Leech Lake Tribal Council v. Washington National Insurance

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 99-2616
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LEECH LAKE TRIBAL COUNCIL, *
a Federally Recognized Indian Tribe, *
*
Appellant, *
*
vs. *
*
WASHINGTON NATIONAL * Appeal from the United States
INSURANCE COMPANY, * District Court for the
an Illinois Mutual Insurance Company, * District of Minnesota
and TRUSTMARK INSURANCE *
COMPANY, an Illinois Insurance *
Company, *
*
Appellee. *
___________
Submitted: June 13, 2000
Filed: September 6, 2000
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Before LOKEN and BRIGHT, Circuit Judges, and HAND,1 District Judge.
___________
HAND, District Judge.
This case is before the Court on appeal from the District of Minnesota, wherein
the District Court ruled on summary judgment that the term "issued", as utilized in the
1
The Honorable W. B. Hand, United States District Judge for the Southern
District of Alabama, sitting by designation.
insurance contract in question, was defined by the UCC. The District Court held that
the terms of the UCC "are incorporated into all negotiable instrument transactions in
the state." Accordingly, the District Court ruled that the checks in question here, were
not "issued" until they had been delivered as required by the UCC. We REVERSE
and REMAND to the District Court for further proceedings consistent with the terms
of this Order.
FINDINGS OF FACT
The relevant facts of this case are rather simple. The Appellant, Leech Lake
Tribal Council (Leech Lake), purchased a stop-loss insurance policy from the Appellee,
Washington National Insurance Company (Washington National). Washington
National is the author of the policy. According to the terms of the policy, Washington
National is required to reimburse Leech Lake for certain expenses. In order for
covered expenses to be reimbursable they must have actually been incurred during the
coverage period and also "paid" during the coverage period. The coverage period
commenced December 1, 1995 and expired November 30, 1996. The checks in
question totaled $264, 266.98, and were printed by Leech Lake on November 26, 1996,
prior to the expiration date. As of that date, Leech Lake did not have sufficient funds
to cover the checks. Thus, the checks were not delivered to the named payees until
February of 1997. After which the checks were funded and honored according to the
terms of the policy.
ISSUES OF LAW
There is no question that the expenses at issue in this case were actually incurred
during the coverage period. However, the question for this Court to answer is whether
Leech Lake "paid" the expenses during the coverage period, as defined and required
by the terms of the policy. If so, then Washington National must reimburse Leech Lake
for the amount by which the checks exceed the "stop-loss" sum provided in the policy.
If not, Washington National owes Leech Lake nothing. This is a question of law which
the Court will review de novo.
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According to the policy, "'Paid' means actually funded by means of a draft or
check issued by you, received by the payee, and honored. When the preceding
requirements are met, the date of payment is the date the draft or check is issued."
Thus, according to the policy, the term "paid" has four elements: (1) actually
funded by means of a draft or check, (2) issued by Leech Lake, (3) received by the
payee, and (4) honored. Once all of these elements have been met, then according to
the policy, the date of payment is the date the draft or check was issued. In other
words, the date of payment 'relates back' to the date of issuance. Therefore, in order
for this Court to determine when payment occurred, we must determine when the
checks were "issued". If they were issued after the expiration date of November 30,
1996, then Washington National owes nothing. On the other hand, if the checks were
issued prior to November 30, 1996, then Washington National must reimburse Leech
Lake for the amount by which the checks exceed the "stop-loss" sum provided in the
policy, even though the other elements of payment were not met until several months
after the expiration of the policy period.
Washington National argues and the District Court held, that the checks were not
issued until they had been delivered by Leech Lake to the named payees. The thrust
of this argument is that the state of Minnesota has adopted the UCC, and the UCC
controls negotiable instrument transactions. This case involves checks, which are
negotiable instruments, and therefore the UCC controls in this case. According to the
UCC, a check has not been "issued" until it has been delivered to the payee.
Ordinarily, such an argument would be correct, but not in this instance.
Although Minnesota has adopted the UCC, Minn. Stat. §336.1-102(3) clearly states
that "the effective provisions of [the UCC] may be varied by agreement." In this case
the parties entered into an agreement, which was drafted by Washington National, the
insurer. Therefore, any ambiguous language in the insurance policy will be construed
against Washington National and in favor of Leech Lake, the insured. See Safeco Ins.
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Co. v. Lindberg, 394 N.W.2d 146 (Minn. 1986). Any terms or provisions of an
insurance policy which are susceptible to more than one meaning are ambiguous.
Rusthoven. v. Commercial Standard Ins. Co, 387 N.W.2d 642 (Minn. 1986). For the
reasons set forth below, we hold that the term "issued", as utilized in this policy for
insurance, is ambiguous. One meaning of the term (the UCC definition) would require
a finding that the payments were not made until after the policy period expired.
Another reasonable meaning of the term would require a finding that the payments were
made prior to expiration of the policy period.
Because the term "issued" is a term of art which has a very specific legal
definition under the UCC, we would ordinarily apply that definition when we find the
term used in a negotiable instrument transaction. However, due to the language used
by Washington National when drafting the policy, a reasonable person could
understand that Washington National intended to deviate from the UCC definition of
the term "issued".
First, when Washington National drafted the policy it defined the term "paid".
In that definition, Washington National identified the concepts of issuance and receipt
separately. By doing so, Washington National has created a situation wherein a
reasonable person might believe that the physical transference of the check is not an
element of the term "issued". If Washington National intended to incorporate a
physical transfer aspect into the term "issued", then there was no need to separately
(and redundantly) delineate the terms "issued" and "receipt". Instead, Washington
National could have simply used the term "issued" alone, because (as argued by
Washington National) this term normally incorporates within itself a physical transfer
aspect.
Secondly, Washington National argues that the payments were not made until
the payees received the checks. However, the Court is of the opinion that Washington
National could have very easily drafted the policy to state that the date of payment
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would relate back to the date of receipt, instead of the date of issue. By separately
enumerating "issued" and "received" as distinct elements of the definition of "paid", and
then relating the date of payment back to the date the checks were "issued", rather than
the date the checks were "received", Washington National has further provided the
insured with reason to believe that the UCC definition of "issued" will not be
incorporated into the policy. One can easily read this policy to mean that the date upon
which a check is "issued" is wholly different from the date upon which the check is
"received" by the payee. In fact, this is probably the most reasonable reading of the
policy. At the very least the policy is ambiguous on this point and must therefore be
read in favor of Leech Lake. See Safeco Ins. Co. v. Lindberg, 394 N.W.2d 146 (Minn.
1986).
If we are not going to apply the UCC definition of "issue" to this policy, what
meaning shall we apply to the term? A fundamental axiom for the interpretation of
insurance policies is that "a provision in an insurance policy is to be interpreted
according to the plain, ordinary sense of what a reasonable person in the position of the
insured wold have understood the words to mean." Farmers Home Mut. Ins. Co. v.
Lill, 332 N.W.2d 635, 637 (Minn. 1983). Leech Lake points out that "Webster's Third
New International Dictionary, 1201 (1993) defines 'issue' as, inter alia, 'the act of
officially putting forth or getting out or printing (as new currency or postage
stamps)***.'"2 Based upon this definition and the fact that Washington National
seemingly dissected from "issue" the "delivery" aspect of the UCC definition, Leech
Lake argues that the checks in question here were "issued" when they were printed.
We agree that this is one possible reading of the policy. Furthermore, because we are
reading the ambiguous term against Washington National, and in favor of Leech Lake,
we hold that the checks in this case were in fact issued on November 26, 1996, the date
upon which the checks were printed. This date being before the expiration of the
2
Appellant's Br. at 11.
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policy period, Washington National is liable to Leech Lake for the amount by which
the checks exceed the "stop-loss" sum provided in the policy.
CONCLUSION
For the reasons set forth above, we hold that this case is due to be and is hereby
REVERSED and REMANDED to the District Court for further proceedings to
determine what damages are owed to Leech Lake.3
A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
3
The District Court's concerns about the possibility of Leech Lake abusively
writing checks for "costs which may not even have been accrued" before the policy
expired, and then distributing those checks at its leisure with no time limitations, is
without foundation. The policy specifically requires the costs to be incurred during the
policy period and further requires that all claims for reimbursement be submitted within
one year following the expiration date.
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