The Honorable William G. Cambridge, Chief Judge, United States District 1

Court for the District of Nebraska.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 97-1402

___________

National Continental Insurance *

Company, *

Appellant, *

 v. * District Court for the

Empire Fire and Marine Insurance *

Company, *

Appellee. *

*

* Appeal from the United States

* District of Nebraska.

*

___________

Submitted: April 15, 1998

Filed: October 6, 1998

___________

Before WOLLMAN, LOKEN, and HANSEN, Circuit Judges.

___________

HANSEN, Circuit Judge.

National Continental Insurance Company (National) appeals from the district

court's entry of declaratory judgment in favor of Empire Fire & Marine Insurance

1

Company (Empire) in this diversity action. National argues that the district court

misconstrued Oregon law and therefore erred in ruling that Empire is not responsible
For a discussion of permanent leases in the trucking industry, see Wales 2

Transp., Inc. v. ICC, 728 F.2d 774, 776-77 (5th Cir. 1984).

Arvidson was contractually required to carry such "nontrucking use" liability 3

insurance. Pursuant to the service contract between Arvidson and NPE, Arvidson

was required to indemnify NPE and assume full responsibility for all loss or damage

arising from the "operation, maintenance, or use" of the truck that was "not related

to the performance of this [service] Contract." (J.A. at 46.) To assure Arvidson's

ability to honor this obligation, the service contract required Arvidson to carry

$500,000 in liability insurance which "affords protection when the equipment is not

being operated . . . under [NPE's] dispatch instructions or in carrying out of the

business of [NPE]." (Id.)

2

for paying settlement damages and litigation costs arising out of an accident involving

a semi-tractor owned by A. B. Arvidson and leased by NPE, Inc. (NPE). We affirm.

I.

The district court decided this diversity action on stipulated facts. Arvidson

owns a Kenworth semi-tractor which, at all times relevant to this dispute, was under

permanent lease to NPE. The truck was insured under two different policies. First, 2

NPE owned an insurance policy issued by National, which provided $1,000,000 in

liability coverage for accidents resulting from "the ownership, maintenance, or use" of

the truck by NPE in the course of NPE's "business as a trucker." (J.A. at 208).

Second, Arvidson owned an insurance policy issued by Empire, which provided

$500,000 in liability coverage for accidents "resulting from the ownership, maintenance

or use" of the truck. (Id. at 207.) The Empire policy expressly excluded damages

arising "while a covered auto is used to carry property in any business or while a

covered auto is used in the business of [NPE]." (Id. (emphasis added).)3

On January 3, 1992, Arvidson set out in his truck from his home in Springfield,

Oregon, heading for Roberts Motors in Eugene, Oregon. The truck was between
In diversity cases, the forum state's choice of law rules govern. See Klaxon 4

Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).

3

dispatch orders, and Arvidson had scheduled it for a front end alignment. On the way

to Roberts Motors, Arvidson was involved in a traffic accident involving two other

vehicles. Two injured occupants of one of the other vehicles sued Arvidson. Empire

and National each denied responsibility for the payment of damages arising from the

accident. However, the two insurers agreed to split the costs of the litigation and any

settlement award until the dispute between them could be resolved. The two insurers

eventually reached a settlement with the injured motorists in the amount of $271,455.94.

Subsequently, National filed this action in the district court for a declaratory judgment

to the effect that the Empire policy covered the accident, and that Empire was

responsible for paying all settlement damages and litigation costs up to $500,000.

Empire responded with a counterclaim for declaratory relief stating that the Empire

policy did not cover the accident at issue and that National was exclusively responsible

for all damages and costs arising from it. The district court held for Empire, and this

appeal followed.

II.

We review the district court's interpretation of an insurance contract de novo, see

Koch Eng'g Co. v. Gibraltar Cas. Co., 78 F.3d 1291, 1294 (8th Cir. 1996), applying the

same standards as the district court. The district court applied Nebraska choice of law

principles and determined that Oregon law governs all three contracts (the service

4

contract, the National policy, and the Empire policy). The district court found that,

under Oregon law, there was no clear answer to the legal issues presented. When faced

with a similar situation in Acceptance Insurance Company v. Canter, 927 F.2d 1026,

1027-28 (8th Cir. 1991) (applying Minnesota law to interpret the language "in the

business of" in a similar insurance policy), our court looked to state respondeat superior

principles for guidance. Accord Liberty Mut. Ins. Co. v. Connecticut Indem. Co., 55
4

F.3d 1333, 1335-37 (7th Cir. 1995) (applying Indiana law to interpret the language "in

the business of" in a similar insurance policy). Following our example, the district court

in this case looked to Oregon respondeat superior principles for guidance as to how the

Oregon Supreme Court would treat this issue of first impression. Both parties agree

with the district court's treatment of the case up to this point.

Under Oregon principles of respondeat superior, an employee acts within the

scope of his employment only if three requirements are satisfied. First, an employee

must act "substantially within the time and space limits authorized by the employment."

Chesterman v. Barmon, 753 P.2d 404, 406 (Or. 1988) (en banc). Second, the

employee must be "motivated, at least partially, by a purpose to serve the employer."

Id. Third, the act must be "of a kind which the employee was hired to perform." Id.

Looking to the three Chesterman requirements for guidance, the district court held that

Arvidson was operating the truck in the business of NPE at the time of the accident,

writing:

The accident occurred while the Kenworth was the subject of the Service

Agreement, a lease which gave NPE, Inc. "exclusive possession, control,

and use" of the Kenworth for the duration of the lease, and by which NPE,

Inc. assumed "complete responsibility for the operation" of the Kenworth

for the duration of the lease. Furthermore, the Court finds that Mr.

Arvidson's trip to Eugene was motivated, at least partially, by a purpose

to serve NPE, Inc.'s interest in keeping the Kenworth in safe and efficient

operating condition. Finally, Mr. Arvidson's act of taking the Kenworth

for servicing was an act that the Service Agreement required Mr. Arvidson

to perform.

(2d Adden. to Appellant's Br. at 11 (internal citations omitted).)

Based on this analysis, the district court held that the Empire policy did not cover

the accident and that National is fully and solely liable for all costs related to the
In terms of the Chesterman criteria, this can be stated as follows: Was 5

Arvidson acting within the space and time limits of the service contract, was he

motivated by an intent to fulfill his contractual obligations, and was he performing

an act of the type contemplated by the service contract. See Chesterman, 753 P.2d

at 406. 

5

settlement and litigation. National argues on appeal that the district court misapplied

the three-part Chesterman test.

III. 

We must determine whether the trip to Eugene for a front end alignment

constituted "the business of" NPE. If it did, the accident fell within the exclusion to the

Empire policy (id. at 207), and National's coverage is exclusive. 

While Cantor supports the district court's decision to look to Oregon respondeat

superior principles for guidance, the analogy to respondeat superior is a loose one at

best. Because Arvidson was not an employee of NPE but rather a lessor and

independent contractor, it would be inappropriate for us to phrase the question in terms

of whether Arvidson was acting within the scope of his employment. See Liberty Mut.

Ins. Co., 55 F.3d at 1335. The proper question, we believe, is whether Arvidson was

acting within the scope of the service contract with NPE—in other words, whether he

was fulfilling his bargained-for contractual duties at the time of the accident. To the 5

extent that he was executing his contractual duties, he was clearly acting "in the

business of" NPE and thus outside the scope of Empire's coverage. Cf. Hartford Ins.

Co. v. Occidental Fire & Cas. Co., 908 F.2d 235, 239 (7th Cir. 1990) ("in the business

of" . . . "clearly refers to occasions when the truck is being used to further the

commercial interests of the lessee."). This reading finds support in the service contract,

which limits Arvidson's duty to insure to situations where Arvidson's use of the truck

is "not related to the performance of this [service] Contract." (See J.A. at 206.)
In other words, the fact that Arvidson was satisfying a contractual duty when 6

the accident occurred is dispositive of all three of the Chesterman factors: It places

Arvidson within the time and space limits of the contractual relationship, it shows

that he was acting to advance the interests of NPE, and it clarifies that he was

undertaking a duty which was expressly required by the service contract. See

Chesterman, 753 P.2d at 406. 

6

We therefore look to the terms of the service contract to determine whether

Arvidson was fulfilling a contractual duty when he drove the truck to Eugene for a front

end alignment. Pursuant to the service contract, Arvidson was responsible for keeping

the truck in compliance with all laws and regulations (id. at 33-34), for making sure that

it passed periodic inspections (id. at 34-35), and for paying all maintenance costs (id.

at 41). Failure to get the truck initially approved prevented NPE's contractual duties

from arising (id. at 33-35), and failure to keep the truck in compliance with federal

standards would be considered a breach (id. at 57). 

In particular, the service contract required Arvidson to assure that his truck

complied with the safety requirements of 49 C.F.R. § 393. Id. at 34. Among other

things, section 393 provides that "[a]ll axles must be in proper alignment." 49 C.F.R.

§ 393.207(a). Therefore, it is clear that Arvidson was executing his contractual duty to

keep the truck in conformity with federal regulations when he took the truck to Eugene

for a front end alignment. Accordingly, Arvidson was acting "in the business of" NPE

and the Empire exclusion applies.6

National argues that because Arvidson owned the truck, he was serving his own

interests rather than those of NPE when he sought the alignment. While Arvidson

clearly had an interest in maintaining his vehicle, we agree with the Seventh Circuit's

comment that "[t]he possibility that [the owner's] interests coincided with those of [the

lessee] does not diminish the benefits [the lessee] received from [the owner's] actions[.]"

Hartford, 908 F.2d at 239; see also Freed v. Travelers, 300 F.2d 395, 398 (7th Cir.

1962) ("[T]he procurement of repairs incident to lessor's duty to hold the
7

tractor 'ready at all times for services of the lessee' is to be regarded as an activity

exclusively in the business of the lessee and not a personal use of the tractor[.]").

In short, because Arvidson was executing a contractual duty at the time of the

accident, we hold that the district court correctly concluded that Arvidson was carrying

out the business of NPE when he drove the truck to Eugene for a front end alignment

and that the accident which occurred en route to Eugene was accordingly excluded from

coverage under the Empire policy. Because the Empire exclusion applies, National is

solely responsible for covering the loss.

IV.

Accordingly, we affirm the judgment of the district court.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.