Spurlin v. Merchants Insurance

Opinion

USCA1 Opinion

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,
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                            Bownes, Senior Circuit Judge,
                                    ____________________



                              and Boudin, Circuit Judge.
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                                 ____________________



            W. Stanley Cooke for appellant.
            ________________

            Carol A. Griffin with  whom Robert M. Mack and Morrison, Mahoney &
            ________________            ______________     ___________________

        Miller were on brief for appellee.
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                                     June 7, 1995

                                 ____________________



BOUDIN, Circuit Judge.   On  June 8,  1984, Gilbert  Fox
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            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
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            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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