American Economy Ins. Co. v. Bogdahn

• Decision Date: 10 February 2004
• Docket Number: No. 99,392.,99,392.
• Citation: 89 P.3d 1051,2004 OK 9
• Parties: AMERICAN ECONOMY INSURANCE COMPANY, Plaintiff-Appellee, v. Steve BOGDAHN and Bana Bogdahn, both individually and as parents and next friends of Blake Bogdahn, a minor, Defendants-Appellants.
• Court: Oklahoma Supreme Court

89 P.3d 1051

2004 OK 9

AMERICAN ECONOMY INSURANCE COMPANY, Plaintiff-Appellee, v. Steve BOGDAHN and Bana Bogdahn, both individually and as parents and next friends of Blake Bogdahn, a minor, Defendants-Appellants.

No. 99,392.

Supreme Court of Oklahoma.

February 10, 2004.

Duke Halley, Woodward, OK, for Defendants-Appellants.

Mark E. Bialick and Katherine T. Loy, Oklahoma City, for Plaintiff-Appellee. 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 Bogdahn as an insured?

2. If so, does the statutorily mandated UM selection/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 Bogdahn 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. Hillcrest 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 `you' and `your' 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...