International Surplus Lines Ins. Co. v. Wyoming Coal Refining Systems, Inc., s. 94-8052

• Decision Date: 27 April 1995
• Docket Number: Nos. 94-8052,94-8053,s. 94-8052
• Citation: 52 F.3d 901
• Parties: INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois corporation, Plaintiff-Counter-Defendant-Appellee, v. WYOMING COAL REFINING SYSTEMS, INC., a Wyoming corporation, fdba Char-Fuels of Wyoming, Inc.; Char-Fuels Associates, Ltd., a Wyoming limited partnership, Defendants, and University of Wyoming Research Corporation, aka University of Wyoming Research Institute, Defendant-Counter-Claimant-Appellant. INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois corporation, Plaintiff-Counter-Defendant-Appellee, v. WYOMING COAL REFINING SYSTEMS, INC., a Wyoming corporation, fdba Char-Fuels of Wyoming, Inc.; Char-Fuels Associates, Ltd., a Wyoming limited partnership, Defendants-Appellants, and University of Wyoming Research Corporation, aka University of Wyoming Research Institute, Defendant-Counter-Claimant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 901

52 F.3d 901

32 Fed.R.Serv.3d 953

INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois

corporation, Plaintiff-Counter-Defendant-Appellee, v. WYOMING COAL REFINING SYSTEMS, INC., a Wyoming corporation,

fdba Char-Fuels of Wyoming, Inc.; Char-Fuels

Associates, Ltd., a Wyoming limited

partnership, Defendants,

and

University of Wyoming Research Corporation, aka University

of Wyoming Research Institute,

Defendant-Counter-Claimant-Appellant.

INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, an Illinois

corporation, Plaintiff-Counter-Defendant-Appellee, v. WYOMING COAL REFINING SYSTEMS, INC., a Wyoming corporation,

fdba Char-Fuels of Wyoming, Inc.; Char-Fuels

Associates, Ltd., a Wyoming limited

partnership, Defendants-Appellants,

and

University of Wyoming Research Corporation, aka University

of Wyoming Research Institute, Defendant-Counter-Claimant.

Nos. 94-8052, 94-8053.

United States Court of Appeals, Tenth Circuit.

April 27, 1995.

Peter G. Thompson (John R. Gerstein, Kevin M. LaCroix, and William E. O'Brian of Ross, Dixon & Masback, Washington, DC, John B. Speight and Michael Rosenthal of Hathaway, Speight, Kunz & Trautwein, Cheyenne, WY, with him on the brief) of Ross, Dixon & Masback, Washington, DC, for plaintiff-appellee.

Raymond B. Hunkins of Jones, Jones, Vines & Hunkins, Wheatland, WY, for Wyoming Coal Refining Systems, Inc. and Char-Fuels Associates, Ltd. (John E. Stanfield and Bruce B. Waters of Smith, Stanfield & Scott, Laramie, WY, with him on the brief, for University of Wyoming Research Corp.)

Before BRORBY, Circuit Judge, McKAY, Senior Circuit Judge, and OWEN, ^* Senior District Judge.

BRORBY, Circuit Judge.

An insurer sought a declaration from the federal district court that it had no duty to defend or insure an underlying state cause of action. The insured party cross-claimed for a determination of bad faith on the part of the insurer. The district court granted summary judgment in favor of the insurer on each of the issues.

BACKGROUND

Following is a brief summary of the relevant, undisputed facts. The University of Wyoming Research Corporation, doing business as Western Research Institute ("Research Institute"), entered into an agreement with Wyoming Coal Refining Systems ¹ ("Coal Refining Systems"). According to the agreement, the Research Institute was to perform research that would define optimal conditions for a coal refining process in order to allow Coal Refining Systems to design a large coal refining facility in Wyoming. The agreement became effective on June 15, 1988.

During the second phase of the Research Institute's research, problems developed resulting in delays to the entire project. Due to the problems and delays, Coal Refining Systems refused to pay some of the Research Institute's invoices in 1990. Over the next year, Coal Refining Systems and the Research Institute argued about their obligations under their agreement. In telephone conversations during March and April 1991, Coal Refining Systems threatened the Research Institute with litigation. Although Coal Refining Systems continued to refuse payment, the project was finished in August 1991, behind schedule. Throughout the month of August and into the fall, both parties In August, the Research Institute purchased liability coverage, and that policy is the subject of this suit. Coal Refining Systems filed a suit against the Research Institute for equitable relief in December 1991. Coal Refining Systems later amended its complaint to include claims for monetary damages: it added claims of intentional misrepresentations. After various wrangles by the parties, Coal Refining Systems' lawsuit resulted in a default judgment against the Research Institute in state court.

argued about the research and their contractual obligations. Coal Refining Systems expressed deep dissatisfaction with the Research Institute's performance.

The insurance policy purchased by the Research Institute was with International Surplus Lines Insurance Company ("Insurance Company"). The policy expressly excluded claims based upon the insured's dishonesty, claims for relief other than money damages, and claims arising out of known potential claims. As part of its insurance application, the Research Institute was required to disclose any "fact, circumstance or situation which said person has reason to suppose might afford valid grounds for any future claim against said person and/or the Organization." Proposal for Insurance, Question 17. The Research Institute responded by saying "none." Below this question on the application form was the statement: "It is agreed that if such facts, circumstances or situations exist any claim or action arising therefrom is excluded from the proposed coverage." When litigation commenced between the Research Institute and Coal Refining Systems, the Insurance Company denied all coverage. ²

With diversity jurisdiction, the Insurance Company sought a declaratory judgment in district court that it had no obligation to cover Coal Refining Systems' claim against the Research Institute. The Research Institute cross-claimed that the Insurance Company was acting in bad faith. The district court granted summary judgment for the Insurance Company. International Surplus Lines Ins. Co. v. University of Wyoming Research Corp., 850 F.Supp. 1509 (D.Wyo.1994).

DISCUSSION

We review a district court's grant of summary judgment de novo. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990).

Although the district court discusses several reasons for granting summary judgment in favor of the Insurance Company on the issue of coverage, we find one reason sufficient. Because the Research Institute misrepresented material information on the insurance application, the underlying state cause of action is not a covered claim.

Question 17 says: "No person proposed for insurance is cognizant of any fact, circumstance or situation which said person has reason to suppose might afford valid grounds for any future claim against said person and/or the Organization except as follows (If answer is None, so state)." The Research Institute argues this calls for a totally subjective speculation. It asserts that the president of the Research Institute, in filing the insurance application, thought no valid grounds existed for any claim against the Research Institute. Thus, it concludes, Question 17 does not bar coverage.

Under Wyoming state law, an insurance policy is interpreted as a contract. State Farm & Casualty Co. v. Paulson, 756 P.2d 764, 765 (Wyo.1988). A contract is given its common sense and plain meaning, unless the provision taken in context of the entire contract is ambiguous. Id. at 766. The language of a contract is construed in accordance with what a reasonable person would understand the terms to mean. The contract is to be interpreted by an objective standard and, ordinarily, not by the parties' Question 17 of the application is unambiguous and calls for a simple disclosure of facts indicating the probability of a covered claim. It calls for an objective assessment. See Evanston Ins. Co. v. Security Assurance Co., 715 F.Supp. 1405, 1414 (N.D.Ill.1989). Thus, regardless of the president's subjective evaluation, the application of Question 17 must be determined with reference to an objective standard.

subjective rendition of the contract. Shrum v. Zeltwanger, 559 P.2d 1384, 1387 (Wyo.1977).

The Research Institute knew of Coal Refining Systems' unhappiness with its work. Coal Refining Systems had explicitly threatened litigation. Therefore, the Research Institute had a duty to disclose these facts on its insurance application. Any reasonable person would have been aware of the possibility of the claim. These were facts arising out of known potential claims at the time of the application and...