                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 06a0575n.06
                            Filed: August 10, 2006

                                             No. 05-6160

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT


THE ESTATE OF LESLIE HARRISON CLEM, JR., )
DECEASED, et al.                         )
                                         )
     Plaintiffs-Appellants,              )
                                         )
v.                                       )                     On Appeal from the United States
                                         )                     District Court for the Eastern
WESTERN HERITAGE INSURANCE COMPANY, )                          District of Kentucky
                                         )
     Defendant-Appellee.                 )




Before:        BOGGS, Chief Judge; and GIBBONS and GRIFFIN, Circuit Judges.

               PER CURIAM. This is a diversity insurance coverage lawsuit under Kentucky law

arising from the October 2001 death of a teenage boy from injuries that he suffered while riding on

a float that had just completed a town parade route in Nicholasville, Kentucky. The decedent’s

family (“Estate”) filed suit in state court against a variety of defendants, including the local Chamber

of Commerce (“Chamber”) that had organized the parade. The Chamber’s insurance company,

Defendant-Appellee Western Heritage Insurance Co. (“Western”), refused to cover the loss because,

it claimed, the loss fell within one of the policy’s exclusion clauses. The Chamber thereafter

reached a settlement with the Estate in which it (theoretically) agreed to pay the Estate $6 million

and assigned to them its rights against Western, although in exchange the Estate agreed not to collect


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the $6 million from the Chamber itself; in consequence, the state court dismissed the suit against the

Chamber with prejudice. Thereafter, the Estate filed suit against Western, and that case was

removed to the United States District Court for the Eastern District of Kentucky. Both parties filed

for summary judgment, which the district court granted to Western. For the reasons stated below,

we affirm.



                                                  I

       The Jessamine County, Kentucky, Chamber of Commerce sponsored a series of local events

called the “Jessamine Jamboree” during the week of October 1-7, 2001. Among the week’s events

was the “Parade on Main,” a procession of floats that assembled in the Winn-Dixie parking lot and

then marched about 2.5 miles south along Main Street in Nicholasville, Kentucky on October 6. The

local high school football team and cheerleading squad participated in the parade and arranged a

“float,” as they had apparently done in the past. The “float” consisted of a commercial tractor

(owned and operated by Glenn Hensley) and a “lowboy” trailer (owned by CMC, Inc.). Hay bales

were placed on the trailer, but a portion of the trailer’s wheels remained open from above.

       Several adults, including the decedent’s mother Janet Clem, rode on the float as chaperones.

The students were required to sign an entry form that included a “release of responsibility” clause.

Leslie “Bubba” Clem, a 15-year old freshman quarterback, rode near the trailer’s edge, and

apparently he sat near the exposed tires. The float entered the parade staging area in the Winn-Dixie

parking lot and pulled onto Main Street after the students and adult chaperones had boarded the



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Estate of Clem v. Western Ins. Co.

trailer. According to one of the adult participants, Sherry Utley, the ride was very “jerky” along the

whole route, and the float periodically stopped; it jerked when it started again, causing some

children to fall. The float made no turns until it reached Kimberley Drive, at the southern terminus

of the designated parade route, where it turned right. It traveled about 150 feet along Kimberley

Drive before the truck stopped again, causing another jerk, whereupon some of the children fell

again.

         At that time, young Clem’s foot became entangled between the rear wheel and the wheel

well, and he was pulled under the trailer as the truck lurched a few feet forward. Clem was pinned

beneath the wheels when the truck finally stopped. As the police statement recounted,

         the victim had his foot on the trailer tire and as the vehicle moved the trailer gave a
         sudden jerk causing the victims [sic] foot to fall between the trailer wheel well and
         the tire pulling the victim thru [sic] the tire and trailer wheel well. Witnesses stated
         [he] tried to pull his foot and leg free but could not.

Clem died about six hours later.

         The decedent’s estate filed a wrongful death suit in state court against the truck driver, the

trailer’s owner, the football coach, and the Chamber of Commerce. Inter alia, the complaint alleged

that the Chamber had duties to promulgate safety standards, to reject noncompliant floats, to monitor

floats during the parade for safety, and to expel from the parade those that were operated otherwise.

The Chamber of Commerce was insured under a $1 million per-occurrence General Commercial

Liability policy by defendant-appellant Western Heritage Insurance Company, with an aggregate

limit of $2 million. After reviewing the claim, Western notified the Chamber that Clem’s injuries

were excluded from the policy by the “participants’ exclusion” clause, discussed in greater detail

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below. The Chamber later reached a settlement with the Estate on August 25, 2003, wherein it

agreed to settle for $6 million for loss of parental consortium, wrongful death, and a survivor claim

for damages incurred prior to Clem’s death. However, the monetary settlement was entirely illusory,

for the decedent’s estate also agreed not to make any attempt “toward collection of the settlement

amount above-mentioned from the” Chamber, and, any “failure of the [Chamber] to personally pay

such amounts voluntarily shall not constitute a material breach of this agreement nor operate to

invalidate its other terms.” Most pertinently,

        The [Chamber] does hereby fully and completely assign, transfer and convey to
        [decedent’s estate], any and all claims and rights of recourse which it may have
        against any liability carrier by which it was insured on the date of the occurrence
        aforementioned . . . [including] the [Chamber’s] rights to indemnification for liability
        respecting the occurrence in question; its obligations under this instrument; and to
        reimburse for amounts incurred by the [Chamber] in defense of the pending action,
        and extra-contractual claims for bad faith, and for extracontractual damages.
        Provided, however, that [decedent’s estate] agree to reimburse [Chamber] the actual
        amount of its reasonable attorney fees incurred to date, not to exceed [$12,500], from
        any recovery actually recovered . . . .

In other words, the “settlement” not only relieved the Chamber of all liability, it offered the prospect

of recouping all the attorneys’ fees that the Chamber had incurred, up to $12,500. The settlement

was also not to be construed as an admission of liability by the Chamber, and it required the Estate

to execute an order dismissing its action against the Chamber with prejudice, which was effected

in state court on September 8, 2003.

        In consequence, the Estate notified Western of Western’s purported obligation in April 2004,

claiming that Western was liable for the entire amount of the settlement between the Chamber and

decedent’s estate. Subsequently, the Estate filed suit in state court against Western, and this action

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Estate of Clem v. Western Ins. Co.

was removed to the United States District Court for the Eastern District of Kentucky on June 18,

2004. On July 7, 2004, the decedent’s estate filed a motion for partial summary judgment or

judgment on the pleadings, and Western responded by filing its own motion for summary judgment

on July 21.

       On January 6, 2005, the district court granted Western’s motion for summary judgment,

holding that the liability for Clem’s death was excluded from the Chamber’s insurance policy with

Western because (a) the policy exclusion language was not ambiguous, and (b) the float was still

participating in the parade by heading toward the disembarkation zone even though it had just left

the official parade route. The district court therefore did not reach the questions of an insurance

company’s liability under a covenant not to execute when it wrongly refused coverage and defense

or of the settlement’s reasonableness. The decedent’s estate thereafter filed a motion to alter,

amend, or vacate judgment, and the district court denied that motion on June 7, 2005. The Estate

filed a timely notice of appeal.



                                                II

       Because the district court granted summary judgment in favor of appellee, we apply a de

novo standard of review, “drawing all reasonable inferences in favor of the non-moving party.”

Johnson v. Karnes, 398 F.3d 868, 873 (6th Cir. 2005). Summary judgment is proper “if the

pleadings, depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that the moving



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Estate of Clem v. Western Ins. Co.

party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). The nonmoving party

“must do more than simply show that there is some metaphysical doubt as to the material facts,”

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), it must present

significant probative evidence in support of its complaint to defeat the motion for summary

judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). “The mere existence of

a scintilla of evidence in support of the plaintiff’s position will be insufficient; there must be

evidence on which the jury could reasonably find for the plaintiff.” Id. at 252.

       The principal issue here is whether the Chamber’s insurance policy obligates Western to

indemnify the Chamber in this particular instance; that is to say, we must ascertain whether the

participants’ exclusion clause operates to exclude the decedent’s injury from the Chamber’s policy

with Western. Kentucky’s substantive law controls this diversity case.



                                                A

       In Kentucky, insurance contract interpretation is generally a matter of law. Westfield Ins.

Co. v. Tech Dry, Inc., 336 F.3d 503, 507 (6th Cir. 2003) (citing Stone v. Ky. Farm Bur. Mut. Ins.

Co., 34 S.W.2d 809, 810 (Ky. Ct. App. 2000)). The “plaintiff must show the existence and the

breach of a contractually imposed duty.” Lenning v. Commerc. Union Ins. Co., 260 F.3d 574, 581

(6th Cir. 2001). As we have previously noted

       Under Kentucky law, a court should determine at the outset of litigation whether an
       insurance company has a duty to defend its insured by comparing the allegations in
       the underlying complaint with the terms of the insurance policy. An insurance



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        company has a duty to defend its insured if the language of an underlying complaint
        against the insured brings the action within the scope of the insurance contract.

Westfield, 336 F.3d at 507 (citing DiBeneditto v. Med. Protective Co., 3 F. App’x 483, 485 (6th Cir.

2001)). However, the duty to defend in Kentucky is broader than the duty to indemnify, for

“insurers have an obligation to defend if there is an allegation which potentially, possibly or might

come within the coverage of the policy.” Lenning, 260 F.3d at 581 (citations and internal quotation

marks omitted). As such, “even if an insurance company denies coverage based on the mistaken

belief that it is justified in doing so, the company may still breach its contact with the insured.” Ibid.



        To determine whether an insurance company has violated its duty to defend under Kentucky

law, courts must first determine whether the relevant policy terms are ambiguous. The Kentucky

Supreme Court has held, in the context of uninsured motorist coverage,

        When faced with the necessity of construing such statutory and contractual language,
        we must look to prior pronouncements of any policy by which such insurance
        contracts will be interpreted by the courts of Kentucky. In so doing, we find that two
        cardinal principles apply: (1) the contract should be liberally construed and all
        doubts resolved in favor of the insureds; and (2) exceptions and exclusions should
        be strictly construed to make insurance effective.

Ky. Farm Bur. Mut. Ins. Co. v. McKinney, 831 S.W.3d 164, 166 (Ky. 1992). As such, “Kentucky

should adhere to its stated policy of liberally construing insurance contracts in favor of the asserted

‘insured’ to provide insurance coverage and thereby make insurance effective.” Id. at 167.

Kentucky’s Supreme Court has not limited its policy disfavoring exclusion clauses to situations

where statutes regulate particular types of insurance: “Kentucky law is crystal clear that exclusions



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Estate of Clem v. Western Ins. Co.

are to be narrowly interpreted and all questions resolved in favor of the insured.” Eyler v.

Nationwide Mut. Fire Ins. Co., 824 S.W.2d 855, 859 (Ky. 1992). However, this is not to suggest

that Kentucky has pronounced exclusion clauses entirely inoperative. Ky. Farm Bur. Mut. Ins. Co.

v. Thompson, 1 S.W.3d 475, 476-77 (Ky. 1999) (recognizing that only the legislature can establish

public policy, and that prior holdings abrogating certain exclusion clauses were based on legislative

acts). Thus, the interpretative canon disfavoring exclusion clauses operates only where the policy

language is found to be ambiguous.

       “An essential tool in deciding whether an insurance policy is ambiguous, and consequently

should be interpreted in favor of the insured, is the so-called ‘doctrine of reasonable expectations.’”

Simon v. Cont. Ins. Co., 724 S.W.2d 210, 212 (Ky. 1986). That is to say, “[a]n insurance contract

must be construed according to its true character and purpose, and in accordance with the intentions

and expectation interests of the parties.” Nat. Ins. v. Lexington Flying Club, 603 S.W.2d 490, 493

(Ky. Ct. App. 1980). Therefore, the language of an insurance policy “must be interpreted according

to the usage of the average man and as they would be read and understood by him in the light of the

prevailing rule that uncertainties and ambiguities must be resolved in favor of the insured.” Fryman

v. Pilot Life Ins. Co., 704 S.W.2d 205, 206 (Ky. 1986).

       Finally, an insurance company that mistakenly fails to defend an insured is liable for

reasonable settlements under Kentucky law. Interstate Cas. Co. v. Wallins Creek Coal Co., 176

S.W. 217, 219 (Ky. 1915). When the insured reaches such a settlement without the insurance

company’s defense, the insured “is entitled to recover all damages naturally flowing from the



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Estate of Clem v. Western Ins. Co.

breach.” Grimes v. Nationwide Mut. Ins. Co., 705 S.W.2d 926, 932 (Ky. Ct. App. 1985). Such

settlements by the insured “will not be rescinded for fraud unless the evidence showing fraud is

clear, unequivocal and convincing.” Gumm v. Combs, 302 S.W.2d 616, 617 (Ky. 1957).



                                                B

       As an initial matter, we must determine whether Western violated the terms of its insurance

contract with the Chamber by refusing to defend. Pertinent to that inquiry, we must ascertain

whether the contract’s relevant policy terms are ambiguous. Kentucky’s courts have taken broad

views of ‘ambiguity’ in the past. For instance, the Kentucky Supreme Court has recently found

policy exclusions relating to losses suffered “while committing or attempting to commit a crime”

and “treatment for injuries sustained as a result of being under the influence of alcohol” to be

ambiguous. Healthwise of Ky., Ltd. v. Anglin, 956 S.W.2d 213, 216 (Ky. 1997). In that case

involving injuries sustained while drag-racing under the influence of alcohol, the court held that,

although “[w]e believe that the average person would view Anglin’s behavior in this case as

criminal,” nevertheless, “we do not believe that the word ‘crime’ . . . should be defined as the

ordinary person would use the word” because “[p]eople often use the words ‘crime’ and ‘criminal’

to describe actions which, though perhaps reprehensible, are neither illegal nor unlawful.” Ibid.

Following the state’s policy of adopting the interpretation most favorable to the insured when an

exclusion is ambiguous, the court found that the policy only excluded misdemeanors and felonies,




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Estate of Clem v. Western Ins. Co.

whereas drag racing “is a traffic infraction . . . and is not a ‘crime’ as defined in [the state’s] Code.”

Ibid.

        Similarly, Kentucky’s courts have found that an injured motorist was covered by her motor

vehicle insurance despite the fact that she was injured while driving her car by a rock that was flung

from a nearby lawnmower. Ky. Farm Bur. Mut. Ins. Co. v. Hall, 807 S.W.2d 954, 955 (Ky. App.

1991). This would seem to follow the decisions of sister states upholding insurance coverage

despite the presence of athletic exclusion clauses for a golfer who was injured by lightning while

hiding from the thunderstorm (and therefore not playing golf any longer) under a tree on the golf

course, The Glens Falls Group Ins. Co. v. Simpson, 439 S.W.2d 292, 294 (Ark. 1969), and for a

softball player who was injured while retrieving a ball that had been hit out of the park after the

softball game had apparently ended. Town of Surfside, Fla. v. Morrison Assurance Co., Inc., 394

So.2d 530, 530-31 (Fla. Dist. Ct. App. 1981). But it is worth noting that Kentucky’s courts have

also required employees to allege some causal nexus between their duties as employees and their

driving of a company-provided automobile closer than mere commuting in order to state a valid

workers compensation claim. Davis v. Southeastern Stone Quarries, Inc., 464 S.W.2d 258, 259 (Ky.

1971) (injured party was “coming or going” to or from work when injured, and therefore not covered

by workers compensation). See Harlan Collieries Co. v. Shell, 239 S.W.2d 923, 925 (Ky. 1951).



        Kentucky’s courts have required that the nexus connecting the injury to the insurance

coverage be more than merely incidental to afford coverage. For instance, the Kentucky Supreme



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Court has required a nexus between the operation of a vehicle and indemnity stronger than mere

proximity to the covered vehicle. State Farm Mut. Auto. Ins. Co. v. Rains, 715 S.W.2d 232, 234

(Ky. 1986) (motorist denied recovery under statutory motorist reparations benefit plan when struck

by a baseball bat while trying to enter his car during a fight with people who were already fighting

on and around his vehicle; this case was consolidated with another involving the intentional shooting

by a third party of the insured while he was in his car, for which the court also affirmed summary

judgment). Very recently, the Kentucky Supreme Court has held that an insurance company was

not required to indemnify local elected officials who were found to have violated provisions of the

Kentucky constitution prohibiting elected officials from increasing their salaries during their current

terms of office. But the insurance policy in that case covered only breaches of fiduciary duty and

commissions of torts, and the state supreme court held that their violations involved neither type of

offense. Ky. Assoc. of Counties v. McClendon, 157 S.W.3d 626, 628 (Ky. 2005).

       Returning to the instant case, it is not disputed that the Chamber’s policy had the following

“participants’ exclusion” clause:

       Such insurance as it provided by this policy does not apply to, and the Company
       shall have no duty to defend any action brought to recover damages because of: A.
       “Bodily injury” or “personal and advertising injury” to any person while practicing
       for or participating in any contest, demonstration, event, exhibition, race or show.
       As used in this provision any person shall include but not be limited to participants,
       attendants, mechanics, stewards, timing officials, announcers, corner men, musicians,
       singers, animal handlers, officials or any other person employed by or doing
       volunteer work for the named insured.

Clem was killed after his float had completed its tour on the parade route but before he had debarked

the float. The float was undoubtedly headed for a locale where its passengers could disembark (for

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Estate of Clem v. Western Ins. Co.

it could not stop on the official parade route to debark its passengers), and it was within about 150

feet of the parade route’s official terminus when Clem was killed. Thus, the question before us is

whether the word participation as it is used in the policy is sufficiently ambiguous to require us to

define the term in a reasonable manner favoring coverage. If so, we must then determine whether

the resulting construction would reasonably allow us to find that Clem’s injuries were not subject

to the insurance company’s policy exclusion clause.

       We find that the contractual phrase “practicing for or participating in” is not ambiguous. The

exclusion clause’s purpose is evident on its face: participation in town festivities, particularly in

parades, creates a heightened risk of injury, and the insurance company was unwilling to indemnify

that risk at the premium rate that the Chamber was willing to pay. We believe it follows as a

“reasonable expectation” that riding on a parade float constitutes “participation” in a parade, and that

the outer limits of such “participation” are best defined in the instant case by the fact of riding on

the float rather than the float’s location with respect to the parade’s official viewing route.

       Riding on an open-top parade float is an inherently unsafe activity, for passengers are

typically not provided with any of the normal safety devices that ordinary automobile passengers

enjoy. As such, riding on a float constitutes a special activity specific to a parade, distinct from

riding on a vehicle to meet transportation needs, and the float’s riders would necessarily be aware

of their participation in a parade by riding on the float. Moreover, reasonably large parades

necessarily require some staging area before and after the parade’s official viewing area for the

floats and other parade marchers to congregate and organize. Specifically, people intending to ride



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Estate of Clem v. Western Ins. Co.

on floats must get on the float at some point prior to the official “beginning” and they then must be

given the opportunity to get off the float at some point after it has passed the viewing area’s

terminus. In the instant case, the parade’s organizers had specifically ordered the floats to debark

their riders somewhere other than at the official terminus so as to avoid generating a traffic jam that

could bring the parade itself to a grinding halt, though the organizers did not identify a specific place

where passengers could get off the floats.

        The Estate strenuously argues that the decedent was no longer participating in the parade

because the float had left the parade’s official route by the time of the accident. We do not agree.

Whether a float could travel beyond some outer boundary so that its riders would no longer be

participating in the parade by their lack of proximity to the parade route would require us to engage

in needless speculation. It is unquestioned that the float in this case had just left the parade’s

viewing terminus, had traveled only about 150 feet further, and had not yet provided its riders with

any opportunity to debark. Whatever the possible merits of this argument on other facts, no

reasonable trier of fact could find that traveling 150 feet with no opportunity to debark constitutes

exiting the parade’s zone of participation.

        In consequence, we hold that the policy exclusion clause was not ambiguous, and we further

hold that the clause operated to exclude the decedent’s injury from the insurance policy’s coverage

because his injuries were incurred at a time when he was still participating in the town parade. We

therefore do not reach the questions respecting the reasonableness of the settlement or the effect in

Kentucky of the Chamber’s agreement with the Estate.



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                                           III

       We AFFIRM the district court’s grant of summary judgment to Western.




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