O'BRYAN v. Columbia Ins. Group

• Decision Date: 25 October 2002
• Docket Number: No. 85,363.,85,363.
• Citation: O'BRYAN v. Columbia Ins. Group, 274 Kan. 572, 56 P.3d 789 (Kan. 2002)
• Parties: JOHN A. O'BRYAN and PAUL SCALETTY, Appellees, v. COLUMBIA INSURANCE GROUP, Appellant.
• Court: Kansas Supreme Court

274 Kan. 572

56 P.3d 789

JOHN A. O'BRYAN and PAUL SCALETTY, Appellees, v. COLUMBIA INSURANCE GROUP, Appellant.

No. 85,363.

Supreme Court of Kansas.

Opinion filed October 25, 2002.

William J. Gotfredson, of Monaco, Sanders, Gotfredson & Racine, of Kansas City, Missouri, argued the cause, and Aaron J. Racine, of the same firm, was with him on the brief for appellant. Gerald L. Thompson, of Sinclair, Sawyer, Thompson, Haynes & Cowing, P.C., of Kansas City, Missouri, argued the cause, and Andrew S. Mendelson, of the same firm, was with him on the brief for appellees.

The opinion of the court was delivered by

LOCKETT, J.:

This case comes before the court on a petition for review from the Court of Appeals' unpublished decision in O'Bryan v. Columbia Ins. Group, No. 85,363, filed January 11, 2002. Appellees John O'Bryan and Paul Scaletty appeal the Court of Appeals' (1) reversal of the district court's grant of summary judgment and the district court's finding that the insurance contract was unambiguous, (2) determination that as a matter of public policy the common-law rule against under insuring applies, and (3) grant of summary judgment to the insurer on public policy grounds.

O'Bryan purchased an insurance policy from Columbia Insurance Group (Columbia) providing $40,000 coverage on a dwelling. Coverage under the policy was for a 1-year term beginning September 19, 1997. A fire occurred at the insured dwelling in November 1997. Columbia paid O'Bryan $37,105.50 for the loss sustained to the dwelling as a result of the fire.

In March 1998, another fire occurred at the insured dwelling. At that time, none of the damage caused by the first fire had been repaired. O'Bryan submitted a $40,000 claim to Columbia as a result of the second fire, complying with the terms and conditions of the insurance policy. The amount of damage arising out of the second fire was in excess of $40,000. Columbia tendered $2,894.50 as the amount of coverage remaining under the policy. O'Bryan refused to accept the tender and filed suit. Upon Columbia's motion, Scaletty was added as a necessary party to the lawsuit, having acquired a 50 percent interest in the insured property. O'Bryan and Scaletty are collectively referred to as O'Bryan herein.

Columbia filed a motion for summary judgment, alleging it was entitled to deduct the amount paid for the loss sustained in the first fire from the $40,000 in determining the amount of coverage remaining for the loss sustained in the second fire. O'Bryan filed a cross-motion for summary judgment, alleging the $40,000 was the limit of liability per loss and that Columbia was not entitled to deduct the money paid for the first loss in determining the coverage available for the second loss. The parties agreed that no material facts were in dispute.

After hearing arguments, the district court denied Columbia's motion for summary judgment and granted O'Bryan's motion for summary judgment in part and denied it in part. The district court applied the rules regarding interpretation of an insurance policy and determined that the insurance policy was unambiguous. The court held that the policy provided a second additional limit of $40,000 that applied to the second fire. In reaching this decision, the district court relied upon the language of section 2 of the Conditions section of the policy and the case of U.S. Liability Ins. Co. v. Bove, 347 So.2d 678 (Fla. Dist. App. 1977). The analysis of the district court is further discussed herein. The court awarded judgment to O'Bryan for $40,000 and denied O'Bryan's request for attorney fees and prejudgment interest.

On appeal, the Court of Appeals reversed the district court's decision and remanded the case with instructions to the district court that judgment be entered on behalf of Columbia. In its opinion, the Court of Appeals stated the applicable rules for judicial interpretation of a written insurance contract, disregarded the rules, and made a public policy decision. In reaching its decision, the Court of Appeals cited 12 Couch on Insurance 3d § 175:15 (1998) and concluded that "the common-law rule which permits deducting the amount of the first claim from the policy limit in determining the amount of insurance available to pay a second claim ought to prevail."

Under Kansas law, the common law, as modified by constitutional and statutory law, judicial decisions, and the conditions and wants of the people, remains in force and effect. K.S.A. 77-109. "Public policy consists of the principles and standards regarded by the legislature or by the courts as being of fundamental concern to the state and the whole society." Bolz v. State Farm Mut. Auto. Ins. Co., 274 Kan. 420, Syl. ¶ 3, 52 P.3d 898 (2002). However, in Kansas, insurance is and has long been recognized as being a highly statutorily regulated industry. See K.S.A. 40-101 et seq.; K.A.R. 40-1-19 et seq.; Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan. 914, 923-26, 611 P.2d 149 (1980); Holmstrom v. Sullivan, 192 Kan. 746, 391 P.2d 100 (1964); cf. Bolz, 274 Kan. 420. Courts should avoid making public policy where the statutory law has developed.

In adopting a common-law rule, the Court of Appeals set forth what it believed to be the public policy of Kansas. We have previously acknowledged that the declaration of public policy is primarily a legislative function. Bolz, 274 Kan. 420, Syl. ¶ 3. Judicial lawmaking responsibility arises from the decision of disputes of private rights and liabilities. It is not the duty of the courts to decide public-law questions of policy affecting these disputes. This court has repeatedly set forth the rules regarding the construction of insurance policies, yet the Court of Appeals abandoned the rules, which are the established judicial policy for interpreting the rights and duties of parties to a written insurance policy, and made a public policy decision. In determining that there was fundamental concern that required a change of the law, the Court of Appeals erred and is reversed.

Rules of Construction

The rules regarding the construction of insurance policies under Kansas law are well established. The language of an insurance policy, like any other contract, must, if possible, be construed in such way as to give effect to the intention of the parties. Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 693, 840 P.2d 456 (1992); American Media, Inc. v. Home Indemnity Co., 232 Kan. 737, 740, 658 P.2d 1015 (1983). In construing a policy of insurance, a court should consider the instrument as a whole and endeavor to ascertain the intention of the parties from the language used, taking into account the situation of the parties, the nature of the subject matter, and the purpose to be accomplished. Farm Bureau Mut. Ins. Co. v. Horinek, 233 Kan. 175, Syl. ¶ 3, 660 P.2d 1374 (1983).

Because the insurer prepares its own contracts, it has a duty to make the meaning clear. If the insurer intends to restrict or limit coverage under the policy, it must use clear and unambiguous language; otherwise, the policy will be liberally construed in favor of the insured. Catholic Diocese, 251 Kan. at 693; Patrons Mut. Ins. Ass'n v. Harmon, 240 Kan. 707, 713, 732 P.2d 741 (1987). If an insurance policy's language is clear and unambiguous, it must be taken in its plain, ordinary, and popular sense. First Financial Ins. Co. v. Bugg, 265 Kan. 690, 694, 962 P.2d 515 (1998). In such case, there is no need for judicial interpretation or the application of rules of liberal construction. American Media, 232 Kan. at 740. The court shall not make another contract for the parties and must enforce the contract as made. Patrons, 240 Kan. at 713.

However, where the terms of an insurance policy are ambiguous or uncertain, conflicting, or susceptible of more than one construction, the construction most favorable to the insured must prevail. Catholic Diocese, 251 Kan. at 693; Patrons, 240 Kan. at 713.

"To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language. Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning." Catholic Diocese, 251 Kan. at 693.

Whether a written instrument is ambiguous is a question of law to be decided by the courts. Catholic Diocese, 251 Kan. at 691. Courts should not strain to create an ambiguity where, in common sense, there is not one. First Financial, 265 Kan. at 694. The test in determining whether an insurance contract is ambiguous is not what the insurer intends the language to mean, but what a reasonably prudent insured would understand the language to mean. First Financial, 265 Kan. at 694.

District Court's Grant of Summary Judgment

Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules, and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied. Friesen-Hall v. Colle, 270 Kan. 611, 613, 17 P.3d 349 (2001); Bergstrom v. Noah, 266 Kan. 847, 871-72, 974 P.2d 531 (1999).

Neither party asserts there is a dispute as to a material...