Auto-Owners Insurance v. Sarata

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
AUTO-OWNERS INSURANCE COMPANY, 
a Michigan Corporation,
Plaintiff-Appellant,
v.
DEBBIE RAE SARATA, Personal
Representative of the Estate of  No. 01-2102
Raymond R. Beauparlant,
Defendant-Appellee,
and
JAMES TAYLOR WEATHERFORD,
Defendant.

Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Matthew J. Perry, Jr., Senior District Judge.
(CA-00-2129-3-10)
Argued: February 25, 2002
Decided: April 29, 2002
Before WILKINSON, Chief Judge, MICHAEL, Circuit Judge,
and Raymond A. JACKSON, United States District Judge
for the Eastern District of Virginia, sitting by designation.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Sidney Markey Stubbs, BAKER, RAVENEL &
BENDER, L.L.P., Columbia, South Carolina, for Appellant. Eugene
2 AUTO-OWNERS INSURANCE v. SARATA
F. Rogers, Katherine Brandt Barroll, ROGERS, TOWNSEND &
THOMAS, P.C., Columbia, South Carolina, for Appellee. ON
BRIEF: Holly L. Palmer, BAKER, RAVENEL & BENDER, L.L.P.,
Columbia, South Carolina, for Appellant. Robert P. Wood, ROGERS,
TOWNSEND & THOMAS, P.C., Columbia, South Carolina, for
Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
James E. Weatherford is the named insured in an executive
umbrella policy issued by Auto-Owners Insurance Company. After a
collision involving his son, the insurer brought a declaratory judgment
action, contending that the definition of an insured "relative" in the
umbrella policy unambiguously excluded a relative who did not
reside in the named insured’s household. The district court disagreed
and dismissed the action with prejudice. Because the policy’s defini-
tion of "relative" is ambiguous, and because the father had a reason-
able expectation of coverage for his son, we affirm.
I.
Defendant Debbie Rae Sarata is the personal representative of the
estate of Raymond Beauparlant, who was killed in a collision on Sep-
tember 15, 1999 in Lexington County, South Carolina. Defendant
James T. Weatherford was driving the other vehicle involved in the
accident. He was twenty-four years old at the time. The issue before
us is whether he is a "relative" as that term is defined in the umbrella
policy issued by Auto-Owners to his father.
The umbrella policy contains the following definitions:
AUTO-OWNERS INSURANCE v. SARATA 3
"Insured" means you and also:
(a) A relative . . . .
....
"Relative" means:
(a) your relative; or
(b) anyone else, under the age of 21, in your care;
who resides in your household.
Auto-Owners contends that the definition of "relative" in the policy
unambiguously excludes a relative who does not live in the named
insured’s household, and that the son did not reside in the father’s
household when the accident took place. Sarata replies that the poli-
cy’s definition of "relative" does not unambiguously exclude a rela-
tive of the named insured who is identified in and covered by the
underlying automobile liability policy, even if he does not live with
the named insured.
The umbrella policy required the father to maintain an underlying
policy for automobile bodily injury liability of $500,000. The
umbrella policy provided that "[i]f any underlying insurance is
exhausted by any occurrence, we will assume charge of the settlement
or defense of any claim against the insured resulting from the same
occurrence." The underlying policy listed the father as the named
insured and identified his son as the primary driver of the vehicle
involved in the accident. The father paid the premiums on the under-
lying policy, and the underlying insurer, State Farm Insurance Com-
pany, paid its limits of $500,000.
On cross-motions for summary judgment, the district court applied
Georgia law and found that the umbrella policy’s definition of "rela-
tive" was ambiguous.1 It then applied Georgia’s rules for construing
1
Georgia law is controlling because the umbrella policy was issued in
Georgia to a Georgia resident. A federal court sitting in diversity must
4 AUTO-OWNERS INSURANCE v. SARATA
insurance policies, which require that ambiguities be strictly con-
strued against the insurer, and that the policy be read in accordance
with the reasonable expectations of the insured where possible. Rich-
ards v. Hanover Ins. Co., 299 S.E.2d 561, 563 (Ga. 1983). The dis-
trict court concluded that the father had an objectively reasonable
expectation of coverage for his son, and thus that the son was an
insured under the umbrella policy for purposes of claims arising out
of the collision. Accordingly, the court granted Sarata’s motion for
summary judgment. Auto-Owners appeals.
II.
Reviewing the district court’s grant of summary judgment de novo,
see Higgins v. E.I. DuPont de Nemours & Co., 863 F.2d 1162, 1167
(4th Cir. 1988), we agree that the policy language at issue is ambigu-
ous. In view of the non-standard and confusing use of semi-colons
and, more importantly, the misplacement of the final clause, "who
resides in your household," the definition of the term "relative" does
not unambiguously limit coverage to only those relatives who reside
in the insured’s household.2 Specifically, the reader could reasonably
conclude that the clause "who resides in your household" modifies
only line (b) and not the phrase "your relative" in line (a). The words
"your relative" appear to stand alone. Because there is no way to
clearly determine through parsing what the clause "who resides in
your household" modifies, it is far from unreasonable for the insured
to expect that any relative specifically insured by an underlying policy
is also an insured in the umbrella policy.
As the district court observed, qualifying clauses typically modify
apply the choice of law rules of the forum state. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941). And in insurance coverage dis-
putes, South Carolina courts apply "the law of the state in which applica-
tion for insurance was made, the policy delivered, and the contract
formed." Unisun Ins. Co. v. Hertz Rental Corp., 436 S.E.2d 182, 184
(S.C. Ct. App. 1993).
2
Semi-colons act either as weak periods or as strong commas. Sidney
Greenbaum, The Oxford English Grammar § 11.17 (1996). In standard
usage, they are not employed to indicate a continuation of the items to
be modified by a final clause.
AUTO-OWNERS INSURANCE v. SARATA 5
only the immediately preceding words and phrases. This basic rule of
both grammar and interpretation is commonly known as the last ante-
cedent rule. See, e.g., Bakery & Confectionery Union & Indus. Int’l
Pension Fund v. Ralph’s Grocery Co., 118 F.3d 1018, 1026 (4th Cir.
1997); Virginia v. Browner, 80 F.3d 869, 877 (4th Cir. 1996). The
phrase "your relative" is too far removed from the final clause, "who
resides in your household," for the lay reader to unambiguously
understand that a relative covered in an underlying policy is excluded
in the umbrella policy.
Contrary to Auto-Owners’ assertion, the district court correctly
concluded that the use of semi-colons in the definition of "relative"
does not create an exception to the last antecedent rule because they
are employed incorrectly and superfluously. Laypersons cannot be
expected to glean that the insurer’s non-standard use of semi-colons
indicates a continuation of the items to be modified by the final
clause. Instead, they may reasonably disregard improper punctuation
in attempting to discern the meaning of contractual language. And
when reading the definition without the incorrect punctuation, they
may rely on the standard rule of grammar that a clause qualifies only
the language which immediately precedes it. Here, only line (b)
comes just before the clause "who resides in your household." The
"(b)" and "or" separate "your relative" from the remainder of the sen-
tence.
In any event, the district court also astutely determined that the
ambiguity here is created not by the non-standard use of punctuation,
but rather by the word order. And Auto-Owners’ contentions notwith-
standing, the semi-colons do nothing to resolve the confusion. On the
contrary, the insurer’s use of them in a non-standard and confusing
fashion only makes matters worse.
As the drafter of this insurance contract, Auto-Owners could have
been so clear so easily, thereby avoiding the problem of interpretation
that has generated this litigation. For example, the definition of "rela-
tive" would have unambiguously limited relatives to residents of the
named insured’s household, even with the same punctuation, if it had
stated:
6 AUTO-OWNERS INSURANCE v. SARATA
"Relative" means someone who resides in your household
and is: (a) your relative; or (b) anyone else, under the age
of 21, in your care.
Auto-Owners has not met its "burden of drafting clear and precise
language" indicating that the phrase "your relative" excludes non-
resident relatives covered by the underlying policy. See Richards, 299
S.E.2d at 564.
Auto-Owners further argues that its format and punctuation pattern
in other policy definitions require the clause "who resides in your
household" to be read as qualifying the phrase "your relative." Again,
we agree with the district court that neither the indentations and line
spacing nor the punctuation pattern eliminate the ambiguity. The dif-
ferences in vertical line spacing are not readily apparent, nor can lay
readers be expected to understand or even notice a pattern of superflu-
ous punctuation.
Finally, Auto-Owners submits that it not only is unreasonable but
also "defies logic" for the father to expect coverage for any remote
relative no matter where located. As seductive as this argument may
at first appear, such an implication simply does not follow from an
interpretation that does not qualify the phrase "your relative" with the
final clause, "who resides in your household." As the district court
observed, "it is unlikely that a named insured would purchase the
required $500,000 of underlying coverage for such a remote relative
or designate a remote relative as the primary driver." And in view of
the way this contract was drafted, as well as the fact that by design
umbrella and underlying policies often have the same scope, it is cer-
tainly reasonable for the father to expect that a relative identified in
and insured by the underlying policy is also an insured in the umbrella
policy.
In short, it is very difficult for the average person to read this pol-
icy and understand what is going on. For the foregoing reasons, the
judgment of the district court is
AFFIRMED.