UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 94-2232
EDGAR SPURLIN,
Plaintiff, Appellant,
v.
MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE,
d/b/a MERCHANTS INSURANCE GROUP,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
and Boudin, Circuit Judge.
W. Stanley Cooke for appellant.
Carol A. Griffin with whom Robert M. Mack and Morrison, Mahoney &
Miller were on brief for appellee.
June 7, 1995
BOUDIN, Circuit Judge. On June 8, 1984, Gilbert Fox
left his car for repairs at Yankee Dodge, a Schenectady, New
York, car dealership and service shop. Yankee Dodge gave him
a "loaner" car to use until the repairs were completed.
Later that day, Fox was involved in an auto accident in
Massachusetts while driving the loaner car. His passenger,
Edgar Spurlin, was badly injured.
In August 1986, Spurlin filed a tort action against Fox
and Yankee Dodge in Massachusetts superior court based on the
accident. Fox was insured by Travelers Insurance Company,
and Yankee Dodge was insured by Merchants Insurance Company
of New Hampshire under a "garage policy." After
negotiations, Spurlin dismissed his claim against Yankee
Dodge with prejudice. He also negotiated a settlement with
Travelers for $100,000, the limit of Fox's policy. In
exchange, Spurlin released Fox from any liability for the
accident except to the extent that Fox was covered by other
insurance policies.
Spurlin's case against Fox proceeded to trial in the
state court and resulted in a jury verdict of $615,000 in
favor of Spurlin. The execution of judgment issued in the
amount of $962,487.25, which represented the $615,000 jury
verdict plus $436,650 in interest, less the $100,000
settlement from Travelers. Spurlin demanded payment by
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Merchants on the ground that Fox was an insured under the
Yankee Dodge garage policy. Merchants disclaimed coverage.
On July 9, 1993, Spurlin filed the instant action
against Merchants in Massachusetts superior court, alleging
in the first count that his injuries were compensable under
Merchants' insurance policy and in the second count that
Merchants had violated Mass. Gen. L. ch. 93A, and Mass. Gen.
L. ch. 176D. Merchants removed the case to the district
court based on diversity jurisdiction. On cross motions for
summary judgment, the district judge granted summary judgment
in favor of Merchants. Spurlin v. Merchants Ins. Co., 866 F.
Supp. 57 (D. Mass. 1994). Spurlin now appeals.
The parties agree that under Massachusetts choice of law
rules, which bind the federal court in a diversity case, New
York law governs the coverage issue. Under the Yankee Dodge
garage policy, apparently a standard form, liability
insurance is provided for "an insured" in an accident
involving a "covered auto." The loaner car is admittedly a
covered auto under the policy, and "an insured" includes not
only Yankee Dodge but also "anyone else . . . using with your
[Yankee Dodge's] permission a covered auto" except:
(3) Your customers, if your business is shown in ITEM
ONE of the declarations as an auto dealership.
However, if a customer of yours:
(a) Has no other available insurance . .
., he or she is an insured but only
up to the compulsory or financial
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responsibility law limits where the
covered auto is principally garaged.
(b) Has other available insurance . . .
less than the compulsory or
financial responsibility law limits
where the covered auto is
principally garaged, he or she is an
insured only for the amount by which
the compulsory or financial
responsibility law limits exceed the
limits of his or her other
insurance.
The protection provided to Yankee Dodge's customers,
such as Fox, accorded with New York insurance law requiring
carriers to provide at least $10,000 in liability coverage to
"permissive users" of insured vehicles. See Davis v.
DeFrank, 306 N.Y.S.2d 827, aff'd, 266 N.E.2d 822 (1970). But
New York law only requires such coverage for permissive users
to the extent that they are not otherwise insured, which
explains the "However" proviso in the Yankee Dodge policy.
Fox did have more than $10,000 in liability coverage under
his own policy.
The district court held that Fox, being so insured, was
excluded from "insured" status by the plain language of
exception (3), quoted above. Reviewing the interpretation of
contract language de novo, Bird v. Centennial Ins. Co., 11
F.3d 228 (1st Cir. 1993), we agree. If this were all that
the case involved, it would be sufficient to affirm on the
basis of the district court's very able opinion. But Spurlin
offers a counter-argument that deserves brief comment.
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Spurlin's theory is that the clause (3), with its
reference to an auto dealership, applies only to Yankee
Dodge's supply of new cars; its repair work, Spurlin argues,
is a different phase of Yankee Dodge's business; the loaner
car was supplied to Fox as a repair customer; and clause (3)
therefore does not apply to Fox. In other words, Spurlin
wishes to read clause (3) as if it excepted from coverage
"your customers to the extent that they are customers of the
new-car phase of your business."
Unfortunately for Spurlin's argument, the clause
actually excludes "your customers, if your business is shown
. . . as an auto dealership," as Yankee Dodge clearly was.
The clause does not purport to divide the business into
phases and limit the exclusion to only one phase. Nor is it
apparent why Yankee Dodge would wish to provide liability
insurance to users of loaner cars in any phase of its
business--a step that would ultimately increase its own
premiums--over and above the contingent minimum required by
New York law.
In support of his reading, Spurlin cites two cases
decided by intermediate appellate state courts, one decided
over a forceful dissent. See Stanfield v. Hartford Accident
& Indem. Co., 581 So. 2d 340 (La. Ct. App. 1991); Connecticut
Indem. Co. v. Cordasco, 535 A.2d 631 (Pa. Super. Ct. 1987).
Both courts adopted Spurlin's reading on similar facts and
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almost identical policy language. By contrast, Merchants
cites a number of state high courts that have rejected
Stanfield's and Cordasco's reasoning. See, e.g., Globe
Indem. Co. v. Jordan, 634 A.2d 1279 (Me. 1993); Schoenecker
v. Haines, 277 N.W.2d 782 (Wis. 1979).
Spurlin, and the cases on which he relies, also cite to
another provision seemingly common to garage policies and
present in this case. This provision excludes from coverage
any covered auto "while rented or leased to others" but also
provides that the exclusion does not apply to a covered auto
"you rent to one of your customers while his or her auto is
left with you for service or repair." On its face, neither
the exclusion nor the exception to it has anything to do with
a case like ours since Yankee Dodge did not rent or lease the
loaner car to Fox. Nor do exclusions themselves create
coverage. See 13 J. Appleman, Insurance Law and Practice
7387, at 179 (rev. ed. 1976).
The exclusion does create a puzzle: it leaves the
impression that a garage that rented loaner cars to customers
during repairs, but was not part of a new car dealership,
might be buying liability insurance for its customers
unlimited by clause (3). We do not know whether such garages
exist or, if they do, whether such coverage is intended or
the result of a glitch. But the exclusion does not show that
an auto dealership is to be treated as two businesses; nor
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does it alter the critical fact that Yankee Dodge is an auto
dealership and, by the express terms of the policy, clause
(3) "except[s]" from insured status a permissive user who is
"a customer" of an auto dealer (apart from the contingent
minimum protection not here involved).
No state court decisions from New York or Massachusetts
have been cited to us, so we must make our best guess as to
what those courts would say if confronted with the split in
authority on the issue before us. In our view, the more
straightforward reading of the policy is that adopted by the
district court, which is consistent with its language and
with what we would expect the parties to the contract--Yankee
Dodge and Merchants--to have sought to provide. Nor does
this exclusion conflict with New York public policy, since
Fox did carry his own insurance above the mandatory minimum.
Finally, Spurlin notes that before the tort suit against
Fox was filed, Merchants sent several checks to Spurlin under
the personal injury protection provision of the Yankee Dodge
policy. But we are told, without contradiction, that under
New York law, where two or more insurers might afford
coverage for an accident, the first one contacted must make
personal injury protection payments. Afterwards, the
insurers determine which company is liable and resolve the
matter between them by reimbursement. Although other
interpretive arguments are urged by Spurlin under the policy,
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the ones we have addressed are his best. As for his claims
under the Massachusetts insurance and consumer-protection
statutes previously cited, the district court addressed those
claims and we have nothing to add to its discussion.
Affirmed.
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