American States Ins. Co. v. C & G Contracting, Inc.

• Decision Date: 10 September 1996
• Docket Number: CA-CV,No. 1,1
• Parties: AMERICAN STATES INSURANCE COMPANY, an Indiana corporation, Plaintiff-Appellee, v. C & G CONTRACTING, INC., an Arizona corporation; James R. Chambers, Jr. and Helen Chambers, husband and wife, Defendants-Appellants. 95-0154.
• Court: Arizona Court of Appeals

Page 111

924 P.2d 111

186 Ariz. 421

AMERICAN STATES INSURANCE COMPANY, an Indiana corporation, Plaintiff-Appellee, v. C & G CONTRACTING, INC., an Arizona corporation; James R. Chambers, Jr. and Helen Chambers, husband and wife, Defendants-Appellants.

No. 1 CA-CV 95-0154.

Court of Appeals of Arizona Division 1, Department A.

Sept. 10, 1996.

[186 Ariz. 422] Mariscal, Weeks, McIntyre & Friedlander, P.A. by Leslie A. Kresin and Gerald K. Gaffaney, Phoenix, for Plaintiff-Appellee.

Kenneth L. Tucker & Associates by Daniel P.J. Miller and Kevin J. Tucker, Phoenix, for Defendants-Appellants.

OPINION

NOYES, Judge.

A corporation was the named insured in a business auto policy. The corporation's president, part-owner and key employee claimed he was a "family member" of the corporation and therefore entitled to underinsured motorist benefits. The insurance company denied coverage, filed this declaratory judgment action, and received summary judgment. We affirm.

I

James and Helen Chambers ("the Chambers") and C & G Contracting, Inc. ("C & G"), appeal from the grant of summary judgment to American States Insurance Company ("American States"). James Chambers was a co-founder and half-owner of C & G, a small company that did paving, grading, asphalt and concrete work. James was also the president and key employee of C & G: he did the estimating, bidding, engineering, and much of the driving. Helen did bookkeeping and administration, including obtaining insurance.

American States issued a business auto policy in which C & G was the only named insured. The policy declarations page stated: "This policy provides only those coverages shown below. Each of these coverages will apply only to those autos shown as covered autos." Coverages included $500,000 for single limit liability, uninsured motorist ("UM"), and underinsured motorist ("UIM"). The covered autos were five trucks.

James Chambers received an on-the-job injury while occupying a noncovered auto: he was a passenger in a vehicle that was owned by another contractor, driven by an employee of that other contractor--and rear-ended by a negligent driver. The Chambers recovered $50,000 from the negligent driver's liability insurance, $17,500 from the other contractor's UIM insurance, and $50,000 from the Chambers' personal UIM insurance. The Chambers then claimed UIM coverage on the C & G business auto policy.

American States denied the claim and filed this declaratory judgment action. The parties moved for summary judgment and the trial court decided that:

The clear language of the business policy purchased by C & G Contracting, Inc. did not provide coverage under the circumstances in this case. There is no ambiguity regarding the language of the policy, or its endorsements which have been presented to the Court in the Statement of Facts. Based on the clear language of the policy, the undisputed facts surrounding the accident in this case, and the absence of any persuasive public policy reason for rewriting this policy,

IT IS ORDERED granting [American States'] Motion for Summary Judgment.

The Chambers and C & G appealed. We have jurisdiction pursuant to A.R.S. section 12-2101(B) (1994).

II

The facts are undisputed. Judgment turns on interpretation of an insurance contract, a matter of law which we review de novo. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App.1993); Valley Nat'l Bank v. Insurance Co. of N. America, 172 Ariz. 212, 215, 836 P.2d 425, 428 (App.1992).

The Chambers have three main arguments: 1) As an officer, owner and key employee of C & G, James reasonably expected coverage; 2) the "family member" language is ambiguous and illusory and should be construed to provide coverage; and 3) limiting UIM coverage to covered autos violates public policy. The arguments overlap and so does our discussion of them.

Ambiguous and Illusory

Page one, Part one of the C & G policy provides, in part, that: "The following words and phrases have special meaning throughout this policy and appear in boldface type when used: A. "You" and "your" mean the person or organization shown as the named insured in ITEM ONE of the declarations." The Chambers agree that C & G is the only "you" and "your" in this policy.

The UIM endorsement to the C & G policy provides, in part, that:

A. WORDS AND PHRASES WITH SPECIAL MEANING

In addition to the WORDS AND PHRASES WITH SPECIAL MEANING in the policy, the following words and phrases have special meaning for UNDERINSURED MOTORISTS INSURANCE:

1. "Family member" means a person related to you by blood, marriage or adoption who is a resident of your household, including a ward or foster child.

....

D. WHO IS INSURED

1. You or any family member;

2. Anyone else occupying a covered auto or a temporary substitute for a covered auto....

3. Anyone for damages he is entitled to recover because of bodily injury sustained by another insured.

The Chambers agree that subsections D.2. and D.3. above are inapplicable to their case. The Chambers contend that "family member" is ambiguous and illusory. We will assume, without disagreeing with the trial court's finding to the contrary, that "you or any family member" is ambiguous in a business auto policy when "you" is a corporation. The question then becomes whether that ambiguity results in coverage.

Many published opinions (none from Arizona) discuss the meaning, if any, of "family member" in a business auto policy. Most courts, like the trial court here, find that "family member" means nothing when "you" is a corporation, and they find no coverage on facts and language similar to what we have here. See, e.g., Pearcy v. Travelers Indem. Co., 429 So.2d 1298, 1299 (Fla.App.1983); Economy Preferred Ins. v. Jersey County Constr., 246 Ill.App.3d 387, 186 Ill.Dec. 233, 236-37, 615 N.E.2d 1290, 1293-94 (1993); Huebner v. MSI Ins. Co., 506 N.W.2d 438, 441 (Iowa 1993); Sears v. Wilson, 10 Kan.App.2d 494, 704 P.2d 389, 392 (1985); Langer v. United States Fidelity & Guar. Co., 552 A.2d 20, 22 (Me.1988); Cutter v. Maine Bonding & Casualty Co., 133 N.H. 569, 579 A.2d 804, 807 (1990); Buckner v. Motor Vehicle Accident Indemnification Corp., 66 N.Y.2d 211, 495 N.Y.S.2d 952, 954, 486 N.E.2d 810, 812 (1985); Dixon v. Gunter, 636 S.W.2d 437, 441 (Tenn.App.1982). We agree with the results in those cases.

A few courts have found coverage based on alleged "family member" ambiguity in a corporation's business auto policy. See, e.g. Hawkeye-Security Ins. Co. v. Lambrecht & Sons, 852 P.2d 1317, 1319 (Colo.App.1993) ("family member" included wife of sole shareholder); Ceci v. National Indem. Co., 225 Conn. 165, 622 A.2d 545, 550 (1993) ("family member" included corporate employee/brother of sole shareholder); King v. Nationwide Ins. Co., 35 Ohio St.3d 208, 519 N.E.2d 1380, 1384 (1988) ("relatives living in household" of corporation included corporate employee); Decker v. CNA Ins. Co., 66 Ohio App.3d 576, 585 N.E.2d 884, 888 (1990) ("family member" included corporate employee); Grain Dealers Mut. Ins. Co. v. McKee, 911 S.W.2d 775, 781 (Tex.App.1995) ("family member" included daughter of corporation's president and sole shareholder). (We do not include an unpublished case cited by the Chambers.) We will discuss and distinguish the minority-view cases.

Hawkeye-Security involved a "general automobile policy" that provided UM coverage only to the corporation, meaning that it was illusory coverage because a corporation cannot receive bodily injury. 852 P.2d at 1318-19. A premium having been paid for UM coverage, the court gave meaning to it by finding coverage for the wife of the corporation's sole stockholder. Id. at 1319. In the C & G policy, there is nothing illusory about UIM coverage: it is provided to anyone occupying a covered auto.

Ceci found "family member" coverage on facts rather similar to those here; the corporation was closely-held and the claimant was the brother of the sole shareholder. 622 A.2d at 547. The Ceci court acknowledged that "corporations do not have families," but it refused to find the "family member" language meaningless. Id. at 550. Instead, the court found that the insurance company could have and should have omitted "family member" language from the policy. Id. As if to inspire such omission in future policies, the court held, in essence, that "family member" meant "coverage" for the brother's injury. See id.

Ceci and other cases basing coverage on alleged "family member" ambiguity followed a more rigid rule of contract interpretation than that adopted by the Arizona Supreme Court. In Connecticut, "an ambiguous provision in an insurance policy will be construed to favor the insured." Id. at 548. In Texas, when ambiguity exists, courts "must adopt the construction that most favors the insured and must, as a matter of law, find in favor of coverage." Grain Dealers, 911 S.W.2d at 782. In Ohio, "ambiguous provisions [are] to be construed liberally in favor of the insured." Decker, 585 N.E.2d at 887. One limitation of such a rule of interpretation is that it can sometimes compel an absurd result, as pointed out by the concurring opinion in Decker: "I concur with the well-written opinion of the majority. That opinion comes to the only legal conclusion possible despite the absurdity of that conclusion from a common-sense viewpoint." Id. at 889 (Christley, P.J., concurring).

Contract Interpretation

The Arizona Supreme Court has rejected the rule that a court must always construe an ambiguous provision against the insurer, and has made clear that "[w]e prefer to adopt a rule of common sense and have attempted to do so on numerous occasions." State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 257, 782 P.2d 727, 733 (1989). "[W]hen a question of interpretation arises, we are not compelled in every case of apparent ambiguity to blindly follow the interpretation least favorable to the insurer." Id. "Thus, we reiterate, the rule in Arizona is that we construe a...