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 Kentucky.

EMERY WORLDWIDE, A SUBSIDIARY OF CNF, INC., Appellant

v.

AAF-McQUAY, INC., d/b/a AAF International, Appellee.

Sept. 30, 2005.

OPINION

TAYLOR, Judge.

Emery Worldwide, a subsidiary of CNF, Inc., (Emery) brings this appeal from a June 24, 2003, summary judgment of the Jefferson Circuit Court awarding $213,000.00 in damages for a lost shipment of electronic melter components. We affirm.

AAF-McQuay, Inc., d/b/a AAF International (AAF) desired to ship two pallets of electronic melter components from Arkansas to New Jersey. These components contained amounts of platinum and rhodium, which are undisputedly precious metals. The shipment was to be picked up in Fayetteville, Arkansas, and delivered to Carteret, New Jersey. To effectuate the transport, Lewis F. Sanders instructed his scheduling clerk, Barbara Norris, to find a carrier that would ship and insure the components. Norris then contacted John Maxwell, the general manager of Emery’s terminal in Tulsa, Oklahoma. Norris claims she informed Maxwell that the shipment contained components comprised of platinum and rhodium. Maxwell alleges he was never informed the shipment included precious metals because the shipment of precious metals is forbidden by Emery’s Service Guide.

Nevertheless, on March 13, 2000, Maxwell contacted Norris and informed her that the shipment would be insured for its full declared value of $213,000.00 and the shipping charge would be $1,591.98. Thereafter, Norris completed a Bill of Lading and an Emery Air Waybill (Waybill). On the Waybill, Norris described the shipment as “ELECT. MELTER COMPONENTS.” The components were then packaged for shipment, and the shipment was delivered to an Emery driver.

It is undisputed that the shipment never reached its intended destination. Thereafter, AAF submitted a formal claim of loss to Emery. Emery confirmed by letter, dated April 4, 2000, that it received the claim and would process it. Despite repeated demands, AAF received no denial or approval of its claim from Emery.

On August 28, 2001, AAF filed a complaint against Emery seeking to recover $213,000.00 in damages representing the value of the lost shipment. In the complaint, AAF alleged breach of contract, negligence, conversion, and violation of the Carmack Amendment to the Interstate Commerce Act (49 U.S.C. § 14706(a)(1)). On October 3, 2002, AAF moved for summary judgment; thereafter, Emery filed a cross-motion for summary judgment. While these motions were pending, Emery filed a motion to dismiss on the basis of forum non conveniens, but the circuit court denied Emery’s motion. Subsequently, on June 24, 2003, the circuit court granted AAF’s motion for summary judgment and awarded damages in the amount of $213,000.00, representing the declared value of the lost shipment. This appeal follows.

Emery contends the circuit court committed error by entering summary judgment in favor of AAF. Summary judgment is proper where there exist no material issues of fact and movant is entitled to judgment as a matter of law. Ky. R. Civ. P. 56; Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky.1991). Initially, Emery contends the circuit court erred by granting summary judgment upon AAF’s breach of contract claim. The breach of contract claim revolved around interpretation and construction of Emery’s Air Waybill. Emery essentially argues that federal law, not state law, controls the interpretation of the Waybill by operation of the Airline Deregulation Act (ADA) (49 U.S.C. § 41713(b)(4)(A)). We disagree.

In American Airlines v. Wolens, 513 U.S. 219, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), the United States Supreme Court was faced with the issue of whether a claim for breach of contract under state law was preempted by the ADA. In answering this question in the negative, the Supreme Court held:

Nor is it plausible that Congress meant to channel into federal courts the business of resolving, pursuant to judicially fashioned federal common law, the range of contract claims relating to airline rates, routes, or services. The ADA contains no hint of such a role for the federal courts….

The conclusion that the ADA permits state-law-based court adjudication of routine breach-of-contract claims also makes sense of Congress’ retention of the FAA’s saving clause, § 1106, 49 U.S.C.App. § 1506 (preserving “the remedies now existing at common law or by statute”). The ADA’s preemption clause, § 1305(a)(1), read together with the FAA’s saving clause, stops States from imposing their own substantive standards with respect to rates, routes, or services, but not from affording relief to a party who claims and proves that an airline dishonored a term the airline itself stipulated. This 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.

Id. at 232-233(citations omitted).

In American Airlines, the Supreme Court clearly concluded that a breach of contract claim was not preempted by the ADA. As a breach of contract claim is not preempted by the ADA, we think it logically follows that the breach of contract claim must be interpreted pursuant to state law. Based upon this reasoning, we reject Emery’s contention that federal law controls the interpretation of the Waybill. As AAF brought a breach of contract action against Emery, we believe that state law is applicable when interpreting the contract (Waybill) between the parties. Having so concluded, we shall now examine the Waybill at issue.

The Waybill contained provisions on the front and back of the document. On the front, it specifically stated:

I/we agree that Emery’s Terms and Conditions of Contract (“Terms”) as set forth on the front and reverse hereof apply to this shipment.

This provision, on the front of the Waybill, incorporated by reference the terms on its reverse side. A signature line appeared on the bottom front page, and there appeared a signature of an AAF representative. On the reverse side of the Waybill, there was no signature line. Also, the following provision was inserted on the reverse side:

The Shipper agrees that this shipment is subject to the TERMS stated herein and those TERMS AND CONDITIONS in the Service Guide in effect on the date of shipment, which are incorporated herein by reference, and made a part of this contract. In the case of conflict between the TERMS contained herein and those TERMS AND CONDITIONS in the Service Guide, the TERMS AND CONDITIONS in the Service Guide shall control. The Service Guide is available at all our offices or a copy can be obtained by writing to Emery Worldwide, One Lagoon Drive, Suite # 400, Redwood City, California 94065-1564. ALL TERMS, including, but not limited to, all the limitations of liability, shall apply to our agents and their contracting carriers. As used herein, the words “our,” “we,” and “us” shall refer to Emery Worldwide, a CNF company.

The above provision, on the reverse side of the Waybill, attempted to incorporate by reference the additional terms and conditions contained in Emery’s Service Guide. Relevant to this appeal is the following exclusion contained in Emery’s Service Guide:

The following shipments will not be acceptable for transportation by Emery:

….

C. Shipments of gold or other precious metals including but not limited to bronze, copper, gold or silver coins, coin collections, gems, and precious stones.

Pursuant to this provision of Emery’s Service Guide, Emery argues that it does not accept for shipment cargos of precious metals. Emery claims it is undisputed that AAF’s shipment contained precious metals. As such, Emery maintains that it is not liable for the loss of the shipment by operation of the Waybill and Emery’s Service Guide.

In a well-reasoned and erudite opinion, the circuit court rejected Emery’s argument. Relying upon state law, the circuit court concluded that the provision, on the reverse side of the Waybill, incorporating Emery’s Service Guide was unenforceable. Specifically, the circuit court reasoned:

KRS 446.060 provides that “[w]hen the law requires any writing to be signed by a party thereto, it shall not be deemed to be signed unless the signature is subscribed at the end or close of the writing.” This statute embodies the idea that when a signature is placed at the end of an agreement, there is created a logical inference that the document contains all of the terms by which the signer intends to be bound. Gentry’s Guardian v. Gentry, Ky., 293 S.W. 1094 (1927); R.C. Durr Co. v. Bennett Industries, Inc., Ky.App., 590 S.W.2d 338 (1979). However, Kentucky courts have also consistently held that this statute does not abolish the doctrine of incorporation by reference. See, e.g., Childers Venters, Inc. v. Sowards, Ky., 460 S.W.2d 343 (1970); Bartelt Aviation, Inc. v. Dry Lake Coal Co., Inc., Ky., 682 S.W.2d 796 (1985). Generally, this doctrine provides that

[w]when the signature is in the middle of a writing, it gives no assurance that the contracting parties intend to be bound by matters which do not appear above their signatures; however, when a signature is placed after clear language [that] has expressed the incorporation of other terms and conditions by reference, it is a logical inference that the signer agrees to be bound by everything incorporated.

Bartelt, 682 S.W.2d at 797, citing R.C. Durr Co., supra. In order for the incorporating language to be valid and enforceable, it must appear above the signature line. Consolidated Aluminum Corp. v. Krieger, Ky.App., 710 S.W.2d 869 (1986).

The present matter presents the unusual problem of a double incorporation. That is, a statement on the front page of Emery’s Waybill incorporates the terms and conditions on the reverse side. Among those terms on the reverse side is yet another incorporating provision, this one relating to the separate Emery Service Guide. When viewed in light of the authorities cited above, this double incorporation is not enforceable against AAF.

Initially, there is no doubt that the terms and conditions on the reverse side of the Waybill appear after the signature line designated for AAF’s agent. However, there is a statement above the signature of AAF’s representative that states “I/we agree that Emery’s Terms and Conditions of Contract (“Terms”) as set forth on the front and reverse hereof apply to this shipment.” Pursuant to Kentucky law as cited above, this provision on the front of the Waybill is enforceable. Nonetheless, the second incorporation provision on the reverse of the Waybill is not enforceable since the Service Guide was not provided to AAF and Kentucky law does not recognize a double incorporation.

Traditionally, the doctrine of incorporation by reference has been applied in situations where a party to a contract signs a document that includes a provision that incorporates various terms on the reverse side of the same document. The doctrine is also applicable in situations where the terms being incorporated are embodied in a separate document that is provided to the party charged with knowledge of the terms therein prior to execution of the contract. See, e.g., Buck Run Baptist Church, Inc. v. Cumberland Surety Ins. Co., Ky., 983 S.W.2d 501 (1998). Under these traditional circumstances, the single key factor is that all of the terms of the contract are available to the signer at the time the document is executed. Conversely, in Twin City Fire Ins. Co. v. Terry, Ky., 472 S.W.2d 248 (1971), the court refused to uphold an exclusionary term in an insurance contract that was located in a separate document incorporated by reference into the policy because the secondary document was not provided to the insured. In the present action, the precious metal exclusion, found in Emery’s Service Guide, a separate document referenced on the reverse side of the Waybill after the signature line, was never provided to AAF. Emery has presented no evidence to refute this. This alone warrants non-enforcement of the exclusion.

Further this Court can find no precedent in Kentucky for an extension of the doctrine of incorporation by reference to encompass a situation involving a double incorporation. The facts in this matter are illustrative of why such an extension of the doctrine is unreasonable. While the provision on the front of the Waybill references the terms and conditions on the back, it does not notify AAF that there is yet another distinct incorporating provision on the reverse side. Similarly, the provision on the front of the Waybill provides no notice to AAF that there is another document other than the Waybill itself that contains important terms and conditions of the contract. Rather, the first and only reference to the Service Guide is found on the back of the Waybill, after the signature line. It is simply not conceivable that a party to a shipping contract, such as AAF, would or should anticipate that the provision on the front of Emery’s Waybill portends yet another incorporating provision to be found on the reverse side referencing a nearly twenty page document distinct from the Waybill containing a large number of detailed contract provisions. This is especially true in light of the fact that the incorporating term on the back of the Waybill, the only one referencing the Service Guide, cannot be read unless the top page of the Waybill is separated from the copies below it (footnote omitted). Taken into conjunction with the fact that AAF was never provided a copy of the Service Guide, the circumstances of this action do not warrant an extension of the doctrine of incorporation by reference so as to enforce the precious metal exclusion.

We agree with the circuit court’s interpretation of the Waybill and particularly with the court’s conclusion that the incorporation provision on the reverse side of the Waybill was unenforceable. As pointed out by the circuit court, it is undisputed that if the electronic melter components did not contain precious metals, Emery would be liable to AAF for breach of contract to deliver the components. Accordingly, we conclude the circuit court properly interpreted the Waybill and concluded that Emery breached its duties thereunder. We also believe the circuit court correctly entered summary judgment against Emery for $213,000.00, the value of the lost shipment of electronic melter components.

Emery also argues that AAF’s complaint is time-barred by Section BIII, Subpart A(5) of its Service Guide. As hereinbefore concluded, we do not believe Emery’s Service Guide was properly incorporated by reference into the Waybill. Thus, any reliance upon its provision is clearly misplaced. Consequently, AAF’s complaint is not time-barred.

Emery further asserts the circuit court committed error by denying its motion to dismiss pursuant to the doctrine of forum non conveniens. We disagree.

Under the doctrine of forum non conveniens, it is recognized:

[T]here are certain instances in which a court properly vested with jurisdiction and venue may, nonetheless, dismiss an action if it determines that it is more convenient for the litigants and witnesses that the action be tried in a different forum.

Roos v. Kentucky Educ. Ass’n, 580 S.W.2d 508 (Ky.App.1979). It is within the sound discretion of the trial court to dismiss an action upon the basis of forum non conveniens, and that discretion will not be disturbed on appeal absent a clear abuse.

In this case, the complaint was filed on August 28, 2001, and Emery’s motion to dismiss upon forum non conveniens grounds was not filed until February 28, 2003. Emery waited some seventeen months before filing the motion. While there exist no proscribed time limitations upon the filing of such motion, we, nevertheless, think it incumbent upon Emery to file the motion within a reasonable time. In any event, we cannot say the circuit court abused its discretion by denying Emery’s motion. The record indicates that Emery is a global corporation and transacts business in the Commonwealth. Emery has a place of business in Jefferson County, and Emery contracted with an AAF office located in Jefferson County to deliver the shipment at issue. Considering the factors listed in Roos, we believe this Commonwealth is not an inconvenient forum.

We view Emery’s remaining contentions as moot.

For the foregoing reasons, the summary judgment of the Jefferson Circuit Court is affirmed.

TACKETT, JUDGE, CONCURS.

VANMETER, JUDGE, CONCURS IN RESULT ONLY.