United States District Court,

E.D. Pennsylvania.

CERTAIN UNDERWRITERS AT INTEREST AT LLOYD’S OF LONDON, Plaintiff,

v.

UNITED PARCEL SERVICE OF AMERICA, INC., Defendant.

 

Civil Case No. 13–1087.

Oct. 28, 2013.

 

Robert James Cosgrove, Wade Clark Mulcahy, Philadelphia, PA, for Plaintiff.

 

Jerry Desiderato, Mitts Milavec, LLC, Philadelphia, PA, for Defendant.

 

MEMORANDUM RE: DEFENDANT’S MOTION TO DISMISS

BAYLSON, District Judge.

I. INTRODUCTION

*1 Plaintiffs (“Underwriters”) are a collection of individuals and entities who contribute to an insurance policy that provided property liability insurance to First State Depository, LLC (“First State”). First State is a Delaware company that is in the business of providing coin and special metals services, including custody, shipping, and accounting to both individual and commercial entities. Defendant, United Postal Service (“UPS”), is a Georgia corporation in the business of delivering packages and providing specialized transportation and logistics services.

 

Plaintiffs allege that UPS contracted with First State to deliver 27 packages containing specialty gold and silver coins on various dates from February 2, 2013 to March 28, 2013, but that these packages were never delivered to the intended recipients. Plaintiffs allege that UPS picked up the packages from First State’s Wilmington facility, subsequently scanned them at an intermediate UPS facility, and sometime thereafter lost and/or stole the packages before they were delivered to the intended recipient. After investigating First State’s losses and as a result of insurance payments made to First State, Plaintiffs acquired all of First State’s rights against UPS or any other culpable third party regarding the lost packages.

 

II. PROCEDURAL HISTORY

This Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332 because the parties are citizens of different states and the amount in controversy exceeds $75,000.

 

Plaintiffs filed a Complaint on February 28, 2013, alleging state law claims of breach of contract, negligence, negligent supervision, and fraudulent conversion for each of the lost packages. ECF 1. Specifically, for each lost package, Plaintiffs alleged that Defendant breached its contract with First State by failing to successfully deliver the subject packages under the terms of the shipping agreement. Id. Moreover, for each lost package, Plaintiffs alleged that Defendant was negligent in failing to use the ordinary care of a reasonably prudent package delivery company in both ensuring safe delivery of packages and in selecting and training its employees to safely deliver packages. Id.

 

Plaintiffs argued in the alternative that each lost package was fraudulently converted by UPS or its employees. Id.

 

On March 27, 2013, UPS filed a Motion to Dismiss Plaintiffs’ Complaint arguing that all of Plaintiffs’ claims were preempted by the Carmack Amendment. ECF 4. On April 10, 2013, Plaintiffs responded to UPS’s Motion to Dismiss by arguing that their fraudulent conversion claims constituted an exception to Carmack preemption. ECF 6. In response, UPS filed a Reply Memorandum on April 17, 2013, arguing that Plaintiffs had not alleged sufficient facts to support their causes of action under Federal Rules of Civil Procedure 12(b)(6) and 9(b), and that Plaintiffs had used facts and allegations not present in the Complaint to refute UPS’s Motion to Dismiss. ECF 7.

 

*2 In light of the above filings, this Court entered an Order dated May 8, 2013, holding that Plaintiffs’ fraudulent conversion claims were not pled with sufficient particularity to meet Rule 9(b)’s heightened pleading standard for claims sounding in fraud. ECF 8. As a result, this Court permitted Plaintiffs to amend their Complaint.

 

On May 29, 2013, Plaintiffs filed an Amended Complaint. ECF 9. The Amended Complaint contained allegations about four additional lost packages. Id. The Amended Complaint also asserted additional facts regarding an alleged pattern of unlawful conversions and UPS’s refusal to assist in investigating the lost packages. Id. In response, UPS filed a Motion to Dismiss Plaintiffs’ Amended Complaint on June 12, 2013, arguing again that the Carmack Amendment preempted the claims, and also that Plaintiffs had failed to allege sufficient facts to satisfy Rules 12(b)(6) and Rule 9(b). ECF 10. On June 26, 2013, Plaintiffs responded to UPS’s Motion to Dismiss Plaintiffs’ Amended Complaint claiming that they had alleged sufficient facts to satisfy their pleading requirements, and that they established a “true conversion” FN1 in order to circumvent Carmack preemption of their state law claims. ECF 11. UPS filed a Reply Memorandum on July 3, 2013, denying that Plaintiffs established a true conversion. ECF 12.

 

FN1. A “true conversion” is a judicially created narrow exception to a common carrier’s potential exposure under the Carmack Amendment in circumstances where the common carrier converts/steals a shipper’s goods. The courts have limited this exception to “true conversions,” or conversions where a common carrier itself appropriates a shipper’s property for the carrier’s own use or gain. For a more detailed discussion of this exception, see below, Section IV.

 

III. THE PARTIES’ ARGUMENTS

This cases raises three issues, each of which the parties dispute. Those issues are as follows:

 

A. Does the Carmack Amendment Preempt Plaintiffs’ Claims?

UPS argues that the Carmack Amendment, which applies to all packages shipped via interstate ground transportation by a common carrier, preempts all of Plaintiffs’ claims. Specifically, UPS argues that the Carmack Amendment exclusively governs a carrier’s liability and a shipper’s remedies arising out of contracts for the interstate ground shipment of property. See ECF 4 (Mot. to Dismiss Pls.’ Compl.) FN2 at 6. Plaintiffs counter by arguing that while the Carmack Amendment does limit a carrier’s liabilities, certain types of willful misconduct on the part of the carrier (such as intentional theft) invalidate any liability limitations. See ECF 6 (Mem. of Law in Opp’n to UPS’s Mot. to Dismiss) at 5. Furthermore, Plaintiffs contend that UPS committed a true conversion in this case, which prevents Defendant from limiting its liability. Id. at 6.

 

FN2. In its Memorandum of Law in Support of its Motion to Dismiss Plaintiffs’ Amended Complaint (ECF 10–1), UPS adopts the arguments from its Motion to Dismiss Plaintiffs’ Complaint (ECF 4). Plaintiffs similarly incorporated arguments from their opposition to UPS’s original Motion to Dismiss. ECF 11 at 4 n. 3. This Court thus considers arguments from briefing related to both Motions to Dismiss.

 

B. If Plaintiffs’ Claims are not Preempted, Did Plaintiffs Allege Sufficient Facts in the Amended Complaint to Satisfy their Pleading Requirements?

UPS alternatively argues that Plaintiffs have failed to allege sufficient facts to support their causes of action under Fed.R.Civ.P. 12(b)(6) as well as under Fed.R.Civ.P. 9(b)’s heightened pleading standard for causes of action sounding in fraud. Specifically, UPS asserts that Plaintiffs failed to identify a specific date, time, or place of the alleged fraud, or otherwise provide a measure of substantiation to the allegations of fraud as is required under Rule 9(b). See ECF 10–1 at 6 (Mot. to Dismiss Pls.’ Am. Compl.) at 5. Plaintiffs counter by arguing that the numerous facts in their Amended Complaint detailing the contents and value of each allegedly stolen package, where each package was received by UPS in the manner and pattern in which all the packages were stolen, and the location of the last UPS scan for each package, are sufficient to meet the Rule 12(b)(6) pleading requirements. See ECF 11 (Mem. of Law in Opp’n to UPS’s Mot. to Dismiss Pls.’ Am. Compl.) at 5. Further, Plaintiffs argue that they have met Rule 9(b)’s heightened pleading standard by explicitly alleging the date, time, and place of the alleged conversions, as well as by providing the exact and short time frame in which all the losses occurred. Id. at 7.

 

C. If Plaintiffs Have Satisfied Their Pleading Requirements, Have Plaintiffs Properly Relied on Agency Principles to Establish a True Conversion by UPS?

*3 Plaintiffs rely on agency principles to support their assertion that by alleging conversion by UPS’s employees, Plaintiffs have sufficiently alleged a true conversion by UPS itself for the purpose of triggering the true conversion exception to Defendant’s ability to limit its liability. Id. at 8. UPS counters by citing cases that have narrowly construed the true conversion exception, and have established that a carrier may properly limit its liability where the conversion in question is by third parties, including the carrier’s own employees. See ECF 12 (Reply Mem. in Further Support of Defendant’s Mot. to Dismiss Pls.’ Am. Compl.) at 3.

 

IV. ANALYSIS

Congress passed the Carmack Amendment in 1906 in order to establish uniform rules of liability for carriers and shippers participating in ground transportation of goods in interstate commerce.FN3 In Adams Express Company v. Croninger, the Supreme Court observed that Congress enacted the Carmack Amendment in 1906 to “take possession of the subject [of interstate carriers’ liability for lost or damaged property], and supersede all state regulation ….” 226 U.S. 491, 505–06, 33 S.Ct. 148, 57 L.Ed. 314 (1913); see also Orlick v. J.D. Carton & Son, Inc., 144 F.Supp.2d 337, 345 (D.N.J.2001). A state law cause of action is therefore preempted by the Carmack Amendment if the cause of action involves loss of goods or damage to goods caused by the interstate shipment of those goods by a common carrier. Oriick v. J.D. Carton & Son, Inc., 144 F.Supp.2d 337, 345 (D.N.J.2001).

 

FN3. The Carmack Amendment addresses liability imposed, “for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States or from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading ….” 49 U.S.C.A. § 14706 (West). The Carmack Amendment does not cover tortious conduct outside of these parameters; therefore it does preempt causes of action arising out of such conduct.

 

A. The Carmack Amendment Preempts Plaintiffs’ Claims

Plaintiffs’ claims are preempted by federal law under the Carmack Amendment. The relevant language of the Carmack Amendment states:

 

[A] carrier … may … establish rates for the transportation of property … under which the liability of the carrier for such property is limited 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). In one of the Supreme Court’s earliest cases interpreting the Carmack Amendment, the Court recognized Congress’ intent to occupy the field and to preempt any state laws that established carrier liabilities in conflict with the Carmack Amendment. The Court explained,

Prior to that amendment, the rule of carriers’ liability for an interstate shipment of property, as enforced in both Federal and state courts, was either that of the general common law … or that determined by the supposed public policy of a particular state, or that prescribed by statute law of a particular state. Neither uniformity of obligation nor of liability was possible until Congress should deal with the subject … That the legislation supersedes all the regulations and policies of a particular state upon the same subject results from its general character. It embraces the subject of the liability of the carrier under a bill of lading which he must issue, and limits his power to exempt himself by rule, regulation, or contract. Almost every detail of the subject is covered so completely that there can be no rational doubt but that Congress intended to take possession of the subject, and supersede all state regulation with reference to it. Only the silence of Congress authorized the exercise of the police power of the state upon the subject of such contracts. But when Congress acted in such a way as to manifest a purpose to exercise its conceded authority, the regulating power of the state ceased to exist.

 

*4 Adams Express Co. v. Croninger, 226 U.S. 491, 504–06, 33 S.Ct. 148, 57 L.Ed. 314 (1913) (emphasis added). Since then, the Supreme Court has reiterated and reaffirmed the preemptive effect of the Carmack Amendment, particularly as to state laws and contracts governing damages for lost or improperly delivered goods. See Hughes v. United Van Lines, 485 U.S. 913, 108 S.Ct. 1068, 99 L.Ed.2d 248 (1988) (denying petition for writ of certiorari requesting review of the Seventh Circuit’s holding that the Carmack Amendment bars a shipper from pursuing state and common law remedies against a carrier for damages to goods shipped in interstate commerce); New York, New Haven & Hartford R.R. Co. v. Nothnagle, 346 U.S. 128, 131, 73 S.Ct. 986, 97 L.Ed. 1500 (1953) (“With the enactment in 1906 of the Carmack Amendment, Congress superseded diverse state laws with a nationally uniform policy governing interstate carriers’ liability for property loss.”); Southeastern Express Co. v. Pastime Amusement Co., 299 U.S. 28, 29–30, 57 S.Ct. 73, 81 L.Ed. 20 (1936) (holding a carrier’s tariff setting its liability for failure to make a timely shipment was preempted by the Carmack Amendment); Charleston & Western Carolina Ry. Co. v. Varnville Furniture Co., 237 U.S. 597, 603, 35 S.Ct. 715, 59 L.Ed. 1137 (1915) (holding that special regulations and policies of particular states upon the subject of the carrier’s liability for loss or damage to interstate shipments, and the contracts of carriers with respect thereto, have been superseded).

 

The Third Circuit has not yet decided a case involving preemption under the Carmack Amendment. However, ten Courts of Appeal have considered and decided the issue in line with the Supreme Court, holding that the Carmack Amendment preempts state law.FN4 Judge Davis and Judge Padova of this Court have also considered the issue and similarly upheld the Carmack Amendment’s preemptive effect on state law claims for negligence and breach of contract. See Thvssen Inc. v. Norfolk Southern Corp., No. Civ. A. 01–5136, 2003 WL 21660039, *1 (E.D.Pa. July 16, 2003) (J. Davis) (“Here, because Thyssen seeks damages stemming from a shipping agreement, the Carmack Amendment governs the parties’ rights and liabilities, and preempts Thyssen’s claims for negligence and breach of contract.”); Faust v. Clark and Reid Co., Inc., No. Civ. A. 94–4580, 1994 WL 675132, *1 (E.D.Pa. Nov.23, 1994) (J. Padova).

 

FN4. The First, Second, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh Courts of Appeal have held that the Carmack Amendment preempts state law claims pertaining to shippers and carriers in interstate commerce. See Rini v. United Van Lines, Inc., 104 F.3d 502, 505 (1st Cir.1997); Cleveland v. Beltman N. Am. Co., 30 F.3d 373, 377 (2d Cir.1994); Shao v. Link Cargo (Taiwan) Ltd., 986 F.2d 700, 706 (4th Cir.1993); Moffit v. Bekins Van Lines Co., 6 F.3d 305, 307 (5th Cir.1993); W.D. Lawson & Co. v. Penn Cent. Co., 456 F.2d 419, 421 (6th Cir.1972); Hughes v. United Van Lines, Inc., 829 F.2d 1407, 1415 (7th Cir.1987); Hopper Furs, Inc. v. Emery Air Freight Corp., 749 F.2d 1261, 1264 (8th Cir.1984); Hughes Aircraft v. N. Am. Van Lines, Inc., 970 F.2d 609, 610, 613 (9th Cir.1992); Underwriters at Lloyds of London v. N. Am. Van Lines, Inc., 890 F.2d 1112, 1113 (10th Cir.1989) (en banc); Smith v. United Parcel Serv., Inc., 296 F.3d 1244, 1246–47 (11th Cir.2002).

 

In light of the uniformity in which circuit courts have upheld the Carmack Amendment’s preemptive force, as well as two judges of this Court’s adoption of the same, the undersigned concludes that the Carmack Amendment preempts Plaintiffs’ claims.

 

B. The True Conversion Exception Does Not Apply

Plaintiffs acknowledge the preemptive effect of the Carmack Amendment, but argue that their allegations fall within the scope of the true conversion exception to Carmack preemption, which applies when the common carrier converts the shipper’s property for its own use-in other words, when the common carrier commits a true conversion. However, the true conversion exception applies only to liability limitations of the Carmack Amendment and thus has no application to the Plaintiffs’ allegations.

 

*5 Plaintiffs correctly state that an exception exists to certain provisions of the Carmack Amendment. Courts have held that the Carmack Amendment’s liability limitations do not apply when the common carrier has committed a true conversion of goods. Contrary to Plaintiffs’ contention, however, the cases which created and shaped the true conversion exception did not involve or implicate the preemptive effect of the Carmack Amendment. Rather the cases addressed whether to enforce the liability limitations agreed to by the parties. In fact, courts have only recognized the true conversion exception in causes of action under the Carmack Amendment where no preemption concerns existed.

 

For example, in Glickfield v. Howard Van Lines, 213 F.2d 723, 724 (9th Cir.1954), Glickfield shipped numerous goods from New York to Los Angeles, which were allegedly damaged and stolen by Howard Van Lines, the common carrier Glickfield contracted with to deliver the goods. Glickfield filed suit to recover the full value of the damaged and stolen goods, even though both parties agreed in the shipping agreement to limit Howard’s liability to a released value of 30 cents per pound. Id. at 725. Despite the Court’s finding that Howard did not convert the goods in question, the Ninth Circuit explained that Glickfield would have been able to avoid the liability limitation had Howard stolen the goods for its own use. The Court noted that it would be inequitable and against public policy to allow a carrier to limit its liability when the carrier itself converts/steals a shipper’s property because it would permit carriers to profit from their own misconduct. Id. at 727. In explaining the narrow scope of the conversion exception, the Glickfield court held that the exception is triggered only when a “true conversion” has occurred, stating:

 

The conversion doctrine is pertinent only when there has been a true conversion, i.e., where the carrier has appropriated the property for its own use or gain. The carrier may properly limit its liability where the conversion is by third parties or even by its own employees. In the latter circumstance, while the carrier may have been guilty of negligence in the selection of its employees, it has not been unjustly enriched, nor has it been guilty of any misconduct.

 

Id. (emphasis added).

 

The First Circuit has also recognized the true conversion exception to a common carrier’s liability limitations and further enforced the narrow scope of the exception. In Kemper Ins. Co. v. Fed. Express Corp., 252 F.3d 509, 515 (1st Cir.2001), the First Circuit relied on Glickfield in a case very similar to the present suit, and limited the application of the exception to instances of true conversions for the carrier’s own gain or use. In Kemper, an insurer filed suit as a subrogee against Federal Express (“FedEx”), a common carrier that lost the insured’s packages containing jewelry. Id. at 511. Kemper’s claims were based in tort and contract law, and sought to invalidate the $100 limitation of liability provided for in the relevant shipping document. Id. The Kemper court held: “Because Kemper has made no allegation that FedEx appropriated the property itself, or profited from its conversion, the claim does not fit within the [conversion exception]….” Id. at 516 (emphasis in original). The Court continued:

 

*6 From these comments, and from the almost universal position of other federal courts to have addressed this issue, we conclude that—whether or not the conversion exception to the released value doctrine includes certain willful conduct not technically a conversion and not benefitting the carrier—willful blindness to the activity of third parties (even employees) does not qualify.FN5

 

FN5. The Kemper court interpreted the conversion exception in relation to the released value doctrine (governing air transportation) rather than the Carmack Amendment. However, the court deemed the difference irrelevant, observing that “the constraints on the limitation clauses are the same for motor carriers covered by the Carmack Amendment as they are for air carriers covered by the released value doctrine.” Kemper, 253 F.3d at 514.

 

Id. (emphasis added).

 

Although as noted, supra, the Third Circuit has yet to address the issue of Carmack preemption, it has recognized the existence of an exception to a common carrier’s ability to limit its liability via the Carmack Amendment when the carrier commits a true conversion. In American Cyanamid Co. v. New Penn Motor Express, Inc., 979 F.2d 310, 312 (3d Cir.1992), the Plaintiff, Cyanamid, filed suit under the Carmack Amendment to recover the full value of packages destroyed during the course of delivery by Defendant, New Penn.FN6 The lawsuit arose out of New Penn’s failure to prevent Plaintiff’s shipment of vaccines from freezing. The bill of lading between the two parties had an explicit limitation of liability, but also contained specific instructions to protect the vaccines from freezing. New Penn picked up the vaccines but failed to protect them from freezing. As a result, the vaccines were delivered in a worthless condition having been destroyed by the cold. Cyanamid brought suit claiming the full value of the destroyed vaccines. New Penn moved for partial summary judgment to limit its liability in accordance with the released value provision in the bill of lading that was made pursuant to the Carmack Amendment. Id.

 

FN6. The Third Circuit did not face a preemption question in this case because the Plaintiff did not bring any state law claims, instead alleging causes of action under the Carmack Amendment.

 

In fact, Cyanamid unsuccessfully argued that New Penn must be held liable because it intentionally deviated from the terms of the bill of lading by failing to protect the vaccines from freezing. Id. at 315. In affirming the District Court’s rejection of this argument, the Third Circuit held that “nothing short of intentional destruction or conduct in the nature of theft of property will permit a shipper to circumvent the liability limitations in a released value provision.” Id. at 315–16.

 

Plaintiffs’ reliance on the true conversion exception fails, because it applies only to determine whether a court should enforce certain liability limitations, but has no legal bearing on the preemptive effect of the Carmack Amendment. Nevertheless, as discussed supra, federal courts have consistently held that state law claims pertaining to the liability of interstate carriers and shippers are entirely preempted by the Carmack Amendment.

 

Even if Plaintiffs brought a cause of action under the Carmack Amendment itself, thus eliminating UPS’s preemption objections, Plaintiffs allegations would nevertheless fail as a matter of law since their allegations fail to meet the heightened pleading requirements of Rule 9(b), and agency principles do not establish a true conversion as a matter of law.

 

V. CONCLUSION

*7 For the foregoing, this Court Defendant’s Motion to Dismiss is GRANTED because the Carmack Amendment preempts Plaintiffs’ claims. An appropriate order follows.

 

ORDER

AND NOW, this 28th day of October 2013, after review of the briefs related to the pending Motion to Dismiss the Amended Complaint (ECF 10), and for the reasons set forth in the accompanying memorandum, it is hereby ORDERED that Defendant’s Motion to Dismiss is GRANTED, and Plaintiffs’ Amended Complaint is DISMISSED, with prejudice, in its entirety.

 

United States District Court,

S.D. Indiana,

Evansville Division.

STATE FARM FIRE & CASUALTY COMPANY, Plaintiff,

v.

Anthony VIDAL d/b/a Lawn Barbers, Also d/b/a Designer Landscaping by Tony; Lisa Vidal; Federal Deposit Insurance Corporation, as Receiver for Integra Bank, National Association, Evansville, Indiana; Davis H. Elliot Construction Company, Incorporated; and Viox Services, Inc., Defendants.

 

No. 3:12–cv–00181–RLY–WGH.

Oct. 28, 2013.

 

Jan N. Campbell, Jeffrey R. Oberlies, Leeuw Oberlies & Campbell, P.C., Indianapolis, IN, for Plaintiff.

 

Stephen Hensleigh Thomas, Gerling Law Offices, Greg A. Granger, Mark E. Miller, Bowers Harrison, LLP, Evansville, IN, Vincent P. Antaki, Reminger & Reminger Co. LPA, Indianapolis, IN, for Defendants.

 

ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT

RICHARD L. YOUNG, Chief Judge.

*1 Businessowners Liability Insurance Policy (the “Policy”) to Defendant, Anthony Vidal (individually, “Vidal”) d/b/a Lawn Barbers and d/b/a Designer Landscaping by Tony. Defendants, Viox Services, Inc. (“Viox”) and Federal Deposit Insurance Corporation, as Receiver for Integra Bank National Association, Evansville, Indiana (“Integra Bank”), are listed as Additional Insureds under the Policy. State Farm filed a Declaratory Judgment Action to declare it did not owe a duty to defend or indemnify the Defendants. State Farm moves for summary judgment. Viox cross-moves for summary judgment to declare that State Farm has a duty to defend and indemnify, and Integra Bank filed a response to State Farm’s Motion for Summary Judgment arguing there is an issue of material fact. Defendants, Davis H. Elliot Construction Company (“Elliot Construction”), Anthony Vidal, and Lisa Vidal did not respond. For the reasons set forth below, Defendant Viox’s Motion is DENIED and Plaintiff State Farm’s Motion is GRANTED.

 

I. Background

 

A. The Underlying Lawsuit

 

Vidal, d/b/a Lawn Barbers and d/b/a Designer Landscaping by Tony, contracted with Viox, acting as Integra Bank’s agent, to perform lawn maintenance at various Integra Bank locations in Illinois, Indiana, and Kentucky. (See Viox Services Subcontractor Agreement Landscaping Services (“Landscaping Services Agreement”)). On June 8, 2011, Vidal was working at an Integra Bank branch in Henderson, Kentucky when he fell into a hole on the property thereby injuring himself. (See Vidal v. Davis H. Elliot Construction Company Complaint, (“Complaint”)). Vidal believes Elliot Construction left the hole from construction previously done at the property. (See id.). Anthony Vidal and his wife, Lisa Vidal, brought suit in Henderson, Kentucky against Elliot Construction, Viox, and Integra Bank. (See id.). Anthony Vidal alleges their negligence caused his injuries and resulted in medical expenses, lost income, and pain and suffering. (See id.) Lisa Vidal asserts a claim for loss of consortium. (See id.).

 

B. This Lawsuit

As a result of the underlying lawsuit, Viox and Integra Bank, as additional insureds, are seeking a defense and indemnity from State Farm arising out of the Policy carried by Anthony Vidal. (See Reservation of Rights Letter). Additionally, Vidal agreed in the Landscaping Services Agreement to hold harmless and indemnify Viox. The court will discuss the specific provisions of the Insurance Policy throughout the discussion in Section III of this entry.

 

On May 15, 2012, State Farm issued a letter reserving the right to deny coverage to Integra Bank and Viox on three grounds: (1) they are not insureds under the policy; (2) they are excluded under the Contractual Liability Exclusion; and (3) they are excluded under the Employee Exclusion. (See id.). On July 2, 2012, State Farm filed a complaint in state court seeking a declaratory judgment that the Defendants do not have a right to a defense or indemnification from State Farm. (Complaint). Integra Bank removed the case from Vanderburgh Superior Court to this court on November 1, 2012. (Notice of Removal).

 

II. Summary Judgment Standard

*2 The purpose of summary judgment is to “pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.”   Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment is appropriate if the record “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed R. Civ. P. 56(a). A genuine issue of material fact exists if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the particular issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

 

On a motion for summary judgment, the burden rests with the moving party to demonstrate “that there is an absence of evidence to support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to “go beyond the pleadings” and point to evidence of a genuine factual dispute precluding summary judgment. Id. at 322–23. “If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in her favor on a material question, then the court must enter summary judgment against her.” Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir.1994) (citing Matsushita Elec. Indus. Co., 475 U.S. at 585–87); see Celotex, 477 U.S. at 322–24; see also, Anderson, 477 U.S. at 249–52.

 

III. Discussion

 

Interpreting Insurance Policies

 

“Insurance policies are governed by the same rules of construction as other contracts, and their interpretation is a question of law.” Masten v. AMCO Ins. Co., 953 N.E.2d 566, 569 (Ind.Ct.App.2011), trans. denied. In ascertaining and enforcing the parties’ intent as manifested in the policy, the court construes the policy as a whole and considers all of the provisions of the policy and not just individual words, phrases, or paragraphs. See id. “Because we construe insurance policies as a whole in each case, prior cases that focus upon similar or identical clauses or exclusions are not necessarily determinative of later cases because the insurance policies as a whole may differ.” Id.

 

Under Indiana law, a contact term is ambiguous if it is susceptible to more than one interpretation and reasonably intelligent people would honestly differ as to its meaning. See Sans v. Monticello Ins. Co., 676 N.E.2d 1099, 1101–02 (Ind.Ct.App.1997). If the language of a policy is clear and unambiguous, it should be given its plain and ordinary meaning. See Meridian Mut. Ins. Co. v. Auto–Owners Ins. Co., 698 N.E.2d 770, 773 (Ind.1998) (citations omitted). If the language is ambiguous, it is construed in favor of the insured. See id. But “[w]hen … the injured party is not the named insured, the policy is construed from a neutral stance,” even if the policy language is ambiguous.   Barga v. Indiana Farmers Mut. Ins. Group, Inc., 687 N.E.2d 575, 578 (Ind.Ct.App.1997) (citing Indiana Lumbermens Mut. Ins. Co. v. Statesman Ins. Co., 260 Ind. 32, 291 N.E.2d 897, 899 (Ind.1973) (“The party claiming to be an insured in this case never paid a penny’s premium to the insurer. We are therefore not in a situation where we must construe the contract language any certain way and can seek out the general intent of the contract from a neutral stance.”)).

 

*3 Here, Vidal, the named insured, is not the injured party seeking coverage; Viox and Integra Bank are seeking coverage as additional insureds. As such, the court will construe the policy from a neutral standpoint. In addition, the court will discuss the applicability of the policy in general in order to then determine whether or not State Farm has a duty to defend or indemnify.

 

A. Must Vidal be covered by the Policy for Viox and Integra Bank to be covered?

State Farm issued its Policy to Vidal in March 2011. According to the Policy Vidal and his wife are the “Named Insureds.” The Named Insured of the Policy is referred to throughout the Policy as “you” and “your”. (Certified Policy 3). Pursuant to his contract with Viox, Vidal listed Viox and Integra Bank as additional insureds under the policy. (See Landscaping Services Agreement 4). The relevant text of the Additional Insured Endorsement to the Policy reads in relevant part:

 

1. SECTION II—WHO IS AN INSURED of SECTION II—LIABILITY is amended to include, as an additional insured, any person or organization shown in the schedule, but only with respect to liability for “bodily injury” FN1 … caused, in whole or in part, by:

 

FN1. Bodily injury is defined as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. Bodily injury includes mental anguish or other mental injury caused by the bodily injury.” (Certified Policy 34).

 

a. Ongoing Operations

 

(1) Your acts or omissions; or The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for that additional insured.

 

b…..

 

2. Any insurance provided to the additional insured shall only apply with respect to a claim made or a “suit” FN2 brought for damages for which you are provided coverage. (hereinafter, “Paragraph 2”).

 

FN2. Suit is defined as “a civil proceeding in which damages because of ‘bodily injury’ … to which this insurance applies are alleged….” (Certified Policy 37).

 

(Additional Insured Endorsement) (parenthetical added). Substituting Vidal for “you”, State Farm argues that Viox’s and Integra Bank’s insurance through this policy is derivative of Vidal’s. For reasons further evaluated in Section III.B., State Farm asserts that Vidal would not be covered by the Policy for this claim.

 

Integra Bank makes two arguments: (1) that its rights are not dependent on Vidal’s and (2) Vidal’s injuries arose out of the ongoing services provision in the Additional Insured Endorsement. Integra Bank asserts that its rights as an additional insured are not dependent or derivative of Vidal’s. In support of this argument, Integra Bank cites to Travelers Casualty & Surety Company v. Elkins Constructors, Inc., No. IP97–1807–cT/G, 2000 WL 724006 (S.D.Ind. May 18, 2000), for the proposition that an additional insured provision should be read broadly and extend to more than just vicarious liability for the actions of the named insured.

 

The court in Elkins began its opinion by noting that it could not locate any reported opinions construing an “additional insured” provision under Indiana law that was similar to the one before it. See id. at * 2. The provision in Elkins read: “WHO IS INSURED … is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.” Id. at fn. 4. For guidance, the court then turned to those cases outside of Indiana construing similarly worded provisions. See id. In those cases, the courts concluded additional insured coverage was not limited solely to claims of vicarious liability. Following the approach taken by the other courts, the Elkins court read the additional insured provision broadly and expanded it beyond coverage for vicarious liability. See id.

 

*4 Here, the additional insured provision is notably different from the provision in Elkins. Paragraph 2 clearly indicates who “you” is and limits when the additional insured shall receive coverage. Furthermore, the Additional Insured Endorsement states “all other policy provisions apply.” (Additional Insured Endorsement). The policy specifically states that “you” and “your” refer to the Named Insured. (Certified Policy 3). Thus, the language refers to the Named Insured and “your coverage” can only be interpreted to mean the Named Insured’s coverage. As State Farm argues, if “you” is construed to mean “Viox and/or Integra Bank” the provision would be meaningless. Reading the contract as a whole, it is clear that “you” means the Named Insured, and Paragraph 2 expressly limits the coverage available to the Additional Insureds to the coverage for which Vidal is provided. Although Indiana favors reading additional insured provisions broadly, the court cannot rewrite the contract.

 

Integra Bank further argues that Vidal’s injuries arose out of his services and thereby it is entitled to coverage under the Additional Insured Endorsement. In support, Integra Bank cites to Peabody Energy Corp. v. Roark, 973 N.E.2d 636 (Ind.Ct.App.2012).

 

In Peabody, an employee of a trucking company, who was injured while making a delivery to Peabody’s mine, sued Peabody alleging that Peabody’s negligence caused the accident. See id. at 638. Peabody then sought coverage and indemnification from a policy in which Peabody was the additional insured. See id. at 639. The relevant portion of the insurance policy provided that the additional insured is an insured “but only with respect to liability arising out of your [the trucking company’s] operations or premises owned by or rented to you [the trucking company].” Id. at 640. The court found that the employee’s actions were within the operations performed by the trucking company. See id. at 642. Therefore, Peabody was entitled to coverage as an additional insured. See id. at 643.

 

As State Farm indicates, Peabody is distinguishable from the present case because it did not contain language similar to Paragraph 2. Vidal’s injuries clearly arise out of his acts “in the performance of [his] ongoing operations for that additional insured [Viox and Integra Bank].” (Additional Insured Endorsement). Nevertheless, Paragraph 2 adds another requirement for Viox and Integra Bank to be entitled to coverage; Vidal must be covered by the policy first. Thus, Integra Bank’s argument fails.

 

Viox argues that it and Integra Bank, as additional insureds, should have rights under the Policy equal to Vidal’s because they reasonably understood themselves to have rights equal to Vidal. In support, Viox relies on two cases which are easily distinguishable, as they apply only to illusory coverage. Viox relies on Western Reserve Mut. Cas. Co. v. Holland, 666 N.E.2d 966 (Ind.Ct.App.1996) (finding that it is the public policy of Indiana to allow an insured to recover his reasonable expectation when an insurer has provided illusory coverage) and Great Lakes Chem. Corp. v. Int’l Surplus Lines Ins. Co., 638 N.E.2d 847, 850 (Ind.Ct.App.1994) (“even where clauses are unambiguous … but in effect provide only illusory coverage, the policy will be enforced to satisfy the reasonable expectations of the insured). Here, neither Viox or Integra Bank argue that the coverage is illusory. Therefore, the rule does not apply.

 

*5 Finding there is no issue of material fact, the court finds that the Additional Insureds coverage is limited to that for which Vidal is covered. The court now turns to whether the claims asserted by Vidal would be covered under the Policy.

 

B. Is Vidal covered?

State Farm asserts three (3) reasons why Vidal is not covered by the insurance Policy. First, State Farm argues that because Vidal does not have to pay damages to himself, he is not covered under Section II of the Policy. Second, State Farm argues that the Policy excludes coverage for an injury to the insured’s employees resulting in Vidal, as an alleged employee, to not be covered. Third, State Farm argues that the Contractual Liability Exclusion applies and the Insured Contract Exception to that exclusion does not apply.

 

Vidal’s Policy is divided into sections. Section I covers property damage, and Section II covers the insured’s liability. In Section II, the policy states:

 

Coverage L—Business Liability

 

1 …. we will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” … to which this insurance applies. We will have the right and duty to defend the insured by counsel of our choice against any “suit” seeking those damages.

 

(Certified Policy 23).

 

Relying on the above paragraph, State Farm argues that coverage would not be granted to Vidal because he is not “legally obligated to pay” himself damages. The underlying complaint alleges omissions on behalf of Viox, Integra Bank, and Elliot Construction. The Vidals make no allegations against themselves. Therefore, according to State Farm, the Vidals would not be “legally obligated to pay” themselves damages. In addition, State Farm argues that the Policy is liability insurance only—not full coverage. The very essence of a liability policy is to defend the insured and pay the damages that it owes to others for the insured’s acts. Liability coverage does not cover the injury to oneself. Thus, State Farm asserts that because Vidal does not have to pay damages to anyone, he would not be covered under the Policy.

 

Viox responds that the Policy, by its express terms, allows “any person” including Vidal to recover for bodily injury to himself. (See Certified Policy 30). In support, Viox cites to the fifth paragraph in the Liability Section which states:

 

5. Damages because of “bodily injury” include damages claimed by any person or organization for care, loss of services or death resulting at any time from the “bodily injury.” (emphasis added).

 

(See id.). State Farm replies by citing Section II, Coverage M—Medical Expenses Exclusions. That provision provides in pertinent part: “We will not pay expenses for ‘bodily injury’: … (2) To any insured, except ‘voluntary workers’.”

 

In addition, Viox argues that, under comparative fault principles, Vidal may become legally obligated to pay for his injuries. State Farm responds that under Kentucky Revised Statute § 411.182, fault is to be apportioned to all parties to each claim in a tort action. State Farm asserts that even if Vidal is apportioned some percentage of fault, this does not make him “legally obligated to pay” himself for his injuries. This allocation of fault merely reduces the amount the plaintiff will recover. Viox replies that “legally obligated to pay” does not require the payment obligation to arise from a lawsuit, but rather could mean Vidal’s obligations to pay the uncovered portion of his medical bills. In support, Viox cites to Travelers Indem. Co. v. Summit Corp. of Am., 715 N.E.2d 926, 934 (Ind.Ct.App.1999) (concluding that a company’s environmental cleanup costs were covered even though the costs were not incurred to satisfy a judgment, because “[t]here is nothing in the policy provisions that requires that an insured become ‘legally obligated to pay’ as a result of any particular kind of proceeding, in court or elsewhere.”). Viox is likely right that, under Indiana law, the obligation to pay need not be the result of a judgment. Nevertheless, Vidal would not be covered under the Policy for the medical bills that he is “legally obligated to pay.” Section M clearly and unambiguously states that the Policy does not cover expenses for bodily injury to any insured. Because the Vidals are both insureds, any expenses related to Vidal’s bodily injury, such as the medical expenses, would not be covered by the Policy. As such, even if there is a legal obligation to pay under the Policy, the expenses that Vidal must pay are not covered under Section II of his Policy.

 

*6 Consequently, Vidal is not covered by Section II of his Policy. As noted previously in this Entry, Vidal must be covered for State Farm to owe a duty to defend or indemnify to Viox or Integra Bank. Because Vidal is not covered, Viox and Integra Bank are not entitled to a defense or indemnification for the underlying claim from State Farm. This determination moots Defendant’s additional arguments and will not be discussed by the court.

 

IV. Conclusion

For the reasons set forth above, the court finds no genuine issue of material fact exists. State Farm does not have a duty to defend or indemnify the Defendants regarding the underlying claim pending in Henderson County, Kentucky. Accordingly, the court GRANTS Plaintiff, State Farm’s, Motion for Summary Judgment (Docket # 23) and DENIES Defendant, Viox Services, Inc.’s, Motion for Summary Judgment (Docket # 26).

 

SO ORDERED.