American Economy Insurance Co. v. Bogdahn

BOUDREAU, Justice:

¶ 1 Pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.2001, §§ 1601-1611, the United States Court of Appeals for the Tenth Circuit on its own motion certified the following question of Oklahoma law:

Whether Blake Bogdahn was a person insured under the uninsured motorist provisions of the American Economy policy issued to Hillcrest Pharmacy, Inc. as the named insured?

We rephrase the certified question into the following two questions:

1. Is the definition of an insured in the UM endorsement of the American Economy policy issued to Hillcrest Pharmacy, Inc. ambiguous, such that the doctrine of reasonable expectations can be applied to define Blake Bog-dahn as an insured?

2. If so, does the statutorily mandated UM seleetion/rejection form create a reasonable expectation of coverage for Blake Bogdahn, such that the policy must be reformed to provide such coverage?

Our answer to the first question is that the definition of an insured is not ambiguous and therefore the doctrine of reasonable expectations cannot be applied to define Blake Bog-dahn as an insured. Because of our answer to the first question, it is unnecessary for us to answer the second question.

I. BACKGROUND

¶ 2 To place the questions in perspective, we recite the facts and procedural history provided to us by the certifying court. Hill-crest Pharmacy, Inc. (Hillcrest Pharmacy) is a corporation with its principal place of business in Woodward, Oklahoma. Since at least the late 1960s, Hillcrest Pharmacy has purchased commercial liability insurance through Figley Salz & Co., Inc., a local insurance agency. In 1990, the insurance agency began procuring insurance for Hillcrest Pharmacy from American Economy Insurance Company (American Economy). Shortly thereafter, the sole owner of Hillcrest Pharmacy, Lanny Ducket, sold his interest in Hillcrest Pharmacy to the Bogdahns, who chose to continue insurance coverage through American Economy.

¶ 3 On August 19, 2000, the Bogdahns’ minor son, Blake, was seriously injured when he fell off the back of an all-terrain vehicle (ATV) driven by a friend, who was also a minor. The ATV was owned by the friend’s parents and was apparently uninsured. The Bogdahns, through their attorney, requested coverage for Blake’s injuries under the uninsured . motorist (UM) endorsement of the American Economy policy issued to Hillcrest Pharmacy. American Economy denied coverage, concluding the ATV was not a covered vehicle under the .policy and that Blake was not an insured under the UM endorsement.

¶ 4 American Economy brought a diversity action in the United States District Court for the Western District of Oklahoma, seeking a declaration that it was not required to provide coverage under the UM endorsement for Blake’s injuries. The Bogdahns filed a counterclaim seeking reformation of the policy in order “to comply with the intentions and reasonable expectations of the parties.” Alternatively, the Bogdahns asked that American Economy be required “to answer in negligence for all damages resulting from its failure to obtain coverage as requested and reasonably expected by” the Bogdahns and Hillcrest Pharmacy.

¶ 5 American Economy moved for summary judgment, arguing that the policy did not provide UM coverage for Blake’s injuries and that no ground for reformation or evidence of constructive fraud or negligence existed which would require that UM coverage be provided. In granting summary judgment in favor of American Economy, the federal district court concluded that Blake was not an insured under the UM endorsement. Further, the court concluded there was no basis under Oklahoma law for reforming the policy as requested by the Bogdahns.

¶ 6 The Bogdahns appealed. The Tenth Circuit certified its question to us. In its certification order, the Tenth Circuit observed that the Oklahoma Supreme Court has never squarely addressed whether “listing a family-owned corporation as a named insured, with the concurrent inclusion of family members in a commercial policy” creates an ambiguity in the policy.

The Policy

¶ 7 The policy listed Hillcrest Pharmacy as the sole “named insured” and listed the “form of business” as a “corporation.” The policy stated that “[t]hroughout this policy the words ‘y°u’ and ‘y°ur’ refer to the Named Insured.” In addition to providing coverage for Hillcrest Pharmacy’s vehicles, the policy contained an endorsement providing UM coverage. That endorsement contained the following relevant provisions:

A. COVERAGE

We will pay, in accordance with Title 36, Oklahoma Statutes, all sums the “insured” is legally entitled to recover as compensatory damages from the owner or driver of an “uninsured motor vehicle.” The damages must result from “bodily injury” sustained by the “insured” caused by an “accident.”

B. WHO IS AN INSURED

1. You.

2. If you are an individual, any “family member.”

3. Anyone else “occupying” a covered “auto”....

4. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured.”

The policy defines “family member” as “a person related to you by blood, marriage or adoption who is a resident of your household, including a ward or foster child.”

II. APPLICABLE LAW

¶ 8 Oklahoma law governing insurance coverage disputes is well-established. The foremost principle is that an insurance policy is a contract. Cranfill v. Aetna Life Ins. Co., 2002 OK 26, ¶ 5, 49 P.3d 703, 706. Parties are at liberty to contract for insurance to cover such risks as they see fit and they are bound by the terms of the contract. Wiley v. Travelers Ins. Co., 1974 OK 147, 534 P.2d 1293, 1295. It necessarily follows that courts are not at liberty to rewrite the terms of an insurance contract. Id.

¶ 9 In Max True Plastering Co. v. USF & G Co., 1996 OK 28, 912 P.2d 861, we adopted the doctrine of reasonable expectations. This doctrine evolved as an interpretive tool to aid courts in discerning the intention of the parties, id. at 864, when the policy language is ambiguous or when an exclusion is “masked by technical or obscure language” or “hidden in a policy’s provisions.” Id. at 870. Under the reasonable expectations doctrine, when construing an ambiguity or uncertainty in an insurance policy, the meaning of the language is not what the 'drafter intended it to mean, but what a reasonable person in the position of the insured would have understood it to mean. Id. Thus, in construing an ambiguity or uncertainty against the insurer and in favor of the insured, Oklahoma now looks to the objectively reasonable expectations of the insured to fashion a remedy. Spears v. Shelter Mutual Ins. Co., 2003 OK 66, ¶ 6, 73 P.3d 865.

¶ 10 The doctrine of reasonable expectations may be applied only when

(1) the challenged policy language is ambiguous, or

(2) an exclusion within the policy is

(a) masked by technical or obscure language, or

(b) hidden in a policy’s provisions.

Max True Plastering Co. v. USF & G, 1996 OK 28, ¶ 24, 912 P.2d 861, 870.

¶ 11 In the instant case, the challenged language is not an “exclusion within the policy.” Thus, unless we find as a matter of law that the language defining an insured in the UM endorsement is ambiguous, the doctrine of reasonable expectations cannot be applied to the policy. Whether the language is ambiguous is a question of law. Wynn v. Avemco Ins. Co., 1998 OK 75, ¶ 17, 963 P.2d 572, 575. The test for ambiguity is whether the language “is susceptible to two interpretations on its face ... from the standpoint of a reasonably prudent lay person, not from that of a lawyer.” Cranfill, 2002 OK 26, ¶¶ 7-8, 49 P.3d at 706.

III. ANALYSIS

¶ 12 The UM endorsement covers compensatory damages for bodily injury. In previous cases we have said, for UM purposes, Class 1 insureds are “named insureds and resident relatives” and Class 2 insureds are “individuals insured in the policy only by reason of their occupancy or permissive use of a covered vehicle.” Torres v. Kansas City Fire & Marine Ins. Co., 1993 OK 32, ¶ 5, 849 P.2d 407, 409 n. 4. To recover in this case, the Bogdahns’ minor son must qualify as a Class 1 insured since the ATV was not a covered vehicle.

The Definition of an Insured in the UM Endorsement Is Not Ambiguous.

¶ 13 The UM endorsement defines a Class 1 insured as “You ” and, in addition, “If you are an individual, any family member.' ” The word “You” is not. susceptible to two or more interpretations — it plainly refers to the named insured which, in this case, is Hillcrest Pharmacy. Similarly, the phrase “If you are an individual, any ‘family member’ ” is not susceptible to two or more interpretations. The term “family member” is qualified or limited by the phrase “If .you are an individual.” Since the named insured, Hillcrest Pharmacy, is not an individual, no “family members” qualify as Class 1 insureds.

¶ 14 Thus, unless we accept one or more of the Bogdahns’ arguments, the Bogdahns’ minor son was not an insured person under the UM endorsement and, in fact, there are no Class 1 insureds under the UM endorsement.

¶ 15 The Bogdahns argue the UM endorsement is ambiguous for two reasons. First, they assert we must find the policy language ambiguous in order to be consistent with our earlier decision in Aetna Cas. & Sur. Co. v. Craig, 1989 OK 43, 771 P.2d 212. They contend that when the named insured is a corporation we “deemed it appropriate” in Craig to substitute the corporation’s shareholders as Class 1 insureds and the corporation’s employees as Class 2 insureds. We disagree.

¶ 16 In Craig, we answered-the certified question of whether an injured employee/passenger in a covered auto may stack UM coverage on a fleet of commercial vehicles covered by a single insurance policy. To answer the question we relied on three previous decisions dealing with stacking: Babcock v. Adkins, 1984 OK 84, 695 P.2d 1340; Rogers v. Goad, 1987 OK 59, 739 P.2d 519; and Stanton v. American Mut. Liability Ins. Co., 1987 OK 118, 747 P.2d 945.¹ After reviewing these decisions, we held that “ONLY Class 1 insureds may stack the uninsured motorist protection in a commercial fleet insurance policy.” Craig, 771 P.2d at 214 (emphasis in original).

¶ 17 The dissent to Craig argued that the injured employee was not merely occupying a covered auto but was also “acting in the capacity of an agent for the sole benefit of the corporate named insured.” Id. at 218-19 (Wilson, J. dissenting) (emphasis in original). Because of this, the dissent would have allowed the employee to stack UM coverage. According to the dissent, since a corporate named insured is “an incorporeal (without physical body) entity ... and can only act through its officers and agents ... the ‘named insured’ designation ... refers to those acting in the course and scope of the corporation’s authority — the agents,” for purposes of UM coverage. Id. (emphasis in original).

¶ 18 Craig criticized the dissent and impliedly rejected the dissent’s corporeal entity theory.² Craig certainly never deemed it appropriate to substitute a corporation’s shareholders for the Class 1 named insured. However, while criticizing the dissent, Craig offered the following statement: “Even the most cursory reading of our cases makes it clear that employees of an insured are Class II insureds as a result of their status as employees, not as ‘permissive users’ as the dissent suggests.” Craig, 771 P.2d at 216. The Bogdahns rely on this portion of the opinion for their proposition that when the named insured is a corporation we deemed it appropriate to substitute the corporation’s shareholders as Class 1 insureds and the corporation’s employees as Class 2 insureds.

¶ 19 The portion of the Craig opinion relied upon by the Bogdahns was offered in the context of the majority’s response to the dissent’s position. It is not integral to the holding in Craig and is mere obiter dictum. Moreover, it is contrary to the eases relied upon by Craig which make clear that an employee is entitled to UM coverage as a Class 2 insured solely by virtue of being an occupant or permissive user of a covered vehicle at the time of the accident. The Craig case offers no support for the Bog-dahns’ argument.

¶20 Next, the Bogdahns argue that we must find the policy ambiguous because this issue has been litigated throughout the United States with some jurisdictions finding an ambiguity and some finding no ambiguity. We reject the notion that because there is a split of authority we must find an ambiguity. The vast majority of jurisdictions conclude as a matter of law that similar policy language is not ambiguous: Arizona, Colorado, Florida, Georgia, Hawafi, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, and Washington.³ Only a small handful of jurisdictions find the language ambiguous and allow coverage: Connecticut, Mississippi, Montana, New Jersey, Ohio, and Vermont.⁴

¶21 We agree with the vast majority of jurisdictions and reject the notion that the use of the term “family member” in a commercial automobile insurance policy renders the policy ambiguous.

IV. CONCLUSION

¶ 22 We answer the rephrased first certified question as follows: The definition of an insured in the UM endorsement of the American Economy policy issued to Hillcrest Pharmacy, Inc. is not ambiguous and therefore the doctrine of reasonable expectations cannot be applied to define Blake Bogdahn as an insured. Because of our answer to the rephrased first questions, it is unnecessary for us to answer the rephrased second question.

REPHRASED CERTIFIED QUESTION ANSWERED.

WATT, C.J., HODGES, LAVENDER, KAUGER, BOUDREAU, WINCHESTER, EDMONDSON, JJ., concur. OP ALA, V.C.J., concurs in result. HARGRAVE, J., dissents.

1 . In Babcock v. Adkins, 1984 OK 84, 695 P.2d 1340, we held that only persons who qualify as insured under a "series of policies" may stack UM coverage, and stated that "those qualifying as insured by reason of status as passengers or permissive users do not qualify as insureds beyond the [single] policy covering the vehicle in which they are located when injured by an uninsured motorist.” id. at 1343. In. Rogers v. Goad, 1987 OK 59, 739 P.2d 519, the policy was a single policy covering a fleet of vehicles. We held that an employee, being a Class 2 insured, is not permitted to stack UM coverage for each of the vehicles in the fleet. We declined to treat Class 1 and Class 2 insureds the same because to do so "would place upon the insurer a risk not contemplated by the contracting parties," id. at 522, and cited with approval Cunningham v. Insurance Co. of North America, 213 Va. 72, 189 S.E.2d 832 (1972). In Cunningham, the Virginia Supreme Court said: “We remain committed to the practice that courts cannot substitute the name of each of the many employees of a given company in place of the employer as the named insured and thus stretch the coverage of the policy to include all employees and all members of their households. To do so would rewrite the contract of the parties and distort the public policy as set out in our cases.” Cunningham, 189 S.E.2d at 835. Again in Stanton v. American Mut. Liability Ins. Co., 1987 OK 118, 747 P.2d 945, we repeated the well-settled rule that employees, as Class 2 insureds, are entitled only to the coverage provided by the specific vehicle the employee was occupying when injured.

2 . Craig impliedly rejected the corporeal entity theory. In its criticism of the dissent, the opinion used the language: "Even if we could accept the dissent’s 'incorporeal entity' theory .... ” and "To accept the dissent’s view of incorporeal existence is to conclude, logically....” Craig, 111 P.2d at 216.

3 . See, e.g., American States Ins. Co. v. C & G Contr., Inc., 186 Ariz. 421, 924 P.2d 111 (Ariz.App.1996); Gardner v. Continental Western Ins. Co., 2000 WL 121302 (10th Cir.2000) (applying Colorado law); Lampkin v. National Union Fire Ins. Co., 581 So.2d 175 (Fla.App.1990); American States Ins. Co. v. Kelley, 446 So.2d 1085 (Fla.App.1984); Nicks v. Hartford Ins. Group, 291 So.2d 673 (Fla.Dist.Ct.App.1974); Bernard v. Nationwide Mut. Fire Ins. Co., 206 Ga.App. 519, 426 S.E.2d 29 (1992); Hogan v. Mayor & Aldermen of Savannah, 171 Ga.App. 671, 320 S.E.2d 555 (1984); Foote v. Royal Ins. Co. of America, 88 Hawai'i 122, 962 P.2d 1004 (Haw.App.1998); Rohe v. CNA Ins. Co., 312 Ill.App.3d 123, 244 IlI.Dec. 442, 726 N.E.2d 38 (2000); Economy Preferred Ins. Co. v. Jersey County Constr., Inc., 246 Ill.App.3d 387, 186 IlI.Dec. 233, 615 N.E.2d 1290, cert. denied, 152 Ill.2d 557, 190 Ill.Dec. 886, 622 N.E.2d 1203 (1993); Peterson v. Universal Fire & Cas. Ins. Co., 572 N.E.2d 1309 (Ind.App.1991); Huebner v. MSI Ins. Co., 506 N.W.2d 438 (Iowa 1993); Sears v. Wilson, 10 Kan.App.2d 494, 704 P.2d 389 (1985); Adams v. Thomason, 753 So.2d 416 (La.App.2000); Marcello v. Moreau, 672 So.2d 1104 (La.App.1996); Bryant v. Protective Casualty Insurance Company, 554 So.2d 177 (La.App.1989); Meche v. Thibodeaux, 550 So.2d 346 (La.App.1989), cert. denied, 558 So.2d 1124 (La.1990); Barnes v. Thames, 578 So.2d 1155 (La.App.1991); Langer v. USF & G, 552 A.2d 20 (Maine 1988); Smith v. Reliance Nat’l Indem. Co., 2000 WL 1357523 (D.Me.2000); Jacobs v. USF & G, 417 Mass. 75, 627 N.E.2d 463 (1994); Andrade v. Aetna Life & Cas. Co., 35 Mass.App.Ct. 175, 617 N.E.2d 1015 (1993), review denied, 416 Mass. 1105, 621 N.E.2d 685 (1993); Michigan Township Participating Plan v. Pavolich, 232 Mich.App. 378, 591 N.W.2d 325 (1999); Kaysen v. Federal Ins. Co., 268 N.W.2d 920 (Minn.1978); Lundgren v. Vigilant Ins. Co., 391 N.W.2d 542 (Minn.App.1986); Ott v. Firemen’s Fund Ins. Co., 936 S.W.2d 165 (Mo.App.1996); Cutter v. Maine Bonding & Cas. Co., 133 N.H. 569, 579 A.2d 804 (1990); Benns v. Continental Cas. Co., 982 F.2d 461 (10th Cir.1993) (applying N.M. law); Royal Ins. v. Bennett, 226 A.D.2d 1074, 642 N.Y.S.2d 125 (N.Y.App.Div. 1996); Buckner v. Motor Vehicle Accident Indem. Corp., 66 N.Y.2d 211, 495 N.Y.S.2d 952, 486 N.E.2d 810 (1985); Sproles v. Greene, 329 N.C. 603, 407 S.E.2d 497 (1991); Busby v. Simmons, 103 N.C.App. 592, 406 S.E.2d 628 (N.C.App.1991); Kitts v. Utica Nat'l Ins. Group, 106 Ohio App.3d 692, 667 N.E.2d 30 (1995); Meyer v. American Economy Ins. Co., 103 Or.App. 160, 796 P.2d 1223, review denied, 310 Or. 547, 800 P.2d 789 (1990); Hunyady v. Aetna Life & Cas., 396 Pa.Super. 476, 578 A.2d 1312 (1990), aff'd, 530 Pa. 25, 606 A.2d 897 (1992); Guarantee Ins. Co. v. Anderson, 585 F.Supp. 408 (E.D.Pa.1984); Concrete Services, Inc. v. USF & G, 331 S.C. 506, 498 S.E.2d 865 (1998); Dixon v. Gunter, 636 S.W.2d 437 (Tenn.App.1982); Grain Dealers Mutual Ins. Co. v. McKee, 943 S.W.2d 455 (Tex.1997); General Ins. Co. of America v. Icelandic Builders, Inc., 24 Wash.App. 656, 604 P.2d 966 (1979).

4 . See, e.g., Agosto v. Aetna Cas. & Surety Co., 239 Conn. 549, 687 A.2d 1267 (1996); Hansen v. Ohio Cas. Ins. Co., 239 Conn. 537, 687 A.2d 1262 (1996); Ceci v. National Indem. Co., 225 Conn. 165, 622 A.2d 545 (1993); Nationwide Mut. Ins. Co. v. Barre, 1996 WL 745842 (Conn.Super.1996); J &W Foods Corp. v. State Farm Mut. Auto. Ins. Co., 723 So.2d 550 (Miss.1998); Hager v. American West Ins. Co., 732 F.Supp. 1072 (D.Mont.1989); Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 765 A.2d 195 (2001); Lunge v. National Cas. Co., 977 F.Supp. 672 (D.Vt.1997).

Some jurisdictions and treatises include O’Hanlon v. Hartford Acc. & Indem. Co., 639 F.2d 1019 (3rd Cir.1981) (applying Delaware law) among this group. However, O’Hanlon is not on point because the named insured was an individual’s trade name, not a corporation. Some include Hartford Acc. & Indem. Co. v. Huddleston, 514 S.W.2d 676 (Ky.1974). It is not on point because the named insured was a partnership and the case was decided based on partnership law, not policy language ambiguity. Some include American Fire & Cas. Co. v. Sinz, 487 So.2d 340 (Fla.Dist.Ct.App.1986). It is not on point because the injured person was a relative resident of an additional designated named insured. Finally, many include Hawkeye-Security Ins. Co. v. Lambrecht & Sons, Inc., 852 P.2d 1317 (Colo.App.1993). However, this case was distinguished and limited to its unusual facts in Gardner v. Continental Western Ins. Co., 2000 WL 121302 (10th Cir.2000) (applying Colorado law).