State Farm Mutual Automobile Insurance Co. v. Pennington, 17360.

• Decision Date: 19 November 1963
• Docket Number: No. 17360.,17360.
• Citation: 324 F.2d 340
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. John W. PENNINGTON and Robert Howell Summerville, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

324 F.2d 340 (1963)

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. John W. PENNINGTON and Robert Howell Summerville, Appellees.

No. 17360.

United States Court of Appeals Eighth Circuit.

November 19, 1963.

Jacob Sharp, Jr., of Cockrill, Laser, McGehee & Sharp, Little Rock, Ark., for appellant.

Ted Boswell of Hall, Purcell & Boswell, Benton, Ark., Frances Holtzendorff, Little Rock, Ark., for appellee Summerville.

J. B. Milham, Benton, Ark., for appellee John W. Pennington.

Before VOGEL and MATTHES, Circuit Judges, and ROBINSON, District Judge.

ROBINSON, District Judge.

This is an appeal by plaintiff below, State Farm Mutual Automobile Insurance Company, from the judgment of the United States District Court, Eastern District of Arkansas, Western Division, wherein the District Court adjudged,

1) That plaintiff's complaint for a declaratory judgment to the effect that it owes no obligation to the defendants, John W. Pennington and Robert Howell Summerville, under the policy of automobile insurance described and referred to in the pleadings and evidence be dismissed with prejudice.

2) That on the counterclaim of defendant, John W. Pennington, the plaintiff is obligated under the aforementioned policy to pay up to its policy limits the judgment obtained by defendant Robert Howell Summerville in the Circuit Court of Saline County, Arkansas, against defendant John W. Pennington.

3) That on the counterclaim of defendant Robert Howell Summerville, the said Summerville have and recover of plaintiff the sum of $10,000, together with a statutory penalty of 12 percent of said sum, and an attorney's fee in the sum of $1,000, together with his costs.

4) That appellee John W. Pennington's prayer for allowance of a statutory penalty and an attorney's fee is denied.

The opinion of the District Court may be found at 215 F.Supp. 784 1963.

Jurisdiction is based upon diversity of citizenship and the requisite amount in controversy.

It appears that appellant issued the policy to one Andrew Summerville affording liability coverage on a 1950 Ford 1½ ton truck. Thereafter, on June 25, 1960, while said policy was in force, John W. Pennington was operating the insured vehicle with permission of the named insured, Andrew Summerville, so that Pennington became the insured under the policy for all purposes. Appellee, Robert Howell Summerville, was riding as a passenger in the insured vehicle. While said vehicle was being so operated by John W. Pennington, with Appellee Summerville riding as a passenger, Appellee Summerville fell out of the truck and was injured.

On August 10, 1961, suit was filed by Appellee Summerville against John W. Pennington in the Circuit Court of Saline County, Arkansas for the recovery of damages alleged to have arisen from the accident. Appellant, undertook defense of that action on behalf of Appellee John W. Pennington but reserved its right to deny coverage, and trial of the case resulted in a verdict and judgment in favor of Appellee Summerville in the amount of $18,000, which judgment was entered of record on April 30, 1962.

The policy of insurance excludes from coverage "* * * bodily injury to the insured or any member of the family of the insured residing in the same household as the insured." As the case was finally submitted to the trial court, this exclusion was the only basis upon which Appellant asserted non-liability under its policy. The trial court conceded perhaps that Pennington and Summerville were members of the same "household", but held that the exclusion does not apply to Appellee Summerville, for the reason that Appellees Pennington and Summerville had not been shown to be members of the same family.

This being a diversity of citizenship case, the law of Arkansas is controlling. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 1938. The trial court stated its function as follows:

"With no ruling or particularly instructive Arkansas cases to serve as a guide, it becomes the duty of court to determine as best it can how the Supreme Court of Arkansas would construe the exclusion in question and how that court would apply it to the facts shown by the record. In making that determination reference must be made to underlying principles of Arkansas insurance law and to the decisions from other jurisdictions in which the question has been presented."

We shall now consider whether the District Court properly applied the law to the facts of this case so as to arrive at a permissible conclusion. Our function is described in Campbell v. Village of Silver Bay, Minnesota, 315 F.2d 568, 575 C.A.8 1963 wherein Judge Blackmun, speaking for the court, stated as follows:

"Finally, and in any event, we revert to principles well established by decision of this court: that our task is not to formulate the legal mind of the State but merely to ascertain and apply it; that the standard for review here on a doubtful question of state law is only whether the trial court has reached a permissible conclusion; that the appellants\' burden of showing misconception or misapplication of local law by the trial court is a heavy one; and that where we feel that the trial court has reached a permissible conclusion we do not interfere with it. * * *"

Provisions of a policy of insurance are construed most strongly against the insurance company that prepared it, Travelers Indemnity Company v. Hyde, 232 Ark. 1020, 342 S.W.2d 295 1961. While it is true that the Court resorts to such rule of construction when there is ambiguity, the rule is equally well established that, where no ambiguity exists, the Court is not required to use a forced construction which is plainly outside the language of the policy. McKinnon v. Southern Farm Bureau Casualty Ins. Co., 232 Ark. 282, 335 S.W.2d 709 1960. Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties have used, and if they are clear and unambiguous, their terms are to be taken and understood in their plain, ordinary, and popular sense. State Farm Mut. Automobile Ins. Co. v. Belshe, 195 Ark. 460, 112 S.W.2d 954 1938.

This Court has stated, in Jefferson Insurance Co. of Pine Bluff, Ark. v. Hirchert, 281 F.2d 396 1960:

"The law of Arkansas relative to the construction of insurance contracts apparently differs in no respect from that almost universally applied. Mr. Justice Sutherland, in Bergholm v. Peoria Life Ins. Co., 284 U.S. 489, 492, 52 S.Ct. 230, 231, 76 L.Ed. 416, stated the rule as follows:

"`* * * It is true that where the terms of a policy are of doubtful meaning, that construction most favorable to the insured will be adopted. * * * This canon of construction is both reasonable and just, since the words of the policy are chosen by the insurance company; but it furnishes no warrant for avoiding hard consequences by importing into a contract an ambiguity which otherwise would not exist, or, under the guise of construction, by forcing from plain words unusual and unnatural meanings.

"`Contracts of insurance, like other contracts, must be construed according to the terms which the parties have used, to be taken and understood, in the absence of ambiguity, in their plain, ordinary and popular sense. * * *\'"

We are aware of no Arkansas case which interprets the exclusionary language used in this policy. It is true that the Court, in Central Manufacturers' Mutual Insurance Company of Van Wert, Ohio v. Friedman, 213 Ark. 9, 209 S.W.2d 102, 1 A.L.R.2d 557 1948 held the insured's minor son in military service was "members of the Insured's family of the same household." However, the Friedman case deals with an inclusionary clause, and indeed states the rule to be well settled that policies of insurance must be construed, in case of any ambiguity, most strongly in favor of the policyholder, and against the insurer who wrote the insurance...