Federal Kemper Ins. Co. v. Rauscher, 86-1274

• Citation: 807 F.2d 345
• Decision Date: 14 January 1987
• Docket Number: No. 86-1274,86-1274
• Parties: FEDERAL KEMPER INSURANCE COMPANY, Appellee, v. RAUSCHER, Richard H. and Griffith, Robert and Griffith, Linda. Appeal of Robert and Linda GRIFFITH.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 345

807 F.2d 345

55 USLW 2398

FEDERAL KEMPER INSURANCE COMPANY, Appellee, v. RAUSCHER, Richard H. and Griffith, Robert and Griffith, Linda.

Appeal of Robert and Linda GRIFFITH.

No. 86-1274.

United States Court of Appeals,

Third Circuit.

Argued Oct. 28, 1986.

Decided Dec. 11, 1986.

Rehearing and Rehearing In Banc Denied Decided Jan. 14, 1987.

James M. Marsh (argued), Thomas P. Grace, LaBrum & Doak, Philadelphia, Pa., for appellee.

David F. Binder (argued), Raynes, McCarty, Binder, Ross & Mundy, Philadelphia, Pa., for appellants.

Before ADAMS, ^* HIGGINBOTHAM and GARTH, Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge:

This appeal addresses the issue of the standing of an injured party when a declaratory judgment action is brought by an insurance company against its insured (Rauscher) and the injured party (the Griffiths). The Griffiths appeal from the district court order denying their motion to reconsider a summary judgment entered against them. The district court, in entering summary judgment for Kemper, held that, within the procedural posture of the declaratory judgment action brought by Federal Kemper Insurance Company (Kemper), the rights of the Griffiths as injured parties were derivative of the insured's rights and that the Griffiths had no standing after default judgment was entered against Rauscher, the insured. We reverse.

I.

This case arose out of a tragic automobile accident involving both the appellants, Linda and Robert Griffith, and the insured, Richard Rauscher. The accident occurred on February 21, 1981, while Rauscher was driving a Volkswagen Rabbit owned by his girlfriend's mother. The Griffiths were passengers in the car, and both incurred injuries. Ms. Griffith, who suffered substantial brain damage as a result of a traumatic brain stem lesion, is now permanently disabled.

The automobile involved in the accident was insured by the Government Employees Insurance Company (GEICO) for a maximum of $50,000. Rauscher was insured by the appellee, Federal Kemper Insurance Company, under a commercial liability policy with a limit of $100,000. Rauscher's policy only covered Rauscher's commercial vehicle, a pick-up truck, or any "temporary substitute auto." The policy defined "temporary substitute auto" as "any auto you do not own while used as a temporary substitute for a covered auto which is out of normal use because of its breakdown, repair, servicing, loss or destruction." App. at 12. The automobile involved in the accident did not fall within the policy's definition of "temporary substitute auto," because at the time of the accident Rauscher's pick-up truck was not "out of normal use." Apparently unaware of the policy's lack of coverage, Rauscher reported the accident to Kemper.

The Griffiths sued Rauscher for damages in February 1983 in the Philadelphia Court of Common Pleas. Kemper refused, on the ground of noncoverage, Rauscher's request for a defense. This case is still pending.

Kemper desired a determination of the extent of its obligation to Rauscher and brought this declaratory judgment action against Rauscher and the Griffiths. Kemper sought a declaration that the automobile Rauscher was operating at the time of the accident was not a "covered" auto within the meaning of the policy and that therefore the 1981 accident was not within the coverage of the policy.

Not surprisingly, presentation of the relevant facts underlying the coverage dispute has been impeded by the default judgment against Rauscher and the simultaneous judgment against the Griffiths. Certain facts, however, can be gleaned from the affidavits presented on motion for reconsideration.

Apparently, Rauscher's previous policy, which had been written by Prudential Insurance Company, ¹ covered Rauscher when he drove vehicles other than his pick-up truck. Coverage for such accidents would be excess over any policy held on the other vehicle. Before his purchase of the Prudential policy, Rauscher was covered by a similar policy from Erie Insurance Company, which also covered him whenever he drove someone else's car.

Rauscher's policy with Prudential was cancelled on December 28, 1980, because he failed to pay the November 1980 premium. In January of 1981, Rauscher spoke with his insurance broker, Donald Trone, who had sold him his previous policy with Prudential Insurance Company. Trone, a licensed agent for Kemper, discussed two policies with Rauscher. One of the policies, which had yearly premium payments of over $600, was with Prudential. The second, with Kemper, had yearly premiums totalling only $252. Trone explained to Rauscher that the difference in price was due to the fact that Rauscher, a carpenter, was eligible for a commercial policy on his pick-up truck.

Trone testified in his deposition that he told Rauscher that there was no difference between the coverage provided by the Prudential policy he previously held and that provided by the Federal Kemper policy. Rauscher chose the Federal Kemper policy and paid the first premium at Trone's office on January 27, 1981.

Rauscher testified on deposition that he believed that he was covered to the same extent by the Federal Kemper policy as he was by his previous policies. He stated that: "Because every other insurance policy I have ever had I was covered driving someone else's vehicle. And I assumed it would be the same with Kemper." App. at 150. In addition, Mr. Rauscher testified that when he made his first premium payment on January 27, 1981, he was told that a copy of the insurance policy would soon be sent to him. He also testified that he was unsure whether he had received a copy of the insurance policy by the time of the accident, three and one half weeks after the payment of his first premium.

Kemper filed its complaint for a declaratory judgment on July 2, 1985. It sought to have the district court construe the terms of the policy and declare that the automobile operated by Rauscher at the time of the accident was not a "covered auto" within the meaning of the policy, and that therefore the insurance company was not obligated to provide a defense or indemnity for Rauscher in the pending state action.

The Griffiths answered on November 12, 1985, asserting, among other things, that Kemper's policy should be construed to provide coverage for the accident. Rauscher failed to answer and on November 29, 1985, Kemper thereupon moved for default judgment against Rauscher. The district court, holding that the Griffiths' rights were purely derivative of Rauscher's rights, entered judgment against the Griffiths, after default judgment had been entered against Rauscher.

The Griffiths filed a motion for reconsideration arguing that equitable grounds existed for the reformation of the Kemper policy to provide coverage for the February 1981 accident. The "equitable grounds" put forward were the facts surrounding Trone's representation to Rauscher that the Kemper commercial policy provided the same coverage as his previous policy.

The district court denied the motion in an order dated March 31, 1986. In its consideration of the issue of the Griffiths' standing to participate as sole defendants in the case, the court stated that their motion for reconsideration presented "no grounds for relief," and that the Griffiths had "no standing to seek reformation of the Kemper policy." App. at 184. After dismissing the Griffiths' claim of standing, and therefore acknowledging the court's lack of jurisdiction over the matter, the district court went on to discuss the merits of the insurance policy claim and concluded that the Griffiths' claim for reformation had no merit.

The Griffiths timely appealed from the motion for reconsideration. This court's jurisdiction rests on 28 U.S.C. Sec. 1291.

II.

For purposes of Rule 4(a) of the Federal Rules of Appellate Procedure, we view a motion characterized only as a motion for reconsideration as the "functional equivalent" of a Rule 59(e) motion to alter or amend a judgment. Venen v. Sweet, 758 F.2d 117, 122 (3d Cir.1985). A Rule 59(e) motion tolls the time for the filing of a notice of appeal under Federal Rule of Appellate Procedure 4(a)(4)(iii), and, in effect, "suspends" the finality of the initial judgment. 6A J. Moore, Moore's Federal Practice p 59.15. If the motion is denied, the judgment of the initial order becomes final and subject to appeal.

A timely appeal from a denial of a Rule 59 motion to alter or amend "brings up the underlying judgment for review." Quality Prefabrication v. Daniel J. Keating Co., 675 F.2d 77, 78 (3d Cir.1982). Therefore, the standard of review for a denial of a motion for reconsideration varies with the nature of the underlying judicial decision. Here, it is the underlying summary judgment against the Griffiths that this court must review. See Woodham v. American Cystoscope Co. of Pelham, N.Y., 335 F.2d 551 (5th Cir.1964) (the order appealed from was the order dismissing the complaint, not the denial of the 59(e) motion).

We have held that although the appropriate standard of review for a motion to reconsider is generally abuse of discretion, if the district court's denial was based upon the interpretation or application of a legal precept, then review of the district court's decision is plenary. Koshatka v. Philadelphia Newspapers, Inc., 762 F.2d 329, 333 (3d Cir.1985) (court had plenary review of denial of a motion to reconsider a summary judgment); see Huff v. Metropolitan Life Ins., 675 F.2d 119 (6th Cir.1982); 6A J. Moore, supra, p 59.15.

In this case, the denial of the motion to reconsider hinged upon the legal determination that the Griffiths had no standing in the instant declaratory judgment action, and that the entry of judgment against them was therefore proper. When addressing a summary judgment decision, a reviewing court has plenary review. Indeed, it occupies the same adjudicating position as the district court. Therefore, our review of the district court...