to the automobile policy had been settled and were now moot, and asked this Court to consider only the issue relating to the household exclusion in the umbrella policy. This Court granted discretionary review and also the joint motion.

I. Enforceability of Policy

The critical issue is whether a household exclusion in the personal liability umbrella policy as it applies to automobile liability coverage violates Kentucky public policy. In Lewis v. West American Ins. Co., Ky., 927 S.W.2d 829 (1996), household exclusions in automobile liability policies were held to be unenforceable regardless of the policy limits because they violate Kentucky public policy. In Thompson it was held that the public policy of the state only precludes household exclusions in automobile liability policies, not other types of liability policies such as farm owner policies.

State Farm argues that Kentucky courts have consistently recognized the freedom to contract, and the unambiguous household exclusion in this personal liability umbrella policy should be upheld. In effect, State Farm relies on Thompson in support of the contention that Lewis, supra, is limited to automobile policies and the personal liability insurance policy is not an automobile insurance policy. The Marley family responds that Kentucky courts have consistently recognized that insurance policy provisions which violate the public policy of this State are not enforceable.

The parties stipulated that under Indiana law the household exclusion clauses in both policies are valid and enforceable. The Marleys were all residents of Indiana. The policies were issued in Indiana and the vehicle was primarily garaged in Indiana. The only contact the Marley family had with Kentucky is that the accident occurred while driving through the Commonwealth on their way to Florida. It could be said that under traditional choice of law principles, the law of Indiana is applicable. However, Kentucky courts have traditionally refused to apply the law of another state if that state’s law violates a public policy as declared by the Kentucky legislature or courts. See R.S. Barbee & Co. v. Bevins, Hopkins & Co., 176 Ky. 113, 195 S.W. 154 (1917). It is no longer contested by either party that Kentucky law applies in this case.

We recognize that family exclusion provisions were once common in the automobile insurance industry and served to protect the company from lawsuits where there was a family relationship between the tortfeasor and the injured party. See Orange v. State Farm Mut. Auto. Ins. Co., Ky., 443 S.W.2d 650 (1969). One of the first cases to consider the validity of a family exclusion clause in an automobile insurance contract since the adoption of the MVRA held that family or household exclusion clauses that dilute or eliminate the minimum requirement of basic reparations benefits or tort liability coverage of the MVRA were void and unenforceable. Bishop v. Allstate Ins. Co., Ky., 623 S.W.2d 865 (1981). The Bishop court reasoned that the stated purpose of the MVRA was to ensure that a driver be insured to a minimum level. Any exclusion provision that contravenes the purpose and policy of the compulsory insurance act was essentially unenforceable and void. Fifteen years after Bishop was rendered, this Court in Lewis held that all family exclusion clauses in liability insurance policies are repugnant to the public policy of Kentucky and are, therefore, void and unenforceable. Three years after that decision, this Court in Thompson considered the application of the Lewis doctrine to non-automobile liability insurance policies. In that case, Thompson had in effect a farm-owners policy of liability insurance that contained a household exclusion. His underage daughter was injured while riding on a tractor he owned and was operating. She subsequently filed an action against him for negligent operation. Thompson held that the unenforceable aspects of the exclusionary provisions were limited to automobile policies.

The practical issue here is whether the umbrella policy is an automobile policy as required by Thompson. Clearly, Thompson is different from this case because it involved a farm tractor covered under a farm policy. Both by statute and case law, a farm tractor is not an automobile within the meaning of the MVRA. See KRS 187.290(4) and Kentucky Farm Bureau Mut. Ins. Co. v. Vanover, Ky., 506 S.W.2d 517 (1974). The insurance policy in this case covers automobile accidents. The mere fact that the policy is labeled as an umbrella policy and written separately from the underlying automobile policy, or that it covers claims other than automobile accidents, does not validate an exclusion provision of this nature.

The MVRA uses the term “security.” The Act does not use the word “automobile insurance.” Although Thompson limited the Lewis opinion to .an automobile insurance policy only, we must conclude that it was not the intention of this Court to permit household exclusions in umbrella policies when the underlying claim arose from a motor vehicle accident.

II. Optional/Mandatory Coverage

State Farm contends that umbrella coverage is optional and is not governed by the directions of the MVRA and that accordingly there is no public policy question involved. We disagree.

This Court finds no reason to discriminate between those with minimum coverage required by law and those with higher, optional coverage. See Lewis at 833. An umbrella insurance policy must be considered in accordance with the nature of the claims that it is called upon to cover. An umbrella policy was purchased to serve as an extension of the automobile policy limits and any distinction between the automobile liability and an umbrella liability policy is a distinction without a difference.

We determine that there is no difference between the security provided by an optional umbrella policy and the security provided by mandatory minimum liability coverage. It is clear that the public policy of Kentucky is to ensure that victims of motor vehicle accidents on Kentucky highways are fully compensated. The household exclusion in the umbrella policy as it applies to automobile liability coverage violates that public policy and is void and unenforceable.

III. Foreign Authorities

State Farm argues that the question of whether a household exclusion contained in a personal liability umbrella policy is valid and enforceable is an issue of first impression in Kentucky. The insurance company contends that the majority of courts in other states presented with this issue have upheld the validity and enforceability of such exclusions in umbrella policies. State Farm cites eight cases from six different states in support of its contention. We are not persuaded.

The essential rationale in Thompson and Lewis is based on the fact that automobile liability insurance policies come within the ambit of MVRA. This claim arises from the ownership, operation and use of a motor vehicle within Kentucky and, consequently, the automobile liability provisions of the umbrella policy come within the purview of the MVRA. It is interesting to note that State Farm recognizes that the Washington Court of Appeals in Safeco Ins. Co. of Illinois v. Automobile Club Ins. Co., 108 Wash.App. 468, 31 P.3d 52 (2001), found the household exclusion in an umbrella policy to be unenforceable as a violation of the public policy of the State of Washington.

It is the decision of this Court that pursuant to Kentucky law, the household exclusion in the personal liability umbrella policy as applied to automobile liability coverage is void and unenforceable.

The opinion of the Court of Appeals is affirmed.

LAMBERT, C.J., GRAVES and STUMBO, JJ., concur.

COOPER, J., dissents by separate opinion and is joined by JOHNSTONE and KELLER, JJ.

COOPER, Justice,

dissenting.

The majority opinion repeats numerous extrajudicial facts gratuitously recited by Appellees in their brief to the Court of Appeals. The record in this case contains no testimonial evidence. Specifically, there is no evidence of the extent of any injuries sustained by any of the Appellees, and neither this declaratory judgment action nor the complaint filed in the separate action brought by Appellees against Larry Marley for their personal injuries asserts a claim for the alleged wrongful death of another family member. The parties submitted this declaratory judgment action to the trial court only on the following “Stipulation of Facts”:

1. On December 17, 1999, Larry Marley was involved in a one-car accident while traveling on 1-65 in Simpson County, Kentucky.
2. The passengers in the vehicle being driven by Larry Marley at the time of the accident included his wife, Carma Marley, and three minor children, Rachel, Heather, and David Marley.
3. At the time of the accident, Larry Marley, Carma Marley, and their three children resided in the same household in the state of Indiana.
4. At the time of the accident, Larry Marley was insured with State Farm Mutual Automobile Insurance Company under Automobile Policy # 629 2776-B15-14J, a copy of which is attached hereto as Exhibit “A”.
5. At the time of the accident, Larry Marley was insured with State Farm Fire and Casualty Company under a Personal Liability Umbrella Policy # 14-45-8111-8, a copy of which is attached hereto as Exhibit “B”.
6. Larry Marley purchased said policies (Exhibits A & B) in the state of Indiana from an Indiana-based agent of State Farm.
7. The vehicle involved in the December 17, 1999 accident, a 1997 Dodge Van (VIN # 2B6HB21Y6VK548866), was listed as an insured vehicle under State Farm Mutual Automobile Policy # 629 2776-B15-14J, and was principally garaged, licensed and registered in the state of Indiana.
8. Larry Marley maintains a driver’s license issued by the state of Indiana.
9. State Farm Mutual Automobile Insurance Company is an insurance company which does business throughout the United States of America, including the Commonwealth of Kentucky, with its home office in Bloomington, Illinois.
10. State Farm Fire and Casualty Company is an insurance company which does business throughout the United States of America, including the Commonwealth of Kentucky, with its home office in Bloomington, Illinois.

I. POLICY PROVISIONS.

Exhibit A to the stipulation, Policy # 629 2776-B15-14J (the automobile policy), identifies the “named insured” as “MARLEY, LARRY W & CARMA M” and contains an exclusion in Section I— Liability — Coverage A for any bodily injury to:

c. ANY INSURED OR ANY MEMBER OF AN INSURED’S FAMILY RESIDING IN THE INSURED’S HOUSEHOLD.

Exhibit B to the stipulation, policy # 14-45-8111-8 (the umbrella policy), also identifies the “named insured” as “MARLEY, LARRY W & CARMA M.” Exclusion 10 of the EXCLUSIONS section of the policy excludes coverage:

10. for personal injury to the named insured, spouse or anyone within the meaning of part a. or b. of the definition of insured.

The DEFINITIONS section of the umbrella policy defines “insured” as:

a. the named insured;
b. the following residents of the named insured’s household:
(1) the named insured’s relatives; ...

Thus, both the automobile policy and the umbrella policy contain “household exclusion” clauses that preclude coverage for injuries sustained by Carma Marley or any of her children. The parties stipulated in the Court of Appeals that such exclusions in automobile liability policies are valid in Indiana. Transamerica Ins. Co. v. Henry, 563 N.E.2d 1265, 1268-69 (Ind.1990) (liability coverage); Jones v. State Farm Mut. Auto. Ins. Co., 635 N.E.2d 200, 203 (Ind.Ct.App.1994) (underinsured motorist coverage). Such exclusions in automobile liability insurance policies are invalid in Kentucky. Lewis v. W. Am. Ins. Co., Ky., 927 S.W.2d 829, 836 (1996) (contrary to public policy pronounced by Court) (plurality opinion with two justices concurring in result); Bishop v. Allstate Ins. Co., Ky., 623 S.W.2d 865, 866 (1981) (contrary to public policy established by legislature if exclusion eliminates minimum coverage required by KRS 304.39-110(1)(a)). We clarified in Kentucky Farm Bureau Mutual Insurance Co. v. Thompson, Ky., 1 S.W.3d 475 (1999), that those holdings were mandated by the public policy embodied in the Motor Vehicle Reparations Act (MVRA) and did not apply to household exclusion clauses in non-automobile liability insurance policies. “To the extent that the language of our holding in Lewis was overly broad, we now limit the holding of that case to automobile insurance policies only.” Id. at 477.

The EXCLUSIONS section of the automobile policy also contained the following provision:

1. Out-of-State Coverage If an insured under the liability coverage is in another state or Canada and, as a nonresident, becomes subject to its motor vehicle compulsory insurance, financial responsibility or similar law:
a. the policy will be interpreted to give the coverage required by law; and
b. the coverage so given replaces any coverage in this policy to the extent required by the law for the insured’s operation, maintenance or use of a car insured under this policy.

This provision comports with state statutes that require insurers doing business within the state to provide minimum required coverages for their out-of-state insureds while operating motor vehicles within the state. E.g., KRS 304.39-100(2):

An insurer authorized to transact or transacting business in this Commonwealth shall file ... a form ... declaring that in any contract of liability insurance for injury, wherever issued, covering the ownership, maintenance or use of a motor vehicle ... while the vehicle is in this Commonwealth shall be deemed to provide the basic reparation benefits coverage and minimum security for tort liabilities required by this subtitle, except a contract which provides coverage only for liability in excess of required minimum tort liability coverage....

(Emphasis added.) Thus, even though the household exclusion clause in the automobile policy is valid under Indiana law, both the policy and KRS 304.39-100(2) require State Farm to provide minimum limits liability coverage while the insured vehicle is being operated in Kentucky. However, the last clause of the statute excludes an umbrella policy from that statutory requirement.

The Out-of-State Coverage provision was construed under Indiana law in State Farm Mutual Automobile Insurance Co. v. Smith, 812 F.Supp. 141, (S.D.Ind.1992). There, an Indiana resident (Smith) purchased in Indiana a policy of liability insurance from State Farm to cover a vehicle licensed and garaged in Indiana. Smith sustained injuries in Kentucky while a passenger in the vehicle then being driven by a permissive user (Evanoff). Evanoffs liability insurer paid its policy limits to Smith. State Farm also paid its basic reparation benefits (BRB) coverage limits to Smith, but denied coverage for Smith’s claims under her own liability and underin-sured motorist (UIM) coverages because both coverages were subject to household exclusion clauses. Smith claimed those coverages were payable under the Out-of-State Coverage provision because household exclusion clauses are invalid in Kentucky. Applying Indiana choice-of-law principles, the district court first held that Indiana was the state of “most intimate contact” and, therefore, that Indiana law determined whether Smith was entitled to payment under her policy’s liability and UIM coverages. Id. at 144. The court then concluded that the Out^of-State Coverage provision did not require “wholesale implementation of Kentucky law.” Id.

The policy does not say that out-of-state coverage is governed, or the policy interpreted, by the law of the state in which the collision occurs.... The Court finds such language to provide for only such minimum mandatory coverage as required by the [MVRA].

Id. Noting that the minimum mandatory liability coverage required by KRS 304.39-110(1)(a) was $25,000, the district court concluded that Evanoffs own liability coverage satisfied that requirement. Id. The court specifically declined to hold that Bishop v. Allstate required payment of more than the minimum coverage mandated by the Act if two or more policies provided liability coverage for the same accident.

In Bishop, the court noted that the stated purpose of the KMVRA is to assure that a driver be insured to a minimum level, and because the household exclusion effectively renders a driver uninsured to the extent of the reduction or elimination, such an exclusion was held to contravene the purpose and policy of the Act. The household exclusion in the Smith policy does not serve to render the driver uninsured because Evanoff was insured and did provide liability coverage.

Id. at 144-45.

The district court then held that, under Indiana law, the household exclusion clause precluded recovery under the un-derinsured motorist coverage, and that the Out-of-State Coverage provision did not require a different result because underin-sured motorist coverage is not mandatory in Kentucky. Id. at 145-46. See KRS 304.39-320(2).

II. TRIAL COURT.

In the case sub judice, the Simpson Circuit Court held that the household exclusion clause in the umbrella policy was valid under Kentucky law, citing Kentucky Farm Bureau v. Thompson, obviously concluding that an umbrella policy is not an automobile insurance policy; that the household exclusion in the automobile policy was invalid under Kentucky law, citing Lewis v. West American; but that the Out-of-State Coverage provision of the automobile policy applied to reduce the liability limits to $25,000/$50,000, citing State Farm v. Smith, obviously concluding that Indiana law applied to the validity of the household exclusion clause as modified by the Out-of-State Coverage provision. The plaintiffs appealed.

III. COURT OF APPEALS.

The Court of Appeals reversed, concluding that the umbrella policy was an automobile insurance policy, thus was within the holding of Lewis v. West American. It also held that it would not apply Indiana law to the policy because the household exclusion clause violated the public policy of Kentucky. The Court then held that KRS 304.39-100(2) applies to umbrella policies, quoting a portion of the statute but conveniently omitting the language that excepts from the statute “a contract which provides coverage only for liability in excess of required minimum tort liability coverage.” Finally, it held that the Out-of-State Coverage provision did not mean what it clearly says:

State Farm attempts to persuade this court that the intent of the provision is to convert the amount of the [liability] coverage provided by the policy, $100, 000/$300,000, to the minimum amount required by the foreign state. The result of such interpretation would be that while Mr. Marley operated his vehicle within the state of Indiana he would enjoy a greater amount of coverage, while upon crossing the state line into Kentucky, State Farm’s obligation is reduced to $25,000/$50,000, the minimum amount required by Kentucky ....

Of course, the fatal flaw in that reasoning is that if Mr. Marley had been operating his vehicle within the state of Indiana when the subject accident occurred, he would have enjoyed no coverage, not “a greater amount of coverage,” than while operating it in Kentucky. The Out-of-State Coverage provision applies only when Indiana law would afford no coverage but the law of the state where the accident occurred requires minimum mandatory coverage. State Farm v. Smith, 812 F.Supp. at 143-44. If Mr. Marley had injured someone other than a member of his household, the liability limits of his automobile policy would have been $100, 000/$300,000 no matter where the accident occurred.

IV. CHOICE OF LAW.

The parties have filed a stipulation to the effect that the claim pertaining to the automobile policy has been settled and that “the only issue for consideration for purposes of the pending Motion for Discretionary Review is whether a household exclusion in a personal liability umbrella policy is void and unenforceable as against public policy and a violation of this Court’s ruling in Lewis v. West American Ins. Co., Ky., 927 S.W.2d 829 (1996).” (Emphasis added.) The majority opinion interprets this stipulation as removing from consideration the issue of whether Kentucky law or Indiana law applies to the interpretation of this policy. Ante at 35 (“It is no longer contested by either party that Kentucky law applies to this case.”). I do not construe the stipulation so broadly; for if Indiana law applies to this insurance contract, it would not be against the public policy of Kentucky to apply that law in a case where no citizen of Kentucky is involved and Kentucky’s only contact with the parties is the fortuitous fact that the accident occurred here. The circuit court obviously applied choice of law principles in deciding that Indiana law applied to the household exclusion clause as modified by the OuNof-State Coverage provision. Likewise, the Court of Appeals addressed the choice of law issue before erroneously concluding that Kentucky’s public policy overrides Indiana law. Appellant argues in its brief that household exclusion clauses are valid in Indiana where Appellees reside and where the policy was issued. Appellant’s brief, at 10 n.6, 17-18. The majority opinion, itself, addresses the choice of law issue by citing R.S. Barbee & Co. v. Bevins, Hopkins & Co., 176 Ky. 113, 195 S.W. 154 (1917), for the proposition that Kentucky will not enforce the law of another state if that state’s law is against the public policy of this Commonwealth. Ante, at 35. Thus, whether Kentucky law applies to this case remains a hotly contested issue.

The majority’s application of R.S. Barbee & Co. to the facts of this case is seriously misplaced. The issue in that case was whether a contract entered into in West Virginia could be enforced in Kentucky against a Kentucky resident.

[T]he mere fact that the law of another state differs in degree from the law of this state does not make it so obnoxious to our laws that our courts will not enforce it, but ... our courts will not recognize the existence of foreign laws that are obnoxious to some well-founded rule of domestic policy established to protect the morals, safety or welfare of our people.

Id., 195 S.W. at 155 (emphasis added). Barbee cannot be construed to hold that we will apply our public policy to provide rights to nonresidents to which they are not entitled under the law of their home state. Because all of the parties to this action are residents of Indiana (indeed, all are members of the same family), this action could have been brought in Indiana in the forum where Larry Marley is domiciled. Instead, because household exclusion clauses are valid in Indiana, they brought their action in Kentucky where such clauses are invalid. Forum-shopping is also against the public policy of Kentucky.

The Erie rule was designed to prevent a result that for the same transaction the accident of a suit by a nonresident litigant in a federal court instead of in a state court a block away should lead to a substantially different result. The Court of Appeals of New York said in Rederi that this rationale would apply even if the Supremacy Clause did not require it to conform to and apply the provisions of the federal statute. Any other conclusion would place the court’s stamp of approval on a particularly offensive form of forum-shopping.

Fite & Warmath Const. Co., Inc. v. MYS Corp., Ky., 559 S.W.2d 729, 733 (1977) (emphasis added).

Under Kentucky’s choice of law jurisprudence, Indiana law applies to the construction of this insurance contract. The seminal Kentucky case on this issue is Lewis v. American Family Insurance Group, Ky., 555 S.W.2d 579 (1977). In that case, two brothers, both residents of Indiana, were injured in a vehicular collision in Kentucky caused by the negligence of an uninsured motorist who was a resident of Kentucky. The brothers brought suit in Kentucky against the negligent party and against an insurance company that provided uninsured motorists (UM) coverage in an insurance policy issued to their uncle with whom they resided. The UM carrier denied coverage, relying on two policy exclusions. As here, an Indiana resident sought to recover in Kentucky under a policy issued in Indiana to an Indiana resident to cover a vehicle licensed and garaged in Indiana. The initial issue was whether Kentucky law or Indiana law governed the construction and application of the policy exclusions.

The threshold issue which must be decided is whether Indiana or Kentucky law ought to be applied in this case. Traditionally the rule has been that the validity of a contract is to be determined by the laws of the state in which it was made, while the remedies to be enforced are those provided by the state in which suit is brought. Fry Bros. v. Theobold, 205 Ky. 146, 265 S.W. 498 (1924). Such a mechanical approach is no longer favored. The modern test is “which state has the most significant relationship to the Transaction and the parties.” Restatement of Conflict of Laws 2d, sec. 188 (1971). Using this test, in most cases the law of the residence of the named insured will determine the scope of his automobile liability insurance policy. Section 193 of the Restatement of Conflict of Laws 2d, states:
“Contracts of Fire, Surety or Casualty Insurance The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in sec. 6 to the transaction and the parties, in which event the local law of the other state will be applied.”
Because the insurance contracts in this case were entered into in Indiana between Indiana parties and concerned automobiles which were licensed and garaged in Indiana, we are of the opinion that Indiana law should govern the rights and liabilities of the parties under these contracts.

Id. at 581-82. See also Snodgrass v. State Farm Mut. Auto. Ins. Co., Ky.App., 992 S.W.2d 855 (1998) (Virginia law applied to uphold exclusion applicable to underin-sured motorist (UIM) coverage, which exclusion would have been invalid under Kentucky law, where insurance policy was issued in Virginia to a Virginia resident providing coverage for a vehicle licensed and garaged in Virginia even though insured was injured in Kentucky in a vehicular collision caused by a Kentucky resident) (disc. rev. denied April 14, 1999); Bonnlander v. Leader Nat’l Ins. Co., Ky.App., 949 S.W.2d 618 (1997) (same factual scenario; Indiana law applied to deny UIM coverage that would have been recoverable under Kentucky law) (disc. rev. denied August 27, 1997); Hammer v. State Farm Mut. Auto. Ins. Co., 950 F.Supp. 192, 194 (W.D.Ky.1996) (applying Kentucky law) (same factual scenario; Indiana law applied to uphold set-off and anti-stacking provisions in UIM policy even though similar set-off provision had been deleted from KRS 304.39-320(2), 1988 Ky. Acts, ch. 180, § 1, and anti-stacking provisions had been declared contrary to Kentucky public policy in Allstate Ins. Co. v. Dicke, Ky., 862 S.W.2d 327, 329 (1993)).

The application of Indiana law in this case would not violate any public policy of Kentucky because such would not deny benefits to a Kentucky resident who would otherwise be entitled to them under our law; and Kentucky has no interest in applying our public policy to provide benefits to Indiana residents who would not be entitled to them under Indiana law.

The vast majority of jurisdictions that have considered this issue have concluded that household exclusion clauses are enforceable if valid where the policy was issued and where the parties reside even if invalid in the state where the accident occurred. E.g., Am. Family Mut. Ins. Co. v. Williams, 839 F.Supp. 579, 583 (S.D.Ind.1993) (applying Indiana law to enforce exclusion though accident occurred in Kansas where exclusion was invalid); Draper v. Draper, 115 Idaho 973, 772 P.2d 180, 183 (1989) (applying Oregon law to enforce exclusion though accident occurred in Idaho where exclusion was invalid); Allstate Ins. Co. v. Hart, 327 Md. 526, 611 A.2d 100,102-04 (1992) (applying Florida law to enforce exclusion though accident occurred in Maryland where exclusion was against public policy, noting, id at 102, that “there is a heavy burden on him who urges rejection of foreign law on the ground of public policy”); Bonner v. Auto. Club Inter-Ins. Exch., 899 S.W.2d 925, 929 (Mo.Ct.App.1995) (applying Missouri law to uphold insurer’s failure to defend permissive user against suit by insureds because household exclusion clause precluded coverage though accident occurred in New Mexico where exclusion was invalid); Sotirakis v. United Serv. Auto. Ass’n, 106 Nev. 123, 787 P.2d 788, 790-91 (1990) (applying California law to enforce exclusion though accident occurred in Nevada where exclusion was invalid); Dairyland Ins. Co. v. State Farm Mut. Auto. Ins. Co., 41 Wash.App. 26, 701 P.2d 806, 809 (1985) (applying Idaho law under which, at that time, exclusion was valid though accident occurred in Washington where exclusion was invalid); Urhammer v. Olson, 39 Wis.2d 447, 159 N.W.2d 688, 690 (1968) (applying Minnesota law to enforce exclusion though accident occurred in Wisconsin, noting that although household exclusion clauses were invalid in Wisconsin, it was not against Wisconsin public policy to recognize and enforce such a provision in a foreign contract). As the great Cardozo once wrote: “The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness.” Loucks v. Standard Oil Co. of New York, 224 N.Y. 99, 120 N.E. 198, 202 (1918).

V. KENTUCKY LAW.

Even if Appellees were residents of Kentucky, there is no public policy that precludes enforcement of a household exclusion clause in a policy of optional insurance that is not governed by any Kentucky statute.

Prior to the decision in Bishop v. Allstate, Kentucky courts routinely upheld the validity of household exclusion clauses that had the effect of invalidating liability or UM coverage in automobile insurance policies. E.g., Allen v. W. Am. Ins. Co., Ky., 467 S.W.2d 123 (1971); Orange v. State Farm Mut. Auto. Ins. Co., Ky., 443 S.W.2d 650 (1969); Third Nat'l Bank of Ashland v. State Farm Mut. Auto. Ins. Co., Ky., 334 S.W.2d 261 (1960). Bishop held that the legislature, by enacting the MVRA, created a system of compulsory liability and no-fault insurance, and that an exclusionary clause that reduced or eliminated either BRB or liability coverage below the minimum required by statute was void and unenforceable. Bishop, 623 S.W.2d at 866. “The cases which uphold the validity of family exclusion provisions are overruled to the extent that they dilute or eliminate the minimum coverage requirements of the MVRA.” Id. at 866-67. Taking its cue from this language, the Court of Appeals held in Staser v. Fulton, Ky.App., 684 S.W.2d 306 (1985), that household exclusion clauses were invalid as applied to the statutory minimum limits but valid to the extent that the coverage exceeded the minimum limits. Id. at 307.

Lewis v. West American broadly held that “family exclusion provisions in liability insurance contracts violate the public policy of this Commonwealth and are unenforceable.” Lewis, 927 S.W.2d at 836. However, in Kentucky Farm Bureau v. Thompson, we upheld a household exclusion clause in a farmowner’s insurance policy, explaining that, despite its broad language, Lewis only applied to automobile liability insurance policies.

[Lewis ] held that the MVRA precludes the application of a family or household exclusion provision to the extent it attempts to eliminate any coverage in an automobile liability insurance policy, including amounts in excess of the statutory minimum. Although our language in Lewis was admittedly broad and seemingly applicable to all liability insurance contracts, our intent was only to hold unenforceable those family exclusion provisions found in automobile insurance policies such as the policy at issue in the controversy then before the Court. To the extent that the language of our holding in Lems was overly broad, we now limit that case to automobile insurance policies only.

Thompson, 1 S.W.3d at 477 (emphasis partially added). Thus, as did Bishop, Thompson emphasized that the public policy that precludes household exclusion clauses is found in the MVRA and explained that Lewis only extended Bishop to include “amounts in excess of the statutory minimum” in “automobile insurance policies.” Id.

To reach the desired result in this case, i.e., to provide coverage where there is none, the majority opinion attempts to metamorphose the umbrella policy at issue in this case into an “automobile insurance policy,” by positing that the term “security” in the MVRA does not refer to “automobile insurance,” ante at 36, thereby implying that it could refer to “umbrella insurance,” and that “any distinction between the automobile liability and an umbrella liability policy is a distinction without a difference.” Ante at 36. One might wonder why the MVRA is entitled the “Motor Vehicle Reparations Act” (emphasis added) if the term “security” as used therein does not refer to automobile insurance. And, of course, the primary distinction that creates the difference between an automobile insurance policy and a personal liability umbrella policy is that an umbrella policy, by definition, does not provide the minimum liability coverage required by the MVRA — which both Bishop and Thompson held was the only public policy that invalidates household exclusion clauses. Unless specifically intended to supply a portion of the minimum coverage required by KRS 304.39-110(1), see KRS 304.39-110(2), a circumstance that does not exist in this case, an umbrella policy does not provide any coverage required by the MVRA and is not governed by any provision of the MVRA. State Auto. Mut. Ins. Co. v. Empire Fire & Marine Ins. Co., Ky., 808 S.W.2d 805 (1991) (umbrella policy insurer is not a reparation obligor).

Unlike an automobile insurance policy, an umbrella policy does not provide UM, UIM, or BRB coverage. And unlike an umbrella policy, an automobile insurance policy does not provide liability coverage for injuries occurring inside the insured’s residence, for false arrest, false imprisonment, wrongful eviction, wrongful detention, malicious prosecution or humiliation, libel, slander, defamation of character or invasion of rights of privacy. No Kentucky statute requires an owner of a motor vehicle to provide umbrella coverage. Just as obviously, a person may own an umbrella policy without owning either a motor vehicle or an automobile insurance policy. The umbrella policy at issue in this case is not a “follow form” policy. It has its own terms and conditions of coverage. In fact, the “Coverages” section of the umbrella policy does not mention the words “automobile” or “motor vehicle.” Since an umbrella policy is not an automobile insurance policy, the Simpson Circuit Court correctly concluded that Thompson, not Lewis, is the Kentucky precedent applicable to the household exclusion clause in the Marleys’ umbrella policy.

This conclusion is supported by the overwhelming majority of jurisdictions that have considered the issue. Elec. Ins. Co. v. Rubin, 32 F.3d 814, 818-19 (3d Cir.1994) (construing Pennsylvania law) (household exclusion clause in umbrella policy did not violate any Pennsylvania public policy and did not violate Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL) because umbrella policy required existence of underlying automobile policy that conformed to MVFRL); State Farm Mut. Auto. Ins. Co. v. Daprato, 840 A.2d 595, 598-99 (Del.2003) (distinguishing cases holding that public policy underlying financial responsibility law precludes application of household exclusion clauses in basic automobile policies because financial responsibility law does not apply to optional umbrella policies); Walker v. State Farm Mut. Auto. Ins., 850 So.2d 882, 886-89 (La.Ct.App.2003) (upholding household exclusion clause in optional umbrella policy and rejecting argument that financial responsibility law applies because, in this case, umbrella policy is only providing coverage in addition to that provided by compulsory automobile liability policy); Costello v. Nationwide Mut. Ins. Co., 143 Md.App. 403, 795 A.2d 151, 159-60 (2002); Bogas v. Allstate Ins. Co., 221 Mich.App. 576, 562 N.W.2d 236, 237 (1997) (“Because the umbrella policy at issue, an optional insurance policy that applied not only to liability arising from the use of an automobile but also other personal activities of the insured, does not conflict with any statutory provisions mandating the coverage that the household exclusion excludes, we hold that the exclusion in the policy is enforceable.”); Weitz v. Allstate Ins. Co., 273 N.J.Super. 548, 642 A.2d 1040, 1041-42 (App.Div.1994) (since umbrella policy, unlike basic automobile policy, is not subject to strict statutory regulation, no public policy prohibits enforcement of household exclusion clause); cf. Megonnell v. United Sen. Ass’n, 368 Md. 633, 796 A.2d 758, 772-73 (2002) (where umbrella policy did not contain household exclusion clause and was not a “follow form” of the insured’s automobile insurance policy, the household exclusion clause in the automobile policy did not apply to the umbrella coverage). The majority opinion chides Appellant for citing in its brief the case of Safeco Ins. Co. of III. v. Auto. Club Ins. Co., 108 Wash.App. 468, 31 P.3d 52 (2001), which enforced a household exclusion clause in an umbrella policy. Ante at 36. In fact, Appellant’s point in citing the Washington case was to identify it as the only case so holding and to note that the court had prefaced its decision by mentioning that “the parties have cited no cases from other states that have addressed the question.” 31 P.3d at 54. Appellant’s brief at 28 n.8.

The majority of this Court is wont to cite the “reasonable expectations” of insureds in determining the validity of coverage exclusions. E.g., Nationwide Mut. Ins. Co. v. Hatfield, Ky., 122 S.W.3d 36, 43 (2003); Allstate Ins. Co. v. Dicke, 862 S.W.2d at 329. Of course, the majority has not done so in this case because Appellees could not have reasonably expected coverage since their policy contains a household exclusion clause that is valid under the law of Indiana where they reside, where they purchased the insurance, and where the insured vehicle is licensed and garaged. Sotirakis v. United Sen., 787 P.2d at 791 (“[Ajssuming the insureds were aware of the family exclusion clause, it is unlikely that they expected the clause to be void when travelling in Nevada.”).

For these reasons, I would reverse the Court of Appeals and reinstate the judgment of the Simpson Circuit Court. Accordingly, I dissent.

JOHNSTONE, and KELLER, JJ„ join this dissenting opinion.

      . A "follow form” policy is an excess liability or reinsurance policy that simply extends the limits of the underlying policy by incorporating by reference all of the terms and conditions of the underlying policy except as specifically stated otherwise. In re HealthSouth Corp., 308 F.Supp.2d 1253, 1281 (N.D.Ala. 2004); United Fire & Cas. Co. v. Arkwright Mut. Ins. Co., 53 F.Supp.2d 632, 641 (S.D.N.Y.1999).


text:
    INQUIRY COMMISSION, Complainant v. Donna Kay McNEW, Respondent.
    No. 2004-SC-0848-KB.
    Supreme Court of Kentucky.
    Dec. 16, 2004.
   ORDER OF TEMPORARY SUSPENSION

The Inquiry Commission seeks to have Donna Kay McNew, a member of the Kentucky Bar Association, No. 82102, temporarily suspended from the practice of law pursuant to SCR 3.165(l)(a). Her last known address was 624 Madison Avenue, Covington, Kentucky.

The Commission reports that there is probable cause to believe that McNew has been misappropriating funds held for others to her own use, or has been otherwise improperly dealing with such funds.

I.

On November 20, 2003, a check in the amount of $11,000.00 from the Cincinnati Equitable Insurance Company was rendered to a client and attorney McNew. The client’s signature appears on the back of the check as an endorser, but he alleges that he never signed the check. The evidence indicates that the client’s signature is a forgery and he never received any of the money. In addition, a release of all claims was signed on December 10, 2003, but the client never signed a release. The case in question in the Campbell Circuit Court was dismissed with prejudice because the matter had allegedly been settled. The client was unaware of such a dismissal and was under the impression that the case was still pending, awaiting depositions.

II.

In another case, attorney McNew settled a client’s personal injury claim without the knowledge, consent or authorization of that client. A general release was signed by the attorney and the client’s signature appears on the release. The client denies having signed the release. On November 18, 2001, a check was issued from Claims Management, Inc. in the amount of $10,000.00 to the client and attorney McNew. The client never received any of the money. On February 14, 2002, there was an agreed order of dismissal with prejudice indicating an agreement between the parties, but the client asserts that she was unaware of the settlement.

III.

In another unrelated matter, attorney McNew prepared a will in August 2001, in which she was named as executrix. She also had the client sign a retainer for her to be employed as attorney for the estate. The sole heir of the estate received two checks from the attorney, one in the amount of $40,963.48. This check was purchased by money drawn from the IOLTA account of the attorney. A second check was from the estate account at Fifth Third Bank in the amount of $159,136.40 on which it was noted that it was for the “final disbursement of funds.” This check was returned by the bank on May 17, 2004 for insufficient funds in the estate account.

In early May 2004, over a two or three day period, several envelopes addressed to the estate were delivered to the rented office space of the attorney. The landlord delivered the unopened envelope to the Campbell District Judge who opened the envelopes and made copies for the file and mailed the originals to the attorney. The envelopes had notices that four checks deposited to the estate checking account had been returned due to insufficient funds. Subsequently, the check mailed to the sole heir in the amount of $159,136.40 was also returned due to insufficient funds. The estate account was overdrawn in the amount of $23,863.73. All of these communications were turned over to the Campbell District Judge. Ultimately, a cashier’s check from the Fifth Third Bank in the amount of $135,250.05, payable to the estate, was sent to the office of the attorney and again transmitted to the district court. Along with the check was a notice that the estate account had been closed by the bank on the advice of its legal department.

On July 2, 2004, attorney McNew was removed as executrix of the estate by the district court and ordered to turn over all funds and estate records to the court appointed administrator, Richard Bonenfant. The administrator determined that there were numerous certificates of deposit owned by the decedent which attorney McNew had cashed and never deposited in the estate. The proceeds of the sale from the decedent’s home were never deposited in the estate account. The Inquiry Commission estimates that there was $120,000 which should have been part of the estate but which remains unaccounted for by the attorney.

Upon careful consideration of the record in this case, and the recommendation of the Inquiry Tribunal, Donna Kay McNew is temporarily suspended from the practice of law pursuant to SCR 3.165(l)(a).

It is therefore ORDERED that:

1) Donna Kay McNew is temporarily suspended from the practice of law in this Commonwealth effective this date and until superseded by subsequent order.
2) Disciplinary proceedings against McNew shall be initiated by the Inquiry Commission pursuant to SCR 3.160, unless already begun or unless McNew resigns under terms of disbarment.
3) Pursuant to SCR 3.165(5), McNew shall within twenty (20) days of the date of entry of this order notify all clients in writing of her inability to continue to represent them and shall furnish copies of such letters of notice to the Director of the Kentucky Bar Association.
4) Pursuant to SCR 3.165(6), McNew shall immediately, to the extent reasonably possible, cancel and cease any advertising activities in which she is engaged.

All concur.

Entered: December 16, 2004.

/s/ Joseph E. Lambert Chief Justice


author: /s/ Joseph E. Lambert CHIEF JUSTICE

text:
    Tod D. MEGIBOW, KBA Member No. 47055, Movant, v. KENTUCKY BAR ASSOCIATION, Appellee.
    No. 2004-SC-0852-KB.
    Supreme Court of Kentucky.
    Dec. 16, 2004.
   ORDER OF PUBLIC REPRIMAND

Tod D. Megibow, KBA No. 47055, appears pro se and moves this Court to publicly reprimand him for violations of SCR 3.130-1.4(a) and (b). Megibow was admitted to the practice of law in 1979. His bar roster address is Megibow & Edwards, PSC, P.O. Box 1676, Paducah, Kentucky, 42002-1676. The KBA does not object to his motion.

Megibow recites his own facts in this motion. On or about November 2, 2001, he accepted a client from Redman, Oregon who was in a divorce settlement in McCracken County. Beginning that same month, and throughout the representation, Megibow failed to respond to the client’s letters and telephone calls, and cancelled appointments without explanation or apology. The underlying work involved the filing of settlement agreements and property settlements in her divorce. His client filed a bar complaint on April 1, 2003. He eventually resolved all issues in her case in September 2003, even showing that his client’s ex-husband had already begun the payments to her from his pension in April 2002. The facts support a public reprimand.

Megibow has moved to pay all costs involved as well. The KBA purchased a non-refundable airline ticket for the client to appear for a hearing. This agreement was reached before the hearing, so the airline ticket was never used, costing $794.58. The total costs were $811.95.

Upon the facts and charges, it is ORDERED that the motion for public reprimand be granted:

1. Tod D. Megibow is publicly reprimanded for violating SCR 3.130-1.4(a) and (b).

2. Pursuant to SCR 3.450, Megibow is directed to pay all costs associated with these disciplinary proceedings in the amount of $811.95, for which execution may issue from this Court upon finality of this Order.

All concur.

ENTERED: December 16, 2004.

/s/ Joseph E. Lambert CHIEF JUSTICE