Canal Insurance v. Bunday

No. 90-620
IN THE SUPREME COURT OF THE STATE OF MONTANA

CANAL INSURANCE COMPANY, JUN 1 8 1991
Plaintiff and Appellant,
-vs-
GARY BUNDAY, d/b/a BUNDAY TRUCKING; and UNITED STATE FIDELITY AND
GUARANTY COMPANY,
Defendants and Respondents.

APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Larry W. Moran, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Gig A. Tollefsen; Berg, Lilly, Stokes, Andriolo,
Tollefsen & Schraudner, Bozeman, Montana.
For Respondent:
Sarah M. Power; Gough, Shanahan, Johnson & Waterman,
Helena, Montana.

Submitted on briefs: May 10, 1991
~ecided: June 18, 1991
Filed:

Clerk
Justice R. C. McDonough delivered the Opinion of the Court.

This case involves a dispute between two insurers concerning
who should pay the liabilities incurred by the insured, Gary Bunday
d/b/a Bunday Trucking (Bunday), arising from a negligence case.
The plaintiff, Canal Insurance Company (Canal), appeals the order
of the Eighteenth Judicial District Court, Gallatin County, denying
its motion for summary judgment and granting the defendant United
States Fidelity and Guaranty Company's (USFfG) motion for summary
judgment. We reverse.
The parties raise several issues on appeal and cross-appeal.
However, the first issue raised by Canal on its appeal is
dispositive of this case: Did the District Court err in granting
summary judgment to USF&G based upon finding coverage for the
insured in the policy issued by Canal?
On August 2, 1983, Terrence North was killed when he drove
off the end of a dead-end frontage road east of Bozeman and drove
his vehicle into two semi-trailers owned by Bunday Trucking. The
trailers were parked on property adjacent to Bunday1s premises.
The decedent's estate sued the State of Montana for failing to
properly mark the end of the frontage road and Bunday for
negligently placing the semi-trailers in a position where they
could be struck by someone driving off the end of the frontage
road. Bunday tendered the defense of the case to his insurers,
Canal and USF&G.
At that time, USF&G took the position that Canal had the
obligation to defend Bunday, and that USF&G had no liability.
2
Canal refused to defend Bunday, and brought the present action
seeking a declaratory judgment that it had no liability on the
North claim. To protect itself, USF&G undertook defending Bunday
on the North claim. Following trial on the liability issue and
appeal to this Court, the underlying case was settled. Bunday's
share of the settlement was $125,000.00. USF&G paid $108,500.00
and Canal contributed the remaining $16,500.00.
After the settlement, USF&G amended its answer in this
declaratory judgment action and counterclaimed against Canal
seeking reimbursement of the $108,500.00 it had paid on the North
settlement, and the costs and fees incurred in defending Bunday.
On February 26, 1990, Canal moved for summary judgment asserting
that the USF&G policy provided coverage and their policy did not.
On February 27, 1990, USF&G moved for summary judgment arguing that
the Canal policy was ambiguous and that such ambiguities should be
resolved in favor of coverage for the insured. USF&G further
asserted that the reason it provided coverage was due to an
underwriting coding error on the declaration page of its own
policy.
On May 3, 1990 the District Court granted USF&G1s motion for
summary judgment and ordered Canal to reimburse USF&G for the
$108,000.00 paid on the North claim. It further ordered that since
USF&G had no duty to defend the claim, it should recover costs and
attorney fees from Canal incurred in the defense. Additionally,
the court held that USF&G was entitled to interest to be paid by
Canal on the principal sums paid by USF&G on the claim. Canal
appealed. We dismissed that appeal as premature because the
District Court had not yet determined the amount of attorney's fees
and interest to be awarded.
On June 23, 1990, the matter of the attorney's fees award and
interest was considered by the District Court. On August 17, 1990,
the court denied USF&G1s motion for costs and attorney's fees and
pre-judgment interest on the grounds that there had been a
legitimate legal issue regarding which insurer should pay Bunday's
liability. Canal now appeals, asserting that the finding of
coverage under its policy was error and, alternatively, if this
Court finds that Canal's policy does provide coverage, that the
District Court's failure to split the settlement equally between
the insurers, in accordance with policy provisions, was error.
We now examine the specific paragraphs of Canal's policy that
give rise to the issues in this case. Canal's policy provides that
The company will pay on behalf of the insured all sums
which the insured shall become legally obligated to pay
as damages because of
bodily injury or property damage
to which this insurance applies, caused by an occurrence
and arising out of the ownership, maintenance or use,
including loading and unloading, for the DurDoses stated
as a ~ ~ l i c a b lthereto in the declarations, of an owned
e
automobile .... (Underscored emphasis added.)
The bold-face terms in the policy are further defined in the
policy. The policy defines an "owned automobilew as
either
(a) an automobile which is owned by the named insured
and described in the declarations;
or
(b) an automobile ownership of which is newly acquired
by the named insured during the policy period . . . .
The policy defines automobile^ as
 a land motor vehicle, trailer or semi-trailer designed
for travel on public roads (including any machinery or
apparatus attached thereto) ....
The coverage paragraph of the policy quoted above essentially
provides coverage for accidents involving automobiles owned by the
insured which are described in the declarations, or automobiles
purchased to replace ones described in the declarations or added
to the insured's fleet of automobiles if notice is given and an
increased premium paid. The declarations portion of the policy
refers to a separate Schedule of Equipment, form E-69L. The
Schedule of Equipment states that it is "[alttached to, forming a
part of and completing the Declarations1'of the policy. It lists
the following equipment:
1973 Freightliner Tractor S#CA213HP086005
1977 Kenworth Tractor S#156877
1977 Kenworth Tractor S#255T30M
1978 Kenworth Tractor S#165147S
1978 Freightliner Tractor S#CA213HL137604
1979 Freightliner Tractor S#CA213HP164470
1981 Freightliner Tractor S#lFV8YOY97B
1979 Freightliner Tractor S#CA213HP164471
1968 Freightliner Tractor S#CA213HP0328027
1976 Peterbuilt Tractor S#83864P
1979 International Tractor S#E252HGA21711
1970 International Tractor S#259471VG403083
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 1
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 2
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 3
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 4
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 5
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 6
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 7
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 8
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 9
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 10
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 11
ANY UNDESCRIBED TRAILER WHILE ATTACHED TO UNIT 12
Canal alleges that the two trailers in this case were merely being
used for storage; USF&G alleges they were parked but generally used
to haul beer. Regardless of these allegations, it is undisputed
that the trailers in this case were parked and not attached to any
tractor when the decedent collided with them.
The District Court found, and USF&G argues on appeal, that the
policy is ambiguous. After concluding that the policy was
ambiguous, the court then followed the established rule of
resolving ambiguities against the insurer. See § 28-3-206, MCA;
Bauer v. Mountain West Farm Bureau Mutual Ins. Co. (1985), 215
Mont. 153, 156, 695 P.2d 1307, 1309; St. Paul Fire & Marine Ins.
Co. v. Cumiskey (1983), 204 Mont. 350, 363, 665 P.2d 223, 229;
Williams v. Ins. Co. of North America (1967), 150 Mont. 292, 295,
434 P.2d 395, 397. Ambiguity exists only when the contract taken
as a whole in its wording or phraseology is reasonably subject to
two different interpretations. Williams, 434 P.2d at 397. A
clause in an insurance policy is ambiguous when different persons
looking at it in the light of its purpose cannot agree upon its
meaning. Bauer, 695 P.2d at 1309. The ambiguity argued by USF&G
and found by the court is that the policy definition of
llautomobilell used in the term "owned automobile" includes semi-
as
trailers and does not require attachment to a tractor.
We disagree. If the language of a contract is unambiguous and
subject to only one meaning, there is no basis for the
interpretation of the policy coverage under the guise of ambiguity.
Bauer, 695 P.2d at 1309; Williams, 434 P.2d at 397. As Canal
points out, there is no ambiguity here at all. Under the policy,
coverage is only extended to "owned automobile^.^^ The definition
has three criteria. An "owned automobile" is defined as (1) an
automobile (2) owned by the insured, and (3) described in the
declarations. Thus, a semi-trailer--while clearly an [ 11

~automobilew
under the policy--is not an Itownedautomobilew unless
it is also [2] owned by the insured and [3] described in the
declarations--i.e, it must be attached to a tractor. This is the
only reasonable construction that can be arrived at from the
wording here. USF&Gts ambiguous^^ construction gives little or no
effect to the declarations of the policy and the attached schedule.
Section 28-3-202, MCA, requires that effect be given to every part
of a contract if reasonably practicable, with each clause helping
to interpret the others. To follow USF&G1s logic one could also
conclude that an ambiguity exists because the term glautomobilelf
as
used in "owned aut~mobile~~
includes semi-trailers and does not
require ownership by the insured; thus all automobile liability
policies that limit coverage to only automobiles Ifowned by the
named insuredw would be ambiguous. Such logic would have serious
consequences on the construction of all automobile liability
policies. We hold that there is no conflict between the coverage
paragraph and the declarations in this policy.
Our holding is supported by the case of Harbor Ins. Co. v.
United Services Auto Assn. (1976), 114 Ariz. 58, 559 P.2d 178. In
Harbor, Millhouse had rented a tractor from ErvlsEquipment Rental.
While operating the tractor on a public road, he was involved in
a collision with Aruffe, who was injured and filed an action for
damages alleging that Millhouse was negligent. Millhouse was
insured by Farmer's Insurance Company of Arizona and Erv's was
insured by Harbor. A dispute arose regarding which insurer was
primarily liable. Like the case at bar, Harbor's policy included
a definition of "owned automobilew and an attached schedule
specifically listing the vehicles insured. The tractor involved
in the accident was not listed. The trial court found Harbor
primarily liable under its policy. The court of appeals reversed,
holding that the tractor was not an "owned automobile" within the
coverage of Harbor's policy. The court stated that while
ambiguities are to be construed against the insurer, "when a
policy's meaning and intent are clear, it is not the prerogative
of the courts to create ambiguities where none exist or to rewrite
the contract in attempting to avoid harsh results." Harbor, 559
P.2d at 181. The court further noted that "[tlhe scheduling of
automobiles is not merely for the convenience of assessing premiums
but is itself a declaration of the limitations of the hazards
assumed." Harbor, 559 P.2d at 178.
USF&G argues that Harbor is distinguishable because there the
parties conceded the tractor in question was not listed on the
vehicle schedule; in the present case the trailers are listed. We
see no distinction. Here the only trailers listed on the schedule
were "undescribed" trailers while attached to a tractor unit
specifically described and scheduled. Parked, unattached trailers
are not listed.
 USF&G argues that in addition to interpreting contract
language, policy intent must be considered. It argues that this
Court has imposed a high standard on insurance companies:
Although courts have long followed the basic precept that
they would look to the words of the contract to find the
meaning which the parties expected from them, they have
also applied the doctrine of the adhesion contract to
insurance policies, holding that in view of the disparate
bargaining status of the parties we must ascertain that
meanins of the contract the insured would reasonably
expect. . . . [Tlhe test is not what the insurer
intended the words of the policy to mean but what a
reasonable person in the position of the insured would
understand them to mean. (Emphasis in original.)
McAlear v. St. Paul Ins. Cos. (1972), 158 Mont. 452, 458-9, 493
P.2d 331, 335. Our holding here does not call McAlear into doubt.
Rather, we hold that a reading of the policy here as a whole,
including the declarations and attached schedules, gives rise to
only one reasonable interpretation: that there is no coverage for
trailers not attached to insured tractors. The language of a
contract is to govern its interpretation if the language is clear
and explicit and does not involve an absurdity. Section 28-3-401,
MCA. The language here is clear and explicit; the result may be
harsh but it is not absurd. The intent of the parties
controlled by the language of the contract in this case.
USF&G also argues that Canal's filing of an Interstate
Commerce Commission endorsement form BMC-90 is evidence of Canal's
intention to provide coverage for both tractors and trailers,
whether or not they are attached. This Court has held that such
endorsements do not impose primary liability as a matter of law on
the insurer of the licensed carrier under whose permit a vehicle
is in use at the time of an accident. Truck Ins. Exchange v.
Transport Indemnity Co. (1979), 180 Mont. 419, 430, 591 P.2d 188,
194. Furthermore, as noted above, the intent of the parties is
controlled by the clear, explicit and unambiguous language of the
contract in this case.
Finally, USF&G urges this Court to consider the difference in
the respective premiums paid by Bunday to Canal ($30,180.00) and
USF&G ($1,890.00) to insure the different aspects of Bunday's
business as evidence that the parties intended for this type of
accident to be covered by Canal's policy rather than USF&G1s. The
District Court noted that
The pertinent part of the applicable USF&G policy
is Part 11, 'vBusiness Autos." Part 11, Letter C, states
that trailers with a load capacity of two thousand
(2,000) pounds or less, designed to travel on public
roads, are covered autos. This language would exclude
a semi-trailer ... as was involved in the North case.
Unfortunately for USF&G, it made an underwriting error
on the declaration page of its policy, thereby extending
coverage to ''any autof1 rather than business automobiles
specifically described on the attachment to the policy.
A fair reading of the two policies clearly reflects
that USF&G was not insuring Bunday1s over-the-road
hauling operation, but that Canal was.
The size of the premium may be a factor considered ''in construing
doubtful clauses in a policy.Iv 2 Couch on Insurance 2d, 5 15.52
(1984); see also Pan American World Airways v. Aetna Casualty &

Surety (2d Cir. 1974), 505 F.2d 989, 1001, at n. 10. Here, the
clause is not doubtful, I' ambiguous, or uncertain, and we need not
look beyond the language of the contract. Furthermore, USF&G is
arguing that it should not be held liable due to a technical
mistake in underwriting when the contracts taken together indicate
that Canal was insuring the liability at issue here. We note that
if USF&G had not made that mistake, its policy definitions would
be organized in a manner similar to Canal's policy, and it would
not be liable. Canal should not be faulted for USF&G1s mistake in
underwriting.
This Court has the power to reverse the district court's grant
of summary judgment and order it to enter summary judgment in favor
of the other party as a matter of law only when it is clear that
all the facts bearing on the issues are before this Court.
Hereford v. Hereford (1979), 183 Mont. 104, 110, 598 P.2d 600, 603;
citing Swecker v. Dorn (1979), 181 Mont. 436, 441, 593 P.2d 1055,
1058-9; 6 Moore's Federal Practice I 56.12, p. 56-337. There are
no genuine issues of material fact in this case. We conclude that
the trailers were not "owned automobilesw within the coverage of
Canal's policy and direct that judgment be entered in favor of
Canal. The order of the District Court is
REVERSED. Summary Judgment is ordered in favor of Canal.

We Concur: /" 7

f Chief Justice