John Markel Ford, Inc. v. Auto-Owners Ins. Co.

• Decision Date: 09 February 1996
• Docket Number: AUTO-OWNERS,No. S-94-137,S-94-137
• Citation: 543 N.W.2d 173,249 Neb. 286
• Parties: , 64 USLW 2580 JOHN MARKEL FORD, INC., a Nebraska corporation, Appellant, v.INSURANCE COMPANY, Appellee.
• Court: Nebraska Supreme Court

Page 173

543 N.W.2d 173

249 Neb. 286, 64 USLW 2580

JOHN MARKEL FORD, INC., a Nebraska corporation, Appellant, v. AUTO-OWNERS INSURANCE COMPANY, Appellee.

No. S-94-137.

Supreme Court of Nebraska.

Feb. 9, 1996.

Syllabus by the Court

1. Summary Judgment. Summary judgment is proper only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

2. Actions: Federal Acts: Debtors and Creditors. 15 U.S.C. § 1640(a) (1988) gives a consumer a private right of action against a creditor who fails to make the required disclosures; it does not provide for the bringing of a suit to enforce compliance with the Truth in Lending Act, as it does not envision suits by governmental enforcement agencies, such suits being treated elsewhere.

3. Insurance: Contracts. An ambiguous insurance contract will be construed in favor of the insured.

4. Insurance: Contracts. An ambiguity will not be read into insuring language which is plain and unambiguous in order to construe it against the preparer of the contract.

5. Words and Phrases. The term "unfair competition" does not refer to conduct prohibited by unfair business practices statutes.

6. Insurance: Contracts: Proof. In order to claim bad faith in an insurer's failure to defend or indemnify an insured, the insured must show an absence of a reasonable basis by the insurer for denying the insured the benefits of the insurance contract and must prove the insurer's knowledge or reckless disregard of a lack of a reasonable basis for the denial.

7. Insurance: Contracts: Liability. An insurer's duty to defend is broader than its duty to indemnify; an insurer has a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy.

8. Insurance: Liability. An insurer is obligated to defend if (1) the allegations of the complaint, if true, would obligate the insurer to indemnify, or (2) a reasonable investigation of the actual facts by the insurer would or does disclose facts that would obligate the insurer to indemnify.

9. Summary Judgment: Evidence: Appeal and Error. A summary judgment hearing is similar to a bench trial of an action at law; thus, ordinarily, the erroneous admission of evidence in a summary judgment hearing is not reversible error if other relevant evidence, admitted without objection or properly admitted over objection, sustains the trial court's necessary factual findings.

Appeal from the District Court for Douglas County; Lawrence J. Corrigan, Judge.

James D. Sherrets and Mary M. Carnazzo, of Sherrets, Smith & Gardner, P.C., Omaha, for appellant.

Thomas A. Otepka and Alison Lonsdale McGinn, of Gross & Welch, P.C., Omaha, for appellee.

WHITE, C.J., and CAPORALE, FAHRNBRUCH, LANPHIER, WRIGHT, CONNOLLY, and GERRARD, JJ.

CAPORALE, Justice.

I. INTRODUCTION

Plaintiff-appellant, John Markel Ford, Inc., alleges that defendant-appellee, Auto-Owners Insurance Company, breached the parties' contract of insurance. The district court sustained the motion for summary judgment filed by Auto-Owners, thereby dismissing Markel Ford's action. Markel Ford then appealed to the Nebraska Court of Appeals, asserting, in summary, that the district court erred in (1) determining as a matter of law that the contract did not obligate Auto-Owners to either defend or indemnify Markel Ford in a suit brought against it by the State of Iowa, (2) determining as a matter of law that Auto-Owners did not act in bad faith in refusing to defend or indemnify Markel Ford, and (3) receiving certain evidence. We, on our own motion, removed the matter to this court under our authority to regulate the caseloads of the Court of Appeals and this court. We now affirm the judgment of the district court.

II. SCOPE OF REVIEW

Summary judgment is proper only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. C.S.B. Co. v. Isham, 249 Neb. 66, 541 N.W.2d 392 (1996); Blackbird v. SDB Investments, 249 Neb. 13, 541 N.W.2d 25 (1995); Gillis v. City of Madison, 248 Neb. 873, 540 N.W.2d 114 (1995).

III. FACTS

Markel Ford is a Nebraska corporation maintaining a place of business in Omaha, Nebraska, from which it sells new and used motor vehicles. In the course of conducting its business, it offered motor vehicles for sale or lease through advertisements which reached the Iowa market.

As a consequence, the State of Iowa, by and through its attorney general, brought suit in 1987 against Markel Ford, alleging violations of the Iowa Consumer Fraud Act and the Iowa Consumer Credit Code, which incorporates the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. (1988), and regulations promulgated thereunder. As a result, Markel Ford entered into a consent judgment requiring it to reimburse the State of Iowa $4,000 for its costs in bringing the action and to make a cash payment of $6,000 to the Iowa Attorney General's Consumer Education and Litigation Fund. In addition, Markel Ford alleges that it incurred attorney fees of $9,834.33 in defending the lawsuit.

IV. ANALYSIS

1. CONTRACT THEORY

The first assignment of error, the district court's determination that as a matter of law Auto-Owners had no obligation to either defend or indemnify Markel Ford, rests on the language contained in the errors and omissions endorsement and the advertising endorsement of the insurance contract, coupled with the language of the defense clause granting Auto-Owners "the right and duty to defend ... any suit ... seeking damages ... where [Auto-Owners] is liable to [Markel Ford] in case of judgment, even if any of the allegations of the suit are groundless, false or fraudulent...."

(a) Errors and Omissions Endorsement

The "Truth In Lending Errors and Omissions Endorsement" of the contract reads:

In consideration of an additional premium and subject to all the provisions of the policy not expressly modified hereby, [Auto-Owners] agrees with [Markel Ford] as follows:

....

[Auto-Owners] will pay on behalf of [Markel Ford] all sums which [Markel Ford] shall become legally obligated to pay as damages in an action brought solely under 15 U.S.C. Sec. 1640 (Consumer Credit Protection Act--Public Law 90-321, Title I, as amended), because of error or omission during the policy period in complying with any requirement imposed under 15 U.S.C., Section 1631 et seq.

Markel Ford contends, first, that the foregoing language expressly covers the Iowa suit and, second, that if it does not do so expressly, the language is ambiguous and thus must be construed against Auto-Owners so as to provide such coverage by implication.

(i) Express Coverage

It is Markel Ford's position that by its express terms, the foregoing language provides coverage for any errors or omissions resulting in the failure to comply with the requirements imposed under any provision of the Consumer Credit Protection Act.

The language specifies that Auto-Owners will indemnify Markel Ford when it becomes obligated to pay damages in a suit brought pursuant to § 1640 as a result of any errors or omissions in complying with the act. Thus, under the express language, the question is whether the action brought by Iowa was an action brought solely under § 1640.

That section gives a consumer a private right of action against a creditor who fails to make the required disclosures. § 1640(a). The statute does not provide for the bringing of a suit to enforce compliance with the act, as it does not envision suits by governmental enforcement agencies; such suits are treated elsewhere. See Tower v. Moss, 625 F.2d 1161, 1165 (5th Cir.1980) ("[t]he Truth in Lending Act provides not only for enforcement by the Federal Trade Commission and other federal agencies, but it also establishes a civil cause of action by a consumer against a creditor who fails to make the required disclosures. 15 U.S.C. § 1640(a)").

Thus, Markel Ford's position that the errors and omissions language expressly obligates Auto-Owners to indemnify it directly contradicts the wording of the errors and omissions endorsement, for the language does not expressly cover the type of suit brought by Iowa. It cannot be maintained that the words "in an action brought solely under 15 U.S.C. Sec. 1640" actually mean "in any action whatsoever."

(ii) Implied Coverage

But Markel Ford further urges that if the endorsement does not by its express terms obligate Auto-Owners to defend and indemnify Markel Ford, the language is ambiguous and must be construed so as to provide such coverage. In this latter connection, Markel Ford argues that the failure of Auto-Owners to have placed a closing parenthesis in the portion of the errors and omissions endorsement describing the source of the damages it would pay renders the language ambiguous and such as to not limit the obligation of Auto-Owners to pay only those damages arising in an action brought solely under § 1640.

This argument requires a phrase-by-phrase analysis of the subject language thusly:

(1) [Auto-Owners] will pay on behalf of [Markel Ford]

(2) all sums which [Markel Ford] shall become legally obligated to pay as damages

(3) in an action brought solely under 15 U.S.C. Sec. 1640

(4) (Consumer Credit Protection Act--Public Law 90-321, Title I, as amended,

(5) because of error or omission during the policy period in complying with any requirement imposed under 15 U.S.C., Section 1631 et seq.

The first phrase unambiguously declares that Auto-Owners will pay on behalf of Markel Ford that which is described in the second phrase.

The second phrase...