Canal Ins. v. Underwriters, Lloyd's London

• Decision Date: 27 January 2006
• Docket Number: No. 04-3714.,04-3714.
• Citation: 435 F.3d 431
• Parties: CANAL INSURANCE COMPANY, Appellant v. UNDERWRITERS AT LLOYD'S LONDON
• Court: U.S. Court of Appeals — Third Circuit

435 F.3d 431

CANAL INSURANCE COMPANY, Appellant v. UNDERWRITERS AT LLOYD'S LONDON

No. 04-3714.

United States Court of Appeals, Third Circuit.

Argued September 27, 2005.

Filed January 27, 2006.

Walter H. Swayze, III, Esquire (Argued), Michael J. Farrell, Esquire, Segal, McCambridge, Singer & Mahoney, Philadelphia, PA, for Appellant.

Timothy A. Kulp, Esquire (Argued), Margolis Edelstein, Philadelphia, PA, Lawrence D. Wright, Esquire, Ronald S. Collins, Jr., Wright & O'Donnell, Conshohocken, PA, for Appellee.

Brian J. Hunt, Anndra L. Masters, Williams, Montgomery & John, Chicago, IL, for Amicus-Appellant.

Before: ALITO, AMBRO and LOURIE,^* Circuit Judges

AMBRO, Circuit Judge.

This is an insurance coverage dispute arising out of a motor vehicle accident involving a truck owned by Sukhjit Singh and a passenger vehicle driven by Suzanne Espenshade. At the time of the accident, the truck, used for hauling freight, was on the road principally for Singh to seek its sale or trade-in. Among the issues before us is whether a policy issued by Underwriters at Lloyd's London (Underwriters) covering Singh's truck, but excluding "business uses," nonetheless insures this accident. We believe the answer is no, and therefore affirm the District Court's decision. We affirm as well the Court's determinations that Singh's expectation of business coverage cannot unloose the policy's unambiguous language to the contrary and that Pennsylvania public policy does not undermine non-coverage in this case.

I. Facts and Procedural History

The material facts are undisputed. At all times relevant to this litigation, Singh was an independent trucker, or "owner operator," who leased his tractor trailers to interstate motor carriers for the purpose of hauling freight. Singh enjoyed a business relationship with BIR Transport Company (BIR), an interstate trucking outfit and Department of Transportation authorized motor carrier, based upon a long-term lease agreement. According to the agreement, Singh leased a Kenworth Tractor to BIR when BIR required a tractor truck to haul freight.

As of the date of the accident, two relevant insurance policies were in effect. Canal Insurance Company (Canal) insured BIR through a "Commercial Trucking Liability" policy, providing indemnity and defense to BIR for liabilities arising from the operation of vehicles specifically noted in the Canal policy and used for BIR business purposes. BIR identified the Tractor as an insured vehicle subject to the terms of the Canal commercial trucking liability policy. In addition, Singh was covered by a "Non-Trucking Liability" policy with Underwriters that also identified the Tractor as an insured vehicle. Under the terms of that policy, certain uses of the Tractor, including "business uses," were excluded from coverage.

On April 20, 2000, Singh completed an interstate hauling operation for BIR with his Tractor. Four days later, on April 24, 2000, he hired a third party to drive the Tractor and its empty trailer from Harrisburg, Pennsylvania, to a Kenworth truck dealership in Chester, Pennsylvania, in order to attempt a sale or trade-in for a new tractor. Although BIR was made aware of the plan to go to the dealership, it is undisputed BIR did not dispatch the Tractor. In the event a hauling load from BIR became available in the Chester area, however, Singh directed his driver to make the trip with an empty trailer attached.

En route to the dealership, Singh's truck collided with a vehicle owned and driven by Espenshade. As a result of the accident, Espenshade filed a lawsuit in Philadelphia, Pennsylvania, against all potential tortfeasors. Underwriters expressly refused either to defend the defendants or to indemnify Canal in the state action on the ground that the use of the Tractor on the day of the accident did not fall under the provisions of its non-trucking liability policy. Canal, on the other hand, defended and indemnified Singh, his driver, and BIR in the lawsuit. Ultimately, Canal settled the Espenshade suit, agreeing to pay $58,500 compensation in exchange for full liability releases for all three defendants. It is undisputed that Canal incurred an additional $27,459 in litigation expenses to resolve the matter, resulting in a total indemnification and defense cost of $85,959.

Canal filed a declaratory action pursuant to 28 U.S.C. § 2201 in the Eastern District of Pennsylvania seeking indemnification from Underwriters for the monies Canal spent defending and insuring the defendants in the Espenshade lawsuit. Canal Ins. Co. v. Underwriters at Lloyd's London, 333 F. Supp. 2d 352 (E.D. Pa. 2004). Subsequent to discovery, the parties filed cross-motions for summary judgment. Id. at 352. The District Court determined that Singh's act of hiring an employee to drive his Tractor to a dealership in order to trade the vehicle or otherwise attempt a sale was an activity promoting the "business purposes of the [i]nsured" under the terms of Underwriters' business use exclusion. Id. at 355-56. As a result, the Court concluded that coverage was properly denied by Underwriters. Id. at 357. Judgment was entered granting Underwriters' motion for summary judgment and denying Canal's cross-motion for summary judgment. This appeal followed.¹

II. Preliminary Matters

Summary judgment is appropriate if there are no genuine issues of material fact presented and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether a genuine issue of fact exists, we resolve all factual doubts and draw all reasonable inferences in favor of the nonmoving party. Hugh v. Butler County Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005). "The interpretation of the scope of coverage of an insurance contract is a question of law properly decided by the court, a question over which [this court] exercise[s] plenary review." Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999); McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074 (3d Cir. 1990).

Where federal jurisdiction is based on diversity of citizenship, as it is here, we apply the choice-of-law rules of the state in which the district court sat. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n.3 (3d Cir. 1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). As previously noted, this action was filed in the Eastern District of Pennsylvania. Under Pennsylvania choice-of-law rules, an insurance contract is governed by the law of the state in which the contract was made. Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880 (Pa. Super. Ct. 1966); see also McMillan, 922 F.2d at 1074. "An insurance contract is `made' in the state in which the last act legally necessary to bring the contract into force takes place." Crawford, 221 A.2d at 880. Here, the parties agree that the insurance contract was `made' in Pennsylvania and, consequently, Pennsylvania substantive law applies.

III. Merits

A. Ambiguity of Underwriters' Business Use Exclusionary Language

Canal contends Underwriters' business use exclusionary language, which prohibits any use of the covered vehicle that promotes the "business purposes" of the insured, is sufficiently ambiguous to merit an interpretation in favor of coverage. Underwriters, on the other hand, maintains that its business use exception is unambiguous and coverage was properly denied.

It is uncontested Underwriters' policy names Singh as the insured and lists the Tractor as a covered vehicle. The policy, however, excludes from coverage certain "business uses." Exclusion 8 specifically provides that the policy does not insure

[a] covered automobile while it is engaged in Business Use, such as proceeding to a new location, pursuant to the request, direction, control and/or dispatch of any person or entity other than the insured, or complying with any term of a presently effective, written lease with a motor carrier.

The policy also excludes insurance for "a covered automobile while used in the course and scope of the commercial business of the insured, i.e. Business Use." Under the policy, that

includes, but is not limited to[,] any use of the covered auto that promotes the business purposes of the Insured or the purposes of a written, permanent lease that the Insured has signed with a motor carrier such as hauling a load for the motor carrier, being under the request, direction, control and/or dispatch to haul a load for the motor carrier with a pick up of a load, laying over on the road on the way to pick up a load or traveling for the purposes of repairing or maintaining the covered auto. The foregoing examples of "Business Use" are illustrative and non-exhaustive.

(Emphasis added.) Thus, if at the time of the accident, Singh's Tractor was engaged in an activity "promot[ing] [Singh's] business purposes," Underwriters' business uses exclusion applies and coverage could be denied.

The legal axioms governing insurance policy interpretation are well settled in Pennsylvania. "Where an insurer relies on a policy exclusion as the basis for its denial of coverage and refusal to defend, the insurer has asserted an affirmative defense and, accordingly, bears the burden of proving such defense." Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 106 (Pa. 1999). The goal of interpreting an insurance policy, like the goal of interpreting any other contract, is to determine the intent of the parties as manifested by the language of the policy.

The task of interpreting [an insurance] contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be...