Federal Ins. Co. v. New Coal Co., Inc.

• Court: U.S. District Court — Western District of Virginia
• Writing for the Court: Jones
• Citation: Federal Ins. Co. v. New Coal Co., Inc., 415 F.Supp.2d 647 (W.D. Va. 2006)
• Decision Date: 16 February 2006
• Docket Number: No. 2:05 CV 00004.,2:05 CV 00004.
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff, v. The NEW COAL COMPANY, INC., et al., Defendants.

415 F.Supp.2d 647

FEDERAL INSURANCE COMPANY, Plaintiff, v. The NEW COAL COMPANY, INC., et al., Defendants.

No. 2:05 CV 00004.

United States District Court, W.D. Virginia, Big Stone Gap Division.

February 16, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jeffrey R. Schmieler and William E. Hutchings, Jr., Saunders & Schmieler, P.C., Silver Spring, MD, for Plaintiff.

Curtis G. Power, III, and Amanda Mc-Donald Wiseley, Bowles Rice McDavid Graff & Love, LLP, Winchester, VA, and Spencer D. Noe, Bowles Rice McDavid Graff & Love, LLP, Lexington, KY, for Defendants.

OPINION

JONES, Chief Judge.

In this declaratory judgment action applying Virginia insurance law, the issue is the proper interpretation of an automobile exclusion endorsement to a commercial liability insurance policy. Construing the plain language of the exclusion, I find that there is no liability coverage for a lawsuit claiming that the insureds negligently overloaded a non-owned coal truck, which negligence allegedly contributed to cause a motor vehicle accident.

I

The present dispute concerns a commercial liability insurance policy entitled Energy Industries General Liability Insurance (the "Policy"), issued by the plaintiff Federal Insurance Company ("Federal") to the defendants The New Coal Company, Inc.¹ ("New Coal") and J.A.D. Coal Company, Inc. ("J.A.D."). New Coal and J.A.D. have been sued in tort in a state court for wrongful death and personal injuries following a motor vehicle accident, and Federal maintains that it is not obligated to provide coverage for any claims arising out of the accident because of a so-called Additional Auto Exclusion contained in an endorsement to the Policy.²

In the underlying tort action, pending in Clay Circuit Court, Kentucky (the "Kentucky Action"), it is asserted that on March 12, 2004, a tractor-trailer truck driven by Raymond G. Walker crossed the centerline of a Kentucky highway and struck an on-coming military Humvee driven by Kentucky National Guardsman Glenn Scott Stanfill. Glenn Scott Stanfill died as a result of the accident, and his son and passenger Joshua S. Stanfill sustained personal injuries. The complaint in the Kentucky Action contends that the accident was the result of both (1) the negligent operation of the truck by Walker, its driver, and (2) the negligent overloading of the truck by employees of New Coal and J.A.D. The driver Walker was not an agent or employee of New Coal or J.A.D., and the truck driven by him was not owned by them.

Federal filed this action seeking a declaration that it does not have a duty to defend or indemnify New Coal or J.A.D. because of the Policy's Additional Auto Exclusion.³ The defendants have counterclaimed, seeking a declaration that there is coverage under the Policy and thus a duty by Federal to defend and indemnify them. The parties are agreed that there are no genuine issues of material fact presented in the case and that the Complaint and Counterclaim can be determined on the present record and the parties' cross motions for summary judgment.

II

Federal courts sitting pursuant to their diversity jurisdiction must apply the law of the forum state, which here is Virginia. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Under Virginia's choice of law rules, an insurance policy, like other contracts, must be applied and interpreted in accordance with the law of the state in which it was made. Lexie v. State Farm Mut. Auto. Ins. Co., 251 Va. 390, 469 S.E.2d 61, 63 (1996). Because the Policy was delivered in Virginia, I must apply Virginia law to determine the issues in this case. See Res. Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 636 (4th Cir.), cert. denied, ___ U.S. ___, 126 S.Ct. 568, 163 L.Ed.2d 463 (2005). In order to determine state law, a federal court must follow the decisions of the state's highest court, or, where the law is unclear, predict how that court would rule, based on "canons of construction, restatements of the law, treatises, recent pronouncements of general rules or policies by the state's highest court, well considered dicta, and the state's trial court decisions," among other things. Wells v. Liddy, 186 F.3d 505, 528 (4th Cir.1999).

Under Virginia law, it is clear that "an insurer's obligation to defend is broader than its obligation to pay, and arises whenever the complaint [against the insured] alleges facts and circumstances, some of which would, if proved, fall within the risk covered by the policy." Lerner v. Gen. Ins. Co. of Am., 219 Va. 101, 245 S.E.2d 249, 251 (1978). Thus, an insurer may be obligated under a valid policy to mount a defense on its insured's behalf even when the ultimate resolution of the case indicates that there is no duty to indemnify. See Fuisz v. Selective Ins. Co. of Am., 61 F.3d 238, 242 (4th Cir.1995). However, where the record is clear that an insurer is excused from providing coverage under the provisions of its policy for any possible judgment based on the allegations, no duty to defend may be found. Town Crier, Inc. v. Hume, 721 F.Supp. 99, 102 (E.D.Va.1989).

In determining whether an insurance company is excused from providing coverage under its policy, Virginia applies the basic principles of contract interpretation. Thus, "a court must adhere to the terms of a contract of insurance as written, if they are plain and clear and not in violation of law or inconsistent with public policy" and it is not a court's "function to `make a new contract for the parties different from that plainly intended and thus create a liability not assumed by the insurer.' " Blue Cross & Blue Shield v. Keller, 248 Va. 618, 450 S.E.2d 136, 140 (1994) (quoting Pilot Life Ins. Co. v. Crosswhite, 206 Va. 558, 145 S.E.2d 143, 145 (1965)). Where insurance policies are "clear and unambiguous, their terms are to be taken in their plain, ordinary and popular sense." Gov't Employees Ins. Co. v. Moore, 266 Va. 155, 580 S.E.2d 823, 828 (2003). However, an insurance policy is ambiguous where it can reasonably have more than one meaning given its context, and such ambiguities are to be resolved against the insurer and in favor of coverage. Hill v. State Farm Mut. Auto. Ins. Co., 237 Va. 148, 375 S.E.2d 727, 730 (1989). Similarly, reasonable exclusions to coverage, when stated in the policy in clear and unambiguous language that is clearly applicable to a specific situation at hand, will be enforced. Transcon. Ins. Co. v. Rbmw, Inc., 262 Va. 502, 551 S.E.2d 313, 318 (2001). Where exclusionary provisions are ambiguous, they will be interpreted in a manner that provides coverage. Lower Chesapeake Assocs. v. Valley Forge Ins. Co., 260 Va. 77, 532 S.E.2d 325, 331-32 (2000).

The Policy obligates Federal to "pay those sums that the insured becomes legally liable to pay as damages because of bodily injury" and "to defend any suit seeking those damages." (Policy 1.) It is thus undisputed that the Policy, absent the Additional Auto Exclusion, would provide coverage for the defendants with regard to the Kentucky Action. Therefore, the sole issue before me is the applicability of the Additional Auto Exclusion to the facts at hand. The Additional Auto Exclusion states as follows:

This insurance does not apply to bodily injury or property damage arising out of the ownership, maintenance, or use of any auto, by the insured or any other person or organization. Use includes operation, and loading or unloading.

This exclusion does not apply to:

a. Parking an auto on, or on the ways next to, premises you own or rent, provided the auto is not owned by or rented or loaned to you or the insured;

b. Bodily injury or property damage arising out of the operation of any of the equipment listed in paragraph f.(2) or f.(3) of the definition of mobile equipment (Section V.8).

All Other Terms and Conditions Remain Unchanged.

(Endorsement 1.) "Auto" is defined elsewhere in the Policy as "a land motor vehicle, trailer or semitrailer designed for travel on public roads . ." (Policy 13.)

The Policy contains another auto exclusion, set forth in the general exclusions section, which states that the Policy does not apply to

[b]odily injury or property damage arising out of the ownership, maintenance, use or entrustment to others of any aircraft, auto or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and loading or unloading.

(Policy 3.) Federal does not contend that this exclusion applies here, since it is clear that the truck in question was not owned by New Coal or J.A.D., or otherwise operated, rented or borrowed by them.

Federal maintains that the Additional Auto Exclusion applies to the factual situation at hand and excludes coverage because the Kentucky Action is based on Raymond Walker's use of,,,the coal truck and thus arose "out of the ... use of any auto, by ... any other person." According to Federal, the plain language of the exclusion provides that it is not limited to the use of an auto by the insured only. Federal argues that the exclusion's phrase "any other person" means strangers to the insurance contract and includes Walker. Federal further argues that Walker's driving constituted "use," as that term is not limited in meaning by the examples of operation, loading, and unloading set forth in the exclusion. Lastly, Federal contends that the death and bodily injuries alleged in the Kentucky Action "aris[e] out of Walker's operation of the truck because they are alleged to have resulted from an accident involving the Humvee operated by Glenn Stanfill and the truck operated by Walker.

To the contrary, New Coal and J.A.D. contend that the Additional Auto Exclusion is inapplicable. First, they maintain that the exclusion's phrase "any other person" is ambiguous because "any person" also appears in Section II of the policy, entitled "Who is an Insured." (Policy 8.) In light of this alleged ambiguity and pursuant to the...