Spurlin v. Merchants Ins. Co. of New Hampshire

• Decision Date: 28 October 1994
• Docket Number: Civ. A. No. 93-30173-MAP.
• Citation: 866 F. Supp. 57
• Parties: Edgar SPURLIN, Plaintiff, v. MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE d/b/a Merchants Insurance Group, Defendant.
• Court: U.S. District Court — District of Massachusetts

866 F. Supp. 57

Edgar SPURLIN, Plaintiff, v. MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE d/b/a Merchants Insurance Group, Defendant.

Civ. A. No. 93-30173-MAP.

United States District Court, D. Massachusetts.

October 28, 1994.

W. Stanley Cooke, Law Office of W. Stanley Cooke, Pittsfield, MA, for plaintiff.

Robert M. Mack, Morrison, Mahoney & Miller, Springfield, MA, for defendant.

MEMORANDUM REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

(Docket Nos. 21 & 24)

PONSOR, District Judge.

I. INTRODUCTION

Plaintiff Edward Spurlin was injured while a passenger in a "loaner" being used by Gilbert Fox and provided by the service department of Yankee Dodge, an auto dealership in upstate New York. The defendant, Merchants Insurance, issued a garage policy to Yankee Dodge. Plaintiff now argues that he was an insured under defendant's policy. He has brought this claim to collect on a judgment obtained against Fox, the driver of the loaner, in a Massachusetts state court. Plaintiff claims that the Merchants policy issued to Yankee Dodge affords him excess liability in addition to that provided by Fox's insurer.

The sole issue here is the effect to be accorded an "other insurance" clause in Merchants' policy. This provision provided auto liability coverage to lessees of covered rental vehicles in the amount required by law, but only in the event the lessee failed to maintain the legally required minimum.

In fact, the driver of the loaner, Fox, carried liability insurance well in excess of the $10,000 minimum required by the applicable New York laws. Indeed, Spurlin received a $100,000 settlement from Travelers Insurance, Fox's insurer.

It is firmly established that New York law does not require that an auto dealership carry liability insurance above the statutory minimum when the lessee carries adequate liability coverage. Under these circumstances, the "other insurance" provision in the Merchants policy relieved the defendant of any liability to plaintiff.

Consequently, the court will allow the defendant's motion for summary judgment and deny the plaintiff's motion. The court's reasoning is set forth below in more detail.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate where the record reveals no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Commercial Union Ins. v. Walbrook Ins. Co., 7 F.3d 1047, 1050 (1st Cir.1993) (citing Mesnick v. General Electric Co., 950 F.2d 816 (1st Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 2965, 119 L.Ed.2d 586 (1992)).

Before the court are cross-motions for summary judgment. The record reveals no genuine issue as to any material fact. Interpretation of an insurance contract presents a pure issue of law. This case is therefore ripe for summary judgment.

The defendant argues, and plaintiff does not challenge, that New York contract and insurance law is applicable to the resolution of the insurance dispute. Massachusetts law applies to plaintiff's claims for violation of Mass.Gen.L. ch. 93A and ch. 176D.

III. FACTUAL BACKGROUND

In 1984, plaintiff Edgar Spurlin was seriously injured while a passenger in a car driven by Gilbert Fox. The car Fox was driving was a "loaner" from Yankee Dodge of Schenectady, New York. Fox's vehicle was being repaired in the Yankee Dodge garage. The defendant, Merchants Insurance ("Merchants"), was Yankee Dodge's insurer.

In 1986, Spurlin sued Fox and Yankee Dodge in Berkshire Superior Court for the injuries he experienced in the car accident. In December, 1988 all parties agreed to dismiss with prejudice Spurlin's claims against Yankee Dodge. Prior to trial, Spurlin and Fox reached an agreement in which Fox's insurer, Travelers Insurance, agreed to pay the plaintiff its policy limits of $100,000. In return, Spurlin released Fox from any further personal liability arising out of the 1984 accident. By its terms, the agreement did not release Fox to the extent that insurance coverage, other than Travelers, was available to pay any judgment entered against Fox in the imminent trial.

Ultimately, the jury awarded Spurlin $615,000. In August 1992, an execution on the judgment was entered for $962,487, reflecting the jury award, plus interest, but less the $100,000 Spurlin had already received from Travelers. On July 9, 1993, Spurlin commenced this action against Merchants seeking to recover the balance of the judgment.

The complaint contains two counts. Count I seeks satisfaction from Merchants of the state court judgment entered against Fox. In this regard, Spurlin asks that this court declare that Fox was an "insured" under the Merchants policy held by Yankee Dodge. In Count II, Spurlin charges Merchants with a violation of Mass.Gen.L. ch. 93A because the insurer failed to act promptly with respect to a claim. In the same count, plaintiff has also charged defendant with violating Mass. Gen.L. ch. 176D § 3(9) by refusing to pay a claim and not conducting a reasonable investigation based on the available information.

Defendant removed the case to federal court. Cross motions for summary judgment are now before the court to determine if Fox was insured under the Merchants policy.

IV. THE POLICY

Item One of the Schedule of Coverage in the Merchants insurance policy issued to Yankee Dodge states that the insured's business is "New car sales." Item Two of the Merchants insurance agreement states that the liability limit is $1,000,000 for any one accident or loss. PART II of the Merchants policy, entitled "WHICH AUTOS ARE COVERED AUTOS," states that all autos owned by Yankee Dodge or purchased by them until the policy ends are covered autos. The "loaner" driven by Fox was owned by Yankee Dodge and was therefore a covered auto.

Subsection A of PART IV of the policy, entitled "LIABILITY INSURANCE," states:

1. We will pay all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies caused by an accident and resulting from garage operations.

In Part I, entitled "Words and Phrases," the term "Garage Operations" is defined as follows:

Garage Operations means the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. Garage operations includes the ownership, maintenance or use of the autos indicated in Part II as covered autos. Garage operations also include all operations necessary or incidental to a garage business.

This dispute focuses on the policy language in the following two subsections of Part IV of the Merchants policy. Subpart C of Part IV, entitled "WE WILL NOT COVER — EXCLUSIONS," states in relevant part that, this insurance does not apply to:

7. Any covered auto while leased or rented to others. This exclusion does not apply to a covered auto you rent to one of your customers while his or her auto is left with you for service or repair.

Subpart D of Part IV is entitled "WHO IS AN INSURED." It states in relevant part the following:

1. For Covered Autos.

a. You are an insured for any covered auto.

b. Anyone else is an insured while using with your permission a covered auto except:

(3) Your customers, if your business is shown in ITEM ONE of the declarations as an auto dealership. However, if a customer of yours:

(a) Has no other available insurance (whether primary, excess or contingent), he or she is an insured but only up to the compulsory financial responsibility law limits where the covered auto is principally garaged.

(b) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered auto is principally garaged, he or she is an insured only for the amount by which the compulsory or financial responsibility law limits exceed the limits of his or her other insurance.

V. DISCUSSION

The court must resolve a dispute over the meaning of the "other insurance" clause in Part IV, subsection D.1.b.(3) of the defendant's policy issued to Yankee Dodge. Interpretation of this provision turns in part on whether the liability provisions of the Merchants policy distinguished between Yankee Dodge's "garage operations" and auto sales business.

Merchants convincingly argues that its policy provides no more than the legally required minimum coverage to Yankee Dodge customers who rent a covered vehicle while having their own car serviced. Defendant contends that, pursuant to the "other insurance" clause, Part IV, 1.b.(3), it is liable only if the customer's liability insurance is for an amount below the compulsory limit required by law or if the customer does not carry any liability insurance.

In either case, defendant argues that its policy provides the minimum coverage required by state insurance law. In New York, in 1984, that amount was $10,000 per person. In this case, Fox, the lessee, carried $100,000 of liability insurance. Merchants correctly concludes, therefore, that its liability policy affords no coverage here.

Plaintiff's counter-argument relies entirely on the existence of a supposed distinction in the insurance policy between coverage of the auto dealership and coverage of "garage operations." He concedes that there is no express provision in the policy that divides Yankee Dodge's business in such a manner. Spurlin's argument is that the policy implicitly distinguishes between the auto dealership and the garage operations of Yankee Dodge.

Plaintiff contends that Merchants' policy provides the full $1 million in liability coverage for lessees who drive Yankee Dodge loaner vehicles when their own autos are being serviced by Yankee's repair shop. According to Spurlin, the "other insurance" exclusion clause at Section IV D.1.b.(3), supra at 4, is only relevant when a vehicle is rented or leased through the auto dealership to customers who are not having their vehicles repaired by the garage.

This interpretation is...