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Parties Involved:
Boyd Motors, Inc.
Appellant
Employers Insurance of Wausau
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

BOYD MOTORS, INC., ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) No. 

) 

EMPLOYERS INSURANCE OF WAUSAU, ) 

) 

Defendant-Appellee. ) 

FILED 

Uoitcd States Court of Appeals 

Tenth Cir::llit 

JUL 2 0 1989 

ROBERT L. HOECK-ER 

Clerk 

87-2260 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF KANSAS 

(D.C. No. 85-2370) 

Deborah T. Carney, Lakewood, .Colorado, (Hal D. Meltzer and Gregory 

N. Pottorff of Turner and Boisseau, Wichita, Kansas, with her on 

the brief) for Plaintiff-Appellant. 

Paul Hasty, Jr. of Wallace, Saunders, Austin, Brown and Enochs, 

Overland, Kansas, for Defendant-Appellee. 

Before SEYMOUR and SETH, Circuit Judges, and SEAY, Chief Judge.* 

*Honorable Frank H. Seay, Chief 

Court for the Eastern District 

designation. 

PER CURIAM. 

Judge, United States District 

of Oklahoma, sitting by 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 1 
11 

Plaintiff, Boyd Motors, Inc. (Boyd), appeals from an order of 

the district court granting .summary judgment in favor of 

defendant, Employers Insurance of Wausau (Wausau). As a 

preliminary matter, we note that Boyd has not appealed the 

dismissal of its tort and punitive damage claims and that its 

attempt to obtain appellate review of a disputed discovery order 

issued by the magistrate some eight months prior to disposition of 

this case by the district court is ineffective due to Boyd's 

failure to challenge the order first in the district court. See 

Niehaus v. Kansas Bar Ass'n, 793 F.2d 1159, 1164-65 (10th Cir. 

1986). Accordingly, we are concerned only with the judgment 

entered in favor of Wausau on Boyd's breach of contract theory. 

The facts pertinent to the parties' dispute over the extent 

of coverage afforded Boyd's automobile inventory by an inland 

marine insurance policy issued by Wausau are set out in the 

district court's published opinion, Boyd Motors, Inc. v. Employers 

Insurance of Wausau, 670 F. Supp. 310 (D. Kan. 1987), as follows: 

1. The defendant, Employers Insurance of Wausau, 

issued a commercial inland marine insurance policy to 

Volkswagen Credit, Inc. 

2. Volkswagen purchased the policy so it could 

surcharge the policy and thereby provide coverage to 

automobile dealers who floor-planned their new car 

inventory with Volkswagen Credit, Inc. 

3. Plaintiff claims coverage under the policy for 

certain vehicles that plaintiff floor-planned with 

Volkswagen Credit, Inc. 

4. Plaintiff is an automobile dealer whose new-car 

inventory was severely damaged by hail. 

s. The defendant paid $103,160.41 to Volkswagen 

Credit, Inc. on plaintiff's claim for the floor-planned 

automobiles, based on the cost of repairing the damaged 

vehicles. 

2 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 2 
6. Plaintiff seeks an additional $40,609.48 based 

on its claim that the vehicles are worth less after the 

damage and repairs than the vehicles were worth before 

the damage. 

7. Plaintiff claims that the repairs do not put 

the vehicles in the same condition as they were when 

they were new. 

8. The policy at issue in this case is the inland 

marine insurance policy. The terms of the insurance 

policy provide the following: 

5. This policy insures against all risks of 

direct physical loss or damage to the insured 

automobiles, except: 

a. Loss or damage 

indirectly by: 

caused directly or 

c. loss or damage resulting from delay, loss 

of market, •••. 

6. Limit of Liability-the limit of liability 

under this policy for any one disaster or 

casualty at any one location shall not exceed 

$3,000,000 ••. provided, however, that in no 

case shall the Company be liable for any 

dealer's prospective profit or overhead 

charges of any nature whatsoever 

Id. at 312 (emphasis added by district court}. 

The controlling issue in this case is whether Wausau 

satisfied its obligations under the subject policy when it paid 

for what were considered cost-effective repairs1 to Boyd's 

hail-damaged automobile inventory but refused to compensate Boyd 

for the diminution in value that allegedly was not restored by 

such means. This issue breaks down into two separate questions, 

1 Evidently because of the prohibitive transport costs involved, 

the vehicles were not fitted with new parts to replace all of 

those damaged by hail. Instead, much of the damage was repaired 

by hammering out the dents, smoothing out the surfaces with putty 

and repainting. 

3 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 3 
relating to general coverage on the one hand and specific 

exclusion on the other: (1) Does the Wausau policy, which insures 

against only ''direct physical loss or damage," cover the residual 

diminution in 

the policy's 

value of the repaired vehicles and (2) if so, does 

exclusion of "[l]oss or damage resulting 

from • loss of market" nevertheless preclude Boyd's recovery 

for such diminution in value? The district court held in Boyd's 

favor on the coverage question but ultimately ruled for Wausau on 

the basis of its interpretation of the exclusion. We review the 

district court's construction of the policy de novo in the absence 

of ambiguity requiring reliance upon extrinsic evidence. See Nunn 

v. Chemical Waste Management, Inc., 856 F.2d 1464, 1467 (10th Cir. 

1988); In re Amarex, 853 F.2d 1526, 1529 (10th Cir. 1988). 

We agree with the district court's conclusion that, pursuant 

to Wausau's promise to "repair or replace the [damaged property] 

with material of like kind and quality,'' the general coverage of 

the policy extended not only to the cost of repairs but also to 

the diminution in value of the repaired vehicles. See Venable v. 

Import Volkswagen, Inc., 519 P.2d 667, 672-73 (Kan. 1974)(when 

insurer attempts to repair or rebuild under a "repair, restore or 

replace clause," insurer is obligated to return the damaged 

property to.substantially its original condition so as to render 

it as valuable as it was before damage occurred); accord generally 

Appleman, Insurance Law and Practice, Vol. 6, § 3883 at 373-77 and 

n.27.05 (1972)(under clauses limiting liability of an insurer to 

the cost of suitable repair or replacement, "the cost of repairs 

and replacement will not operate as a limitation of liability 

4 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 4 
( 

unless the automobile is restored to its previous condition, and 

the courts have, where the repairs have failed to fully restore 

the vehicle to its former condition, either allowed recovery for 

the .difference between the fair cash value before and after the 

accident or have awarded the diminution in value in addition to 

the cost of repair"). Wausau attempts to distinguish the Kansas 

Supreme Court's decision in Venable, which involved a 

comprehensive automobile liability policy rather than a commercial 

inland marine policy, 2 in three respects. First of all, Wausau 

maintains that the policy in Venable was much broader than its 

counterpart here, since it evidently covered "loss to the 

described automobile" not specifically qualified as direct 

physical loss. This distinction would have some legal force only 

if we were also to accept Wausau's attendant contention that the 

underscored qualification is actually operative here, i.e., that 

depreciation directly attributable to the physical damage and 

subsequent repair of Boyd's automobiles does not constitute a 

direct physical loss. This latter proposition is untenable. 

The second distinction Wausau emphasizes is that the policy 

in Venable did not exempt from coverage economic injury resulting 

from loss of market. This point, however, relates to the matter 

of exclusion rather than coverage, and is addressed in its proper 

context below. 

2 For a brief description of the evolution of this omnibus 

category of insurance, also referred to as "all risks" or property 

"floater" insurance, from its merchant marine origins to its 

present application to movables generally, see Appleman, supra, 

Vol. 4, § 2104 at 5-8. 

5 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 5 
Finally, Wausau maintains as a general matter that inland 

marine insurance policies such as Boyd's are somehow sui generis, 

requiring a construction unconstrained by precedent developed in 

connection with other types of insurance. Wausau cites no 

authority for this position, which is undercut by cases from 

various contexts interpreting such policies in accordance with 

standard principles of contract construction. See, ~' Dubuque 

Fire & Marine Ins. Co. v. Caylor, 249 F.2d 162, 163-64 (10th Cir. 

1957); Van Sumner, Inc. v. Pennsylvania. Nat'l Mut. Casualty Ins. 

Co., 329 S.E.2d 701, 702-03 (N.C. App.), review denied, 336 S.E.2d 

406 (N.C. 1985); Slater v. United States Fidelity and Guar. Co., 

386 N.E.2d 1058, 1060-61 (Mass. App. Ct. 1979), remanded, 400 

N.E.2d 1256, (Mass. 1980); Viviano v. Jewelers Mut. Ins. Co., 454 

N.Y.S.2d 404, 405-06 (N.Y. Dist. Ct. 1982). 

We turn now to the question whether Boyd's. recovery of 

post-repair diminution in value, though within the scope of the 

policy's initial coverage provisions, is ultimately precluded by 

the loss of market exclusion. The district court concluded that 

"the diminution [in] value which occurs after an accident, despite 

repairs, clearly is defined as loss in market," and accordingly 

held in favor of Wausau on the basis of the exclusion. Boyd 

Motors, Inc., 670 F. Supp. at 314. However, the only case cited 

by the district court in support of this conclusion, Volkswagen of 

America, Inc. v. Robertson, 713 F.2d 1151, 1168 (5th Cir. 1983), 

does not discuss "loss of market" but rather "loss of market 

value," which, as discussed below, is an entirely separate 

concept. Furthermore, Wausau has not referred us to a single 

6 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 6 
authority that supports the district court's interpretation of the 

former phrase. Every decision relied upon by Wausau, whether 

cited for application of the disputed exclusion or for denial of 

coverage generally, is inapposite for one of two reasons; either 

the case, like Robertson, deals only with "loss of market value" 

without so much as mentioning ''loss of market," or the case 

involves an attempt to recover for plainly consequential economic 

damages, such as lost profits or loss of use during repairs, 

rather than for diminution in value due to incompletely restored 

physical damage to the insured property itself. 

In essence, Wausau's position and the district court's 

consonant disposition are grounded on the premise that "loss of 

market" and "loss of market value" are equivalent terms. It is on 

this fundamental point that, for several reasons, we diverge from 

the analysis followed below. 

First of all, words used in an insurance policy are to be 

understood in terms of their ordinary, plain meaning. See Kansas 

State Bank & Trust Co. v. Old Am. Ins. Co., 491 F.2d 307, 309-10 

(10th Cir. 

P.2d 1015, 

1974); American Media, Inc. v. Home Indem. Co., 658 

1018 (Kan. 1983). Thus, "market" means the 

geographical or economic extent of commercial demand for any 

particular product and generally refers to a more or less 

identifiable group of prospective purchasers seeking a particular 

type of product offered by a more or less identifiable group of 

sellers. See generally Webster's New International Dictionary at 

1504 (2d ed. 1950); Black's Law Dictionary at 874 (5th ed. 1979); 

Encyclopedia Britannica, Vol. 11 at 511 (15th ed. 1982). "Market 

7 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 7 
value," on the other hand, means the price that a product can 

command in a given (general or particularized) market. See 

generally Webster's New International Dictionary at 1504; Black's 

Law Dictionary at 876. This difference in meaning and reference 

between the two terms is reflected generally in the case law. 

Compare Words and Phrases, Vol. 26A at 33-34 (Perm. ed. 1953) 

(1988 Supp. at 7-8) (collecting references to "market") with id. 

at 67-110 (1988 Supp. at 15-28) (collecting references to "market 

value"). To summarize the contrast between the two terms, 

"market" refers collectively to matters external to any particular 

product item, namely those conditions that determine the degree to 

which supply of that commodity exceeds or falls short of demand, 

whereas "market value" is a function of qualities (~, age, 

state of repair) inherent in the individual item itself, and 

refers to the price that that specific article with those 

qualities would command in a given market. Thus, as Boyd has 

argued throughout the proceedings, a market is lost when, for 

example, due to delay in distribution, changes in consumer habits, 

etc., a certain type of product is no longer in demand with its 

intended purchasers, while what is involved in the present case, 

in which particular merchandise in Boyd's inventory has allegedly 

suffered depreciation due to physical alteration (damage and 

restoration), is a loss of market value. Since the exclusion 

under review relates only to the former, Boyd correctly contends 

that the plain meaning of the policy supports its position. 

The second reason for accepting Boyd's position is that it is 

borne out by the few cases interpreting loss of market exclusions 

8 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 8 
in other insurance policies. The following decisions treat such 

exclusions in a manner consistent with the construction urged by 

Boyd: Dietrich v. United States Shipping Board Emergency Fleet 

Corp., 9 F.2d 733, 744-45, and cases discussed therein, (2d Cir. 

1925), cert. denied, 278 U.S. 647 (1928); Interpetrol Bermuda, 

Ltd. v. Lloyd's Underwriters, 588 F. Supp. 1199, 1201-02 (S.D.N.Y. 

1984); Nationwide Brokers, Inc. v. C & G Trucking Corp., No. 

87-C-5700, 1988 U.S. Dist. LEXIS No. 12037 (N.D. Ill. filed 

Oct. 21, 1988). 

Boyd's position is bolstered further when the loss of market 

exclusion is read, as it must be, in light of both the immediately 

surrounding text and the policy as a whole. See Farm Bureau Mut. 

Ins. Co. v. Horinek, 660 P.2d 1374, 1378 (Kan. 1983); Scott v. 

Keever, 512 P.2d 346, 350 (Kan. 1973). With respect to immediate 

context, "loss of market" appears as just one term in a list of 

excluded losses that also includes damages caused by delay, 

bankruptcy, and foreclosure proceedings. The combination of these 

indirebt economic damages with "loss of market" is entirely 

consistent with Boyd's interpretation of that phrase as a 

reference to adverse repercussions in the marketplace and is 

plainly at odds with Wausau's position that the phrase refers to 

diminution in market value of particular merchandise due to its 

physical (damaged and repaired) condition. We find it noteworthy 

that this association of loss of market with other indirect or 

consequential economic losses appears to be standard practice. 

See,~' Blaine Richards & Co. v. Marine Indem. Ins. Co., 635 

F.2d 1051, 1052 (2d Cir. 1980); Frank B. Hall & Co. v. Beach, 

9 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 9 
Inc., 733 S.W.2d 251, 261-62 (Tex. App. 1987); Twin City Hide v. 

Transamerica Ins. Co., 358 N.W.2d 90, 92 (Minn. App. 1984); 

Borden, Inc. v. Howard Trucking Co., 425 So. 2d 893, 897 (La. 

App.), modified, 454 So. 2d 1081, 1091 (La. 1983); see also 

authorities interpreting loss of market exclusion cited above. 

With respect to construction of the policy as a whole, it is the 

rule that reasonable interpretations are favored over unreasonable 

ones, and a reading that vitiates the purpose or reduces the terms 

of the policy should be avoided. Farm Bureau Mut. Ins. Co., 660 

P.2d at 1378. Here, if the loss of market exclusion is applied to 

the diminution in value of Boyd's damaged and repaired inventory, 

a substantial part of the express purpose of the policy -- i.e., 

equivalent replacement or complete repair of physical damage to 

the insured property -- would be frustrated. 3 

Accordingly, we hold that the policy in question covers the 

post-repair diminution in value of Boyd's damaged inventory and 

that such coverage is not defeated by the loss of market exclusion 

contained therein. We note that our holding is consistent with, 

though not reliant upon, several related general principles of 

insurance policy construction recognized by the courts of Kansas. 

See United States Fidelity & Guar. Co. v. Hokanson, 584 P.2d 1264, 

1266 (Kan. App. 1978)(in order to afford greatest possible 

3 Indeed, taking the equation of "loss of market" with ''loss of 

market value" to its logical concl~sion would lead to the absurd 

result of the exclusion swallowing coverage whole. Since, as 

written, the loss of market exclusion is not qualified in any way 

so as to restrict its application solely to post-repair 

depreciation, accepting the identity of the two terms in question 

would appear to entail adoption of the indefensible position that 

all loss in value to the insured property (i.e., the entire 

covered risk) is excluded from coverage under the policy. 

10 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 10 
protection to insureds, coverage clauses are interpreted broadly 

and exclusionary clauses narrowly), cited in Central Security 

Mutual Insurance Co. v. DePinto, 681 P.2d 15, 17 (Kan. 1984); 

Baugher v. Hartford Fire Insurance Co., 522 P.2d 401, 409 (Kan. 

1974)(exceptions, limitations, and exclusions require narrow 

construction on theory that insurer, having affirmatively 

expressed coverage through broad promises, assumes a duty to 

define any limitations on such coverage in clear and explicit 

terms); Patrons Mutual Insurance Association v. Harmon, 732 P.2d 

741, 746 (Kan. 1987)(where terms of policy are ambiguous or 

uncertain, conflicting, or susceptible of more than one 

construction, the construction most favorable to insured must 

prevail). 

The order of the United States District Court for the 

District of Kansas granting summary judgment in favor of Wausau on 

Boyd's breach of contract claim is REVERSED, and the cause 

REMANDED for further proceedings consistent herewith. 

11 

Appellate Case: 87-2260 Document: 01019742257 Date Filed: 07/20/1989 Page: 11