                          NOT FOR FULL-TEXT PUBLICATION
                                File Name: 09a0587n.06
                                                                                      FILED
                                           NO. 07-6302                            Aug 20, 2009
                                                                             LEONARD GREEN, Clerk
                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

ALEXIS MORELL,

               Plaintiff-Appellee,

v.                                                   ON APPEAL FROM THE
                                                     UNITED STATES DISTRICT
STAR TAXI,                                           COURT FOR THE EASTERN
                                                     DISTRICT OF KENTUCKY
               Defendant,

and

AMERICAN SERVICE INSURANCE
COMPANY,

            Defendant-Appellant.
______________________________________/

BEFORE:        MARTIN, SUHRHEINRICH, and WHITE, Circuit Judges.

       SUHRHEINRICH, Circuit Judge. Defendant-Appellant American Service Insurance

Company (“American”) appeals the judgment of the district court granting summary judgment to

Plaintiff-Appellee Alexis Morell on her claim against American for a declaration that Defendant Star

Taxi’s insurance policy with American provided coverage for Morell’s damages. We reverse.

                                         I. Background

                                             A. Facts

       Morell claims that on May 21, 2006, she took a Star Taxi cab home to Campbell County

Kentucky from Mount Adams in Cincinnati, Ohio. Star Taxi is insured by American. Morell alleges
that the taxi driver dropped her off in front of her home, but then followed her into her apartment and

raped her. She alleges both physical and emotional injuries as a result.

       Star Taxi has an “American Auto Policy” from American. It provides in relevant part:

       COVERAGE A–BODILY INJURY LIABILITY
       COVERAGE B–PROPERTY DAMAGE LIABILITY

       The company will pay on behalf of the insured all sums, except for punitive and
       exemplary damages, which the insured will become legally obligated to pay as
       damages because of
              A. bodily injury or
              B. property damage
       to which this insurance applies, caused by an accident and arising out of the
       ownership, maintenance or use of an owned vehicle.

       Morell brought suit in state court against both Star Taxi and American. She sued Star Taxi

for claims of negligent hiring and supervision and vicarious liability. In her claim against American,

Morell sought a declaratory judgment that the American Auto Policy purchased by Star Taxi from

American provided coverage for any damages she might recover in her tort action against Star Taxi.

American removed this case to the federal district court in the Eastern District of Kentucky on the

basis of diversity jurisdiction.1 American filed a counterclaim against Morell and a crossclaim

against Star Taxi “for declaratory judgment pursuant to 28 U.S.C. § 2201, and Federal Rule of Civil

Procedure 57, to determine an actual controversy between [American] and Star Taxi.” American

also raised standing as an affirmative defense.

       American later filed a motion to bifurcate discovery and trial of Morell’s claims against

American and the insured, Star Taxi. Morell did not object. Morell in turn filed a motion to hold




       1
       Morell is a Kentucky citizen, Defendant Star Taxi is an Ohio corporation, and Defendant
American is an Illinois corporation.

                                                  -2-
the personal injury portion of the claim in abeyance. American did not object. The district court

granted both motions.

       Thereafter, Morell filed a motion for summary judgment against American arguing in

relevant part that the American insurance policy issued to Star Taxi provided coverage because

Morell’s injury arose from the ownership, maintenance or use of a motor vehicle. American filed

a response and cross-motion for summary judgment against Morell. American asked “that an order

be issued declaring that it has neither a duty to defend nor indemnify Star Taxi in the remainder of

the claims in this case.” American asserted that Morell lacked standing, and argued in the alternative

that Morell’s claim was not covered under its policy.

       The district court granted summary judgment to Morell and denied American’s cross-motion

for summary judgment. It held in pertinent part that

       the definition of “accident” provided by the policy is unambiguous. The policy
       specifically defines “accident” to “mean[] a sudden event neither expected nor
       intended from the standpoint of the insured which results in bodily injury or
       property damage.” Thus, the court must look to whether the insured, Star Taxi,
       expected or intended the event to occur that resulted in the plaintiff’s injury. Clearly,
       Star Taxi did not expect or intend for its driver to sexually assault a passenger.

The district court further held that

       the injury alleged arose out of the “ownership, maintenance, or use of an owned
       vehicle” as required by the policy. Here, the events alleged are causally connected
       to the use of the car. Specifically, it was plaintiff’s use of the taxi that caused her to
       come into contact with its driver: she was in the taxi because it was being used as
       a common carrier, the driver used the taxi as his means of selecting his victim, and
       he only knew the location of plaintiff’s apartment because of her use of the taxi. In
       addition, the driver was on the premises as a result of his duties as a common carrier
       to safely deliver the plaintiff to her home and he had not yet driven away. Thus, the
       attack was still part of the series of events surrounding the use of the taxi. . . . As
       discussed above, the court finds the injuries sustained by the plaintiff at the hands of
       the taxi driver are sufficiently connected to her use of the taxi and, therefore,
       American owes Star Taxi coverage under the policy.


                                                  -3-
The district court did not address Morell’s standing. The district court entered a conforming

judgment the same day, which included the required findings for finality under Fed. R. Civ. P. 54(b).

         Meanwhile, American moved for, and was granted, a default judgment against Star Taxi.

The order of default judgment also “ORDERED AND ADJUDGED that this Order shall neither

affect nor prejudice the Plaintiff’s claims against American for coverage under the policy of

insurance at issue.”

         American filed a timely notice of appeal from the judgment granting Morell’s motion for

summary judgment and denying American’s cross-motion for summary judgment.

                                             II. Analysis

         This Court reviews a district court’s grant of summary judgment de novo. Gribcheck v.

Runyon, 245 F.3d 547, 550 (6th Cir. 2001). Summary judgment is proper if “the pleadings, the

discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as

to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(c).

                                            A. Standing

         American claims that Morell lacked standing to bring a direct action against American that

seeks a declaration of coverage under an automobile liability policy issued by American to Star Taxi.

American raised the issue in its summary judgment motion, but the district court did not address it.

         This Court reviews the question of standing de novo. See Schultz v. United States, 529 F.3d

343, 349 (6th Cir.), cert. denied, 129 S. Ct. 742 (2008). When jurisdiction is premised on diversity

of citizenship, a plaintiff must have standing under both Article III and state law in order to maintain



                                                  -4-
a cause of action. Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d

168, 173 (2d Cir. 2005) (and cases cited therein); Metro. Exp. Servs. Inc. v. City of Kansas City, Mo.,

23 F.3d 1367, 1369-70 (8th Cir. 1994) (and cases cited therein); see also Myers v. Richland County,

429 F.3d 740, 749 (8th Cir. 2005) (stating that a federal court cannot hear the plaintiff’s state breach

of contract claim unless he has standing to sue under state law); Owens of Ga., Inc. v. Shelby County,

648 F.2d 1084, 1088-90 (6th Cir. 1981) (applying state law to determine whether unsuccessful

bidder had standing to challenge a contract award to another bidder). A federal court sitting in

diversity applies the substantive law of the forum state, which includes its choice of law rules.

Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003). Here, the parties agree that

Kentucky law applies to the interpretation of Star Taxi’s automobile insurance with American.

       “Kentucky is not a ‘direct action’ jurisdiction.” State Auto. Mut. Ins. Co. v. Empire Fire &

Marine Ins. Co., 808 S.W.2d 805, 807-08 (Ky. 1991); Cuppy v. Gen. Accident Fire & Life Ins.

Corp., 378 S.W.2d 629, 632 (Ky. 1964). This means that except in cases of insolvency or

bankruptcy, an injured person has no direct right of action against an insurance company until after

a judgment has first been obtained against the insured. Cuppy, 378 S.W.2d at 632; Ford v. Ratliff,

183 S.W.3d 199, 203 & n.10 (Ky. Ct. App. 2006). See also Chambers v. Ideal Pure Milk Co., 245

S.W.2d 589, 591 (Ky. 1952); Kentucky Hosp. Ass’n Trust. v. Chi. Ins. Co., 978 S.W.2d 754, 755-56

(Ky. Ct. App. 1998) (stating that “[a]n insured must become legally obligated to pay pursuant to

terms of the insurance contract”). Morell acknowledges that Kentucky is not a direct action state,

but nonetheless claims that because she has a right of action once a judgment against Star Taxi is

obtained and remains unpaid, she has standing to sue American directly.




                                                  -5-
       Whether or not it may have initially been proper to decline jurisdiction on prudential grounds,

because American filed a counterclaim against Morell upon removal, we agree that she has standing

in this case. See Md. Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941) (holding that an

actual case or controversy existed between insurer who brought declaratory judgment action against

insured and injured third party where injured party was entitled under state law to bring action

against the insurer if he obtained a judgment against the insured party); Fed. Kemper Ins. Co. v.

Rauscher, 807 F.2d 345, 354 & n.6 (3d Cir. 1986) (holding that when an insured party is dismissed

from a declaratory judgment action brought by the insurer against the insured and the injured third

party to determine coverage, the injured third party has standing to remain in the suit and defend the

action; applying Md. Cas. Co.); Hawkeye-Security Ins. Co. v. Schulte, 302 F.2d 174, 177 (7th Cir.

1962) (same; reasoning that when an insured party is dismissed from a declaratory judgment action

to determine coverage, an injured third party has standing to remain in the suit and defend the action

because “[i]t would be anomalous to hold . . . that an actual controversy exists between [the injured

third party and] the [insurer,] and yet deny [the injured third party] the right to participate in the

controversy”); Vt. Mut. Ins. Co. v. Everette, 875 F. Supp. 1181, 1185 (E.D. Va. 1995) (same;

applying Md. Cas. Co., Schulte, and Rauscher to hold that case or controversy existed in declaratory

judgment action brought by insurer between liability insurer and the injured third party after default

judgment had been entered against insureds). In other words, there is a live controversy between

American and Morell because American sought declaratory relief against Morell and Star Taxi.

                                           B. Coverage

       American argues that Morell’s injuries did not arise out of the “use” of a motor vehicle as

defined under the terms of the policy and Kentucky law. The district court found that Morell’s and


                                                 -6-
the driver’s use of the taxi caused Morell to come into contact with the driver such that her injuries

were sufficiently connected to the use of the taxi.

        As noted above, Kentucky law applies. Westfield, 336 F.3d at 506. The interpretation of an

insurance contract is a matter of law to be decided by the court. Id. at 507 (citing Stone v. Ky. Farm

Bureau Mut. Ins. Co., 34 S.W.3d 809, 810 (Ky. Ct. App. 2000)). Because the Kentucky Supreme

Court has not decided whether an assault and rape in a private residence by a taxi driver implicates

coverage under the taxi company’s automobile insurance policy, we must predict how it would rule

if presented with the issue. See id. Several decisions from that court are instructive on the question

of causation.

        Foremost are the consolidated cases of State Farm Mut. Auto. Ins. Co. v. Rains, 715 S.W.2d

232 (Ky. 1986), and Smith v. State Farm Mut. Auto. Ins. Co., 715 S.W.2d 232 (Ky. 1986), where the

Kentucky Supreme Court analyzed the phrase “arising out of the use of a motor vehicle” in the

Kentucky Motor Vehicle Reparations Act, Ky. Rev. St. Ann. §§ 304.39-101-140, which provides

for basic reparation benefits. In Rains, the insured sued the automobile insurer for basic reparation

benefits for injuries he sustained after being hit on the head with a baseball bat while attempting to

enter his automobile. In Smith, the insureds sought basic reparation benefits after being shot by the

deranged brother of the insured through the rear window of a motor vehicle on a public highway.

Id. at 233.

        The Kentucky Supreme Court summarized that “[t]he plain language of the statutes provides

for the payment of basic reparation benefits to the victims of motor vehicle accidents for injuries

arising out of the use of a motor vehicle.” Id. The Court framed the issues as “(1) whether the




                                                 -7-
injured persons were motor vehicle accident victims, and (2) whether their injuries arose out of the

use of a motor vehicle.” Id.

       The Court concluded in both cases that the injured persons were not motor vehicle accident

victims and that their injuries did not arise out of the use of a motor vehicle. It reasoned that

               [a]lthough the injuries to each of the persons involved were caused by
       intentional acts, they contend that, as to them, the injuries were accidents because
       they were wholly unexpected and unforeseeable. Conceding for the purposes of
       argument, but not deciding, that the injured persons were the victims of an accident,
       they fail to establish that they were victims of a motor vehicle accident. The accident
       claimed by Rains was the deliberate, but unexpected, blow from a baseball bat. The
       accident claimed by Smith and Marshall was the intentional shooting by a third party,
       albeit unexpected and unforeseen by them. In both cases the only connection between
       the victims and a motor vehicle was incidental. No motor vehicle accident
       contributed to their injuries. It follows that they were not victims of a motor vehicle
       accident.

                It seems equally clear that the injuries did not arise out of the use of a motor
       vehicle. The contention is made that each of the injured persons was using a motor
       vehicle because the term “use” is defined in K.R.S. 304.39-020(6) as “any utilization
       of the motor vehicle as a vehicle, including occupying, entering into, and alighting
       from it.” Even if it be conceded, however, that the injured were using a motor vehicle
       at the time they were injured, it remains their burden to demonstrate that the injuries
       arose out of the use of the vehicle.

               They interpret the statutes involved to mean that reparation benefits are
       payable to one who is injured while using a motor vehicle without regard to whether
       the use of the motor vehicle had any causal connection with the injury.

               K.R.S. 304.39-030(1) and 040(2) do not provide for the payment of benefits
       to persons injured while using a motor vehicle. They provide for payment of benefits,
       not to all persons who are injured while making use of a motor vehicle, but only to
       those persons injured while making use of a motor vehicle whose injuries arose out
       of the use of the motor vehicle.

Id. at 233-34 (some emphases added).

       The Rains court relied on the Kentucky Supreme Court’s earlier decision in United States

Fidelity & Guaranty Co. v. Western Fire Insurance Co., where the Court interpreted an insurance


                                                 -8-
policy providing coverage for “bodily injury arising out of the use of the automobile.” Rains, 715

S.W.2d at 234 (citing U.S. Fid. & Guar.v. W. Fire Ins. Co., 450 S.W.2d 491, 493 (Ky. 1970)).2 In

United States Fidelity, a passenger in a motor vehicle was injured when a pistol was accidentally

discharged in the car, and it was undisputed that the accidental discharge of the pistol was not caused

by the movement or operation of the car. The United States Fidelity court held that “the injury in

the instant case was not sufficiently use-connected to be considered reasonably to have been within

the contemplation of the parties to the automobile insurance contracts here involved.” U.S. Fid. &

Guar., 450 S.W.2d at 493. See also Ins. Co. of N. Am. v. Royal Indem. Co., 429 F.2d 1014, 1018

& n.8 (6th Cir. 1970) (applying Kentucky law; noting that “[t]he term ‘use’ is the general catch-all

of the insuring clause, designed and constructed to include all proper uses of the vehicle not falling

within [operation or maintenance]. It is limited to the purpose for which the coverage is designed”).

Id. at 234.3

       Like the injured parties in Smith and Rains, Morell is not a victim of a motor vehicle accident

because the taxi did not contribute to her injuries. Further, although her injuries occurred just after

making use of the taxi, those injuries did not “arise out of” her “use” of the taxi. Rains, 715 S.W.2d

at 234. Thus, based on the foregoing guidance from Smith, Rains, and United States Fidelity &


       2
        The Rains Court “[saw] no reason why a different interpretation should apply [to the Motor
Reparations Act].” Rains, 715 S.W.2d at 234.
       3
         The Kentucky Court of Appeals applied the rule of Rains and United States Fid. & Guar.
to an insured who was driving her automobile when she was struck in the eye by an object propelled
by a lawnmower near the street. See Ky. Farm Bureau Mut. Ins. Co. v. Hall, 807 S.W.2d 954, 955-
56 (Ky. Ct. App. 1991). The appeals court held that the insured was entitled to benefits because she
was using a motor vehicle at the time of the injury, and unlike the insureds in Rain and Smith, “(who
were injured by intentional acts), her injury resulted from a pure unintentional accident.” Id. at 956.
In other words, she was covered “from accidental injury which [was] causally related to her
operation of the motor vehicle.” Id.

                                                 -9-
Guaranty, we conclude that if presented with the issue presented in this case, the Kentucky Supreme

Court would find that Morell’s injuries are not covered under the terms of the auto policy at issue.

See also Farrer v. U.S. Fid. & Guar. Co., 809 So.2d 85, 95 (Fla. Ct. App. 2002) (holding that sexual

assault did not “arise out of” the use of a motor vehicle although it occurred there, because it did not

arise out of the inherent nature of the vehicle and the automobile did not itself produce the injury).

        The district court distinguished the foregoing cases on the grounds that “it was not the driver

of the motor vehicle who inflicted the injuries complained of although the motor vehicle was

physically associated with the assault.” This analysis is not consistent with the Kentucky precedent.

First and foremost, “physical association with the vehicle” is not the appropriate test. Rather, the

focus is the causal connection between use of the vehicle and the injury. Neither is the driver’s role

a key factor. Thus, we think it clear that under Rains, Smith, and United States Fid. & Guar.,

Morell’s alleged injuries are not covered under the American auto liability policy.

        American also argues that there is no coverage because Morell’s injuries fall outside the

“time-and-place limitation” on her “use” of the taxi cab. This argument finds support in the

Kentucky Supreme Court’s decision in West American Insurance Co. v. Dickerson, 865 S.W.2d 320,

321 (Ky. 1993). In Dickerson, the injured party slipped and fell on an icy parking lot when she

exited an automobile. The insurer argued that the injuries were not caused by her use of the car

because she had completed exiting the vehicle, did not strike the vehicle as she fell, and her fall was

caused by the ice in the parking lot. Id. at 321. The Kentucky Supreme Court disagreed with the

insurer’s argument that the injured party had relinquished all ties to the motor vehicle as a passenger,




                                                 -10-
“determin[ing] that use of the vehicle has an extended meaning to be determined by the statutory

phrase ‘alighting from it.’” Id. at 322.4 The Dickerson court held that

       [i]t is sufficient if the injury is a natural and reasonable incident or consequence of
       the use of the vehicle which, by this approach, determines that “alighting from” is a
       question of degree. As a general rule, there is a rational limit to the activity that may
       be said to be encompassed within the term “alighting from” which is the time and
       place at which the individual, after alighting, shows an intention, evidenced by an
       overt act based upon that intention, to undertake a new direction of activity.

               We determine, therefore, that an individual has not finished “alighting” from
       a vehicle at least until both feet are planted firmly on the ground.

Id.

       Similarly, even under an expanded definition of “use,” Morell had completed her use of the

taxi “and gone on to become a mere pedestrian” by the time she was raped. See id. at 322. She had

exited the taxi and walked into her home before the alleged rape took place. Under the Dickerson

framework, she had relinquished any connection she had to the taxi and “undertaken a new direction

of activity.” Id. In other words, as in Rains, Morell’s only causal connection to the vehicle is that

she would not have been injured except for the fact that she rode in it. Cf. Rains 715 S.W.2d at 234

(stating that “[t]he only causal connection suggested by Rains’ brief is that he would not have been

injured except for the fact that his vehicle was parked at the place it was and that he returned to that

place to make use of his vehicle,” which failed to suffice as a showing that his use of the vehicle

caused the injury). See also R.A. Stuchbery & Others Syndicate 1906 v. Redland Ins. Co., 66 Cal.

Rptr. 3d 80 (Cal. Ct. App. 2007) (holding that sexual assault of a passenger by a shuttle driver in the

driver’s apartment did not result from use of a motor vehicle because use of vehicle was not the



       4
        The Motor Vehicle Reparations Act defines “use” as including “occupying, entering into and
alighting from” the vehicle. Ky. Rev. St. Ann. § 304-39.020(6) (emphasis added).

                                                 -11-
predominating cause or substantial factor in the passenger’s injuries but merely used to drive the

passenger to the driver’s apartment).

       Westfield, upon which Morell relies, is distinguishable.5 There, a panel of this Court

predicted that the Kentucky Supreme Court would hold that an insured carpet cleaning business’s

alleged negligent hiring of a former employee who murdered the insured’s customer was a qualifying

“occurrence” under a general liability insurance policy, which defined “occurrence” as an “accident.”

See Westfield, 336 F.3d at 503. The Court reasoned that although the insured’s act of negligently

hiring and retaining the employee was intentional, it was “not substantially certain to result in some

injury,” so it was accidental, rather than intentional conduct. Id. at 510. However, Westfield

involved a general commercial liability policy. Here, the policy provides coverage only for bodily

injury or property damage caused by the use of a vehicle owned by Star Taxi.




       5
         Morell cites Maryland Casualty. Co. v. Baker, 200 S.W.2d 757, 761 (Ky. 1947). There the
Kentucky Supreme Court held that one of two insurance policies at issue afforded coverage for
injuries sustained in an intentional assault by a taxi driver. Baker, 200 S.W.2d at 762. However, the
basis for the Court’s decision rested upon its construction of Ky. Rev. St. Ann. § 281.460, which
required a taxi company to procure insurance “binding the obligor to pay any final judgment
rendered against” a taxi company for “any act or omission connected with the operation of motor
vehicles.” Id. at 760. The Court held that the statute required the insurer to pay the judgment in
favor of the plaintiff against the taxicab operator. Id. at 762. However, the statute in that case, Ky.
Rev. Stat. Ann. § 281.460, has been repealed. The current statute, Ky. Rev. St. Ann. § 281.655, does
not require a tax company’s insurer to “pay any final judgment.” Instead, the current law merely
requires the taxi company to maintain insurance with the same minimum liability limits as is
required of all owners and operators of motor vehicles under the Motor Vehicle Reparations Act.
See Ky. Rev. St. Ann. § 281.655(12); Ky. Rev. St. Ann. § 304.39-010(1). Further, the statutory
language has been changed from “any act or omission connected with the operation of motor
vehicles” to “damages . . . arising out of ownership, maintenance, use, loading or unloading of the
insured vehicle.”



                                                 -12-
       Because we are confident that the Kentucky Supreme Court would conclude, based on its

precedent in Rains, Smith, United States Fidelity & Guaranty, and Dickerson, that Morell’s alleged

injuries were not caused by the “use” of the taxi as defined in American’s policy, we will not address

its public policy arguments.

                                          III. Conclusion

       The judgment of the district court is REVERSED, and the matter is REMANDED with

instructions to enter judgment in favor of American.




                                                -13-
