Case Name: HERCULES BUMPERS, INC., Plaintiff-Appellee, v. FIRST STATE INSURANCE COMPANY and Aetna Casualty & Surety Company, Defendants-Appellants
Court: United States Court of Appeals for the Eleventh Circuit
Jurisdiction: United States
Decision Date: 1989-01-17
Citations: 863 F.2d 839
Docket Number: No. 88-8082
Parties: HERCULES BUMPERS, INC., Plaintiff-Appellee, v. FIRST STATE INSURANCE COMPANY and Aetna Casualty & Surety Company, Defendants-Appellants.
Judges: Before ANDERSON and COX, Circuit Judges, and TUTTLE, Senior Circuit Judge.
Reporter: Federal Reporter 2d Series
Volume: 863
Pages: 839–846

Head Matter:
HERCULES BUMPERS, INC., Plaintiff-Appellee, v. FIRST STATE INSURANCE COMPANY and Aetna Casualty & Surety Company, Defendants-Appellants.
No. 88-8082.
United States Court of Appeals, Eleventh Circuit.
Jan. 17, 1989.
Ronald D. Reemsnyder, Neely & Player, David C. Marshall, Atlanta, Ga., for defendants-appellants.
Terry J. Marlowe, Burt & Burt, Albany, Ga., for plaintiff-appellee.
Before ANDERSON and COX, Circuit Judges, and TUTTLE, Senior Circuit Judge.

Opinion:
PER CURIAM:
Hercules Bumpers, Inc. brought this declaratory judgment action asking the court to declare that First State Insurance Company ("First State") and Aetna Casualty & Surety Company ("Aetna") are, pursuant to certain liability insurance policies, contractually obligated to defend Hercules Bumpers in the lawsuit filed against it by John Wayne Reed, and to pay any judgment that might be entered against it in that ease. All parties agreed that the pertinent facts were not in dispute, and each moved for summary judgment. The district court entered judgment in favor of Hercules Bumpers against First State and in favor of Aetna against Hercules Bumpers. First State appeals; it argues that the district court misconstrued the relevant provisions of its insurance contract with Hercules Bumpers. We agree.
I.
Throughout the span of time relevant to this case, Hercules Bumpers was insured under a primary general liability insurance policy issued by Aetna; it initially provided coverage for the year April 11, 1982 to April 11, 1983, and, upon renewal, the year beginning April 11, 1983. The aggregate limit of this primary policy was $500,000 per year. In addition, Hercules Bumpers carried a First State "umbrella" or "excess" insurance policy designed to provide coverage only after the exhaustion of the aggregate limit of the primary policy. The first anniversary of the First State policy was April 1, 1983. Therefore, since the effective dates of the primary and excess policies did not coincide, there was an eleven day period in 1983 during which the expiring primary policy year and the new excess policy year overlapped.
As of the beginning of this 11 day period, Aetna had paid claims totalling $387.10 as a result of occurrences happening during the policy year beginning April 11, 1982. An outstanding claim arising from another occurrence earlier that policy year (the Owens claim) remained pending, and another claim would subsequently arise (the Reed claim). Eventually, because Hercules Bumpers' liability would exceed the policy's aggregate limit, Aetna tendered $499,-612.90, the policy's net limit, to First State asking that it, the excess insurer, process and settle the claims.
Another claim arose during the overlap period, and that occurrence resulted in a lawsuit in an Oklahoma state court in which Hercules Bumpers is the defendant. In that action, John Wayne Reed alleges that Hercules Bumpers' negligent manufacture and design of a particular bumper caused an accident on April 7, 1983. Reed prays that he be awarded $750,000 as damages for the injuries that he suffered during that accident.
Hercules Bumpers notified First State of the Reed lawsuit and filed a claim under the excess insurance policy, but First State denied coverage. The declaratory judgment action, and First State's appeal, followed.
II.
Hercules Bumpers argues that "Condition O'' of the First State umbrella policy requires that Hercules Bumpers maintain the underlying primary policy or a renewal thereof in full force and effect throughout the April 1, 1983 to April 1, 1984 First State policy year, except for reductions in the aggregate limit of the Aetna policy as a result of occurrences taking place during the First State policy year. It further argues that "Provision III," which Hercules Bumpers interprets as requiring it to maintain the underlying coverage beyond the termination date of the excess policy, is ambiguous and conflicts with Condition 0 and, therefore, should be strictly construed against First State. In contrast, First State contends that its policy is not ambiguous; it requires the insured to maintain the underlying insurance and limits the excess insurer's liability in vivid language. Because the accident giving rise to the Reed claim did not occur until April 7,1983, so First State's argument goes, Hercules Bumpers must initially seek indemnity from Aetna, and the amount paid by Aetna on that claim must exceed the underlying policy's limit before First State's coverage is triggered.
III.
An order awarding summary judgment is subject to independent review on appeal. Morrison v. Washington County, Ala., 700 F.2d 678, 682 (11th Cir.1983). Accordingly, we will affirm such an order only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ. P. 56(c). In this case, the parties have stipulated to the material facts, and each moved for summary judgment. Our task, therefore, is to determine which party is entitled to judgment as a matter of law. That, in turn, depends on whether the First State policy is ambiguous under the circumstances of this case.
IV.
Georgia substantive law, which is controlling in this diversity action, see Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), provides that a contract, including an insurance contract, must be examined as a whole when construing any portion thereof. Nationwide Mutual Fire Ins. Co. v. Collins, 136 Ga.App. 671, 676, 222 S.E.2d 828, 831 (1975). "The test is not what the insurer intended its words to mean, but what a reasonable person in the position of the insured would understand them to mean." Id., at 675, 222 S.E.2d at 831. Any ambiguity must be construed strictly against the insurer, Travelers Indemnity Co. v. Whalley Const. Co., 160 Ga.App. 438, 441, 287 S.E.2d 226, 229 (1981), but, where the terms and conditions of a policy are unambiguous, the court must declare the contract as made by the parties, Genone v. Citizens Ins. Co., 207 Ga. 83, 86, 60 S.E.2d 125,127 (1950). With these basic principles of contract law in mind, we turn to the question of the proper construction of the First State policy.
Two clauses of the First State policy are at the center of this dispute. Condition O provides:
It is warranted by the Insured that, the underlying policy(ies) listed in Schedule A, or renewals or replacements thereof not more restrictive in coverage, shall be maintained in force during the currency of this policy, except for any reduction in the aggregate limit(s) contained therein solely by payment of claims in respect of OCCURRENCES happening during the period of this policy. In the event of failure by the INSURED so to maintain such policy(ies) in force, the insurance afforded by this policy shall apply in the manner it would have applied had such policy(ies) been so maintained in force.
This provision describes Hercules Bumpers' obligation to maintain underlying insurance. Under its terms, the insured warrants that it will maintain the underlying insurance policy, or a renewal thereof, in full force and effect throughout "the currency of this policy" except for any reduction in the underlying policy's limit of liability arising out of occurrences happening "during the period of this policy." Thus, First State's status as the excess insurer is guaranteed; if Hercules Bumpers breaches its warranty, First State will not become the primary insurer.
The second clause at issue, Provision III, entitled "Limits of Liability," provides in part:
In the event that the aggregate limits of liability of the underlying policies, listed in the schedule of underlying insurance, are exhausted solely as the result of OCCURRENCES taking place after the inception date of this policy, this policy shall, subject to the Company's limit of liability and to the other terms of this policy, with respect to OCCURRENCES which take place during the period of this policy, continue in force as underlying insurance for the remainder of the policy year of the underlying policy or until the aggregate limit of liability as stated in Item 3 II is exhausted, but not for broader coverage than was provided by the exhausted underlying insurance.
In the event that the aggregate limits of liability of the underlying insurance are exhausted or reduced as the result of OCCURRENCES taking place prior to the inception date of this policy, the Company shall only be liable to the same extent as if the aggregate limits had not been so exhausted or reduced.
As the heading preceding it denotes, Provision III limits First State's liability under the excess insurance policy. First State's contractual obligations arise only after the aggregate limit of liability of the underlying insurance is exhausted or reduced as the result of occurrences taking place "after the inception date of this policy." Insofar as the limit of liability of the underlying policy is reduced by occurrences taking place "prior to the inception date of this policy," First State's excess coverage is not implicated.
The parties to this appeal, the district court and, to a certain extent, the dissent offer differing interpretations of the seemingly simple expressions "during the currency of this policy" and "during the period of this policy," both of which appear in Condition 0 of the renewed excess policy, and "after the inception date of this policy," a phrase appearing in Provision III. The only reasonable construction of this plain language, however, is that all of these phrases refer to the First State policy year beginning April 1, 1983 rather than to the year immediately preceding that date, the span of time made the subject of the original excess insurance policy between Hercules Bumpers and First State. It is a basic tenet of insurance law that each time an insurance contract is renewed, a separate and distinct policy comes into existence. E.g., 13A J. Appleman, Insurance Law and Practice § 7648 (rev. ed. 1976). Therefore, we hold that each time the parties to the renewed contract utilized the expression "this policy," words common to all three phrases, they intended to refer to the renewed First State policy.
Having so interpreted this language, our construction of the disputed provisions is as follows. Condition 0 mandates that Hercules Bumpers maintain the underlying Aetna policy, or a renewal thereof, in full effect throughout the year beginning April 1, 1983, except for reduc tions in the limit of liability of that policy arising out of occurrences happening during the year commencing April 1, 1983. First State's contractual obligation, according to Provision III, arises only after the aggregate limit of liability of the underlying insurance is exhausted as the result of occurrences taking place after April 1, 1983. Neither of the clauses are ambiguous when considered separately; each has a distinct purpose and the language utilized within each clause clearly describes that purpose. Moreover, the clauses are unambiguous when construed together. Condition 0 is a warranty given by Hercules Bumpers; it operates as a condition precedent to First State's liability. Provision III, on the other hand, sets forth certain limits on First State's liability.
That our construction of the First State policy leaves an 11 day period during which there may be a gap in coverage even if both policies are properly maintained and renewed must be admitted. This cannot cause us hesitation though because that is precisely the coverage the parties contracted for. The dissent seeks to avoid this allegedly harsh result and extend coverage to Hercules Bumpers by creating ambiguity where there is none. As the dissent recognizes, this eleven day period is a "necessary consequence" of the language utilized by the parties in Provision III. Hercules Bumpers knew or should have known on April 1, 1982 when it implemented excess coverage that the First State policy dates did not coincide with the dates of the Aetna policy then in force, and that if it renewed each policy on their respective anniversary dates, the gap would reoccur annually.
V.
Viewed in light of the only reasonable construction that can be given the terms of the First State policy, we find no ambiguity and, therefore, no reason to liberally construe the policy in favor of the insured. Rather, we read the words of the policy literally and conclude that First State's coverage does not extend to the Reed claim since the triggering event of coverage, the exhaustion of the underlying policy's aggregate limits by occurrences happening after April 1, 1983, the inception date of the renewed First State policy, had not occurred prior to Hercules Bumpers' request for coverage for the Reed lawsuit. To accept any other construction and hold otherwise would obligate First State to provide greater coverage than called for by the contract as made by the parties. Accordingly, we REVERSE the order of the district court granting summary judgment to Hercules Bumpers against First State and REMAND with instructions that judgment be entered in favor of First State.
REVERSED AND REMANDED.
. First State agreed to manage the Reed claim, and settle it if possible, but it expended the entire amount tendered by Aetna in settling the Owens claim and, therefore, had no Aetna money remaining with which to settle the Reed claim. Although Hercules Bumpers laments over this in its brief, its counsel stated unequivocally during oral argument that it did not assert in its complaint that First State was legally required to settle the Reed claim first, and was not making that assertion on appeal.