Dronge v. Monarch Ins. Co. of Ohio

• Decision Date: 10 January 1979
• Docket Number: No. 76-17-C6.,76-17-C6.
• Citation: 511 F. Supp. 1
• Court: U.S. District Court — District of Kansas
• Parties: Louis DRONGE, Plaintiff, v. The MONARCH INSURANCE COMPANY OF OHIO, Defendant, and United Jersey Bank, Intervenor.

511 F. Supp. 1

Louis DRONGE, Plaintiff, v. The MONARCH INSURANCE COMPANY OF OHIO, Defendant and United Jersey Bank, Intervenor.

No. 76-17-C6.

United States District Court, D. Kansas.

January 10, 1979.

COPYRIGHT MATERIAL OMITTED

Lee Thompson, Martin, Pringle, Schell & Fair, Wichita, Kan., for plaintiff.

Fred C. Begy, III, Lord, Bissell & Brook, Chicago, Ill., for defendant.

Alvin D. Herrington, McDonald, Tinker, Skaer, Quinn & Herrington, Wichita, Kan., for United Jersey Bank, intervenor.

MEMORANDUM OF DECISION

FINDINGS OF FACT AND CONCLUSIONS OF LAW

WESLEY E. BROWN, District Judge.

This is a contract action in which the plaintiff, Louis Dronge Dronge, seeks to recover the sum of $183,000 allegedly due and owing upon a contract of insurance issued by defendant Monarch Insurance Company Monarch. The subject of the insurance contract, which was issued on August 15, 1974, was a 1974 Cessna 402B aircraft the 402B, owned by plaintiff Dronge. This aircraft crashed in Sedgwick County, Kansas, on February 19, 1975, and thereafter was sold for salvage. At the time of the crash, the aircraft was carrying a cargo of marijuana and criminal prosecutions were undertaken against the two persons piloting the craft, Charles Alexander Pappas Pappas and Edward Kelley Kelley. In addition to the $183,000 together with all interest accrued thereon from February 19, 1975, plaintiff seeks an allowance of reasonable attorney fees and expenses incurred as a result of the litigation, and for the costs of this action. Defendant seeks rescission of the insurance agreement and its damages for defending the litigation. Trial was had to the Court on October 31 and November 1, 1978. Joint stipulations are on file, all briefs and arguments have been presented, and the case is ready for disposition.

Because this case involves construction of a contract of insurance, a general discussion of the law is appropriate. General law in Kansas is clear as to the construction of insurance policies. A recent statement of Kansas law is found in Mah v. United States Fire Ins. Co., 218 Kan. 583, 545 P.2d 366 (1976). The law provides that in construing an insurance policy, 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. Policies must be construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense. Mah, supra; Bramlett v. State Farm Mutual Ins. Co., 205 Kan. 128, 468 P.2d 157 (1970). When an insurance contract is not ambiguous, a court may not make another contract for the parties. An unambiguous contract must be enforced according to its terms. Mah, supra; Goforth v. Franklin Life Ins. Co., 202 Kan. 413, 449 P.2d 477 (1969); Simpson v. KFB Insurance Co., Inc., 209 Kan. 620, 498 P.2d 71 (1972).

However, a contract of insurance may be ambiguous. To be ambiguous the 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 one genuinely uncertain which one of two or more meanings is the proper meaning. Mah, supra; Clark v. Prudential Ins. Co., 204 Kan. 487, 464 P.2d 253 (1970); Western Casualty & Surety Co. v. Budig, 213 Kan. 517, 516 P.2d 939 (1973). Where the terms of a policy of insurance are ambiguous or uncertain, conflicting or susceptible of more than one construction, the construction most favorable to the insured must prevail. Mah, supra; Goforth v. Franklin Life Ins. Co., supra. This is because an insurance contract is by nature an adhesion contract. Gowing v. Great Plains Mutual Ins. Co., 207 Kan. 78, 483 P.2d 1072 (1971).

The language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties. Mah, supra; Goforth, supra. In determining the intention of the parties to a contract of insurance, the test is not what the insurer intends the printed language to mean, but rather what a reasonable person placed in the position of the insured would have understood the words to mean. Fancher v. Carson-Campbell, Inc., 216 Kan. 141, 530 P.2d 1225 (1975); Gowing v. Great Plains Mutual Ins. Co., supra; Walker v. Imperial Casualty & Indemnity Co., 1 Kan.App.2d 349, 564 P.2d 588 (1977). Since the insurer prepares its own contracts, it has a duty to make the meaning clear. If the insurer intends to restrict or limit coverage provided in the policy, it must use clear and unambiguous language in doing so, employing such language as will clearly and distinctly reveal its stated purpose. Fancher v. Carson-Campbell, Inc., supra; Gowing, supra; Goforth, supra. This rule of construction applies with particular force to provisions which attempt to exclude liability coverage under certain conditions. Gowing, supra, citing Prickett v. Hawkeye-Security Insurance Company, 282 F.2d 294 (10th Cir. 1969). It is a general rule that exceptions, limitations and exclusions to insuring agreements require a narrow construction on the theory that the insurer, having affirmatively expressed coverage through broad promises, assumes a duty to define any limitations on that coverage in clear and explicit terms. Krug v. Millers' Mutual Insurance Ass'n, 209 Kan. 111, 495 P.2d 949 (1972). See generally Alliance Life Ins. Co. v. Ulysses Volunteer Fireman's Relief Assn., 215 Kan. 937, 529 P.2d 171 (1974); Fowler v. United Equitable Ins. Co., 200 Kan. 632, 438 P.2d 46 (1968); Wise v. Westchester Fire Ins. Co., 463 F.2d 386 (10th Cir. 1972).

As to the burden of proof, the well-established rule is that when an insurer seeks to avoid liability on the ground that the accident or injury for which compensation is demanded is covered by some specific exception to the general terms of the policy, the burden of proof rests upon the insurer to prove the facts which bring the case within such specific exception. The burden is on the insured to prove that the loss was of a type included in the general coverage provisions of the insurance contract. Thus, the distinction between "coverage" provisions and exculpating or "exclusionary" clauses in an insurance contract is the decisive factor in determining which party has the burden of proof on an issue, where coverage under the policy is disputed. Baugher v. Hartford Fire Ins. Co., 214 Kan. 891, 522 P.2d 401 (1974); Krug v. Millers' Mutual Insurance Ass'n, supra.

Plaintiff seeks attorney fees. Any entitlement which plaintiff may have to attorney fees is that provided by K.S.A. 40-256:

40-256. Attorney fees in action on insurance policies; exception. That in all actions hereafter commenced, in which judgment is rendered against any insurance company ..., if it appear from the evidence that such company ... has refused without just cause or excuse to pay the full amount of such loss, the court in rendering judgment shall allow the plaintiff a reasonable sum as an attorney's fee for services in such action, including proceeding upon appeal, to be recovered and collected as a part of the costs: Provided, however, That when a tender is made by such insurance company ... before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender no such costs shall be allowed.

It is clearly established under Kansas law that whether or not attorney's fees shall be allowed depends on the facts and circumstances of each particular case. Van Hoozer v. Farmers Insurance Exchange, 219 Kan. 595, 549 P.2d 1354 (1976); Forrester v. State Farm Mutual Automobile Ins. Co., 213 Kan. 442, 517 P.2d 173 (1973); Lord v. State Automobile & Casualty Underwriters, 208 Kan. 227, 491 P.2d 917 (1971). Covill v. Phillips, 455 F.Supp. 485, 487-488 (D.Kan. 1978), sets out the Court's function:

It is a question for the district court as the trier of the facts to determine whether an insurance company has refused to pay the full amount of an insured's loss "without just cause or excuse," thereby subjecting itself to payment of an attorney's fee under K.S.A. § 40-256. Koch, Administratrix v. Prudential Ins. Co., 205 Kan. 561, 470 P.2d 756 (1970). In this regard, it is the insurer's activity or lack thereof prior to commencement of the action which determines whether or not a refusal to pay is without just cause or excuse. Sloan v. Employers Casualty Ins. Co., 214 Kan. 443, 521 P.2d 249 (1974). Whether there was any reasonable ground for contesting the claim depends upon circumstances existing when payment is withheld or liability is declined, and is not determined by the outcome of the ensuing litigation. Wolf v. Mutual Benefit Health & Accident Ass'n, 188 Kan. 694, 366 P.2d 219 (1961).

Several Kansas cases deal with which circumstances do and do not justify an award of attorney's fees. Where there was a good faith legal controversy, although the insurance company was wrong, the misconception on which it based its refusal was not such that would indicate an arbitrary, capricious, or bad faith motive. Van Hoozer v. Farmers Insurance Exchange, supra. This is particularly true when the legal controversy involves a first impression interpretation of a statute or legal principle. Id.; Farm Bureau Mutual Ins. Co. v. Carr, 215 Kan. 591, 528 P.2d 134 (1974); Forrester v. State Farm Mutual Automobile Ins. Co., supra; Sturdy v. Allied Mutual Ins. Co., 203 Kan. 783, 457 P.2d 34 (1969). However, a company has a duty to make a good faith investigation of the facts before finally refusing to pay. When it makes no effort to investigate, either by itself or its counsel, but leaves the burden of investigation to the...