Transcontinental Ins. Com v. Rainwater Construction ( 2007 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 07-1011/1394/1448
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Transcontinental Insurance Company; *
Transportation Insurance Company, *
*
Appellants/Cross-Appellees, *
* Appeals from the United States
v. * District Court for the
* Eastern District of Arkansas.
Rainwater Construction Company, *
LLC; Timothy Rainwater; Arthur D. *
Rainwater; Rickey J. Kitchen, *
*
Appellees/Cross-Appellants. *
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Submitted: November 15, 2007
Filed: December 5, 2007
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Before RILEY, TASHIMA,1 and SMITH, Circuit Judges.
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RILEY, Circuit Judge.
Rainwater Construction Company, LLC (Rainwater) purchased insurance
policies from Transcontinental Insurance Company and Transportation Insurance
Company, both subsidiaries of CNA Financial Corporation (collectively, CNA). The
insurance policies contained a “Named Driver Exclusion Endorsement,” which stated
1
The Honorable A. Wallace Tashima, United States Circuit Judge for the Ninth
Circuit, sitting by designation.
that insurance coverage “does not apply to any claims, damages, expenses or ‘loss’ . . .
arising out of the maintenance, operation or use of any ‘auto’ by [Rickey Joseph
Kitchen (Kitchen)].” On October 19, 2005, as Kitchen drove a Rainwater truck and
trailer over an overpass, the trailer detached from the truck, crashing into Scottie
Lane’s (Lane) truck and seriously injuring both Lane and Michael New (New), a
passenger in the truck.
Lane, New, and their respective wives filed suit in the Circuit Court of
Craighead County, Arkansas, in cause numbers CV-2006-235(DB) and
CV-2006-270(JF) (state court actions).2 CNA defended under a reservation of rights
and then filed this declaratory judgment action in the United States District Court for
the Eastern District of Arkansas in case number 3:06-CV-00083-GH (federal court
action). In the federal court action, CNA sought a declaratory judgment that
Rainwater’s insurance policies precluded insurance coverage under the Named Driver
Exclusion Endorsement for any judgment against Rainwater in the state court actions.
The district court determined that Rainwater’s CNA insurance policies provided
coverage because the sole proximate cause of the accident was “the improperly
attached trailer, not Kitchen’s driving.” The district court also ordered Rainwater to
submit a request for attorney fees pursuant to Arkansas Code section 23-79-209(a).
CNA then accepted the Lanes’ and News’ policy limits settlement demand of
$2 million. The settlement agreement, in letter form, expressly provided:
Transcontinental Insurance Company and Transportation Insurance
Company (CNA) accept your clients’ joint settlement demand of $2
million dollars, payable to the Lanes and News and their counsel, in
exchange for a full release and dismissal with prejudice of all claims
against CNA and its insureds, Rainwater Construction Company, LLC,
Rickey Kitchen, Sharon Rainwater, Timothy Rainwater, Arthur D.
2
Scottie and Debbie Lane and Michael and Charlotte New are not parties in this
appeal.
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Rainwater, asserted in Cause No. 3:06CV00083GH and in Cause No. CV
2006-235(DB), each party to bear their own costs and fees. Mr. Emerson
will draft the formal releases and the dismissal documents in the state
case. I will immediately advise the district court that the cases have
settled and will file with the Eighth Circuit a motion to vacate and
dismiss the federal suit.3
CNA mailed the settlement agreement letter to Rainwater’s attorney and provided a
signature block for Rainwater’s attorney’s signature. Rainwater’s attorney signed the
settlement agreement on behalf of Rainwater. CNA paid the $2 million settlement.
Thereafter, the district court granted Rainwater’s attorney fees claim in the
amount of $23,667.50. CNA appeals the attorney fees award, arguing (1) the
settlement agreement required “each party to bear their own costs and fees,” and
(2) Rainwater was not entitled to an attorney fees award because the district court
erred in interpreting Rainwater’s insurance policies. Rainwater cross-appeals the
amount of the attorney fees award.
I. DISCUSSION
We review de novo the district court’s interpretation of the settlement
agreement. Little Rock Sch. Dist. v. N. Little Rock Sch. Dist., 109 F.3d 514, 516 (8th
Cir. 1997). Because the federal courts have diversity jurisdiction over this case
pursuant to 28 U.S.C. § 1332, Northbrook Nat’l Ins. Co. v. Brewer, 493 U.S. 6, 9
(1989), we apply the substantive law of the State of Arkansas, see HOK Sport, Inc.
v. FC Des Moines, L.C., 495 F.3d 927, 934 (8th Cir. 2007).
Under Arkansas law, settlement agreements are treated as contracts. See
Williams v. Davis, 659 S.W.2d 514, 515 (Ark. Ct. App. 1983). “[T]he first rule of
3
Although the settlement agreement did not specifically reference Arkansas
cause number CV-2006-270(JF), the parties agree the settlement agreement resolved
this case.
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interpretation of a contract is to give to the language employed the meaning which the
parties intended.” First Nat’l Bank of Crossett v. Griffin, 832 S.W.2d 816, 819 (Ark.
1992). “When contracting parties express their intention in a written instrument in
clear and unambiguous language, it is our duty to construe the written agreement
according to the plain meaning of the language employed.” C. & A. Constr. Co. v.
Benning Constr. Co., 509 S.W.2d 302, 303 (Ark. 1974). “To arrive at the intention
of the parties to a contract, courts may acquaint themselves with the persons and
circumstances and place themselves in the same situation as the parties who made the
contract.” Schnitt v. McKellar, 427 S.W.2d 202, 207 (Ark. 1968).
Rainwater asserts the settlement agreement is ambiguous regarding the release
of Rainwater’s attorney fees claim. Although the settlement agreement could have
conclusively resolved this issue by providing “each party to bear their own costs and
attorney fees,” simply because the settlement agreement could have been written with
exact clarity does not imply the settlement agreement is ambiguous. Rather, where
the only fees in dispute were Rainwater’s attorney fees, the settlement agreement is
only susceptible to one reasonable interpretation. In this context, the plain meaning
of “fees” refers to Rainwater’s attorney fees. Under these circumstances, the
settlement agreement unambiguously and sufficiently provided that Rainwater
released its attorney fees claim.
Rainwater also asserts the settlement agreement did not resolve the federal
litigation because (1) CNA accepted the settlement offer of the Lanes and News, who
had no authority to release Rainwater’s attorney fees claim; and (2) Rainwater would
not have gratuitously released its attorney fees claim. In writing the settlement
agreement letter, CNA expressly referenced the federal action’s case number and
submitted the settlement agreement to Rainwater’s attorney. The first addressee on
the settlement agreement letter was Rainwater’s attorney, followed by the attorneys
for the Lanes and the News. The letter expressed a payment of $2 million to the Lanes
and the News “in exchange for a full release and dismissal without prejudice of all
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claims against CNA” asserted in the federal action. Rainwater’s attorney received the
letter and signed the acceptance signature block on behalf of Rainwater, accepting the
terms of the settlement agreement.4 By entering into the settlement agreement,
Rainwater released its attorney fees claim in exchange for the settlement of the
Arkansas state court litigation (in which Rainwater potentially faced liability for any
judgment in excess of the policy limits) and the dismissal of CNA’s appeal of the
district court’s judgment (in which Rainwater risked reversal of the district court’s
coverage decision).
II. CONCLUSION
Because we conclude Rainwater released its attorney fees claim, we need not
consider CNA’s and Rainwater’s other arguments.5 We reverse and vacate the district
court’s award of attorney fees.
______________________________
4
The settlement agreement letter directed, “Please sign at the bottom to
acknowledge that this comports with your clients’ understanding.”
5
We express no opinion regarding the propriety of the district court’s
interpretation of the insurance policy.
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