Canal Ins Co v. Underwriters Lloyds ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
1-27-2006
Canal Ins Co v. Underwriters Lloyds
Precedential or Non-Precedential: Precedential
Docket No. 04-3714
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-3714
CANAL INSURANCE COMPANY,
Appellant
v.
UNDERWRITERS AT LLOYD’S LONDON
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 03-cv-02333)
District Judge: Honorable Eduardo C. Robreno
Argued September 27, 2005
Before: ALITO, AMBRO and LOURIE,* Circuit Judges
* Honorable Alan D. Lourie, Circuit Judge for the
United States Court of Appeals for the Federal Circuit, sitting
by designation.
(Filed: January 27, 2006)
Walter H. Swayze, III, Esquire (Argued)
Michael J. Farrell, Esquire
Segal, McCambridge, Singer & Mahoney
30 South 17th Street
United Plaza, Suite 1700
Philadelphia, PA 19103
Counsel for Appellant
Timothy A. Kulp, Esquire (Argued)
Margolis Edelstein, Esquire
6th & Walnut Streets
The Curtis Center, 4th Floor
Philadelphia, PA 19106
Lawrence D. Wright, Esquire
Ronald S. Collins, Jr., Esquire
Wright & O’Donnell
15 East Ridge Pike, Suite 570
Conshohocken, PA 19428
Counsel for Appellee
Brian J. Hunt, Esquire
Anndra L. Masters, Esquire
Williams, Montgomery & John
20 North Wacker Drive
2100 Opera Building
Chicago, IL 60606
2
Counsel for Amicus-Appellant
OPINION OF THE COURT
AMBRO, Circuit Judge
This is an insurance coverage dispute arising out of a
motor vehicle accident involving a truck owned by Sukhjit
Singh and a passenger vehicle driven by Suzanne Espenshade.
At the time of the accident, the truck, used for hauling freight,
was on the road principally for Singh to seek its sale or trade-in.
Among the issues before us is whether a policy issued by
Underwriters at Lloyd’s London (Underwriters) covering
Singh’s truck, but excluding “business uses,” nonetheless
insures this accident. We believe the answer is no, and
therefore affirm the District Court’s decision. We affirm as well
the Court’s determinations that Singh’s expectation of business
coverage cannot unloose the policy’s unambiguous language to
the contrary, and that Pennsylvania public policy does not
undermine non-coverage in this case.
I. Facts and Procedural History
The material facts are undisputed. At all times relevant
to this litigation, Singh was an independent trucker, or “owner
operator,” who leased his tractor trailers to interstate motor
3
carriers for the purpose of hauling freight. Singh enjoyed a
business relationship with BIR Transport Company (BIR), an
interstate trucking outfit and Department of Transportation
authorized motor carrier, based upon a long-term lease
agreement. According to the agreement, Singh leased a
Kenworth Tractor to BIR when BIR required a tractor truck to
haul freight.
As of the date of the accident, two relevant insurance
policies were in effect. Canal Insurance Company (Canal)
insured BIR through a “Commercial Trucking Liability” policy,
providing indemnity and defense to BIR for liabilities arising
from the operation of vehicles specifically noted in the Canal
policy and used for BIR business purposes. BIR identified the
Tractor as an insured vehicle subject to the terms of the Canal
commercial trucking liability policy. In addition, Singh was
covered by a “Non-Trucking Liability” policy with
Underwriters that also identified the Tractor as an insured
vehicle. Under the terms of that policy, certain uses of the
Tractor, including “business uses,” were excluded from
coverage.
On April 20, 2000, Singh completed an interstate hauling
operation for BIR with his Tractor. Four days later, on April 24,
2000, he hired a third party to drive the Tractor and its empty
trailer from Harrisburg, Pennsylvania, to a Kenworth truck
dealership in Chester, Pennsylvania, in order to attempt a sale
or trade-in for a new tractor. Although BIR was made aware of
4
the plan to go to the dealership, it is undisputed BIR did not
dispatch the Tractor. In the event a hauling load from BIR
became available in the Chester area, however, Singh directed
his driver to make the trip with an empty trailer attached.
En route to the dealership, Singh’s truck collided with a
vehicle owned and driven by Espenshade. As a result of the
accident, Espenshade filed a lawsuit in Philadelphia,
Pennsylvania, against all potential tortfeasors. Underwriters
expressly refused either to defend the defendants or to
indemnify Canal in the state action on the ground that the use of
the Tractor on the day of the accident did not fall under the
provisions of its non-trucking liability policy. Canal, on the
other hand, defended and indemnified Singh, his driver, and
BIR in the lawsuit. Ultimately, Canal settled the Espenshade
suit, agreeing to pay $58,500 compensation in exchange for full
liability releases for all three defendants. It is undisputed that
Canal incurred an additional $27,459 in litigation expenses to
resolve the matter, resulting in a total indemnification and
defense cost of $85,959.
Canal filed a declaratory action pursuant to 28 U.S.C. §
2201 in the Eastern District of Pennsylvania seeking
indemnification from Underwriters for the monies Canal spent
defending and insuring the defendants in the Espenshade
lawsuit. Canal Ins. Co. v. Underwriters at Lloyd’s London, 333
F. Supp. 2d 352 (E.D. Pa. 2004). Subsequent to discovery, the
parties filed cross-motions for summary judgment. Id. at 352.
5
The District Court determined that Singh’s act of hiring an
employee to drive his Tractor to a dealership in order to trade
the vehicle or otherwise attempt a sale was an activity
promoting the “business purposes of the [i]nsured” under the
terms of Underwriters’ business use exclusion. Id. at 355-56.
As a result, the Court concluded that coverage was properly
denied by Underwriters. Id. at 357. Judgment was entered
granting Underwriters’ motion for summary judgment and
denying Canal’s cross-motion for summary judgment. This
appeal followed.1
II. Preliminary Matters
Summary judgment is appropriate if there are no genuine
issues of material fact presented and the moving party is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). In determining
whether a genuine issue of fact exists, we resolve all factual
doubts and draw all reasonable inferences in favor of the
nonmoving party. Hugh v. Butler County Family YMCA, 418
F.3d 265, 267 (3d Cir. 2005). “The interpretation of the scope
of coverage of an insurance contract is a question of law
1
The parties are diverse and the amount in controversy
exceeds the jurisdictional requirement. Thus, the District Court
properly asserted subject matter jurisdiction pursuant to 28
U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. §
1291.
6
properly decided by the court, a question over which [this court]
exercise[s] plenary review.” Med. Protective Co. v. Watkins,
198 F.3d 100, 103 (3d Cir. 1999); McMillan v. State Mut. Life
Assurance Co. of Am., 922 F.2d 1073, 1074 (3d Cir. 1990).
Where federal jurisdiction is based on diversity of
citizenship, as it is here, we apply the choice-of-law rules of the
state in which the district court sat. St. Paul Fire & Marine Ins.
Co. v. Lewis, 935 F.2d 1428, 1431 n.3 (3d Cir. 1991) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496
(1941)). As previously noted, this action was filed in the
Eastern District of Pennsylvania. Under Pennsylvania choice-
of-law rules, an insurance contract is governed by the law of the
state in which the contract was made. Crawford v. Manhattan
Life Ins. Co., 221 A.2d 877, 880 (Pa. Super. Ct. 1966); see also
McMillan, 922 F.2d at 1074. “An insurance contract is ‘made’
in the state in which the last act legally necessary to bring the
contract into force takes place.” Crawford, 221 A.2d at 880.
Here, the parties agree that the insurance contract was ‘made’ in
Pennsylvania and, consequently, Pennsylvania substantive law
applies.
III. Merits
A. Ambiguity of Underwriters’ Business Use Exclusionary
Language
Canal contends Underwriters’ business use exclusionary
7
language, which prohibits any use of the covered vehicle that
promotes the “business purposes” of the insured, is sufficiently
ambiguous to merit an interpretation in favor of coverage.
Underwriters, on the other hand, maintains that its business use
exception is unambiguous and coverage was properly denied.
It is uncontested Underwriters’ policy names Singh as the
insured and lists the Tractor as a covered vehicle. The policy,
however, excludes from coverage certain “business uses.”
Exclusion 8 specifically provides that the policy does not insure
[a] covered automobile while it is engaged in
Business Use, such as proceeding to a new
location, pursuant to the request, direction,
control and/or dispatch of any person or entity
other than the insured, or complying with any
term of a presently effective, written lease with a
motor carrier.
The policy also excludes insurance for “a covered automobile
while used in the course and scope of the commercial business
of the insured, i.e. Business Use.” Under the policy, that
includes, but is not limited to[,] any use of the
covered auto that promotes the business
purposes of the Insured or the purposes of a
written, permanent lease that the Insured has
signed with a motor carrier such as hauling a load
8
for the motor carrier, being under the request,
direction, control and/or dispatch to haul a load
for the motor carrier with a pick up of a load,
laying over on the road on the way to pick up a
load or traveling for the purposes of repairing or
maintaining the covered auto. The foregoing
examples of “Business Use” are illustrative and
non-exhaustive.
(Emphasis added.) Thus, if at the time of the accident, Singh’s
Tractor was engaged in an activity “promot[ing] [Singh’s]
business purposes,” Underwriters’ business uses exclusion
applies and coverage could be denied.
The legal axioms governing insurance policy
interpretation are well settled in Pennsylvania. “Where an
insurer relies on a policy exclusion as the basis for its denial of
coverage and refusal to defend, the insurer has asserted an
affirmative defense and, accordingly, bears the burden of
proving such defense.” Madison Constr. Co. v. Harleysville
Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999). The goal of
interpreting an insurance policy, like the goal of interpreting any
other contract, is to determine the intent of the parties as
manifested by the language of the policy.
The task of interpreting [an insurance] contract is
generally performed by a court rather than by a
jury. The goal of that task is, of course, to
9
ascertain the intent of the parties as manifested by
the language of the written instrument. Where a
provision of a policy is ambiguous, the policy
provision is to be construed in favor of the
insured and against the insurer, the drafter of the
agreement. Where, however, the language of the
contract is clear and unambiguous, a court is
required to give effect to that language.
Gene & Harvey Builders v. Pennsylvania Mfrs. Ass’n, 517 A.2d
910, 913 (Pa. 1986) (quoting Standard Venetian Blind Co. v.
Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)) (additional
citations omitted). This rule of strict construction against the
insurer is especially true should the ambiguity exist as an
exception to general liability. Celley v. Mut. Benefit & Health
Ass’n, 324 A.2d 430, 435 (Pa. Super. Ct. 1974).
Contractual language is ambiguous “if it is reasonably
susceptible of different constructions and capable of being
understood in more than one sense.” Hutchison v. Sunbeam
Coal Co., 519 A.2d 385, 390 (Pa. Super. Ct. 1986). “This is not
a question to be resolved in a vacuum. Rather, contractual
terms are ambiguous if they are subject to more than one
reasonable interpretation when applied to a particular set of
facts.” Madison Constr. Co., 735 A.2d at 106. Courts should
not, however, distort the meaning of the language or resort to a
strained contrivance in order to find an ambiguity. Steuart v.
McChesney, 444 A.2d 659, 663 (Pa. Super. Ct. 1982). In any
10
event, “[t]he polestar of our inquiry . . . is the language of the
insurance policy.” Madison Constr. Co., 735 A.2d at 106.
As stated above, this controversy turns on whether the
phrase “any use of the covered auto that promotes the business
purposes of the [i]nsured” applies unambiguously to Singh’s use
of the Tractor at the time of the accident. Underwriters’ policy
does not provide specific examples of activities that would
promote Singh’s business purposes. Where critical terms are
left undefined in a policy, Pennsylvania case law instructs that
[w]ords of common usage in an insurance policy
are to be construed in their natural, plain, and
ordinary sense, Easton v. Washington County Ins.
Co., 137 A.2d 332, 335 (1957); Blue Anchor
Overall Co. v. Pennsylvania Lumbermens Mut.
Ins. Co., 123 A.2d 413, 415 (1956), and we may
inform our understanding of these terms by
considering their dictionary definitions.
Madison Constr. Co., 735 A.2d at 108. The District Court
heeded this guidance, reasoning that
[t]he term “promotes” is defined in Webster’s
Ninth Collegiate Dictionary (1990) as “to
contribute to the growth or prosperity of” or
“furthers.” It is beyond argument that trading up
one tractor for another (or attempting to do so)
11
“further[ed]” or “contribute[d] to the growth or
prosperity of” Mr. Singh’s truck leasing business.
Since Mr. Singh is the insured, engaged in
the business of leasing tractors, and further since
the act of traveling from Harrisburg to Chester
“contribute[d] to the growth or prosperity of” or
“futher[ed][,]” i.e., “promote[d][,]” the business
purposes of Mr. Singh’s leasing business, the
losses resulting from the accident fall within the
exclusion of the Underwriters policy.
Canal Ins. Co., 333 F. Supp. 2d at 355. We agree. See
Standard Venetian Blind Co., 469 A.2d at 567 (stating
exclusions from coverage effective against insured if clearly
worded and conspicuously displayed, irrespective of whether
the insured read limitations or understood their effect); cf. Ayres
v. Kidney, 333 F.2d 812, 813 (6th Cir. 1964) (ruling exclusion
“while the automobile or any trailer attached thereto is used to
carry property in any business” clear and unambiguous);
Wenkosky v. Protective Ins. Co., 698 F. Supp. 1227, 1230-31
(M.D. Pa. 1988) (holding exclusion “[w]hile the automobile or
any trailer attached thereto is used to carry property in any
business” is unambiguous) (emphasis in text).
Canal, however, does not contend it was unreasonable
for the District Court to interpret the plain meaning of “business
purposes” to include Singh’s desire to trade or sell the Tractor.
12
See Aplt. Br. at 19. Rather, it maintains that Underwriters’
business use exception relating to acts promoting the business
purposes of the insured is overly broad and ambiguous. This is
because the exception can be reasonably construed to mean that
only acts related to or furthering the business of a commercial
carrier (such as BIR) are subject to exclusion; not acts merely
related to selling or trading the Tractor. Id. In other words,
“traveling to negotiate a possible sale or trade of a vehicle is not
‘business use’ since it does not relate to a carrier-directed
activity and is not maintenance or repair of the vehicle.” Aplt.
Rep. Br. at 4. Thus, the question we must resolve is whether
Canal’s alternative interpretation of Underwriters’ business use
exclusion renders the exception ambiguous with regard to the
facts of this case. Complicating this determination is the
absence of controlling state precedent.
When there is no Pennsylvania Supreme Court decision
directly on point, we are charged with predicting how it would
resolve the question at issue. Travelers Indem. Co. of Illinois v.
DiBartolo, 131 F.3d 343, 348 (3d Cir. 1997). In order to do so,
we must take into consideration (1) what the Pennsylvania
Supreme Court has said in related areas, (2) the decisional law
of the Pennsylvania intermediate courts, (3) federal cases
interpreting state law, and (4) decisions from other jurisdictions
that have discussed the issue. Werwinski v. Ford Motor Co.,
286 F.3d 661, 675 (3d Cir. 2002).
Canal contends that
13
Mr. Singh is an independent interstate truck
driver; his business is driving a commercial
tractor-trailer to transport the goods of third-
parties on behalf of a commercial carrier. Mr.
Singh does not make his living leasing vehicles as
a dealership or rental agency might. Also, rather
than functioning as a salaried employee of BIR
and using a BIR-owned tractor, Mr. Singh chose
to purchase his own tractor and enter into a
leasing arrangement with BIR whereby Mr. Singh
would be responsible for his own vehicle
presumably in return for a greater share of the
profit.
Aplt. Br. at 20. “Accordingly, an understanding of Mr. Singh’s
business reveals it is not so clear that the act of driving the
Tractor to a dealership in order to trade or otherwise negotiate
a sale unambiguously ‘promotes the business purposes’ of Mr.
Singh.” Id.
The weight of relevant authority does not support
Canal’s reasoning. “Business use” and “business pursuits”
exclusions are standard clauses in many insurance policies,
including homeowners’, personal umbrella, and other general
liability policies. See generally Construction and Application
of “Business Pursuits” Exclusion Provision in General Liability
Policy, 48 A.L.R. 3d 1096 § 2 (West 2005). In a typical policy,
the insurer states that personal liability coverage shall not apply
14
“to bodily injury or property damage arising out of business
pursuits of any insured except activities therein which are
ordinarily incident to nonbusiness pursuits.” See, e.g., Bullock
v. Pariser, 457 A.2d 1287, 1288 (Pa. Super. Ct. 1983). “The
purpose of a ‘business pursuits’ exclusion is to help the insurer
keep premiums at a reasonable level by eliminating a type of
coverage that (1) normally requires specialized underwriting
and rating, (2) is not essential to most purchasers of the policy,
and (3) is provided by other insurance contracts a business
owner is likely to have.” Avoiding the “Business Pursuits”
Exclusion – Insured’s Activity as Not Business Pursuit, 15 Am.
Jur. Proof of Facts 3d 515 §1 (West 2005); see also Rykill v.
Franklin Fire Ins. Co., 80 Pa. Super. Ct. 492, 494 (1923)
(stating “[i]t is a matter of common knowledge that the premium
rate of insurance upon automobiles used for commercial
purposes is higher than on cars used for pleasure. The obvious
reason for this is the increased hazard.”).
The Superior Court of Pennsylvania has interpreted the
above-stated boilerplate “business pursuits” language in the
context of a homeowners’ insurance policy. In Bullock, the
plaintiff was bitten by a dog at the defendants’ home, where
they conducted a business partnership known as “Kiddie
Castle.” The Pennsylvania Insurance Guaranty Association
(PIGA) contended that the dog bite incident was covered by the
separate homeowners’ policies of the defendants. These
homeowners’ policies had been issued by two separate
insurance companies. It was agreed that both policies contained
15
an exclusion for “bodily injury or property damage arising out
of business pursuits of any insured except activities therein
which are ordinarily incident to non-business activities.” 457
A.2d at 1288. The Superior Court affirmed the trial court’s
finding that the business pursuits exclusion applied to the dog
bite incident because “the liability in this case arose from a
strictly business related endeavor . . . .” Id. at 1289 (quoting
Bullock v. Pariser, 11 Pa. D. & C.3d 77, 82-83 (1979)).
The Court expressly rejected PIGA’s argument that,
“because the [child care] business can operate profitably with or
without a guard dog, . . . the purchase and maintenance of a
guard dog is not, itself, a business pursuit,” stating that
[w]e find this argument to be entirely
unconvincing. The fact that a business might
continue to make a profit in the absence of any
number of activities conducted in furtherance of
its interests does not prevent such activities from
being “business pursuits.” For example, a retail
store may make a profit while employing only
one salesperson, yet the hiring of a second
salesperson is clearly a “business pursuit.”
Id. at 1289. On the basis of this reasoning, the Court held that
the defendants need not be in the “security dog” business in
16
order for the business pursuits exclusion of their homeowner’s
policies to apply.
Here Canal contends that, because Singh is neither in the
truck leasing business (though in fact he undoubtedly is) nor the
truck sales business (which he undoubtedly is not), the business
uses exception cannot apply to his attempt to sell or trade the
Tractor. The Superior Court of Pennsylvania, however,
instructs that Mr. Singh need not be in either the truck leasing
or truck sales business in order for the “business use” exclusion
to apply. It is implicit in the language of Bullock that a
“business pursuits” clause applies where the liability arises from
a business-related endeavor and the activity in question is
“conducted in furtherance of [the business’] interests . . . .” Id.
at 1289. Similarly, Underwriters’ “business uses” exception
applies where the liability arises from any “business use” and
the activity at issue promotes the business purposes of the
insured.
In this case, these criteria are satisfied. The alleged
liability arose from an endeavor – the possible trade or sale of
a commercial vehicle – that was an exclusively business-related
activity. Singh himself testified that the sole purpose of the
trade or sale of the Tractor was to further or promote his
business interests.2 See Sun Alliance Ins. Co. of Puerto Rico v.
2
In relevant part, Mr. Singh testified at his deposition as
follows:
17
[Q] Why were you looking to trade in the truck?
[A] Because this truck required too much repair
on it. Spending – spent too much money on the
engine. So, I didn’t want to spend anymore.
[Q] How many miles were on the truck that day?
[A] I don’t remember.
[Q] Were you looking to trade in for a new truck?
[A] Yeah, a brand new truck.
[Q] Would that have cost less to maintain?
[A] Yeah. When you drive to California back and
forth – you have to have a good truck to run [sic]
California back and forth.
[Q] What’s that, over 3,000 miles each way?
[A] Yeah. Because you have to – six, seven days
back and forth from California.
[Q] Your arrangement with BIR at the time in
April of 2000, did that arrangement include you
paying for maintenance of your trucks?
[A] Yeah, I’m paying money.
[Q] Okay.
[A] Everything is mine. They have to give me
the load, BIR, that’s it. They don’t have nothing
else to do. If something break down or
something, if it break down . . . I have to pay for
everything from my pocket.
[Q] Okay. So, it was a better business
arrangement for you to have a new truck that
would require less maintenance than it was to
have the 1996 truck that required a lot of
18
Soto, 836 F.2d 834 (3d Cir. 1988) (relying on the testimony of
an insured in order to determine the coverage question against
him).
Beyond Bullock, several decisions interpreting “business
pursuits” exclusions under Pennsylvania law in non-trucking
contexts counsel in favor of the conclusion that Underwriters’
business use exclusion is unambiguous and applies here. One
such case is Travelers Indem. Co. v. Fantozzi, 825 F. Supp. 80
(E.D. Pa. 1993). There, the insured parents and their minor son
were sued after the son sexually molested a child whom the
parents were babysitting. The parents’ homeowner’s policy
excluded coverage for bodily injury “arising out of the business
pursuits of any insured except those of a clerical office
employee.” Id. at 84-85. The policy defined “business” to
include “trade, business or occupation.” Id. at 85. In coming to
its determination that the “business pursuits” exclusion was
unambiguous, id. (citing Myrtil v. Hartford Fire Ins. Co., 510 F.
Supp. 1198, 1201 (E.D. Pa. 1981) (finding the same language
“clearly not ambiguous”)), the Court explained that where the
applicability of a business pursuits exception is at issue in the
Third Circuit, an activity encompassed within that exclusion
requires two elements.
maintenance.
[A] Yeah.
(Emphases added.)
19
The first is continuity, or customary engagement
in the activity. The second, profit motive, may be
shown by such activity as a means of livelihood,
a means of earning a living, procuring subsistence
or profit, commercial transactions or
engagements.
Sun Alliance Ins. Co., 836 F.2d at 836. The Travelers Court
concluded that the continuity element was clearly satisfied:
“The [defendant parents] took care of [the victim child] on a
daily basis over the course of more than four years. Thus, the
time of the babysitting services was neither irregular nor of
limited duration.” Travelers Indem. Co., 825 F. Supp. at 85.
Because “the [defendant parents] agreed to babysit on a
full-time basis as a means of gaining temporary income while
[the defendant dad] was laid off from his customary job” and
there was “no dispute that the [defendants] were motivated by
a desire for compensation,” the Court further held that the
babysitting services satisfied the profit motive element of the
“business pursuits” exclusion. Id. As a result, the non-
commercial homeowner’s policy did not provide coverage for
claims made by the victim child’s family in the underlying tort
action.
Underwriters’ non-trucking liability policy similarly
precludes coverage here. Singh’s admitted purpose in trading
or selling the Tractor was the furtherance of his personally
owned and operated profit-making activity – leasing
20
commercial trucks to motor carriers. Moreover, Singh testified
that he had operated that business on a continuous basis for
approximately ten years. Because Singh’s activity satisfies both
prongs of the business pursuits exclusion test – profit motive
and continuity – Underwriters’ policy precludes coverage to
Singh for claims made while he was engaged in that activity.
B. Reasonable Expectations of the Insured
Canal further argues that “the great weight of authority
in Pennsylvania strongly favors a conclusion that the
Pennsylvania Supreme Court would in this case permit the
reasonable expectations of the insured to be relied on to
determine whether facially unclear insurance policy language is
ambiguous, and further find such ambiguity to preclude
exclusion and favor coverage of Mr. Singh.” Aplt. App. at 26.
Specifically, Canal claims that Singh reasonably expected the
business use exclusion to apply only to acts related to or
furthering the business of a commercial carrier, not to acts
related to selling or trading the Tractor. Id. at 19. Because
Underwriters’ construction of its exclusionary language is
contrary to the reasonable expectations of the insured, Canal
contends that the language is ambiguous and should be
interpreted in favor of Singh. Relying on Matcon Diamond v.
Pennsylvania Nat’l Ins. Co., 815 A.2d 1109, 1114 (Pa. Super.
Ct. 2003), the District Court here disagreed, explaining that it is
well settled in Pennsylvania that the reasonable expectations
doctrine does not provide relief where the language of the
21
contract is clear and unambiguous:
Canal also argues that Underwriters’ position is
precluded by the doctrine of “reasonable
expectations of the insured” as that doctrine has
developed under Pennsylvania law. The Court
disagrees. The Supreme Court of Pennsylvania
has held that the “polestar” for determining the
parties’ intent is the language of the policy
itself. To that end, the Superior Court of
Pennsylvania has noted that, “generally, courts
cannot invoke the reasonable expectation
doctrine to create an ambiguity where the policy
itself is unambiguous.” As recognized by the
Matcon court, the highest court in Pennsylvania
has limited the argument that the reasonable
expectations of the insured trump the clear and
unambiguous language of a policy to two
occasions: (1) protecting non-commercial
insureds from policy terms which are not
readily apparent; and (2) protecting
non-commercial insureds from deception by
insurance agents.
Canal Ins. Co., 333 F. Supp. 2d at 356-57 (internal citations
omitted). The Court expressly declined Canal’s invitation to
look beyond the “plain and unambiguous language of the policy
in order to scrutinize what Mr. Singh’s expectations may have
22
been regarding coverage” because Canal “advanced no
argument that Underwriters’ policy terms were not readily
apparent or that there was deception by the insurance agents.”
Id. at 357.
Our Court recently weighed in on the Pennsylvania
reasonable expectations doctrine, stating that
Pennsylvania case law . . . dictates that the
proper focus for determining issues of Insurance
coverage is the reasonable expectations of the
insured. In most cases, the language of the
insurance policy will provide the best indication
of the content of the parties’ reasonable
expectations. Courts, however, must examine
the totality of the insurance transaction involved
to ascertain the reasonable expectations of the
insured. As a result, even the most clearly
written exclusion will not bind the insured
where the insurer or its agent has created in the
insured a reasonable expectation of coverage.
However, this aspect of the doctrine is only
applied “in very limited circumstances” to
protect non-commercial insureds from policy
terms not readily apparent and from insurer
deception. Absent sufficient justification,
however, an insured may not complain that his
or her reasonable expectations were frustrated
23
by policy limitations that are clear and
unambiguous.
Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d
Cir. 2005) (internal citations and quotations omitted). In this
context, the District Court’s refusal to look beyond the plain
meaning of the unambiguous exclusionary language to Singh’s
reasonable expectations is consistent with the interpretation of
Pennsylvania case law in our Circuit.
C. Public Policy Considerations
Canal further argues that Underwriters’ exclusionary
language violates Pennsylvania public policy ensuring adequate
insurance is available to parties injured in motor vehicle
accidents because (1) enormous gaps between non-trucking and
commercial liability trucking insurance may exist as a result of
the exclusion, and (2) the exclusion is in conflict with the Motor
Vehicle Financial Responsibility Law (MVFRL), 75 Pa. Cons.
Stat. § 1701 et seq. Underwriters contends that in cases
examining the ambiguity of insurance policy terms, i.e., cases
where the issue is one of contract interpretation, the
Pennsylvania Supreme Court has held that public policy
arguments are irrelevant.
24
Relying on Madison, 735 A.2d at 108 n.7,3
Pennsylvania courts repeatedly have stated “when the question
is one of contract interpretation, public policy arguments are
irrelevant.” Matcon Diamond, 815 A.2d at 1112; Wagner v.
Erie Ins. Co., 801 A.2d 1226, 1231 (Pa. Super. Ct. 2002);
Municipality of Mt. Lebanon v. Reliance Ins. Co., 778 A.2d
1228, 1232 (Pa. Super. Ct. 2001). In Madison, the Pennsylvania
Supreme Court instructed that “[t]he court’s only aim [in a
contract interpretation case is] to ascertain the intent of the
parties as manifested by the language of the written instrument.”
735 A.2d at 108. Immediately thereafter, it dropped a footnote
stating that
[t]he same principle precludes consideration of
the public policy arguments advanced by
Madison and its amicus. There is no claim of
unconscionability before us. The question to be
decided, therefore, is not whether the insurance
industry should be allowed to issue commercial
general liability policies containing the absolute
pollution exclusion clause. That question is a
matter for the legislature and the Insurance
3
Both Matcon Diamond and Reliance Ins. Co. cite
Madison at footnote 8 for the proposition that when the question
is one of contract interpretation, public policy arguments are
irrelevant. Language to this effect in Madison is actually found
in footnote 7 of the opinion. See Madison, 735 A.2d at 108 n.7.
25
Commissioner of the Commonwealth. The
pertinent question is, rather, whether such
clause, contained in the contract of insurance
entered into between Madison and Harleysville,
by its terms operates to relieve Harleysville of
its obligation to defend Madison in the
underlying personal injury action. That is a
matter for judicial resolution in accordance with
accepted principles of contract interpretation.
Id. at n.7.
The same analysis necessarily applies here. Canal
advances no argument that Underwriters’ exclusion is
unconscionable. Therefore, the question is not whether the
insurance industry should be allowed to issue non-trucking
liability policies containing extremely broad business use
exclusion clauses. Rather, it is whether the business use
exclusionary clause by its terms operated to relieve
Underwriters of its obligation to indemnify Singh in the
Espenshade suit.
The District Court did not address whether Canal’s
public policy arguments were relevant. Instead, the Court
stated:
[Canal] also argues that public policy supports
its argument that the phrase is ambiguous. For
26
this proposition, [Canal] cites Lincoln General
Ins. v. Liberty Mut. Ins. Co., 804 A.2d 661 (Pa.
Super. Ct. 2002) and Connecticut Indemnity Co.
v. Stringfellow, 956 F. Supp. 553 (M.D. Pa.
1997). The Court will assume that indeed there
is a public policy to ensure a source of
compensation for injured parties when a lease
agreement, common in the trucking industry,
might create confusion over who would be
responsible for accidents. However, there are
statutory and regulatory mandates, such as those
discussed in Prestige Casualty, 99 F.3d at
1342[,] and Carolina Casualty Ins. Co. v. Ins.
Co. Of North America, 595 F.2d 128, 134-35
(3d Cir. 1979)[,] in place in recognition of this
policy. Moreover, given that the injured parties
in this case have already been compensated, the
public policy favoring compensation has been
vindicated.
333 F. Supp. 2d at 357 n.5. The Court is correct that public
policy ensures a source of compensation for injured parties
when a lease agreement might lead to a gap in coverage and
statutory and regulatory mandates are in place that demand the
provision of such compensation. Pursuant to 49 U.S.C. §§
13906(a)(1), 31139(b)(2) and 49 C.F.R. § 387 (the federal
statutory and regulatory provisions discussed in Prestige
Casualty and Carolina Casualty), an MCS-90 endorsement
27
must accompany any liability policy issued to a registered motor
carrier.4 Indeed, Canal concedes that the mandatory
4
The MCS-90 endorsement is a federally required form
endorsement which states that commercial liability insurers,
such as Canal, must pay any “final judgment” recovered against
the insured for public liability resulting from negligence in the
operation, maintenance, or use of motor vehicles subject to
financial responsibility requirements of the Motor Vehicle Act
regardless whether the vehicle is described in the policy. Should
a commercial liability insurer fail to pay any final judgment
rendered against its insured, it becomes personally responsible
for the judgment. See Aplt. App. at 50. The MCS-90
endorsement in our case states:
In consideration of the premium stated in the
policy to which this endorsement is attached, the
insurer (the company) agrees to pay, within the
limits of liability described herein, any final
judgment recovered against the insured for public
liability resulting from negligence in the
operation, maintenance or use of motor vehicles
subject to the financial responsibility
requirements of Sections 29 and 30 of the Motor
Carrier Act of 1980 regardless whether each
motor vehicle is specifically described in the
policy and whether or not such negligence occurs
on any route or in any territory authorized to be
served by the insured or elsewhere . . . .
It is understood and agreed that no condition,
provision, stipulation, or limitation contained in
the policy, this endorsement, or any other
28
endorsement thereon, or violation thereof, shall
relieve the company from liability or from the
payment of any final judgment, within the limits
of liability herein described, irrespective of the
financial condition, insolvency or bankruptcy of
the insured. . . . The insured agrees to reimburse
the company for any payment made by the
company on account of any accident, claim, or
suit involving a breach of the terms of the policy,
and for any payment that the company would not
have been obligated to make under the provisions
of the policy except for the agreement contained
in the endorsement.
It is further understood and agreed that, upon
failure of the company to pay any final judgment
recovered against the insured as provided herein,
the judgment creditor may maintain an action in
any court of competent jurisdiction against the
company to compel such payment.
Id. The MCS-90 endorsement is, in effect, suretyship by the
insurance carrier to protect the public – a.k.a. a safety net.
T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667,
672 (5th Cir. 2001) (noting that “[t]he First Circuit has aptly
described the obligation placed upon the insurer by the MCS-90
as one of suretyship”). Thus, an insurer’s responsibilities under
the endorsement are triggered when the policy to which it is
attached does not provide coverage to the insured. The peculiar
nature of the MCS-90 endorsement grants the judgment creditor
the right to demand payment directly from the insurer, and
simultaneously grants the insurer the right to demand
29
MCS-90 endorsement accompanying its policy with BIR
required it to indemnify and defend BIR in the Espenshade suit.
Moreover, the undisputed fact that the parties injured in this
case have been compensated counsels against any argument that
a ruling in favor of no coverage on the basis of a business use
exclusion in a non-trucking policy severely undermines the
long-standing public policy favoring victim compensation.
Canal is correct, however, that if its insurance policy does not
apply to Singh’s trucking activity at the time of the Espenshade
suit, there is a broad gap of coverage here because, under those
circumstances, neither Canal nor Underwriters was obligated to
defend or indemnify Singh. The question then becomes
whether such a gap in coverage offends Pennsylvania public
policy.
As mentioned at the beginning of this section, Canal
contends that Underwriters’ business use exclusion offends
public policy because it conflicts with the MVFRL.
Specifically, Canal claims that Underwriters’ exclusion is in
tension with the MVFRL because it “is in place to ensure that
adequate liability coverage is maintained on all vehicles driven
within this Commonwealth so as to protect innocent
Pennsylvania residents who become victims of motor vehicle
accidents” and “the very purpose of non-trucking insurance is
to provide independent owner-operators . . . adequate insurance
coverage to ensure compensation for such victims of motor
reimbursement from the insured.
30
vehicle accidents involving tractors and trailers not being used
for commercial purposes related to the motor carrier’s business
at the time of the accident.” Aplt App. at 42-43. Under
Pennsylvania law, stipulations in a contract of insurance in
conflict with, or repugnant to, statutory provisions that are
applicable to, and consequently form a part of, the contract must
yield to the statute, and are invalid, since contracts cannot
change existing statutory laws. Prudential Property and Cas.
Ins. Co. v. Colbert, 813 A.2d 747 (Pa. 2002).
The MVFRL requires that every insurance policy issued
in Pennsylvania include underinsurance motorist coverage
unless it is rejected by the insured. Allwein v. Donegal Mutual
Ins. Co., 671 A.2d 744, 756 (Pa. Super. Ct. 1996). Simply
stated, the statute requires insurance companies to offer
underinsurance coverage to its insured, which its insureds can
reject. Id. (Under the MVFRL, “insurers . . . must offer
underinsurance to their insureds; they do not have to provide
underinsurance.”) (emphasis in original). Pertaining to the
public policy concerns of the MVFRL, the Pennsylvania
Supreme Court has stated that
[t]he repeal of the No-Fault Act . . . and the
enactment of the MVFRL reflected a legislative
concern for the spiraling consumer cost of
automobile insurance and the resultant increase
in the number of uninsured motorists driving on
public highways. The legislative concern for
31
the increasing cost of insurance is the public
policy that is to be advanced by statutory
interpretation of the MVFRL. This reflects the
General Assembly’s departure from the
principle of “maximum feasible restoration”
embodied in the now defunct No-Fault Act.
Burstein v. Prudential Property and Cas. Ins. Co., 809 A.2d
204, 207 (Pa. 2002). The Court went on to say that “[i]ndeed,
the Legislature’s concern for the increasing cost of automobile
insurance and the parallel aim of cost containment are easily
gleaned from the legislative history of the MVFRL.” Id. While
the Court recognized “that other public policies may underlie
the MVFRL, the legislative concern for the spiraling consumer
cost of automobile insurance is its dominant and overarching
public policy.” Id. at 207 n.4. Because Pennsylvania’s
Supreme Court points out that the purpose of MVFRL is to
control the cost of consumer auto insurance, not “maximum
feasible restoration” to accident victims, Canal’s submission
that any gap in insurance coverage created by Underwriters’
business use exclusion conflicts with MVFRL is unpersuasive.
This is because
[p]ublic policy is to be ascertained by reference
to the laws and legal precedents and not from
general considerations of supposed public
interest. As the term “public policy” is vague,
there must be found definite indications in the
32
law of the sovereignty to justify the invalidation
of a contract as contrary to that policy. . . .
Only dominant public policy would justify such
action. In the absence of a plain indication of
that policy through long governmental practice
or statutory enactments, or of violations of
obvious ethical or moral standards, the Court
should not assume to declare contracts . . .
contrary to public policy. The courts must be
content to await legislative action.
Id. at 207 (quoting Eichelman v. Nationwide Ins. Co., 711 A.2d
1006, 1008 (Pa. 1998)) (emphases added); see also Hall v.
Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994). Given
that (1) controlling state case law indicates that public policy
considerations do not apply here because this is a case of
contract interpretation, Madison, 735 A.2d at 108 n.7, (2) there
are no uncompensated victims here, cf. Paylor v. Hartford Ins.
Co., 640 A.2d 1234, 1240 (Pa. 1994) (stating application of
public policy concerns in determining the validity of an
insurance exclusion depends on the factual circumstances
presented in each case), and (3) Canal has pointed to no state or
federal statute that is offended by the potential gap in coverage
due to Underwriters’ exclusion, the gap created by
Underwriters’ broad exclusionary language is a matter for the
Pennsylvania legislature.
*****
33
For the reasons explained above, we affirm the District
Court’s ruling that Underwriters’ broad “business use”
exclusionary language, which prohibits “any use of the covered
auto that promotes the business purpose of the [i]nsured,”
unambiguously denies coverage to Singh for liability arising
from the Espenshade accident. We also affirm the District
Court’s determinations that neither the doctrine of reasonable
expectations nor Pennsylvania public policy make Underwriters
liable for the accident.
34