Court of Appeals of Texas,

Dallas.

TIG INSURANCE COMPANY, Appellant/Cross-Appellee

v.

NORTH AMERICAN VAN LINES, INC. and North American Van Lines of Texas, Inc.,

Appellees/Cross-Appellants.

Aug. 26, 2005.

Background: Second-layer excess liability insurer brought action against insured motor carrier for a declaratory judgment that the underlying insurance was not exhausted. Insured counterclaimed for breach of contract. The 191st

Judicial District Court, Dallas County, entered summary judgment in favor of insured. Appeal and cross-appeal were taken.

Holdings: The Court of Appeals, Lang-Miers, J., held that:

(1) as a matter of first impression, a portion of prejudgment and postjudgment interest could be apportioned to the first layer excess policy, even though the primary fronting insurer was required to indemnify the insured for only a portion of claim expenses if the insured’s liability exceeded self-funded retention;

(2) an incorrect ratio of claim expenses was apportioned to first-layer excess policy;

(3) definition of “ultimate net loss” in endorsement controlled over policy definition; and

(4) second-layer excess liability policy did not require exhaustion of underlying policy limits only by payment of actual damages without any claim expenses.

Affirmed as modified and remanded.

Before Justices FITZGERALD, RICHTER, and LANG-MIERS.

OPINION

Opinion by Justice LANG-MIERS.

This is an insurance coverage dispute. TIG Insurance Company, an excess insurer, appeals the denial of its motion for summary judgment and the granting of summary judgment in favor of its insured, North American Van Lines, Inc. and North American Van Lines of Texas, Inc. (collectively, NAVL). The issue on appeal is whether the limits of the underlying insurance policies were exhausted, triggering indemnification by the TIG policy, and, if so, the amount of that indemnification. We modify the trial court’s judgment and remand for recalculation of prejudgment interest.

BACKGROUND

NAVL became a defendant in a personal injury lawsuit entitled Emmons v. North American Van Lines. That suit resulted in a judgment against NAVL in the amount of $8,947,273.60 in actual damages plus prejudgment and postjudgment interest for a total judgment of $15,174,289. NAVL had three layers of insurance coverage which it argues provided coverage for the Emmons judgment.

A. Self-Funded Retention/USF & G Policy

NAVL contracted with United States Fidelity and Guaranty Specialty Insurance Company (USF & G) to provide a primary Texas trucker’s liability policy with a $5,000,000 limit of liability. The policy contained an “Automobile Self-Funded Retention” endorsement (SFR), pursuant to which NAVL was responsible for funding the $5,000,000 liability limit. The policy also contained a provision whereby USF & G would indemnify a portion of “claim expenses,” defined to include defense costs, prejudgment and postjudgment interest, attorney’s fees, and court costs, when NAVL’s legal liability for an accident exceeded the $5,000,000 policy limit.

B. The Royal Policy

NAVL contracted with Royal Indemnity Company to provide commercial umbrella liability coverage of $5,000,000 per occurrence with a $5,000,000 aggregate limit in excess of the amount recoverable under the primary underlying insurance, identified in the Royal policy as the USF & G policy. The Royal policy provided coverage for the “ultimate net loss” in excess of the $5,000,000 USF & G policy. “Ultimate net loss” is defined in the main Royal policy and also in an endorsement to that policy. Although the parties disagree about which definition controls, they do not dispute that under either definition, prejudgment and postjudgment interest are included as part of “ultimate net loss.”

C. The TIG Policy

NAVL also contracted with TIG to provide a “second layer” excess umbrella liability policy with $25,000,000 coverage per occurrence and a $25,000,000 aggregate limit in excess of Royal’s umbrella policy and the primary policy. TIG’s policy provided that its coverage is triggered when the “ultimate net loss” exceeded the underlying insurance, in this case $10,000,000. The policy defined “ultimate net loss” as “the amount of the principal sum, award or verdict actually paid or payable in cash in the settlement or satisfaction of claims for which the insured is liable … after making proper deduction for all recoveries and salvages.”

PROCEEDINGS BELOW

Under its SFR in the USF & G policy, NAVL paid $5,000,000 of the actual damages awarded in the Emmons judgment, and Royal tendered its $5,000,000 policy limits, leaving over $5,000,000 of the total judgment unpaid by insurance. NAVL sought indemnification from its TIG policy for the remainder of the judgment amount.

TIG filed this lawsuit seeking a declaration that it has no duty to indemnify NAVL under its excess policy for any portion of the Emmons judgment. TIG argued its definition of “ultimate net loss” meant that the underlying insurance had to be exhausted by the payment of actual damages and not “claim expenses” before its coverage was triggered. And because the actual damages in the Emmons judgment were under $10,000,000, the combined limits of the USF & G and Royal policies, TIG argued its coverage was not triggered. TIG also argued its coverage was not triggered because all “claim expenses” should have been paid by NAVL and none should have been apportioned to the Royal policy. Had this occurred, the Royal policy limits would have covered the remainder of the actual damages and the TIG coverage would not have been triggered.

NAVL filed a counterclaim against TIG alleging breach of contract, contending the underlying policy limits had been exhausted, that these limits were insufficient to satisfy the Emmons judgment, and that TIG owed the remainder of the judgment.

TIG and NAVL both filed motions for summary judgment on their claims. After hearing argument on the competing motions, the trial court issued a letter ruling, holding, in part: (1) the USF & G policy provides $5,000,000 primary insurance plus indemnification of a percentage share of NAVL’s “claim expenses,” which the court calculated as 44.1%; and (2) NAVL may apportion its share of the “claim expenses” (55.9%) to the Royal policy provided the apportionment is consistent with the terms of the Royal policy. The trial court then allocated the damages and “claim expenses” as follows:

Total USF & G Royal TIG

———- ———- ———-

Actual Damages $8,947,274 $5,000,000 $1,519,099 $2,428,175

Prejudgment Interest $2,488,077 $1,097,242 $1,390,835 0

Postjudgment Interest $3,738,938 $1,648,872 $2,090.066 0

 

TIG objected to the trial court’s calculation of the ratio used to apportion “claim expenses.” After a supplemental hearing and briefing on whether defense costs should have been included in “claim expenses,” the trial court issued a second letter, ruling that defense costs should not be applied against the limits of the Royal policy. Based on its rulings, the trial court denied TIG’s motion for summary judgment, granted in part NAVL’s motion for summary judgment, and awarded final judgment for NAVL in the amount of $2,428,175 against TIG, plus interest and attorney’s fees.

 

ANALYSIS

A. Standard of Review and Applicable Law

When both parties move for summary judgment, each bears the burden of establishing it is entitled to judgment as a matter of law. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex.2000). If the trial court grants one motion and denies the other, the non-prevailing party may appeal the granting of the prevailing party’s motion as well as the denial of its own motion. Holmes v. Morales, 924 S.W.2d 920, 922 (Tex.1996). We review the summary judgment evidence presented by both parties and determine all questions presented. Dallas Morning News, 22 S.W.3d at 356. We may affirm the trial court’s summary judgment or reverse and render the judgment the trial court should have rendered. Morales, 924 S.W.2d at 922; Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988).

 

When interpreting the terms of an insurance contract, we follow the general rules of contract construction. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995). Our primary concern is to ascertain the true intent of the parties as expressed in the written contract. Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995); Vincent v. Bank of Am., N.A., 109 S.W.3d 856, 866 (Tex.App.-Dallas 2003, pet. denied). If the contract can be given an exact or certain legal interpretation, it is not ambiguous, and we must interpret the insurance policy’s meaning and intent from its four corners. Houston Lighting & Power Co. v. Tenn-Tex Alloy & Chem. Corp., 400 S.W.2d 296, 300 (Tex.1966); La. Nat’l Gas Pipeline, Inc. v. Bludworth Bond Shipyard, Inc., 875 S.W.2d 458, 461 (Tex.App.-Houston [1st Dist.] 1994, writ denied); Carrabba v. Employers Cas. Co., 742 S.W.2d 709, 716 (Tex.App.-Houston [14th Dist.] 1987, no writ).

 

An ambiguity does not arise merely because the parties to an agreement advance differing interpretations. Vincent, 109 S.W.3d at 867; see Lopez v. Munoz, Hockema & Reed, 22 S.W.3d 857, 861 (Tex.2000). The contract is ambiguous only if the application of established rules of construction leaves an agreement susceptible to more than one reasonable meaning. Vincent, 109 S.W.3d at 867. If a contract of insurance is susceptible to more than one reasonable meaning, we must resolve the uncertainty by adopting the construction that most favors the insured. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., Inc., 811 S.W.2d 552, 555 (Tex.1991). In particular, exceptions or limitations on liability are strictly construed against the insurer and in favor of the insured. Id. We give effect to the whole policy when construing a particular provision, using each clause to help interpret the others. Wynnewood State Bank v. Embrey, 451 S.W.2d 930, 932 (Tex.Civ.App.-Dallas 1970, writ ref’d n.r.e.); W. Indem. Ins. Co. v. Am. Physicians Ins. Exch., 950 S.W.2d 185, 188 (Tex.App.-Austin 1997, no writ).

 

B. Arguments on Appeal

TIG argues the trial court should have granted its motion for summary judgment because the actual damages were less than the combined limits of the USF & G and Royal policies and coverage under the TIG policy was never triggered. Alternatively, TIG argues the trial court miscalculated the amount of indemnification TIG owed NAVL. In its cross-appeal, NAVL argues the trial court should have included defense costs in its calculation of “claim expenses” and apportioned NAVL’s share of those costs to the Royal policy, resulting in greater recovery against TIG.

 

1. Coverage for “Claim Expenses”

 

The USF & G policy states:

When the “insured’s” legal obligation to pay damages under LIABILITY COVERAGE … exceeds the self-funded retention amount shown in the above Schedule, we will indemnify you for a portion of the “claim expenses” …. in addition to the applicable Limits of Insurance.

 

TIG argues this provision means NAVL contracted to pay its share of the “claim expenses,” in addition to its SFR, before coverage was triggered under the Royal policy and that NAVL could not pass its obligation to pay those expenses to the Royal policy. The trial court ruled the Royal policy provided coverage for “claim expenses” and allocated a portion of the prejudgment and postjudgment interest as “claim expenses” to Royal under its policy. We agree with the trial court.

 

Although we can find no cases interpreting this language, the literal meaning of this provision in the USF & G policy is that USF & G’s indemnification of a portion of NAVL’s “claim expenses,” in this case prejudgment and postjudgment interest, is in addition to the policy’s limits. The clause does not say that NAVL must pay those expenses out of its own pocket. We can find nothing in this provision or in the USF & G policy as a whole that prevents NAVL from apportioning these expenses to its excess carrier when those expenses are covered by that policy. And we can find nothing in the Royal policy precluding coverage under its terms. In fact, both TIG and NAVL agree the definition of “ultimate net loss” in the Royal policy includes coverage for prejudgment and postjudgment interest. And Royal tendered its $5,000,000 limit, which indicates Royal also believed these “claim expenses” could be apportioned to its policy.

 

We conclude the trial court did not err in holding that NAVL may apportion its share of the “claim expenses” to the Royal policy.

 

2. Ratio of “Claim Expenses” Apportioned to USF & G

 

] Next we examine whether the trial court used the correct ratio in apportioning “claim expenses” to USF & G. Under the USF & G policy,

When the “insured’s” legal obligation to pay damages under LIABILITY COVERAGE … exceeds the self-funded retention … we will indemnify you for a portion of the “claim expenses” in the ratio that the portion of the total loss in excess of such self-funded retention bears to the total loss payable (inclusive of the self-funded retention) under this policy….

 

The trial court interpreted this provision as requiring USF & G to indemnify NAVL for 44.1% of the “claim expenses,” allowing NAVL to apportion 55.9% of those expenses to the Royal policy. The trial court arrived at this ratio by dividing the total actual damages which exceeded the self-funded retention, or $3,947,274 (actual damages of $8,947,274 minus the SFR of $5,000,000) by the total actual damages including the self-funded retention, or $8,947,274.

 

The parties agree the trial court correctly calculated the numerator in the ratio as $3,947,274. However, the parties disagree about the court’s calculation of the denominator. We conclude the trial court erred in using the total actual damages as the denominator.

 

The USF & G policy states the denominator in the ratio is the “total loss payable (inclusive of the self-funded retention) under this policy.” The “total loss payable (inclusive of the self-funded retention)” under the USF & G policy is $5,000,000, or the policy limits, because the total loss exceeds the policy limits. When the total loss exceeds the policy limits, as in this case, the denominator cannot be higher than $5,000,000, or it would exceed the “total loss payable … under this policy.”

 

] NAVL does not argue that the language is ambiguous. Instead, it argues that calculating the ratio in this way can lead to absurd results because, in some cases, the ratio could exceed 100% and no insurer would agree to indemnify its insured for more than the amount of “claim expenses.” But to adopt NAVL’s interpretation of this provision would require us to ignore the language “payable under this policy,” and rewrite it to delete that language, which we cannot do under the rules of contract construction. See Beaston, 907 S.W.2d at 433; Vincent, 109 S.W.3d at 866; Tan It All, Inc., 111 S.W.3d at 679. Applying the correct denominator, USF & G’s share of claim expenses is 78.9% and NAVL’s share is 21.1%.

 

As a result, we conclude the trial court erred in calculating the ratio to be used in allocating claim expenses to USF & G. The allocation should be:

 

 

Total USF & G Royal TIG

———- ———- ———-

Actual Damages $8,947,274 $5,000,000 $3,686,100 $261,174

Prejudgment Interest $2,488,077 $1,963,093 $524,984 0

Postjudgment Interest $3,738,938 $2,950,022 $788,916 0

 

3. Should defense costs have been allocated as part of “claim expenses”?

 

Next we consider whether the trial court should have included defense costs in its allocation of “claim expenses” to the Royal policy. NAVL argues that because the definition of “claim expenses” under the USF & G policy includes defense costs, NAVL’s share of the defense costs should have been apportioned to the Royal policy. The dispute arises from the Royal policy’s two conflicting definitions of “ultimate net loss.” In its policy, Royal agreed to pay:

[T]he Ultimate Net Loss, in excess of the applicable Underlying or Retained Limit, which the Insured shall become legally obligated to pay because of:

(a) Personal Injury

…

The policy then provides:

“Ultimate Net Loss” means: the total sums actually paid or payable as damages in settlement of a claim … or in satisfaction of a judgment for which the Insured is legally liable … and also includes investigation, adjustment, appraisal, appeal and defense costs paid or incurred by the Insured with respect to damages covered hereunder.

(emphasis added). However, the Royal policy contains a “Defense Settlement Amendatory Endorsement” which provides:

Section IV–Definition–Item 6 “Ultimate Net Loss” is amended as follows:

Ultimate Net Loss means: the total sums actually paid or payable as damages in settlement of a claim … or in satisfaction of a judgment for which the Insured is legally liable…. Ultimate Net loss does not include … (d) investigation, adjustment, appraisal, appeal and defense costs paid or incurred by the Insured, with respect to damages covered hereunder, which are payable by [Royal] in addition to the applicable limit of liability of this policy.

(emphasis added).

 

NAVL argues that because the endorsement only amends the definition of “ultimate net loss” and does not delete and replace it, as with other endorsements to the policy, the original definition of ultimate net loss must also be given effect. NAVL also argues the amended definition applies only in “drop down” situations, where Royal has a duty to defend NAVL. Because Royal did not owe a duty to defend NAVL in the Emmons case, NAVL argues the original definition applies and defense costs are included in Royal’s definition of “ultimate net loss” and should have been allocated to its policy limits.

 

Conversely, TIG argues the two definitions are in conflict and irreconcilable because one definition includes defense costs within the policy’s limits and the other definition does not. The trial court agreed and held “the Royal insurance policy does not encompass paying defense costs paid or incurred by NAVL in such a way as to erode the Royal policy limits” and refused to allocate defense costs to Royal.

 

An insurance policy and its endorsements should be construed together unless they are so much in conflict they cannot be reconciled. Mesa Operating Co. v. Cal. Union Ins. Co., 986 S.W.2d 749, 754 (Tex.App.-Dallas 1999, pet. denied). In that case, endorsements to a policy generally supersede and control over conflicting printed terms within the main policy. Mesa Operating Co., 986 S.W.2d at 754; Mut. Life Ins. Co. v. Daddy$ Money, Inc., 646 S.W.2d 255, 259 (Tex.App.-Dallas 1982, writ ref’d n.r.e .); United States Fire Ins. Co. v. Aetna Cas. & Sur. Co., 781 S.W.2d 394, 399 (Tex.App.- Houston [1st Dist.] 1989 (no writ).

 

The definition of “ultimate net loss” in the main Royal policy includes defense costs; the definition of “ultimate net loss” in the endorsement excludes defense costs. The only difference is that the amended definition contains the additional language, “which are payable by [Royal] in addition to the applicable limit of liability of this policy.” NAVL argues the definition of “ultimate net loss” in the amendatory endorsement applies only in situations where Royal owes a duty to defend NAVL. But the language of the amendatory endorsement does not include such a limitation, NAVL cites no authority in support of this argument, and we decline to so hold.

 

We conclude the trial court did not err in refusing to apportion defense costs against Royal’s $5,000,000 policy limits.

 

4. “Ultimate Net Loss” Under the TIG Policy

 

TIG agreed to pay:

the ULTIMATE NET LOSS (1) in excess of all UNDERLYING INSURANCE, and (2) only after all UNDERLYING INSURANCE has been exhausted by the payment of the limits of such insurance for losses arising out of occurrences insured by all of the policies designated in the Declarations as UNDERLYING INSURANCE.

 

The TIG policy defines “ultimate net loss” as:

[T]he principal sum, award or verdict actually paid or payable in cash in the settlement or satisfaction of claims for which the insured is liable, either by adjudication or compromise with the written consent of [TIG], after making proper deduction for all recoveries and salvages.

 

TIG argues its definition of “ultimate net loss” means the USF & G and Royal policy limits had to be exhausted by the payment of actual damages, not “claim expenses,” before TIG’s coverage was triggered because “principal sum” includes only actual damages. NAVL agrees that “principal sum” means actual damages only. However, NAVL argues, and we agree, that the TIG policy cannot be interpreted to say that the underlying insurance must be exhausted by the payment of actual damages only.

 

The TIG policy pays for actual damages in excess of the USF & G and Royal policy limits that have been exhausted by the payments of losses arising out of occurrences insured by those policies. The TIG policy does not define “losses” but, as we have seen, the Royal policy included “claim expenses” in its definition of “ultimate net loss.” TIG did not exclude “claim expenses” from its definition of “losses … insured by … underlying insurance.” And an intent to exclude or limit coverage must be expressed in clear and unambiguous terms. Hudson Energy, 811 S.W.2d at 555. We can find no such contractual provision in the TIG policy. We conclude the trial court did not err when it held that, by payment of actual damages and “claim expenses,” the USF & G and Royal policy limits were exhausted, thereby triggering coverage under the TIG policy.

 

CONCLUSION

We conclude the trial court did not err by denying TIG’s motion for summary judgment and granting, in part, NAVL’s motion. However, because we conclude the trial court used an incorrect ratio in allocating “claim expenses” to USF & G, we modify the trial court’s judgment to award NAVL the sum of $261,174 from TIG, and we remand to the trial court for recalculation of prejudgment interest.

 

FN1. We express no opinion on the possible results from such a hypothetical situation as argued by NAVL. NAVL argues, for example, when the judgment is $11,000,000, the ratio would be $6,000,000 divided by $5,000,000, or 120%. However, what would happen if USF & G is faced with those facts is not before us. We must give words their plain, ordinary and generally accepted meaning unless the policy indicates another meaning should apply. See Evergreen Nat’l Indem. v. Tan It All, Inc., 111 S.W.3d 669, 677 (Tex.App.-Austin 2003, no pet.). And we may not ignore words or create an ambiguity when there is none. See id. at 678; Lubbock County Hosp. Dist. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 143 F.3d 239, 244-45 (5th Cir.1998).

Court of Appeals of Wisconsin.

Daniel J. KNISPEL, Jacob Knispel and Ryan Knispel, by their guardian ad litem,

Mark P. Wendorff, Plaintiffs-Appellants,

Acuity, a Mutual Insurance Company, Involuntary-Plaintiff-Co-Appellant,

v.

NORTHLAND INSURANCE COMPANY and Richard J. Brost, Defendants-Respondents,

West Bend Mutual Insurance Company, Valley Express, LLC, United States Fire

Insurance Company, Westchester Fire Insurance Company, American Guarantee and

Liability Insurance Company and The American Insurance Company, Defendants.

Aug. 25, 2005.

¶ 1 LUNDSTEN, P.J.

Daniel Knispel was injured because of the operation of a semi tractor insured by Northland Insurance Company. Daniel and his sons, Jacob and Ryan Knispel, sued Northland and other parties. Daniel and his sons, and Acuity Mutual Insurance Company (collectively referred to as Knispel), appeal an order of the circuit court granting summary judgment in favor of Northland and dismissing Northland from the action. The circuit court granted summary judgment based on its conclusion that the Northland policy contained an endorsement that excluded coverage. The court rejected Knispel’s argument that the endorsement was contextually ambiguous under Folkman v. Quamme, 2003 WI 116, 264 Wis.2d 617, 665 N.W.2d 857, and that the endorsement had the effect of making coverage illusory. We agree with the circuit court and affirm.

Background

¶ 2 Richard Brost owns and operates a semi tractor. He purchased insurance for the tractor from Northland Insurance Company. His policy contained an exclusion stating that his “insurance does not apply to: … [his tractor] while used in the business of anyone to whom the [tractor] is rented.”

The record contains two copies of the policy, one submitted by Northland Insurance and one submitted by Knispel, but they are not the same. In his appellate brief, Knispel points out some of the differences, but he does not suggest that there is a factual dispute on this topic that prevents summary judgment. Neither Knispel nor Northland argues that one policy is clearer than the other. It is not apparent from the circuit court’s decision which copy of the policy the circuit court relied on. We note that the copy of the policy contained in Knispel’s appendix is not an exact copy of either of the copies in the record. Instead, Knispel has added two introductory pages to that copy of the policy, apparently acknowledging that the copy he submitted to the circuit court was incomplete.

Because summary judgment was granted in favor of Northland, we will refer to the copy of the policy submitted by Knispel to the circuit court. We do not, as Knispel does, refer to a combination of both copies of the policy.

¶ 3 Prior to purchasing his Northland policy, Brost leased his semi tractor to a trucking company named Valley Express. At the same time, Brost was under contract with Valley Express to operate his semi tractor for Valley Express. While the semi tractor was leased to Valley Express and while Brost was operating the tractor for Valley Express, an accident occurred involving the tractor. Plaintiff Knispel was operating a forklift between a trailer attached to the tractor and a loading dock. Brost pulled away from the loading dock while Knispel was backing the forklift out of the trailer that was attached to the tractor. The forklift and Knispel fell to the ground and Knispel was severely injured. As a result of the accident, Knispel is a quadriplegic confined to a wheelchair.

¶ 4 This appeal involves only whether, with respect to Knispel’s injury, there is coverage for Brost’s semi tractor under the Northland policy.

Discussion

Standard of Review

¶ 5 The circuit court dismissed all claims against Northland Insurance on summary judgment. We perform summary judgment analysis de novo, applying the same method employed by circuit courts. Brownelli v. McCaughtry, 182 Wis.2d 367, 372, 514 N.W.2d 48 (Ct.App.1994). That method is well established and need not be repeated in its entirety. See, e.g., Lambrecht v. Estate of Kaczmarczyk, 2001 WI 25, ¶ ¶ 20-24, 241 Wis.2d 804, 623 N.W.2d 751. It is sufficient to say here that summary judgment is appropriate when there is no genuine issue as to any material fact and a party is entitled to judgment as a matter of law. See id., ¶ 24.

¶ 6 Knispel argues that the rental exclusion endorsement in the Northland insurance policy is contextually ambiguous and, therefore, must be construed in favor of coverage. The construction of insurance policy language is a question of law, which we review de novo. Van Erden v. Sobczak, 2004 WI App 40, ¶ 22, 271 Wis.2d 163, 677 N.W.2d 718, review denied, 2004 WI 114, 273 Wis.2d 655, 684 N.W.2d 136 (No.2002AP1595). Knispel also argues that the rental exclusion renders the policy coverage illusory. Whether coverage in an insurance policy is illusory is also a question of law. Hinrichs v. American Family Mut. Ins. Co., 2001 WI App 114, ¶ 14, 244 Wis.2d 191, 629 N.W.2d 44.

Contextual Ambiguity

¶ 7 The seminal case on contextual ambiguity is Folkman, 264 Wis.2d 617. We recently summarized the pertinent law from that case:

When we construe insurance policy provisions, our goal is to give effect to the intent of the parties as expressed in the language of the policy. Folkman v. Quamme, 2003 WI 116, ¶ 12, 264 Wis.2d 617, 665 N.W.2d 857. We first inquire whether the language regarding the disputed coverage issue is ambiguous, that is, susceptible to more than one reasonable interpretation. Id., ¶ 13. If there is no ambiguity, we apply the language as written, without resort to rules of construction or principles of case law. Id. On the other hand, if there is ambiguity, we construe the clause in favor of the insured. Id.

A provision that is unambiguous in itself may be ambiguous in the context of the entire policy. Id., ¶ 19. The test for determining contextual ambiguity is the same as that for determining whether a particular clause is ambiguous: is the language of the particular provision, “when read in the context of the policy’s other language, reasonably or fairly susceptible to more than one construction … measured by the objective understanding of an ordinary insured.” Id., ¶ 29 (citations omitted). In determining whether there is contextual ambiguity, we inquire whether “the organization, labeling, explanation, inconsistency, omission, and text” of other relevant provisions in the policy create an “objectively reasonable alternative meaning and, thereby, disrupt an insurer’s otherwise clear policy language.” Id., ¶ ¶ 19, 30.

Ruenger v. Soodsma, 2005 WI App 79, ¶ ¶ 9-10, — Wis.2d —-, 695 N.W.2d 840. We now apply this law to the case before us.

¶ 8 Brost’s Northland insurance policy provides liability coverage for his semi tractor. The policy contains an exclusion titled: “TRUCKERS–INSURANCE FOR NON-TRUCKING USE.” This exclusion states:

Liability Coverage [for Brost’s semi tractor] is changed as follows:

1. The following exclusions are added:

This insurance does not apply to:

….

b. A covered “auto” while used in the business of anyone to whom the “auto” is rented.

Thus, this exclusion means that the policy does not provide coverage for Brost’s semi tractor when the tractor is being used in the business of anyone to whom the tractor is being rented. Knispel implicitly concedes that the above exclusion language, viewed alone, unambiguously excludes coverage because Brost’s semi tractor was rented to Valley Express and was being used in the business of Valley Express when the accident occurred.

¶ 9 Instead, Knispel argues that this rental exclusion is ambiguous in the context of the entire policy under the contextual ambiguity analysis explained in Folkman and more recent decisions such as Dowhower v. Marquez, 2004 WI App 3, 268 Wis.2d 823, 674 N.W.2d 906, review denied, 2004 WI 20, 269 Wis.2d 198, 675 N.W.2d 804 (No.2001AP1347). Tracking language in these cases, Knispel asserts that ambiguity is created by organizational complexity, poor labeling, poor explanations, inconsistencies, and omissions. However, when Knispel tracks through the policy and comments on various aspects of it, it becomes clear that the thrust of his argument is that the rental exclusion clause is difficult to find. He does not show that any of the asserted problems with the organization of the policy create an “objectively reasonable alternative meaning.” See Folkman, 264 Wis.2d 617, ¶ 30. Indeed, nowhere in his arguments does Knispel provide an alternative reasonable meaning for the rental exclusion clause.

¶ 10 We agree with Knispel that the policy has some of the organizational problems identified as factors in other cases. For example, as in Badger Mutual Insurance Co. v. Schmitz, 2002 WI 98, ¶ 62, 255 Wis.2d 61, 647 N.W.2d 223, the declarations page does not make specific reference to the exclusion at issue. But drawing isolated comparisons with prior cases does not explain why the context of the policy in this case creates a reasonable alternative meaning for the rental exclusion clause.

¶ 11 Knispel makes a few arguments that seem to assert that there is ambiguity, but when we examine these arguments we find that they lack merit. For example, Knispel points to the “Automobile Insurance Identification Card” page in the policy. This page is divided in quarters by dotted lines, and each quarter-page contains an identification card. Three of the cards are stamped “Void.” The remaining card identifies Northland as the insurer, Brost as the insured, and the insured vehicle, a “1999 Freightliner Tractor” with a specified vehicle identification number. Knispel points out that this identification card states: “The coverage provided by this policy meets the minimum liability insurance requirements as prescribed by law.” He says the card contains no restrictions or limitations on the liability coverage and in particular does not contain any reference to the rental exclusion clause. Knispel argues that this card adds to the confusion regarding the meaning of the policy because it says the coverage provided meets the minimum liability requirements prescribed by law. This argument is meritless because Knispel does not demonstrate that the rental exclusion clause somehow causes the policy to fail to afford the minimum coverage prescribed by law and, therefore, does not show how the card is misleading.

This page is contained in the version of the policy submitted by Knispel, but not in the version submitted by Northland.

¶ 12 Moreover, we disagree with Knispel’s assessment that “it is [only] by sheer luck that a reasonable insured stumbles upon the one-page [rental exclusion] endorsement found in the back of the policy.” It is not difficult to figure out that there are several endorsements or where to find them.

¶ 13 The first page of the policy is a page entitled “Common Policy Declarations.” It states that the policy consists of the “following coverage parts for which a premium is indicated.” Six types of coverage are listed on this declarations page, but only one has a premium indicated. That one is “Commercial Auto/Garage Coverage Part.” Policy coverage limits are not provided on this page.

In footnote 1, we explain why we treat this page as the first page of the policy. But even if the true policy has a cover sheet and a “quick reference” page preceding the page we treat as the first page, it would not affect our conclusion.

¶ 14 The next six pages of the policy consist of “Common Policy Conditions,” such as cancellation rights and policy transfer rights, and two endorsements. These pages do not indicate policy coverage limits. Thus, as Northland points out, nothing to this point in the policy affirmatively provides coverage.

¶ 15 On the eighth page of the policy is a declarations page entitled “Commercial Auto Coverage Form Declarations.” This page is a typical declarations page. It lists Borst’s 1999 Freightliner tractor as the insured vehicle and, among other coverages and limits, provides $1,000,000 coverage for each “accident.” This declarations page states: “Forms and endorsements contained in this policy at its inception: Per Schedule of Forms and Endorsements N-2500 (4/94).” This is a reference to the next page in the policy, designated N-2500 (4/94). This next page lists twenty “forms and endorsements” using alpha/numerical designations and dates, for example, “CA 01 37 (07/01).” This page is not difficult to find. It does not provide descriptive titles for the forms and endorsements–which would be better–but it does inform a reasonable insured that there are several forms and endorsements affecting coverage. Thereafter, finding these forms and endorsements is simple because they follow just one page later, after the identification card page. It is true that one must read through the forms and endorsements to ascertain their meaning, but it is not true that they are hard to find.

¶ 16 In sum, we conclude that, although the policy is not a model of clear organization and labeling, there is no contextual ambiguity that produces a reasonable alternative meaning for the rental exclusion clause.

The parties spend time disputing the meaning of various terms in the policy, such as “non-truckman” and “non-trucking use,” and whether these terms have established meaning within the trucking community. We conclude that an understanding of these terms is unnecessary to an understanding of the rental exclusion clause and that such terms do not, either separately or in combination with other aspects of the policy, render the rental exclusion ambiguous. In addition, Knispel argues that we should not rely on a Brost affidavit submitted by Northland because it was submitted late and it contains Brost’s irrelevant subjective understanding of the policy. Like the circuit court, we conclude that we need not address this dispute because we do not rely on the disputed Brost affidavit.

Illusory Coverage

¶ 17 Knispel also argues that Northland should not have been dismissed from the case on summary judgment because the coverage in Brost’s Northland policy is rendered illusory by the rental exclusion clause and, therefore, Northland should be precluded from relying on the rental exclusion to deny coverage. In this part of his brief, Knispel does not cite to any legal authority. Instead, he simply makes the following argument:

1) Under the Northland policy, the rental exclusion endorsement excludes coverage when Brost’s semi tractor is used in the business of anyone to whom the tractor is rented.

2) There is no dispute that when Brost purchased his Northland policy, his semi tractor was leased by Brost to Valley Express.

3) The lease contract between Brost and Valley Express provides that “Valley Express will have exclusive control, possession and use of said Equipment which shall not, at any time during the term of this Contract, be operated for any purpose other than the business of Valley Express….”

4) “As a result [of items 1, 2, and 3 above], it is appropriate to assume that Northland had full knowledge of the terms of [Brost’s] lease regarding the ‘covered auto’ as of the inception of the policy or, at a minimum, had full opportunity to avail itself of those terms.”

5) Therefore, coverage was illusory because the interaction of the rental exclusion clause and the lease means that the rental exclusion was in effect at all times during the term of the policy.

¶ 18 In response, Northland cites several cases from other jurisdictions to support the proposition that coverage is not rendered illusory by a rental exclusion clause because coverage is provided when the insured vehicle, although leased to another, is not being operated in the other’s business, such as personal errands or traveling to and from the driver’s home. Northland, however, does not analyze any of the nine cases and does not even provide pinpoint cites. Apparently Northland believes we should read the nine cases and figure out on our own whether those cases involve comparable policy language and legal reasoning supporting Northland’s view. We decline to do so.

¶ 19 Despite Northland’s inadequate response, we reject Knispel’s argument that coverage was illusory because Knispel has failed to present a developed argument.

¶ 20 Illusory coverage is against public policy. Malik v. American Family Mut. Ins. Co., 2001 WI App 82, ¶ ¶ 17-18, 243 Wis.2d 27, 625 N.W.2d 640. In Link v. General Casualty Co. of Wisconsin, 185 Wis.2d 394, 400, 518 N.W.2d 261 (Ct.App.1994), we explained that coverage is illusory when benefits would not be paid under any reasonably expected set of circumstances.

¶ 21 There are many flaws in Knispel’s argument, but it is sufficient to identify two.

¶ 22 First, Knispel ignores the fact that he is not the insured. Our non-exhaustive research indicates that cases addressing allegations that a policy provides illusory coverage involve insureds arguing that they have purchased illusory coverage. See, e.g., Remiszewski v. American Family Ins. Co., 2004 WI App 175, ¶ ¶ 3-4, 12, 15, 276 Wis.2d 167, 687 N.W.2d 809, review denied, 2004 WI 138, 276 Wis.2d 30, 689 N.W.2d 57 (No.2003AP2653); Van Erden, 271 Wis.2d 163, ¶ ¶ 6, 33; Janssen v. State Farm Mut. Auto. Ins. Co., 2003 WI App 183, ¶ ¶ 2-3, 8-15, 266 Wis.2d 430, 668 N.W.2d 820; Link, 185 Wis.2d at 396- 401; Hoglund v. Secura Ins., 176 Wis.2d 265, 267-69, 500 N.W.2d 354 (Ct.App.1993). Knispel fails to explain why a non-insured party may compel an insurance company to provide coverage based on the argument that coverage is illusory. If Brost purchased a policy that provides him no benefit because of his lease arrangement with Valley Express, that might be a matter between Brost and the insurer, or between Brost and the agent who sold him the policy, but it is not apparent why Knispel is a person who may force Northland to provide coverage. Knispel’s argument is inadequate because he does not address the matter.

¶ 23 Second, Knispel’s argument assumes that, when courts construe a policy to determine whether some part of its coverage is illusory, the court may look outside the policy to the particular facts of the case at hand. This proposition is not self-evident. Our non-exhaustive review of cases indicates that Wisconsin courts typically assess whether coverage is illusory by looking to the policy and governing law, not to the particular circumstances of the insured. See, e.g., Link, 185 Wis.2d at 396-401 (although definition in policy prevented insured from collecting under the policy’s UIM provision, UIM coverage was not illusory because there are other circumstances in which the insured could collect under the UIM provision); Hoglund, 176 Wis.2d at 270- 71 (UIM coverage was illusory both because the policy provided UIM motorists coverage only when a tortfeasor’s policy limits are $25,000 or less and by statute an insured motorist must have $25,000 in coverage and because another policy term defined out-of-state vehicles uninsured if its policy limit is less than $25,000).

Even if we could look outside the policy to the particular facts of a case in an effort to determine whether coverage is illusory, something we doubt, Knispel does not support his assertion that “it is appropriate to assume that Northland had full knowledge of the terms of its insured’s lease regarding the ‘covered auto’ as of the inception of the policy or, at a minimum, had full opportunity to avail itself of those terms.” Knispel does not provide record cites. We decline to search the record for facts relevant to this topic, unassisted by either party.

Conclusion

¶ 24 As did the circuit court, we reject Knispel’s argument that the endorsement was contextually ambiguous and that the rental exclusion clause had the effect of making coverage illusory. Accordingly, we affirm the circuit court’s order granting summary judgment in favor of Northland.

Order affirmed.