1

The Honorable Brian S. Miller, United States District Judge for the Eastern

District of Arkansas. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 09-2783

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Landers Auto Group Number One, Inc., *

doing business as Landers Toyota, *

*

Plaintiff – Appellant, *

* Appeal from the United States

v. * District Court for the Eastern

* District of Arkansas.

Continental Western Insurance *

Company, *

*

Defendant – Appellee. *

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Submitted: April 12, 2010

Filed: September 17, 2010

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Before BYE, BEAM, and GRUENDER, Circuit Judges.

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BYE, Circuit Judge.

Landers Auto appeals the district court's1

 grant of summary judgment in favor

of Continental Western on Landers's claims for indemnity and defense under an

insurance contract. We affirm.
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I

At all times relevant to this suit, Landers Auto maintained comprehensive

liability insurance for its auto dealership with Continental Western. In 2003, Landers

sold a car to Latwanna Clark. The car was financed by Toyota Motor Corporation

(TMC) and Landers guaranteed the loan as part of a special financing incentive it was

offering to buyers at the time. Clark alleged that TMC failed to credit several of her

payments and listed her as delinquent on the loan. When TMC contacted Landers as

guarantor, Landers paid the loan in full and repossessed the car. Clark sued Landers

and TMC, alleging wrongful repossession and conversion (for repossessing and

reselling the car when Clark claims she was not in default) and violations of the

Arkansas Deceptive Trade Practices Act (for failing to credit payments on an open

account and for repossessing and selling the car when Clark was not in default.)

Landers filed a claim with Continental and requested defense and

indemnification. Landers also requested permission to use its own attorney for the

case. Continental responded that it would defend the case under a reservation of rights

because most claims in the case were not covered by its policies. Continental reserved

the right to cease defending at any time and to deny indemnification, but agreed to

defend because the complaint might state a claim under the Truth in Lending Act

(TLA), which would trigger coverage under its Errors or Omissions policy.

Continental noted it had appointed panel counsel to defend the underlying case and

followed up with a letter explaining why there was no conflict between Continental

and Landers that would require the use of separate counsel for Landers. Landers

responded that a reservation of rights created an inherent conflict and reasserted its

right to independent counsel. The parties went back and forth a few more times with

Continental explaining its position on the conflict issue and Landers standing on its

right to separate counsel under the inherent conflict theory. Eventually, Continental

informed Landers that its refusal to accept representation by the designated attorney

would jeopardize coverage under the policy.
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Landers sued for declaratory judgment and requested a declaration that

Continental had a duty to defend the Clark suit under the policy, the reservation of

rights created an inherent conflict which triggered a right for Landers to select counsel

of its own choosing at Continental's expense, and Continental had a duty to indemnify

Landers in the Clark suit. Landers argued the Clark lawsuit was a covered event

under three different policies: the Commercial Garage Coverage policy, the

Automobile Dealers Errors & Omissions Insurance policy, and the Commercial

General Liability policy. Continental counterclaimed, seeking a declaration it did not

owe a duty to defend the suit or to indemnify Landers under the policies. Landers

moved for partial summary judgment on the issues of Continental's duty to defend and

Landers's right to choose counsel. Continental moved for summary judgment on all

claims. The district court granted summary judgment to Continental and dismissed

Landers's claims with prejudice. This appeal followed.

II

Standard of Review and Legal Standard

This court reviews a district court's decision to grant summary judgment de

novo. Anda v. Wickes Furniture Co., 517 F.3d 526, 531 (8th Cir. 2008). Summary

judgment is appropriate where there is no genuine issue as to any material fact and the

moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The

deciding court views the evidence, and makes all reasonable inferences from the

evidence, in favor of the nonmoving party. Graves v. Ark. Dep't of Fin. & Admin.,

229 F.3d 721, 723 (8th Cir. 2000). "[S]ummary judgment must be denied if on the

record before it the court determines that there will be sufficient evidence for a jury

to return a verdict in favor of the nonmoving party." Krenik v. County of Le Sueur,

47 F.3d 953, 957 (8th Cir. 1995).
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Duty to Defend

In examining the duty to defend, [the Arkansas Supreme Court]

has recognized the general rule that the allegations in the pleadings

against the insured determine the insurer's duty to defend. Additionally,

th[e] court has recognized that the duty to defend is broader than the duty

to indemnify. However, the duty to defend arises when there is a

possibility that the injury or damage may fall within the policy coverage.

Conversely, where there is no possibility that the damage alleged in the

complaint may fall within the policy coverage, there would be no duty

to defend.

Murphy Oil USA, Inc. v. Unigard Sec. Ins. Co., 61 S.W.3d 807, 812-13 (Ark. 2001)

(citation omitted).

Errors and Omissions Policy

Continental initially agreed to defend the suit because the allegations in the

complaint might be construed to state a claim under the Truth in Lending Act. The

Errors & Omissions policy contains the following language:

Part VI - Truth in Lending Act - Errors and Omissions Liability

Coverage

1. WE WILL PAY

We will pay all sums you become legally obligated to pay as damages

because of any negligent act, error or omission resulting in failure to

comply with SECTION 130, CIVIL LIABILITY OF TITLE 1 (TRUTH

IN LENDING ACT) OF THE CONSUMER CREDIT PROTECTION

ACT (PUBLIC LAW 90-321:82 STAT. 146) and as may be amended

from time to time.
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The Truth in Lending Act requires appropriate disclosure at the time of a loan

or extension of credit of the terms and conditions under which credit is being

extended. See 17 Am. Jur. 2d Consumer Protection § 3 (Westlaw 2010). The Clark

complaint alleges failure to credit payments and wrongful conversion of Clark's

property. Clark alleges breach of the terms of the credit agreement but makes no

allegation that the terms were not properly disclosed and her complaint does not

mention the Truth in Lending Act at all. Neither party has cited to a provision of the

Truth in Lending Act under which the allegations of the Clark complaint would

constitute a violation.

Continental originally agreed to defend based on the following language in the

complaint: "10. Defendant Landers had co-signed the finance document with a

special financing offer ("100% guarantee") under the guarantee that if Clark did not

make the schedule [sic] payments on the car then Landers would make the payments

to the finance company, 'TMC'." The complaint also alleges that when the car was

repossessed, Landers offered to return the vehicle to Clark if TMC would reinstate the

financing but "asserted that they would no longer provide 100% guarantee for

financing Ms. Clark under the original loan." While the complaint references the

100% guarantee, and Continental was initially concerned it might have a duty to

defend if Clark were alleging that Landers misrepresented the nature of the guarantee,

the remainder of the Clark complaint makes it clear the claims are being brought for

failure to credit payments and for repossessing the car, not for failure to comply with

the TLA. The complaint does not set forth a TLA claim and Continental has no duty

to defend under that provision of the policy.

The district court did not address the TLA claims directly, finding the issue of

coverage under the property damage provisions of the Garage policy dispositive. This

was error. The TLA coverage was separate and unrelated to any requirement for

property damage. However, since Continental did not have a duty to defend under the

TLA coverage the district court's error in this respect was harmless.
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Garage Policy

The garage policy covers:

Section II - Liability Coverage

A. Coverage

1. "Garage Operations" - Other than Covered "Autos"

a. We will pay all sums an "insured" legally must pay as damages

because of "bodily injury" or "property damage" to which this insurance

applies caused by an "accident" and resulting from"garage operations"

other than the ownership, maintenance or use of coverage "autos".

The policy excludes coverage for: 

1. Expected or Intended Injury

"Bodily Injury" or "property damage" expected or intended from

the standpoint of the insured. But for "garage operations" other than

covered "autos" this exclusion does not apply to "bodily injury" resulting

from the use of reasonable force to protect persons or property.

...

6. Care, Custody or Control 

"Property damage" to or "covered pollution cost or expense

involving:

d. Property in the "insured's" care, custody or control.

...
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14. Loss of Use

Loss of other property not physically damaged if caused by:

a. A delay or failure by you or anyone acting on your behalf to

perform a contract or agreement in accordance with its terms.

The policy defines "garage operations" as 

the ownership, maintenance or use of locations for garage business and

that portion of the roads or other accesses that adjoin these locations.

"Garage operations" includes the ownership, maintenance or use of the

"autos" indicated in Section I of this Coverage Form as covered "autos".

"Garage operations" also includes all operations necessary or incidental

to a garage business.

An insurance policy is interpreted according to the plain, ordinary, and popular

meaning of the language. McGrew v. Farm Bureau Mut. Ins. Co. of Ark., Inc., 268

S.W.3d 890, 895-96 (Ark. 2007). The "loss" which Landers argues is covered under

the garage policy is Clark's alleged loss of use of her car after it was repossessed. She

did not make any claim for physical damage to her car.

The incident is not covered under the garage policy because the loss arises from

the allegedly improper repossession, which is not an activity associated with operation

of a garage but of the financing activities of the dealership. The claims also fall under

the exclusion for expected or intended loss, since Landers certainly expected or

intended that Clark would lose the use of her automobile when it was repossessed.

Coverage is further excluded under the provision regarding loss of use for failure to

perform a contract or other agreement in accordance with its terms. The damages in

the Clark complaint arise from alleged breaches of the financing agreement between

Landers, TMC, and Clark.
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The district court properly determined Continental had no duty to defend the

claims under the Garage policy.

Commercial Liability Policy

The Commercial Liability Policy reads, in pertinent part:

Section 1 - Coverages

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally

obligated to pay as damages because of the "bodily injury" or "property

damage" to which this insurance applies. We will have the right and

duty to defend the insured against any "suit" seeking those damages.

However, we will have no duty to defend the insured against any "suit"

seeking damages for "bodily injury" or "property damage" to which this

insurance does not apply. We may, at our discretion, investigate any

"occurrence" and settle any claim or "suit" that may result.

...

2. Exclusions

This insurance does not apply to:

a. Expected or Intended Injury

"Bodily injury" or "property damage" expected or intended from

the standpoint of the insured. This exclusion does not apply to "bodily

injury" resulting from the use of reasonable force to protect persons or

property.

m. Damage To Impaired Property or Property Not Physically

Injured
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"Property damage" to "impaired property" or property that has not been

physically injured arising out of:

...

2. A delay or failure by you or anyone acting on your behalf to perform a

contract or agreement in accordance with its terms.

The policy defines "property damage" as "loss of use" deemed to occur at the time of

the "occurrence" that caused it. "Occurrence" is defined as "an accident, including

continuous or repeated exposure to substantially the same general harmful

conditions."

Landers argues the Clark suit arises from an "accident" - that is, Landers's or

TMC's accidental failure to credit Clark's payments properly. This square-peg-in- around-hole argument fails for a number of reasons. First, the plain language of the

word "accident" when read in context with the garage policy and with the definition

in the Commercial policy makes it clear the policy refers to physical accidents as

opposed to accounting errors. Second, the claims against Landers do not arise from

the accounting errors but from intentional acts taken by Landers with respect to its

rights and obligations under the financing agreement, that is, the repossession of the

car and alleged failure to negotiate in good faith. Those are intentional acts that would

not fit the ordinary definition of an accident.

The incident is also excluded from coverage under this policy because the loss

of use was a loss Landers "expected" would occur when it took the action of

repossessing the car. As with the garage policy, the events alleged in the Clark

complaint are additionally excluded from coverage because the damages arise from

Landers's alleged failure to comply with the terms of the agreements between Landers,

Clark, and TMC.
2

We do not reach the issue of whether the reservation of rights created a conflict

or whether Landers was entitled to choose its own counsel because we find

Continental had no duty to defend and thus was not required to provide Landers with

counsel.

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Duty to Indemnify

"[T]he duty to defend is broader than the duty to indemnify[.]" Murphy Oil, 61

S.W.3d at 812. The above analysis on the duty to defend applies. If Continental does

not have a duty to defend Landers on these claims, it certainly cannot have a duty to

indemnify based on any of the same claims. There is simply no coverage under the

policy for the Clark complaint in its present form.

III

The district court erred in dismissing Landers's complaint without deciding the

question of whether Continental had a duty to defend Landers under the Truth in

Lending provisions of the Errors and Omissions policy. However, such error was

harmless because Continental had no such duty under the policy.2

 The district court

did not err in determining that the Clark lawsuit is either not covered or is excluded

from coverage under the Garage policy and under the Commercial General Liability

policy.

We affirm.

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