Erie Ins. Exch. v. Epc MD 15, LLC

• Decision Date: 17 January 2019
• Docket Number: Record No. 180120
• Citation: 822 S.E.2d 351
• Parties: ERIE INSURANCE EXCHANGE v. EPC MD 15, LLC
• Court: Virginia Supreme Court

822 S.E.2d 351

ERIE INSURANCE EXCHANGE

v.EPC MD 15, LLC

Record No. 180120

Supreme Court of Virginia.

JANUARY 17, 2019

George E. Reede, Jr. (Matthew J. Youssef ; Niles, Barton & Wilmer, on briefs), for appellant.

C. Thomas Brown (Erik B. Lawson, Fairfax; Caitlin M. Brown ; Silver & Brown, on brief), for appellee.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

EPC MD 15, LLC ("EPC") was a named insured on a commercial property policy issued by Erie Insurance Exchange ("Erie"). EPC sued Erie and claimed coverage for fire damage to a building owned by a subsidiary of EPC. The subsidiary, however, was not a named insured, and no provision of the policy identified the subsidiary as an additional insured. On cross-motions for summary judgment, the circuit court held that EPC’s ability to control its subsidiary meant that, for insurance-coverage purposes, EPC thereby acquired all of the subsidiary’s property under a coverage-extension provision in the policy.

Having found that coverage existed for the loss, the court entered final judgment for EPC and awarded the agreed-upon damages. On appeal, Erie contends that the circuit court misinterpreted the coverage-extension provision and found coverage where there was none. We agree and reverse.

I.

EPC is a limited liability company organized under Maryland law. EPC purchased an insurance policy from Erie that was issued for one year beginning on June 15, 2013. At the time of the purchase, EPC owned real property in Maryland. The policy identified EPC as the named insured and covered fire damage among other losses. No policy provision defined the term "named insured" to include EPC’s subsidiaries. The policy defined " ‘you’ and ‘your’ " to "refer to the Named Insured shown in the ‘Declarations.’ " J.A. at 56. The Declarations pages identified EPC as the named insured and described the property interest that the policy covered as the "interest of named insured in such premises—owner." Id. at 39, 41 (omitting capitalization).

The policy included various "Extensions of Coverage." Id. at 70. One such provision covered buildings newly "acquired" by EPC after the issuance of the policy. Id. at 78. The pertinent language read: "If this policy covers Building(s), you may extend that insurance ... on ... [n]ewly acquired buildings at other than the location(s) described in the ‘Declarations’ " as well as "[n]ew additions, new buildings and new structures when constructed on the insured premises." Id. (emphasis added). The policy did not define the term "acquired." See id. at 83-84.

Another coverage-extension provision applied to "Business Personal Property" newly acquired by EPC and to "Personal Property of Others" located in a building newly "acquired or leased" by EPC. Id. at 78. The policy also extended coverage for loss of income associated with damage to, among other things, "[n]ewly acquired Buildings or Business Personal Property and Personal Property of Others in a newly leased building." Id. None of these provisions, however, expressly extended coverage to the buildings of others. Further, the policy included a provision that provided coverage for "[p]ersonal property of others that is in your [EPC’s] care, custody, or control." Id. at 57. The policy also included a provision applicable to buildings, inter alia, that excluded coverage for any "[i]ntentional loss, meaning any ‘loss’ arising from an act committed by or at the direction of the insured with the intent to cause a ‘loss.’ " Id. at 60.

The Declarations pages of the policy listed EPC’s Maryland property and no other. Approximately nine months after Erie had issued the policy, EPC acquired the sole membership interest in Cyrus Square, LLC ("Cyrus Square"), a limited liability company organized under Virginia law.¹ Cyrus Square owned a building located in Winchester, Virginia.

Within 90 days of EPC acquiring this membership interest in Cyrus Square,² a fire damaged the building that Cyrus Square owned in Winchester. EPC’s counsel filed a demand for coverage, identifying "EPC MD 1[5], LLC, and/or Cyrus Square LLC" as the "Insureds." Id. at 18, 165. After Erie denied coverage, EPC filed suit and claimed that, while Cyrus Square was not a named insured, EPC clearly was—and EPC had "acquired" the fire-damaged property when EPC became the sole member of Cyrus Square. Upon this basis, EPC sought to trigger the policy’s coverage-extension provision for newly acquired buildings of the named insured. On cross-motions for summary judgment based upon stipulated facts, the circuit court agreed with EPC by holding that the word "acquired" is ambiguous and hence should be construed against Erie as the drafter. The court entered final judgment in favor of EPC against Erie.

II.

On appeal, Erie argues that the circuit court misread the policy language and found an ambiguity where none existed.³ In context, Erie contends, the coverage-extension provision for newly acquired buildings cannot be fairly read to apply to property of a newly acquired subsidiary that is neither a named nor an additional insured on the parent company’s policy. Nor can this provision be reasonably read to mean that a parent company "acquires" the real property of a subsidiary merely by virtue of the creation of a parent-subsidiary relationship after issuance of the policy at issue. We agree.

A.

"In an appeal from a circuit court’s decision to grant or deny summary judgment, this Court reviews the application of law to undisputed facts de novo." St. Joe Co. v. Norfolk Redev. & Hous. Auth. , 283 Va. 403, 407, 722 S.E.2d 622 (2012). "At the center of this appeal is the construction and application of the terms of an insurance contract, which are issues of law that we review de novo." Bratton v. Selective Ins. Co. of Am. , 290 Va. 314, 322, 776 S.E.2d 775 (2015).

The canons of construction that generally govern contracts also apply to insurance policies specifically. See Liverpool & London & Globe Ins. v. Bolling , 176 Va. 182, 192, 10 S.E.2d 518 (1940). Except when interpreting statutorily required clauses, which must conform to the intention of the lawmakers rather than the intention of the contractual parties,⁴ Virginia courts "interpret insurance policies, like other contracts, in accordance with the intention of the parties gleaned from the words they have used in the document," TravCo Ins. v. Ward , 284 Va. 547, 552, 736 S.E.2d 321 (2012) ; see Dairyland Ins. v. Douthat , 248 Va. 627, 631, 449 S.E.2d 799 (1994) ("If the terms of an insurance policy do not conflict with any provision of law, the terms of the contract, as written, will govern and limit the extent of recovery under the policy."). In the context of insurance policies, this rule means that a judicial interpretation should conform to the plain meaning that reasonable insurers and insureds likely would have attributed to the words.⁵

The search for this plain meaning does not myopically focus on a word here or a phrase there. Instead, it looks at a word in the context of a sentence, a sentence in the context of a paragraph, and a paragraph in the context of the entire agreement. The plain meaning of a word depends not merely on semantics and syntax but also on the holistic context of the word within the instrument. Consequently, every word, clause, and provision of the policy "should be considered and construed together and seemingly conflicting provisions harmonized when that can be reasonably done, so as to effectuate the intention of the parties as expressed therein." Floyd v. Northern Neck Ins. , 245 Va. 153, 158, 427 S.E.2d 193 (1993) (citation omitted). "[I]f they are clear and unambiguous, their terms are to be taken in their plain, ordinary and popular sense." Government Emps. Ins. v. Moore , 266 Va. 155, 164, 580 S.E.2d 823 (2003) (citation omitted).

If the plain meaning is undiscoverable, Virginia courts apply the contra proferentem canon, which construes ambiguities against the drafter of the ambiguous language. See TravCo Ins. , 284 Va. at 553, 736 S.E.2d 321. In insurance cases, the disfavored drafter is almost always the insurer. That fact alone counsels caution because of the analytical ease with which a court may give up quickly on the search for a plain meaning by resorting to the truism that a great many words—viewed in isolation—have alternative, and sometimes quite different, dictionary meanings. If we took this approach, the contra proferentem thumb-on-the-scale would apply to nearly every interpretation of nearly every insurance policy. Our prior opinions have recognized this temptation and resisted it. See, e.g. , Appalachian Reg’l Healthcare v. Cunningham , 294 Va. 363, 375 n.10, 806 S.E.2d 380 (2017) ; Bartolomucci v. Federal Ins. , 289 Va. 361, 370-71, 770 S.E.2d 451 (2015) ; Transit Cas. Co. v. Hartman’s, Inc. , 218 Va. 703, 708, 239 S.E.2d 894 (1978) ; Travelers Indem. Co. v. Ford , 208 Va. 151, 155, 156 S.E.2d 606 (1967) ; Combs v. Hunt , 140 Va. 627, 634-35, 643, 125 S.E. 661 (1924).

Under Virginia law, conflicting interpretations reveal an ambiguity only where they are reasonable. See Caldwell v. Transportation Ins. , 234 Va. 639, 643, 364 S.E.2d 1 (1988) (recognizing that an ambiguity exists where "reasonable men ... may reach reasonable , but opposite, conclusions" regarding the meaning of the disputed provision (emphasis added) (citation omitted) ); United States Mut. Accident Ass’n v. Newman , 84 Va. 52, 58-59, 3 S.E. 805 (1887) (adopting a construction favoring the insured "where it can be fairly claimed that two constructions can be placed upon the language used in the policy" (emphasis added) ). A "reasonable" or "fairly claimed" interpretation is one arising from two competing interpretations that are "equally possible" given the text and context of the disputed provision. Appalachian Reg’l Healthcare , 294 Va. at 375 n.10, 806 S.E.2d 380 (citation omitted); see also PBM Nutritionals, LLC v. Lexington Ins. , 283 Va. 624, 633-34, 724 S.E.2d 707 (2012).

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