State Farm Fire & Cas. Ins. Co. v. Sayles

• Decision Date: 02 May 2002
• Docket Number: Docket No. 01-7186.
• Citation: 289 F.3d 181
• Parties: STATE FARM FIRE & CASUALTY INSURANCE COMPANY, Plaintiff-Appellant, v. Kelly J. SAYLES, Administratrix of the estate of Bonnie E. Sayles; and Andrew Smith, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

Page 181

289 F.3d 181

STATE FARM FIRE & CASUALTY INSURANCE COMPANY, Plaintiff-Appellant, v. Kelly J. SAYLES, Administratrix of the estate of Bonnie E. Sayles; and Andrew Smith, Defendants-Appellees.

Docket No. 01-7186.

United States Court of Appeals, Second Circuit.

Argued: October 9, 2001.

Decided: May 2, 2002.

Daniel P. Scapellati, Hartford, Connecticut (Stephen H. Broer, Halloran & Sage, Hartford, Connecticut, on the brief), for Plaintiff-Appellant.

Gerald M. Fox, III, Stamford, Connecticut, (Fox & Fox, Stamford, Connecticut, on the brief), for Defendant-Appellee Sayles.

Brian J. Isaac, New York, New York (William Groner, Michael L. Taub, Worby Groner & Edelman, New York, New York, on the brief), for Defendant-Appellee Smith.

Before: NEWMAN and KEARSE, Circuit Judges, and CARMAN, Chief Judge^*.

KEARSE, Circuit Judge.

Plaintiff State Farm Fire & Casualty Insurance Company ("State Farm") appeals from a judgment entered in the United States District Court for the District of Connecticut, Stefan R. Underhill, Judge, denying its request for a declaratory judgment that defendants Kelly J. Sayles, as administratrix of the estate of Bonnie E. Sayles, and Andrew Smith (collectively the "Claimants") are not entitled to payment under the underinsured motorist provisions of a personal liability umbrella policy issued to Bonnie E. Sayles ("Sayles"), in light of the Claimants' receipt of certain payments under a personal liability umbrella insurance policy of a third-party tortfeasor. The district court granted summary judgment in favor of the Claimants, ruling that State Farm and Sayles did not intend that State Farm's obligations be reduced by amounts available under a tortfeaser's personal liability umbrella insurance policy. For the reasons that follow, we disagree and reverse.

I. BACKGROUND

The underlying facts have been stipulated by the parties. In March 1998, a vehicle owned and occupied by Sayles, and driven by Smith, was struck by a vehicle driven by one Christine Parlato. Sayles and Smith were injured, Sayles fatally. Prior to the time of the accident, Sayles had been issued a personal liability umbrella policy by State Farm (the "Sayles State Farm Policy" or "Policy"). Smith, as a person driving Sayles's car with her permission, was an insured within the meaning of the Policy.

Parlato was insured under a personal automobile liability policy with coverage liability limited to $300,000. She was also insured under a personal liability umbrella policy with a limit of liability coverage in the amount of $1,000,000. In connection with the accident, the Claimants received payments under these two policies totaling the policy limits, i.e., $1,300,000, with the Sayles estate receiving $700,000, and Smith receiving $600,000.

A. The Sayles State Farm Policy and the Present Controversy

It is undisputed that "Coverage U" in the State Farm umbrella policy issued to Sayles "afforded uninsured motorist coverage to the insured with a limit of $1,000,000.00" (Parties' Form 26(F) Statement of Undisputed Facts ¶ 5). There is also no dispute that the term "uninsured" included "underinsured." To the extent pertinent here, the Policy defined an "uninsured motor vehicle" to include "a land motor vehicle, the ownership, maintenance or use of which is ... insured ... for bodily injury liability at the time of the accident, but ... the limits of liability ... are less than the limits you carry for uninsured motor vehicle coverage under this policy." (Sayles State Farm Policy, "UNINSURED MOTOR VEHICLE COVERAGE" Definition ¶ 1.b.(2)(a) (emphasis in original).)

In a section entitled "Coverage U — Uninsured Motor Vehicle," the Policy stated that State Farm

will pay, up to the Coverage U limit, the amount which you and your passengers are legally entitled to recover as bodily injury damages from the owner or driver of an uninsured motor vehicle.

These conditions apply:

....

2. The retained limit for Coverage U is the total amount received for the loss from or on behalf of the liable party plus the amount received from your underlying coverage, but not less than the amount of your required underlying limits.

3. We will pay only the amount in excess of the retained limit up to the Coverage U limit per loss.

(Id. Coverage U & ¶¶ 2-3 (emphases in original).)

In connection with the March 1998 accident, the Claimants requested payment of underinsured motorist benefits from State Farm under the Policy. State Farm rejected the requests and commenced the present action, seeking a declaratory judgment that the Claimants were not entitled to such payment.

After stipulating to the underlying facts, the parties filed cross-motions for summary judgment. State Farm took the position that the Claimants were entitled to nothing under the Sayles State Farm Policy because they had collected a total of $1,300,000 from Parlato under her policies, including her umbrella policy, and State Farm's liability under Coverage U was limited to $1,000,000 minus the total amount recovered from Parlato. The Claimants took the position that the Sayles State Farm Policy's underinsured motorist coverage turns on the amount of third-party insurance coverage on that party's vehicle, not on the amount of personal insurance carried by the third party herself. They pointed out that Parlato's automobile insurance policy had a limit of $300,000, i.e., less than the $1,000,000 coverage provided by Coverage U of the Sayles State Farm Policy. They thus argued that Parlato was underinsured within the meaning of the Sayles State Farm Policy and, to the extent pertinent to this appeal, that the $1,000,000 they had received under Parlato's umbrella policy was not to be taken into account in connection with the Sayles State Farm Policy's uninsured motorist coverage.

B. The Decision of the District Court

In a Ruling on the Parties' Cross Motions for Summary Judgment, dated January 8, 2001 ("Ruling"), the district court denied State Farm's motion for summary judgment in its favor and granted the Claimants' motions for summary judgment dismissing the complaint. The court stated that under Connecticut law, "`[i]t is the function of the court to construe the provisions of the contract of insurance,'" viewing the contract "`in its entirety'" and giving the "`policy words ... their natural and ordinary meaning,'" and that the "`determinative question is the intent of the parties.'" Ruling at 3 (quoting Springdale Donuts, Inc. v. Aetna Casualty & Surety Co., 247 Conn. 801, 805-06, 724 A.2d 1117, 1119-20 (1999)).

The district court found that "the parties did not intend that the limit of liability available under the tortfeasor's umbrella policy should be included in determining whether the tortfeasor's vehicle was `uninsured.'" Ruling at 3-4. In making this finding, the court found phrasing in the Policy's definition of "uninsured motor vehicle" to be the same as language used elsewhere in the Policy to define an automobile insurance policy, and it inferred that the parties intended the "uninsured motor vehicle" definition's reference to insurance to be limited to automobile insurance. The court stated as follows:

Under Coverage U of the State Farm Policy, State Farm agreed to pay "... the amount which you and your passengers are legally entitled to recover as bodily injury damages from the owner or driver of an uninsured motor vehicle." "Uninsured Motor Vehicle" is defined, in pertinent part, as "... a land motor vehicle, the ownership, maintenance or use of which is ... b. insured or bonded for bodily injury liability at the time of the accident, but (1) the limits of liability ... are less than the limits you carry for uninsured motor vehicle coverage under this policy ...." Thus the State Farm Policy provides that the limits of liability available for policies that insure the "ownership, maintenance or use" of the tortfeasor's vehicle for "bodily injury liability at the time of the accident," are compared to the coverage available under the State Farm Policy in order to determine whether the tortfeasor's vehicle is "uninsured."

Reading the entirety of the State Farm Policy, the court concludes that the parties did not intend that the limit of liability available under the tortfeasor's umbrella policy should be included in determining whether the tortfeasor's vehicle was "uninsured." The State Farm Policy provides that only the limits of liability from policies insuring, "the ownership, maintenance or use of," "a land motor vehicle" for "bodily injury liability," are to be compared to the liability limit under the State Farm Policy. This precise phraseology was used elsewhere in the State Farm Policy to define the underlying automobile liability policy Sayles was required to carry with the State Farm Policy. By definition, such underlying insurance would not include umbrella or other excess coverage. Thus, by using the phrase "... a land motor vehicle, the ownership, maintenance or use of which is," insured against "bodily injury liability," the parties intended to refer only to primary automobile liability policies. To read the State Farm Policy any other way would render it internally inconsistent.

Furthermore, the reading urged by State Farm would also fail to give effect to the parties' expressed intent to distinguish between primary automobile liability policies and excess, umbrella or other potentially applicable coverage. When the State Farm Policy contemplates consideration of payments made pursuant to coverage beyond the tortfeasor's primary automobile policy, the parties used broad language to clearly include such payments. For example, the State Farm Policy provides that the "retained limit for Coverage U is the total amount received for the loss from or on behalf of the liable party plus the amount received from your underlying coverage...." (emphasis added). This language is much broader language than that under sub-part (b)(1) of the definition of ...