Merriam v. Nat'L Fire Ins. Co., Pittsburgh, Penn.

• Decision Date: 17 July 2009
• Docket Number: No. 08-3547.,08-3547.
• Citation: 572 F.3d 579
• Parties: Timothy MERRIAM; Justine Merriam, individually and as next best friend of C. Merriam, K. Merriam and C. Merriam, minor children, Plaintiffs-Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, a corporation, Defendant-Appellee, Gallagher Transportation Services, a division of Arthur J. Gallagher and Company-Kansas City, a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

572 F.3d 579

Timothy MERRIAM; Justine Merriam, individually and as next best friend of C. Merriam, K. Merriam and C. Merriam, minor children, Plaintiffs-Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, a corporation, Defendant-Appellee Gallagher Transportation Services, a division of Arthur J. Gallagher and Company-Kansas City, a corporation, Defendant-Appellee.

No. 08-3547.

United States Court of Appeals, Eighth Circuit.

Submitted: June 9, 2009.

Filed: July 17, 2009.

Marc A. Humphrey, Urbandle, IA, Alan O. Olson, Des Moines, IA, on the brief, for appellant.

Daniel F. Church, Kansas City, KS, Rachel E. Rolf, Roeland Park, KS, on the brief, for appellee.

Before MURPHY, ARNOLD, and GRUENDER, Circuit Judges.

MURPHY, Circuit Judge.

Timothy Merriam, joined by his wife and children, brought this diversity action against National Union Fire Insurance Company (National Union) and Gallagher Transportation Services (Gallagher) seeking damages for the denial of insurance benefits. Merriam asserted three claims: (1) breach of contract, (2) bad faith denial of insurance benefits, and (3) frustration of reasonable expectations. The district court granted summary judgment to National Union and Gallagher on all three. Merriam now appeals from the summary judgment on the breach of contract and bad faith claims. We affirm in part and reverse in part.

I.

In 2004 Merriam contracted to become a truck driver and independent contractor for Landstar Ranger, an interstate trucking company which contracts with individual truck owners and operators to transport freight. The Independent Contractor Operating Agreement between Merriam and Landstar imposes several general obligations on the independent contractor, including: maintaining the tractor and trailer in good and safe operating condition; operating the tractor and trailer at all times in a safe and prudent manner; securing loads while in transport; and delivering loads with reasonable diligence, speed, and care. The manner in which these contractual responsibilities are to be met is not detailed in the agreement.

The Landstar agreement also requires the independent contractor to provide verification of coverage under a qualified accident or workers' compensation policy. To satisfy this requirement, Merriam obtained a Contractor Protection Plan (CPP) from National Union effective January 1, 2005. The CPP policy, which was written specifically for Landstar, contains coverage for "occupational accident benefits" and "nonoccupational accident benefits." The policy allows recovery for occupational accident benefits at $1,000,000 per accident and nonoccupational accident benefits at $7,500 per accident.

The key policy language for understanding the scope and coverage for an "occupational" accident is its definition as one which:

occurs or arises out of or in the course of the Insured Person performing services within the course and scope of contractual obligations to the Contractee.

Landstar is designated as the Contractee in the CPP policy; Merriam is the Insured Person.

On March 24, 2005 Merriam picked up a load in Sparks, Nevada for delivery in Cedar Rapids, Iowa. On March 29 Merriam reached Iowa with the load where he says he stopped at his home in Boone for a mandatory federal Department of Transportation break. There are two driveways on Merriam's property in Boone, one for personal use vehicles and one built specifically for parking his tractor and trailer. Merriam asserts that he constructed the special driveway in part because Landstar imposes restrictions on where a loaded tractor and trailer may be parked and in part because a local ordinance bars him from being able to park his rig on the gravel road next to his home.

When Merriam prepared to park his truck on March 29, he noticed that a sinkhole had developed in the driveway specially constructed for his rig, on a spot where an underground waterline had previously been repaired. Merriam states that in order to prevent the rig from becoming stuck in the sinkhole, he pulled the truck off that driveway and onto the adjacent gravel road. He then used his own dump truck to lower gravel into the sinkhole. According to Merriam, the load of gravel on his dump truck was for use on both his property and that surrounding his mother's nearby home. When he discovered he was unable to put the bed of the dump truck back into its neutral position, he attempted to reach under the truck bed to see whether a cable had caught. The truck bed fell on the left side of his head, his left shoulder, and his left arm. Merriam was immediately taken to the hospital and has undergone multiple surgeries since the accident. He now has a nonfunctioning left arm, has incurred medical bills estimated at $400,000, and has been declared permanently and totally disabled by the Social Security Administration.

Merriam's wife initially contacted Landstar to inquire about the insurance policy and was informed that there was no insurance coverage available for his accident. Merriam did not contact Gallagher, the claims adjuster for National Union, to report the accident until August 30, 2005. On that date Merriam relayed the details of the accident by phone and reported that it had occurred at 727 Linn Street, his mother's address. His own address was 1915 West 1st Extension. Gallagher then sent Merriam several documents to fill out concerning the accident, and he also listed the location of the accident as 727 Linn Street on both the accident fact sheet and the medical claim form. During later verbal and written communications with Gallagher, Merriam maintained that the accident had taken place at his home and that his earlier statements to the contrary had been affected by his head injury and heavy pain medication, which caused him to be disoriented and confused.

Following Merriam's initial phone call to Gallagher, the claims adjusters assigned to his file set reserves on his claim at $7,500, the limit for nonoccupational accident benefits, noting that Merriam had been in his personal vehicle when injured. At the time the initial reserves were set, the claims adjusters also assumed Merriam was at home when the accident occurred. To process Merriam's claim, Gallagher contacted Landstar to obtain information on the load he was carrying. Landstar first informed Gallagher that it had no information about the accident and that Gallagher had the incorrect freight number for Merriam's load. Gallagher later obtained the correct freight number and confirmed that Merriam's load was picked up by another driver at Merriam's home on March 30, 2005 and delivered the same day. Gallagher also obtained Merriam's medical records, driver log, and an additional statement prepared by Merriam to clarify that the accident took place at his home. On October 21, 2005 Gallagher, acting on behalf of National Union, sent a letter to Merriam stating that based upon the circumstances of his accident, his claim qualified only for the $7,500 in nonoccupational accident benefits under the CPP policy.

Merriam did not appeal the denial of occupational benefits but instead brought this action in federal court, alleging that National Union and Gallagher frustrated his reasonable expectations as to the policy's coverage, breached the parties' insurance contract, and made a bad faith denial of insurance benefits when they denied him occupational accident benefits. On cross motions for summary judgment, the district court concluded that the undisputed facts established that National Union and Gallagher had a reasonable basis for denying Merriam's policy claim, preventing recovery on the bad faith claim. The court determined that Merriam had failed specifically to resist the motion for summary judgment on the breach of contract claim, as required under Local Rule 56(b), and that this failure was alone grounds to grant the motion.¹ The court further concluded that even had Merriam resisted the motion, the contract claim would not have survived on the merits. The court granted summary judgment to National Union and Gallagher on all three claims. Merriam appeals the district court's grant of summary judgment on the contract and bad faith claims.

II.

We review de novo the district court's grant of summary judgment, viewing all facts and reasonable inferences in the light most favorable to the nonmoving party. Larson v. Kempker, 414 F.3d 936, 939 (8th Cir.2005). Summary judgment is appropriate when the evidence presents no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). We also review de novo the district court's interpretation of the contractual provisions in an insurance policy. Allianz Ins. Co. of Canada v. Sanftleben, 454 F.3d 853, 855 (8th Cir.2006). This diversity case is governed by Iowa law.

A.

We first consider the district court's grant of summary judgment to National Union and Gallagher on Merriam's claim for breach of contract. The construction of an insurance policy is a question of law for the court. Grinnell Mut. Reins. Co. v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002). The interpretation of a contract — the process of determining the meaning of the words used — is also generally a question of law for the court "unless it depends on extrinsic evidence or a choice among...