Title: Benchmark Ins. Co. v. Sparks

State: nevada

Issuer: Nevada Supreme Court

Document:

427 Nev, Advance Opinion 33
IN THE SUPREME COURT OF THE STATE OF NEVADA

BENCHMARK INSURANCE
COMPANY,
Appellant,

No, 46623

vs.
ROBERT M. SPARKS, INDIVIDUAL}
AND UNIVERSAL UNDERWRITERS’
INSURANCE COMPANY,
Respondents.

 

FILED

oo JUL 07 201
ROBERT M. SPARKS, INDIVIDUALLY,

Appellant,
ve
UNIVERSAL UNDERWRITERS’
INSURANCE COMPANY; AND
BENCHMARK INSURANCE,
COMPANY,
Respondents.

Appeal from a district court order in an insurance coverage
action, Eighth Judicial District Court, Clark County; Elizabeth Goff
Gonzalez, Judge.

Affirmed,

Ken R,. Bick, Reno,
for Benchmark Insurance Company.

‘Moran Law Firm, LLC, and Jeffery A. Bendavid, Las Vegas,
for Universal Underwriters’ Insurance Company.

 

‘Murchison & Cumming, LLP, and William D. Naeve, Las Vega:
for Robert M. Sparks.

 
BEFORE SAITTA, HARDESTY and PARRAGUIRRE, JJ.

OPINION

By the Court, PARRAGUIRRE, J.

In this appeal, we consider whether an automobile liability
insurer effectively limited its duty to defend its policyholder in a tort
lawsuit brought against the policyholder. Specifically, we are asked to
decide whether a provision in Benchmark Insurance Company's standard-
form insurance policy unambiguously alerted the policyholder, Robert
Sparks, that Benchmark could terminate its duty to defend him by
depositing the policy’s liability limits with the district court. Concluding
that the policy provision at issue is ambiguous, we construe it in
accordance with the reasonable expectations of the policyholder, Because
a policyholder in Sparks’ position would reasonably expect his insurer to
procure a settlement on his behalf or defend him until the policy limits
have been used to satisfy a judgment entered against him, we affirm the
district court's order in which it denied Benchmark’s motion for summary
judgment,

FACTS

Sparks was test-driving a vehicle owned by a Las Vegas car

dealership. During the test-drive, Sparks was involved in an accident in

which one person was killed and another was seriously injured. The

victims and their families brought a negligence action against both Sparks
and the dealership.

Realizing that Sparks’ liability for the accident could far
exceed the $30,000 liability limit on his insurance policy, Benchmark filed
an interpleader action, seeking permission to deposit the policy limits with

 

 
the district court for dispersal to the appropriate parties. It then filed a
motion for summary judgment, seeking a determination that once the
court accepted the deposited funds, Benchmark would have no further
obligation to defend Sparks in the underlying tort lawsuit.

Benchmark’s justification for its summary judgment motion
was a provision in its policy with Sparks, which stated

We will pay damages for “bodily injury” or “property damage”
for which any “insured” becomes legally responsible because of
an auto accident. . .. We will settle or defend, as we consider
appropriate, any claim or suit asking for those damages. In
addition to our limit of liability, we will pay all defense costs
we incur. Our duty to settle or defend ends when our limit of
liability for this coverage has been exhausted.

Benchmark argued that its liability under the policy would be “exhausted”
‘once it deposited the policy limits with the court. Because nothing in the
plain language of the policy prevented it from “exhausting” its liability in
this manner, Benchmark contended that it would no longer have a duty to
defend Sparks in the lawsuit,

Benchmark’s position prompted Sparks to file a complaint
seeking alternative coverage against the car dealership’s insurer,
Universal Underwriters’ Insurance Company, contending that he was a
permissive user of the dealership’s vehicle at the time of the accident.
Universal filed a motion for summary judgment, contending that its policy
with the dealership effectively withdrew coverage for any permissive user
who was already covered under his or her own insurance policy.

‘The district court granted Benchmark permission to deposit

the policy limits but denied Benchmark’s motion for summary judgment,
determining that Benchmark’s duty to defend Sparks extended beyond its
tender of the policy limits. Pursuant to the court's order, Benchmark

 

 
provided a defense for Sparks throughout the underlying trial and the
subsequent appeal from the judgment on jury verdict. ‘The district court
also granted Universal's motion for summary judgment, determining that
Universal had no duty to defend or indemnify Sparks. Benchmark and
Sparks now appeal.
DISCUSSION

Benchmark challenges the district court’s order denying its
summary judgment motion, an order which is generally not appealable.
Cromer v, Wilson, 126 Nev. _, __, 225 P.3d 788, 790 (2010) (“A distri
court's order denying summary judgment is an interlocutory decision and

 

is not independently appealable.”). However, because the order appealed
from was a “final judgment” within the meaning of NRAP 3A(b)(1),
Benchmark’s appeal is properly before this court. Valley Bank of Nevada
v. Ginsburg, 110 Nev. 440, 445, 874 P.2d 729, 733 (1994) (‘[A] final,
appealable judgment is one that disposes of the issues presented in the

case and leaves nothing for the future consideration of the cow

 

(quotation and alteration omitted)). This court will review the district
court's order de novo. Cromer, 126 Nev. at___, 225 P.3d at 790.

Summary judgment is appropriate when the pleadings and
other evidence demonstrate that no “genuine issue as to any material fact
[remains] and that the moving party is entitled to a judgment as a matter
of law.” Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029
(2005) (alteration in original) (quoting NRCP 56(c)). Here, the sole issue
presented by Benchmark’s appeal is one of contract interpretation—
namely, whether the exhaustion provision in Benchmark’s auto liability

policy was effective to terminate its duty to defend Sparks once the policy

limits had been deposited with the court. “Interpretation of a contract is a

 

 
question of law that we review de novo.” Farmers Ins. Exch. v, Neal, 119
Nov. 62, 64, 64 P.3d 472, 478 (2003),
An insurer may contractually limit its duties if it does

An insurance policy is a contract between a policyholder and
an insurer in which the policyholder agrees to pay premiums in exchange
for financial protection from foreseeable, yet unpreventable, events. 1
‘New Appleman Insurance Law Practice Guide § 1.03[1] (Leo Martinez et
al, eds., 2010). As such, the duties undertaken by the policyholder and the
insurer are defined by the terms of the policy itself. Id. In a standard
auto liability policy, such as the one at issue here, the insurer generally
undertakes two dut

 

sin exchange for the policyholder's premium

 

payments: (1) a duty to indemnify the policyholder for damages he or she

 

causes while driving, and (2) a duty to defend the policyholder against any

 

claims of liability brought against the policyholder in connection with
these damages. United Nat'l Ins. Co. v, Frontier Ins, Co,, 120 Nev. 678,
684, 99 P.3d 1153, 1156 (2004).

With regard to these two duties, we have held that “[t]he duty
to defend is broader than the duty to indemnify.” Id, at 686, 99 P.3d at
1158. In other words, as a general rule, an insurer's duty to defend is
triggered whenever the potential for indemnification arises, and it
continues until this potential for indemnification ceases. Id, at 686-87, 99
P.3d at 1158. Because the duties undertaken by an insurer are dictated

by the terms of its contract with the policyholder, however, an insurer is

free to contractually limit these duties—that is, to contract its way around
this general rule. Farmers Insurance Group v. Stonik, 110 Nev. 64, 67,
867 P.2d 389, 391 (1994).

 

 
 

While an insurer such as Benchmark is free to contract its way
around this general rule, insurance policies are contracts of adhesion. Id.
‘That is, the policies are drafted by the insurer and are offered to the
policyholder without any opportunity for the policyholder to negotiate the
policy’s terms. Thus, in order for an insurer to effectively limit its
contractual obligations, the insurance policy’s language must
intent to do so, Id, “It follows that
‘any ambiguity or uncertainty in an insurance policy must be construed
against the insurer and in favor of the insured.” United Nat'l, 120 Nev. at
684, 99 P.3d at 1156 (quoting Vitale v, Jefferson Ins, Co,, 116 Nev. 590,
594, 6 P.3d 1054, 1057 (2000).

 

unambiguously convey the insure

to defend by depositing the wi istrict court

Turning to the policy provision at issue in this case, we
consider whether Benchmark effectively contracted its way around the
general rule. More specifically, we consider whether the exhaustion
provision in Benchmark’s policy unambiguously alerted Sparks that
Benchmark could terminate its duty to defend him while a potential for
indemnification still existed under that policy.

A provision in an insurance policy is ambiguous “if it is
reasonably susceptible to more than one interpretation.” See Margrave v.
Dermody Properties, 110 Nev. 824, 827, 878 P.24 291, 293 (1994). In
analyzing whether the exhaustion provision in Benchmark’s policy is
susceptible to more than one interpretation, we find helpful the Supreme
Court of North Carolina's decision in Brown v. Lumbermens Mutual
Casualty Co,, 390 S.E.2d 150 (N.C. 1990). In Brown, the court considered
whether a nearly identical exhaustion provision was ambiguous. In

particular, both provisions contained the following pertinent clauses:

6

 
We will settle or defend, as we consider appropriate, any
claim or suit asking for these damages. .. . Our duty to settle
or defend ends when our limit of liability for this coverage has
been exhausted.

 

 

it 153. ‘The Brown court began its analysis by acknowledging that an
insurer could exhaust its liability limit under the policy in any number of
ways, one of which was depositing the funds with the district court. Id, at
154. In this sense, the Brown court recognized that the exhaustion
provision’s final sentence, when read in isolation, might have been
unambiguous. Id.

Nevertheless, the Brown court concluded that when the final
sentence was read in context with the provision’s prior sentences, the
meaning of this final sentence became ambiguous. Id, Specifically, the
court pointed to the provision’s second sentence, in which the insurer
plainly stated to the policyholder that it “will settle or defend, as [it]
consider{s] appropriate, any claim or suit...” (emphasis added). Id. at
163, 154, Based upon this sentence’s plain language, the Brown court

1Although we base our holding on the exhaustion provision’s
contextual ambiguity, we note that other courts have found the same
exhaustion provision to be ineffective on a different ground. These courts
have concluded that an insurer does not truly “exhaust” its liability simply
by depositing the policy’s limits with the court. See, e.g,, Emeasco Ins. Co.
v. Davis, 753 F. Supp. 1458, 1461 (W.D. Ark. 1990) (“[Jhe court holds that
Emeasco may not shed itself of the duties which it contracted to provide by
paying the policy limits into the registry of the court. In so doing, it has
not ‘exhausted’ its limits [under the policy]."); Anderson v. U.S, Fidelity &
Guar, Co, 389 S.E.2d 660, 661 Ga. Ct. App. 1986) (We do not
agree . . . that the term ‘exhaust’ encompasses the paying into court of the
policy limits, but interpret that term to mean the payment either of a
settlement or of a judgment wholly depleting the policy amount.”

 

on

 

 
reasoned that the insurer had promised to do one of two things with
regard to a claim brought against its policyholder: settle it or defend it.
Id, at 154,

‘Thus, with the insurer having expressly promised the

policyholder to do one of those two things, the Brown court considered the

 

 

effect of this promise on the meaning of the provision's last sentence. Id.
‘The Brown court determined that a policyholder, upon reading the first
part of the provision and learning that the insurer had promised to settle
or defend any claim, would reasonably understand that the insurer could
“exhaust” its liability under the policy in only one of those two ways. Id.
Thus, the Brown court concluded that the provision, when read as a
whole, was capable of two interpretations: either the insurer could
exhaust its liability by any conceivable method, or it could exhaust its
liability by only one of the two methods previously stated in the provision.
Id, Given the provision’s ambiguity, the Brown court concluded that “the
provision... must be interpreted favorably to the insured. So interpreted,
it means that the insurer's duty to defend continues until its coverage
limits have been exhausted in the settlement of a claim or claims against

the insured or until judgment against the insured is reached.” Id,

2Although with less explanation, other jurisdictions have followed a
rationale similar to that of the Brown court in finding identically worded
exhaustion provisions to be ambiguous. See, e.g., Stanley v. Cobb, 624 F.
Supp. 536, 537 (E.D. Tenn. 1986) (“[T]his Court is of the opinion that the
limit of liability may not be exhausted in a manner other than that
specified by the policy, ie. to either settle or defend.”); Actna Cas. & Sur.
Co, v. Sullivan, 597 N.E.2d 62, 64 (Mass. App. Ct. 1992) ("A reasonable

 

 

insured, we think, relying on the clear language of the first three

sentences, would assume that the insurer was undertaking a duty either

to defend or settle any lawsuit against him...,and he would
Continued on next page

 

 
om ae

 

We find the Brown court's reasoning to be thoughtful and
persuasive. Because the exhaustion provision at i

 

jue in Brown is
identical in pertinent part to that at issue in this case, we conclude that
the Brown court’s analysis applies with equal effect here. Therefore, we
hold that the exhaustion provision in Benchmark’s auto liability policy is
ambiguous because it is “reasonably susceptible to more than one
Margrave, 110 Nev. at 827, 878 P.2d at 293.

 

interpretation.

continued

understand . .. the next sentence only to include payments made by an
insurer in the course of carrying out its obligations, set forth in the
preceding three sentences, either to settle or defend.”).

8We recognize that several jurisdictions have found this same
language to be unambiguous. See, e., Pareti v. Sentry Indem. Co., 536
So.2d 417, 421 (La, 1988) (‘[TJhese sentences [in the exhaustion
provision) must be construed together, and when they are so construed
there is no ambiguity.”); Maguire v. Ohio Cas. Ins. Co., 602 A.2d 893, 895
(Pa, Super. Ct. 1992) ("We agree with the analysis employed by... . the
Supreme Court of Louisiana {in Pareti]. ‘The language of the policy is
clear."); Mid-Century Ins. Co. of Texas v. Childs, 15 $.W.3d 187, 189 (Tex.
App. 2000) (‘[T]he policy language clearly reflects the parties’ intent to
limit the duty to defend . ...”).

We note, however, that the insurers in these cases had actually used
the policy's limits to procure a settlement on behalf of their policyholders.
Pareti, 536 So. 2d at 419; Maguire, 602 A.2d at 894; Childs, 15 S.W.3d at
188. The policyholders in these cases were arguing that the insurer's duty
to defend against remaining claimants should continue nonetheless.
‘Thus, when viewed from the perspective of what these policyholders were
actually requesting, the rationale put forth in these decisions comports
with that put forth in Brown. See Pareti, 536 So. 2d at 421 n.3 (‘If an
effort were made to construe the policy clause at issue here to cover the
situation where there is a tender of policy limits, arguably it would be
ambiguous in that context”).

 

 

 
When a provision in an insurance policy is ambiguous, the
provision “should be construed to effectuate the reasonable expectations of
the insured.” National Union Fire Ins, v. Caesars Palace, 106 Nev. 380,
882-33, 792 P.2d 1129, 1130 (1990). Here, after having read the
exhaustion provision as a whole, Sparks would have reasonably expected
that Benchmark would continue to provide him with a legal defense until
it used his policy's liability limits to procure a settlement on his behalf or
until the limits were used to satisfy a judgment entered against him in the
tort lawsuit. Because Benchmark did not procure a settlement on Sparks!
behalf, its duty to defend him continued until the policy's limits were used
to satisfy a judgment in the lawsuit Accordingly, the district court
properly denied Benchmark’s motion for summary judgment.

CONCLUSION

While Benchmark was free to contract its way around the

general rule regarding an insurer's duty to defend its policyholder, the

exhaustion provision in its policy was ambiguous with regard to whether it

“Because the jury apportioned no monetary liability to Sparks,
Benchmark never actually used the policy's limits to satisfy a judgment.
As such, its duty to defend continued through the tort lawsuit’s appeal
process.

5We conclude that the district court’s grant of summary judgment in
favor of Universal was also proper. Because Benchmark had a continuing
duty to defend Sparks, any potential that Universal may have had to
indemnify Sparks as a permissive user was never triggered. Without a
potential duty to indemnify Sparks, Universal had no duty to defend him.
United Nat'l Ins. Co, v. Frontier Ins. Co,, 120 Nev. 678, 686, 99 P.3d 1153,
1158 (2004) ("There is no duty to defend where there is no potential for
coverage.” (quotation and alteration omitted); Wood v. Safeway, Inc., 121
Nev. 724, 729, 121 P.3d 1026, 1029 (2008) (stating that this court reviews
a district court's grant of summary judgment de novo).

 

 
could terminate its duty to defend Sparks by depositing the policy's
liability limits with the district court. Due to this ambiguity, the
exhaustion provision must be interpreted in accordance with the
reasonable expectations of the policyholder. Because a policyholder in
Sparks’ position would have reasonably expected Benchmark to defend
him until it had procured a settlement on his behalf or until the policy's
limits had beon used to satisfy a judgment entered in his tort lawsuit, the

district court properly denied Benchmark’s motion for summary judgment,

and we therefore affirm the order of the district court.

UD _

Parraguirre