American Nat. Fire Ins. Co. v. Rose Acre Farms, Inc.
| Decision Date | 12 February 1997 |
| Docket Number | No. 96-1105,96-1105 |
| Citation | 107 F.3d 451 |
| Parties | AMERICAN NATIONAL FIRE INSURANCE COMPANY, Plaintiff-Appellant, v. ROSE ACRE FARMS, INCORPORATED, Cynthia L. Wilson, as personal representative of the Estate of Jeffrey L. Wilson, and Robert Garland, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Christine L. Olson, D. Kendall Griffith, argued, Fritz K. Huszagh, Hinshaw & Culbertson, Chicago, IL, Donald D. Levenhagen, Richard R. McDowell, Hill, Fulwider, McDowell, Funk & Matthews, Indianapolis, IN, for Plaintiff-Appellant.
Brian K. Burke, argued, John Joseph Tanner, Baker & Daniels, Indianapolis, IN, for Defendants-Appellees.
Before COFFEY, FLAUM, and MANION, Circuit Judges.
American National Fire Insurance Co. ("ANFIC") sued Rose Acre Farms ("Rose Acre") seeking a declaratory judgment that the umbrella liability insurance policy it had issued excluded coverage for an aircraft owned and operated by Rose Acre. That aircraft had crashed, killing a passenger. The district court below entered summary judgment for Rose Acre. The court found the aircraft exclusion patently ambiguous and thus inoperative, applying Indiana law which favors saving insurance coverage in the face of an ambiguous exclusion. The court also found that a misrepresentation on Rose Acre's application for insurance was not material because it would not have affected the policy ANFIC actually issued. We affirm the entry of summary judgment for Rose Acre.
Rose Acre purchased umbrella insurance from ANFIC providing for liability coverage above existing underlying insurance or above a retained limit. The policy, which became effective January 1, 1991, contained an exclusion for certain aircraft operations.
At the time it applied for coverage, Rose Acre represented that it owned no airplanes. Later, in July of 1991, Rose Acre purchased a Beechcraft airplane which crashed in December of that year killing one of the passengers on board. The decedent's survivors sought recovery from Rose Acre, which in turn sought coverage under its umbrella policy from ANFIC. Following the crash, Rose Acre notified its insurance agent who notified Marion Agency, ANFIC's underwriter in Indiana. Kevin Culley, an underwriter for Marion who had reviewed the initial application and caused ANFIC to issue the policy, added a total aircraft exclusion the day he learned of the crash. ANFIC rejected the proposed additional exclusion because it believed the policy as issued already excluded coverage for aircraft.
ANFIC sued Rose Acre seeking a declaratory judgment that the policy it had issued excluded coverage for the Beechcraft. Both parties moved for summary judgment. ANFIC argued that the policy excluded coverage for aircraft owned and operated by Rose Acre. Rose Acre contended the exclusion did not apply to the Beechcraft. Each party argued that the policy language supported its position, although each also argued in the alternative that the language was ambiguous. The district court agreed that the disputed language was ambiguous. Applying Indiana law, the court refused to consider extrinsic evidence of the parties' intent or understanding because the ambiguity was patent. Applying Indiana rules of insurance contract construction, the court ruled that the ambiguous exclusion must be disregarded in favor of coverage for the insured. Accordingly, the court entered summary judgment for Rose Acre.
In March of 1994, about the same time the district court issued its initial summary judgment order, ANFIC learned that when Rose Acre originally applied for insurance and represented that it owned no aircraft, it in fact owned an airplane in Paraguay, where Rose Acre owned a number of farms. ANFIC claimed this constituted a material misrepresentation invalidating the insurance contract. The district court vacated its entry of summary judgment to permit additional discovery on the misrepresentation issue. Both parties thereafter again moved for summary judgment. In support of its material misrepresentation claim, ANFIC submitted Culley's deposition that, had he known of the Paraguay airplane, he would not have issued a policy with the qualified aircraft exclusion contained within Rose Acre's policy but, instead, would have issued a policy with a total aircraft exclusion. The district court rejected the affidavit because, despite what Culley attested ANFIC would have done had it known about the airplane, the record revealed that upon learning of the Beechcraft and later the Paraguay airplane, 1 ANFIC in fact had not amended Rose Acre's policy to provide a broader aircraft exclusion. The evidence established that ANFIC had not done so because it believed the existing exclusion excluded the Beechcraft, the position it continues to argue on appeal. Accordingly, the district court entered judgment for Rose Acre on the misrepresentation claim as well.
We review a district court's entry of summary judgment de novo, General Acc. Ins. Co. of America v. Gonzales, 86 F.3d 673, 675 (7th Cir.1996). Summary judgment is appropriate where the record demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The parties agree that the record in this diversity case is controlled by Indiana law. Accordingly, Indiana law both "defines the issues of material fact and furnishes the rules of decision." Republic-Franklin Ins. Co. v. Silcox, 92 F.3d 602, 604 (7th Cir.1996). We recently addressed the appropriate standards for reviewing insurance policy claims under Indiana law:
If insurance policy language is clear and unambiguous, it should be given its plain and ordinary meaning. If there is an ambiguity, the policy should be interpreted most favorably to the insured. It should be construed to further the policy's basic purpose of indemnity.
Gonzales, 86 F.3d at 675 (quoting Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992)) (internal citations omitted). Indiana's rules of construction favor indemnity, and thus the insured, "because the insurance policies are generally drafted by the insurance companies." Gonzales, 86 F.3d at 675 (citing Eli Lilly and Co. v. Home Ins. Co., 482 N.E.2d 467, 469 (Ind.1985)). With these general principles in mind, we turn to the language of the policy.
ANFIC describes its coverage in section I., appropriately titled "coverage":
A. Insuring Agreement
1. We [ANFIC] will pay those sums in excess of "underlying insurance" or the retained limit that the "insured" becomes legally obligated to pay as damages because of "injury" caused by an "occurrence" to which this policy applies.
The insurance afforded by ANFIC's policy is insurance that "is excess over any other valid and collectible insurance," which is termed "other insurance." Policy at section IV.F.
By the terms of paragraph A.1., above, the policy will pay claims that exceed either the underlying insurance or the retained limit. Underlying insurance is "other insurance" but is more narrowly defined in section V.L. as liability insurance coverage listed in the "Schedule of Underlying Insurance," specifically, "only those policies shown in the Declarations or endorsed onto the policy." The policy defines retained limit in section III.C. as:
the amount of the damages you will pay when the "injury" is covered by the policy and not covered by "underlying insurance."
Thus, by the plain language of the policy, ANFIC will pay legal obligations in excess of either the "underlying insurance" or, if the obligation is not covered by underlying insurance, by the retained limit.
In Rose Acre's case, because no aircraft policies are listed in the declarations or endorsed onto the policy, by the terms of section V.L., no underlying insurance coverage for aircraft applies. And because no underlying insurance coverage applies, under section I.A.1. ANFIC agrees to pay those sums in excess of the retained limit. The retained limit in Rose Acre's policy was $10,000.
The extent of ANFIC's coverage is not defined solely by what is included, however. The policy also contains a number of exclusions set out in Section I.B. Of import to this case, because coverage hinges upon it, is exclusion 5(c):
5. This policy does not apply, except to the extent that coverage is available to the "Insured" in the "underlying insurance," to: ...
c. Injury arising out of the ownership, maintenance, operation, use, loading or unloading of an aircraft, if such aircraft is owned or hired without pilot or crew by or on behalf of the "Insured."
This exclusion limits ANFIC's coverage for certain liabilities that might arise in association with an aircraft. The exclusion itself contains an exception to the exclusion: "except to the extent that coverage is available to the insured in the 'underlying insurance.' " If coverage is available in the "underlying insurance," the exclusion is ineffective. As discussed above, in this case no "underlying insurance" exists with respect to aircraft. Thus the exception is not relevant to the exclusion and the exclusion controls the limits of ANFIC's coverage.
Both ANFIC and Rose Acre argue that exclusion 5(c) is unambiguous when it excludes coverage for injury "arising out of the ownership, maintenance, operation, use, loading or unloading of an aircraft, if such aircraft is owned or hired without pilot or crew by or on behalf of the 'Insured.' " But in spite of being "unambiguous," it has a different meaning for each of the parties. ANFIC argues it unambiguously excludes coverage for aircraft owned by the insured, or hired without crew or pilot on behalf of the insured. Rose Acre argues it unambiguously means owned without pilot or crew, or hired without pilot or crew, in each case by or on behalf of the insured.
At this point we recognize that it...
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