Lincoln General Insurance Comp v. Smith ( 2011 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS March 24, 2011
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
LINCOLN GENERAL INSURANCE
COMPANY,
Plaintiff-Appellee,
No. 10-3082
v. (D.C. No. 6:09-CV-01194-MLB-KMH)
(D. Kan.)
ERIC S. SMITH; HEATHER
BAKER,
Defendants-Appellants.
ORDER AND JUDGMENT *
Before LUCERO, EBEL, and O’BRIEN, Circuit Judges.
Eric S. Smith and Heather Baker (collectively Defendants) appeal from the
district court’s grant of summary judgment in favor of Lincoln General Insurance
Company (Lincoln General). Exercising jurisdiction under 28 U.S.C. § 1291, we
affirm.
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
I.
While driving a car she had rented from Western Leasing Services, Inc.,
d/b/a A-OK Car Rental (A-OK), Ms. Baker was involved in a one-vehicle
accident. Her brother, Mr. Smith, was a passenger in the rental car, and he was
seriously injured in the accident. The sole issue raised in this appeal is whether
A-OK’s business auto insurance policy issued by Lincoln General (LG Policy),
provided coverage for Ms. Baker as a rentee of the car, when the Rental
Agreement Ms. Baker signed with A-OK stated that A-OK was not providing any
kind of insurance. The relevant facts are not in dispute.
On October 3, 2007, Ms. Baker rented a car from A-OK while her own car
was in A-OK’s repair shop. A-OK’s Rental Agreement included the following
provision:
IMPORTANT — READ BEFORE SIGNING
NO INSURANCE COVERAGE OF ANY KIND OR TYPE
IS PROVIDED BY RENTOR
The undersigned hereby acknowledges that the rentor is not providing
any type of insurance protection or collecting any charges therefor. In
consideration of the foregoing acknowledgement the rentee agrees to
pay for all loss and damage to the described automobile and to hold
rentor harmless from any liability as a result of the rentee’s usage
thereof.
NOTE: Customer is advised to contact his/her insurance agent or
broker to make certain he/she and the rented vehicle are protected.
Aplt. App’x at 12. Ms. Baker signed the Rental Agreement directly below this
text and filled in blanks on the form listing her insurance company as American
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Family, as well as her insurance agent’s name, her liability limits, and her
deductibles under her American Family policy.
Ms. Baker was driving under the influence of alcohol on November 21,
2007, when the rental car went off the road and flipped over. Mr. Smith was
thrown from the car and suffered serious injuries. He presented claims against
Ms. Baker to her insurance company, American Family, and to A-OK’s insurance
company, Lincoln General. He also filed a negligence action against Ms. Baker
in Kansas state court, seeking damages for his injuries resulting from the
accident. American Family paid Mr. Smith the policy limit under Ms. Baker’s
policy. Lincoln General denied coverage for the accident, but provided
Ms. Baker a defense in Mr. Smith’s state-court action, pursuant to a
reservation-of-rights agreement. Lincoln General filed this declaratory judgment
action against Defendants in the district court, seeking a determination that the
LG Policy provides no liability coverage to Ms. Baker for the rental-car accident.
A-OK was the named insured under the LG Policy, which covered certain
autos owned by A-OK, including the rental car, from April 1, 2007 to April 1,
2008. An endorsement to the LG Policy provided: “The following are insureds. .
. . [t]he rentee subject to all conditions set forth in this endorsement and any other
person authorized by the rental agreement held by the rentee.” Aplt. App’x at
133. The same endorsement also defined “rentee” and “rental agreement”:
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“Rentee” means a holder of a rental agreement with you [1] which
provides for the holder’s use of an automobile for a period of less
than one year.
“Rental Agreement” means the (auto) rental contract between you
and the rentee. This agreement states [t]he limit of liability you are
providing the rentee. This agreement states that such limit of
liability provided for the rentee is excess insurance over any other
liability insurance coverage available to the rentee.
Id. at 134. The endorsement also included the following provision under the
heading “GENERAL CONDITION - OTHER INSURANCE”:
The insurance provided by this policy for the rentee is subject to the
terms, conditions, restrictions and limitations contained in the rental
agreement, provided that our limit of insurance under the “Liability
Coverage” cannot be and is not enlarged or expanded beyond the
limit shown on the declarations page attached to this policy.
Id.
In granting summary judgment in Lincoln General’s favor, the district court
relied on a provision of the Kansas Automobile Injury Reparations Act (KAIRA)
that permits an insurer to exclude coverage “while any insured vehicles are . . .
[r]ented to others.” Kan. Stat. Ann. § 40-3107(h)(1). The court cited the LG
Policy endorsement making coverage for a rentee subject to the terms and
conditions of the rental agreement, which in this case stated that A-OK was not
providing any type or kind of insurance to Ms. Baker. The court concluded that,
reading the terms of the LG Policy and the Rental Agreement together, it is clear
1
The term “you” refers to A-OK, the named insured. See Aplt. App’x at 87,
100.
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that the LG Policy did not provide liability coverage to Ms. Baker for the
rental-car accident.
Defendants moved for reconsideration, arguing that the Rental Agreement
had expired by its terms two weeks after the rental period began and before the
date of the accident; therefore, A-OK’s disclaimer of insurance coverage was
inoperative at the time of the accident. The district court denied the motion,
stating, “What defendants seek is for the court to change its ruling based upon
information which could have been, but was not, presented earlier. This is not an
appropriate basis for reconsideration.” Aplt. App’x at 270. Defendants filed
timely notices appealing the district court’s summary judgment order and
judgment and the court’s denial of their motion for reconsideration.
II.
We review the district court’s grant of summary judgment de novo.
Commerce Bank, N.A. v. Chrysler Realty Corp., 244 F.3d 777, 779 (10th Cir.
2001). Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). 2 We also review the district court’s
2
Rule 56 was amended effective December 1, 2010. The summary judgment
standard previously enumerated in subsection (c) was moved to subsection (a),
and the amendment made one word change from the previous version–genuine
“issue” became genuine “dispute.” Fed. R. Civ. P. 56 advisory committee note
(2010 Amendments). But the “standard for granting summary judgment remains
(continued...)
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application of Kansas law de novo. See Commerce Bank, 244 F.3d at 780. We
review the district court’s denial of a motion for reconsideration for an abuse of
discretion. See Ysais v. Richardson, 603 F.3d 1175, 1180 (10th Cir.), cert.
denied, 131 S. Ct. 163 (2010). “We will not disturb such a decision unless we
have a definite and firm conviction that the lower court made a clear error of
judgment or exceeded the bounds of permissible choice in the circumstances.” Id.
(quotation omitted).
III.
A.
A-OK owned the rental car involved in the accident. Under KAIRA,
“[e]very owner shall provide motor vehicle liability insurance coverage in
accordance with the provisions of this act for every motor vehicle owned by such
person.” Kan. Stat. Ann. § 40-3104(a). This section “does not require every
vehicle owner to provide primary coverage, or even any coverage, in all
circumstances, but rather it requires that coverage be provided in accordance with
the other KAIRA provisions.” Farm Bureau Mut. Ins. Co. v. Enter. Leasing Co.
of Kan., 58 P.3d 751, 753 (Kan. Ct. App. 2002). For instance, under Kan. Stat.
Ann. § 40-3104(f), “a self-insurer may not entirely exclude coverage for a rental
driver, but it is only required to provide liability coverage on rented vehicles
2
(...continued)
unchanged.” Id.
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when an authorized driver does not have his or her own liability coverage.”
Enter. Leasing, 58 P.2d at 754. Section 40-3107(h)(1), which the district court
relied on in granting Lincoln General summary judgment, provides that
“notwithstanding any other provision contained in this section, any insurer may
exclude coverage required by subsections (a), (b), (c) and (d) of this section while
any insured vehicles are . . . [r]ented to others.” 3 This provision “permits an
insurer to exclude liability coverage while the insured vehicle is being rented to
others.” Enterprise Leasing, 58 P.3d at 753.
The district court held that Lincoln General had validly excluded liability
coverage for Ms. Baker’s use of the rental car, as authorized under Kan. Stat.
Ann. § 40-3107(h)(1), through the LG Policy’s incorporation of the terms and
conditions of the Rental Agreement. Defendants contend that the district court
erred because A-OK cannot exclude liability coverage on a rental car under
3
Subsections (a) - (d) of § 40-3107 set forth required contents of motor
vehicle liability insurance policies, including subjection (b), which mandates that
[e]very policy of motor vehicle liability insurance issued by an
insurer to an owner residing in this state shall:
....
(b) insure the person named and any other person, as insured, using
any such vehicle with the expressed or implied consent of such
named insured, against loss from the liability imposed by law for
damages arising out of the ownership, maintenance or use of any
such vehicle within the United States of America or the Dominion of
Canada, subject to the limits stated in such policy.
Kan. Stat. Ann. § 40-3107(b).
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Kansas law, as it is neither a self-insurer nor an insurer. Moreover, Defendants
argue that incorporation of the terms of the Rental Agreement into the LG Policy
was also ineffective to exclude coverage because (1) the incorporation language
in the LG Policy is not sufficiently specific under Kansas law and (2) it relies on
the insured’s, rather than the insurer’s, exclusion of coverage. Finally,
Defendants renew their assertion, made for the first time in their motion for
reconsideration, that the exclusion of coverage in the Rental Agreement is not
enforceable because the agreement expired before the date of the accident.
B.
The parties do not cite, nor have we found, a Kansas case directly on point.
“Because the Kansas Supreme Court has not addressed the issue involved, we
must predict how it would decide the question. In making this determination we
may look to other state court decisions, federal decisions, and the general trend
and weight of authority.” Commerce Bank, 244 F.3d at 780 (citation and
quotation omitted).
Lincoln General contends that (1) the Rental Agreement controls the rights
and duties of A-OK and Ms. Baker and (2) A-OK was permitted to exclude
insurance coverage for its rental cars in its rental agreements pursuant to Kan.
Stat. Ann. § 40-3104(f). We agree with Defendants that, because A-OK is not a
self-insurer, § 40-3104(f) is not applicable to A-OK. See Enter. Leasing, 58 P.3d
at 754 (noting that § 40-3104(f) applies only to self-insured rental-car
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companies). Nor can this case be resolved by looking solely to the terms of the
Rental Agreement, without reference to the LG Policy terms. In State Farm
Mutual Automobile Insurance Co. v. Winney, 923 P.2d 517, 518 (Kan. Ct. App.
1996), the driver of a Budget rental car struck another vehicle. The Kansas Court
of Appeals considered whether Budget’s insurance policy or the rental-car
driver’s policy provided primary coverage for the damages sustained by the other
driver. See id. at 518-19. Budget’s rental agreement stated that “Budget does not
provide Renter with liability insurance coverage.” Id. at 519. Despite this
provision in the rental agreement, however, the court looked to Budget’s liability
policy issued by its insurer and concluded that the policy provided primary
coverage for the accident. The court noted that, “although K.S.A. 40-3107(h)
allows an owner to exclude from coverage any vehicle while it is being rented,
Budget’s policy has no such provision.” Id. at 519 (emphasis added). Thus, in
the absence of such an exclusion in the policy, the court concluded that it
provided coverage. See id. 4 The issue we must resolve, then, is whether the LG
Policy excluded coverage for rented vehicles, as authorized by § 40-3107(h)(1).
4
We disagree with Defendants’ contention that Winney is inapposite
because, like Enterprise Leasing, it involved a self-insurer. The court in Winney
addressed whether a policy issued to Budget by an insurance company provided
primary coverage for an accident involving one of its rental cars. See 923 P.2d at
518-19. The court concluded that it did, but also determined that a
self-insured-retention endorsement in the policy, which the court characterized as
a deductible, required Budget to cover the first $250,000 of the loss. See id. at
519. The court did not cite or apply § 40-3104(f), the provision applicable to
self-insurer rental-car companies.
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C.
Under Kansas law, the construction of a written instrument and its legal
effect are questions of law. See Catholic Diocese of Dodge City v. Raymer,
840 P.2d 456, 458 (Kan. 1992).
The language of a policy of insurance, like any other contract,
must, if possible, be construed in such manner as to give effect to the
intention of the parties. Where the terms of a policy of insurance are
ambiguous or uncertain, conflicting, or susceptible of more than one
construction, the construction most favorable to the insured must
prevail.
Id. at 459. Special rules of construction apply to exclusions of coverage in
insurance policies. “In Kansas, the general rule is that exceptions, limitations,
and exclusions to insuring agreements require a narrow construction on the theory
that the insurer, having affirmatively expressed coverage through broad promises,
assumes a duty to define any limitations on that coverage in clear and explicit
terms.” Id. at 462. Thus, “[i]f the insurer intends to restrict or limit coverage
provided in the policy, it must use clear and unambiguous language in doing so.”
Id. at 459.
To be ambiguous, a contract must contain provisions or
language of doubtful or conflicting meaning, as gleaned from a
natural and reasonable interpretation of its language. Ambiguity in a
written contract does not appear until the application of pertinent
rules of interpretation to the face of the instrument leaves it
genuinely uncertain which one of two or more meanings is the proper
meaning.
Id.
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The LG Policy provided that a “rentee” was an insured “subject to all
conditions set forth in this endorsement.” Aplt. App’x at 133. Defendants
contend that Ms. Baker, as a holder of a rental agreement with A-OK, was a
rentee and therefore an insured under the terms of the LG Policy. We agree,
unless some exclusion applied. The applicable endorsement did not state that
coverage was excluded while A-OK’s insured vehicles were rented to others. It
did specify, however, that “[t]he insurance provided by this policy for the rentee
is subject to the terms, conditions, restrictions and limitations contained in the
rental agreement.” Id. at 134. Defendants contend that this provision was
insufficient to exclude coverage under Kansas law. But we conclude that the
Kansas Supreme Court would apply pertinent rules of contract interpretation to
find that Lincoln General intended to incorporate into the LG Policy the terms
and conditions of the Rental Agreement, which therefore must be considered to
determine the extent of coverage in this case.
“Separate documents may become a part of a contract of insurance . . . by a
clear reference in the policy that they are intended to be a part thereof. To have
this effect, the intent to incorporate them should be plainly manifest and not
dependent upon implication.” 2 Lee R. Russ & Thomas F. Segalla, Couch on
Insurance, § 18:25 (3d ed., online version 2010) (footnotes omitted). The Kansas
Court of Appeals applied this rule of construction in holding that declarations
recorded on the face sheet of a policy were incorporated by reference into the
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policy, where the policy referred to “the declarations made a part hereof” and
provided that the agreement was “in reliance upon the statements in the
declarations.” Thompson v. Harold Thompson Trucking, 748 P.2d 430, 434
(Kan. Ct. App. 1987) (quotations omitted); see also Sw. Nat’l Bank v. Simpson &
Son, Inc., 799 P.2d 512, 518-519 (Kan. Ct. App. 1990) (holding separate
document was incorporated into agreement that stated it was to be used only with
the separate document). Here, there is no ambiguity regarding Lincoln General’s
intent to incorporate the terms of the Rental Agreement into the LG Policy, which
clearly stated that the “insurance provided by this policy for the rentee is subject
to the terms, conditions, restrictions and limitations contained in the rental
agreement.” Aplt. App’x at 134.
Defendants have cited no Kansas authority precluding a rental-car
company’s insurer from making a rentee’s liability coverage subject to the terms
and conditions of the rental agreement. Nor do they cite any case holding that an
insurer cannot incorporate into the policy a rental-agreement term excluding
coverage for a rentee. Other courts have looked to the terms of a vehicle rental
agreement to determine the extent of insurance coverage, when those terms were
incorporated into a liability policy using substantially similar language as that
used by Lincoln General in the LG Policy. In Ryder TRS, Inc. v. Randazzo,
81 S.W.3d 669, 672 (Mo. Ct. App. 2002), the policy language stated that the
coverage provided to a rentee of a moving van was subject to the terms and
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conditions of the rental agreement. Although the policy had a coverage limit of
$2 million, the rental agreement limited coverage to $25,000. See id. at 672-73.
The court held that the policy language and rental agreement terms were
unambiguous in limiting the coverage available to a rentee to that lesser amount.
See id. at 673; see also Harrison v. Ford Motor Credit Co., 655 A.2d 931, 932-33
(N.J. Super. Ct. App. Div. 1994) (construing policy issued to rental-car company,
which incorporated terms of rental agreement, as limiting coverage for rentees to
the minimum dollar amount required by law, per language in the rental
agreement); Leinas v. Liberty Mut. Ins. Co., 642 N.E.2d 598, 598-99 (Mass. App.
Ct. 1994) (same); Guardian Ins. Co. of Can. v. Liberty Mut. Ins. Co.,
742 F. Supp. 626, 627, 629 (M.D. Fla. 1990) (same, applying Florida law). We
conclude that, like these other courts, the Kansas Supreme Court would look to
the terms of a rental agreement incorporated into a rental-car company’s
insurance policy to determine the extent of the rentee’s coverage.
D.
The question remains whether the LG Policy and Rental Agreement terms
clearly and unambiguously excluded liability coverage for Ms. Baker with respect
to the rental-car accident. The Rental Agreement provided that “no insurance
coverage of any kind or type is provided by rentor” and “the rentor is not
providing any type of insurance protection.” Aplt. App’x at 12. The Rental
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Agreement further advised Ms. Baker “to contact []her insurance agent or broker
to make certain []she and the rented vehicle are protected.” Id.
Defendants argue that, because the Rental Agreement only excluded
insurance coverage “provided by rentor,” the broad reference to “no insurance
coverage of any kind or type” does not encompass coverage under the LG Policy
by Lincoln General. Thus, they maintain that coverage under the LG Policy for a
rentee was not excluded because it was not “provided by” A-OK. We reject
Defendants’ contention. First, KAIRA requires every vehicle owner to “provide”
liability insurance in accordance with the act. Kan. Stat. Ann. § 40-3104(a)
(“Every owner shall provide motor vehicle liability insurance coverage in
accordance with the provisions of this act for every motor vehicle owned by such
person . . . .”). As Defendants emphasize, A-OK is neither an insurer nor a
self-insurer; thus, the only insurance coverage A-OK could “provide” for its
rental cars was the coverage under the LG Policy. Moreover, Defendants’
construction fails to read the Rental Agreement and LG Policy terms together. In
the LG Policy, Lincoln General unambiguously made coverage for a rentee
subject to the terms and conditions in the Rental Agreement. Thus, a reasonable
person reading the LG Policy, along with the statement in the Rental Agreement
that no insurance of any kind or type is provided by rentor, would not conclude
that she had coverage under the LG Policy as a rentee of A-OK. We hold that the
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LG Policy unambiguously excluded liability coverage for Ms. Baker’s use of the
rental car, as authorized by § 40-3107(h)(1). 5
E.
In their final contention, Defendants assert that the exclusion of coverage in
the Rental Agreement was ineffective because the agreement had already expired
by its terms two weeks after the rental period began and before the date of the
accident. They raised this argument for the first time in their motion for
reconsideration. The district court denied their motion because they failed to
support it with any ground warranting reconsideration of the court’s summary
judgment ruling. Specifically, the court held that Defendants could have, but did
not, make their argument regarding expiration of the Rental Agreement in
response to Lincoln General’s summary judgment motion, nor did they explain
why they failed to do so. See Servants of the Paraclete v. Does, 204 F.3d 1005,
1012 (10th Cir. 2000) (“[A motion for reconsideration] is not appropriate to
revisit issues already addressed or advance arguments that could have been raised
in prior briefing.”). Defendants identify no abuse of discretion in the district
court’s denial of their motion for reconsideration. Nor do we accept their
invitation to address the merits of their argument for the first time on appeal. See
5
We note that Ms. Baker had her own insurance policy that provided
coverage for her as the driver of the rental car. In a case where the rentee has no
insurance, there may be public policy concerns with respect to an exclusion of
coverage. But we need not, and do not reach that issue in this case.
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O’Connor v. City & Cnty. of Denver, 894 F.2d 1210, 1214 (10th Cir. 1990)
(“[W]e will not consider claims abandoned in the district court.”).
The judgment of the district court is AFFIRMED.
Entered for the Court
David M. Ebel
Circuit Judge
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