COTTON STATES MUTUAL INSURANCE COMPANY

v.

BRIGHTMAN.

April 29, 2003.

Reconsideration Denied June 6, 2003.

David R. Montgomery, James E. Hudson, Kenneth Kalivoda, Hudson, Montgomery & Kalivoda, P.C., Athens, for appellee.

Philip Wade Savrin, Freeman Mathis & Gary, LLP, James Errol Singer, Bovis, Kyle & Burch, LLC, Atlanta, Jerry A. Buchanan, Buchanan & Land, Columbus, for amici appellant.

FLETCHER, Chief Justice.

After James Brightman obtained a $1,787,500 judgment against Lynn Martin and Gregory Cumbo for injuries suffered in a 1992 automobile collision, Martin assigned to Brightman her bad faith claim against her insurance company, Cotton States Mutual Insurance Company. Brightman sued Cotton States for its bad faith and negligent refusal to settle the personal injury action, the jury returned a verdict in his favor, and the Court of Appeals for the State of Georgia affirmed. [FN1] We granted a writ of certiorari to consider whether an insurer is liable under Southern General Insurance Company v. Holt [FN2] when it fails to tender its policy limits because the plaintiff's demand contains a condition beyond the insurer's control. We hold that an insurance company in a case involving multiple insurers may be liable to its insured on a bad faith claim when it fails to tender its policy limits in response to a settlement offer solely because the offer also seeks the policy limits from other insurers. Because there was sufficient evidence for the jury to find that Cotton States acted unreasonably in failing to tender its policy limits in response to Brightman's settlement offer in January 1995, we affirm.

FN1. See Cotton States Mut. Ins. Co. v. Brightman, 256 Ga.App. 451, 568 S.E.2d 498 (2002).

FN2. 262 Ga. 267, 416 S.E.2d 274 (1992).

Brightman was seriously injured in August 1992 when the van owned by Martin and driven by Cumbo struck his car as he was turning left at an intersection controlled by a traffic light. Police charged Brightman with failure to yield the right of way and charged Cumbo with speeding and causing serious injury by a vehicle. Police later charged Cumbo with driving under the influence based on a blood test that revealed the presence of marijuana metabolites in his blood. There was no evidence at the scene that Cumbo's driving was impaired.

On January 31, 1994, Brightman's attorney wrote Cotton States offering to settle his claims against Martin and Cumbo for $300,000, which was the limits of Martin's policy of liability insurance. The letter said that Brightman had sustained traumatic brain injury and attached medical bills totaling $329,457.20. On April 20, 1994, Cotton States declined to accept the offer to settle for the policy limits, citing a police officer's testimony that Brightman caused the accident, the company's inability to discover how a second officer calculated Cumbo's speed, and its desire to await the outcome of Cumbo's DUI case. As a result, Brightman withdrew his offer to settle.

Brightman sued Martin and Cumbo in May 1994, and they filed a counterclaim. During discovery, the parties learned that Cumbo had a $100,000 policy with State Farm Mutual Automobile Insurance Company. The investigating officers testified in depositions that the collision was caused by Brightman's failure to yield the right of way and Cumbo's speeding and driving under the influence. One officer calculated that Cumbo was driving 58 to 65 miles per hour in the 45-mile-per-hour zone. A third officer testified that he smelled a strong odor of marijuana in Cumbo's van at the time of the collision. In January 1995, a non-binding arbitration panel found in Brightman's favor and awarded him $2 million.

On January 30, 1995, Brightman offered Cotton States a final opportunity to settle the case for Martin's policy limits of $300,000. The offer stated:

We are willing to give Cotton States Mutual Insurance Company one last chance in which to settle this case for your policy limits of $300,000.00. We will agree to accept your policy limits, contingent upon State Farm Mutual Automobile Insurance Company also tendering its limits of $100,000, for the next ten days. If you have not accepted this offer within ten days from the date of this letter, then it is to be considered irrevocably withdrawn.

The ten-day period expired on February 9 without either Cotton States or State Farm tendering its policy limits. Although State Farm continued to deny coverage, Cotton States offered on March 17, 1995, to pay its policy limits of $300,000 in exchange for a general release from Brightman and a dismissal of the complaint with prejudice. Brightman declined the offer.

The personal injury action went to trial in 1996, and the jury awarded Brightman nearly $1.8 million in damages. Cotton States paid its $300,000 policy limits and State Farm paid $100,000, leaving an excess judgment of $1,387,500 against Martin and Cumbo. After Brightman filed a lien on Martin's house, she assigned to him her claim against Cotton States for its bad faith or negligent refusal to settle the personal injury action within its policy limits. In exchange, Brightman agreed not to seek any of her assets. Brightman sued Cotton States, the trial court denied the insurer's motion for a directed verdict, and the jury returned a verdict awarding Brightman more than $2.1 million in principal and interest.

1. An insurance company may be liable for the excess judgment entered against its insured based on the insurer's bad faith or negligent refusal to settle a personal claim within the policy limits. [FN3] Judged by the standard of the ordinarily prudent insurer, the insurer is negligent in failing to settle if the ordinarily prudent insurer would consider choosing to try the case created an unreasonable risk. [FN4] The rationale is that the interests of the insurer and insured diverge when a plaintiff offers to settle a claim for the limits of the insurance policy. The insured is interested in protecting itself against an excess judgment; the insurer has less incentive to settle because litigation may result in a verdict below the policy limits or a defense verdict. [FN5]

FN3. See McCall v. Allstate Ins. Co., 251 Ga. 869, 310 S.E.2d 513 (1984).

FN4. See U.S. Fidelity & Guar. Co. v. Evans, 116 Ga.App. 93, 156 S.E.2d 809, (1967), aff'd, 223 Ga. 789, 158 S.E.2d 243 (1967).

FN5. See generally William Shernoff et al., Insurance Bad Faith Litigation 1.07(2002).

In determining whether the insurer has breached its duty to its insured to settle, a factual issue is sometimes presented concerning whether the insurer had an opportunity to make an effective compromise. [FN6] In Southern General Insurance Co. v. Holt, this Court addressed whether the insured had a bad faith claim against her insurance company for its failure to accept the plaintiff's time-limited settlement offer within the policy limits. [FN7] We held that the insurer had a duty to its insured to respond to the plaintiff's deadline to settle the personal injury claim within policy limits when the insurer had knowledge of clear liability and special damages exceeding the policy limits. Our holding in Holt was consistent with the general rule that the issue of an insurer's bad faith depends on whether the insurance company acted reasonably in responding to a settlement offer. [FN8]

FN6. See Government Employees Ins. Co. v. Gingold, 249 Ga. 156, 288 S.E.2d 557 (1982) (affirming grant of summary judgment to insurer in excess liability action when insured's deliberate disappearance made settlement of underlying action impossible). See generally Stephen S. Ashley, Bad Faith Actions: Liability and Damages §§ 3:25-3:29 (2d ed.1997) (discussing prerequisites of a settlement offer).

FN7. See 262 Ga. at 267, 416 S.E.2d 274.

FN8. See id. at 269, 416 S.E.2d 274.

Although this case also involves an insurer's failure to respond within a specific time limit, it presents an additional issue concerning the insurer's opportunity to accept the plaintiff's offer to settle. Whereas only one insurance company was involved in Holt, Brightman's settlement offer in January 1995 involved two defendants and their insurance companies. By its terms, the letter demanded that Cotton States tender its policy limits within 10 days, with the plaintiff's acceptance of the $300,000 contingent on State Farm's tendering its policy limits. The question here is whether Cotton States is excused, as a matter of law, from tendering its policy limits because the plaintiff's demand contained a condition over which Cotton States had no control.

Relying on authority from other jurisdictions, the majority decision of the court of appeals found the insurer had an "affirmative duty ... to engage the injured party in discussions regarding an initial settlement demand in excess of policy limits." [FN9] Because the insurer did not respond to Brightman's conditional offer in 1995 with a counteroffer to effect a settlement, the court of appeals concluded that the evidence supported the jury's finding that Cotton States was negligent in failing to settle the underlying personal injury action. Cotton States criticizes this ruling as making an insurer liable for failing to offer its policy limits in response to a contingent demand that cannot be accepted. It argues that it never had the opportunity to settle in 1995 because the plaintiff's demand contained a condition beyond its control.

FN9. See 256 Ga.App. at 454, 568 S.E.2d 498 (citing Yeomans v. Allstate Ins. Co., 130 N.J.Super. 48, 324 A.2d 906 (1974) and Young v. American Cas. & Co., 416 F.2d 906 (2d Cir.1969)). Compare Cotton States Mut. Ins. Co. v. Fields, 106 Ga.App. 740, 128 S.E.2d 358 (1962) (finding no causation based on the insurer's failure to solicit or make an offer of settlement at the insured's request).

Contrary to Cotton States' contention, we are unable to conclude that it was entitled to a directed verdict on the bad faith claim because the January 1995 settlement offer was a conditional demand incapable of its acceptance. [FN10] At trial, Brightman presented expert testimony that the insurer had the opportunity to make an effective compromise in 1995. An insurance defense attorney and claims adjuster testified that Cotton States could have offered its $300,000 before the 10-day deadline passed without waiting to see what State Farm would do. In addition, industry experts agreed that, in cases involving multiple defendants and insurance companies, one insurance company can offer its policy limits in response to a demand--"put our money on the table"--and then let the plaintiff negotiate with the remaining insurers. This testimony is supported by the action of Cotton States in tendering its policy limits six weeks after the plaintiff's deadline expired, despite State Farm's continuing refusal to pay. If Cotton States had tendered its policy limits while the plaintiff's offer was pending, it would have done everything within its control to accept the plaintiff's offer and thus protect its policyholder from an excess verdict. In that situation, the insurance company would have given equal consideration to its insured's financial interests and fulfilled its duty to her.

FN10. See McNally v. Nationwide Ins. Co., 815 F.2d 254 (3d Cir.1987) (rejecting insurer's argument that an offer was impermissibly conditional because it required a response from more than one insurer).

Based on this evidence, we conclude that Brightman presented a jury question on whether Cotton States had an adequate opportunity to settle and therefore acted unreasonably in refusing to tender its policy limits in response to the January 1995 settlement offer. Construing the evidence most favorably towards Brightman as the party opposing the motion for directed verdict, there is evidence to support the jury's verdict that Cotton States breached its duty to its insured to settle Brightman's claim. By the time of the offer, Cotton States knew that the police had concluded that the driver of Martin's van was partially responsible for the collision, Brightman's damages exceeded the limits of Martin's liability policy with Cotton States, and a court-ordered arbitration panel had rendered a damages award of $2 million in Brightman's favor. Brightman's inclusion of a condition in the offer involving State Farm is insufficient for us to resolve, as a matter of law, that Cotton States acted reasonably and like the ordinarily prudent insurer in declining to tender its policy limits.

2. Although we agree with the court of appeals that the evidence supported the jury's verdict in favor of Brightman, we disagree with its description of the insurer's duty to settle. Specifically, we disapprove of the language placing an affirmative duty on the company to engage in negotiations concerning a settlement demand that is in excess of the insurance policy's limits. [FN11] We are also unwilling to ascribe a duty to insurers to make a counteroffer to every settlement demand that involves a condition beyond their control. Instead, we conclude that an insurance company faced with a demand involving multiple insurers can create a safe harbor from liability for an insured's bad faith claim under Holt by meeting the portion of the demand over which it has control, thus doing what it can to effectuate the settlement of the claims against its insured. This rule is intended to protect the financial interests of policyholders in cases where continued litigation would expose them to a judgment exceeding their policy limits while protecting insurers from bad faith claims when there are conditions involved in the settlement demand over which they have no control.

FN11. See Cotton States v. Fields, 106 Ga.App. at 742, 128 S.E.2d 358.

Judgment affirmed.

All the Justices concur.

District Court of Appeal of Florida,

Fourth District.

Maribel FARINAS and Margarita Farinas, Susan Walker, individually, and as

representative of the Estate of Margaux Schehr, Rochelle Slosberg,

individually, Irving Slosberg, individually, and as representative of the

Estate of Dori Slosberg, Emily Slosberg, individually, and Ligia Gallego,

individually, and as representative of the Estate of Carolina Gil, Appellants,

v.

FLORIDA FARM BUREAU GENERAL INSURANCE COMPANY, Nicholas Frank Copertino and

Nicholas T. Copertino, Appellees.

April 23, 2003.

Order Denying Rehearing and Certifying Question July 9, 2003.

PER CURIAM.

This consolidated appeal arises from litigation regarding a February 23, 1996 car accident. Nicholas Copertino lost control of his car and crossed a median, hitting an oncoming car. This tragedy resulted in the unfortunate deaths of five teenagers and severe injuries to another seven, including Copertino and a 14-year-old girl rendered a quadriplegic. Copertino's liability for those resulting injuries was not in question.

Copertino was covered by his father's Florida Farm Bureau General Insurance Company ("Farm Bureau") policy with bodily injury limits of $100,000 per claim and $300,000 per accident. Consequently, with the five death claims and seven significant personal injury claims, the policy limits were plainly inadequate.

Farm Bureau settled for the limits with Lisa Boccia, the driver of the other car, and the Rashidian and Cordes estates, two of the death claims, by March 8, 1996. After exhausting the limits, Farm Bureau filed a declaratory judgment action in July 1996 against the insured, the Copertinos, to determine whether it had any further duty to defend the Copertinos after having paid the policy limits. Appellants intervened and ultimately all filed third-party bad faith actions alleging that Farm Bureau entered into settlements without due regard for the interests of the insured.

Farm Bureau moved for summary judgment against all appellants, and the Farinases moved for cross-summary judgment. The trial court granted summary judgment to Farm Bureau as to all the appellants and denied the Farinases' summary judgment. Now, all appellants seek review of the summary judgment granted to Farm Bureau, and the Farinases also seek review of the denial of their summary judgment.

We are confronted with three questions: 1) what was Farm Bureau's good-faith duty to the insured, the Copertinos, in a multiple claimant situation, 2) did Farm Bureau meet that duty and 3) are there any remaining issues of fact for a jury to determine.

A brief background of insurance good-faith law is necessary to provide context for our analysis. Good-faith law in Florida evolved as liability insurance policies began to replace traditional indemnity policies.

Under liability policies, however, insurance companies took on the obligation of defending the insured, which, in turn, made insureds dependent on the acts of the insurers; insurers had the power to settle and foreclose an insured's exposure or to refuse to settle and leave the insured exposed to liability in excess of policy limits. This placed insurers in a fiduciary relationship with their insureds similar to that which exists between an attorney and client. Consequently, courts began to recognize that insurers "owed a duty to their insureds to refrain from acting solely on the basis of their own interests in settlement." This duty became known as the "exercise of good faith" or the "avoidance of bad faith." Under this new standard of culpability, if an insurer was found to have acted in bad faith, the insurer would have to pay the entire judgment entered against the insured in favor of the injured third party, including any amount in excess of the insured's policy limits. This type of claim became known as a third-party bad faith action.

State Farm Mut. Ins. Co. v. Laforet, 658 So.2d 55, 57-58 (Fla.1995).

Even though the bad faith occurs between the insurer and its named insured, Florida law allows the injured third party insured to bring an action directly against the insurer. See Thompson v. Commercial Union Ins. Co., 250 So.2d 259 (Fla.1971). The rationale behind this procedure is that the injured party, as the beneficiary of any successful bad faith claim, is the real party in interest as a sort of judgment creditor. See id. at 264.

In 1982, the Florida legislature enacted section 624.155, which created a statutory bad faith claim and extended the claim to the first-party insureds. See § 624.155, Fla. Stat. (Supp.1982). A 1990 amendment noted the existence of common-law bad faith and added that a person may obtain a judgment under either the common law remedy or the statutory remedy, but not both. See § 624.155, Fla. Stat. (Supp.1990). The third district has determined that this statutory obligation did not change the common law obligation of good faith or the measure of damages. See Hollar v. Int'l Bankers Ins. Co., 572 So.2d 937, 939 (Fla. 3d DCA 1990). All the appellants in the present case, except the Farinases, grounded their claims on both the common law and statutory standards.

The Florida Supreme Court announced the case law standard for insurer good faith in Boston Old Colony Insurance Co. v. Gutierrez, 386 So.2d 783 (Fla.1980). The general standard of care that the insurer must exercise when handling claims against the insured is "the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business." Id. at 785 (citation omitted). Because the insured has relinquished control of all decisions regarding claims to the insurer, the insurer's standard of care requires the insurer to act "in good faith and with due regard for the interests of the insured." Id. (citation omitted). The extent of this good faith duty is explicitly defined in detail by the court:

This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid the same. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.

Id. (citations omitted). The determination of whether an insurer has satisfied this standard is one for the jury. Id. (citation omitted).

This standard of care is further reflected in the applicable Florida Statute, which states that an insured has a cause of action for bad faith, when the insurer did not attempt "in good faith to settle claims when, under all circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for her or his interests." § 624.155(b)(1), Fla. Stat. (2002).

Both prior and subsequent to the Florida Supreme Court's decision in Boston Old Colony, courts have recognized attendant duties of good faith under Florida law. The United States Court of Appeals for the Fifth Circuit, when interpreting Florida bad faith law in a diversity action, concluded that the jury is to decide whether an insurer has given inappropriate primary regard to his own interests over those of the insured in making a settlement determination. Liberty Mut. Ins. Co. v. Davis, 412 F.2d 475, 480 (5th Cir.1969). Additionally, when there are multiple claimants and minimal policy limits, "it follows that, insofar as the insureds' interest governs, the fund should not be exhausted without an attempt to settle as many claims as possible." Id. at 481. More recently, the Florida Supreme Court augmented its decision in Boston Old Colony, by specifically addressing a multiple claimant situation involving a "deems expedient" clause, much like the present case. Shuster v. S. Broward Hosp. Dist. Physicians' Prof'l Liab. Ins. Trust, 591 So.2d 174 (Fla.1992).

For example, when there are multiple parties to a suit, we do not believe a "deems expedient" clause will protect an insurer who, in bad faith, indiscriminately settles with one or more of the parties for the full policy limits, thus exposing the insured to an excess judgment from the remaining parties. Clearly, the intent of the parties would not have been to allow the insurer to escape its primary duty to defend and indemnify the insured merely by paying out the full sum of the policy limits in bad faith.

Id. at 177 (citations omitted). Although Shuster approves of an insurance company settling claims within policy limits, there is nothing in Shuster that states the insurer is not subject to a good faith duty to the insured. Shuster states that "an insured's good faith discretion is broader when deciding to settle a claim within the policy limits than when refusing to settle or defend a claim." Id. at 176 (citing Gardner v. Aetna Cas. & Sur. Co., 841 F.2d 82 (4th Cir.1988)). Stating that discretion is broader when an insurer settles a claim necessarily implies that what discretion exists, although broad, is not unbridled and is limited by some duty.

On the opposing side of the coin to the Florida Supreme Court's evolving articulation of insurer good faith standards, is the Second District Court of Appeal decision in Harmon v. State Farm Mutual Automobile Insurance Co., 232 So.2d 206 (Fla. 2d DCA 1970). The case raised an issue of first impression:

Whether an insurance company may settle with two insureds in the full amount of the policy limits, thereby exhausting the limits of the policy to the exclusion of another insured under the uninsured motorist provisions of said policy.

Id. at 207. The court reviewed case precedent from other states and concluded that:

It is generally held that where multiple claims arise out of one accident, the liability insurer has the right to enter reasonable settlements with some of those claimants, regardless of whether the settlements deplete or even exhaust the policy limits to the extent that one or more claimants are left without recourse against the insurance company.

Id. at 207-208 (citations omitted). The trial court in the present case found this argument to be persuasive and relied upon it in determining that Farm Bureau acted within its rights when settling with three of the possible claimants.

On their faces, Boston Old Colony and related cases seem irreconcilably opposed to Harmon. Boston Old Colony provides that an insurer must conduct a full investigation of all competing claims arising out of an accident before endeavoring to settle any one individual claim, while keeping the insured informed at all junctures of the process. Harmon provides that an insurer may pick and choose which claims to settle based on any strategy it deems expedient, as long as those choices are reasonable. The trial court in the present case believes that it can decide which of these standards to apply. However, this is not the case, because the two cases are capable of harmonization.

Boston Old Colony and Harmon provide a general rule and a more specific application of that rule. The rule in Boston Old Colony sets a standard applicable in all automobile insurance bad faith cases, regardless of the factual circumstances and legal nuances of the cases. The Harmon rule focuses on the standard in scenarios with multiple competing claims. Therefore, the Boston Old Colony standard applies to all Florida cases alleging insurer bad faith, and Harmon applies to the subset of those cases involving multiple competing claims. Under this rationale, the present case is subject to both standards.

Farm Bureau was required by Boston Old Colony to fully investigate all the claims at hand to determine how to best limit the insured's liability. Additionally, based on Davis, Farm Bureau should have sought to settle as many claims as possible within the policy limits. Finally, based on Shuster, Farm Bureau had the duty to avoid indiscriminately settling selected claims and leaving the insured at risk of excess judgments that could have been minimized by wiser settlement practice. Whether Farm Bureau satisfied each of these requirements, are questions for a jury to decide.

Additionally, Farm Bureau, by virtue of having a policy with the insured, had primary control of claims settlement placed in its hands by the insured. This fact gives Farm Bureau a certain degree of discretion in deciding how to approach decisions of settlement and defense with regard to the multiple claims in the present case. Based on Harmon, Farm Bureau could have entered into reasonable settlements with some claimants to the exclusion of others based on an exercise of its discretion. However, Farm Bureau, and the trial court, are not free to overlook the fact that Harmon requires these settlements to be "reasonable," as part of the insurer's fiduciary duty to the insured. However, the Second District Court of Appeal did not define "reasonable" in Harmon. Therefore, reasonableness must be determined based on some external source of authority, and in the present case, the general rules of Boston Old Colony and Florida Statutes section 624.155(b)(1) provide that very guidance.

Harmon may apply to the case at hand, but Farm Bureau's decisions under its authority are subject to Boston Old Colony's definition of reasonable standard of care and associated requirements. After full investigation and communication with the insured, Farm Bureau could have elected to follow a strategy of settlement with selected claimants, if that policy were reasonable. The reasonableness of that policy is also a question for the jury, one subject to the constraints of Boston Old Colony and related cases and statutes.

Because the necessary determinations of reasonableness were dispensed with by the trial court due to its reliance on Harmon, factual issues remain to be resolved by a jury.

We now answer the three questions posed for resolution by this opinion. First, Farm Bureau's good faith duty to the insured requires it to fully investigate all claims arising from a multiple claim accident, keep the insured informed of the claim resolution process, and minimize the magnitude of possible excess judgments against the insured by reasoned claim settlement. This does not mean that Farm Bureau has no discretion in how it elects to settle claims, and may even choose to settle certain claims to the exclusion of others, provided this decision is reasonable and in keeping with its good faith duty. Second, whether Farm Bureau has met its good faith duty and undertaken a reasonable claims settlement strategy are questions for a jury to decide. Consequently, in answer to the third question, there are many factual issues for the jury to resolve, including whether Farm Bureau's quick settlement with three of the possible claimants was reasonable, whether Farm Bureau's rejection of global and other settlement options contemplated the best interests of the insured, whether Farm Bureau adequately investigated the facts of all of the claims, and whether Farm Bureau properly rejected advice of legal counsel and suggested settlement strategies proposed by Farm Bureau employees.

As a result, we reverse the summary judgment in favor of Farm Bureau, affirm the denial of the Farinases' motion for summary judgment, and remand for jury trial. We affirm all other aspects of the appeal without comment.

REVERSED IN PART, AFFIRMED IN PART, AND REMANDED FOR JURY TRIAL.

POLEN, C.J., GUNTHER and SHAHOOD, JJ., concur.

MOTION FOR REHEARING, REHEARING EN BANC AND CERTIFICATION

PER CURIAM.

We deny Florida Farm Bureau's Motion for Rehearing and Motion for Rehearing En Banc. However, in light of the fact that automobile accidents involving multiple claims and inadequate policy limits are likely to lead to recurrent lawsuits raising similar issues in the future, we grant Florida Farm Bureau's Motion for Certification and certify the following question as one of great public importance:

IN AN AUTOMOBILE ACCIDENT SCENARIO INVOLVING CLEAR LIABILITY, MULTIPLE CLAIMS, AND INADEQUATE POLICY LIMITS, DOES INSURANCE GOOD FAITH LAW REQUIRE THAT AN INSURER REASONABLY INVESTIGATE ALL CLAIMS PRIOR TO PAYMENT OF ANY CLAIM, KEEP THE INSURED INFORMED OF THE CLAIMS RESOLUTION PROCESS, AND ATTEMPT TO MINIMIZE THE MAGNITUDE OF POSSIBLE EXCESS JUDGMENTS AGAINST THE INSURED?

GUNTHER, POLEN and SHAHOOD, JJ., concur.

United States District Court,

S.D. Texas,

Houston Division.

FIREMAN'S FUND MCGEE, Plaintiff,

v.

LANDSTAR RANGER, INC., Defendant.

Feb. 10, 2003.

MEMORANDUM AND ORDER

ATLAS, District Judge.

This cargo damage case is before the Court on Defendant Landstar Ranger, Inc.'s Motion for Summary Judgment ("Landstar's Motion") [Doc. # 18]. Plaintiff Fireman's Fund McGee ("Fireman's Fund") has filed its Opposition to Defendant Landstar Ranger, Inc.'s Motion for Summary Judgment [Doc. # 19], and Landstar has filed a Reply [Doc. # 20]. Having considered the parties' submissions, all matters of record, and applicable legal authorities, the Court concludes that Landstar's Motion should be granted.

I. FACTUAL BACKGROUND

Plaintiff Fireman's Fund is subrogee for Empire Resources, Inc. Empire Resources imported fifty-five bundles of aluminum extrusions from Taishan, China. The cargo arrived in a shipping container at Southern Warehouse in Houston, Texas, on June 21, 2000. Southern Warehouse issued a bill of lading as agent of the shipper, Empire Resources, directing delivery of the cargo to Arrow Metals in Garland, Texas. Landstar is the carrier that delivered the goods to Arrow Metals for Empire Resources. The bill of lading specified that "material must be covered and dry at all times" and should be delivered on a "well tarped" flatbed trailer. See Exhibit 2 to Landstar's Motion.

The cargo was damaged by heavy rain when it was being loaded onto the flatbed trailer at the Southern Warehouse facility. The parties disagree as to whether it was a Landstar employee or a Southern Warehouse employee who loaded the cargo in the rain, but do not dispute that the cargo was undamaged when it arrived at Southern Warehouse. Landstar delivered the cargo to Arrow Metals in Garland, Texas on June 26, 2000 "soaking wet." Id. Arrow Metals accepted the damaged cargo subject to a claim for the damages. Id.

Fireman's Fund reimbursed Empire Resources $22,380.79 for its loss on its sale to Arrow Metals pursuant to an insurance contract. Fireman's Fund, as subrogee for Empire Resources, filed a claim against Landstar on May 30, 2001. See Plaintiff's Opposition, Exhibit D. Landstar denied Fireman's Fund's claim because it was not filed within nine months of delivery as required by the Uniform Straight Bill of Lading provisions contained in the National Motor Freight Classifications, which Landstar contends governs the shipping contract. See Affidavit of Brenda J. Baker, Exhibit 1 to Landstar's Motion. Fireman's Fund filed this suit to recover funds it paid to Empire Resources for the damaged cargo.

The parties agree that the Southern Warehouse bill of lading is the contract that governs the relationship between the parties, Fireman's Fund as subrogee for Empire Resources, the shipper, Southern Warehouse, the custodian of the cargo who arranged for the cargo's transport, and Landstar, the carrier. The parties further agree that neither Empire Resources or Fireman's Fund submitted a claim for loss or damage to Landstar within nine months of the June 26, 2000 delivery. However, Fireman's Fund denies having notice of the nine-month claim filing limitation, and thus denies that its claim is time-barred. Landstar contends that Fireman's Fund's claim is time-barred, and thus it is entitled to summary judgment.

II. SUMMARY JUDGMENT STANDARDS

Rule 56 of the Federal Rules of Civil Procedure mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing of the existence of an element essential to the party's case, and on which that party will bear the burden at trial. Baton Rouge Oil and Chem. Workers Union v. ExxonMobil Corp., 289 F.3d 373, 375 (5th Cir.2002) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

In deciding a motion for summary judgment, the Court must determine whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Calbillo v. Cavender Oldsmobile, Inc., 288 F.3d 721, 725 (5th Cir.2002). An issue is material if its resolution could affect the outcome of the action. Terrebonne Parish Sch. Bd. v. Columbia Gulf Transmission Co., 290 F.3d 303, 310 (5th Cir.2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). In deciding whether a fact issue has been created, the facts and the inferences to be drawn from them must be reviewed in the light most favorable to the nonmoving party. Hotard v. State Farm Fire & Cas. Co., 286 F.3d 814, 817 (5th Cir.2002). However, factual controversies are resolved in favor of the nonmovant "only when there is an actual controversy--that is, when both parties have submitted evidence of contradictory facts." Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir.1999).

The party moving for summary judgment has the initial burden of demonstrating the absence of a material fact issue with respect to those issues on which the movant bears the burden of proof at trial. Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir.1998). The movant meets this initial burden by showing that the "evidence in the record would not permit the nonmovant to carry its burden of proof at trial." Id. If the movant meets this burden, the nonmovant must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial. Littlefield v. Forney Indep. Sch. Dist., 268 F.3d 275, 282 (5th Cir.2001) (quoting Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir.1995)). A dispute over a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. (quoting Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir.1998)); see also Quorum Health Resources, L.L.C. v. Maverick County Hosp. District, 308 F.3d 451, 458 (5th Cir.2002).

The nonmovant's burden is not met by mere reliance on the allegations or denials in the nonmovant's pleadings. See Morris v. Covan Worldwide Moving, Inc., 144 F.3d 377, 380 (5th Cir.1998). Likewise, "unsubstantiated or conclusory assertions that a fact issue exists" do not meet this burden. Id. Instead, the nonmoving party must present specific facts which show "the existence of a 'genuine' issue concerning every essential component of its case." Id. In the absence of any proof, the court will not assume that the nonmovant could or would prove the necessary facts. McCallum Highlands, Ltd. v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir.1995), revised on other grounds upon denial of reh'g, 70 F.3d 26 (5th Cir.1995); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).

III. ANALYSIS

A. The Carmack Amendment

This case is governed by § 14706(e)(1) of Carmack Amendment, which authorizes shippers and carriers to contractually limit the deadline for shippers to report claims to carriers for cargo damage as long as the filing period is not less than nine months after delivery. [FN1] See eg., Salzstein v. Bekins Van Lines Inc., 993 F.2d 1187, 1189 (5th Cir.1993). The Carmack Amendment and Surface Transportation Board Regulations, 49 C.F.R. §§ 1005.1-7 (2002), govern processing of claims for damage to property transported by common carriers. Salzstein, 993 F.2d at 1189; Trailblazers Int'l Inc. v. Central Freight Lines, 951 F.Supp. 121, 123 (S.D.Tex.1996). The shipper must meet minimum claim filing requirements, which include providing the carrier written notice within time limits specified in the bill of lading, asserting facts identifying the property, assessing liability for the loss and demanding a determinable amount of money. 49 C.F.R. § 1005.2(b) (2002). [FN2] Strict compliance with claim filing provisions is a "mandatory condition precedent to recovery on a claim." Trailblazers, 951 F.Supp. at 123 (applying Salzstein, 993 F.2d at 1190). [FN3]

FN1. This provision states:

A carrier may not provide by rule, contract, or otherwise, a period of less than 9 months for filing a claim against it under this section and a period of less than 2 years for bringing a civil action against it under this section. The period for bringing a civil action is computed from the date the carrier gives a person written notice that the carrier has disallowed any part of the claim specified in the notice. 49 U.S.C. § 14706(e)(1) (2000).

FN2. The regulation provides:

Minimum filing requirements. A written or electronic communication (when agreed to by the carrier and the shipper or receiver involved) from a claimant, filed with a proper carrier within the time limits specified in the bill of lading or contract of carriage or transportation and: (1) Containing facts sufficient to identify the baggage of shipment (or shipments) of property, (2) asserting liability for the alleged loss, damage, injury, or delay, and (3) making claim for the payment of a specified or determinable amount of money, shall be considered as sufficient compliance with the provisions for filing claims embraced in the bill of lading or other contract for carriage: provided, however, that where claims are electronically handled, procedures are established to ensure reasonable carrier access to supporting documents.

49 C.F.R. § 1005.2(b) (2002) (emphasis added).

FN3. A prima facie case against a carrier for damage to a shipment may be shown by a bill of lading indicating delivery in good condition and then subsequent arrival in damaged condition with supporting documentation of the amount of damages. See Accura Sys. Inc., v. Watkins Motor Lines, Inc., 98 F.3d 874, 877 (5th Cir.1996); see also 49 U.S.C. § 14706(a)(1) (2000) (imposing liability on carriers for loss or injury to the property.)

B. The ICC Termination Act

Prior to the ICC Termination Act [FN4], carriers filed tariffs with the ICC that established rates and set liability and notice limitations. Tempel Steel Corp., v. Landstar Inway, Inc., 211 F.3d 1029, 1030 (7th Cir.2000). Shippers were deemed to have knowledge of the tariffs on file with the ICC, and parties could not contract around them. Id. Currently under 49 U.S.C. § 14706(c)(1)(B) (2000), "[if] the motor carrier is not required to file a tariff with the [Surface Transportation] Board, it shall provide ... to the shipper, on request of the shipper, a written or electronic copy of the rate classification, rules, and practices upon which any rate applicable to a shipment, or agreed to between the shipper and the carrier is based." [FN5] Therefore, shippers now are not automatically deemed to have knowledge of a carrier's tariffs, but the parties are free to agree to limit liability according to a carrier's tariffs, or standard contractual terms, if such are incorporated into the parties' contract, i.e., a bill of lading.

FN4. The ICC Termination Act abolished the Interstate Commerce Commission, and accordingly the mechanism for filing tariffs. ICC Termination Act of 1995, Pub.L. No. 104-88, 109 Stat. 803 (1995).

FN5. Carriers required to file tariffs are designated by 49 U.S.C. § 13702(a)(1), (2) (2002) as those providing transportation or service that is in noncontiguous domestic trade or movement of household goods.

C. Analysis: Terms of the Bill of Lading

Landstar does not dispute Fireman's Fund's ability to make a prima facie showing on its claim, but contends that, even if Fireman's Fund's claim is otherwise valid, Fireman's Fund's untimely notice bars recovery. Fireman's Fund sent to Landstar on May 30, 2001, written notice of its claim for damage to the aluminum extrusions. It is undisputed that Fireman's Fund sent this notice more than nine months after the delivery date of June 26, 2000.

The dispositive issue is whether the parties agreed to a nine-month claim filing deadline in the bill of lading. Landstar argues that the nine-month notice limitation is incorporated into the bill of lading by the following language:

... it is mutually agreed ... that every service to be performed hereunder shall be subject to all of the terms and conditions of the Uniform Domestic Straight Bill of Lading set forth (1) in Uniform Freight Classification in effect on the date thereof [i]f this is a rail or rail-water shipment or (2) in the applicable motor carrier classification or tariff if this is a motor carrier shipment.

Landstar's Motion, Exhibit 2. Moreover, the bill of lading provides:

Shipper hereby certifies that he is familiar with all of the terms and conditions of the said bill of lading, including those on the back thereof, set forth in the classification or tariff which governs the transportation of this shipment and the said terms and conditions are hereby agreed to by the shipper and accepted for himself and his assigns.

Id. Landstar has submitted the uncontradicted affidavit of Brenda J. Baker, a cargo claims analyst with Landstar Risk Management Claim Services, Inc. Landstar's Motion, Exhibit 1. Baker's affidavit demonstrates that the bill of lading in issue in fact incorporates by reference the Uniform Straight Bill of Landing set forth in the National Motor Freight Classification 100-Z. Id. The Uniform Straight Bill of Lading includes a nine-month claim filing deadline. "Claims for loss or damage must be filed within nine months after the delivery of the property...." [FN6]

FN6. Exhibit B to Baker's Affidavit, at 5, § 3(b).

Fireman's Fund argues that it did not have notice of Landstar's limitation period for filing a damage claim because the bill of lading was not issued by Landstar and did not expressly incorporate Landstar's tariff. Fireman's Fund argues that because tariffs are no longer filed with the ICC, they are not legally binding unless a shipper has actual notice of the terms with which the carrier seeks to limit its liability. Fireman's Fund cites Tempel Steel, 211 F.3d at 1030, for the proposition that a bill of lading purporting to incorporate by reference "tariffs in effect" is insufficient to limit carrier's liability because the filed-rate system is no longer in effect and thus a carrier would not have actual notice of the limitation. A review of Tempel Steel belies this assertion. In Tempel Steel, the carrier sought to exclude its liability for a press machine damaged as it was transported in Mexico. The carrier had a tariff in its own files maintaining an exclusion for any damage to a shipment sustained within the country of Mexico. The carrier drafted the bill of lading, which stated that the cargo was received "subject to the classifications and tariffs in effect on the date of issue." The bill of lading also contained a clause that made the tariff applicable "only in connection with tariffs making reference to the ICC number hereof." Tempel Steel, 211 F.3d at 1030. As a matter of basic contract interpretation, the court found that the absence of any reference to the ICC number in the bill of lading, the parties' contract, as required by that contract's own limiting clause, defeated the carrier's contention that the limitation had been incorporated into the contract. In sum, the carrier's bill of lading did not incorporate into that contract the tariff's exclusion from liability, and thus the limitation could not be enforced.

Although the ICC Termination Act abolished the rule that carriers' tariffs are automatically enforceable merely if on file with the ICC, [FN7] tariffs today (and in 2000-2001) are enforceable between shippers and carriers if the parties agree by contract. [FN8] If a shipper is unaware of the "rate, classifications, rules and practices ... agreed to between the shipper and carrier," the shipper has the burden to request a copy of the carrier's tariff. [FN9] Thus, under the ICC Termination Act and a correct reading of Tempel Steel, Landstar's position prevails.

FN7. See 49 U.S.C. § 13710(a)(4) (2000).

FN8. "Today carriers adopt standard contractual terms, which some call 'tariffs' out of habit, but which have no effect apart from their status as contracts." Tempel Steel Corp., 211 F.3d at 1030.

FN9. See 49 U.S.C. § 13710(a)(1) (2000); See also EFS Nat'l Bank v. Averitt Express, Inc., 164 F.Supp.2d 994, 1002 (W.D.Tenn.2001) (holding bill of lading which incorporates by reference carrier's tariff is effective to limit liability).

The Southern Warehouse bill of lading states "[s]hipper hereby certifies that he is familiar with all of the terms and conditions ... set forth in the classification or tariff which governs the transportation of this shipment." Landstar's Motion, Exhibit 2. This clause clearly places responsibility with the shipper to familiarize itself with the terms of the tariff that governs the shipment. Landstar was the carrier that transported the cargo at the pertinent time. Thus, its tariffs apply under the contract.

Fireman's Fund parries with the argument that neither Landstar's tariff or the National Motor Freight Classification govern the shipment because Landstar did not draft the bill of lading. [FN10] Fireman's Fund has no legal or factual support for this contention. The bill of lading does not identify who will do the transportation. However, because the bill of lading covered the shipment through to Empire Resources' designated recipient, and Southern Warehouse, the drafter of the contract, designated Landstar as the carrier, the tariffs governing Landstar's business were incorporated by reference into the bill of lading.

FN10. The fact that the bill of lading was not prepared by Landstar actually weighs against Fireman's Fund's position. Southern Warehouse prepared the bill of lading as agent for Empire Resources, in whose shoes Fireman's Fund stands. Thus, any ambiguity in the bill of lading should be construed against Fireman's Fund. Cf. Giacona v. Marubeni Oceano Corp., 623 F.Supp. 1560, 1569 (S.D.Tex.1985) (holding "a tariff should be construed strictly against the drafter of the tariff, as a corollary to the rule that written instruments will be construed strictly against their drafters."). Tellingly, Fireman's Fund does not state what tariff or classification, if not Landstar's, governs the shipment. Because Empire Resource's agent drafted the bill of lading, Fireman's Fund, as Empire Resource's subrogee, is in a unique position to know which tariffs and classifications apply and whether or not they contain a nine-month notice provision.

Fireman's Fund therefore has not contradicted Landstar's evidence (submitted through the Affidavit of Brenda Baker) that the Uniform Straight Bill of Lading set forth in the National Motor Freight Classification 100-Z applies to this shipment, and that such Uniform Bill of Lading contains a term requiring the shipper to give notice of claim within nine months of the date of delivery. Fireman's Fund presents nothing that raises a genuine and material fact issue as to whether the nine-month notice period applies to its claim. Accordingly, Fireman's Fund has failed to meet its burden to demonstrate its claim is not time-barred.

IV. CONCLUSION AND ORDER

Landstar has met its summary judgment burden to show that the Southern Warehouse bill of lading incorporates by reference the terms and conditions of the Uniform Straight Bill of Lading set forth in the National Motor Freight Classification, which terms include the requirement that a notice of claim be filed within nine months after delivery of damaged cargo. Fireman's Fund did not provide notice within this period. Thus, there is no genuine issue of material fact the Fireman's Funds' claim for $22,380.79 for damages to the aluminum extrusions asserted in or about June 2000 is time-barred. Landstar is entitled to judgment as a matter of law dismissing Fireman's Funds' claim. It is therefore

ORDERED that Landstar's Motion for Summary Judgment [Doc. # 18] is GRANTED. It is further

ORDERED that Fireman's Fund's claims will be dismissed in their entirety.

The Court will issue a separate final judgment.

Supreme Court of Montana.

Ned C. HARDY, Plaintiff,

v.

PROGRESSIVE SPECIALTY INSURANCE COMPANY, Defendant.

Argued Jan. 23, 2003.

Submitted Jan. 30, 2003.

Decided April 18, 2003.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Plaintiff, Ned Hardy, brought this action in the United States District Court for the District of Montana to recover damages from the Defendant, Progressive Specialty Insurance Company, pursuant to the policy of insurance it had issued to him. Hardy alleged that he was entitled to recover $150,000 by stacking three $50,000 underinsured motorist coverages for which he paid three separate premiums. Both parties moved for summary judgment and a hearing was held. Following the hearing, the United States District Court certified three questions of law to this Court.

¶ 2 We accepted the following certified questions of law from the United States District Court:

¶ 3 1. Is the offset provision in the Progressive policy void in Montana because it violates the public policy of this state?

¶ 4 2. Given that the Montana Supreme Court has determined that underinsured motorist coverage is personal and portable, is it against public policy in Montana to charge separate premiums for that coverage for separate vehicles insured on the same policy if the insured can only collect one amount of coverage?

¶ 5 3. Are insurance policies such as the one in question here against public policy in Montana when they include provisions that defeat coverage for which the insurer has received valuable consideration?

¶ 6 We answer the three certified questions in the affirmative.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 7 The Plaintiff, Ned Hardy, was injured in an automobile accident on December 26, 2000. Hardy was riding in a vehicle driven by his wife when their vehicle was negligently struck by a car driven by Gary Marr. Hardy suffered serious injuries as a result of the accident and recovered $50,000 from Marr's liability insurer. However, $50,000 was insufficient to compensate Hardy for his injuries. Consequently, he sought compensation pursuant to the Underinsured Motorist (UIM) coverage he had for three of his vehicles through Progressive Specialty Insurance.

¶ 8 A separate premium was paid for each of the three $50,000 UIM coverages in Hardy's Progressive policy. The policy provided in part:

INSURING AGREEMENT--UNDERINSURED MOTORIST COVERAGE

Subject to the Limits of Liability, if you pay a premium for Underinsured Motorist Coverage, we will pay for damages, other than punitive or exemplary damages, which an insured person is entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury:

1. sustained by an insured person;

2. caused by accident; and

3. arising out of the ownership, maintenance, or use of an underinsured motor vehicle.

ADDITIONAL DEFINITIONS

2. "Underinsured motor vehicle" means a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident, but the sum of all applicable limits of liability for bodily injury is less than the coverage limit for Underinsured Motorist Coverage shown on the Declarations Page.

An underinsured motor vehicle does not include any vehicle or equipment ...

(h) that is an uninsured motor vehicle.

....

LIMITS OF LIABILITY

If you or a relative are in a vehicle which:

1. is involved in an accident with an uninsured motor vehicle or underinsured motor vehicle; and

2. is not a covered vehicle;

then the maximum recovery under this policy for any one (1) accident shall not exceed the highest dollar benefit limits for any one (1) covered vehicle.

If an insured person is entitled to similar benefits under more than one (1) motor vehicle insurance policy issued by us or an affiliate company, the maximum recovery under all policies shall not exceed the amount payable under the policy with the highest dollar benefit limits. Similar benefits available under more than one (1) motor vehicle insurance policy issued by us or an affiliate may not be added together to determine the limits of coverage available under the policies for any one (1) accident.

The Limits of Liability shown on the Declarations Page for Underinsured Motorist Coverage shall be reduced by all sums:

1. paid because of bodily injury by or on behalf of any persons or organizations who may be legally responsible, including, but not limited to, all sums paid under Part I--Liability to Others.

¶ 9 The declarations page of the policy reflects that Hardy paid separate premiums for UIM coverage of $50,000 per person and $100,000 per accident for each of the three vehicles. A premium of $10 was paid for the coverage of vehicle one, a premium of $8 was paid for vehicle two, and a premium of $9 was paid for vehicle three. Hardy believed the policies could be stacked to aggregate $150,000 of UIM coverage. Progressive denied coverage and Hardy sued for damages in the United States District Court for the District of Montana.

¶ 10 Progressive raised three arguments in its defense. First, Progressive argued that the tortfeasor's vehicle was not "underinsured" as defined in the policy because the total liability coverage for Marr's vehicle was equal to the highest single UIM coverage limit in Hardy's policy. Second, the policy required Hardy's UIM coverage for one vehicle to be offset by all amounts recovered from the tortfeasor. Hardy recovered $50,000 from Marr's insurer and that amount had to be offset against Hardy's UIM coverage. Finally, Progressive argued that Hardy's UIM coverages could not be "stacked" or aggregated for the purposes of either comparing limits or affording $150,000 of UIM coverage pursuant to the strict language of the policy and Montana law.

¶ 11 On July 19, 2002, United States District Court Chief Judge Donald W. Molloy submitted a Certified Order to this Court with three certified questions. This Court accepted certification on August 6, 2002. We granted the Montana Trial Lawyers Association (MTLA) and the National Association of Independent Insurers (NAII) leave to appear as amicus curiae. Oral argument was held before this Court en banc on January 23, 2003.

ISSUE 1

¶ 12 Is the offset provision in the Progressive policy void in Montana because it violates the public policy of this state?

¶ 13 Hardy contends that the policy's definition of underinsured motorist and the tortfeasor offset provision are in conflict with the declarations page of the Progressive insurance policy, which expressly provides for coverage of $50,000. Consequently, he argues that the policy is ambiguous, contravenes the reasonable expectations of the insurance consumer, and violates Montana public policy. Progressive asserts that the policy language is clear and that Hardy is not entitled to recover because the Marr vehicle was not "underinsured" according to the policy definition.

¶ 14 When we look at an insurance contract for purpose and intent "we [will] examine the contract as a whole, giving no special deference to any specific clause." Farmers Alliance Mut. Ins. Co. v. Holeman, 1998 MT 155, ¶ 25, 289 Mont. 312, ¶ 25, 961 P.2d 114, ¶ 25. The terms and words used in aninsurance contract are to be given their usual meaning and construed using common sense. Dakota Fire Ins. Co. v. Oie, 1998 MT 288, ¶ 5, 291 Mont. 486, ¶ 5, 968 P.2d 1126, ¶ 5. Any ambiguity in an insurance policy must be construed in favor of the insured and in favor of extending coverage. Holeman, ¶ 25. An ambiguity exists where the contract, when taken as a whole, is reasonably subject to two different interpretations. Holeman, ¶ 25. Whether an ambiguity exists is determined through the eyes of "a consumer with average intelligence but not trained in the law or insurance business." Holeman, ¶ 25.

¶ 15 The Progressive policy declarations page establishes that Hardy paid a separate premium for $50,000 of UIM coverage for three separate vehicles. The language of the Insuring Agreement found on page 17 of the policy states that Progressive will pay for damages "which the insured person is entitled to recover from the owner or operator of an underinsured motor vehicle...." Hardy asserts that the declarations page and the UIM Insuring Agreement indicate that $50,000 of UIM coverage was purchased and is applicable in the event that Hardy was entitled to recover money in excess of the tortfeasor's insurance.

¶ 16 However, according to the UIM definition, coverage is only available if the tortfeasor's liability insurance limit is less than the stated UIM coverage on Hardy's declarations page. Furthermore, UIM coverage does not apply to damages suffered as the result of an accident with an uninsured motor vehicle (UM). Finally, the UIM coverage shown on the declarations page is offset by the amount the insured recovers from the tortfeasor.

¶ 17 In practically all circumstances the UIM coverage of $50,000 in Montana will be offset by at least $25,000 because of Montana's minimum mandatory coverage requirements. See § 61-6-103, MCA. In all cases where the tortfeasor's liability coverage is equal to or more than Hardy's UIM coverage limit, Hardy can recover nothing from the UIM coverage. In any case where the tortfeasor's coverage is less than $25,000, the tortfeasor is uninsured (See Oleson v. Farmers Ins. Group (1980), 185 Mont. 164, 171, 605 P.2d 166, 170) and underinsurance coverage is unavailable pursuant to the terms of the policy.

¶ 18 Hardy maintains that he had an expectation of coverage when a tortfeasor's insurance provided inadequate indemnity and cites language from this Court's prior cases, the UIM Insuring Agreement, and the declarations page as support for the reasonableness of that expectation. Progressive argues that regardless of those factors, the language of the policy renders Hardy's expectation and argument unreasonable.

¶ 19 We agree with Hardy's contention that the policy purports to provide $50,000 of coverage when the insured is entitled to damages that exceed that tortfeasor's policy limits. We also agree that the UIM definition and offset provisions preclude Hardy from recovering in this case. Consequently, we conclude that the policy in this case is subject to more than one reasonable interpretation and is, therefore, ambiguous.

¶ 20 Next, Hardy argues that Progressive's UIM definition and offset provision violate Montana public policy because they contravene the consumer's reasonable expectations, create fraudulent and illusory coverage, and contravene the made whole doctrine.

¶ 21 Public policy considerations that favor adequate compensation for accident victims apply to UIM coverage in spite of the fact that UIM coverage is not mandatory in Montana. Bennett v. State Farm Mut. Auto. Ins. Co. (1993), 261 Mont. 386, 389, 862 P.2d 1146, 1148. The purpose of underinsured motorist coverage is to provide a source of indemnification when the tortfeasor does not provide adequate indemnification. Bennett, 261 Mont. at 389, 862 P.2d at 1148; State Farm v. Estate of Braun (1990), 243 Mont. 125, 130, 793 P.2d 253, 256. We recognize that Bennett and Braun are factually distinct from this case and decided different issues. However, the principle that the insurance consumer's reasonable expectation is that UIM insurance provides additional coverage when the insured's damages exceed what is available from the tortfeasor, which is expressed in those cases, is applicable to the facts in this case.

¶ 22 Although we are not bound by its decision, a United States District Court for the District of Montana has held that a similar offset provision and UIM definition violated Montana public policy in Transamerica Ins. Group v. Osborn (1986 D.Mont.), 627 F.Supp. 1405. The court concluded that the UIM definition and the offset provision contradicted the declarations page and the reasonable expectation of the insured. Osborn, 627 F.Supp. at 1408-409. It stated that the illusory nature of the coverage conflicted with the reasonable belief that the insured purchased $50,000 of additional UIM coverage. Osborn, 627 F.Supp at 1409. We find that the United States District Court's reasoning in that case is persuasive.

¶ 23 Progressive argues that Farmers Alliance Mut. Ins. Co. v. Miller (1989 9th Cir.), 869 F.2d 509, a case which concluded that a similar provision was valid, should control. In Miller, 869 F.2d at 512, the Ninth Circuit stated that Osborn robbed the declarations page of any value because it effectively required full disclosure of the UIM provisions on the declarations page. However, we conclude the opposite is true. From a consumer's point of view, a declarations page may be his or her only plain and simple source of information and, if misleading, is of no value. A declarations page which suggests coverage in an amount which is not actually available is misleading. Consequently, we conclude that the Miller decision is unpersuasive, and that the UIM definition and offset clause in Hardy's Progressive policy violated Hardy's reasonable expectations.

¶ 24 Hardy also contends that as a result of the offset provision, $25,000 of coverage for which Progressive received valuable consideration is illusory.

¶ 25 Progressive responds that it is permitted to exclude coverage for optional insurance such as UIM coverage in light of Stutzman v. Safeco Ins. Co. of America (1997), 284 Mont. 372, 945 P.2d 32. However, distinctions in Stutzman and the present case limit its applicability. The household exclusion in Stutzman was not ambiguous and did not violate public policy. Stutzman, 284 Mont. at 380-81, 945 P.2d at 37. We emphasized that a household exclusion was not against public policy and did not violate the consumer's reasonable expectations when "the terms of the insurance policy clearly demonstrate an intent to exclude coverage." Stutzman, 284 Mont. at 381, 945 P.2d at 37. We did not hold that exclusions could be accomplished by "bait and switch" tactics.

¶ 26 In this case, we concluded that the terms of the UIM coverage are ambiguous. We, therefore, conclude that the narrow holding in Stutzman is inapplicable to the Progressive policy.

¶ 27 Progressive also argues that the UIM coverage is not illusory because there are circumstances when the insured can recover more than $25,000 per person. For example, the UIM coverage may exceed $25,000 when the tortfeasor is insured in a state that has lower mandatory liability limits than Montana, or if there are multiple people in Hardy's vehicle attempting to recover from a tortfeasor with insufficient coverage, which is in an amount less that $50,000.

¶ 28 However, we conclude that these remote examples are not the typical occurrence; will not in most cases provide Hardy with the amount of UIM coverage that he thought he purchased; and are not sufficient to overcome the fact that in nearly all conceivable situations, Progressive's promise to pay up to $50,000 of UIM coverage will not be honored.

¶ 29 Therefore, in answer to the first certified question, we conclude that the offset provision, as well as the definition of underinsured motorist, violate Montana public policy because they create an ambiguity regarding coverage, render coverage that Progressive promised to provide illusory, and defeat the insured's reasonable expectation.

ISSUE 2

¶ 30 Given that the Montana Supreme Court has determined that underinsured motorist coverage is personal and portable, is it against public policy in Montana to charge separate premiums for that coverage for separate vehicles insured on the same policy if the insured can only collect one amount of coverage?

¶ 31 Both Hardy and the MTLA contend that the anti-stacking provision in the Progressive policy violates Montana public policy. They maintain that § 33- 23-203, MCA, which authorizes that provision is constitutionally infirm because it violates separation of powers, infringes upon fundamental rights, denies equal protection of the law, and, on its face, violates the right to substantive due process. They contend, therefore, that the public policy of this Court, which prohibits provisions of this nature, must be followed. Progressive and the NAII maintain that § 33-23-203, MCA, is constitutionally valid and that the Progressive policy is consistent with the public policy stated therein.

¶ 32 As a general rule, the Montana public policy is prescribed by the legislature through its enactment of statutes. Duck Inn, Inc. v. Montana State Univ. (1997), 285 Mont. 519, 523-24, 949 P.2d 1179, 1182. Therefore, we must begin our analysis by reviewing Hardy's contention that § 33-23-203, MCA, is not the proper measure of public policy in Montana because it is unconstitutional.

¶ 33 "[A] party challenging the constitutionality of a statute bears the heavy burden of proving it to be unconstitutional beyond a reasonable doubt." Estate of McCarthy v. Second Judicial Dist., 1999 MT 309, ¶ 13, 297 Mont. 212, ¶ 13, 994 P.2d 1090, ¶ 13. This Court has a duty to interpret the statute in a manner that upholds a constitutional interpretation. See Estate of McCarthy, ¶ 13.

¶ 34 Section 33-23-203, MCA, provides in part:

Limitation of liability under motor vehicle liability policy.

(1) Unless a motor vehicle liability policy specifically provides otherwise, the limits of insurance coverage available under each part of the policy must be determined as follows, regardless of the number of motor vehicles insured under the policy, the number of policies issued by the same company covering the insured, or the number of separate premiums paid:

....

(c) the limits of the coverages specified under one policy or under more than one policy issued by the same company may not be added together to determine the limits of the insurance coverage or coverages available under the policy or policies for any one accident. [Emphasis added.]

¶ 35 Article II, Section 17, of the Montana Constitution provides that: "No person shall be denied life, liberty, or property without due process of law." Substantive due process prohibits the state from taking unreasonable, arbitrary or capricious action. Powell v. State Comp. Ins. Fund, 2000 MT 321, ¶¶ 28-29, 302 Mont. 518, ¶¶ 28-29, 15 P.3d 877, ¶¶ 28-29. "[A] statute enacted by the legislature must be reasonably related to a permissible legislative objective" to comply with the requirements of substantive due process. Powell, ¶ 29.

¶ 36 Hardy and the MTLA argue that § 33-23-203, MCA, does not withstand the test for substantive due process. Progressive and MAII maintain that § 33- 23-203, MCA, is reasonably related to making and keeping insurance premiums affordable for all Montanans. They argue that stacking coverage forces insurers to pay more in claims, which drives the cost of insurance up for everyone.

¶ 37 While the state may have a legitimate interest in insurance rates, we fail to understand how § 33-23-203, MCA, which allows insurers to charge premiums for non-existent coverage, is rationally related to the stated objective. That contention simply defies logic. The cost to the insurance consumer could not be higher. Charging consumers for non-existent coverage is the antithesis of affordable coverage. Section 33-23-203, MCA, permits the insurance industry to deprive Montanans of their hard earned money for no consideration. There is no legitimate objective for doing so.

¶ 38 We conclude that § 33-23-203, MCA, is not rationally related to the stated objective of maintaining affordable insurance in Montana, nor any other "permissible legislative objective" that we can imagine, and constitutes an arbitrary and capricious action. Consequently, § 33-23-203, MCA, to the extent that it allows charging premiums for illusory coverage, violates substantive due process and is unconstitutional.

¶ 39 In the absence of valid legislative enactment of public policy, Progressive's anti-stacking provision must be reviewed in light of the public policy developed by this Court. Hardy contends this Court has consistently held that provisions of this nature violate Montana public policy. Progressive maintains that its anti-stacking provision does not render the additional policies valueless. Specifically, it argues that the premium on the first vehicle provides full coverage for the named insured and his family and the lesser premiums on the second and third vehicles provide secondary coverage for otherwise unprotected passengers in the second and third vehicles.

¶ 40 In Bennett, 261 Mont. at 389, 862 P.2d at 1148, we concluded that a provision that defeats coverage for which valuable consideration has been received violates Montana public policy. We held that UIM coverage, by definition, is personal and portable. Bennett, 261 Mont. at 389-90, 862 P.2d at 1148-149. Therefore, a Montanan could reasonably expect coverage up to the aggregate limit of the separate policies when a separate premium for UIM coverage was charged for each. Bennett, 261 Mont. at 389-90, 862 P.2d at 1148-149.

¶ 41 In Chaffee v. U.S. Fid. & Guar. Co. (1979), 181 Mont. 1, 591 P.2d 1102, USF & G charged three separate and equal premiums for uninsured coverage on three vehicles insured under the same policy, but similarly limited the insured to recovery of one coverage. We rejected USF & G's contention that the risk involved in extending second class coverage to the second and third vehicles justified the separate premiums. We held that: "There are no added risks to justify the full premium paid on the second and third vehicles." Chaffee, 181 Mont. at 6, 591 P.2d at 1104. We concluded that "[a]n attempted reduction of coverage of this kind simply takes the heart out of the policy and erodes the coverage to a point of no value simply because the policy on the first vehicle becomes the only full coverage." Chaffee, 181 Mont. at 6, 591 P.2d at 1104.

¶ 42 Based upon the synthesis of Bennett and Chaffee, we conclude that an anti-stacking provision in an insurance policy that permits an insurer to receive valuable consideration for coverage that is not provided violates Montana public policy. To the extent that the premium charged for the second and third vehicles were disproportionate to the coverage provided, the anti-stacking provisions in Hardy's policy cannot be enforced.

¶ 43 Here, unlike Chaffee, the full premium was not charged for the second and third vehicles. However, nothing in the record before us suggests that charging 80% to 90% of the full-coverage premium for the limited coverage on the second and third vehicle reflects the actual risk willingly assumed.

¶ 44 Even if it could be shown that it does, the anti-stacking provision still defeats the insured's reasonable expectations. We held that UIM coverage is both personal and portable. See Bennett, 261 Mont. at 389-90, 862 P.2d at 1148-149. Progressive's anti-stacking provision destroys the personal and portable nature of UIM coverage by completely relieving Progressive of the obligation to pay damages to the insured.

¶ 45 We conclude that Progressive's anti-stacking provision belies the insurance consumer's reasonable expectation that he has purchased UIM coverage, which by definition, is personal, portable, and, therefore, stackable. For this reason, we conclude the anti-stacking provision in this case violates Montana public policy.

ISSUE 3

¶ 46 Are insurance policies such as the one in question here against public policy in Montana when they include provisions that defeat coverage for which the insurer has received valuable consideration?

¶ 47 Our resolution of the first and second certified questions indicates that an insurance policy that contains provisions that defeat coverage for which the insurer has received valuable consideration is against public policy.

We Concur: PATRICIA COTTER, JAMES C. NELSON, W. WILLIAM LEAPHART and JIM REGNIER, Justices.

Justice JIM RICE, concurring in part and dissenting in part.

¶ 48 I concur with the Court's holding on Issue 1. A consumer's rightful expectation that the policy provides $50,000 of underinsured motorist "coverage" is defeated by the policy's terms, which limit payment to the amount which is necessary to "fill the gap" between the available liability coverage and $50,000. Here, because liability coverage of $50,000 was available and paid, there was no "gap" to fill, and thus, the entirety of the $50,000 underinsured "coverage" was defeated. Moreover, if there is no liability coverage, the resulting $50,000 gap will not be filled at all, because the policy's definition of an underinsured vehicle excludes vehicles which are uninsured. Consequently, though "$50,000 coverage" is offered to consumers, collection of that amount from the insurer is an assurance which must be considered illusory. In that regard, I find instructive the Idaho Supreme Court's reasoning that insurance coverage is deemed illusory when:

it appears that if any actual coverage does exist it is extremely minimal and affords no realistic protection to any group or class of injured persons. The declarations page of the policy contains language and words of coverage, then by definition and exclusion takes away the coverage. The fact that there might be some small circumstance where coverage could arguably exist does not change the reality that, when the policy is considered in its entirety, the City was receiving only an illusion of coverage for its premiums. This Court will not allow policy limitations and exclusions to defeat the precise purpose for which the insurance is purchased.

Martinez v. Idaho Counties Reciprocal Management Program (2000), 134 Idaho 247, 999 P.2d 902, 907. As in Martinez, it is possible here to conceive of circumstances under which the full $50,000 of underinsured coverage could be paid under the policy, but considered in its entirety, the policy does not fairly provide a consumer with coverage consistent with its representations.

¶ 49 I respectfully dissent from the Court's holding in Issue 2, as it is founded upon an erroneous factual predicate. In ¶ 37 of the opinion, the Court finds that Progressive has charged a premium for "non-existent coverage," and thus, § 33-23-203, MCA, is without a rational basis and unconstitutional, because the provision "permits the insurance industry to deprive Montanans of their hard earned money for no consideration." These statements are not accurate.

¶ 50 First, to the extent that underinsured coverage was nonexistent or illusory under this policy, that inadequacy has been remedied by our holding under Issue 1. Pursuant thereto, a full $50,000 in coverage, as represented to the consumer, is now available, in excess of any liability coverage, for payment of damages sustained by an insured in an accident. There is now nothing which is nonexistent or illusory about that coverage.

¶ 51 Further, the Hardys insured more than one vehicle and more than one driver under the policy. Additional premiums of $8 and $9 were assessed by Progressive for underinsured coverage on the Hardys' second and third vehicles to underwrite the costs associated with the additional risks Progressive was undertaking on these vehicles. Those additional risks were unrelated to the personal and portable nature of underinsured coverage for the policyholders. Rather, the additional risk is posed by the potential passengers, unnamed under the policy, who could be victims of accidents in those vehicles. The terms of the underinsured coverage specifically define "insured person" more broadly in order to provide coverage to those unnamed passengers. Thus, if the Hardys were involved in separate accidents while carrying passengers, additional claims reasonably could arise beyond those which would be made by the Hardys themselves, and beyond the coverage provided on a single vehicle, providing a legitimate reason for the premium adjustment, and valid consideration for the premiums paid.

¶ 52 In fact, at oral argument, Hardy's counsel acknowledged that had Progressive charged a combined policy premium for this coverage, instead of separate premiums for each vehicle, his claim on this issue would be essentially eliminated. Given the de minimus nature of Hardy's objection, and the valid basis for charging a separate premium, it is completely unnecessary for the Court to engage in a constitutional analysis and declare § 33-23- 203, MCA, to be invalid. I dissent from the Court's decision to do so.

¶ 53 I concur with the Court's conclusion on Issue 3, finding that issue was subsumed within the holding on Issue 1.

Chief Justice KARLA M. GRAY joins in the foregoing concurring and dissenting opinion of Justice RICE.

United States Court of Appeals,

Fifth Circuit.

ILLINOIS CENTRAL RAILROAD COMPANY, Plaintiff,

v.

Ronald L. DUPONT, et al., Defendants.

Fern Sheridan Roshto Dupuy Connor, etc., et al., Plaintiffs,

v.

Canadian National/Illinois Central Railroad, et al., Defendants,

Illinois Central Railroad Company, Defendant-Appellant,

v.

Underwriters Insurance Company, Defendant-Appellee.

April 1, 2003.

REAVLEY, Circuit Judge:

In this insurance coverage dispute, appellee Illinois Central Railroad Co. (the Railroad) argues that an insurance policy issued by appellant Underwriters Insurance Co. (Underwriters) should be deemed to include an endorsement pertinent to a regulation of the motor carrier insured. The district court disagreed, and granted summary judgment in favor of Underwriters. We affirm.

BACKGROUND

The Railroad sued Denmar Logging, Inc., (Denmar) a Louisiana logging company, after an accident in which one of Denmar's contract drivers collided with a Railroad train. The accident occurred in Louisiana, on a planned trip from a logging site in Mississippi to a paper mill in Louisiana. Ronald Dupont was driving the truck involved in the collision. At the time Dupont was hauling logs for Denmar but was driving his own truck. [FN1]

FN1. The Railroad argues that Dupont was a Denmar employee rather than an independent contractor, but we do not reach this issue.

Underwriters issued the business automobile insurance policy in issue to Denmar. Underwriters intervened in this suit, seeking a declaratory judgment that its policy did not cover the accident. It moved for summary judgment on grounds that the policy only covered one truck that was owned by Denmar and was not involved in the accident. We agree with Underwriters that the policy as written plainly did not cover the accident for this reason.

The Railroad argued below that, by virtue of the Motor Carrier Act of 1980 and a regulation promulgated thereunder, Denmar was required to have a special endorsement in its insurance policy, providing that the insurer will pay within policy limits any judgment recovered against the insured motor carrier for liability resulting from the carrier's negligence, whether or not the vehicle involved in the accident is specifically described in the policy. This endorsement is known as the MCS-90 endorsement.[ FN2] "Basically, the MCS-90 makes the insurer liable to third parties for any liability resulting from the negligent use of any motor vehicle by the insured, even if the vehicle is not covered under the insurance policy." [FN3] The Railroad argued that the endorsement should be deemed a part of the policy because of the regulation.

FN2. The MCS-90 endorsement, set out at 49 C.F.R. § 387.15 (2002), states in part:

In consideration of the premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere.

FN3. T.H.E. Ins. Co. v. Larsen Intermodal Servs., Inc., 242 F.3d 667, 671 (5th Cir.2001).

A section of the Title 49 provides that neither the Secretary of Transportation nor the Surface Transportation Board (which assumed certain responsibilities of the defunct Interstate Commerce Commission) has jurisdiction over transportation by motor vehicle of "agricultural or horticultural commodities (other than manufactured products thereof)." [FN4] The district court held that the regulation requiring the MCS-90 endorsement did not apply to Denmar's logging operations because trees and logs are agricultural or horticultural commodities. It further held that if Denmar was required to have the MCS-90 endorsement, it failed to obtain the endorsement and was therefore subject to a fine, but that Underwriters could not be held liable for failing to include the endorsement, since there is no federal remedy imposing such a liability on Underwriters.

FN4. 49 U.S.C. § 13506(a)(6)(B).

DISCUSSION

We need not decide whether the MCS-90 regulation is inapplicable to the accident because of the statutory exemption for agricultural commodities. We note briefly that logs might well fall within the definition of an agricultural commodity applicable to the statutory exemption. [FN5] There are, however additional issues of statutory construction as to whether this agricultural exemption applies to the MCS-90 regulation, [FN6] and whether the MCS-90 regulation applies to a logging company like Denmar. [FN7] We simply posit, without resolving, these issues in the margin.

FN5. The exemption applies to transportation by motor vehicle of "agricultural or horticultural commodities (other than manufactured products thereof)." 49 U.S.C. § 13506(a)(6)(B). A regulation interpreting this exemption, 49 C.F.R. § 372.115 (2002), provides that "Trees: Sawed into lumber" are manufactured products which are not exempt. Were we required to decide the issue, we might well agree with the district court that trees which have simply been cut down for hauling are agricultural commodities and are not "manufactured products thereof," since we might conclude that raw timber is not the same as trees which have been "sawed into lumber" under the regulation.

FN6. The MCS-90 regulation was promulgated by the Secretary of Transportation. Under 49 U.S.C. § 13506(a), the Secretary has no jurisdiction "under this part" to regulate the transportation by motor vehicle of agricultural commodities. This exemption is found in Subtitle IV of Title 49, titled "Interstate Transportation," and Part B of this subtitle covers "Motor Carriers" and other vehicles. If the MCS-90 regulation was promulgated under the Secretary's authority to "prescribe regulations in carrying out this part" granted in a provision of Part B of Subtitle IV, 49 U.S.C. § 13301(a), and § 13506 of the same Part states that the Secretary has no jurisdiction to regulate the motor vehicle transportation of agricultural commodities, then the district court was correct in its analysis. However, the Railroad points out that a different subtitle of Title 49, Subtitle VI, titled "Motor Vehicle and Driver Programs," has its own Part B, titled "Commercial." A provision found in this part, 49 U.S.C. § 31139(b), provides that the Secretary "shall prescribe regulations to require minimum levels of financial responsibility...." The Railroad may be correct in arguing that the MCS-90 regulation was promulgated under this Subtitle, which does not contain an agricultural exemption. The MCS-90 regulation is contained in Part 387 of Title 49 of the Code of Federal Regulations, setting out regulations for "Minimum Levels of Financial Responsibility for Motor Carriers," which suggests that it is part of a regulatory package to implement Subtitle VI's financial responsibility section. The Railroad's position is supported by the Eighth Circuit's analysis in Century Indem. Co. v. Carlson, 133 F.3d 591 (8th Cir.1998), which held that "[t]he MCS-90 endorsement applies notwithstanding that an interstate motor carrier transported an agricultural commodity." Id. at 600. The court concluded that the agricultural commodity exemption was a limitation on the jurisdiction of the Interstate Commerce Commission, while the MCS-90 regulation was promulgated under the broader jurisdiction of the Department of Transportation to impose financial responsibility standards, granted in section 30 of the Motor Carrier Act of 1980 and codified at 49 U.S.C. § 31119. Carlson, 133 F.3d at 599-600.

FN7. Even if the the financial responsibility regulations which include the MCS-90 endorsement are not subject to the statutory exemption for agricultural commodities, they might not apply to Denmar. The Railroad states in its opening brief that "Denmar is a Louisiana corporation that operates solely in the logging business." The president of Denmar testified in his deposition that "I work for an independent forester; he gets the tract of timber; I go to it, start cutting, haul it to ABC, whatever, the mill. But I do not have a contract." Whether Denmar had title to the logs at the time of the accident is unclear from the record. The MCS-90 regulation might not be applicable to a logging company that was hauling its own logs to a paper mill. Section 31139--the financial responsibility statute discussed above--by its terms applies to the interstate "transportation of property for compensation." 49 U.S.C. § 31119(b) (emphasis added). It therefore appears to apply to carriers who transport the goods of another. The regulations comprising Part 387 of 49 C.F.R., regulations which arguably implement section 31119 and contain the MCS-90 endorsement, state that they apply to (1) carriers transporting certain hazardous materials and "for-hire motor carriers," (2) operating in interstate or foreign commerce, and (3) weighing over 10,000 pounds. See 49 C.F.R. § 387.3 (2002) (emphasis added). "For-hire carriage" is defined as "the business of transporting, for compensation, the goods or property of another." Id. § 387.5 (emphasis added). If Denmar is not in the business of transporting the goods of another for compensation, and is instead a private carrier who hauls its own logs, the MCS-90 regulation might not apply to its business.

Regardless, we agree with the district court that, as an alternative basis for summary judgment, the failure to include the endorsement in the policy cannot give rise to the remedy the Railroad seeks, namely a reformation of the policy deeming the endorsement to be a part of the policy.

Even if Denmar was hauling a non-exempt product, and was otherwise required to have the MCS-90 endorsement in its vehicle insurance policy, its failure to obtain such an endorsement does not make Underwriters liable. The Underwriters policy as written did not contain the endorsement. We reject the Railroad's argument that, since Denmar was required to have the endorsement, the policy should be read as automatically including the endorsement.

The regulations requiring the endorsement are directed at the motor carrier, not its insurer. They state that they prescribe "the minimum levels of financial responsibility required to be maintained by motor carriers," [FN8] and that "[p]roof of the required financial responsibility" that includes the MCS-90 endorsement "shall be maintained at the motor carrier's principal place of business." [FN9] The regulations place responsibility on the motor carriers, not their insurers, as one would expect of regulations promulgated by the Secretary of Transportation pursuant to her authority to regulate motor carriers. Further, as the district court noted, the sanction prescribed in the relevant regulation for failure to carry the required insurance is a fine against the "person ... who knowingly violates" the financial responsibility rules. [FN10]

FN8. 49 C.F.R. § 387.1 (2002).

FN9. Id. § 387.7(d).

FN10. Id. § 387.17 (2002); see also 49 U.S.C. § 31139(f).

Since the regulations requiring the MCS-90 endorsement are directed at the motor carrier, we do not read them as imposing a duty on the insurer to make sure that non-exempt motor carriers secure the required insurance. In short, the Railroad seeks the wrong remedy against the wrong party.

The Railroad argues that as a matter of public policy the endorsement should be deemed a part of the policy. Assuming that public policy concerns should inform our analysis, we first question the fairness of placing a duty on insurance companies to determine whether an insured is a motor carrier for hire, who engages in the interstate shipment of non-exempt goods, using non- exempt vehicles, and is otherwise subject to the Motor Carrier Act and its complex regulations. The motor carrier is in the best position to know the nature of its business and the legal requirements for conducting that business.

Second, holding that the MCS-90 endorsement is automatically a part of the policy whether or not a motor carrier requested or paid for such an endorsement would create a perverse incentive. Motor carriers then would have an incentive not to comply with the regulations and obtain the endorsement and pay the additional premium associated with it, knowing that the courts would deem the endorsement part of the policy whether or not it was requested by the carrier.

The Railroad cites a Sixth Circuit case [FN11] in support of its contention that as a matter of law the MCS-90 endorsement should be incorporated into the policy, even if it is not physically attached to the policy. That case involved a dispute about which of two policies covering an accident was the primary policy. The court noted that one of the insurers conceded that the MCS-90 endorsement was incorporated into its policy as a matter of law even though it was not attached to the policy, [FN12] and therefore the court was not called upon to decide the issue here.

FN11. Prestige Cas. Co. v. Mich. Mut. Ins. Co., 99 F.3d 1340 (6th Cir.1996).

FN12. Id. at 1348 n. 6.

AFFIRMED.

United States Court of Appeals,

Ninth Circuit.

KING JEWELRY, INC., Plaintiff-Appellant,

v.

FEDERAL EXPRESS CORPORATION, Defendant-Appellee.

Argued and Submitted Dec. 4, 2002.

Filed Jan. 16, 2003.

T.G. NELSON, Circuit Judge.

King Jewelry, Inc. ("King Jewelry") appeals the grant of partial summary judgment limiting Federal Express Corporation's ("Federal Express") liability for damage to a shipment of candelabra. We affirm because we find that: (1) the district court [FN1] appropriately found that the candelabra were "items of extraordinary value" as defined in the contract; (2) federal common law governs the limited liability provision; and (3) Federal Express complied with the released valuation doctrine and successfully limited its liability to $500.00 per crate. However, because Federal Express concedes that it should return the excess valuation charge King Jewelry paid, we modify the damages accordingly.

FN1. The parties consented to proceed before a magistrate judge. We use the term "district court" for convenience.

I. FACTS AND PROCEDURAL HISTORY

This case arises from damage caused to a shipment of candelabra when Federal Express transported them from Florida to California. King Jewelry contracted with a professional packager, Raymie's, in Florida to package and ship the candelabra to California. The candelabra were valued at $37,000.00.

After discussing the shipment with several other companies who refused to ship such a high value item, Raymie's contacted Federal Express. Raymie's asserts that the Federal Express agent advised him that he could pay an extra $185.00 for the declared value of $37,000.00 after Raymie's advised the agent that the items included fragile marble and bronze statuary.

On February 5, 2000, Raymie's paid Federal Express $710.73 to ship the three crates containing the candelabra, declaring a value of $37,000.00. Directly under the section that includes the declared value, the Federal Express airbill states "[w]hen declaring a value higher than $100 per shipment, you pay an additional charge. See SERVICE CONDITIONS, DECLARED VALUE AND LIMIT OF LIABILITY section for further information." The service conditions section provides that "[b]y using this airbill, you agree to the service conditions in our current Service Guide ... available on request. SEE BACK OF SENDER'S COPY OF THIS AIRBILL FOR INFORMATION AND ADDITIONAL TERMS." The airbill further states: "No one is authorized to change the terms of our Agreement," [FN2] and that, in case of a conflict between the airbill and the Service Guide, the Service Guide will control. In the declared value limits section, the airbill provides that the highest declared value allowed is $50,000.00, except for items of extraordinary value, in which case the highest declared value allowed is $500.00. [FN3]

FN2. The Service Guide provides that only the Senior Vice President of Marketing and Corporate Communications may modify the agreement. However, the Service Guide allows modifications "applicable to a single customer and included in a FedEx Sales or FedEx Customer Automation Agreement." This provision does not state that the contract may be modified with respect to a single customer by the terms in a Federal Express airbill.

FN3. The Service Guide provides that any attempt to declare a higher value is null and void.

Both the airbill and the Service Guide contain definitions of "items of extraordinary value." The airbill provides: "Items of 'extraordinary value' include shipments containing such items as artwork, jewelry, furs, precious metals, negotiable instruments, and other items listed in our Service Guide." The Service Guide's definition of extraordinary value items includes: "[a]rtwork, including any work created or developed by the application of skill, taste or creative talent for sale, display or collection [including] but ... not limited to" vases, fine art, statuary, sculpture, collectors' items, and other items particularly susceptible to damage or whose value is difficult to determine; "[a]ntiques, any commodity which exhibits the style or fashion of a past era and whose history, age or rarity contributes to its value [including] but ... not limited to" furniture, tableware, glassware, and collectors' items; and "[g]lassware, including, but not limited to, signs, mirrors, ceramics, porcelains, china, crystal, glass, framed glass, and any other commodity with similarly fragile qualities."

When the candelabra arrived damaged, King Jewelry filed suit in California state court for breach of contract, violation of the insurance code, and tortious breach of an insurance contract. Federal Express removed the case to federal court.

Federal Express moved for partial summary judgment, seeking to limit its liability to $500.00 per crate. King Jewelry disputed that the candelabra qualified as items of extraordinary value. In support of its motion, Federal Express submitted deposition testimony from the owner of King Jewelry that he purchased the candelabra at a jewelry and antique show. The owner, in the same deposition, described the items as statues made of marble and bronze. In opposition to the partial summary judgment motion, King Jewelry submitted the statement of the shipper, describing the items as "a pair of statues made of marble and bronze." King Jewelry also submitted a statement from an antique dealer stating that the candelabra were not antiques but were "high quality and beautiful candelabras [sic] handmade from the finest white marble with 24 karate gold-wash handmade bronze, valued at approximately $40,000.00."

The district court granted partial summary judgment in favor of Federal Express. The court found that Federal Express's liability for damage to goods shipped in interstate transit was governed by federal common law. Therefore, the court held that the airbill and Service Guide comprised the contract between the parties. The court then held that the airbill and Service Guide, in accordance with the requirements of federal common law, provided reasonable notice to King Jewelry of the limits on liability and a fair opportunity to choose higher liability coverage. Finally, the court rejected King Jewelry's argument that the items did not qualify as items of extraordinary value.

II. JURISDICTION AND STANDARD OF REVIEW

Because King Jewelry timely appealed the grant of partial summary judgment to Federal Express, we have jurisdiction pursuant to 28 U.S.C. § 1291. We review a grant of partial summary judgment de novo. [FN4] We affirm a grant of partial summary judgment if there were no genuine disputes of material fact and the court correctly applied the relevant substantive law. [FN5]

FN4. Delta Sav. Bank v. United States, 265 F.3d 1017, 1021 (9th Cir.2001), cert. denied, 534 U.S. 1082, 122 S.Ct. 816, 151 L.Ed.2d 700 (2002).

FN5. Oliver v. Keller, 289 F.3d 623, 626 (9th Cir.2002).

III. DISCUSSION

King Jewelry makes a series of arguments in an attempt to recover the full value of the candelabra from Federal Express. It first argues that the candelabra are not "items of extraordinary value" as defined in the contract and, therefore, that the $500.00 per crate limit included in the contract simply does not apply. Second, it contends that, even if the candelabra are "items of extraordinary value," the parties modified the contract pursuant to California law to eliminate the $500.00 per crate limit. Finally, it urges that, should we disagree with both of its previous arguments, Federal Express failed to comport with the requirements of federal common law in order to successfully limit its liability.

Were we to accept any one of King Jewelry's contentions, we would need to reverse; therefore, we must address each argument in order to dispose of King Jewelry's claim. We hold that the district court properly concluded that: (1) the candelabra were "items of extraordinary value"; (2) federal common law governs the limited liability provision; and (3) Federal Express complied with the requirements of federal law and successfully limited its liability.

A. The district court properly concluded that the candelabra were "items of extraordinary value" as defined by the contract.

The district court correctly concluded that the candelabra fell within the definition of "items of extraordinary value" as provided in the airbill and the Service Guide, which form the contract between the parties. [FN6] King Jewelry contends that the district court relied upon inadmissible and disputed facts. On the contrary, the record shows that the court did not use the disputed facts to come to its conclusion. The district court properly relied upon a variety of factors, including the owner of King Jewelry's own description of the candelabra as statues in his deposition, to conclude that the candelabra were items of extraordinary value. It did not rely upon the disputed fact that the candelabra were antiques. The description of "items of extraordinary value" in the contract explicitly includes statuary. Because the candelabra were items of extraordinary value, the contract limited Federal Express's liability for damage.

FN6. Courts look to the airbill's terms to find the terms of the agreement. See Read-Rite Corp. v. Burlington Air Express Ltd., 186 F.3d 1190, 1199 (9th Cir.1999) (examining airbill's terms to "establish [the contract's] liability scheme").

B. Federal common law governs the limitation of liability provision of the contract.

King Jewelry next contends that the parties modified the terms of the contract pursuant to California law. [FN7] However, pursuant to the Airline Deregulation Act ("the Act"), federal common law governs contractual clauses that limit interstate carriers' liability for damage to goods shipped by air. [FN8]

FN7. Even if we were to conclude that the parties' actions could modify the contract, it is unclear why California law would govern because the agreement was entered into in Florida, between Federal Express and a Florida entity, and the candelabra were shipped from Florida.

FN8. Wayne v. DHL Wordwide [sic] Express, 294 F.3d 1179, 1185 (9th Cir.2002) (describing the Act's savings clause that applies "federal common law to claims for loss of or damage to goods by interstate common carriers by air"). The Act also precludes application of state law because the modification that King Jewelry seeks to impose pertains directly to the services Federal Express offers. See Charas v. Trans World Airlines, Inc., 160 F.3d 1259, 1261 (9th Cir.1998) (en banc) (concluding that the Act preempts state laws relating to things like the prices of services), as amended by 169 F.3d 594 (9th Cir.1999) (en banc).

The released valuation doctrine, a federal common law creation, delineates what a carrier must do to limit its liability. [FN9] Federal law governs limited liability provisions like the one that King Jewelry tried to modify. [FN10] Accordingly, King Jewelry's reliance on California law is misplaced.

FN9. Wayne, 294 F.3d at 1184.

FN10. See Read-Rite, 186 F.3d at 1195 (holding that federal common law governs the construction of the airbills); see also id. at 1197 ("[W]e agree with the Fifth Circuit that state law regulating the scope of air carrier liability for loss or damage to cargo is preempted by the [Act]."). To hold otherwise would undermine the goal of a "nationally uniform policy governing interstate carriers' liability for property loss," N.Y., N.H. & Hartford R. Co. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953), by allowing various state law contract schemes to alter the carriers' obligations under standard contracts.

Neither American Airlines, Inc. v. Wolens [FN11] nor Read-Rite Corp. v. Burlington Air Express [FN12] change this conclusion. Wolens addressed a different question than that presented in this case: whether the Act preempted the plaintiffs' suit entirely, preventing them from seeking court resolution of their breach of contract claims. [FN13] Federal Express does not contend that the Act preempts King Jewelry's suit, but rather that federal common law governs the liability clause. [FN14] Federal courts already have developed the released valuation doctrine pursuant to the Act's savings clause. [FN15] Therefore, it is not difficult to determine that federal law, not state law, should govern. [FN16]

FN11. 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995).

FN12. 186 F.3d 1190.

FN13. 513 U.S. at 222, 115 S.Ct. 817.

FN14. In Wolens, part of the Supreme Court's rationale in concluding that the Act did not preempt plaintiffs' breach of contract suit was that the Act does not require federal courts to fashion federal common law to govern all aspects of these contract disputes. Id. at 232., 115 S.Ct. 817

FN15. See Wayne, 294 F.3d at 1184-85.

FN16. Cf. Wolens, 513 U.S. at 233, 115 S.Ct. 817 ("[The] distinction between what the State dictates and what the airline itself undertakes confines courts, in breach-of-contract actions, to the parties' bargain, with no enlargement or enhancement based on state laws or policies external to the agreement.") (emphasis added).

Similarly, Read-Rite did not use state law to alter the terms of the airbill that governed the parties' agreement. [FN17] Read-Rite reemphasized what Wolens had already established: courts must use the released valuation doctrine to evaluate limited liability clauses in carrier contracts, but the Act does not preempt contract claims premised upon state law that do not attempt to alter the scope of carriers' liability for lost or damaged goods. [FN18] Thus, we hold that the district court appropriately refused to allow King Jewelry to use California law to modify the liability provision.

FN17. Read-Rite, 186 F.3d at 1197.

FN18. Id. at 1195-98. In fact, Read-Rite stated that whether a carrier may contractually limit its liability is not a "routine contract claim, as was presented in Wolens." Id. (internal quotation marks omitted). Thus, Read-Rite recognized the importance of a uniform federal standard to govern limitation of liability clauses. Id. at 1197.

C. Federal Express satisfied the released valuation doctrine.

Finally, King Jewelry contends that Federal Express did not comply with the released valuation doctrine. Pursuant to the released valuation doctrine, a carrier may limit its liability if it provides reasonable notice and a fair opportunity to purchase higher liability. [FN19] The airbill and the Service Guide contained prominent notices of the liability limitation in plain language. This clear and prominent notice shifts the burden to King Jewelry to show that it did not have a fair opportunity to purchase greater liability. [FN20]

FN19. Wayne, 294 F.3d at 1184-85.

FN20. Read-Rite, 186 F.3d at 1198; see also Sam L. Majors Jewelers v. ABX, Inc., 117 F.3d 922, 930 (5th Cir.1997) (concluding, in case involving a nearly identical limited liability provision, that the provision provided reasonable notice of the limits on liability).

King Jewelry cannot make this showing because it purchased greater than the minimum liability from Federal Express, thus undermining the idea that it did not have a fair opportunity to do just that. The minimum liability is $100.00, and King Jewelry purchased the maximum available for items of extraordinary value, $500.00. The released valuation doctrine only requires a fair opportunity to purchase a higher liability, not necessarily up to the full value of the item. [FN21] Therefore, the district court appropriately concluded that Federal Express complied with the released valuation doctrine. We hold that the provision limiting Federal Express's liability is valid as a matter of federal common law.

FN21. See Wayne, 294 F.3d at 1184-85; Kemper Ins. Cos. v. Fed. Express Corp., 252 F.3d 509, 513 (1st Cir.) (finding that the fact that the carrier did not offer an option that provided liability at full value does not mean that the option did not provide customers with a fair opportunity to increase liability coverage by paying a higher rate), cert. denied, 534 U.S. 1020, 122 S.Ct. 545, 151 L.Ed.2d 423 (2001).

D. Federal Express should return the excess value charges that King Jewelry paid.

Because we hold that the limitation of liability provision is valid and satisfied the released valuation doctrine, the contract prevented King Jewelry from declaring the value that it attempted to declare on the airbill. Federal Express concedes that to the extent King Jewelry paid Federal Express for excess value protection that it could not receive, Federal Express should return the amount paid. Thus, we amend the district court's judgment to require Federal Express to return the excess value charge in addition to the $500.00 per crate that the district court already imposed.

IV. CONCLUSION

The district court appropriately concluded that the candelabra were "items of extraordinary value." Even the owner of King Jewelry's own deposition testimony supports this conclusion. Federal common law governs limitation of liability clauses pursuant to the Act. Therefore, in order to successfully limit its liability, Federal Express had to provide reasonable notice of its limited liability and a fair opportunity to purchase higher liability. Because we conclude that Federal Express met this obligation, we affirm. As Federal Express conceded, however, it should return the excess value charge paid in Raymie's unsuccessful attempt to declare a $37,000.00 value rather than the $500.00 to which the contract limited it.

The judgment is AMENDED so as to change the amount owed by Federal Express to $1,685.00, and as so amended, it is AFFIRMED.

United States District Court,

D. New Jersey.

PENSKE LOGISTICS, INC., Plaintiff,

v.

KLLM, INC., Defendant.

Sept. 22, 2003.

MEMORANDUM OPINION

WOLIN, District Judge.

This matter is before the Court upon a motion for summary judgment and a cross motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56. Plaintiff Penske Logistics, Inc. ("Plaintiff") filed a motion for summary judgment for indemnification against defendant KLLM, Inc. ("Defendant") based on a contract between the parties. Defendant thereafter filed a cross motion for partial summary judgment, limiting the amount of liability based on the Carmack Amendment, 49 U.S.C. § 14706. This matter is decided upon the written submissions of the parties pursuant to Federal Rule of Civil Procedure 78. For the reasons set forth below the Court will (1) deny Plaintiff's motion for summary judgment, and (2) grant Defendant's cross motion for partial summary judgment.

BACKGROUND

On January 1, 1991, Pepsico and Goldstar, a wholly owned subsidiary of Plaintiff, entered into a Transportation Agreement, ("Pepsico Agreement"), whereby Plaintiff agreed to transport Pepsi product. The Pepsico Agreement provided that each transportation was to be accompanied by a receipt, also known as a Bill of Lading, and that in the event there was any conflict between the Bill of Lading and the Pepsico Agreement, the Pepsico Agreement would prevail. In addition, the Pepsico Agreement provided that Penske would be liable "for any loss or damage to any Commodity of Shipper ... to the extent such loss or damage is proximately caused by the negligence of Carrier, its employees, agents or subhaulers."

On July 1, 1998, Plaintiff and Defendant entered into a Transportation Agreement, ("KLLM Agreement"), whereby Defendant agreed to transport goods "consigned by one or more shippers represented by Penske." In the KLLM Agreement, as well as on the Bills of Lading, Penske is designated as a "shipper." Similar to the Pepsico agreement, the KLLM Agreement provided that each transportation made be accompanied by a receipt, or Bill of Lading, and that in the event of an inconsistency between the Bill of Lading and the KLLM Agreement, the KLLM Agreement prevailed.

In addition, the KLLM Agreement contained the following relevant provisions:

Cargo Loss. Carrier will be liable, as a common carrier, for all loss or damage to the Goods occurring while in Carrier's care, custody or control and will respond to all claims for loss or damage to the Goods in accordance with the provisions of 49 U.S.C. 14706 and 49 CFR Part 1005.

Contract Carriage. All Services will be provided as "contract carriage" within the meaning of 49 U.S.C. § 13102(4)(B), and Penske and Carrier each expressly waive all rights and remedies they may have as to each other, and Carrier expressly waives all rights and remedies it may have as to any shipper of Goods hereunder, under 49 U.S.C., Subtitle IV, Part B (excluding §§ 13703, 13706, 14101 and 14103) to the extent that such rights and remedies conflict with the terms of this Agreement and as permitted by 49 U.S.C. § 14101(b)(1), each as amended from time to time. Except as otherwise stated in this Agreement, neither party waives any rights or remedies it may have as to any third party.

Indemnification. Carrier will defend, indemnify and hold harmless Penske and any Shipper served under this Agreement and each of their respective employees, agents and affiliates from and against all claims, liabilities, losses, damages, fines, penalties, payments, costs, expenses and reasonable legal fees, resulting from bodily injury or property damage caused by the acts or omissions of Carrier, its employees or agents, in their respective performance of the Service, or Carrier's failure to comply with its obligations under this Agreement, except to the extent that such injury or damage is caused by Penske's or the Shipper's negligence.

On May 8, 2000, Defendant undertook the transportation of three shipments of Pepsi product from Plaintiff's Edison, New Jersey facility. Three Bills of Lading were issued to Defendant with Plaintiff listed as the shipper; numbers 60869 and 60870 were for delivery to West Virginia, and number 60871 for delivery to Ohio. Number 60871 included fifty-seven pieces of Mountain Dew concentrate and stated on its Bill of Lading that the product be kept at forty degrees Fahrenheit, as well as the notation, "[t]he agreed or declared value of the property is hereby specifically stated by the shipper to be not exceeding $1.50 per pound."

When Defendant's driver, Luz Marie Tehrani, arrived at the Ohio location, the Warehouse Supervisor, Brian Shope, a Pepsico employee, noticed that the refrigeration unit was not on in Tehrani's truck. Tehrani admits that the refrigeration unit had not been on since her first stop in West Virginia. Based on this, the shipment was rejected and later destroyed by Pepsico.

Defendant admits that it is the driver's responsibility to turn the refrigeration unit on and off when necessary and that there were no reported problems with the refrigeration unit in Tehrani's truck on the day of the delivery. While the truck did have a mechanism which would provide a readout of the temperatures inside the truck, Defendant's attempt to download that information was unsuccessful. Plaintiff did not take a temperature reading of the truck or inspect the product for spoilage. Instead Plaintiff, through the Pepsico representative at the Ohio destination, engaged in a visual examination in making its determination to reject the goods.

The Bills of Lading were prepared by Pepsico and Plaintiff. Pepsico provided the information to Plaintiff who then filled it in and printed out the form. Defendant has transported many shipments both before and after the shipment in question, all with the Bills of Lading having pre-printed language declaring the product value not to exceed $1.50 per pound. Defendant's representative, Mat Tallant stated in his deposition that a rate schedule was prepared and given to Plaintiff but that he was unsure whether Plaintiff had it at the time of the incident.

On June 12, 2000, Pepsico made a claim for reimbursement of the destroyed product and Plaintiff reimbursed Pepsico in the amount of $59,283.03. Plaintiff then sought reimbursement from Defendant for the same amount based on the Indemnity provision of the KLLM Agreement. Defendant refused, and this lawsuit ensued.

ANALYSIS

Plaintiff moves for summary judgment on its claim for indemnification and Defendant moves for partial summary judgment for a limitation of their liability. To prevail on a motion for summary judgment, the moving party must establish that "there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

When considering a motion for summary judgment, all evidence submitted must be viewed in the light most favorable to the nonmoving party. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-32, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Elec. Indus., Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The burden of showing that no genuine issue of material fact exists rests initially with the moving party. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). Once that party submits a properly supported motion, the burden shifts to the non-moving party to demonstrate the existence of a genuine dispute. See Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

To make that showing, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. The non-moving party must come forward with "specific facts showing that there is a triable issue." Fed.R.Civ.P. 56(e). "[T]he mere existence of a scintilla of evidence in support of the [nonmovant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson, 477 U.S. at 252, 106 S.Ct. 2505. Further, if "the evidence [submitted by the nonmovant] is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. 2505.

A factual dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Thus, "[s]ummary judgment may present the district court with an opportunity to dispose of meritless cases and avoid wasteful trials." Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1366 (3d Cir.1996).

In a motion for summary judgment where the issue is one of contract interpretation, summary judgment is only proper where the contract is clear and unambiguous as a matter of law, meaning that the contract can be read only one way. Starr v. Katz, 1994 WL 548209, at (D.N.J. Oct. 5, 1994). If an ambiguity is found then summary judgment is precluded because the ambiguity creates a question of fact only a factfinder can resolve. Id. In evaluating whether a contract is ambiguous a court should not "torture the language of a contract to create ambiguity where, fairly considered, none exists." Id. Instead, the court considers the words used in the contract as well as counsel's suggested alternative meanings, supported by extrinsic evidence. Id. If a reasonable inference in the nonmovant's favor regarding the interpretation of a contract can be found from any evidence, regardless of source, then summary judgment cannot be granted. Vanguard Telecomm., Inc. v. Southern New England Tel. Co., 722 F.Supp. 1166, 1178 (D.N.J.1989).

A. PLAINTIFF'S MOTION FOR DETERMINATION OF LIABILITY BY DEFENDANT FOR DAMAGE TO THE GOODS

Plaintiff contends that Defendant's act of not keeping the refrigeration unit operating in the truck damaged the Mountain Dew concentrate. Defendant claims that Plaintiff has not presented enough evidence to infer damage.

The Carmack Amendment to the Interstate Commerce Act created a "nationally uniform policy governing interstate carriers' liability for property loss." A.T. Clayton & Co. v. Missouri-Kan.-Tex.R.R. Co., 901 F.2d 833, 834 (10 Cir.1990) (quoting New York, New Haven and Hartford R.R. Co. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953)). Under the statute, in order for a plaintiff to prove liability before recovering the actual value of goods, the following three elements must be shown: "(1) delivery of the goods to the initial carrier in good condition, (2) damage of the goods before delivery to their final destination, and (3) the amount of damages." Beta Spawn, Inc. v. FFE Transportation Services, Inc. 250 F.3d 218, 223 (3d Cir.2001) (quoting Conair Corp. v. Old Dominion Freight Line, Inc. 22 F.3d 529, 531 (3d Cir.1994)). In establishing what type of condition the goods arrived in, a claimant must provide reliable evidence, direct or circumstantial, that proves the condition of the goods by a preponderance of the evidence. Beta Spawn, 250 F.3d at 225.

Here, Plaintiff has not provided any direct evidence, such as actual testing of the product, nor any circumstantial evidence, such as the outside temperature on the day of the delivery. Plaintiff's only offer of proof is Tehrani's admission that the refrigeration unit was not on since her first stop and this does not shed any light on whether not having the refrigeration unit on actually damaged the product. Plaintiff has failed to show by a preponderance of the evidence that Defendant's act resulted in property damage for which the Cargo Loss provision found in the KLLM Agreement can be invoked. Therefore, Plaintiff's motion for summary judgment as to this point is denied.

B. PLAINTIFF'S CLAIM FOR INDEMNIFICATION AND DEFENDANT'S CROSS CLAIM TO LIMIT LIABILITY.

Under the Carmack Amendment, the liability imposed is for the "actual loss or injury to the property." 49 U.S.C. § 14706(a). An exception exists, hereinafter referred to as the release rate exception, which allows a carrier to limit its liability "to a value established by written or electronic declaration of the shipper or by written agreement between the carrier and shipper if that value would be reasonable under the circumstances surrounding the transportation." 49 U.S.C. § 14706(c)(1)(A).

This written declaration can be a receipt or bill of lading. The bill of lading "operates as both the receipt and the basic transportation contract between the shipper/consignor and the carrier, and its terms and conditions are binding." EF Operating Corp. v. American Bldgs., 993 F.2d 1046, 1050 (3d Cir.1993). Because the bill of lading is a contract, it is subject to the general principles of contract law. Id.

To invoke the release rate exception, a carrier must show that (1) a "valid written contract between the parties [established] a reasonable value," Siren, Inc. v. Estes Express Lines, 249 F.3d 1268, 1270 (11th Cir.2001), (2) a tariff was available to the shipper, and (3) a copy was presented to the shipper if requested, Nieman Marcus Group, Inc. v. Quast Transfer, Inc., 1999 WL 436589 at (N.D.Ill. June 21, 1999). The Eleventh Circuit has recently stated that a carrier is also required to "give the shipper a reasonable opportunity to choose between different levels of liability," Sassy Doll Creations, Inc. v. Watkins Motor Lines, Inc., 331 F.3d 834, 842 (11th Cir.2003). However, where a shipper, rather than the carrier, drafts the bill of lading and chooses the release rate, the limitation of liability rate found on the bill of lading will be enforced against the shipper. Siren, 249 F.3d at 1274; American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 314 (3d Cir.1992).

Under the Carmack Amendment, a shipper and carrier are further allowed to "expressly waive any or all rights and remedies" if in writing, and such contract "may not be subsequently challenged on the ground that it violates the waived rights and remedies." 49 U.S.C. § 14101(b)(1). This section shall hereinafter be referred to as the "waiver" provision.

As an initial matter, the parties dispute whether the waiver section was sufficiently invoked, that is, whether the KLLM Agreement successfully contracted around the provisions of the Carmack Amendment. Plaintiff argues that the attempted waiver found in the Contract Carriage section of the KLLM Agreement is effective and therefore Defendant cannot utilize the release rate exception of the Carmack Amendment as a "right or remedy." Plaintiff's position is that the Indemnification provision of the KLLM Agreement prevails over the release rate exception and that Defendant should reimburse Plaintiff for $59,283.03, the full amount that Plaintiff paid to Pepsico. Defendant contends that the KLLM Agreement did not successfully contract around the Carmack Amendment and if found liable, recovery is limited to $6,859.50 (4,573 pounds at $1.50) under the release rate exception. According to Defendant, the Contract Carriage Provision does not explicitly refer to the release rate exception as one of the "rights or remedies" that is waived and because the Cargo Loss provision does specifically refer to 49 U.S.C. § 14706, which contains the release rate exception, the exception is applicable.

The limitation of liability language found in the Bill of Lading is applicable to limit Defendant's liability whether this issue is construed as one of classic contract interpretation or as within the provisions of the Carmack Amendment. Therefore the Court makes no determination of whether the Contract Carriage provision in the KLLM Agreement conforms to the requirements of the Carmack Amendment's waiver provision.

Where a contract makes reference to another document, the two writings are considered a single instrument. 11 Richard A. Lord, Williston on Contracts § 30:25 (4th ed.1999); United Rubber, Cork, Linoleum and Plastic Workers of America, AFL-CIO, Local 102 v. Lee Rubber & Tire Corp., 269 F.Supp. 708 (D.N.J.1967), aff'd, 394 F.2d 362 (3d Cir.1968). Under the principles of contract interpretation, a contract should not be given an interpretation which renders a term or terms superfluous or meaningless. Williston on Contracts, § 32:11; GNB Battery Tech., Inc. v. Gould, Inc. 65 F.3d 615, 622 (7th Cir.1995) ("A contractual interpretation that gives reasonable meaning to all terms in an agreement is preferable to an interpretation which gives no effect to some terms"); Garza v. Marine Transport Lines, Inc., 861 F.2d 23, 27 (2d Cir.1988).

There are two contracts here, the KLLM Agreement, which contains the Cargo Loss, Contract Carrier, and Indemnification provisions quoted above, and the Bill of Lading, which contains the limitation of liability language that sets the value of the goods at $1.50 per pound. The KLLM Agreement incorporates the Bill of Lading by reference in section two, Receipts, which requires each movement of goods to be "evidenced by a written receipt."

In evaluating the two contracts as a single instrument, there stands only one reasonable reading of the four provisions at issue. The Cargo Loss and Indemnification provisions can be read in two ways, each rendering the same result. The Cargo Loss provision can be read as limiting the amount of indemnity under the Indemnification provision. Another reading would be that the Cargo Loss provision is applicable only in the event of "loss or damage to the Goods," while the Indemnification provision is applicable only to "property damage" apart from "Goods." Regardless of which reading, the Cargo Loss provision acts as a limitation on the amount of recovery and the Bill of Lading properly acts as a limitation of liability by setting forth a recovery value. The Contract Carriage provision is an attempt to contract out of the Carmack Amendment and its validity is immaterial, as discussed earlier. Any other reading of these provisions would render at least one of the provisions superfluous, a result not preferred under principles of contract interpretation.

In the alternative, if this issue were analyzed under the Carmack Amendment then the release rate exception requirements have been met and the limitation of liability found in the bill of lading is still effective. Plaintiff, relying on Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1415, (7th Cir.1987), argues that in order to invoke the release rate exception, a carrier is required to meet a four part test: "(1) maintain a tariff within the prescribed guidelines of the Interstate Commerce Commission; (2) obtain the shipper's agreement as to his choice of liability; (3) give the shipper a reasonable opportunity to chose between two or more levels of liability; and (4) issue a receipt or bill of lading prior to moving the shipment." Plaintiff's reliance is misplaced. The Trucking Industry Regulatory Reform Act of 1994, Pub.L. No. 103-311, tit. II, § 206, 108 Stat. 1673, 1684-85 and the ICC Termination Act of 1995, Pub.L. No. 104-88, tit. I, § 103, ch. 147, sec. 14706, 109 Stat. 803, 907-10, replaced §§ 11707, 10730 with the current § 14706, which no longer requires these four elements. Sassy Doll Creations, Inc. v. Watkins Motor Lines, Inc., 331 F.3d 834, 841 (11th Cir.2003) (acknowledging amendment and change in requirement for carrier to invoke the limitation of liability provision in section 14706).

As previously stated, under the current statutory scheme, the release rate exception is sufficiently invoked where a carrier can show that a written contract establishing a reasonable rate exists and that a tariff was available and given to the shipper upon request. Defendant meets these requirements. First, the Bill of Lading evidences a "valid written contract between the parties," and second, Defendant's representative testified in a deposition that a rate schedule was given to Plaintiff at some point prior to the incident giving rise to this litigation. Plaintiff does not dispute this fact. Finally, because Plaintiff and Pepsico, as shippers, drafted the Bill of Lading and chose the release rate amount, the requirement that a shipper choose between two levels of liability is inapplicable and instead the release rate should be enforced against the shipper draftsman. Therefore Plaintiff's motion for summary judgment as to indemnification is denied and Defendant's cross motion for partial summary to limit their liability is granted.

Defendant also makes the argument that since state and common law claims are preempted by the Carmack Amendment, Plaintiff is unable to bring this suit. It is true that state law claims involving carrier liability for damage to goods in interstate shipment are preempted by the statute. Orlick v. J.D. Carton & Son, Inc., 144 F.Supp.2d 337, 345 (D.N.J.2001). However, this situation is distinguishable because the KLLM Agreement attempts to contract around the provisions of the Carmack Amendment, an attempt that is authorized by the waiver provision of the statute.

CONCLUSION

For the foregoing reasons the Court will deny Plaintiff's motion for summary judgment and grant Defendant's cross motion for partial summary judgment.

An appropriate Order is attached.

ORDER

In accordance with the Court's Memorandum Opinion filed herewith,

It is on this 22d day of September, 2003

ORDERED that Plaintiff's motion for summary judgment is denied and Defendant's cross motion for partial summary judgment is granted.

Supreme Court of Colorado,

En Banc.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Petitioner,

v.

Christina E. KASTNER, Respondent.

Oct. 14, 2003.

Rehearing Denied Oct. 27, 2003. [FN*]

Justice KOURLIS delivered the Opinion of the Court.

In this case, an assailant kidnapped Plaintiff, Christina E. Kastner, took her in her own car to a remote location and sexually assaulted her in the vehicle. Kastner sought coverage from her automobile insurer, State Farm Mutual Automobile Insurance Company (State Farm), for her injuries. State Farm denied coverage and brought a declaratory judgment action against Kastner, seeking a declaration that its automobile insurance policy did not cover the injuries Kastner had suffered from the assault. The trial court determined that there was coverage, and the court of appeals agreed. State Farm Mut. Auto. Ins. v. Kastner, 56 P.3d 1144 (Colo.App.2002). We granted certiorari on the question of whether injuries caused by a sexual assault in an automobile arise out of the operation, maintenance, or use of a motor vehicle for purposes of personal injury protection or uninsured/underinsured automobile insurance coverage.

Resolution of this case requires us to determine whether the injuries associated with the sexual assault are causally related to a "use" of the claimant's motor vehicle. We now hold that (1) where the motor vehicle is being used in a manner reasonably foreseeable at the time the parties contracted for the insurance and (2) the "use" of the vehicle is inextricably linked to the plaintiff's injury, the plaintiff is entitled to recover. Both because we conclude that the use was not reasonably foreseeable and because we conclude that the sexual assault had an insufficient causal nexus with use of the vehicle, we now hold that Kastner's State Farm policy did not cover her injuries. Accordingly, we reverse the court of appeals, and return this case to the trial court with directions to enter summary judgment on State Farm's motion.

I. Facts

This case was submitted on stipulated facts. Those facts disclose that on December 8, 1998, Christina Kastner was shopping at the Citadel Mall in Colorado Springs. When she left the store sometime after 7:30 p.m., it was dark. Her car was parked about ten cars down from the closest parking spot on the east side of the shopping center. The lot was relatively full and there were cars parked on both sides of Kastner's car. Kastner was standing at her car and had unlocked the car door when she saw a male just to the south of her and directly behind her car. She then opened the door to the car and was standing between the car seat and the open door when the male began asking for directions. Kastner believed that the male had been hiding either behind and to the side of her vehicle or behind the vehicle next to hers because she did not notice him until she reached her car.

Kastner had no reason to believe that the male used her vehicle in some way to identify her as a potential victim. As Kastner was responding to the request for directions, the man quickly moved beside her and ordered her to get into the car. She saw something in his hand that she believed to be a knife or gun. Kastner tried to get away from the man by pushing him in the face, but he moved the object toward her and she noticed that the object was a knife. He ordered her to the passenger side of the car, and he grabbed the keys to the car from her hand. She obeyed the man's instructions to get into the front passenger seat of the car, put the seat back and get down as far as possible. The man then entered the driver's side of the car and drove her car from the lot.

He took Kastner to Palmer Park, a wooded park in Colorado Springs. Along the way, he pointed a knife with a 6" to 8" blade at her, yelled at her to stay in the car and threatened to kill her. At Palmer Park, he pulled off the road in an isolated area. He robbed her of $150, and demanded that she disrobe. She opened the passenger door to attempt escape, but was held in by her automatic seatbelts. The man immediately grabbed her by the hair and placed the knife blade on her throat. He then sexually assaulted her in the car with the knife at her back. After the assault, he drove out of Palmer Park and pulled into a liquor store parking lot. He threatened her and her children with bodily harm if she reported the assault, got out of the car and walked away. Kastner immediately drove to the police station to report the incident.

At the time of the incident, Kastner was insured by State Farm Insurance Company under a Personal Injury Protection (PIP) policy that was consistent with the Colorado Auto Accident Reparations Act (the "No Fault Act"), section 10-4-701 et. seq., 3 C.R.S. (2002). The policy also included uninsured/underinsured (UM) motorist coverage pursuant to the Colorado Uninsured Motorist Act, section 10-4-609, 3 C.R.S. (2002). Kastner submitted claims to State Farm for both PIP and UM benefits to compensate her for injuries arising out of the subject incident. State Farm denied the claims.

In pertinent part, the personal injury protection portion of that policy provided that:

We will pay in accordance with the No Fault Act for bodily injury to an insured, caused by an accident resulting from the use or operation of a motor vehicle. (emphasis added)

The uninsured motor vehicle portion of that policy provided that:

We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle. The bodily injury must be caused by an accident arising out of the operation, maintenance or use of an uninsured motor vehicle. (emphasis added)

State Farm brought this action, seeking a declaratory judgment that it had no obligation under the policy. The parties submitted the matter to the trial court on stipulated facts and cross motions for summary judgment. The trial court granted summary judgment for Kastner, concluding that "the victim selection of Kastner after the vehicle door was opened, the use of the reclining passenger seat to prevent Kastner from signaling for help, the use of the vehicle to get to an isolated area and the use of the automatic seatbelts as restraints collectively constitute a causal connection between this vehicle and the assault." State Farm appealed to the court of appeals, which affirmed the trial court, holding that under the facts of this case, there was a sufficient causal connection between the car and the injuries to warrant a finding of coverage under the PIP and UM provisions of the policy. Kastner, 56 P.3d at 1146.

II. Insurance Policies in General

An insurance policy is a contract between the insured and the insurer, and as such, it is to be interpreted according to settled principles of contract law. Allstate Ins. Co. v. Huizar, 52 P.3d 816, 819 (Colo.2002). This general rule, however, has two provisos. First, the contract raises quasi-fiduciary obligations owed by the insurer to the insured. Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.1984). Unlike the ordinary commercial contract where the parties seek to ensure a commercial advantage for themselves, the insurance contract "seeks to obtain some measure of financial security and protection against calamity" for the insured. Id. As a result, the insurer has a common-law duty "not to unreasonably withhold payment of benefits it is obligated to make under the insurance contract." Farmers Group, Inc. v. Williams, 805 P.2d 419, 423 (Colo.1991).

Second, the contract must comply with applicable statutory requirements. Should the contract fail to conform to any statute, it is unenforceable to that extent. Peterman v. State Farm Mut. Ins. Co., 961 P.2d 487, 492 (Colo.1998). While the No Fault Act requires the insurer to provide certain coverage within its policy, this requirement co-exists with its quasi-fiduciary duty not to deny this coverage unreasonably. Williams, 805 P.2d at 423.

Here, we deal with the simple language of a contract, and with the legal implications of that language. Since both the UM and PIP policy provisions are express attempts to conform to statutory requirements, our interpretation of their terms should reflect the overall legislative purpose of the UM and No Fault statutes. See Allstate Ins. Co. v. Parfrey, 830 P.2d 905, 911 (Colo.1992); 7 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 109:17 (3d ed.1995, updated 2003). Consistent with both the legislative declaration and the general purpose of automobile insurance, our previous cases have interpreted the No Fault Act as providing a floor of recovery for the injuries of policy-carriers for the type of risks one would expect an insurance contract to cover. See, e.g., Aetna Cas. & Sur. Co. v. McMichael, 906 P.2d 92, 103 (Colo.1995). Thus, the legislative intent of the statutes controls our interpretation of the policies. See State Farm Mut. Auto. Ins. Co. v. McMillan, 925 P.2d 785, 792 (Colo.1996) ("[S]ection 10-4-609 regulates coverage for injuries caused by uninsured motorists and therefore governs the terms of the insurance contract.") (internal citation omitted).

III. The Use Test

The General Assembly has declared that the purpose of the No Fault Act is to avoid inadequate compensation to victims of automobile accidents; to require registrants of motor vehicles in this state to procure insurance covering legal liability arising out of ownership or use of such vehicles and also providing benefits ... to persons injured in accidents involving such vehicles. 10-4-702, 3 C.R.S. (2002). The Act requires insurers to pay certain expenses related to injuries "arising out of the use or operation of a motor vehicle." 10-4-706(1)(b)(I), 3 C.R.S. (2002). The UM statute, by contrast, does not absolutely mandate coverage but instead requires insurers to provide coverage against uninsured motorists for injuries "arising out of the ownership, maintenance or use of a motor vehicle," unless rejected in writing by the insured. 10-4-609(1)(a), 3 C.R.S. (2002). We have described the legislative intent underlying the UM Act as the General Assembly's desire "to provide compensation for injury caused by an uninsured motorist equal to that obtainable for injury caused by an insured motorist." State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165, 168 (Colo.1993).

At issue in this case is the meaning of the phrase "arising out of the use of a motor vehicle," found in both statutes. As discussed below, we have previously interpreted this phrase in many different settings. Because the language in each statute is virtually identical and because each statute derives from the same legislative purpose, our interpretation of the phrase "arising out of the use of a motor vehicle" applies to both. Compare Trinity Universal Ins. Co. v. Hall, 690 P.2d 227, 230 (Colo.1984) (construing the phrase "arising out of the use ... of a motor vehicle" for purposes of the No Fault Act) and McMichael, 906 P.2d at 102 (citing to Hall and construing the term "use" for purposes of the UM Act) and Kohl v. Union Ins. Co., 731 P.2d 134, 135-36 (Colo.1987) (construing the phrase "on account of the use of a motor vehicle" for purposes of Colorado's liability statute, § 42-7-102, 11 C.R.S. (2002)) with Cung La v. State Farm Auto. Ins., 830 P.2d 1007, 1009-12 (Colo.1992) (construing "arising out of the use" of a motor vehicle for purposes of the UM Act, noting that its meaning must be construed identically to the construction of "arising out of the use" for purposes of the Liability Act, also construing "arising out of the use" of a motor vehicle for purposes of the No Fault Act in the same case, applying the same analysis for both the UM and No Fault provisions).

The terms "use" and "arising out of" are not statutorily defined terms for insurance purposes, and, as we have indicated above, they are not otherwise defined in the insurance contract. Thus, we must look to the intent of the parties at the time of contracting, taking into account any legislative intent that would impact upon the issue. See Nissen, 851 P.2d at 166 ("Our starting point is the plain language of the [insurance] contract and the intent of parties as expressed in that language.").

IV. Standard of Review

We review de novo the court of appeals' decision affirming the trial court's order of summary judgment in favor of the insured, Kastner. West Elk Ranch, L.L.C. v. U.S., 65 P.3d 479, 481 (Colo.2002). This is the appropriate standard of review whenever we consider a lower court's interpretation of our previous cases and Colorado statutes in a summary judgment context. Simpson v. Bijou Irrigation Co., 69 P.3d 50, 58 (Colo.2003). Of course, the factual findings here result from stipulated submissions of the parties, and thus it is the application of the law to those findings that we consider.

V. Analysis

1. Use of the Vehicle

As a threshold matter to recovery under either the uninsured motorist (UM) or personal injury protection (PIP) provisions of a policy, the claimant must show that at the time of the "accident," [FN1] the vehicle was being "used" in a manner "contemplated by the policy in question." Mason v. Celina Mut. Ins. Co., 161 Colo. 442, 444, 423 P.2d 24, 25 (Colo.1967) (quoting 7 Appleman, Insurance Law and Practice § 4317). [FN2] While the parties to an insurance contract may certainly contract for coverage beyond that required by law, Kastner and State Farm did not do so, and Kastner's policy does not define or expand upon "use." Accordingly, we apply the basic rules of insurance contract interpretation. See 7 Russ & Segalla, Couch on Insurance § 109:17 ("[I]t is to be presumed that the parties contracted with the intention of executing a policy satisfying the statutory requirements, and intended to make the contract to carry out its purpose."). Because we construe ambiguities in the insurance contract against the drafter, we will generally find coverage if the use in question is one that the insured claims to have contemplated or intended at the time of contracting for insurance. McMillan, 925 P.2d at 793; see also 8 Russ & Segalla, Couch on Insurance § 119:37 (explaining that a covered use "extends to any activity in utilizing the insured vehicle in the manner intended or contemplated by the insured"). Where the intent of the insured is not clear, McMichael instructs us to determine the covered "use" by looking at all the factual circumstances, "including the particular characteristics of the vehicle and the intention of [both] parties to the insurance contract." McMichael, 906 P.2d at 102. In all cases, however, the "use" in question must inhere in the nature of the insured automobile.

FN1. The question of whether the incident at issue is an "accident" is not before us. We therefore assume without deciding that it would constitute an "accident" for purposes of the No Fault Act, the UM Act, and the insured's policy. See McMillan, 925 P.2d at 793 ("Because [the term] 'caused by an accident' ... is, at best ambiguous ... we adopt the view of a majority of jurisdictions that the determination of whether an 'accident' has occurred should be viewed from the standpoint of the insured.")

FN2. As set forth in Cung La, if the claim is made pursuant to the policy's UM provision, the focus is on the use of the uninsured vehicle. Cung La, 830 P.2d at 1011. Where the claim is brought under the PIP part of the policy, the use of the insured vehicle is what guides the analysis. Id. at 1012.

Our decision in McMichael clarified that "use" is a separate threshold inquiry. In McMichael, we explained that "[t]he first issue we must determine is whether [the claimant] was using an insured vehicle in a manner not foreign to its inherent purpose at the time of the accident." Id. at 101; see also 8 Russ & Segalla, Couch on Insurance § 119:37 ("[T]he concepts of use and legal cause should be analyzed separately, avoiding the traditional proximate cause concepts."). Whatever the use, it must be one that was contemplated by the parties to the insurance contract, and must be "inherent in the nature of the automobile [ ] as such." Mason, 161 Colo. at 444, 423 P.2d at 25 (internal citation omitted).

While "in general, operation of a motor vehicle for transportation purposes would constitute use, our cases demonstrate that use may have a broader meaning." McMichael, 906 P.2d at 102. In McMichael, we stated that to determine "use," "a court must look to the factual circumstances in each case." Id. Yet, even before McMichael, we clarified that "use" of a motor vehicle will include only those uses that are "conceivable" at the time of contracting for insurance and "not foreign to [the vehicle's] inherent purpose." Kohl, 731 P.2d at 136 n. 2.

Some vehicles may have an inherent non-transportation purpose that is plain and obvious to all contracting parties given the nature of the vehicle in question. Thus, McMichael directs us to look for factors that "adequately establish" whether the use in question was "conceivable and foreseeable at the time the parties entered the insurance contract." McMichael, 906 P.2d at 103. Our cases applying the term "use" before McMichael suggested that, unless the insurance contract provides otherwise, the only "conceivable use" not "foreign to [the] inherent purpose" of a non-commercial passenger vehicle is use as a means of transportation.

In Hall, we found use of the vehicle as a refreshment stand was "use" under the No Fault Act. At the time of contracting for insurance in that case, the vehicle was a factory-modified mobile refreshment stand. Hall, 690 P.2d at 231 n. 4. Accordingly, use of the vehicle to serve refreshments was clearly a "conceivable use" inherent in the vehicle's nature and thus both the insured and the insurer assumed the risks associated with that use. In Titan Construction Co. v. Nolf, 183 Colo. 188, 515 P.2d 1123 (Colo.1973), we determined that the unloading and loading of cement from a ready-mix cement truck constituted a "use" within the meaning of a liability-to-third-persons policy provision because such use was inherent in the nature of the vehicle. See Id. at 193-94, 515 P.2d at 1125-26. In McMichael, we concluded that a road construction worker who was sawing concrete barriers in the median of a highway some distance in front of his truck was "using" his vehicle as contemplated by the UM policy. McMichael, 906 P.2d at 103. There, the vehicle was a truck with factory-equipped overhead beacon and emergency flashers. The claimant was using the truck as a barricade and as a warning to cars on the highway when a car accidentally hit him. Id. at 94. Because the truck had emergency warning equipment in place at the time the parties entered into the insurance contract, we concluded that use of the vehicle for warning purposes was "conceivable and foreseeable" at the time of contracting. Id. at 103.

Although the term "use" is broad enough to cover activities beyond mere "transportation," it is not so broad as to include acts that are clearly independent of a vehicle's operation. See 1 No Fault and Uninsured Motorist Automobile Insurance § 9.10[2] (Matthew Bender 1984, updated 2003). In all circumstances, the "use" in question should be one that is "foreseeably identifiable with normal use of a vehicle as a vehicle." 1 Irvin E. Schermer, Automobile Liability Insurance § 7:2[2] (3d ed.1995, updated 2003). While our past cases have not specifically equated "use" with transportation, in situations where the vehicle was a non-commercial passenger vehicle, the focus of the "use" inquiry has undeniably been on its connection to transportation. As these cases suggest, unless articulated otherwise in the policy, the only use of a non-commercial passenger vehicle that is foreseeable or conceivable at the time of contracting for insurance is use as a means of transportation.

In contrast to the commercial vehicles described above, a passenger vehicle has no obvious inherent use apart from its purpose as a mode of transportation. In Mason, we found that merely occupying or sitting in a parked car does not constitute a conceivable "use" for purposes of the insurance contract. Mason, 161 Colo. at 444, 423 P.2d at 24-25. By contrast, in Kohl, we held that transportation (including the loading and unloading) of hunters and their rifles was a conceivable and foreseeable use at the time an insurance policy was signed for a four-wheel drive vehicle. Kohl, 731 P.2d at 136. Finally, in Cung La, we determined that because both the claimant's and assailant's vehicles were proceeding down a highway at the time the assailant shot the claimant, the cars were being "used" as motor vehicles. Cung La, 830 P.2d at 1011.

The conclusion from our cases is, thus, that absent some plain and obvious special purpose, the normal use of the ordinary passenger car is limited to transportation.

Cases from other jurisdictions have articulated the transportation requirement more plainly. Requiring that at the time of the accident the vehicle was being used as a mode of transportation, these states give effect to the intent of their respective No Fault or UM statutes while recognizing the general purpose of contracting for automobile insurance. [FN3] See, e.g., McKenzie v. Auto Club Ins. Ass'n, 458 Mich. 214, 580 N.W.2d 424, 426 (1998) (Interpreting the statutory term "use ... as a motor vehicle," the court held "we are convinced that the clear meaning of this part of the no fault act is that the Legislature intended coverage of injuries resulting from the use of motor vehicles when closely related to their transportational function and only when engaged in that function."); see also Ill. Farmers Ins. Co. v. League of Minn. Cities Ins. Trust, 617 N.W.2d 428, 429 (Minn.Ct.App.2000), (requiring that the vehicle being "used" must be "in the business of transporting persons or property"); see also Commercial Union Assurance Cos. v. Howard, 637 S.W.2d 647, 649 (Ky.1982) ("Basic automobile insurance policies are intended to cover 'driving' the vehicle, not repairing it. This additional field of coverage should be provided for by appropriate policies intended for that particular purpose.").

FN3. While these courts are construing statutes that explicitly require the "use" to be "as a motor vehicle," they are still apposite to the statutes and policies at bar as case law since Mason has required that the use of the automobile be use of the automobile as an automobile. Mason, 161 Colo. at 444, 423 P.2d at 25.

On the other hand, many courts are more liberal than Colorado on this point. Like Colorado prior to McMichael, those courts tend to collapse the "use" determination into the causal determination by asking whether the injury is related to the use of the car without first determining what the "use" is. See, e.g., Blish v. Atlanta Cas. Co., 736 So.2d 1151, 1155 (Fla.1999) (holding in favor of the insured and reasoning that the insured's attack by strangers along the highway while changing his tire related to the "use" of the vehicle since the attack was an "eminently foreseeable consequence of the use and maintenance of the" insured's truck).

2. Causal Connection between Use and Injury

If the use is foreseeably identifiable with the inherent purpose of a motor vehicle, the next prong of the inquiry is whether the "use" is causally related to the claimant's injury.

Beginning with our decision in Mason, we have consistently interpreted the phrase "arising out of the use" of a motor vehicle as requiring some causal connection between the "use" of the motor vehicle and the injury complained of. Mason, 161 Colo. at 443-44, 423 P.2d at 24-25. While occasionally referred to as a "but for" causal test, we have always required a claimant to show something more than a mere "but for" relation between the use of the vehicle and the injury. We have also required something less than proximate cause in the tort sense.

In Kohl, we stated that "[t]o establish the requisite causal relationship, the claimant must establish that the accident would not have occurred but for the vehicle's use." Kohl, 731 P.2d at 135 (emphasis added). In that same opinion, however, we also reaffirmed our previous decision in Titan Construction Co. and emphasized that the " 'but for' doctrine should not apply when there is a lack of relationship between the [vehicle] and the accident." Id. at 136 (citing to Titan Constr. Co., 183 Colo. at 195, 515 P.2d at 1126). Titan Construction Co. explained that courts will not assess the causal relationship according to the realm of torts, but rather according to contract causation analysis. Titan Constr. Co., 183 Colo. at 194, 515 P.2d at 1126.

Several later cases restated the tight "but for" test first enunciated in Titan Construction Co. but also obscured it slightly by including language that first appeared in Azar v. Employers Cas. Co., 178 Colo. 58, 495 P.2d 554 (Colo.1972). In Azar, we interpreted "arising out of the use" of a vehicle only to require that the injury "originate from, grow out of, or flow from" the use of the vehicle. Azar, 178 Colo. at 61, 495 P.2d at 555 (internal quotations omitted). We also held in Azar that "there must be a causal relation or connection between the injury and the use of a vehicle in order for the injury to come within the meaning of the phrase 'arising out of the use' of a vehicle." Id. Titan Construction Co., decided one year after Azar, and interpreting a liability policy nearly identical to the one in Azar, made no mention of the test formulated in that case. Nevertheless, we have cited the language of both decisions in PIP, liability and even UM cases, often simultaneously. [FN4] See, e.g., Hall, 690 P.2d at 231.

FN4. Although each of the cases, with the exception of Cung La, discusses only one type of policy (UM, liability or PIP) the cases do not distinguish between various interpretations of the phrase "arising of the use of a motor vehicle." As noted above, we have concluded that "arising out of the use of a motor vehicle" means the same thing for PIP, UM and liability policies and therefore apply no distinction here.

In Cung La, we stated that recovery depended not only upon the "nexus" between the motor vehicle and the injuries complained of, but also upon whether the injury would not have occurred "but for" the use of the vehicle and whether the injury flowed from or arose out of the use of the vehicle. Cung La, 830 P.2d at 1012.

Finally, our most recent case to interpret the phrase "arising out of the use" of a motor vehicle was McMichael. In McMichael, we described the causal analysis as requiring a claimant to "show that the accident would not have occurred but for the vehicle's use." McMichael, 906 P.2d at 103. There, we equated this phrase with a showing "that the injury originated in, grew out of, or flowed from a use of a vehicle." Id. We also held that the claimant must show that the vehicle's use was "integrally related to the claimant's activities and the injury at the time of the accident." Id. (emphasis added). McMichael was also careful to point out that the "nexus guarantees that the accident is within the kind of risks that the automobile insurance contract was meant to cover." Id.

We interpret this series of cases as requiring not only a "but for" connection between the "use" of the vehicle and the claimant's injury, but also an unbroken causal chain between that use and the injury.

Under this framework, the claimant must first show that except for the use of the vehicle, the accident or incident in question would never have taken place. Since Titan Construction Co., this requirement has been explicit and continually treated on an ad hoc basis. See, e.g., Cung La, 830 P.2d at 1012 (noting that to survive a summary judgment motion, the claimant must only show a material question of fact exists as to the initial "but for" determination).

In addition, to complete and satisfy the causal analysis, the claimant must show that the "use" of the vehicle and the injury are directly related or inextricably linked so that no independent significant act or non-use of the vehicle interrupted the "but for" causal chain between the covered use of the vehicle and the injury.

Where the injury in question suffered by the insured is actually the result of an intentional act of another, this showing can be particularly difficult to make. However, our cases, as well as cases in a significant number of other states, illustrate that the intentional, even criminal act of another will not automatically preclude recovery. See Cung La, 830 P.2d at 1011-12; see also McMillan, 925 P.2d at 794 (holding that the intentional nature of a drive-by shooting did not preclude a finding that injuries were "caused by an accident" for purposes of UM coverage; "[T]he intentional conduct of the uninsured tortfeasor [in Nissen ] did not preclude our holding that uninsured motorist coverage existed for the insured.").

Instead, these cases demonstrate that the claimant may recover provided that the injury flows directly from the "use" of the vehicle, without interruption, so that the "use" of the vehicle and the resulting injury constitute "one ongoing assault." We have previously observed that using a car merely to help carry out a criminal act is not the kind of "risk that the automobile insurance contract was meant to cover," McMichael, 906 P.2d at 103. Instead, where the act causing the injury is intentional, the "use" of the vehicle must bear a direct relation to the assault.

For example, in Cung La, the insured was driving his own insured vehicle down the highway at the time his assailants shot him. Cung La, 830 P.2d at 1008. The assailants, too, were driving down the highway and used their uninsured vehicles to position themselves in order to shoot the insured. Id. We assumed that the assailants and the insured were "using" their cars as contemplated by the insured's policy since the cars were moving at the time of the shooting.

The issue, therefore, in Cung La was whether a jury could find, based on the evidence, that the shooting injuries arose out of this "use." Id. at 1011-12. In response to that issue, we determined as an initial matter that the shooting would not have occurred "but for" the victim's "use" of the car (he was identified by his assailants only by the car he was driving and thus would not have been shot except for the fact that he was using his car as transportation). Id. at 1012. Because the covered "use" of the cars served as an active accessory to the shooting, and because there was no interruption or other independent significant act between this "use" and the shooting, a jury could have found that the injuries were sufficiently causally related. The act of driving and the act of shooting were inextricably linked with no intervening act. See Cont'l W. Ins. Co. v. Klug, 415 N.W.2d 876, 878 (Minn.1987)(holding there was no act of independent significance to break the causal link between the uninsured's shooting the insured while both were driving on a road). The result reached in Cung La is in line with the reasoning in cases from other jurisdictions with practically identical facts. See, e.g., Wausau Underwriter's Ins. Co. v. Howser, 309 S.C. 269, 422 S.E.2d 106, 109 (1992) (per curiam); see also AIG Hawaii Ins. Co., Inc. v. Caraang, 74 Haw. 620, 851 P.2d 321, 330-31 (1993).

In Nissen, we permitted recovery where the uninsured hit the claimant with her own car, throwing her onto the hood and pinning her between two cars after driving into traffic. Nissen, 851 P.2d at 166. Because the uninsured was driving the car when he hit the claimant, we did not question whether the car was being "used" at the time of the assault. Additionally, because the car physically contacted the claimant, we did not question the causal relationship between the "use" and the injury in that case. Instead, resolution of Nissen turned on the interpretation of two conflicting terms in the insured's policy. Id.

VI. Application of the Two-Prong Test

Kastner's car was an ordinary non-commercial passenger car with no plain and obvious inherent purpose as a vehicle other than the safe transportation of its passengers and cargo. That determination shapes the balance of our analysis.

We conclude, unlike the court of appeals, that the "use of the reclining passenger seat to prevent [Kastner] from signaling for help;" "the use of the vehicle to get to an isolated area" to commit a crime; and the "use of the automatic seat belts as restraints," Kastner, 56 P.3d at 1146, were all "foreign to the inherent purpose" of the motor vehicle as a mode of transportation. These uses, whether viewed individually or collectively, are not "uses" as contemplated by both the statutes and insurance policies in question. Use of a reclining passenger seat to conceal a kidnapping has little to do with using a car for transportation purposes. Use of a car to get to an isolated area to commit a crime may relate to a vehicle's general transportation purpose, but here it was not concurrent with the injury itself, and, as explained below, it lacks the requisite causal connection between sexual assault and "use" of a car for transportation. Finally, use of the car's seatbelts to restrain a sexual assault victim relates neither to the vehicle's transportation purpose nor to any other "conceivable" or foreseeable use contemplated at the time of contracting for insurance.

None of these uses--individually or collectively--comprise "use" of a passenger vehicle in a manner foreseeably identifiable with the ordinary use of that vehicle. In the case before us today, the most we can say about the assailant's use of the car was that it served as the site of the sexual assault and that the assailant employed the car's furnishings to help complete the assault inside the car. These uses are not foreseeably identifiable with the inherent purpose of a motor vehicle.

Additionally, the facts do not establish a causal nexus between a covered "use" of the vehicle and the victim's injuries. Thus, Kastner's claim also fails the second prong of this analysis. The seat belt and the reclining seat served as accessories to the crime, merely assisting the assailant in a way that incidental objects or furnishings inside a house could have helped him without actually causing the assault. See Am. Nat'l Prop. & Cas. Co. v. Julie R., 76 Cal.App.4th 134, 142, 90 Cal.Rptr.2d 119 (1999). Similarly, using the car to drive the victim to a remote location no more connects the car to the assault than if the assailant had used the car as the mere situs of the assault without moving it. See id. at 140, 90 Cal.Rptr.2d 119; see also Sanchez v. State Farm Mut. Auto. Ins. Co., 878 P.2d 31, 33 (Colo.App.1994)( "[T]he mere transportation of the dog [that bit the claimant] to the scene of the injury is, by itself, insufficient to support a finding that the injury arose from the use of the automobile."); see also Klug, 415 N.W.2d at 878.

Kastner argues that her own use of the car further connects the assault to the vehicle. Specifically, she asserts that her opening of the car door made the ensuing trapping and assault possible, establishing the "but for" connection. She states that the assailant had not chosen her as a victim until she opened her car door. Even assuming this constitutes a "use" of the car, the relationship between this use and the resulting sexual assault is simply too tenuous. All of the other non-uses of the car interrupted any direct flow between this "use" and the injury. Accordingly, the use of the car and the injury were not causally linked so as to make the use of the car and the injury one ongoing assault.

The approach recommended by Kastner raises additional concerns. She argues that each insurance claim that somehow involves both a motor vehicle and a sexual assault should be reviewed individually, letting the jury decide whether in each case the causal nexus between vehicle and injury justifies recovery. Kastner concedes that each of the "uses" of her car in this incident on its own may not constitute a sufficient relationship between injury and car. But, collectively, she asserts that the four facts of the case justify recovery. As amici have noted, this case-by-case approach would inevitably lead to inconsistent and unfair results. For instance, under Kastner's recommendation, she would recover because the four facts--the opening of the car door, the seat belt, the reclining seat, and the driving of the car--together satisfy the causal nexus. Yet, the next victim would not recover because her assailant used his own restraints instead of the seat belt. Or, another victim would not recover because, though the assailant used the seat belt, the reclining seat, and the opening of the car to identify his victim, the assailant did not drive the car anywhere. Both the failing and succeeding combinations of facts are endless, and the point is clear. Every case of sexual assault somehow involving a car would go before a jury and, arbitrarily, some victims would recover and some would not.

VII. Conclusion

In conclusion, we hold that Kastner cannot recover under her UM and PIP policies for injuries related to the sexual assault because (1) at the time of the accident, the vehicle was not being "used" in a manner that was reasonably foreseeable at the time of contracting for the policies and (2) Kastner's injuries had an insufficient causal nexus with the use of the vehicle. Accordingly, we reverse the decision of the court of appeals and return the case to the trial court with directions to enter summary judgment on State Farm's motion.

Justice BENDER dissents and Chief Justice MULLARKEY and Justice MARTINEZ join in the dissent.

Justice BENDER, dissenting:

In my view, the majority's test is flawed in two ways. First, our Colorado cases do not require concurrency between use and injury. Second, the majority's causation prong misreads our prior holdings. According to my reading of the cases, the test should be whether an injury originates in, grows out of, or flows from the use of a car. Applying either the majority's test or my suggested test, Christina Kastner should recover because her ongoing assault, kidnapping, and rape were causally related to the transportation use of her car.

Admittedly, ambiguities exist in our accident recovery cases. The majority's attempt to synthesize these cases is no enviable task, and I do not fault the majority for seeking to achieve clarity from these disparate and somewhat inconsistent holdings. However, I read our precedent differently and would apply different rules to determine whether our statutes and Kastner's insurance policy permit her recovery. Therefore, I respectfully dissent.

I.

Unlike general contract terms, "the provisions in [an insurance] policy are often imposed on a take-it-or-leave-it basis. It is not a negotiated contract but one with terms required by legislation or dictated by an insurer." Huizar v. Allstate Ins. Co., 952 P.2d 342, 344 (Colo.1998). Accordingly, this Court "assumes a 'heightened responsibility' to scrutinize" insurance policy provisions to ensure that they comply with "public policy and principles of fairness." Id. Further, the legislative history of the uninsured motorist statute "instructs us to find coverage for the innocent insureds whenever possible." State Farm Mut. Auto. Ins. Co. v. Nissen, 851 P.2d 165, 169 (Colo.1993). For this reason, ambiguities in insurance coverage should be construed against the insurer. Id. at 166.

A.

As the majority points out, the foreseeable use of a car is generally limited to its transportation purpose. [FN1] See maj. op. at p. 1262-1263. However, the majority requires that Kastner's injuries be concurrent with her vehicle's use. See maj. op. at p. 1265 ("Use of a car to get to an isolated area to commit a crime may relate to a vehicle's general transportation purpose, but here it was not concurrent with the injury itself ...." (emphasis added)). The majority appears to derive this concurrency requirement from a sentence in Aetna Cas. & Sur. Co. v. McMichael, 906 P.2d 92, 101 (Colo.1995) ("The first issue we must determine is whether [the insured] was using an insured vehicle in a manner that was not foreign to its inherent purpose at the time of the accident.")(emphasis added). As a preliminary matter, the majority's concurrency requirement contradicts our traditional causation test, under which an injury need only originate in, grow out of, or flow from the use of a vehicle, regardless of when it occurs. [FN2] More importantly, though, we have never required concurrency between use and injury. For instance, Kohl v. Union Ins. Co., 731 P.2d 134 (Colo.1987), involved a group of hunters on their way home from a hunting trip who stopped briefly at a convenience store. While the group was conversing in the store's parking lot, one of the hunters decided to unload his rifle in a jeep when it accidentally discharged, killing a fellow hunter and seriously injuring two others. Id. at 135. This Court held that the injuries, though not concurrent with the jeep's use at the time of the injuries, were covered under the insured's policy. Id. at 135-36. Contrary to what the majority suggests, McMichael did not change this holding.

FN1. The majority construes foreseeable use so narrowly that its analysis appears to be at odds with our Colorado cases. The majority equates foreseeable use with the mutual intent of the insurer and insured. See maj. op. at p. 1261 ("we must look to the intent of the parties at the time of contracting" (citation omitted)). Yet our cases have consistently rejected the insurer's purported intent regarding foreseeable use, and the insurer's intent regarding use also does not necessarily control the use analysis. In our most recent cases, the insurers uniformly argued that they had not foreseen the various uses to which the insureds' vehicles had been put, and this Court rejected their arguments. See Aetna Cas. & Sur. Co. v. McMichael, 906 P.2d 92 (Colo.1995) (rejecting insurer's argument that it had not foreseen ordinary pickup's use as barricade where the truck was later fitted with an overhead beacon and emergency flashers); Cung La v. State Farm Auto. Ins. Co., 830 P.2d 1007 (Colo.1992) (rejecting insurer's argument that shooting was not a foreseeable use of vehicle); Nissen, 851 P.2d at 168 (focusing on the "reasonable expectation" of the insured regarding use in the face of coverage ambiguity). In fact, even the intent of the insured does not necessarily govern the use analysis. See Cung La, 830 P.2d 1007 (insured neither foresaw nor intended that car would be involved in shooting); State Farm Mut. Auto. Ins. Co. v. McMillan, 925 P.2d 785 (Colo.1996) (insured did not contemplate or intend that car would be used in drive-by shooting). Thus, I conclude that the use giving rise to an injury need not have been foreseen by either the insurer or the insured at the time they entered into a policy.

FN2. See Part I.B.

B.

In its causation prong, the majority imposes a strict but-for analysis and borrows its "independent significant act" element from other jurisdictions.

My first criticism of the majority's causation prong is its misplaced reliance on a strict but-for test. Specifically, the majority misreads McMichael as requiring, at a minimum, but-for causation. See maj. op. at p. 1263 ("[W]e have always required a claimant to show something more than a mere 'but for' relation between the use of the vehicle and the injury."). To justify its strict but-for test, the majority focuses on a single sentence from McMichael in which we described the evolution of our causation analysis. See maj. op. at p. 1264. The sentence explained that in Kohl, we used a but-for test as a threshold causation requirement. However, the majority fails to mention that the very next sentence of McMichael significantly qualifies the causation analysis from Kohl by stating that our precedent follows a "more liberal interpretation" requiring "only that the injury originated in, grew out of, or flowed from a use of a vehicle." 906 P.2d at 103. Thus, as I read McMichael, we specifically rejected the strict but-for test:

In Kohl, we explained that in order to establish the requisite causal relationship between the use of the vehicle and the injury, the claimant must show that the accident would not have occurred but for the vehicle's use. Although the use of "but for" terminology suggests that the use of the vehicle must be the cause of the injuries, we have utilized a more liberal interpretation in our cases.... In fact, we have interpreted the test as requiring the plaintiff to show only that the injury originated in, grew out of, or flowed from a use of a vehicle.

Id. (emphasis added) (citations omitted).

My reading of McMichael as requiring something less than but-for causation finds support in the statute and our previous decisions. As the majority notes, the insurance statutes require coverage for injuries "arising out of the use of a motor vehicle." Since our 1972 decision in Azar v. Employers Cas. Co., 178 Colo. 58, 495 P.2d 554 (1972), we have "broadly and comprehensively" construed the "arising out of" language to mean " 'originate from,' 'grow out of,' or 'flow from.' " Id. at 61, 495 P.2d 554. Decades later, McMichael confirmed that our cases require something less than but-for causation. 906 P.2d at 108 (Vollack, C.J., dissenting)(noting that the insured did not satisfy the but-for test).

Our cases have consistently interpreted the "originated in, grew out of, or flowed from" language in a flexible way. In Azar, we interpreted the phrase as requiring only that a vehicle "contribute[ ] to or [be] connected to" an injury. 495 P.2d at 555. We have used equally flexible terms in our most recent decisions. See McMichael, 906 P.2d at 103-104 ("related to"); Cung La v. State Farm Auto. Ins. Co., 830 P.2d 1007, 1010 (Colo.1992) ( "contributed to"). Thus, our causation test has traditionally been satisfied where a vehicle's use contributed to, or was connected or related to, the insured's injury. Thus, the majority's holding that a vehicle's use must be "inextricably related" to an insured's injury appears to contradict our case law. [FN3]

FN3. The majority appears to derive its "inextricably related" language from the use of the phrase "integrally related" in McMichael. 906 P.2d at 103. However, the "integrally related" statement merely elaborated on our "mere situs" test, which "distinguish[es] between 'injuries that are related to the use of an automobile, and injuries that are related to an automobile only because they coincidentally occurred in the vehicle.' " 906 P.2d at 103-104 (quoting Kohl, 731 P.2d at 136).

My second criticism of the majority's causation prong is that it borrows the "independent significant act" element of its causation test from other jurisdictions, [FN4] and the element finds little or no support in our cases. In our cases, an intervening act by itself does not break the causal chain between use and injury. See Cung La, 830 P.2d at 1011 ("Here, the fact that the firearm contributed to the injuries does not preclude the requisite causal connection."). Thus, intervening acts, even intentional criminal acts such as the shootings in Cung La and State Farm Mut. Auto. Ins. Co. v. McMillan, 925 P.2d 785 (Colo.1996), and the auto theft in Nissen, do not preclude recovery where a vehicle's use contributes to the injury-causing acts. See Cung La, 830 P.2d at 1011; Nissen, 851 P.2d 165. For example, the insured in Nissen looked out the window of the restaurant where she was eating and saw a thief entering and attempting to steal her car from the restaurant parking lot. She ran outside, jumped on the hood of the car, and was injured when the thief attempted to flee while she remained spread-eagle on the car's hood. In this case, we approved the insured's recovery under her uninsured motorist policy for the severe injuries she suffered when the thief crashed her car into an oncoming truck. 851 P.2d at 165.

FN4. See maj. op. at p. 1265. See also Wausau Underwriters Ins. Co. v. Howser, 309 S.C. 269, 422 S.E.2d 106, 109 (1992) (per curiam) ("Once causation is established, the court must determine if an act of independent significance occurred breaking the causal link.") (emphasis added); Cont'l W. Ins. Co. v. Klug, 415 N.W.2d 876 (Minn.1987) ("events of independent significance").

Instead of holding that independent significant acts bar recovery, we have consistently concluded that an insured may not recover where a vehicle serves as the "mere situs" for an injury. McMichael, 906 P.2d at 103-104. Our cases have narrowly construed the mere situs restriction to mean that a vehicle is the mere situs for an injury if it in no way contributes to it. See id. at 104 (discussing Mason v. Celina Mut. Ins. Co., 161 Colo. 442, 423 P.2d 24 (Colo.1967), in which a youth was accidentally shot when he and two friends were toying with a pistol in a parked car and "the event could have occurred on the street, in a house, or on a porch"). In Kohl, where the hunter unloaded his rifle near the gun rack inside the jeep, we found that the injury was "intimately related" to the jeep's use even though the gun could have been unloaded outside the jeep. Id. Similarly, in both Cung La and McMillan the shooters could have waited until their respective victims got out of their cars to shoot them, but because the cars contributed to the shootings, we found that they were not the mere situs of the crimes. See Cung La, 830 P.2d 1007; McMillan, 925 P.2d 785. In short, the mere situs restriction only applies when the vehicle does not contribute to the injury in any way.

Based on these cases, I believe the proper test for causation should be whether an injury "originated in, grew out of, or flowed from" the use of a vehicle. This test is satisfied where a vehicle's use contributes to an injury unless the vehicle was the "mere situs" of the injury.

II.

Irrespective of whether the majority's view or my view on the issues of use and causation is correct, Kastner should recover.

I agree with the majority's statement of the facts with one addition: Kastner's ordeal, which began in the mall parking lot, took place during the Christmas shopping season. [FN5] This fact helps to explain why the mall parking lot was full at the time of Kastner's abduction, and why it is highly unlikely that Kastner's assailant could have kidnapped or raped her without the use of her car.

FN5. The date of Kastner's assault, kidnapping, and rape was December 8, 1998.

My primary objection to the majority's analysis is that it focuses exclusively on Kastner's rape injuries, all of which occurred while the car was stopped, without considering the ongoing kidnapping and assault violations. Without question, Kastner's injuries were ongoing. They began in the mall parking lot, where she was assaulted with a knife and kidnapped. While driving Kastner to the park, the assailant continued to hold the knife on her as he threatened to kill her. During the brief period when he stopped the car in the park, the assailant raped and robbed Kastner. On the way to the liquor store where he dropped her off, the assailant threatened severe harm to Kastner and her children if she reported the assault. Kastner suffered harm throughout her ordeal, not just during the rape.

A.

Even applying the majority's test, Kastner should recover. Because the majority focuses exclusively on the injuries caused by the rape, it concludes that Kastner's injuries were not concurrent with the car's use. However, Kastner's ongoing injuries--the kidnapping and extended assault--were concurrent with the vehicle's use because they both occurred while Kastner's car was being used for transportation purposes. Moreover, the majority concedes that the use of Kastner's car to get to the park relates to the car's general transportation purpose. See maj. op. at p. 1265.

Although the majority concludes that Kastner fails to satisfy the but-for and "independent significant act" tests under its causation prong, the facts of this case undermine this conclusion. But for the use of Kastner's vehicle, it is highly unlikely that the assailant would have been able to kidnap her from a crowded parking lot during the Christmas shopping season. It is also highly unlikely that Kastner would have been raped if the assailant could not have used her car to transport her from the mall. Kastner's assailant escaped detection by driving Kastner to a secluded park on a dark winter night. It is also highly unlikely that the rape would have occurred in a busy mall parking lot during Christmas season in a car parked only ten spots from the mall entrance. Thus, I conclude that but for the use of the car, Kastner would neither have been raped nor kidnapped. In any case, causation findings are within the province of the trier of fact, and the trial court specifically found that Kastner's injuries arose from the use of her car.

Under the rationale of our Colorado cases, independent significant acts like the assailant's rape and kidnapping of Kastner do not break the causal chain between use and injury. We have not regarded comparable intentional criminal conduct, like the shootings in McMillan and Cung La and the auto theft in Nissen, to constitute independent significant acts sufficient to defeat causation. Similarly, the criminal acts of Kastner's assailant did not break the chain of causation. Thus, Kastner satisfies the majority's strict tests for use and causation and she should be entitled to recover.

B.

Applying the test supported by my reading of our cases, Kastner should also recover. Beyond doubt, Kastner's kidnapping and ongoing assault were sufficiently temporally related to the transportation use of her car. The fact that Kastner's assailant stopped her car briefly to rape her should not prevent her from recovering. Kastner's injuries during this brief stop are analogous to the accidental shooting in Kohl, which occurred while the hunters' jeep was parked. We allowed the insured to recover in that case, and we should in this case as well. As in Kohl, the injuries that occurred while the car was stopped in this case are sufficiently related to the car's transportation use to warrant recovery.

Moreover, Kastner's injuries were causally related to her car's use. The assailant's use of Kastner's vehicle contributed both to Kastner's kidnapping and rape. Kastner's assailant was able to kidnap her from a crowded mall during the Christmas shopping season only by transporting her in the car. The rape was facilitated by the assailant's ability to remove Kastner to a remote area. Kastner's car was not the mere situs of her injuries. The car contributed to Kastner's kidnapping and rape in at least as significant a way as the vehicles in McMillan and Cung La contributed to the shootings in those cases. Therefore, I respectfully dissent.

I am authorized to state that Chief Justice MULLARKEY and Justice MARTINEZ join in this dissent.

United States District Court, W.D. Louisiana, Lafayette and Opelousas Division.

THE TRAVELERS INDEMNITY CO. of IL.

v.

WESTERN AMER. SPEC. TRANSPORTATION SERV., INC., et al

Nov. 27, 2002.

MEMORANDUM RULING

MELANCON, District Judge.

Before the Court are motions for summary judgment filed by Dixie Carriere and Chris Carriere, individually and on behalf of their minor children, Kelly Carriere and Casey Carriere, ("the Carrieres") and by Richard Wade Barnett, Nobel Insurance and Western American Specialized Transportation Services, Inc., ("Western") and cross motions for summary judgment filed by Travelers Indemnity Company of Illinois ("Travelers"). For the reasons that follow, the motions filed by the Carrieres and Western are granted, and the motions filed by Travelers are denied.

Background

This action for declaratory judgment has its genesis in an automobile accident which occurred on March 12, 1997 when a truck owned and operated by Richard Wade Barnett collided with an automobile driven by Dixie Carriere. Dixie Carriere was severely injured in the accident. At the time of the accident, Barnett was in the course and scope of his employment with Western American Specialized Transportation Services, Inc. Barnett's truck was leased by Western. Western and Barnett were covered by a primary insurance policy issued by Nobel Insurance Company ("Nobel") in the amount of $1,000,000.00. As a licensed interstate carrier of certain materials, however, Western was obligated to carry a minimum of $5,000,000.00 in insurance coverage to comply with the financial responsibility requirements of the Federal Motor Carrier Safety Regulations. To that end, Western procured a policy of insurance from Travelers Indemnity Company of Illinois for an additional $4,000,000.00 in excess coverage. Travelers' Policy # 7FSJEX-264T6575-96. The Travelers policy included an endorsement known in the trucking and insurance industries as an MCS-90 Endorsement, which provides coverage to third-party members of the public for personal injuries and damages caused by certified interstate carriers. Id.

The Carrieres filed a state court action in the 15th Judicial District Court, Parish of Lafayette, Louisiana against Barnett and Western. The case proceeded to trial and the jury rendered a verdict in favor of the Carrieres and against Barnett and Western in the amount of $2,674,540.00. Following the trial, Nobel deposited for immediate withdrawal its policy limits of $1,000,000.00, plus interest that Nobel determined to be due, into the registry of the Court. When the Carrieres attempted to collect the remainder of the judgment from Travelers, Travelers denied coverage and filed the instant declaratory judgment action. The Carrieres subsequently filed a counter claim, asserting Travelers' obligation to pay the remainder of the judgment. The Carrieres contend that under the MCS-90 Endorsement in Travelers' policy, Travelers is obligated to pay the Carrieres that part of the judgment excess to the Nobel policy limits. Travelers disputes the applicability of the MCS-90 Endorsement to the judgment in the Carrieres' case.

Summary Judgment Standard

A motion for summary judgment shall be granted if the pleadings, depositions, and affidavits submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. PROC. 56; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc). When a party seeking summary judgment bears the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence were uncontroverted at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). As to issues which the nonmoving party has the burden of proof at trial, the moving party may satisfy this burden by demonstrating the absence of evidence supporting the nonmoving party's claim. Celotex Corp., 477 U.S. at 324, 106 S.Ct. 2548.

Once the movant produces such evidence, the burden shifts to the respondent to direct the attention of the court to evidence in the record sufficient to establish that there is a genuine issue of material fact requiring a trial. Id. The responding party may not rest on mere allegations made in the pleadings as a means of establishing a genuine issue worthy of trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Little, 37 F.3d at 1075. If no issue of fact is presented and if the mover is entitled to judgment as a matter of law, the court is required to render the judgment prayed for. Fed. R. Civ. Proc. 56(c); Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548. Before it can find that there are no genuine issues of material fact, however, the court must be satisfied that no reasonable trier of fact could have found for the nonmoving party. Id.

Analysis

This action arises from a complaint for declaratory judgment filed by Travelers against the Carrieres, Barnett, Western and Nobel. After Travelers filed its complaint, the Carrieres filed a counter claim for declaratory judgment against Travelers, Barnett, Western and Nobel, and Travelers filed a cross claim against Nobel. On November 15, 2001, the Carrieres filed a motion for summary judgment moving the Court for a judgment ruling that Western and Barnett are covered by the provisions of the MCS-90 Endorsement under the Travelers' Commercial General Liability Policy issued to Western, and therefore, Travelers has a financial responsibility under the MCS-90 Endorsement to satisfy a portion of the judgment that the Carrieres obtained against Western for the accident in question. R. 16. On December 3, 2001, Western, Barnett and Nobel also filed a motion for summary judgment against Travelers adopting the Carrieres' motion and memorandum. R. 19. Thereafter, on December 28, 2001, Travelers filed a cross motion for summary judgment contending that the MCS-90 Endorsement in its policy does not apply to the facts of this case. R. 24. The Court held a conference with the parties on April 8, 2002 and granted a motion extending the Carrieres' deadline to file an opposition to Travelers' motion to June 14, 2002 and allowing additional time for discovery. (R. 35, 38). On June 14, 2002, the Carrieres filed a memorandum in opposition to Travelers' motion for summary judgment as well as a supplemental memorandum to their own motion for summary judgment. (R. 43). Also, on that date, Western, Barnett and Nobel filed an opposition to Travelers' motion (R. 45) and Travelers filed a second motion for summary judgment. (R. 39). The Carrieres filed an opposition to Travelers' second motion for summary judgment on July 1, 2002. Because the parties agree that the issue before the Court is whether the MCS-90 Endorsement in the Travelers' policy applies in this case, the Court will consider all of the motions together as follows. [FN1]

FN1. While Travelers asserts that its underlying Commercial General Liability policy does not cover the accident in question, plaintiffs contend only that the MCS-90 Endorsement under the Travelers policy is applicable.

A. The MCS-90

"Congress has mandated that the ICC [Interstate Commerce Commission] issue operating permits to motor carriers only if the motor carrier has filed with the ICC an adequate 'bond, insurance policy, or other type of security ... in an amount not less than ... the Secretary of Transportation prescribes....' In addition, the ICC is empowered to promulgate regulations to insure that motor carriers operating tractors or trailers as lessees under leasing arrangements assume total responsibility for the operation of their rented vehicles, including obtaining adequate insurance. The ICC requires that all equipment leases entered into by 'authorized carrier lessees' " contain provisions stating that the lessee " 'shall have exclusive possession, control, and use of the equipment for the duration of the lease,' and that the lessee 'assume complete responsibility for the operation of the equipment for the duration of the lease.' Further, a motor carrier may not engage in interstate commerce unless it has filed with the ICC a surety bond or certificate of sufficient insurance 'conditioned to pay any final judgment recovered against such motor carrier for bodily injuries to or the death of any person resulting from the negligent operation, maintenance or use of motor vehicles subject' to ICC regulation. To assure compliance with the latter regulation and the underlying congressional mandate [ ] the ICC has prescribed a form endorsement, [the MCS-90]...." Canal Ins. Co. v. First Gen. Ins. Co., 889 F.2d 604, 610-611 (5th Cir.1989) (internal citations omitted). "The MCS-90 was required under the regulations of the now-defunct Interstate Commerce Commission ('ICC'). When the ICC was abolished, its authority to regulate carriers was transferred to the Department of Transportation, but the old regulations remain in effect until new ones are promulgated... the policy embodied in the ICC regulations 'was to assure that injured members of the public would be able to obtain judgments collectible against negligent authorized carriers'... '[W]e consider the ICC endorsement to be, in effect, suretyship by the insurance carrier to protect the public-a safety net .... [I]t simply covers the public when other coverage is lacking.' " T.H.E. Ins. Co. v. Larsen Intermodal Services, Inc., 242 F.3d 667, 672 (5th Cir.2001)(internal quotations omitted).

The financial responsibility requirements that led to the adoption of the MCS- 90 were originally promulgated in the Motor Carrier Act of 1980. Section 30 of the Act mandated that motor carriers transporting persons or property in interstate commerce with a gross weight rating of 10,000 pounds or more were required to obtain minimum levels of financial responsibility to cover public liability or property damage. See 49 U.S.C. §§ 31139. Motor carriers are defined by the Motor Carriers Act as "for-hire motor carrier or a private motor carrier. The term includes, but is not limited to, a motor carrier's agent, officer, or representative; an employee responsible for hiring, supervising, training, assigning, or dispatching a driver; or an employee concerned with the installation, inspection, and maintenance of motor vehicle equipment and/or accessories." It is undisputed that Western is registered by the Department of Transportation under ICC # 171961 as a motor carrier engaged in interstate commerce [FN2] and is required to include the federally-mandated "Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980," also know as the "Form MCS-90," which must be attached to any liability policy issued to a registered motor carrier pursuant to 49 U.S.C. §§ 13906(a)(1), 31139(b)(2) and 49 C.F.R. § 387.7. Larsen, 242 F.3d at 670. It is also undisputed that the Travelers' policy issued to Western contains an MCS-90 Endorsement which provides in part:

FN2. Defendants represent that the motor carriers subject to regulation under the Motor Carriers Act and required to include the MCS-90 Endorsement in their liability policies are: (1) Motor common carriers-- those that hold themselves out to provide transportation of persons or property for the general public; and (2) Motor contract carriers--those that provide transportation for persons or property in accord with continuing agreements, and that Western is both a motor common carrier and a motor contract carrier.

"In consideration of the premium stated in the policy to which this endorsement is attached, the insurer agrees to pay, within the limits of liability described herein, any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles subject to the financial responsibility requirements of Sections 29 and 30 of the Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is specifically described in the policy and whether or not such negligence occurs on any route or in any territory authorized to be served by the insured or elsewhere. Such insurance as is afforded, for public liability, does not apply to injury to or death of the insured's employees while engaged in the course of their employment, or property transported by the insured, designated as cargo. It is understood and agreed that no condition, provision, stipulation, or limitation contained in the policy, this endorsement, or any other endorsement thereon, or violation thereof, shall relieve the company from liability or from the payment of any final judgment, within the limits of liability herein described, irrespective of the financial condition, insolvency or bankruptcy of the insured. However, all terms, conditions, and limitations in the policy to which the endorsement is attached shall remain in full force and effect as binding between the insured and the company. The insured agrees to reimburse the company for any payment made by the company on account of any accident, claim, or suit involving a breach of the terms of the policy, and for any payment that the company would not have been obligated to make under the provisions of the policy except for the agreement contained in this endorsement."

Travelers' Policy # 7FSJEX-264T6575-96 MCS-90 Endorsement.

1. Interstate transportation

In its first cross motion for summary judgment, Travelers submits that because the financial requirements of the Motor Carrier Act, 49 U.S.C. 31139(b), do not include transportation of property for compensation by a motor vehicle "between a place in a state and another place in the very same state," they do not apply to the situation at bar where "[t]he truck never went outside of the State of Louisiana." Travelers contends that the MCS-90 only applies to "interstate" transportation and because the shipment involved in the accident in question was wholly intrastate the ICC has no jurisdiction in this case, and the financial requirements of the Motor Carrier Act, hence the MCS-90 Endorsement, do not apply.

Defendants assert that discovery conducted following the Court's April 4, 2002 conference with the parties revealed that Western was engaged in interstate transportation at the time of the accident. The May 20, 2002 affidavit of Timothy J. Domingue, Materials Analyst for Newfield Exploration Company, Inc. ("Newfield"), establishes that the shipment in question originated from Newfield's Dock Facility at Intracoastal City, Louisiana and the final destination was "a Newfield offshore construction site at Vermillion (Block 398) located over 50 miles beyond the territorial boundaries of Louisiana, located in federal waters." Affidavit of Domingue. Domingue's affidavit further states that the shipment contents "were placed on a helicopter or a vessel on March 12, 1997 at 1900 hrs for transfer to Vermillion (Block 398)." Id. Travelers argues that pursuant to 49 U.S.C. § 13506(a)(8)(B), the U.S. Department of Transportation has no jurisdiction where a shipment in continuous movement is transported by an air carrier subsequent to ground transportation. Travelers does not address that Domingue's affidavit also indicates the shipment may have been transferred offshore by vessel. The parties have cited no case law for their positions and the Court is unaware of any Fifth Circuit jurisprudence related to the issue of whether transportation from land within a state to a site in federal waters is considered "interstate" transportation.

In addition to the aforesaid discovery, the Carrieres direct the Court to the case of Reliance National Insurance Co. v. Royal Indemnity Co., 2001 WL 984737 (S.D.N.Y. Aug.24, 2001), in which the New York district court held that the ICC regulations applied to an accident which occurred during a wholly intrastate trip. In Reliance, an independent owner-operator leased his truck to an ICC licensed motor carrier engaged in interstate trucking. During the lease's duration, the owner-operator also leased his truck to another company for use as a float in a parade. The truck's parade trip was wholly intrastate. During the parade, an accident occurred in which an individual was struck and killed by the truck. Following the accident, the insurance company for the ICC licensed motor carrier sought a declaratory judgment as to its obligation to cover the truck owner. In making its determination as to coverage, the New York district court considered whether or not the ICC had jurisdiction over the wholly intrastate trip. The court initially noted that " '[the ICC], as a creation of Congress, has only the power bestowed upon it by its constituent legislation,' and this authority 'is not coextensive with the plenary authority of Congress under the Commerce Clause.' " Id. at (internal citations omitted). While the court acknowledged that "the ICC's jurisdiction over transport is not unlimited", it noted that " 'the Interstate Commerce Act is a highly remedial statute and its terms are broadly comprehensive enough to bring within them all of those who, no matter what form they use, are in substance engaged in the business of transportation of property on the public highways for hire.' " Id. citing Georgia Truck System v. ICC, 123 F.2d 210, 211 (5th Cir.1941). The court also noted "[t]he Act being a remedial statute, it should be liberally interpreted to effect its evident purpose.' " Id. citing McDonald v. Thompson, 305 U.S. 263, 265, 59 S.Ct. 176, 83 L.Ed. 164 (1938) and Piedmont and N. Ry. Co. v. I.C.C., 286 U.S. 299, 311, 52 S.Ct. 541, 76 L.Ed. 1115 (1932) ("The Transportation Act was remedial legislation, and should therefore be given a liberal interpretation...."). Id. Relying on established Fifth Circuit and Supreme Court jurisprudence, the court held that the insurance company's reading of the ICC's jurisdiction was "overly narrow and ignores both the statute's plain language and Congress' evident intent." Id. The court explained its reasoning as follows:

"Reliance's argument rests on the theory that the ICC's jurisdiction is based solely upon the geography traversed by any given shipment--i.e., if it does not cross state, territorial, or international lines, the ICC has no jurisdiction. Had Congress only written 49 U.S.C. § 13501 to say 'The Secretary and the Board have jurisdiction ... over transportation by motor carrier ... to the extent that passengers, property or both are transported by the motor carrier-- (1) between a place in--(A) a State and a place in another State,' Reliance might have an argument. However, Congress chose to give the ICC jurisdiction over not only 'transportation by motor carrier,' but also 'the procurement of that transport.' Whereas 'transportation by motor carrier' focuses on the transport itself, 'the procurement of transport' focuses on the business arrangements through which the interstate transport was procured. The statute's plain language gives the ICC jurisdiction over both."

Id. at *4-5.

Recognizing that the focus should be on whether or not the "procurement", or lease agreement, for the transport was interstate in nature, the court relied on the clearly established standards governing the nature of interstate transportation, the "essential character" of the shipment. [FN3] The court stated that the "proper question is whether the procurement's 'essential character [as]... manifested by the shipper's fixed and persisting transportation intent at the time of [the lease]' was for interstate or intrastate transport." Id. at *5. The court found that where "an (1) interstate carrier, (2) signs an exclusive lease with a trucker to perform interstate transport, (3) which references the application of ICC regulations in the lease, and (4) thereafter provides the trucker with the carrier's ICC logo, it would be illogical to hold that the ICC is suddenly divested of jurisdiction while the trucker performs a single intrastate transport." Id. at *6. Thus, the court held that the ICC regulations applied to the lease agreement before it because it was the trucking company's intention at the time it procured the truck and services that the lease be for interstate transport. Id.

FN3. One of the cases cited by the Reliance court for the "essential character" standard was Merchants Fast Motor Lines, Inc. v. ICC, 5 F.3d 911 (5th Cir.1993). In Merchants, the Fifth Circuit stated that "[w]hether transportation between two points within a single state is interstate or intrastate depends on the 'essential character' of the shipment. The critical factor in determining the shipment's essential character is the fixed and persisting intent of the shipper at the time of the shipment. The totality of the facts and circumstances will determine whether a shipper has the requisite intent to move goods continuously in interstate commerce."

Travelers urges the Court to adopt the reasoning of the Florida Court of Appeals in Branson v. MGA Insurance Company, Inc., 673 So.2d 89 (Fla.App.1996) and General Security Insurance Co. v. Barrentine, 829 So.2d 980, 2002 WL 31477118 (Fla.App. 1 Dist. Nov.7, 2002). [FN4] It is axiomatic that this Court is not bound by decisions rendered by another state's appellate courts' decisions for guidance in a matter such as the instant issue. Rather, the Court agrees with the sound reasoning of the New York district court and finds that its holding in Reliance is consistent with the Fifth Circuit's jurisprudence defining the authority of the ICC and the purposes underlying the financial requirements of the MCS-90 Endorsement.

FN4. While the Branson and Barrentine courts did not apply the "essential character" standard governing the nature of interstate transportation, they found that the transportation was "purely intrastate."

It is undisputed that in the instant case Barnett made interstate hauls exclusively for Western, under Western's ICC authority, in the months preceding the accident with the Carrieres. Depo. of David M. Neher 78-80. The lease between Western and Barnett clearly states that "[Barnett] is operating exclusively for [Western]." Further, the lease states that "[Western], as both an interstate common and a contract carrier by motor vehicle, is subject to the regulations enacted by the ICC, State regulation, and any municipal regulations, and under the provisions of the Interstate Commerce Act, and that the ICC has enacted certain rules and regulations relating to the leasing of equipment by contract carriers by motor vehicle ... the parties hereto agree that it is their intent that [Western] shall comply fully with said rules and regulations." Lease Agreement between Richard W. Barnett and Western American Specialized Transportation Services, Inc. The relevant facts of this case, as provided in the foregoing, are virtually identical to those in Reliance, in which the court ultimately held, "where, as here, an (1) interstate carrier, (2) signs an exclusive lease with a trucker to perform interstate transport, (3) which references the application of ICC regulations in the lease, and (4) thereafter provides the trucker with the carrier's ICC logo, it would be illogical to hold that the ICC is suddenly divested of jurisdiction while the trucker performs a single intrastate transport. This would be especially incongruous in light of the fact that the regulation at issue were promulgated by the ICC at Congress' specific direction." Reliance, 2001 WL 984737 at *6 (citing Simmons v. King, 478 F.2d 857, 866 (5th Cir.1973)) ("The legislative-administrative travail behind the ICC regulations on trip leases reflects the importance attached by the Congress and ICC to the economic necessity for such short term leases and why it is critical that ICC regulations and the leases mandated by them have supreme, controlling significance."). Applying the reasoning of Reliance to the case at bar, including the jurisprudence of the Fifth Circuit cited therein, it is clear that Western explicitly intended to procure Barnett's services for interstate transport, and therefore, the ICC regulations, in particular the MCS-90 Endorsement, apply to the trip in question.

Based on the Court's ruling, is not necessary to address Traveler's argument that the ICC does not have jurisdiction over the transportation of the shipment in question because the shipment was not between Louisiana and another state. The Court notes with interest, however, that section 31139(b) of the Motor Carrier Act provides that the minimum levels of financial responsibility apply to the "transportation of property for compensation by motor vehicle in the United States between a place in a State and... (C) a place outside the United States." 49 U.S.C. 31139(b)(1)(C).

2. Gross Vehicular Weight Rating

In its second motion for summary judgment, Travelers further contends that the truck Barnett was driving at the time of the accident, a 1987 Ford F.250, is exempt from the DOT regulations and the parameters of the MCS-90 Endorsement because it has a gross vehicular weight rating of 9,500 pounds. Travelers asserts that 49 U.S.C. § 31139 and C.F.R. § 387.3, federal regulations mandating minimum levels of financial responsibility, exclude motor vehicles with a gross vehicular weight rating of less than 10,000 pounds. (R. 39). Title 49 of the United States Code, section 31139 provides in part:

(g) Nonapplication.--This section does not apply to a motor vehicle having a gross vehicle weight rating of less than 10,000 pounds if the vehicle is not used to transport in interstate or foreign commerce--

(1) class A or B explosives;

(2) poison gas; or

(3) a large quantity of radioactive material.

49 USC § 31139(g).

Title 49 of the Code of Federal Regulations, section 387.3 states in part:

The rules in this part do not apply to a motor vehicle that has a gross vehicle weight rating (GVWR) of less than 10,000 pounds. This exception does not apply if the vehicle is used to transport any quantity of a Division 1.1, 1.2, or 1.3 material, any quantity of a Division 2.3, Hazard Zone A, or Division 6.1, Packing Group 1, Hazard Zone A, or to a highway route controlled quantity of a Class 7 material as it is defined in *53149 CFR 173.403, in interstate or foreign commerce.

49 C.F.R. § 387.3.

Defendants argue, and Travelers does not dispute, that during the policy period covering the accident at issue, Western was a certified ICC motor carrier engaged in both interstate transportation of cargo for hire and transportation of paints and solvents, which are classified as hazardous materials under the Motor Carrier Act. Depo. of Golder, p. 96. Nor does Travelers dispute that at times prior to the accident at issue Barnett hauled hazardous cargo for Western in the truck in question. Carrieres' Memorandum referencing the Depo. of Barnett. The record indicates that Travelers issued policy number 7FSJ-EX-264T657-5-96 to Western on September 4, 1995. Commercial General Liability Following Form Excess Liability Policy. Travelers then filed a Liability Certificate of Insurance with the Interstate Commerce Commission certifying that the policy it had issued to Western was a following form excess policy that provided coverage in the amount of $4,000,000.00 in excess of Western's primary policy issued by Nobel. Motor Carrier Automobile Injury Liability And Property Damage Liability Certificate of Insurance. The record also reflects that the primary policy covered "any autos" that Western employed. "Schedule of Coverages and Covered Autos"; "Trucker's Coverage Form." The deposition of Scott Golder, Travelers' Umbrella and Excess Manager /Underwriter, confirms that Travelers insured the excess policy to Western as a transportation company, covering all of Western's vehicles. Depo. of Golder, pp. 48-49; 96. Thus, the Travelers' following form policy covering Western's financial responsibility requirements under the Motor Carrier Act extended coverage to "any autos" that Western employed. Home Ins. Co. v. American Home Products Corp., 902 F.2d 1111, 1113 (2nd Cir.1990) ("the policy is a 'following form' agreement, subjecting [the insurer] to the 'terms, conditions and exclusions' of the [ ] excess policy"). As there is no dispute that the Barnett truck was used in transportation by Western as a licensed ICC motor carrier, was used in transporting hazardous materials for Western and was included as a covered vehicle under Western's insurance policies, the MCS-90 Endorsement, and the public policy upon which it was based, provided coverage in this case. See Transport Indem. Co. v. Paxton Nat'l Ins. Co., 657 F.2d 657, 659 (5th Cir.1981) ("ICC policy factors are frequently determinative where protection of the public or a shipper is at issue.").

Conclusion

Based on the policy underlying the MCS-90 as well as the specific facts of this case, the Court finds that (1) the lease agreement between Western and Barnett was for interstate transportation, and (2) because the Barnett truck in question was used for transportation, including transportation of hazardous materials, by Western as a licensed ICC motor carrier and was insured under the Travelers' policy procured by and issued to Western in order to meet its financial responsibility obligations as an ICC carrier, the MCS-90 Endorsement applies to the accident involving the Carrieres and the truck driven by Barnett. Accordingly, the motions for summary judgment filed by the Carrieres and by Barnett, Nobel and Western will be granted and the motions for summary judgment filed by Travelers will be denied.

JUDGMENT

In accordance with the Memorandum Ruling issued on this date,

IT IS ORDERED that the MCS-90 Endorsement in the excess policy issued by The Travelers Indemnity Co. of Illinois applies to the final judgment rendered in favor of the Carrieres against Western American Specialized Transportation Services, Inc. and Richard Wade Barnett, and that the motions for summary judgment filed by Dixie Carriere and Chris Carriere, individually and on behalf of their minor children, Kelly Carriere and Casey Carriere [Rec. Doc. 16] and by Richard Wade Barnett, Nobel Insurance Company and Western American Specialized Transportation Services, Inc. [Rec. Doc. 19] are GRANTED.

IT IS FURTHER ORDERED that the motions for summary judgment filed by The Travelers Indemnity Co. of Illinois [Rec. Docs. 24 & 39] are DENIED and Travelers' claims, with the exception of Travelers' cross claim against Nobel Insurance Company [Rec. Doc. 30], are DISMISSED WITH PREJUDICE.

Supreme Court of Vermont.

UNIVERSAL UNDERWRITERS INSURANCE COMPANY

v.

ALLSTATES AIR CARGO, INC., Stowe-flake Resort and Conference Center, and Baraw

Enterprises, Inc.

Feb. 3, 2003.

Before AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

ENTRY ORDER

¶ 1. Defendant carrier Allstates Air Cargo, Inc. (Allstates) appeals from the decision of the Lamoille Superior Court granting plaintiff-shipper Universal Underwriters Insurance Company's (UUIC) motion in limine to preclude Allstates from relying upon a limitation of liability provision on Allstates' airbill. The issue arose in litigation between them over damage and loss of part of UUIC's computer equipment while being shipped by Allstates. Allstates argues that the limitation of liability provision is enforceable under the "released value" doctrine of federal common law. We do not agree, and affirm.

¶ 2. Allstates is an interstate freight forwarder based in New Jersey. Allstates has done business with UUIC, an insurance company based in Kansas, for at least fourteen years, typically shipping printed material for UUIC. When shipping with Allstates, UUIC utilized preprinted airbills that Allstates delivered to UUIC approximately once a month. The front of UUIC's copy of the airbill contained blank spaces for information about the shipment, to be filled out by UUIC, including a box for "declared value." The back set forth the "CONDITIONS OF CONTRACT FOR FREIGHT AIRBILLS," printed in relatively small type. Among these conditions was a limitation of liability provision, as well as the statement that "[s]hipper may declare a higher value on the entire shipment, in which case an additional transportation charge as set forth in the Allstates Air Cargo Rules Tariff shall be required." The front of the airbill contains no reference to the printed conditions on the reverse side.

¶ 3. On August 11, 1999, UUIC contracted with Allstates for the shipment of twenty-four cartons containing laptop computers and associated software and computer hardware from UUIC's Kansas headquarters to the Stoweflake Resort and Conference Center (Stoweflake) in Stowe, Vermont, where UUIC was holding a conference. The shipment was arranged by Rachel Oitker, UUIC's customer service manager, who had used Allstates' services many times before. Ms. Oitker completed Allstates' preprinted airbill for the shipment, inserting the figure "$250,000" in the box for declared value. The airbill was picked up by an Allstates representative along with the shipment.

¶ 4. The shipment was transported by air to Boston, Massachusetts, then by truck to the Stoweflake, arriving on August 13, 1999. It was placed in a locked conference room overnight. The following day, UUIC discovered that several of the cartons had been damaged and that ten laptop computers and one printer were missing. UUIC informed Allstates of the loss and requested that Allstates indemnify it for the value of the lost goods, as provided for in the contract. Allstates refused, and UUIC subsequently brought suit against Allstates for breach of contract and negligence, and against Stowe-flake and its corporate owner, Baraw Enterprises, Inc., for negligence.

¶ 5. Before trial, UUIC filed a motion in limine to preclude Allstates from relying on the limitation of liability provision set forth in Paragraph 7 on the reverse side of the airbill. Paragraph 7 stated:

In consideration of Carrier's rate for the transportation of any shipment, which rate, in part, is dependent upon the value of the shipment, the shipper and all other parties having an interest in the shipment agreed that the limit of Carrier's liability shall be the lesser of:

(1) the amount of any damages actually sustained; or

(2) (a) where no value is declared, 50¢ per pound multiplied by the number of pounds (or fraction thereof) of those piece(s) of the shipment that may have been lost, damaged or delayed (or $50.00 whichever is greater), or

(b) where a higher value is declared, (i) in the case of loss, damage or delay of the entire shipment, the declared value of the shipment; (ii) in the case of the loss, damage or delay of part of the shipment, the average declared value per pound of the shipment multiplied by the number of pounds of that portion of the shipment which may have been lost, damaged or delayed. When damage is of a concealed nature payment will be made at 50% of repair or replacement cost, not to exceed the declared value.

Under Paragraph 7(2)(b)(ii), UUIC's damages would be limited to $19,682.52, as opposed to the approximately $42,000 that the jury found was the actual value of the lost goods. This reduction occurred because the provision required, in a partial loss situation, that the declared value be allocated by weight irrespective of the actual value of the damaged or lost items.

¶ 6. At the close of the evidence, the trial court entertained argument on UUIC's motion. The court ruled that the limitation of liability provision was unenforceable as a matter of law, and declined to instruct the jury on limitation of damages. The jury exonerated Stoweflake and returned a verdict against Allstates for $41,893.09. Allstates subsequently brought this appeal.

¶ 7. On review, since construction of a contract is a matter of law and not a factual determination, "this Court must make its own inquiry into the proper legal effect of the terms of the agreement, employing the trial court's valid findings of fact." Gannon v. Quechee Lakes Corp., 162 Vt. 465, 469, 648 A.2d 1378, 1380 (1994) (citations omitted). In actions such as this, where an interstate air carrier is sued for lost or damaged shipments, this Court is bound to apply federal common law. See Nippon Fire & Marine Ins. Co. v. Skyway Freight Sys., Inc., 235 F.3d 53, 59 (2d Cir.2000); Read- Rite Corp. v. Burlington Air Express, Ltd., 186 F.3d 1190, 1195-99 (9th Cir.1999); Sam L. Majors Jewelers v. ABX, Inc., 117 F.3d 922, 928-29 (5th Cir.1997); Arkwright-Boston Mfrs. Mutual Ins. Co. v. Great Western Airlines, Inc., 767 F.2d 425, 427 (8th Cir.1985); First Pennsylvania Bank, N.A. v. Eastern Airlines, Inc., 731 F.2d 1113, 1119-22 (3d Cir.1984).

¶ 8. Under the "released value" doctrine of federal common law, an air carrier may limit its liability for lost or damaged goods on a "released valuation" basis: "In exchange for a lower shipping rate, the shipper is deemed to have released the carrier from liability beyond a stated amount." Kemper Ins. Cos. v. Fed. Express Corp., 252 F.3d 509, 512 (1st Cir.2001). Pursuant to this doctrine, contractual provisions attempting to limit carrier liability for lost or damaged cargo are valid and enforceable only if they "(1) are set forth in a reasonably communicative form, so as to result in a fair, open, just and reasonable agreement between carrier and shipper; and (2) offer the shipper a possibility of higher recovery by paying the carrier a higher rate." Nippon Fire, 235 F.3d at 59-60 (internal quotation marks omitted); see also 3 S. Sorkin, Goods in Transit § 13.07[1], at 13-115 (2002). In evaluating whether these requirements have been met, courts have considered the following factors: "(1) whether the carrier has given adequate notice of the limitation of its liability to the shipper; (2) the economic stature and commercial sophistication of the parties; and (3) the availability of 'spot' insurance to cover a shipper's exposure." United States Gold Corp. v. Fed. Express Corp., 719 F.Supp. 1217, 1225 (S.D.N.Y.1989) (citing cases).

¶ 9. We find that Allstates' attempt to limit its liability does not satisfy the requirements of either element of the released value doctrine. As UUIC argued, the main deficiency of the airbill was that all the negotiated terms, including the consignee's signature, were on one side of the document and the conditions were on the reverse side. There is no provision on the front incorporating the terms from the rear or even a warning that such terms are present. Although we find no case involving precisely this situation under the federal common law governing carrier liability, the general applicable law is:

Where the signature is at the end of the instrument, it is generally plain that it authenticates everything above it. Where, however, written or printed matter appears below the signature, or on the back of the instrument, or on separate sheets of paper, a signature authenticates only the matter intended by the parties to be included as a part of the instrument. The intention must be manifested either by express reference or by internal evidence in the writings involved from which an inference of such intention follows.

Brown v. State Auto. Ins. Ass'n, 216 Minn. 329, 12 N.W.2d 712, 716 (1944); see also Thermo-Sav, Inc. v. Bozeman, 782 So.2d 241, 243 (Ala.2000) (where provision requiring arbitration was on reverse side of form contract with "no indication on the front of the contract that additional provisions appeared on the back of the contract and that those additional provisions were a part of the contract," arbitration provision was not part of the contract); Huebsch Laundry Co. v. Deluxe Diecutting, Inc., 2001 WL 138996, at *2 (Minn.Ct.App. Feb.20, 2001) (where liquidated damage clause was on reverse side of the agreement, with no reference to it on the front and no internal evidence that it is part of the contract, it is unenforceable). In this case, there is no express reference on the front of the document. Nor is there internal evidence in the writings that UUIC adopted the language on the reverse side. Cf. Monsanto Co. v. McFarling, 302 F.3d 1291, 1296 n. 3 (Fed.Cir.2002) (forum selection clause enforceable where contract stated above signature line that signer had read and understood all the contract terms and conditions and all terms and conditions were on the reverse side of the document), petition for cert. filed, 71 U.S.L.W. 3444 (U.S. Dec. 27, 2002) (No. 02-971).

¶ 10. Looking beyond whether the limitation of liability can be said to be part of the contract, we are troubled by the lack of a highlighted warning that such a limitation is present. The actual limitation provision was located in small print, in the middle of a subparagraph, without a heading or any textual features such as capital letters or bold print highlighting the limitation. See KPC Corp. v. Book Press, Inc., 161 Vt. 145, 151, 636 A.2d 325, 329 (1993) (in considering whether a party has been unfairly surprised by contract term, one consideration is whether terms were hidden in fine print); see also Young v. Continental Crane & Rigging Co., 183 Or.App. 563, 53 P.3d 465, 468- 69 (2002) (even where front of agreement contains reference to the terms on the reverse side, an indemnity provision printed in very light ink on the back of the form and mixed in with other provisions is not conspicuous and, therefore, is not enforceable). The liability limitation in the present case stands in stark contrast to the prominent provisions that have been upheld in previous cases. See, e.g., Owens-Corning Fiberglas Corp. v. U.S. Air, 853 F.Supp. 656, 665 (E.D.N.Y.1994) (finding adequate notice of liability limitation where front side of airbill referred to liability limitation provision printed on back); ZYX-Ware Int'l v. Fed. Express Corp., 1994 WL 904684, at *2 (N.D.Cal. Jan.5, 1994) ("notice was reasonably clear and conspicuous" where limitation on liability was printed on front of airbill in bold capital letters and referred shipper to back of bill where further details of liability limitation reprinted under bold capital headings); Hill Constr. Corp. v. American Airlines, Inc., 996 F.2d 1315, 1318 (1st Cir.1993) (upholding liability limitation provision set forth on back of airbill in ordinary size print and referred to on front); Husman Constr. Co. v. Purolator Courier Corp., 832 F.2d 459, 461-62 (8th Cir.1987) (shipper provided adequate notice of liability limitation where provision was referred to on front of bill of lading and was printed on back with "LIMITATION OF LIABILITY" heading and with other terms in capital letters).

¶ 11. The inconspicuous placement of the liability limitation provision on the rear side of the airbill also affects the second element of the released value doctrine: whether the shipper offered a higher recovery in return for a higher rate. Thus, "[l]imited liability provisions are prima facie valid if the face of the contract (or, in this case, air waybill) recites the liability limitation and the means to avoid it." Read- Rite Corp., 186 F.3d at 1198 (internal quotation marks omitted). As a result, the burden shifts to the shipper to prove that the shipper could not purchase liability coverage. Here, the presumption of validity did not apply because the liability limitation was not on the face of the airbill, either directly or by reference, and Allstates retained the burden to show UUIC had an alternative method of obtaining full coverage.

¶ 12. We do not believe that Allstates discharged that burden. Unlike virtually all the reported cases, the shipper here fully reported the value of the shipped items and paid a shipping price accordingly. The terms on the reverse side of the airbill stated no outside limit on Allstates' liability. The dispute arises from the allocation of the liability limit by weight. In a mixed shipment, the shipper is able to recover the full value of a lost or damaged item only if the ratio of the weight of an item to its value is higher than average for the shipment.

¶ 13. We agree with Allstates' claim that UUIC could have declared a higher value, paid a greater tariff and left Allstates with full liability. We do not find that a reasonable option. Allstates asserts that the liability limitation provision would cap its liability at less than 50% of actual value. Based on that assertion, UUIC would have had to declare the value of the shipped goods at over double what they were actually worth to obtain full liability in this case. We do not know that a double-value declaration would have ensured full recovery in all situations. For example, the shipment might have contained some software of high value and little weight. The declaration necessary to ensure recovery for any possible loss might have been many multiples of the actual value of the shipped items. For all this record shows, the cost to ensure full liability in any scenario may have exceeded the value of at least some of the items shipped. For no understandable economic reasons, the shipper is obtaining a windfall simply because multiple items are being shipped and they are not homogeneous. Moreover, the shipper cannot readily determine what value to declare to maximize liability in relation to cost.

¶ 14. Although we do not have to reach UUIC's argument that the liability limitation is against public policy if the carrier doesn't specifically notify the shipper of that provision, Allstates' response shows the weakness of its position. Relying on the underlying theory of the released value doctrine that a limitation of liability was "a consequence of the calculation of the transportation charge based upon the agreed value, rather than an exculpation from negligence," First Pennsylvania Bank, 731 F.2d at 1116, Allstates argues "the carrier [is] entitled to know the extent of its potential liability for loss of the property and to be compensated in proportion to the risk assumed." Shippers Nat'l Freight Claim Council, Inc. v. ICC, 712 F.2d 740, 746 (2d Cir.1983). We agree, but Allstates' argument cuts against it. Allstates assumed a risk exposure of $250,000, not the $19,682 it is prepared to pay. It never asked whether the different items in the shipment were of different weights or values, and nothing on the airbill suggests that the makeup of the shipment, as opposed to its aggregate weight and value, affected the price Allstates charged to ship it. Allstates was fully compensated for the risk it assumed without the liability limitation provision.

¶ 15. We note that Allstates could have demonstrated alternative approaches to ensure liability coverage. For example, Allstates could have demonstrated that, as an alternative to liability based on a declaration of value, UUIC could have purchased liability insurance that would have fully covered it in case of any damage or loss. As another alternative, Allstates might have shown that UUIC could have broken down the items into more than one shipment so that the allocation of liability problem was reduced or eliminated. Allstates made no such showing.

¶ 16. We acknowledge that this case is made closer because, as the trial court stated, "we are dealing with a corporate plaintiff versus a corporate defendant," and these parties have a significant history of prior dealings using this same airbill. The employee of UUIC who prepared the airbill had used Allstates' form many times and was aware that conditions were printed on the back. However, the superior court found that she was not aware of the liability limitation provision and thought she was buying insurance with the airbill. As UUIC notes, its prior dealings consisted primarily of the shipment of printed material, and it was not sophisticated in the shipping of lightweight, high-value goods. See Welliver v. Fed. Express Corp., 737 F.Supp. 205, 208 (S.D.N.Y.1990) (plaintiff not sophisticated shipper, having made limited shipments with carrier, none of which "involved items that were irreplaceable or of significant value" as were items involved in litigation). We agree with the superior court that the former dealings between the parties and the employee's knowledge were relevant factors, but also agree that they are not determinative in these circumstances.

Affirmed.

Supreme Court of Ohio.

WESTFIELD INSURANCE COMPANY

v.

GALATIS et al., Appellants; Aetna Casualty & Surety Company, Appellee.

Submitted March 26, 2003.

Decided Nov. 5, 2003.

O'CONNOR, J.

{¶ 1} Stare decisis is the bedrock of the American judicial system. Well-reasoned opinions become controlling precedent, thus creating stability and predictability in our legal system. It is only with great solemnity and with the assurance that the newly chosen course for the law is a significant improvement over the current course that we should depart from precedent.

{¶ 2} Mindful of these principles, we now examine Ohio's law regarding whether uninsured and underinsured motorist insurance issued to a corporation may compensate an individual for a loss that was unrelated to the insured corporation. This examination results in the limitation of Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116, by restricting the application of uninsured and underinsured motorist coverage issued to a corporation to employees only while they are acting within the course and scope of their employment, unless otherwise specifically agreed. It also requires overruling Ezawa v. Yasuda Fire & Marine Ins. Co. of Am. (1999), 86 Ohio St.3d 557, 715 N.E.2d 1142.

I

{¶ 3} Jason Galatis died on September 24, 1994, as a passenger in a vehicle negligently operated by Shawn Butler. Galatis's estate settled its claim against Butler for $75,000 and released him from liability on September 1, 1995. The estate next settled an underinsured motorist claim against Grange Insurance Company, Galatis's parents' insurer, on December 5, 1995.

{¶ 4} The matter was resurrected on May 8, 2000, when the estate presented claims under the business auto policy and the general liability portion of a commercial insurance policy that Westfield Insurance Company ("Westfield") had issued to Oliver Printing Company, the employer of Galatis's father and uncle.

{¶ 5} Aetna Casualty and Surety Company ("Aetna") was notified of claims arising from Galatis's death on August 15, 2000. The claims against Aetna were made under a master insurance policy issued to Quagliata's Restaurants, Inc., the employer of Galatis's mother. This policy was in effect at the time of the accident that caused Galatis's death. The estate asserted claims for coverage under the business auto and commercial general liability parts of the combined policy.

{¶ 6} The trial court ruled that both Westfield insurance policies and both parts of the Aetna policy provided underinsured motorist coverage to certain members of the Galatis family. However, the court also ruled that the estate had destroyed the insurers' subrogation rights and had failed to give prompt notice of the claims, resulting in loss of coverage under the policies.

{¶ 7} All parties appealed. Before the court of appeals issued its opinion, the estate settled with Westfield, removing it from the case. The court of appeals affirmed the judgment in favor of Aetna on the grounds that an endorsement that listed seven specific individuals as insureds precluded the kind of ambiguity found in Scott-Pontzer as to who is insured under the uninsured motorist endorsement to the policy.

{¶ 8} The case is before us as a certified conflict.

II

{¶ 9} An insurance policy is a contract. The freedom to contract and the attendant benefits and responsibilities of the parties to a contract are integral to the liberty of the citizenry, so much so that the United States Constitution specifically protects against state encroachment upon contracts. Clause 1, Section 10, Article I, United States Constitution. [FN1] In order to protect the integrity of contracts, the United States Constitution gives the United States Supreme Court the authority to overrule a state supreme court's interpretation of a state statute that infringes upon the right to contract. Piqua Branch of State Bank of Ohio v. Knoop (1853), 57 U.S. (16 How.) 369, 14 L.Ed. 977. In Piqua, the United States Supreme Court found our interpretation of a bank charter unconstitutional. It wrote, "We have power only to deal with contracts under the tenth section of the first article of the Constitution, whether made by a State or an individual; if such contract be impaired by an act of the State such act is void, as the power is prohibited to the State." Id. at 391, 14 L.Ed. 977.

FN1. "No State shall * * * pass any * * * Law impairing the Obligation of Contracts * * *."

{¶ 10} The Ohio Constitution also protects the freedom of contract. "The general assembly shall have no power to pass * * * laws impairing the obligation of contracts; but may, by general laws, authorize courts to carry into effect, upon such terms as shall be just and equitable, the manifest intentions of parties * * * by curing omissions, defects, and errors, in instruments * * *, arising out of their want of conformity with the laws of this state." Section 28, Article II, Ohio Constitution. The Ohio constitutional protection of contracts is coextensive with that of the federal Constitution. See State ex rel. Horvath v. State Teachers Retirement Bd. (1998), 83 Ohio St.3d 67, 76, 697 N.E.2d 644.

{¶ 11} When confronted with an issue of contractual interpretation, the role of a court is to give effect to the intent of the parties to the agreement. Hamilton Ins. Serv. Inc. v. Nationwide Ins. Cos. (1999), 86 Ohio St.3d 270, 273, 714 N.E.2d 898, citing Employers' Liab. Assur. Corp. v. Roehm (1919), 99 Ohio St. 343, 124 N.E. 223, syllabus. See, also, Section 28, Article II, Ohio Constitution. We examine the insurance contract as a whole and presume that the intent of the parties is reflected in the language used in the policy. Kelly v. Med. Life Ins. Co. (1987), 31 Ohio St.3d 130, 31 OBR 289, 509 N.E.2d 411, paragraph one of the syllabus. We look to the plain and ordinary meaning of the language used in the policy unless another meaning is clearly apparent from the contents of the policy. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 7 O.O.3d 403, 374 N.E.2d 146, paragraph two of the syllabus. When the language of a written contract is clear, a court may look no further than the writing itself to find the intent of the parties. Id. As a matter of law, a contract is unambiguous if it can be given a definite legal meaning. Gulf Ins. Co. v. Burns Motors, Inc. (Tex.2000), 22 S.W.3d 417, 423.

{¶ 12} On the other hand, where a contract is ambiguous, a court may consider extrinsic evidence to ascertain the parties' intent. Shifrin v. Forest City Enterprises, Inc. (1992), 64 Ohio St.3d 635, 597 N.E.2d 499. A court, however, is not permitted to alter a lawful contract by imputing an intent contrary to that expressed by the parties. Id.; Blosser v. Enderlin (1925), 113 Ohio St. 121, 148 N.E. 393, paragraph one of the syllabus ("there can be no intendment or implication inconsistent with the express terms [of a written contract]").

{¶ 13} It is generally the role of the finder of fact to resolve ambiguity. See, e.g., Davis v. Loopco Industries, Inc. (1993), 66 Ohio St.3d 64, 609 N.E.2d 144. However, where the written contract is standardized and between parties of unequal bargaining power, an ambiguity in the writing will be interpreted strictly against the drafter and in favor of the nondrafting party. Cent. Realty Co. v. Clutter (1980), 62 Ohio St.2d 411, 413, 16 O.O.3d 441, 406 N.E.2d 515. In the insurance context, the insurer customarily drafts the contract. Thus, an ambiguity in an insurance contract is ordinarily interpreted against the insurer and in favor of the insured. King v. Nationwide Ins. Co. (1988), 35 Ohio St.3d 208, 519 N.E.2d 1380, syllabus.

{¶ 14} There are limitations to the preceding rule. "Although, as a rule, a policy of insurance that is reasonably open to different interpretations will be construed most favorably for the insured, that rule will not be applied so as to provide an unreasonable interpretation of the words of the policy." Morfoot v. Stake (1963), 174 Ohio St. 506, 23 O.O.2d 144, 190 N.E.2d 573, paragraph one of the syllabus. Likewise, where "the plaintiff is not a party to [the] contract of insurance * * *, [the plaintiff] is not in a position to urge, as one of the parties, that the contract be construed strictly against the other party." Cook v. Kozell (1964), 176 Ohio St. 332, 336, 27 O.O.2d 275, 199 N.E.2d 566. This rings especially true where expanding coverage beyond a policyholder's needs will increase the policyholder's premiums. Id.

A. Uninsured Motorist Coverage

1. The Scott-Pontzer Decision

{¶ 15} The insurance industry customarily uses standardized forms promulgated by the Insurance Services Office, Inc. ("ISO"). The ISO forms are generically written to provide for the insurance needs of a wide range of policyholders. Combinations of the various standardized forms are used to create a customized policy for each policyholder. This is accomplished by using base forms such as Commercial Auto, Personal Auto, Personal Umbrella, or Commercial General Liability, which are supplemented by state-specific endorsements that expand or limit the extent of insurance coverage in accordance with the desire of the parties and with each state's laws.

{¶ 16} The ISO identifies the "Ohio Uninsured Motorist Coverage" endorsement as form CA 2133. Form CA 2133 is routinely included in policies issued to individuals, partnerships, corporations, and government entities. This form is part of the Aetna policy sub judice and was at issue in Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116.

{¶ 17} Since Scott-Pontzer, this court has been asked to decide a number of cases that center on the term "you" in form CA 2133. Form CA 2133 delineates four classes of "who is an insured" for uninsured motorist coverage. The first class is "you"; however, "you," is not defined in Form CA 2133. Form CA 2133 is merely a modification of the main policy form, in this case "Business Auto Coverage Form" (Form CA 0001), which defines "you" as "the Named Insured shown in the Declarations." The Aetna policy identifies the named insured, i.e., policyholder, as Quagliata's Restaurants, Inc.

{¶ 18} In Scott-Pontzer, this court relied upon King to find "you" to be ambiguous because it referred to a corporation, which "cannot occupy an automobile, suffer bodily injury or death, or operate a motor vehicle." 85 Ohio St.3d at 664, 710 N.E.2d 1116. This court opined that "naming the corporation as the insured is meaningless unless the coverage extends to some person or persons--including to the corporation's employees." Id. This court stated, "[L]anguage in a contract of insurance reasonably susceptible of more than one meaning will be construed liberally in favor of the insured and strictly against the insurer. Accordingly, we conclude that Pontzer, at the time of his death, was an insured under the * * * policy for purposes of underinsured motorist coverage." Id. at 665, 710 N.E.2d 1116 (internal citation and quotation omitted).

2. Other Jurisdictions and Scott-Pontzer

{¶ 19} Our reasoning in Scott-Pontzer has been questioned. See, e.g., Seaco Ins. Co. v. Davis-Irish (C.A.1, 2002), 300 F.3d 84, 87 (labeling Scott-Pontzer as anomalous for consciously departing from the tenet that the intent of the parties controls the interpretation of a contract); Gibson v. New Hampshire Ins. Co. (S.D.Ohio 2001), 178 F.Supp.2d 921, 922, fn. 2, 3 (referring to Scott-Pontzer's reasoning as a "mystery" and its conclusion as "preposterous"); Szabo v. CGU Internatl. Ins., PLC (S.D.Ohio 2002), 227 F.Supp.2d 820, 830, 833-834, fn. 15 (citing "distracting internal inconsistencies" in Scott-Pontzer and classifying portions of it as "beguiling"); Lawler v. Fireman's Fund Ins. Co. (N.D.Ohio 2001), 163 F.Supp.2d 841, 842, 843 (strongly disagreeing with Scott-Pontzer and referring to the resulting "mess" and to the Ohio Supreme Court's "distortion" of the law). Further, the Scott-Pontzer rationale stands in stark contrast with decisions of the vast majority of states that have considered similar issues. See, e.g., Concrete Services, Inc. v. United States Fid. & Guar. Co. (1998), 331 S.C. 506, 498 S.E.2d 865; Grain Dealers Mut. Ins. Co. v. McKee (Tex.1997), 943 S.W.2d 455; Buckner v. Motor Vehicle Acc. Indemn. Corp. (1985), 66 N.Y.2d 211, 495 N.Y.S.2d 952, 486 N.E.2d 810; Foote v. Royal Ins. Co. of Am. (1998), 88 Hawaii 122, 962 P.2d 1004; Am. States Ins. Co. v. C & G Contracting, Inc. (1996), 186 Ariz. 421, 924 P.2d 111; Michigan Twp. Participating Plan v. Pavolich (1998), 232 Mich.App. 378, 591 N.W.2d 325; Younger v. Reliance Ins. Co. (Tenn.App.1993), 884 S.W.2d 453. Although not controlling, this broad-based disagreement with and criticism of Scott-Pontzer supports our decision to revisit the subject.

3. The Intention of the Parties to the Contract

{¶ 20} The general intent of a motor vehicle insurance policy issued to a corporation is to insure the corporation as a legal entity against liability arising from the use of motor vehicles. King v. Nationwide Ins. Co., 35 Ohio St.3d at 211, 519 N.E.2d 1380. It is settled law in Ohio that a motor vehicle operated by an employee of a corporation in the course and scope of employment is operated by and for the corporation and that an employee, under such circumstances, might reasonably be entitled to uninsured motorist coverage under a motor vehicle insurance policy issued to his employer. Id. at 213, 519 N.E.2d 1380. See, also, Selander v. Erie Ins. Group (1999), 85 Ohio St.3d 541, 709 N.E.2d 1161. However, an employee's activities outside the scope of employment are not of any direct consequence to the employer as a legal entity. An employer does not risk legal or financial liability from an employee's operation of a non-business-owned motor vehicle outside the scope of employment. Consequently, uninsured motorist coverage for an employee outside the scope of employment is extraneous to the general intent of a commercial auto policy.

{¶ 21} Nevertheless, in Scott-Pontzer, this court held that an uninsured motorist endorsement that identifies "you" as the named insured where "you" refers to a corporation must extend coverage to an employee outside the course and scope of employment. Soon thereafter, this court expanded upon Scott- Pontzer by holding that the same policy form also provides uninsured motorist coverage to a resident relative of an employee of a corporate policyholder. Ezawa v. Yasuda Fire & Marine Ins. Co. of Am. (1999), 86 Ohio St.3d 557, 715 N.E.2d 1142.

{¶ 22} Throughout this process, this court did not reconcile construing the contractual language to provide insurance to off-duty employees, and to the family members of those employees, with the absence of any benefit to the policyholder, i.e., the corporation. In due course, we will turn to these questions. First, we examine the purported ambiguity.

4. Ambiguity and the Corporate Entity

{¶ 23} The UM/UIM endorsement language before us is:

{¶ 24} "B. WHO IS AN INSURED"

{¶ 25} "1. You.

{¶ 26} "2. If you are an individual, any 'family member.'

{¶ 27} "3. Anyone else 'occupying' a covered 'auto' or a temporary substitute for a covered 'auto.' The covered 'auto' must be out of service because of its breakdown, repair, servicing, loss or destruction.

{¶ 28} "4. Anyone for damages he or she is entitled to recover because of 'bodily injury' sustained by another 'insured.' "

{¶ 29} The first class of who is insured--"you"--readily applies where the policyholder is an individual. Its application is ambiguous where the policyholder is a corporation. King v. Nationwide, 35 Ohio St.3d 208, 519 N.E.2d 1380. In King, we analyzed an earlier version of the Ohio Uninsured Motorist Endorsement that contained a different formulation of who is an insured. King held that a motor vehicle operated by an employee in the scope of his employment was operated by and for the corporation, thereby equating the employee to the corporation for the purpose of work-related activities and injuries. Id. at 213, 519 N.E.2d 1380. We then held that because the employee occupied the vehicle operated by the corporation, the employee was within the class of " 'anyone else' * * * occupying * * * any other motor vehicle while it is being operated by you." Id.

{¶ 30} Our reasoning in King took an unnecessary step. We found coverage for the employee as an occupant of the vehicle that was operated by the corporation. However, the vehicle was operated by the corporation through the very employee we found to be "anyone else." Although this logic is valid, it is tenuous to classify an individual as both "you" and "anyone else" at the same instant.

{¶ 31} The employee in King acted on behalf of the corporation while operating the vehicle. This is why we found the employee to be "you." Further analysis was unnecessary. Because the employee qualifies as "you" while operating a motor vehicle on behalf of the corporation, he is entitled to uninsured motorist coverage. Accordingly, we follow Scott-Pontzer to the extent that it held that an employee in the scope of employment qualifies as "you" as used in CA 2133, and thus, is entitled to uninsured motorist coverage.

{¶ 32} We cannot, however, extend this coverage to an employee outside the scope of employment. As previously discussed, King found that an employee was insured for uninsured motorist coverage as an occupant of a vehicle operated by the corporation where the employee was within the scope of employment. The Scott-Pontzer court properly focused on the term "you," but in so doing confused the employee's status as an individual with the employee's status as an agent of the corporation. The court held that where "you" is defined as a corporation for the purposes of insuring against bodily injury sustained by "you," the term must be read to extend insurance coverage to each employee regardless of whether he was acting within the course and scope of employment. In this manner, Scott- Pontzer dramatically departed from King's sound rationale that an employee qualifies as "you" under a policy issued to a corporation only when within the scope of employment.

{¶ 33} In Scott-Pontzer, this court reasoned that "naming the corporation as the insured is meaningless unless the coverage extends to some person or persons--including to the corporation's employees." 85 Ohio St.3d at 664, 710 N.E.2d 1116. However, this statement does not support the untenable extension of insured status to employees outside the scope of employment.

5. Construing Ambiguity in Favor of the Policyholder

{¶ 34} As discussed above, contract law requires that, where parties to a contract have unequal bargaining power, ambiguities be construed in favor of the nondrafting party. In the insurance context, we have assumed that the insurer, as the drafter of the policy, is always in a stronger bargaining position than is the insured. Thus, ambiguities are construed in favor of the insured. A claimant, however, is not necessarily an insured.

{¶ 35} An insured can be the policyholder or another who is entitled to insurance coverage under the terms of the policy. When a court decides whether a claimant is insured under a policy, ambiguities are construed in favor of the policyholder, not the claimant. Cook v. Kozell, supra; West v. McNamara (1953), 159 Ohio St. 187, 197, 50 O.O. 229, 111 N.E.2d 909 ("The universal rule that insurance policies are to be construed strictly in favor of the insured operates in favor of such insured persons as are covered by the policy, and * * * is not applicable to extend the coverage of the policy to absurd lengths so as to provide a right of action * * *"). In Scott- Pontzer, we failed to analyze how ruling that an employee is insured outside the course and scope of employment favors the policyholder. Rather, we asked which construction favored the claimant. While an ambiguity is construed in favor of one who has been determined to be insured, an ambiguity in the preliminary question of whether a claimant is insured is construed in favor of the policyholder. Id. Accord Inland Rivers Serv. Corp. v. Hartford Fire Ins. Co. (1981), 66 Ohio St.2d 32, 34, 20 O.O.3d 20, 418 N.E.2d 1381 ("It is undisputed that one seeking to recover on an insurance policy generally has the burden of * * * demonstrating coverage under the policy"). If the policyholder's interest is not considered at this initial phase, we risk construing the policy against the policyholder. Grant Thornton v. Windsor House, Inc. (1991), 57 Ohio St.3d 158, 161, 566 N.E.2d 1220 ("Only a party to a contract or an intended third-party beneficiary of a contract may bring an action on a contract in Ohio"). Scott-Pontzer concluded otherwise.

{¶ 36} In resolving this alleged ambiguity, the proper question is whether interpreting the policy to cover all employees of the policyholder, regardless of whether the employee is acting within the course and scope of employment--and all family members of the employees--favors the policyholder.

{¶ 37} The purpose of a commercial auto policy is to protect the policyholder. King v. Nationwide Ins. Co., supra. Providing uninsured motorist coverage to employees who are not at work or, for that matter, to every employee's family members is detrimental to the policyholder's interests. See Cook v. Kozell, 176 Ohio St. at 336, 27 O.O.2d 275, 199 N.E.2d 566.

{¶ 38} King held that the use of a vehicle "by and for" the corporate policyholder precipitated coverage. This holding is reasonable because it arguably benefits the policyholder to insure against losses sustained by those operating vehicles on its behalf. This point was lost in Scott-Pontzer, which did not focus upon the critical inquiry of whether the loss occurred within the scope of employment--a necessary factor for the establishment of insurance coverage in King.

{¶ 39} Scott-Pontzer ignored the intent of the parties to the contract. Absent contractual language to the contrary, it is doubtful that either an insurer or a corporate policyholder ever conceived of contracting for coverage for off-duty employees occupying noncovered autos, let alone the family members of the employees. The Scott-Pontzer court construed the contract in favor of neither party to the contract, preferring instead to favor an unintended third party. The Scott-Pontzer court even acknowledged that the expansion of coverage for an employee outside the course and scope of employment "may be viewed by some as a result that was not intended by the parties to the insurance contracts at issue." 85 Ohio St.3d at 666, 710 N.E.2d 1116. The United States Supreme Court has not shied away from overturning state court decisions that unreasonably contort a contract. Piqua, 57 U.S. (16 How.) at 391-392, 14 L.Ed. 977 ("The decision of the Supreme Court of the State [of Ohio] is before us for revision, and if their construction of the contract in question impairs its obligation, we are required to reverse their judgment. To follow the construction of a State court in such a case, would be to surrender one of the most important provisions in the federal Constitution"). See, also, Allied Structural Steel Co. v. Spannaus (1978), 438 U.S. 234, 244, 98 S.Ct. 2716, 57 L.Ed.2d 727 (the sovereignty of a state "has limits when its exercise effects substantial modifications of private contracts" [internal quotations and citations omitted] ).

B. Insurance Coverage for Family Members

{¶ 40} In Ezawa, we relied upon the Scott-Pontzer definition of "you" to find that the second class of insureds on Form CA 2133--"if you are an individual, any family member"--extends uninsured motorist coverage to a family member of an employee. In addition to relying upon the logic of Scott- Pontzer, Ezawa also erred by not interpreting the second class of insureds as a nullity. Insurance policies are no longer written in manuscript for each policyholder, but rather are standard forms designed to insure a variety of entities, including individuals. "There is nothing sinister about an insurer's use of a 'one size fits all' policy form." Seaco Ins. Co. v. Davis-Irish, 300 F.3d at 87.

{¶ 41} The second class of insureds applies when the policyholder is an individual. It is simply inapposite when the policyholder is a corporation, just as it is inapposite where an individual policyholder resides alone, and as the fourth class is inapposite where no one is entitled to recover for another's bodily injury. One who argues a contorted use of an inapposite section of a standard form "confuses superfluity with inapplicability." Id. It is unnecessary for each of the four classifications to apply to every insurance policy as long as the parties to the insurance policy agree upon whether a particular claimant is intended to be insured. [FN2]

FN2. It may be argued that this statement supports the overruling of King. However, King stands strong under the stare decisis test articulated below.

{¶ 42} In hindsight we see the problems inherent in our earlier opinions. This court, however, follows the doctrine of stare decisis and will abandon a previous holding only when it is incumbent upon us to do so.

III

{¶ 43} The doctrine of stare decisis is designed to provide continuity and predictability in our legal system. We adhere to stare decisis as a means of thwarting the arbitrary administration of justice as well as providing a clear rule of law by which the citizenry can organize their affairs. Rocky River v. State Emp. Relations Bd. (1989), 43 Ohio St.3d 1, 4-5, 539 N.E.2d 103. Those affected by the law come to rely upon its consistency. Helvering v. Hallock (1940), 309 U.S. 106, 119, 60 S.Ct. 444, 84 L.Ed. 604. Accordingly, stare decisis is long revered. See, e.g., 1 Blackstone, Commentaries on the Laws of England (1765) 70 ("precedents and rules must be followed, unless flatly absurd or unjust * * *"). However, a supreme court not only has the right, but is entrusted with the duty to examine its former decisions and, when reconciliation is impossible, to discard its former errors. State v. Jenkins (2000), 93 Hawaii 87, 112, 997 P.2d 13; see, also, Mitchell v. W.T. Grant Co. (1974), 416 U.S. 600, 627-628, 94 S.Ct. 1895, 40 L.Ed.2d 406.

{¶ 44} "[T]he doctrine of stare decisis is of fundamental importance to the rule of law. Like the United States Supreme Court, we recognize that our precedents are not sacrosanct, for we have overruled prior decisions where the necessity and propriety of doing so has been established. But any departure from the doctrine of stare decisis demands special justification." Wampler v. Higgins (2001), 93 Ohio St.3d 111, 120, 752 N.E.2d 962 (Internal citations and quotations omitted). This principle is universally accepted and unquestioned. Reasonable disagreement may arise only over which circumstances constitute "special justification."

{¶ 45} Although this court is no stranger to overruling precedent, [FN3] we have not adopted a standard by which to judge whether a past decision should be abandoned. Justice Frankfurter opined that stare decisis should be abandoned only "when such adherence involves collision with a prior doctrine more embracing in its scope, intrinsically sounder, and verified by experience." Helvering v. Hallock, 309 U.S. at 119, 60 S.Ct. 444, 84 L.Ed. 604. Justice Scalia takes a pragmatic approach, believing that a precedent should be abandoned where the rule is "wrong in principle," "unstable in application," and undermined by various exceptions and contradictions. United States v. Dixon (1993), 509 U.S. 688, 709-711, 113 S.Ct. 2849, 125 L.Ed.2d 556.

FN3. In the field of insurance law, see, e.g., Ferrando v. Auto- Owners Mut. Ins. Co., 98 Ohio St.3d 186, 2002-Ohio-7217, 781 N.E.2d 927, overruling portions of Bogan v. Progressive Cas. Ins. Co. (1988), 36 Ohio St.3d 22, 521 N.E.2d 447; Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d 552, 644 N.E.2d 397, overruling Motorists Mut. Ins. Co. v. Said (1992), 63 Ohio St.3d 690, 590 N.E.2d 1228; and Savoie v. Grange Mut. Ins. Co. (1993), 67 Ohio St.3d 500, 620 N.E.2d 809, overruling Burris v. Grange Mut. Cos. (1989), 46 Ohio St.3d 84, 545 N.E.2d 83.

{¶ 46} Other state supreme courts have opined as to when stare decisis should be abandoned. [FN4] Under any of these standards, Scott-Pontzer would be justly overturned.

FN4. The Idaho Supreme Court will reverse itself when a decision has proven over time to be unjust or unwise. State v. Humpherys (2000), 134 Idaho 657, 660, 8 P.3d 652. Maine abandons precedent that "lacks vitality and the capacity to serve the interests of justice." State v. Rees (Me.2000), 748 A.2d 976, 977. Arkansas will break from precedent where adherence to the rule would cause great injury or injustice. Aka v. Jefferson Hosp. Assn., Inc. (2001), 344 Ark. 627, 641, 42 S.W.3d 508. Many states will part from cases that were wrong when decided. Ex Parte State Farm Fire & Cas. Co. (Ala.2000), 764 So.2d 543, 545-546; State Commercial Fisheries Entry Comm. v. Carlson (Alaska 2003), 65 P.3d 851, 859; Southwestern Bell Yellow Pages, Inc. v. Dir. of Revenue (Mo.2002), 94 S.W.3d 388, 390-391; Shoup v. Wal-Mart Stores, Inc. (2003), 335 Ore. 164, 174, 61 P.3d 928; State v. Mauchley (Utah 2003), 67 P.3d 477, 481. Others will not follow past decisions that are unworkable or poorly reasoned. J & M Land Co. v. First Union Natl. Bank (2001), 166 N.J. 493, 521, 766 A.2d 1110; Riney v. State (Tex.Crim.App.2000), 28 S.W.3d 561, 565; see, also, Payne v. Tenn. (1991), 501 U.S. 808, 827, 111 S.Ct. 2597, 115 L.Ed.2d 720.

{¶ 47} The Supreme Court of Michigan has formulated a standard that incorporates factors used by other states: (1) whether the decision was wrongly decided, (2) whether the decision defies practical workability, (3) whether reliance interests would cause an undue hardship, and (4) whether changes in the law or facts no longer justify the questioned decision. Pohutski v. Allen Park (2002), 465 Mich. 675, 694, 641 N.W.2d 219. The Michigan court created a well-structured method of ensuring a disciplined approach to deciding whether to abandon a precedent. Accordingly, we adopt a modified version of it here.

{¶ 48} The first and fourth Michigan factors operate as alternatives-- a decision either must have been wrong at the time it was decided, or was initially correct, but the passage of time has rendered it obsolete. Thus, in Ohio, a prior decision of the Supreme Court may be overruled where (1) the decision was wrongly decided at that time, or changes in circumstances no longer justify continued adherence to the decision, (2) the decision defies practical workability, and (3) abandoning the precedent would not create an undue hardship for those who have relied upon it. [FN5] We now apply this test to Scott-Pontzer.

FN5. Subsequent to the initial drafting of this opinion, the United States Supreme Court utilized a similar trifold stare decisis test in Lawrence v. Texas (2003), 539 U.S. ----, 123 S.Ct. 2472, 2482-2483, 156 L.Ed.2d 508. The test was synthesized by a dissenting justice: "Today's approach to stare decisis invites us to overrule an erroneously decided precedent * * * if: (1) its foundations have been 'eroded' by subsequent decisions, ante [539 U.S. ----, 123 S.Ct.] at 2482 [156 L.Ed.2d 508]; (2) it has been subject to 'substantial and continuing' criticism, ibid.; and (3) it has not induced 'individual or societal reliance' that counsels against overturning, ante [539 U.S. ----, 123 S.Ct.] at 2483 [156 L.Ed.2d 508]." Id. [539 U.S. ----, 123 S.Ct.] at 2489 [156 L.Ed.2d 508] (emphasis sic) (Scalia, J., dissenting).

A. Scott-Pontzer was Erroneously Decided

{¶ 49} As previously discussed, Scott-Pontzer was wrongly decided. See Section II, above. Whether someone is insured under an insurance policy should not be interpreted in favor of one who was not a party to the contract. This was the law in Ohio long before Scott-Pontzer. Cook v. Kozell, 176 Ohio St. at 336, 27 O.O.2d 275, 199 N.E.2d 566 (the plaintiff who is not a party to the insurance contract is not in a position to urge a construction of the contract that would be detrimental to both parties to the contract); West v. McNamara, supra. We should have followed this well-settled and intrinsically sound precedent, which is verified by experience. Instead, we ventured to a point where the definition of "you" became immaterial to its meaning and the intention of the parties was ignored.

B. The Unworkable Nature of Scott-Pontzer

1. Scott-Pontzer Has Caused Chaos in the Courts

{¶ 50} Scott-Pontzer and its progeny defy practical workability. The multitude of post-Scott-Pontzer issues before this court, [FN6] the widespread criticism of the decision from other jurisdictions, [FN7] and the numerous conflicts emanating from the lower courts [FN8] indicate that the decision muddied the waters of insurance coverage litigation, converted simple liability suits into complex multiparty litigation, and created massive and widespread confusion--the antithesis of what a decision of this court should do. Attorneys are forced to file briefs and appendixes that are several inches thick in an attempt to form a coherent picture out of the post-Scott-Pontzer morass.

FN6. See, e.g., Bagnoli v. Northbrook Prop. & Cas. Ins. Co. (1999), 86 Ohio St.3d 314, 715 N.E.2d 125; Linko v. Indemn. Ins. Co. of N. Am. (2000), 90 Ohio St.3d 445, 739 N.E.2d 338; Kemper v. Michigan Millers Mut. Ins. Co., 98 Ohio St.3d 162, 2002-Ohio-7101, 781 N.E.2d 196; and Ferrando v. Auto-Owners Mut. Ins. Co., 98 Ohio St.3d 186, 2002-Ohio- 7217, 781 N.E.2d 927.

FN7. Ante, ¶ 19

FN8. For example, there are currently 23 cases before this court that await this opinion. All told, there are over 90 Scott-Pontzer related cases pending before this court.

{¶ 51} This chaos resulted from this court's failure to explain why the intent of the parties was not controlling. The Scott-Pontzer court also failed to acknowledge or explain its departure from precedent. To uphold Scott- Pontzer is to summarily reject the well-reasoned precedents of Cook and West. This we must not do.

2. Exceptions and Contradictions to Scott-Pontzer.

{¶ 52} As previously discussed, the courts of Ohio are deluged by cases arising from Scott-Pontzer and its progeny. If we allow the objectionable aspects of Scott-Pontzer to stand, a patchwork of exceptions to, and limitations of, Scott-Pontzer would be the likely result.

{¶ 53} The case before us asks whether the addition of an endorsement entitled "Drive Other Car Coverage--Broadened Coverage for Named Individuals" to the commercial motor vehicle policy prevents the Scott-Pontzer ambiguity from being read into the policy. A broadened-coverage endorsement extends a commercial motor vehicle insurance policy's coverage to a list of specific individuals when those individuals or their spouses use vehicles not otherwise covered under the policy.

{¶ 54} The broadened-coverage endorsement can be seen as altering the Scott-Pontzer analysis in two ways. First, Aetna argues that the inclusion of these individuals prevents any ambiguity from forming because "you" must be read to mean the specific individuals listed in the broadened-coverage endorsement. Thus, because there is uninsured motorist coverage provided for individuals, the term "you" is not rendered ambiguous. Second, Aetna invokes expressio unius to argue that by expressly covering the individuals listed in the broadened-coverage endorsement, the contract shows that the parties did not intend to extend uninsured motorist coverage to every employee and employee's family member.

{¶ 55} Aetna's second argument carries great weight, for the intent of the parties is paramount. Here, Quagliata's Restaurants paid $881 to have seven individuals covered under the broadened-coverage endorsement. Of that amount, $565 was for uninsured motorist premiums. It is clear that the parties thought this to be an expansion of uninsured motorist coverage. However, ruling that including individuals on a broadened-coverage endorsement prevents "you" from being ambiguous would not be without its problems. That ruling would require that paying an additional premium actually reduces the coverage available under the policy. This is neither a just result nor a logical consistency.

{¶ 56} Besides the broadened-coverage issue presented in this case, additional exceptions to Scott-Pontzer are sought in cases currently pending before this court. [FN9] Creating exceptions to Scott-Pontzer would add to the confusion and arbitrariness, not lessen them.

FN9. Some of the pending issues are whether Scott-Pontzer applies to policies issued to partnerships, schools, or collectively to a business and an individual; to fronting policies; or where the terms and conditions of coverage have been violated.

{¶ 57} The rationale of Scott-Pontzer does not withstand scrutiny. If we were to slowly create a patchwork of exceptions and limitations, we would abandon certainty in the law and contribute to the continuing morass of litigation. Maintaining Scott-Pontzer as precedent, while eviscerating it with exceptions, would not respect the principle of stare decisis but mock it, and would continue the chaos in our insurance jurisprudence. See United States v. Dixon at 711, 113 S.Ct. 2849, 125 L.Ed.2d 556.

C. Reliance Interests

{¶ 58} The final part of our test is whether undue hardship would be visited upon those who have relied on Scott-Pontzer. "[T]he Court must ask whether the previous decision has become so embedded, so accepted, so fundamental, to everyone's expectations that to change it would produce not just readjustments, but practical real-world dislocations." Robinson v. Detroit (2000), 462 Mich. 439, 466, 613 N.W.2d 307. If overruling a precedent would cause chaos, it should be upheld even if wrongly decided.

{¶ 59} No reliance interest will be jeopardized by limiting Scott-Pontzer. First, Scott-Pontzer cannot be relied upon when policyholders purchase uninsured motorist coverage. The General Assembly has enacted changes to R.C. 3937.18 expressly to supersede Scott-Pontzer. Section 3, 2001 Am.Sub.S.B. No. 97 (eff. Oct. 31, 2001). Second, the overwhelming majority of Scott-Pontzer cases are resurrected claims from the years prior to the Scott-Pontzer decision. [FN10] Because no one was aware of this form of uninsured motorist coverage before it was created by that decision, no one could have relied upon it. Finally, the potential that anyone would have reduced his personal uninsured motorist coverage based upon the belief that his employer's insurer, or his family member's employer's insurer, would provide this coverage is practically nonexistent. Thus, there is no individual or societal reliance upon Scott-Pontzer outside of the courtroom.

FN10. This is due to Ohio's 15-year statute of limitations on contract claims, R.C. 2305.06, and partially because insurers acted quickly to modify their policies after the Scott-Pontzer decision.

{¶ 60} Limiting Scott-Pontzer will restore order to our legal system by returning to the fundamental principles of insurance contract interpretation. "It does no violence to the legal doctrine of stare decisis to right that which is clearly wrong. It serves no valid public purpose to allow incorrect opinions to remain in the body of our law." State ex rel. Lake Cty. Bd. of Commrs. v. Zupancic (1991), 62 Ohio St.3d 297, 300, 581 N.E.2d 1086.

IV

{¶ 61} For the foregoing reasons, we hereby limit Scott-Pontzer v. Liberty Mut. Fire Ins. Co. to apply only where an employee is within the course and scope of employment. We overrule Ezawa v. Yasuda Fire & Marine Ins. Co. of Am. "Since neither experience nor reason and justice support the rule[s], but in fact militate against [them], this court would be doing less than its duty, even giving due and careful consideration to the rule of stare decisis, to perpetuate [them] or add yet another ramification or exception." Carter- Jones Lumber Co. v. Eblen (1958), 167 Ohio St. 189, 207, 4 O.O.2d 256, 147 N.E.2d 486.

{¶ 62} Absent specific language to the contrary, a policy of insurance that names a corporation as an insured for uninsured or underinsured motorist coverage covers a loss sustained by an employee of the corporation only if the loss occurs within the course and scope of employment. Additionally, where a policy of insurance designates a corporation as a named insured, the designation of "family members" of the named insured as "other insureds" does not extend insurance coverage to a family member of an employee of the corporation, unless that employee is also a named insured.

{¶ 63} In this case, Jason Galatis's death was unrelated to his mother's employment with Quagliata's Restaurants. Therefore, the Aetna insurance policy issued to Quagliata's Restaurants does not provide coverage here. Accordingly, the judgment of the court of appeals is affirmed.

Judgment affirmed.

MOYER, C.J., DeGENARO and LUNDBERG STRATTON, JJ., concur.

MOYER, C.J., and LUNDBERG STRATTON, J., concur separately.

RESNICK, J., dissents.

RESNICK and FRANCIS E. SWEENEY, SR., JJ., dissent.

PFEIFER, J., dissents.

MARY DeGENARO, J., of the Seventh Appellate District, sitting for COOK, J.

MOYER, C.J., concurring.

{¶ 64} This court has recently accepted jurisdiction over several cases, including the one at bar, in which a party has affirmatively requested that we overrule Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116. Having accepted this issue for review, [FN11] the court today stands at a crossroads. The court may follow the doctrine of stare decisis and attempt to minimize the impact of Scott-Pontzer by creating a patchwork of exceptions to and limitations of the holding therein. Alternatively, the court may depart from a rigid application of the doctrine and, in a single pronouncement, right that which is clearly wrong. See State ex rel. Lake Cty. Bd. of Commrs. v. Zupancic (1991), 62 Ohio St.3d 297, 300, 581 N.E.2d 1086. For the reasons stated in the majority opinion, I believe that the latter charts the better course toward restoring order to insurance law in Ohio.

FN11. See, e.g., Monroe Guar. Ins. Co. v. Kuba, case No. 2003- 0213, 98 Ohio St.3d 1564, 2003-Ohio-2242, 787 N.E.2d 1229; Sekula v. Hartford Ins. Co., case No. 2003-0729, 99 Ohio St.3d 1510, 2003-Ohio-3957, 792 N.E.2d 198; McNeeley v. Pacific Employers Ins. Co., case No. 2003- 1302, 100 Ohio St.3d 1437, 2003-Ohio-5513, 797 N.E.2d 515.

{¶ 65} As a staunch and consistent advocate of stare decisis, I concur in the majority opinion only after considerable deliberation. I joined Justice Cook's dissent in Scott-Pontzer because I believed that neither the commercial policy nor the excess policy should be construed to provide UIM coverage to an off-duty employee driving his spouse's car. Under most circumstances, I would not vote to overrule a precedent established by the majority of this court. The doctrine of stare decisis, as I observed in Gallimore v. Children's Hosp. Med. Ctr. (1993), 67 Ohio St.3d 244, 257, 617 N.E.2d 1052, embodies "a fundamental element of American jurisprudence--consistency and predictability." (Moyer, C.J., dissenting.) My dissent in Gallimore, however, also recognized that " 'stare decisis is a principle of policy and not a mechanical formula of adherence to the latest decision, however recent and questionable, when such adherence involves collision with a prior doctrine more embracing in its scope, intrinsically sounder, and verified by experience.' " Id., quoting Helvering v. Hallock (1940), 309 U.S. 106, 119, 60 S.Ct. 444, 84 L.Ed. 604.

{¶ 66} The majority opinion refines this principle and, in so doing, sets forth a tripartite standard that honors stare decisis by preventing arbitrary and discriminatory enforcement of the law while relieving courts of the obligation to apply stare decisis with "petrifying rigidity." Clark v. Southview Hosp. & Family Health Ctr. (1994), 68 Ohio St.3d 435, 438, 628 N.E.2d 46. We serve the bench and the bar by adopting a cogent, clear standard by which to test claims that our precedents should not be followed. There can be little doubt that Scott-Pontzer should be limited under this standard.

{¶ 67} Our decision today does not mark a change in my belief in the importance of the predictability and consistency produced by stare decisis. No one should assume that our decision heralds a new era in which prior cases of this court will be routinely or arbitrarily overruled. Our decision, rather, is a narrow response to a decision widely recognized as an error of law, which, if left uncorrected, would have continued to produce consequences that even the majority in Scott-Pontzer could not have foreseen. To that end, I am reminded of this court's assertion over four decades ago:

{¶ 68} " '[C]ases and situations arise in which the need for a change is imminent. This becomes acutely apparent when a rule with dubious beginnings hangs on tenaciously in the face of a much needed change. Case after case will display the death throes of the old rule and at the same time the reluctance of the judges to overrule it.' " Gibbon v. Young Women's Christian Assn. of Hamilton (1960), 170 Ohio St. 280, 289, 10 O.O.2d 334, 164 N.E.2d 563, quoting Feather, The Immunity of Charitable Institutions from Tort Liability (1959), 11 Baylor L.Rev. 86, 106.

{¶ 69} This observation could be no more prophetic than here: case after case before us reveals the impracticality of Scott-Pontzer and thus gives rise to the question of whether the reluctance of judges to overrule it will prevail in the face of a much needed change. I join the majority today as we create and apply a standard that will serve this court and all who are bound by its decision.

LUNDBERG STRATTON, J., concurs in the foregoing concurring opinion.

ALICE ROBIE RESNICK, J., dissenting.

{¶ 70} This case comes to us through a certified conflict on the following issue, as stated by the court of appeals: "Whether the inclusion of a 'Broadened Coverage Endorsement,' adding individual named insureds to a commercial motor vehicle liability policy, eliminates any ambiguity over the use of the term 'you' therein." The court of appeals certified its decision on this issue as in conflict with the decisions of the Fifth District Court of Appeals in Burkhart v. CNA Ins. Co. (Feb. 25, 2002), Stark App. No. 2001CA00265, 2002 WL 316224; and Still v. Indiana Ins. Co. (Feb. 25, 2002), Stark App. No. 2001CA00300, 2002 WL 358652. This court determined that a conflict exists and ordered the parties to brief the issue as stated. 96 Ohio St.3d 1446, 2002-Ohio-3512, 771 N.E.2d 260. When the court accepts a certified-conflict case for review, it issues an order "identifying those issues raised in the case that will be considered by the Supreme Court on appeal." S.Ct.Prac.R. IV(2)(C). Our order identified only the issue stated in the certification order.

{¶ 71} Rather than confining itself to deciding the certified issue, the majority expands the scope of this appeal on the merits by drastically "limiting" the holding of Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116, and overruling Ezawa v. Yasuda Fire & Marine Ins. Co. of Am. (1999), 86 Ohio St.3d 557, 715 N.E.2d 1142. In the process of reaching those conclusions, the majority expands the reach of its opinion to yet another level by propounding as syllabus law a general, supposedly objective, test to be applied whenever this court considers whether stare decisis should be rejected and a previous decision of this court overruled.

{¶ 72} Appellee conceded the validity of Scott-Pontzer in both the trial court and the court of appeals below, and proceeded at both levels on the theory that it should prevail on other grounds. The trial court found that Scott-Pontzer applied but further found that coverage pursuant to that decision was unavailable because appellants failed to comply with notice and subrogation provisions in the insurance policy. Appellants appealed from that decision, and Aetna cross-appealed. As one of its points, Aetna argued that the policy at issue in this case differs from the policy at issue in Scott- Pontzer because the broadened-coverage endorsement in the Aetna policy removes the ambiguity over the word "you" and therefore distinguishes this case from Scott-Pontzer. This argument had been raised by Aetna in the trial court, but by ruling that coverage was potentially available under Scott-Pontzer, the trial court obviously did not accept Aetna's argument. Notably, appellee never raised any argument in the court of appeals challenging the rationale underlying Scott-Pontzer. The court of appeals affirmed the trial court's judgment solely on the broadened-coverage-endorsement grounds urged by Aetna. The court of appeals then certified a conflict on that issue to this court for review.

{¶ 73} In its brief filed here, appellee uses seven pages of its brief to respond to appellants' arguments relating to the impact of the broadened-coverage endorsement. Appellee then expounds for 28 pages on why Scott-Pontzer should be overruled, going to great lengths to argue a position that was never raised below and that was not in any way responsive to appellants' brief on the merits. Appellee's position is inconsistent with all of its arguments below premised on an acceptance of Scott-Pontzer and could not have been anticipated by appellants. Under S.Ct.Prac.R. VI(4)(A), appellants were allowed only 20 pages for their reply brief, which ordinarily should be enough to counter the points in a typical appellee brief, but which were not nearly enough to reply to this ambush.

{¶ 74} Given all of the above considerations, this case is not the appropriate vehicle for the majority to accomplish its goals. This case is about broadened-coverage endorsements and nothing more. As a certified-conflict case that should be confined to a narrow issue, it is certainly not about whether Scott-Pontzer should have continuing validity. Because the majority's reach exceeds the limits inherent in this appeal, I dissent.

FRANCIS E. SWEENEY, SR., J., dissenting.

{¶ 75} Today the majority considers extraneous arguments to reach a result more palatable to them than the existing law. In so doing, they ignore our rules of practice and well-established precedents and unnecessarily modify stare decisis, a long-standing principle of American jurisprudence. For these reasons, I dissent.

{¶ 76} First, this case comes before us as a certified question. The Supreme Court Rule of Practice governing this procedure, S.Ct.R.Prac. IV 3(B), provides: "In their merit briefs, the parties shall brief the issues identified in the order of the Supreme Court as issues to be considered on appeal." The case was certified to settle a disagreement among the appellate districts on the effects of the broadened-coverage endorsement in a UIM/UM insurance provision. While Aetna gives lip service to the certified issue, the main thrust of its brief is to convince the court to overrule and limit established case law on different issues. These issues are not properly before the court, and, therefore, the majority should not decide them.

{¶ 77} Not only were these issues not properly certified, none of the arguments on them was raised by Aetna during summary judgment proceedings or during its appeal to the Ninth District Court of Appeals. Aetna did not challenge the viability of Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116; or Ezawa v. Yasuda Fire & Marine Ins. Co. of Am. (1999), 86 Ohio St.3d 557, 715 N.E.2d 1142, until after the case was certified and after it appeared that the composition of this court would change. We have always held that issues not raised below are waived. Goldfuss v. Davidson (1997), 79 Ohio St.3d 116, 121, 679 N.E.2d 1099. The majority ignores this well-established principle.

{¶ 78} Moreover, in deciding to reexamine Scott-Pontzer, the majority fails to abide by the long-standing rule of stare decisis. Stare decisis is the policy that a court follow its past decisions. The significance of this rule cannot be overstated. Without it, litigants may try to challenge precedent every time there is a change in the composition of the court. If this is allowed, issues will never be resolved as long as one side believes that a new court will save the day in another case.

{¶ 79} In State ex rel. Allison v. Jones (1960), 170 Ohio St. 323, 10 O.O.2d 417, 164 N.E.2d 417, a new justice was faced with the chance to overrule a recent decision by the old court. In refusing to do so, he had this to say:

{¶ 80} "On another occasion, each of my six colleagues was privileged to consider a situation identical to that here presented and to arrive at his individual conclusion unfettered by established and existing law. Alone of the seven members of this court, I have not had the opportunity of passing upon the issue * * * without the restriction of a controlling decision of this court directly in point. Exercising judgment in the enviable aura of unrestricted choice, three of my colleagues chose each of the two divergent courses * * *, and each now adheres to his position so adopted. I enjoy no such freedom of choice and consider myself bound to follow what has now been established as the law of this state. Whether I find the result to be palatable is of concern only to myself." Id. at 324, 10 O.O.2d 417, 164 N.E.2d 417 (Peck, J., concurring).

{¶ 81} Justice Peck further recognized:

{¶ 82} "Such a change in the pronounced law can only result from an abandonment of a doctrine which may well be considered the heart and core of Anglo-Saxon jurisprudence. That doctrine is referred to as stare decisis, a phrase which is an abbreviation of a maxim adjuring the courts 'to stand by precedent, and not to disturb settled points.' " Id. at 325, 10 O.O.2d 417, 164 N.E.2d 417, quoting Ballard Cty. v. Kentucky Cty. Debt Comm. (1942), 290 Ky. 770, 772-773, 162 S.W.2d 771.

{¶ 83} I quote Justice Peck because he was faced with precisely the same situation that faces this new court, but he chose a different outcome because he felt duty-bound to follow established case law. His guidance, in the name of stare decisis, should be heeded.

{¶ 84} Adherence to precedent has several laudatory goals, including certainty, equality, efficiency, and the appearance of justice. Padden, Note, Overruling Decisions in the Supreme Court: The Role of a Decision's Vote, Age, and Subject Matter in the Application of Stare Decisis After Payne v. Tennessee (1994), 82 Geo.L.J. 1689. The goal of certainty is promoted "by allowing individuals to arrange their affairs with confidence, assured in the knowledge that the law that will be applied to them in the future will be the same as currently applied." Id. at 1691. Equality is accomplished "by treating like cases alike." Id. at 1692. Efficiency is promoted because "[o]nce a previous court has addressed difficult policy questions, subsequent courts need not expend time and resources to readdress those issues, but can rely on the wisdom of the previous court." Id. The last reason is the appearance of justice. This goal "conforms to the public's notion that Supreme Court Justices should be making impartial rules of law and not * * * law based on personal biases." Id. at 1693.

{¶ 85} Traditionally, courts have accepted three circumstances under which it is proper to overrule precedent: "when there has been an intervening development of law, when the rule it promulgated has proved unworkable, or when its underlying reasoning is outdated or inconsistent with contemporary values." Id. at 1694. Although these reasons have withstood the test of time, the majority feels compelled to craft new rationale in syllabus law. This is done despite the long-held view that any discussion of stare decisis is dicta. Id. at 1690, fn. 6. "Dicta" is defined as "[e]xpressions in court's opinions which go beyond the facts before court and therefore are * * * not binding in subsequent cases as legal precedent." Black's Law Dictionary (6th Ed.1990) 454.

{¶ 86} I am especially troubled by the first and third reasons espoused by the majority in the syllabus. As to the first reason (that the prior decision was wrongly decided), I ask, Who decides whether a decision was wrongly decided? In Scott-Pontzer, we were examining specific UIM policy language that had not previously been examined by the court. In reaching our decision, we did not overrule any prior decision. In fact, we followed the established law that when ambiguous policies permit more than one reasonable interpretation, the one that favors the insured must prevail. This time-tested principle encourages precise policy language, protects insureds who rely upon their reasonable understanding of the policies, and precludes insurers from profiting from their sloppy draftsmanship. If our interpretations in these cases contravened the intent of the insurance companies, it was the obligation of the insurance companies to rewrite their policies. Indeed, this is what happened after Scott-Pontzer. In response to the ambiguities, insurance companies rewrote their contracts to better describe the scope of coverage provided. See majority opinion, fn. 10.

{¶ 87} Perhaps even more troubling is the third new ground for overruling precedent (that overruling will not impose an undue hardship for those who have relied upon the decision). How can this factor be met here? Even the majority concedes that many pending cases raise Scott-Pontzer issues. These cases involve individual litigants who have devoted much time and money in pursuing their claims. Therefore, how can the majority even suggest that no undue hardship is created by this decision?

{¶ 88} Thus, even though recent cases are not immune to being overruled, a change in court composition is not a sufficient reason for abandoning precedent. Padden, Overruling Decisions, supra, 82 Geo.L.J. at 1719. Instead, I believe that the majority should recognize that prior rulings of this court are still valid and binding even after a member of the majority has left the bench.

{¶ 89} Moreover, I believe that the majority commits error in adopting new rationale for overruling precedent. There is no reason to abandon the time- tested principles for applying stare decisis.

{¶ 90} For all these reasons, I dissent.

RESNICK, J., concurs in the foregoing dissenting opinion.

PFEIFER, J., dissenting.

{¶ 91} The fallout from this court's decision in Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 710 N.E.2d 1116, has resulted not from a failure of legal analysis but from a failure in insurance policy drafting. The majority today tries to fix that problem. It focuses its criticism on this court's decision in Scott-Pontzer, but, in the end, it is the insurance policy language that is rewritten. The majority does not overrule Scott-Pontzer--it just makes it more affordable.

{¶ 92} The central dilemma in Scott-Pontzer was who is "You" in a corporate UM/UIM policy listing "You" as an insured? If "You" is the corporation, the coverage is illusory--a corporation is not capable of suffering physical or emotional damage, or even of shedding a tear. To find that "You" was the corporation would have meant that insurers had collected premiums for coverage that applied to no one. Certainly, no insurance company would purposely do that.

{¶ 93} The other possibility was that the "You" meant actual human beings-- employees--capable of suffering injury. Was "You" someone or was it no one? The majority in Scott-Pontzer opted for the interpretation that the policy language had meaning and that coverage was available.

{¶ 94} Who constituted "You" was the sole ambiguity we needed to resolve in Scott-Pontzer. We followed our universal and longstanding precedent to construe ambiguities against the drafter of the contract, in this case, the insurer. From there, the rest of the policy language took over. There were no "in the workplace" or "in the scope of employment" limitations to the coverage. There were no ambiguities to resolve, because there was no limiting language even to consider.

{¶ 95} Today, the majority determines, as did the majority in Scott- Pontzer, that the answer to the question "Who is 'You?' " is "employees." It arrives at the same basic conclusion as the Scott-Pontzer majority, while pillorying that earlier decision. As in Scott-Pontzer, the majority here rejects outright the insurers' argument that, at best, the "You" means only employees driving covered automobiles.

{¶ 96} Resolving the ambiguity of "You" the same way the Scott-Pontzer majority did, the majority here has found a way for that interpretation not to harm insurers. It creates some new limitations of coverage for the corporate employees that it has determined are the actual insureds. Although insurers did not include these limitations in their policies, the majority reasons that they meant to. Despite the fact that the insurers in both Scott-Pontzer and in this case argued that being on the job for the employer was not sufficient for an employee driving a personally owned vehicle to qualify for UM/UIM coverage, the majority divines that an employee who is simply acting within the scope of his employment is covered. Apparently, this court knows the intent of the insurers better than the insurers do.

{¶ 97} This court in Scott-Pontzer determined what the policy said; today, this court determines what the policy should have said. By deciding that UM/UIM policies apply to employees acting within the scope of their employment, the majority acknowledges that coverage is actually far broader than the insurers were willing to concede. But by limiting the employees covered to include only those on the job, the majority has effectively swept away the bulk of Scott-Pontzer claimants, and saved the insurers from their own policy language.

{¶ 98} The decision in Scott-Pontzer has little precedential value--the insurance contract language it interpreted has been revised and is no longer in use. The majority is not fixing a hole in our jurisprudence that is going to adversely affect any future transactions.

{¶ 99} But let us review what this court does accomplish today: (1) overrules a four-year-old case, (2) achieves that by adopting the central tenet of the case this court attacks, and (3) writes in new coverage limitations to an insurance contract that is no longer in use.

{¶ 100} The three sitting justices who are in the majority have all been applauded as practitioners of judicial restraint. As to that restraint, I am reminded of the words of the character Inigo Montoya from the movie "The Princess Bride":

{¶ 101} "You keep using that word. I do not think it means what you think it means."

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