In the
United States Court of Appeals
For the Seventh Circuit
No. 10-1943
C LARENDON N ATIONAL INSURANCE C OMPANY,
Plaintiff-Appellee,
v.
M ARIA M EDINA, G UILLERMO M EDINA,
T OWN T RUCKING C OMPANY, JERRY S CHULMAN,
Co-Administrator of the Estate of Michael Walter
Schulman, Deceased, and M ARY F ALAT-SCHULMAN,
Co-Administrator of the Estate of Michael
Walter Schulman, Deceased,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 CV 04245—Virginia M. Kendall, Judge.
A RGUED N OVEMBER 1, 2010—D ECIDED JULY 13, 2011
Before R OVNER, W OOD , and T INDER, Circuit Judges.
T INDER, Circuit Judge. The trailer of Guillermo Medina’s
semi-truck jackknifed across the center line of a slippery
road while he was making a delivery of shingles for
2 No. 10-1943
Town Trucking Company, a federally licensed motor
carrier. The wayward trailer struck a pickup truck and
killed its driver, Michael Walter Schulman. Schulman’s
parents, as administrators of his estate, brought a wrongful
death and survival action in Illinois state court against
Town; Guillermo; and Guillermo’s wife, Maria Medina,
the titular owner of the truck Guillermo was driving at
the time of the accident. The suit settled. Pursuant to
the settlement agreement, Town’s insurance carrier,
Occidental Fire & Casualty, who defended the action,
paid out the full $1 million policy limit. The agreement
also provided that the state court would issue a
$2 million consent judgment against Town and the
Medinas. Schulman’s estate agreed that the payment
from Occidental would satisfy the first $1 million of
the judgment, while the second $1 million would come,
if at all, from an insurance policy Clarendon National
Insurance Company issued to Guillermo. Clarendon
declined coverage, citing an exclusion in Guillermo’s
policy. It then sought a declaratory judgment of its
liability from the district court for the Northen District
of Illinois. The district court found no coverage and
granted summary judgment in Clarendon’s favor.
We affirm.
I. Background
In early 2006, Guillermo and Maria’s son, a commercial
truck driver, got a new truck cab. Pursuant to a
“family decision,” the son transferred ownership of his
old truck cab, a 1998 Volvo, to Maria. Maria did not have
No. 10-1943 3
a commercial driver’s license and was therefore unable
to drive the Volvo commercially. Guillermo, however,
had a commercial driver’s license and several years’
experience as a truck driver, which Maria expected him
to use to find a trucking job. Armed with the Volvo, his
credentials, and Maria’s blessing, Guillermo success-
fully applied for a job with Town Trucking, a Summit,
Illinois-based, federally licensed interstate motor carrier
for whom his son drove.
The federal regulations governing motor carriers
require carriers to either own their trucking equipment
or to enter into written leases in which the “owner” of
the equipment “grants the use of equipment, with or
without driver, for a specified period . . . for use in the
regulated transportation of property, in exchange for
compensation.” 49 C.F.R. § 376.2(e) (defining “lease”); see
also id. § 376.11 (requiring leases); id. § 376.2(d) (defining
“owner”). In what the parties agree was at least an
attempt to comply with these regulations, Town entered
into a nine-page “Contractor Operating Agreement”
(“COA”) with Guillermo. Pursuant to the COA, Guillermo
agreed to furnish the Volvo and a driver (himself) to
transport, load, and unload shipments of goods on
behalf of Town in exchange for compensation. Maria,
the titular owner of the Volvo, did not sign the COA
and was not familiar with its terms. She nonetheless
testified that she knew Guillermo had signed an agree-
ment with Town and that he had her permission to do
so. Maria explained, “He’s the one that uses [the Volvo].
He’s the one that takes it, and he’s the one that files—
keeps all the paperwork. And I know that he’s doing it.
I know it’s going on, but he’s doing it.”
4 No. 10-1943
In accordance with federal regulations, see 49 C.F.R.
§§ 387.7 & 387.9, and as provided for in the COA, Town
maintained a $1 million public liability/property damage
insurance policy that covered its drivers while they were
using their equipment in the furtherance of Town’s busi-
ness. The policy was underwritten by Occidental Fire &
Casualty, which agreed to include Guillermo among the
policy’s insureds. The COA further required Guillermo
to obtain “Non-trucking/bobtail liability insurance cov-
erage for bodily injury and property damage” with a
policy limit of at least $750,000. Such “bobtail insurance”
covers truck drivers while they are “bobtailing,” or driving
their cabs without trailers outside the service of the
federally licensed carriers under whose authority they
operate. Town referred Guillermo to a local insurance
broker, Insurance Pro, so he could secure a bobtail policy.
With Maria’s knowledge and permission, Guillermo
visited Insurance Pro and applied for bobtail insurance.
He told Insurance Pro that his wife owned the truck
but that he would be driving it. Insurance Pro sub-
mitted Guillermo’s application, which identified him as
the insured and indicated to several insurance carriers
that the Volvo was “leased to Town Trucking.” New
Jersey-based Clarendon National Insurance Company
agreed to issue Guillermo a policy. Maria wrote a check
to cover the annual premium. Insurance Pro issued
Guillermo an insurance card in his name.
After obtaining the requisite insurance, Guillermo
began working for Town, hauling loads of freight in
exchange for per-trip payments that he deposited into
No. 10-1943 5
a joint bank account of which Maria was a holder.1 On
November 28, 2006, Town supplied Guillermo with a
flatbed trailer and dispatched him and the Volvo to
transport several loads of shingles from a manufacturer
in Summit, Illinois, to a store in McHenry, Illinois.
Guillermo successfully delivered the first load and was
returning to Summit with the empty trailer to pick up
a second load when the trailer jackknifed over the
center line and collided with an oncoming pickup
truck. Michael Walter Schulman, the driver of the
pickup, sustained fatal injuries in the accident.
Schulman’s parents, as co-administrators of his estate,
filed a survival and wrongful death action against the
Medinas and Town in Illinois state court. Occidental,
Town’s insurer, defended the action and ultimately
settled with Schulman’s estate for the full limits of
Town’s $1 million policy, less some subrogation claims.
The settlement agreement also included the entry of
a consent judgment of $2 million against the Medinas
and Town. The estate agreed that the payment by Occiden-
tal satisfied the first $1 million of the consent judgment,
and that the second $1 million would be satisfied, if at
all, by Guillermo’s policy with Clarendon.
1
There is some discrepancy in the record regarding the joint
account. Sometimes it is referred to as a joint account held by
Maria and Guillermo, and other times as a joint account held
by Maria and the Medinas’ daughter Elsa. The important
point for our purposes is that Maria was one of the account
holders.
6 No. 10-1943
Clarendon denied coverage. It relied primarily on an
exclusion in Guillermo’s policy that provided, “[t]his
insurance does not apply to . . . [a] covered ‘auto’ while
in the business of anyone to whom the ‘auto’ is rented.”
As an alternative basis for its denial, Clarendon alleged
that Guillermo failed to notify it of the accident and
lawsuit in a timely fashion as required by the policy.
Clarendon, properly invoking diversity jurisdiction, see
28 U.S.C. § 1332, sought a declaration of its obligations
from the district court for the Northern District of Illinois.
The parties to that action cross-moved for summary
judgment. Defendants Town, the Medinas, and Schulman’s
estate argued that the exclusion in the Clarendon
policy did not apply. They reasoned that the Volvo
was not and indeed could not have been “rented” to
Town because Guillermo did not own the Volvo and
therefore lacked the ability to rent it to anyone. For its
part, Clarendon argued that Guillermo had to have
rented the Volvo to Town because absent such an ar-
rangement, the Volvo could not have legally been used
to transport goods. See 49 C.F.R. § 376.11(a).2
The district court granted Clarendon’s motion and
denied the defendants’ motion. The district court
held that “by operation of federal regulations and basic
2
Both sides also raised arguments concerning the notice (or
lack thereof) of the accident and lawsuit that Clarendon re-
ceived. Because we find that the district court correctly
granted summary judgment on the “rented” ground, we need
not and do not address the notice issue, which the district
court also refrained from deciding.
No. 10-1943 7
principles of contract law,” the COA constituted a lease
such that the Volvo was “rented” to Town at the time
of the accident. The district court discussed at length
the federal motor carrier regulations governing leases,
which it determined the COA materially complied with.
It found “it highly implausible that a document which
comports with all of the applicable federal regula-
tions for a lease between carrier and lessor was not in-
tended to, in fact, constitute such a lease.” The dis-
trict court was untroubled by Guillermo’s lack of titular
ownership of the truck because undisputed facts
showed that he “used the truck with Maria’s express
knowledge and permission, and entered into an agree-
ment with Town Trucking regarding its use with her
knowledge and permission.” It further noted that defen-
dants had not provided any legal authority supporting
their theory that only the titular owner of a chattel has
the authority to rent it to another.
II. Discussion
We review the district’s resolution of cross-motions
for summary judgment de novo. E.g., Cogswell v.
CitiFinancial Mortg. Co., 624 F.3d 395, 398 (7th Cir. 2010). In
doing so, we construe all reasonable inferences in favor of
the party against whom the motion under consideration
was made. Id. Here, that is the defendants. Summary
judgment is appropriate only if the movant—Claren-
don—“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).
8 No. 10-1943
The parties agree that Illinois law governs this diversity
action (notwithstanding the emphasis they place on the
federal motor carrier regulations). In Illinois, insurance
policies are contracts; the general rules governing the
interpretation and construction of contracts govern the
interpretation and construction of insurance policies.
Hobbs v. Hartford Ins. Co. of the Midwest, 823 N.E.2d 561,
564 (Ill. 2005). Illinois courts aim to ascertain and give
effect to the intention of the parties, as expressed in the
policy language, so long as doing so does not contravene
public policy. Id. In doing so, they read the policy as a
whole and consider the type of insurance purchased, the
risks involved, and the overall purpose of the contract.
State Farm Mut. Auto. Ins. Co. v. Villicana, 692 N.E.2d
1196, 1199 (Ill. 1998). If the policy language is unambigu-
ous, courts apply it as written. Hobbs, 823 N.E.2d at 564.
Policy terms that limit an insurer’s liability are liberally
construed in favor of coverage, but only when they are
ambiguous, or susceptible to more than one reasonable
interpretation. Id.; see also Rich v. Principal Life Ins. Co.,
875 N.E.2d 1082, 1090 (Ill. 2007).
The defendants assert that the policy exclusion on
which Clarendon relies should be construed in their
favor because it is ambiguous. Not only is calling this
exclusion ambiguous a somewhat dubious proposition,
see Hartford Ins. Co. of the Se. v. Occidental Fire & Cas. Co.,
908 F.2d 235, 238-39 (7th Cir. 1990); St. Paul Fire & Marine
Ins. Co. v. Frankart, 370 N.E.2d 1058, 1061 (Ill. 1977),
doing so is of dubious applicability in this case. Policy
provisions, including exclusions, are only ambiguous
when reasonable minds could differ about what they
No. 10-1943 9
mean. See Hobbs, 823 N.E.2d at 564. But there is no
dispute over what the policy exclusion means. The heart
of the parties’ dispute is how the language of the
exclusion should be applied; that is, whether the Volvo
could be or was in fact “rented.” “The fact that con-
tractual language may, on occasion, pose difficult
factual applications does not make that language am-
biguous.” Hartford Ins. Co., 908 F.2d at 239; see also Rich,
875 N.E.2d at 1090. Because there is no ambiguity, we
read and apply the exclusion according to its plain terms.
The plain terms of the exclusion render the pol-
icy—which Guillermo and Clarendon both understood
to afford limited bobtail coverage—inapplicable to “[a]
covered ‘auto’ while in the business of anyone to whom
the ‘auto’ is rented.” Most challenges to similarly
worded exclusions focus on whether the truck at issue
was “in the business” of the motor carrier at the time of
the incident for which coverage is claimed. See, e.g.,
Frankart, 370 N.E.2d at 1060 (“The issue before this court
is whether . . . the tractor-trailer was still being used in
the business of Wilson at the time of the accident,
thereby excluding coverage . . . .”); Empire Fire & Marine
Ins. Co. v. Liberty Mut. Ins. Co., 699 A.2d 482, 497 (Md. Ct.
Spec. App. 1997) (collecting cases). Here, though, the
defendants’ sole contention is that the covered auto, the
Volvo, was not “rented” to Town because Guillermo
rather than Maria signed the COA. They do not dispute
that Guillermo was “in the business” of Town at the
time of the accident; doing so would have almost cer-
tainly been futile. See Frankart, 370 N.E.2d at 1061 (inter-
preting similar policy and holding “the policy clearly
10 No. 10-1943
provides that coverage is excluded when [insured’s]
trailer is being used in the business of a lessee even if, at
the time of the accident, the tractor is pulling an empty
trailer”). Instead, they argue that the COA “is not a
lease because it was not made between Town Trucking
and the undisputed owner of the equipment: Maria.” As
before the district court, they have not cited any legal
authority in support of this contention. Instead, they
claim that because the federal regulations provide that
“[t]he lease shall be made between the authorized carrier
and the owner of the equipment,” 49 C.F.R. § 376.12(a),
the COA cannot be a lease within the meaning of those
regulations.
Despite their unnecessarily heavy reliance on the
federal regulations, see Occidental Fire & Ins. Co. of N.
Carolina v. Padgett, 446 N.E.2d 937, 940 (Ill. App. Ct. 1983)
(recognizing that federal motor carrier regulations are
instructive but not controlling in context of insurance
policy interpretation), the parties completely ignore a
regulation that would vitiate defendants’ “non-owners
cannot be lessors” theory. 49 C.F.R. § 376.2(d)(2) defines
“owner” for the purposes of the regulations more
broadly than the defendants would have it; an “owner”
includes someone like Guillermo, “who, without title,
has the right to exclusive use of equipment.” There is no
dispute that Maria entrusted Guillermo with exclusive
use of the truck, or that he had her permission to do
whatever was necessary to ensure that he could legally
drive it to earn money, including obtaining licenses,
paying taxes, entering agreements, and procuring insur-
ance.
No. 10-1943 11
The defendants instead dispute the relevance of even
the portion of 49 C.F.R. § 376.12(a) that permits “autho-
rized representatives” of owners to enter into leases
with motor carriers. They contend that the COA “is
devoid of any indication that Guillermo is acting as
anyone else’s ‘authorized representative.’ ” They are
correct to the extent that the COA does not mention
Maria or identify Guillermo as signing on behalf of any-
one. The absence of such a line in a contract, however,
does not necessarily mean that the signatories are acting
exclusively in their own interests. Illinois recognizes that
a party may act as an agent on behalf of an undisclosed
principal such that a third party does not know that the
agent is contracting on another’s behalf. See Kimco Corp. v.
Murdoch, Coll & Lillibridge, Inc., 730 N.E.2d 1143, 1146
(Ill. App. Ct. 2000). So even though it is undisputed
that Town was unaware that Maria held title to the
Volvo when it entered the COA with Guillermo, it
does not follow that Guillermo could not have legiti-
mately been acting on her behalf.
“The question of whether an agency relationship exists
is normally a question of fact.” Ioerger v. Halverson
Constr. Co., 902 N.E.2d 645, 648 (Ill. 2008). “A court may
decide the issue as a matter of law, however, if only one
conclusion may be drawn from the undisputed facts.”
Id. Here, the district court did just that. The undisputed
facts show that Maria and Guillermo had an agency
relationship. The relationship did not arise by virtue
of their marriage, see Capital Plumbing & Heating Supply
Co. v. Snyder, 275 N.E.2d 663, 666 (Ill. App. Ct. 1971)
(“Marriage, although it creates a contractual relationship,
12 No. 10-1943
does not create one of principal and agent.”), but rather
through the nature of their actions regarding the Volvo.
Generally, an agency relationship arises when “one person
(a ‘principal’) manifests assent to another person (an
‘agent’) that the agent shall act on the principal’s behalf
and subject to the principal’s control, and the agent
manifests assent or otherwise consents so to act.” Restate-
ment (Third) of Agency § 1.01 (2006); see also Taylor v. Kohli,
642 N.E.2d 467, 468 (Ill. 1994) (“The agency relation-
ship is a consensual, fiduciary one between two legal
entities, where the principal has the right to control the
conduct of the agent and the agent has the power to
affect the legal relations of the principal.”). After Maria
gained ownership of the truck, she and Guillermo made
a family decision to put it in her name but have him
drive it. Maria gave Guillermo permission to seek em-
ployment and sign the COA with Town; she gave
him permission—and funding—to get an insurance
policy; he received payment for his efforts and deposited
them into an account over which Maria had joint control.
Maria held the purse strings, and Guillermo did the
legwork. It matters not that Guillermo gained some
benefit from the arrangement; he kept Maria abreast of
everything he was doing with respect to the truck and
she either explicitly or implicitly approved it. See Restate-
ment (Third) of Agency §§ 8.02, 8.06(1).
The existence of an agency relationship means it was
possible for Guillermo to have entered into a lease
with Town and to subject Maria to liability by doing so.
The next question we need resolve is whether the
district court erred in concluding that the COA was a
No. 10-1943 13
lease as a matter of law. In Illinois, leases are treated no
differently than other written contracts. Williams v.
Nagel, 643 N.E.2d 816, 822 (Ill. 1994). And to have a
valid contract, “an agreement between competent
parties, upon a consideration sufficient in law, to do or
not to do a particular thing,” in Illinois, the only things
necessary are an offer, an acceptance, and consideration.
Steinberg v. Chi. Med. Sch., 371 N.E.2d 634, 639 (Ill. 1977)
(quoting People v. Dummer, 113 N.E. 934, 935 (Ill. 1916)).
All of the requisite elements were indisputably present
here. Guillermo offered Town use of the Volvo and his
driving services; Town accepted; the parties agreed that
Guillermo would haul freight for Town and obtain insur-
ance to do so, and in return Town would provide
Guillermo with additional insurance coverage and com-
pensation. Further, despite defendants’ arguments to
the contrary, we see no reason why enforcing the
COA—and consequently applying the “rented” exclu-
sion—would contravene public policy.
Illinois courts have a “long tradition of upholding
the right of parties to freely contract” and declare con-
tractual provisions void as contrary to public policy
only when they are “manifestly injurious to the public
welfare” or “clearly contrary to what the constitution, the
statute or the decisions of the courts have declared to
be the public policy.” Mohanty v. St. John Heart Clinic, S.C.,
866 N.E.2d 85, 92 (Ill. 2006) (quotations omitted). The
defendants have not shown how the COA or the exclu-
sion in the Clarendon policy meets those exacting criteria.
They claim that finding a lease and thereby applying
the otherwise undisputedly valid exclusion would
prevent the driving public, namely Schulman’s estate,
14 No. 10-1943
from being adequately compensated for injuries sus-
tained in trucking accidents. The federal motor carrier
regulations, however, require carriers to maintain mini-
mum levels of insurance coverage such that the
driving public is sufficiently protected from trucking
accidents. See 49 C.F.R. §§ 387.7 & 387.9. There have been
no accusations that Town’s policy with Occidental or
Guillermo’s policy with Clarendon failed to meet these
standards. We recognize that no amount of money could
ever be adequate to compensate the Schulmans for the
loss of their son. But we also recognize that competent,
consenting parties must be able to contract and rely on
the agreements they reach. Guillermo and Clarendon
both intended the policy, which cost less than a full
liability policy, to be a “bobtail” policy that would not
cover Guillermo while he was hauling freight for Town.
And Guillermo, Town, and Clarendon all operated as
though the Volvo was “rented” to Town; Town and
Guillermo executed the COA, and Guillermo indicated
to Clarendon on his insurance application that the
truck was “leased to Town Trucking.” Ignoring these
(and other) facts to find the exclusion inapplicable
would interfere with the parties’ expectations, hamper
the operation of two facially valid contracts, and harm
rather than advance public policy.
III. Conclusion
For the foregoing reasons, the judgment of the district
court is A FFIRMED.
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