St. Paul Fire and Marine Ins. Co. v. Albany County School Dist. No. 1

Decision Date04 November 1988
Docket NumberNo. 87-88,87-88
Citation763 P.2d 1255
Parties50 Ed. Law Rep. 190 ST. PAUL FIRE AND MARINE INSURANCE CO., a Minnesota corporation, Appellant (Defendant), Hartford Accident and Indemnity Company, a Connecticut corporation; and C.R. Motis Insurance Agency, Inc., a Wyoming corporation, (Defendants), v. ALBANY COUNTY SCHOOL DISTRICT NO. 1, Appellee (Plaintiff).
CourtWyoming Supreme Court

Dan B. Riggs and Haultain E. Corbett of Lonabaugh and Riggs, Sheridan, for appellant.

Paul D. Schierer of Pence & MacMillan, Laramie, for appellee.

Before THOMAS, CARDINE, URBIGKIT and MACY, JJ., and GUTHRIE, J., Retired.

MACY, Justice.

Appellant St. Paul Fire and Marine Insurance Co. (St. Paul) appeals from a summary judgment in favor of appellee Albany County School District No. 1 (School District) in a declaratory judgment action construing an insurance policy. The district court declared that the liability insurance policy provided coverage for payment of a judgment rendered against the School District.

We reverse.

St. Paul presents three issues for our consideration:

1. Does the St. Paul Insurance Policy provide coverage to Albany County School District No. 1 for the claims asserted against it by Dennis Diehl?

2. Do the doctrines of waiver and estoppel or "reasonable expectations" operate to preclude St. Paul from denying insurance coverage to Albany County School District No. 1 for the claims asserted against it by Dennis Diehl?

3. Did the District Court err in granting Summary Judgment for the School District as against St. Paul, and in denying Summary Judgment for St. Paul as against the School District?

On February 7, 1985, an employee of the School District, Dennis Diehl, filed a civil rights action pursuant to 42 U.S.C. § 1983 against the School District in the United States District Court for the District of Wyoming. St. Paul, as one of the liability insurers for the School District, agreed to defend the suit while retaining its "full reservation of rights" with respect to coverage. On March 7, 1986, a jury verdict was rendered against the School District in the amount of $33,000, and judgment against the School District for that amount was entered on March 13, 1986.

Following entry of the judgment against the School District, St. Paul notified the School District that it was denying coverage and withdrawing its defense of the action. The School District, however, demanded that St. Paul prosecute an appeal. By letter dated May 8, 1986, St. Paul notified the School District that, while it continued to deny coverage and to maintain its reservation of rights, it would nevertheless provide further defense in the civil rights action for purposes of post-trial motions and appeal.

On May 9, 1986, the instant action was commenced when the School District filed a Petition for Declaratory Judgment and Complaint for Supplemental Relief in the district court. Named as defendants in this petition and complaint were: St. Paul; Hartford Accident and Indemnity Company (Hartford)--an insurer with whom the School District had additional liability insurance; and C.R. Motis Insurance Agency, Inc. (Motis)--the local agency that had arranged the purchases and renewals of the policies of both carriers for the School District. In the petition and complaint, the School District sought a judicial declaration that the loss incurred by the School District in the civil rights case was covered either by the policy of St. Paul or the policy of Hartford or by both policies and that both carriers had an obligation to defend, including any appeal. In addition, the School District alleged a breach of the duty of good faith and fair dealing against all defendants, including an alleged misrepresentation of policy coverage by Motis, applicable only if the district court found no coverage under the policies. In addition to the declaratory relief sought, the School District requested compensatory damages equal to the amount of the judgment against it and punitive damages on the bad faith claims, plus attorney fees, interest, and costs.

All defendants answered, and St. Paul counterclaimed for declaratory relief regarding the coverage of its policy. All parties then submitted motions for summary judgment with accompanying affidavits, exhibits, and memoranda. A hearing on the several motions was held on January 16, 1987. In its subsequent decision letter, the district court said that St. Paul had "lulled the School District into a justifiable belief that the Diehl firing would be a covered occurrence" and held that, "[w]hether on contract grounds, estoppel grounds, application of the doctrine of 'reasonable expec[ta]tions'--or just common sense, St. Paul Fire and Marine should pay the judgment." Anticipating appeal, the district court further determined that, should this Court disagree regarding the St. Paul policy coverage, the Hartford secondary coverage policy also covered the judgment against the School District, subject to a deductible. The district court additionally decided that, should this Court hold that neither policy covered the loss, a litigable issue would then exist with respect to the School District's bad faith/negligent misrepresentation claim against Motis. An order was entered granting summary judgment to the School District as against St. Paul and Hartford and denying the cross-motions of those defendants. In addition, the order denied the School District's motion for summary judgment against Motis, and Motis' cross-motion, because of the contingent negligence claim against Motis. Finally, the district court certified its order as a final judgment pursuant to W.R.C.P. 54(b) so that an appeal could be taken. St. Paul brought the instant appeal. Hartford did not appeal, and the order was not appealable as to Motis, because the denial of a motion for summary judgment is not an appealable order. Kimbley v. City of Green River, 663 P.2d 871 (Wyo.1983). 1

A proper grant of summary judgment depends upon the dual findings that there are no genuine issues of material fact and that the prevailing party is entitled to judgment as a matter of law. Teton Plumbing and Heating, Inc. v. Board of Trustees, Laramie County School District Number One, 763 P.2d 843 (Wyo. 1988); Whipple v. Northern Wyoming Community College Foundation of Sheridan, 753 P.2d 1028 (Wyo.1988); Farr v. Link, 746 P.2d 431 (Wyo.1987). Where, as in this case, the facts are not in dispute and the questions presented are strictly ones of law, we accord no special deference to and are not bound by the district court's decision. Teton Plumbing and Heating, Inc., 763 P.2d 843; Farr, 746 P.2d 431; State Board of Control v. Johnson Ranches, Inc., 605 P.2d 367 (Wyo.1980).

St. Paul's first issue concerns the coverage provided by the insurance policy issued to the School District. Resolution of this issue requires that we examine the policy and apply our established rules of interpretation and construction. An insurance policy is a contract, and the general rules of contract construction apply to insurance agreements. State Farm Fire and Casualty Company v. Paulson, 756 P.2d 764 (Wyo.1988); Compass Insurance Company v. Cravens, Dargan and Company, 748 P.2d 724 (Wyo.1988). The interpretation of a written contract is done by the court as a matter of law. Ricci v. New Hampshire Insurance Company, 721 P.2d 1081 (Wyo.1986); Farrell v. Hursh Agency, Inc., 713 P.2d 1174 (Wyo.1986). An exception to construing insurance policies as other contracts has been observed by this Court where the language of the policy is ambiguous, in which case the policy must be strictly construed against the insurer. Paulson, 756 P.2d 764; Worthington v. State, 598 P.2d 796 (Wyo.1979). Ambiguity, however, is not generated by a subsequent disagreement between the parties as to the meaning of the policy. Ricci, 721 P.2d 1081; Marcam Mortgage Corporation v. Black, 686 P.2d 575 (Wyo.1984). Further, the language of an insurance policy will not be "tortured" in order to create an ambiguity. Paulson, 756 P.2d 764; McKay v. Equitable Life Assurance Society of United States, 421 P.2d 166 (Wyo.1966).

If the policy language is clear and unambiguous, the rule of strict construction against the insurer does not apply, and the policy must be interpreted in accordance with the ordinary and usual meaning of its terms. Paulson, 756 P.2d 764; Worthington, 598 P.2d 796. The parties to an insurance contract are free to incorporate within the policy whatever lawful terms they desire, and the courts are not at liberty, under the guise of judicial construction, to rewrite the policy. Worthington, 598 P.2d 796; State Farm Mutual Automobile Insurance Company v. Farmers Insurance Group, 569 P.2d 1260 (Wyo.1977).

With the above precepts in mind, we look to the St. Paul policy issued to the School District to determine the issue of coverage. St. Paul contends that the policy is not ambiguous and that, in accordance with its terms, it does not cover the School District as an entity except to the extent that the School District is required to indemnify its employees or the individual members of the board of trustees. We agree.

The policy is entitled "BOARD OF EDUCATION LIABILITY POLICY Including School District Reimbursement." The coverage terms of the policy provide as follows:

I. COVERAGE

This Policy shall, subject to its terms, conditions and limitations, pay on behalf of:

A. INSUREDS' LIABILITY--The Insureds as defined in Insuring Agreement IIA for "Loss" as defined in Insuring Agreement IIB caused by any negligent act, any error, any omission or any breach of duty while acting in their capacity as such or any matter claimed against them solely by reason of their holding such designated positions.

B. SCHOOL DISTRICT INDEMNIFICATION--The school district named in Item 1 of the Declarations for any amount it is required or permitted to pay as indemnity to any person insured under the applicable Coverage Plan designated...

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