Clarendon Nat'l Ins. Co. v. Medina, 10–1943.

Citation645 F.3d 928
Decision Date13 July 2011
Docket NumberNo. 10–1943.,10–1943.
PartiesCLARENDON NATIONAL INSURANCE COMPANY, Plaintiff–Appellee,v.Maria MEDINA, Guillermo Medina, Town Trucking Company, Jerry Schulman, Co–Administrator of the Estate of Michael Walter Schulman, Deceased, and Mary Falat–Schulman, Co–Administrator of the Estate of Michael Walter Schulman, Deceased, Defendants–Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

OPINION TEXT STARTS HERE

Ira S. Lipsius (argued) and Laurence J. Rabinovich, Attorneys, Schindel, Farman, Lipsius, Gardner & Rabinovich, New York, NY, for PlaintiffAppellee.William L. Barr, Jr. (argued), Attorney, Law Offices of William L. Barr, Chicago, IL, for DefendantsAppellants.

Before ROVNER, WOOD, and TINDER, Circuit Judges.

TINDER, Circuit Judge.

The trailer of Guillermo Medina's semi-truck jackknifed across the center line of a slippery road while he was making a delivery of shingles for Town Trucking Company, a federally licensed motor carrier. The wayward trailer struck a pickup truck and killed its driver, Michael Walter Schulman. Schulman's parents, as administrators of his estate, brought a wrongful death and survival action in Illinois state court against Town; Guillermo; and Guillermo's wife, Maria Medina, the titular owner of the truck Guillermo was driving at the time of the accident. The suit settled. Pursuant to the settlement agreement, Town's insurance carrier, Occidental Fire & Casualty, who defended the action, paid out the full $1 million policy limit. The agreement also provided that the state court would issue a $2 million consent judgment against Town and the Medinas. Schulman's estate agreed that the payment from Occidental would satisfy the first $1 million of the judgment, while the second $1 million would come, if at all, from an insurance policy Clarendon National Insurance Company issued to Guillermo. Clarendon declined coverage, citing an exclusion in Guillermo's policy. It then sought a declaratory judgment of its liability from the district court for the Northern District of Illinois. The district court found no coverage and granted summary judgment in Clarendon's favor. We affirm.

I. Background

In early 2006, Guillermo and Maria's son, a commercial truck driver, got a new truck cab. Pursuant to a “family decision,” the son transferred ownership of his old truck cab, a 1998 Volvo, to Maria. Maria did not have a commercial driver's license and was therefore unable to drive the Volvo commercially. Guillermo, however, had a commercial driver's license and several years' experience as a truck driver, which Maria expected him to use to find a trucking job. Armed with the Volvo, his credentials, and Maria's blessing, Guillermo successfully applied for a job with Town Trucking, a Summit, Illinois-based, federally licensed interstate motor carrier for whom his son drove.

The federal regulations governing motor carriers require carriers to either own their trucking equipment or to enter into written leases in which the “owner” of the equipment “grants the use of equipment, with or without driver, for a specified period ... for use in the regulated transportation of property, in exchange for compensation.” 49 C.F.R. § 376.2(e) (defining “lease”); see also id. § 376.11 (requiring leases); id. § 376.2(d) (defining “owner”). In what the parties agree was at least an attempt to comply with these regulations, Town entered into a nine-page “Contractor Operating Agreement” (“COA”) with Guillermo. Pursuant to the COA, Guillermo agreed to furnish the Volvo and a driver (himself) to transport, load, and unload shipments of goods on behalf of Town in exchange for compensation. Maria, the titular owner of the Volvo, did not sign the COA and was not familiar with its terms. She nonetheless testified that she knew Guillermo had signed an agreement with Town and that he had her permission to do so. Maria explained, He's the one that uses [the Volvo]. He's the one that takes it, and he's the one that files—keeps all the paperwork. And I know that he's doing it. I know it's going on, but he's doing it.”

In accordance with federal regulations, see 49 C.F.R. §§ 387.7 & 387.9, and as provided for in the COA, Town maintained a $1 million public liability/property damage insurance policy that covered its drivers while they were using their equipment in the furtherance of Town's business. The policy was underwritten by Occidental Fire & Casualty, which agreed to include Guillermo among the policy's insureds. The COA further required Guillermo to obtain “Non-trucking/bobtail liability insurance coverage for bodily injury and property damage” with a policy limit of at least $750,000. Such “bobtail insurance” covers truck drivers while they are “bobtailing,” or driving their cabs without trailers outside the service of the federally licensed carriers under whose authority they operate. Town referred Guillermo to a local insurance broker, Insurance Pro, so he could secure a bobtail policy.

With Maria's knowledge and permission, Guillermo visited Insurance Pro and applied for bobtail insurance. He told Insurance Pro that his wife owned the truck but that he would be driving it. Insurance Pro submitted Guillermo's application, which identified him as the insured and indicated to several insurance carriers that the Volvo was “leased to Town Trucking.” New Jersey-based Clarendon National Insurance Company agreed to issue Guillermo a policy. Maria wrote a check to cover the annual premium. Insurance Pro issued Guillermo an insurance card in his name.

After obtaining the requisite insurance, Guillermo began working for Town, hauling loads of freight in exchange for per-trip payments that he deposited into a joint bank account of which Maria was a holder.1 On November 28, 2006, Town supplied Guillermo with a flatbed trailer and dispatched him and the Volvo to transport several loads of shingles from a manufacturer in Summit, Illinois, to a store in McHenry, Illinois. Guillermo successfully delivered the first load and was returning to Summit with the empty trailer to pick up a second load when the trailer jackknifed over the center line and collided with an oncoming pickup truck. Michael Walter Schulman, the driver of the pickup, sustained fatal injuries in the accident.

Schulman's parents, as co-administrators of his estate, filed a survival and wrongful death action against the Medinas and Town in Illinois state court. Occidental, Town's insurer, defended the action and ultimately settled with Schulman's estate for the full limits of Town's $1 million policy, less some subrogation claims. The settlement agreement also included the entry of a consent judgment of $2 million against the Medinas and Town. The estate agreed that the payment by Occidental satisfied the first $1 million of the consent judgment, and that the second $1 million would be satisfied, if at all, by Guillermo's policy with Clarendon.

Clarendon denied coverage. It relied primarily on an exclusion in Guillermo's policy that provided, [t]his insurance does not apply to ... [a] covered ‘auto’ while in the business of anyone to whom the ‘auto’ is rented.” As an alternative basis for its denial, Clarendon alleged that Guillermo failed to notify it of the accident and lawsuit in a timely fashion as required by the policy. Clarendon, properly invoking diversity jurisdiction, see 28 U.S.C. § 1332, sought a declaration of its obligations from the district court for the Northern District of Illinois. The parties to that action cross-moved for summary judgment. Defendants Town, the Medinas, and Schulman's estate argued that the exclusion in the Clarendon policy did not apply. They reasoned that the Volvo was not and indeed could not have been “rented” to Town because Guillermo did not own the Volvo and therefore lacked the ability to rent it to anyone. For its part, Clarendon argued that Guillermo had to have rented the Volvo to Town because absent such an arrangement, the Volvo could not have legally been used to transport goods. See 49 C.F.R. § 376.11(a).2

The district court granted Clarendon's motion and denied the defendants' motion. The district court held that “by operation of federal regulations and basic principles of contract law,” the COA constituted a lease such that the Volvo was “rented” to Town at the time of the accident. The district court discussed at length the federal motor carrier regulations governing leases, which it determined the COA materially complied with. It found “it highly implausible that a document which comports with all of the applicable federal regulations for a lease between carrier and lessor was not intended to, in fact, constitute such a lease.” The district court was untroubled by Guillermo's lack of titular ownership of the truck because undisputed facts showed that he “used the truck with Maria's express knowledge and permission, and entered into an agreement with Town Trucking regarding its use with her knowledge and permission.” It further noted that defendants had not provided any legal authority supporting their theory that only the titular owner of a chattel has the authority to rent it to another.

II. Discussion

We review the district's resolution of cross-motions for summary judgment de novo. E.g., Cogswell v. CitiFinancial Mortg. Co., 624 F.3d 395, 398 (7th Cir.2010). In doing so, we construe all reasonable inferences in favor of the party against whom the motion under consideration was made. Id. Here, that is the defendants. Summary judgment is appropriate only if the movant—Clarendon—“shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).

The parties agree that Illinois law governs this diversity action (notwithstanding the emphasis they place on the federal motor carrier regulations). In Illinois, insurance policies are contracts; the general rules governing the interpretation and...

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