ST. PAUL FIRE & MARINE INSURANCE COMPANY, Plaintiff_Appellant, v. ACCEPTANCE INSURANCE COMPANY, Defendant_Appellee.

No. 98_6242

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

1999 U.S. App. LEXIS 30081

November 15, 1999, Filed

NOTICE: NOT RECOMMENDED FOR FULL_TEXT PUBLICATION. SIXTH CIRCUIT RULE 28(g) LIMITS CITATION TO SPECIFIC SITUATIONS. PLEASE SEE RULE 28(g) BEFORE CITING IN A PROCEEDING IN A COURT IN THE SIXTH CIRCUIT. IF CITED, A COPY MUST BE SERVED ON OTHER PARTIES AND THE COURT. THIS NOTICE IS TO BE PROMINENTLY DISPLAYED IF THIS DECISION IS REPRODUCED.

PRIOR HISTORY: ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY. 96_00171. Coffman. 8_13_98.

DISPOSITION: AFFIRMED.

COUNSEL: For ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff _

Appellant:

George R. Carter, Boehl, Stopher & Graves, William P. Swain, Phillips, Parker,  Orberson & Moore, Louisville, KY.

For ACCEPTANCE INSURANCE COMPANY, Defendant _ Appellee: Marcia Milby Ridings, R. Aaron Hostettler, Hamm, Milby, & Ridings, London, KY.

JUDGES: Before: WELLFORD, MOORE, and GILMAN, Circuit Judges.

OPINION BY: KAREN NELSON MOORE

OPINION: OPINION

KAREN NELSON MOORE, Circuit Judge. Plaintiff St. Paul Fire & Marine

Insurance Company appeals the district court's grant of summary judgment in favor of Acceptance Insurance Company in this insurance coverage dispute. For the reasons set forth below, we AFFIRM the district court's grant of summary judgment in favor of Acceptance.

This appeal arises out of a dispute between St. Paul and Acceptance over their respective financial responsibilities for an automobile accident in that killed one person and caused other serious injuries. The accident occurred outside of Barbourville, Kentucky and involved a semi_tractor and trailer that was operated by Malcolm Riggsbee, a North Carolina resident, who at the time of the accident was using his own semi_tractor to haul a flat_bed trailer that was owned by Epes Hauling, Inc. Epes Hauling is a company located in North Carolina that contracts with truck drivers, who own their own semi_tractors, to transport the company's trailers and the freight that the trailers contain. n1

n1 Three corporate entities in this case carry the Epes name: Epes Transport Systems, Inc., Epes Hauling, Inc., and Epes Carriers, Inc. All three companies contract with owner_operators of semi_tractors to haul trailers and freight.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _End Footnotes_ _ _ _ _ _ _ _ _ _ _ _ _ _ _

St. Paul had provided Epes Hauling with an automobile liability  policy prior to the accident that insured Epes Hauling when the truck drivers that the company had hired were in the process of hauling trailers. Both parties agree that the St. Paul policy was intended to cover the automobile accident in this case. On January 22, 1996, St. Paul settled the claims against Epes Hauling and Riggsbee for the role that Riggsbee played in causing the accident and paid the accident victims a 1.2 million dollar damage award pursuant to its policy.

On May 13, 1996, St. Paul brought this suit in federal district court against Acceptance, arguing that Acceptance should be forced to contribute to the settlement award. Acceptance had also provided an automobile liability policy to Epes Hauling. The policy's declarations page listed the "Named Insured" as the "ILO [Independent Lease Operator] of Epes Transport Systems, Inc., Epes Hauling, Inc. & Epes Carriers, Inc." J.A. at 57 (Declarations Page). The Acceptance policy was labeled as "INSURANCE FOR NON_TRUCKING USE" and provided that:

1. This insurance applies only to the Named Insured.

2. This insurance does not apply at any time that the covered auto is used for transporting goods or merchandise, or while such goods or merchandise are being loaded or unloaded from the covered auto.

3. This insurance does not apply at any time that the Named Insured is operating, maintaining, or using a covered auto for or on behalf of any other person or organization.

4. This insurance does not apply while the covered auto is under the direction, control, and/or dispatch of any person or organization.

5. This insurance does not apply while the covered auto is used for the towing or transporting of any trailer or semi_trailer, or while in the process of having a trailer or semi_trailer attached to or detached from it, unless such trailer or semi_trailer is owned by the Named Insured at the time loss occurs.

J.A. at 58 (Endorsement) (emphasis added). The dispute in this case turns on whether the policy includes Epes Hauling as a "Named Insured." If Epes Hauling is a "Named Insured," then Acceptance is financially responsible for the accident despite the fact that Malcolm Riggsbee's semi_tractor was being "used for the towing or transporting of [a] trailer" at the time the accident occurred. J.A. at 58 (Endorsement P 5). Indeed, the policy still applies even though "the covered auto is used for the towing or transporting of any trailer or semi_trailer" in those instances where "such trailer or semi_trailer is owned by the Named Insured." J.A. at 58 (Endorsement P 5). Because the trailer that Riggsbee's semi_tractor was towing at the time of the accident was owned by Epes Hauling, the exclusionary language in P 5 does not preclude coverage of the automobile accident in this case if Epes Hauling is a "Named Insured."

The district court granted summary judgment in favor of Acceptance after the court determined that the parties did not include Epes Hauling as a "Named Insured" under the Acceptance policy. The district court relied on monthly reports that Acceptance sent to Epes Hauling, which, according to the district court, "clearly identify the ILOs [of the three Epes companies] as the named insureds." J.A. at 142 (Memo. Opinion and Order). St. Paul now appeals the district court's grant of summary judgment. n2

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _Footnotes_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

n2 The district court had diversity jurisdiction over this case pursuant to 28 U.S.C. @ 1332, and we have jurisdiction over St. Paul's timely appeal pursuant to 28 U.S.C. @ 1291.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _End Footnotes_ _ _ _ _ _ _ _ _ _ _ _ _ _ _

II.

St. Paul argues that the district erred when it granted summary judgment in favor of Acceptance in this case because the insurance policy at issue is ambiguous on its face and therefore should be interpreted in favor of providing coverage for Epes Hauling. We review de novo a district court's grant of summary judgment. See McKay v. Toyota Motor Mfg., U.S.A., Inc., 110 F.3d 369, 372 (6th Cir. 1997). Summary judgment is appropriate when there is no dispute as to a material issue of fact and one party is entitled to a judgment as a matter of law. FED.R.CIV.P. 56(c).

Because this is a diversity case, we must first determine whether Kentucky or North Carolina law applies to the interpretation of the insurance policy at issue. Federal district courts sitting in diversity must apply the conflict of laws rules of the state in which they sit. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496_97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). This is an appeal from the Eastern District of Kentucky. The Kentucky Supreme Court has adopted the Restatement Second test, which looks to the law of the state that "has the most significant relationship to the transaction and the parties." Lewis v. American Family Ins. Group, 555 S.W.2d 579, 581_82 (Ky. 1977) (quoting RESTATEMENT (SECOND) OF CONFLICT OF LAWS @ 188 (1971)); see also Security Ins. Co. of Hartford v. Kevin Tucker & Assocs., Inc., 64 F.3d 1001, 1005_06 (6th Cir. 1995). Because the insurance contract in this case was entered into in North Carolina, and because Malcolm Riggsbee is a resident of North Carolina, we conclude that North Carolina law governs the rights of the parties under the policy. Lewis, 555 S.W.2d at 582.

According to North Carolina law, we must examine the insurance policy as a whole and determine whether the language in the policy is ambiguous. See North Carolina Farm Bureau Mut. Ins. Co. v. Walton, 107 N.C. App. 207, 418 S.E.2d 837, 839 (N.C. Ct. App. 1992). The North Carolina Supreme Court has explained that "when the language of a contract is plain and unambiguous then construction of the agreement is a matter of law for the court." Whirlpool Corp. v. Dailey Constr., Inc., 110 N.C. App. 468, 429 S.E.2d 748, 751 (N.C. 1993). "However if the terms of the contract are ambiguous then resort to extrinsic evidence is necessary and the question is one for the jury." Id. An insurance policy is ambiguous "where, in the opinion of the court, the language of the policy is fairly and reasonably susceptible to either of the constructionsasserted by the parties." Maddox v. Colonial Life & Accident Ins. Co., 303 N.C.648, 280 S.E.2d 907, 908 (N.C. 1981).

The insurance policy in this case describes the "Named Insured" as "ILO [Independent Lease Operator] of Epes Transport Systems, Inc., Epes Hauling, Inc. & Epes Carriers, Inc." J.A. at 57 (Declarations Page). St. Paul asserts that this sentence is ambiguous because it not only can be construed to include thoseindependent lease operators who work for Epes Transport, Epes Hauling and Epes Carriers, but also can fairly and reasonably be construed to include Epes Hauling and Epes Carriers themselves. To supports its interpretation of the policy, St. Paul points to the fact that the insurance policy lists the corporate address for Epes __ but not the addresses of the individual independent lease operators __ on its declarations page. J.A. at 57 (Declarations Page). St. Paul also notes that the Acceptance representative who filled out the declarations page checked the box that is marked "Corporation" rather than the box marked "Individual" when describing the policyholder's "Form of Business." J.A. at 57 (Declarations Page).

The specific sentence at issue certainly could have been written in a way that would have made the identity of the "Named Insured" in this case crystal clear. For instance, Acceptance could have described the "Named Insured" on its policy as the "ILOs of Epes Transport Systems, Inc.; ILOs of Epes Hauling,Inc.; and ILOs of Epes Carriers, Inc." However, the policy when considered as a whole is unambiguous and should be construed to cover only those independent lease operators who work for the three Epes companies. As the district court explained, the true identity of the named insureds is apparent from the monthly reports that Acceptance sent to the Epes companies, which listed those vehicles that Acceptance considered to be "covered autos" under its policy. J.A. at 142 (Memo. Opinion and Order). These monthly reports, which form a part of the insurance policy, include both those lease operators who had been hired by Epes Transport and those lease operators who had been hired by Epes Hauling. J.A. at 79_133 (Monthly Rep.).

Indeed, only a strained interpretation of the language in the insurance contract could lead one to conclude that the policy is meant to include Epes Hauling and Epes Carriers. If we were to accept St. Paul's interpretation as fair and reasonable, then we also would have to accept the fact that, under St. Paul's interpretation, the policy covered only those independent lease operators who worked for Epes Transport. The monthly statements, however, show that the policy covered the lease operators who worked for Epes Hauling in addition to the lease operators who worked for Epes Transport. J.A. at 83 (Monthly Rep.). In fact, Malcolm Riggsbee was a lease operator who worked for Epes Hauling, and his semi_tractor was specifically listed as a "covered auto" under the Acceptance policy. J.A. at 83 (Monthly Rep.). Because the policy included theindependent lease operators who worked for all three companies rather thantheactual companies themselves, we conclude that Epes Hauling is not a "Named Insured" for the purpose of the Acceptance policy. Accordingly, we affirm the district court's grant of summary judgment on grounds that the Acceptance policy does not cover the accident in this case. n3

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _Footnotes_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

n3 Acceptance also argues that summary judgment was appropriate in this case because Malcolm Riggsbee was acting "under the direction, control, and/or dispatch" of Epes Hauling at the time of the accident. The policy provides that "this insurance does not apply while the covered auto is under the direction, control, and/or dispatch of any person or organization." J.A. at 58 (Endorsement P 4). Because we have held that P 5 excludes coverage of the automobile accident in this case, we need not determine whether P 4 also excludes coverage.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _End Footnotes_ _ _ _ _ _ _ _ _ _ _ _ _ _ _

CONCLUSION

Malcolm Riggsbee was using his semi_tractor to transport a trailer that was owned by Epes Hauling at the time the accident occurred. The Acceptance insurance policy states that "this insurance does not apply while the covered auto is used for the towing or transporting of any trailer or semi_trailer . . . unless such trailer or semi_trailer is owned by the Named Insured." J.A. at 58 (Endorsement). Because the policy does not include Epes Hauling as a "Named Insured," the policy does not cover

the automobile accident in this case. Thus, we AFFIRM the district court's grant of summary judgment in favor of Acceptance.