Natl. Continental v. Empire Fire & Marine

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 97-1402
___________
National Continental Insurance *
Company, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
Empire Fire and Marine Insurance *
Company, *
*
Appellee. *
___________
Submitted: April 15, 1998
Filed: October 6, 1998
___________
Before WOLLMAN, LOKEN, and HANSEN, Circuit Judges.
___________
HANSEN, Circuit Judge.
National Continental Insurance Company (National) appeals from the district
court's1 entry of declaratory judgment in favor of Empire Fire & Marine Insurance
Company (Empire) in this diversity action. National argues that the district court
misconstrued Oregon law and therefore erred in ruling that Empire is not responsible
1
The Honorable William G. Cambridge, Chief Judge, United States District
Court for the District of Nebraska.
for paying settlement damages and litigation costs arising out of an accident involving
a semi-tractor owned by A. B. Arvidson and leased by NPE, Inc. (NPE). We affirm.
I.
The district court decided this diversity action on stipulated facts. Arvidson
owns a Kenworth semi-tractor which, at all times relevant to this dispute, was under
permanent lease to NPE.2 The truck was insured under two different policies. First,
NPE owned an insurance policy issued by National, which provided $1,000,000 in
liability coverage for accidents resulting from "the ownership, maintenance, or use" of
the truck by NPE in the course of NPE's "business as a trucker." (J.A. at 208).
Second, Arvidson owned an insurance policy issued by Empire, which provided
$500,000 in liability coverage for accidents "resulting from the ownership, maintenance
or use" of the truck. (Id. at 207.) The Empire policy expressly excluded damages
arising "while a covered auto is used to carry property in any business or while a
covered auto is used in the business of [NPE]." (Id. (emphasis added).)3
On January 3, 1992, Arvidson set out in his truck from his home in Springfield,
Oregon, heading for Roberts Motors in Eugene, Oregon. The truck was between
2
For a discussion of permanent leases in the trucking industry, see Wales
Transp., Inc. v. ICC, 728 F.2d 774, 776-77 (5th Cir. 1984).
3
Arvidson was contractually required to carry such "nontrucking use" liability
insurance. Pursuant to the service contract between Arvidson and NPE, Arvidson
was required to indemnify NPE and assume full responsibility for all loss or damage
arising from the "operation, maintenance, or use" of the truck that was "not related
to the performance of this [service] Contract." (J.A. at 46.) To assure Arvidson's
ability to honor this obligation, the service contract required Arvidson to carry
$500,000 in liability insurance which "affords protection when the equipment is not
being operated . . . under [NPE's] dispatch instructions or in carrying out of the
business of [NPE]." (Id.)
2
dispatch orders, and Arvidson had scheduled it for a front end alignment. On the way
to Roberts Motors, Arvidson was involved in a traffic accident involving two other
vehicles. Two injured occupants of one of the other vehicles sued Arvidson. Empire
and National each denied responsibility for the payment of damages arising from the
accident. However, the two insurers agreed to split the costs of the litigation and any
settlement award until the dispute between them could be resolved. The two insurers
eventually reached a settlement with the injured motorists in the amount of $271,455.94.
Subsequently, National filed this action in the district court for a declaratory judgment
to the effect that the Empire policy covered the accident, and that Empire was
responsible for paying all settlement damages and litigation costs up to $500,000.
Empire responded with a counterclaim for declaratory relief stating that the Empire
policy did not cover the accident at issue and that National was exclusively responsible
for all damages and costs arising from it. The district court held for Empire, and this
appeal followed.
II.
We review the district court's interpretation of an insurance contract de novo, see
Koch Eng'g Co. v. Gibraltar Cas. Co., 78 F.3d 1291, 1294 (8th Cir. 1996), applying the
same standards as the district court. The district court applied Nebraska choice of law
principles4 and determined that Oregon law governs all three contracts (the service
contract, the National policy, and the Empire policy). The district court found that,
under Oregon law, there was no clear answer to the legal issues presented. When faced
with a similar situation in Acceptance Insurance Company v. Canter, 927 F.2d 1026,
1027-28 (8th Cir. 1991) (applying Minnesota law to interpret the language "in the
business of" in a similar insurance policy), our court looked to state respondeat superior
principles for guidance. Accord Liberty Mut. Ins. Co. v. Connecticut Indem. Co., 55
4
In diversity cases, the forum state's choice of law rules govern. See Klaxon
Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
3
F.3d 1333, 1335-37 (7th Cir. 1995) (applying Indiana law to interpret the language "in
the business of" in a similar insurance policy). Following our example, the district court
in this case looked to Oregon respondeat superior principles for guidance as to how the
Oregon Supreme Court would treat this issue of first impression. Both parties agree
with the district court's treatment of the case up to this point.
Under Oregon principles of respondeat superior, an employee acts within the
scope of his employment only if three requirements are satisfied. First, an employee
must act "substantially within the time and space limits authorized by the employment."
Chesterman v. Barmon, 753 P.2d 404, 406 (Or. 1988) (en banc). Second, the
employee must be "motivated, at least partially, by a purpose to serve the employer."
Id. Third, the act must be "of a kind which the employee was hired to perform." Id.
Looking to the three Chesterman requirements for guidance, the district court held that
Arvidson was operating the truck in the business of NPE at the time of the accident,
writing:
The accident occurred while the Kenworth was the subject of the Service
Agreement, a lease which gave NPE, Inc. "exclusive possession, control,
and use" of the Kenworth for the duration of the lease, and by which NPE,
Inc. assumed "complete responsibility for the operation" of the Kenworth
for the duration of the lease. Furthermore, the Court finds that Mr.
Arvidson's trip to Eugene was motivated, at least partially, by a purpose
to serve NPE, Inc.'s interest in keeping the Kenworth in safe and efficient
operating condition. Finally, Mr. Arvidson's act of taking the Kenworth
for servicing was an act that the Service Agreement required Mr. Arvidson
to perform.
(2d Adden. to Appellant's Br. at 11 (internal citations omitted).)
Based on this analysis, the district court held that the Empire policy did not cover
the accident and that National is fully and solely liable for all costs related to the
4
settlement and litigation. National argues on appeal that the district court misapplied
the three-part Chesterman test.
III.
We must determine whether the trip to Eugene for a front end alignment
constituted "the business of" NPE. If it did, the accident fell within the exclusion to the
Empire policy (id. at 207), and National's coverage is exclusive.
While Cantor supports the district court's decision to look to Oregon respondeat
superior principles for guidance, the analogy to respondeat superior is a loose one at
best. Because Arvidson was not an employee of NPE but rather a lessor and
independent contractor, it would be inappropriate for us to phrase the question in terms
of whether Arvidson was acting within the scope of his employment. See Liberty Mut.
Ins. Co., 55 F.3d at 1335. The proper question, we believe, is whether Arvidson was
acting within the scope of the service contract with NPE—in other words, whether he
was fulfilling his bargained-for contractual duties at the time of the accident.5 To the
extent that he was executing his contractual duties, he was clearly acting "in the
business of" NPE and thus outside the scope of Empire's coverage. Cf. Hartford Ins.
Co. v. Occidental Fire & Cas. Co., 908 F.2d 235, 239 (7th Cir. 1990) ("in the business
of" . . . "clearly refers to occasions when the truck is being used to further the
commercial interests of the lessee."). This reading finds support in the service contract,
which limits Arvidson's duty to insure to situations where Arvidson's use of the truck
is "not related to the performance of this [service] Contract." (See J.A. at 206.)
5
In terms of the Chesterman criteria, this can be stated as follows: Was
Arvidson acting within the space and time limits of the service contract, was he
motivated by an intent to fulfill his contractual obligations, and was he performing
an act of the type contemplated by the service contract. See Chesterman, 753 P.2d
at 406.
5
We therefore look to the terms of the service contract to determine whether
Arvidson was fulfilling a contractual duty when he drove the truck to Eugene for a front
end alignment. Pursuant to the service contract, Arvidson was responsible for keeping
the truck in compliance with all laws and regulations (id. at 33-34), for making sure that
it passed periodic inspections (id. at 34-35), and for paying all maintenance costs (id.
at 41). Failure to get the truck initially approved prevented NPE's contractual duties
from arising (id. at 33-35), and failure to keep the truck in compliance with federal
standards would be considered a breach (id. at 57).
In particular, the service contract required Arvidson to assure that his truck
complied with the safety requirements of 49 C.F.R. § 393. Id. at 34. Among other
things, section 393 provides that "[a]ll axles must be in proper alignment." 49 C.F.R.
§ 393.207(a). Therefore, it is clear that Arvidson was executing his contractual duty to
keep the truck in conformity with federal regulations when he took the truck to Eugene
for a front end alignment. Accordingly, Arvidson was acting "in the business of" NPE
and the Empire exclusion applies.6
National argues that because Arvidson owned the truck, he was serving his own
interests rather than those of NPE when he sought the alignment. While Arvidson
clearly had an interest in maintaining his vehicle, we agree with the Seventh Circuit's
comment that "[t]he possibility that [the owner's] interests coincided with those of [the
lessee] does not diminish the benefits [the lessee] received from [the owner's] actions[.]"
Hartford, 908 F.2d at 239; see also Freed v. Travelers, 300 F.2d 395, 398 (7th Cir.
1962) ("[T]he procurement of repairs incident to lessor's duty to hold the
6
In other words, the fact that Arvidson was satisfying a contractual duty when
the accident occurred is dispositive of all three of the Chesterman factors: It places
Arvidson within the time and space limits of the contractual relationship, it shows
that he was acting to advance the interests of NPE, and it clarifies that he was
undertaking a duty which was expressly required by the service contract. See
Chesterman, 753 P.2d at 406.
6
tractor 'ready at all times for services of the lessee' is to be regarded as an activity
exclusively in the business of the lessee and not a personal use of the tractor[.]").
In short, because Arvidson was executing a contractual duty at the time of the
accident, we hold that the district court correctly concluded that Arvidson was carrying
out the business of NPE when he drove the truck to Eugene for a front end alignment
and that the accident which occurred en route to Eugene was accordingly excluded from
coverage under the Empire policy. Because the Empire exclusion applies, National is
solely responsible for covering the loss.
IV.
Accordingly, we affirm the judgment of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
7