UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

┐ PHOENIX INSURANCE COMPANY; TRAVELERS │ PROPERTY CASUALTY COMPANY OF AMERICA; ST. │ PAUL SURPLUS LINES INSURANCE COMPANY, │ Plaintiffs-Appellees, > No. 24-5325 │ │ v. │ │ WEHR CONSTRUCTORS, INC., │ Defendant-Appellant. │ ┘

Appeal from the United States District Court for the Eastern District of Kentucky at Ashland. No. 0:22-cv-00007—Karen K. Caldwell, District Judge.

Argued: February 12, 2025

Decided and Filed: April 18, 2025

Before: GILMAN, STRANCH, and LARSEN, Circuit Judges.

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COUNSEL ARGUED: Mark A. Boyle, BOYLE, LEONARD & ANDERSON, P.A., Fort Myers, Florida, for Appellant. Michael D. Risley, STITES & HARBISON, PLLC, Louisville, Kentucky, for Appellees. ON BRIEF: Mark A. Boyle, Thomas E. Shepard, BOYLE, LEONARD & ANDERSON, P.A., Fort Myers, Florida, for Appellant. Michael D. Risley, STITES & HARBISON, PLLC, Louisville, Kentucky, for Appellees. _________________

OPINION _________________

RONALD LEE GILMAN, Circuit Judge. Wehr Constructors, Inc. (Wehr) breached an agreement to build an addition to the St. Claire Medical Center (St. Claire) in Morehead, No. 24-5325 Phoenix Ins. Co. v. Wehr Constructors, Inc. Page 2

Kentucky. In response, St. Claire sued Travelers Casualty and Surety Company (Travelers Surety), Wehr’s performance-bond carrier, and Travelers Surety in turn brought in Wehr as a party to the litigation.

Wehr appeals the district court’s ruling that none of Wehr’s three insurers (Phoenix, St. Paul, and Travelers Property) had a duty to defend Wehr in that lawsuit. For the reasons set forth below, we AFFIRM the district court’s decision regarding St. Paul, but REVERSE its decision regarding Phoenix, VACATE its decision regarding Travelers Property, and REMAND for further proceedings as to these latter two insurers.

I. BACKGROUND A. The Wehr-St. Claire Agreement

In April 2016, Wehr entered into a contract with St. Claire to construct a Medical Services Pavilion as an addition to St. Claire’s main hospital facility. Wehr and St. Claire set forth their agreement in a standard form issued by the American Institute of Architects (AIA) known as AIA document form A101-1997. The form is titled: “Standard Form of Agreement Between Owner and Contractor where the basis of payment is a STIPULATED SUM.” Section 14.2 of the Standard Form contains a termination clause that allowed St. Claire to terminate the contract if Wehr committed a “substantial breach,” provided that the architect on the project certified that sufficient cause exists (the Termination Clause). If St. Claire invoked the Termination Clause, Wehr would not be entitled to the remaining unpaid balance of the contract, and St. Claire could seek damages from Wehr under § 14.2.4 if the cost of completing the project exceeded the unpaid balance.

In compliance with the Constr