Court Opinion

ID: 213162
Source: CourtListenerOpinion
Date Created: 2011-03-24 17:04:27+00
Date Added: 2024-06-11T17:28:14.380671
License: Public Domain

FILED
                                                             United States Court of Appeals
                                                                     Tenth Circuit

                     UNITED STATES COURT OF APPEALS                March 24, 2011
                                                                Elisabeth A. Shumaker
                            FOR THE TENTH CIRCUIT                   Clerk of Court

    LINCOLN GENERAL INSURANCE
    COMPANY,

                Plaintiff-Appellee,
                                                        No. 10-3082
    v.                                     (D.C. No. 6:09-CV-01194-MLB-KMH)
                                                         (D. Kan.)
    ERIC S. SMITH; HEATHER
    BAKER,

                Defendants-Appellants.

                            ORDER AND JUDGMENT *

Before LUCERO, EBEL, and O’BRIEN, Circuit Judges.

         Eric S. Smith and Heather Baker (collectively Defendants) appeal from the

district court’s grant of summary judgment in favor of Lincoln General Insurance

Company (Lincoln General). Exercising jurisdiction under 28 U.S.C. § 1291, we

affirm.

*
       After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
                                          I.

      While driving a car she had rented from Western Leasing Services, Inc.,

d/b/a A-OK Car Rental (A-OK), Ms. Baker was involved in a one-vehicle

accident. Her brother, Mr. Smith, was a passenger in the rental car, and he was

seriously injured in the accident. The sole issue raised in this appeal is whether

A-OK’s business auto insurance policy issued by Lincoln General (LG Policy),

provided coverage for Ms. Baker as a rentee of the car, when the Rental

Agreement Ms. Baker signed with A-OK stated that A-OK was not providing any

kind of insurance. The relevant facts are not in dispute.

      On October 3, 2007, Ms. Baker rented a car from A-OK while her own car

was in A-OK’s repair shop. A-OK’s Rental Agreement included the following

provision:

                  IMPORTANT — READ BEFORE SIGNING
             NO INSURANCE COVERAGE OF ANY KIND OR TYPE
                       IS PROVIDED BY RENTOR

      The undersigned hereby acknowledges that the rentor is not providing
      any type of insurance protection or collecting any charges therefor. In
      consideration of the foregoing acknowledgement the rentee agrees to
      pay for all loss and damage to the described automobile and to hold
      rentor harmless from any liability as a result of the rentee’s usage
      thereof.

      NOTE: Customer is advised to contact his/her insurance agent or
      broker to make certain he/she and the rented vehicle are protected.

Aplt. App’x at 12. Ms. Baker signed the Rental Agreement directly below this

text and filled in blanks on the form listing her insurance company as American

                                         -2-
Family, as well as her insurance agent’s name, her liability limits, and her

deductibles under her American Family policy.

      Ms. Baker was driving under the influence of alcohol on November 21,

2007, when the rental car went off the road and flipped over. Mr. Smith was

thrown from the car and suffered serious injuries. He presented claims against

Ms. Baker to her insurance company, American Family, and to A-OK’s insurance

company, Lincoln General. He also filed a negligence action against Ms. Baker

in Kansas state court, seeking damages for his injuries resulting from the

accident. American Family paid Mr. Smith the policy limit under Ms. Baker’s

policy. Lincoln General denied coverage for the accident, but provided

Ms. Baker a defense in Mr. Smith’s state-court action, pursuant to a

reservation-of-rights agreement. Lincoln General filed this declaratory judgment

action against Defendants in the district court, seeking a determination that the

LG Policy provides no liability coverage to Ms. Baker for the rental-car accident.

      A-OK was the named insured under the LG Policy, which covered certain

autos owned by A-OK, including the rental car, from April 1, 2007 to April 1,

2008. An endorsement to the LG Policy provided: “The following are insureds. .

. . [t]he rentee subject to all conditions set forth in this endorsement and any other

person authorized by the rental agreement held by the rentee.” Aplt. App’x at

133. The same endorsement also defined “rentee” and “rental agreement”:

                                          -3-
       “Rentee” means a holder of a rental agreement with you [1] which
       provides for the holder’s use of an automobile for a period of less
       than one year.

       “Rental Agreement” means the (auto) rental contract between you
       and the rentee. This agreement states [t]he limit of liability you are
       providing the rentee. This agreement states that such limit of
       liability provided for the rentee is excess insurance over any other
       liability insurance coverage available to the rentee.

Id. at 134. The endorsement also included the following provision under the

heading “GENERAL CONDITION - OTHER INSURANCE”:

       The insurance provided by this policy for the rentee is subject to the
       terms, conditions, restrictions and limitations contained in the rental
       agreement, provided that our limit of insurance under the “Liability
       Coverage” cannot be and is not enlarged or expanded beyond the
       limit shown on the declarations page attached to this policy.

Id.

       In granting summary judgment in Lincoln General’s favor, the district court

relied on a provision of the Kansas Automobile Injury Reparations Act (KAIRA)

that permits an insurer to exclude coverage “while any insured vehicles are . . .

[r]ented to others.” Kan. Stat. Ann. § 40-3107(h)(1). The court cited the LG

Policy endorsement making coverage for a rentee subject to the terms and

conditions of the rental agreement, which in this case stated that A-OK was not

providing any type or kind of insurance to Ms. Baker. The court concluded that,

reading the terms of the LG Policy and the Rental Agreement together, it is clear

1
       The term “you” refers to A-OK, the named insured. See Aplt. App’x at 87,
100.

                                         -4-
that the LG Policy did not provide liability coverage to Ms. Baker for the

rental-car accident.

      Defendants moved for reconsideration, arguing that the Rental Agreement

had expired by its terms two weeks after the rental period began and before the

date of the accident; therefore, A-OK’s disclaimer of insurance coverage was

inoperative at the time of the accident. The district court denied the motion,

stating, “What defendants seek is for the court to change its ruling based upon

information which could have been, but was not, presented earlier. This is not an

appropriate basis for reconsideration.” Aplt. App’x at 270. Defendants filed

timely notices appealing the district court’s summary judgment order and

judgment and the court’s denial of their motion for reconsideration.

                                         II.

      We review the district court’s grant of summary judgment de novo.

Commerce Bank, N.A. v. Chrysler Realty Corp., 244 F.3d 777, 779 (10th Cir.

2001). Summary judgment is appropriate “if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). 2 We also review the district court’s

2
      Rule 56 was amended effective December 1, 2010. The summary judgment
standard previously enumerated in subsection (c) was moved to subsection (a),
and the amendment made one word change from the previous version–genuine
“issue” became genuine “dispute.” Fed. R. Civ. P. 56 advisory committee note
(2010 Amendments). But the “standard for granting summary judgment remains
                                                                   (continued...)

                                         -5-
application of Kansas law de novo. See Commerce Bank, 244 F.3d at 780. We

review the district court’s denial of a motion for reconsideration for an abuse of

discretion. See Ysais v. Richardson, 603 F.3d 1175, 1180 (10th Cir.), cert.

denied, 131 S. Ct. 163 (2010). “We will not disturb such a decision unless we

have a definite and firm conviction that the lower court made a clear error of

judgment or exceeded the bounds of permissible choice in the circumstances.” Id.

(quotation omitted).

                                         III.

                                          A.

      A-OK owned the rental car involved in the accident. Under KAIRA,

“[e]very owner shall provide motor vehicle liability insurance coverage in

accordance with the provisions of this act for every motor vehicle owned by such

person.” Kan. Stat. Ann. § 40-3104(a). This section “does not require every

vehicle owner to provide primary coverage, or even any coverage, in all

circumstances, but rather it requires that coverage be provided in accordance with

the other KAIRA provisions.” Farm Bureau Mut. Ins. Co. v. Enter. Leasing Co.

of Kan., 58 P.3d 751, 753 (Kan. Ct. App. 2002). For instance, under Kan. Stat.

Ann. § 40-3104(f), “a self-insurer may not entirely exclude coverage for a rental

driver, but it is only required to provide liability coverage on rented vehicles

2
 (...continued)
unchanged.” Id.

                                         -6-
when an authorized driver does not have his or her own liability coverage.”

Enter. Leasing, 58 P.2d at 754. Section 40-3107(h)(1), which the district court

relied on in granting Lincoln General summary judgment, provides that

“notwithstanding any other provision contained in this section, any insurer may

exclude coverage required by subsections (a), (b), (c) and (d) of this section while

any insured vehicles are . . . [r]ented to others.” 3 This provision “permits an

insurer to exclude liability coverage while the insured vehicle is being rented to

others.” Enterprise Leasing, 58 P.3d at 753.

      The district court held that Lincoln General had validly excluded liability

coverage for Ms. Baker’s use of the rental car, as authorized under Kan. Stat.

Ann. § 40-3107(h)(1), through the LG Policy’s incorporation of the terms and

conditions of the Rental Agreement. Defendants contend that the district court

erred because A-OK cannot exclude liability coverage on a rental car under

3
      Subsections (a) - (d) of § 40-3107 set forth required contents of motor
vehicle liability insurance policies, including subjection (b), which mandates that

      [e]very policy of motor vehicle liability insurance issued by an
      insurer to an owner residing in this state shall:
      ....
      (b) insure the person named and any other person, as insured, using
      any such vehicle with the expressed or implied consent of such
      named insured, against loss from the liability imposed by law for
      damages arising out of the ownership, maintenance or use of any
      such vehicle within the United States of America or the Dominion of
      Canada, subject to the limits stated in such policy.

Kan. Stat. Ann. § 40-3107(b).

                                         -7-
Kansas law, as it is neither a self-insurer nor an insurer. Moreover, Defendants

argue that incorporation of the terms of the Rental Agreement into the LG Policy

was also ineffective to exclude coverage because (1) the incorporation language

in the LG Policy is not sufficiently specific under Kansas law and (2) it relies on

the insured’s, rather than the insurer’s, exclusion of coverage. Finally,

Defendants renew their assertion, made for the first time in their motion for

reconsideration, that the exclusion of coverage in the Rental Agreement is not

enforceable because the agreement expired before the date of the accident.

                                         B.

      The parties do not cite, nor have we found, a Kansas case directly on point.

“Because the Kansas Supreme Court has not addressed the issue involved, we

must predict how it would decide the question. In making this determination we

may look to other state court decisions, federal decisions, and the general trend

and weight of authority.” Commerce Bank, 244 F.3d at 780 (citation and

quotation omitted).

      Lincoln General contends that (1) the Rental Agreement controls the rights

and duties of A-OK and Ms. Baker and (2) A-OK was permitted to exclude

insurance coverage for its rental cars in its rental agreements pursuant to Kan.

Stat. Ann. § 40-3104(f). We agree with Defendants that, because A-OK is not a

self-insurer, § 40-3104(f) is not applicable to A-OK. See Enter. Leasing, 58 P.3d

at 754 (noting that § 40-3104(f) applies only to self-insured rental-car

                                         -8-
companies). Nor can this case be resolved by looking solely to the terms of the

Rental Agreement, without reference to the LG Policy terms. In State Farm

Mutual Automobile Insurance Co. v. Winney, 923 P.2d 517, 518 (Kan. Ct. App.

1996), the driver of a Budget rental car struck another vehicle. The Kansas Court

of Appeals considered whether Budget’s insurance policy or the rental-car

driver’s policy provided primary coverage for the damages sustained by the other

driver. See id. at 518-19. Budget’s rental agreement stated that “Budget does not

provide Renter with liability insurance coverage.” Id. at 519. Despite this

provision in the rental agreement, however, the court looked to Budget’s liability

policy issued by its insurer and concluded that the policy provided primary

coverage for the accident. The court noted that, “although K.S.A. 40-3107(h)

allows an owner to exclude from coverage any vehicle while it is being rented,

Budget’s policy has no such provision.” Id. at 519 (emphasis added). Thus, in

the absence of such an exclusion in the policy, the court concluded that it

provided coverage. See id. 4 The issue we must resolve, then, is whether the LG

Policy excluded coverage for rented vehicles, as authorized by § 40-3107(h)(1).

4
       We disagree with Defendants’ contention that Winney is inapposite
because, like Enterprise Leasing, it involved a self-insurer. The court in Winney
addressed whether a policy issued to Budget by an insurance company provided
primary coverage for an accident involving one of its rental cars. See 923 P.2d at
518-19. The court concluded that it did, but also determined that a
self-insured-retention endorsement in the policy, which the court characterized as
a deductible, required Budget to cover the first $250,000 of the loss. See id. at
519. The court did not cite or apply § 40-3104(f), the provision applicable to
self-insurer rental-car companies.

                                         -9-
                                          C.

      Under Kansas law, the construction of a written instrument and its legal

effect are questions of law. See Catholic Diocese of Dodge City v. Raymer,

840 P.2d 456, 458 (Kan. 1992).

             The language of a policy of insurance, like any other contract,
      must, if possible, be construed in such manner as to give effect to the
      intention of the parties. Where the terms of a policy of insurance are
      ambiguous or uncertain, conflicting, or susceptible of more than one
      construction, the construction most favorable to the insured must
      prevail.

Id. at 459. Special rules of construction apply to exclusions of coverage in

insurance policies. “In Kansas, the general rule is that exceptions, limitations,

and exclusions to insuring agreements require a narrow construction on the theory

that the insurer, having affirmatively expressed coverage through broad promises,

assumes a duty to define any limitations on that coverage in clear and explicit

terms.” Id. at 462. Thus, “[i]f the insurer intends to restrict or limit coverage

provided in the policy, it must use clear and unambiguous language in doing so.”

Id. at 459.

             To be ambiguous, a contract must contain provisions or
      language of doubtful or conflicting meaning, as gleaned from a
      natural and reasonable interpretation of its language. Ambiguity in a
      written contract does not appear until the application of pertinent
      rules of interpretation to the face of the instrument leaves it
      genuinely uncertain which one of two or more meanings is the proper
      meaning.

Id.

                                         -10-
      The LG Policy provided that a “rentee” was an insured “subject to all

conditions set forth in this endorsement.” Aplt. App’x at 133. Defendants

contend that Ms. Baker, as a holder of a rental agreement with A-OK, was a

rentee and therefore an insured under the terms of the LG Policy. We agree,

unless some exclusion applied. The applicable endorsement did not state that

coverage was excluded while A-OK’s insured vehicles were rented to others. It

did specify, however, that “[t]he insurance provided by this policy for the rentee

is subject to the terms, conditions, restrictions and limitations contained in the

rental agreement.” Id. at 134. Defendants contend that this provision was

insufficient to exclude coverage under Kansas law. But we conclude that the

Kansas Supreme Court would apply pertinent rules of contract interpretation to

find that Lincoln General intended to incorporate into the LG Policy the terms

and conditions of the Rental Agreement, which therefore must be considered to

determine the extent of coverage in this case.

      “Separate documents may become a part of a contract of insurance . . . by a

clear reference in the policy that they are intended to be a part thereof. To have

this effect, the intent to incorporate them should be plainly manifest and not

dependent upon implication.” 2 Lee R. Russ & Thomas F. Segalla, Couch on

Insurance, § 18:25 (3d ed., online version 2010) (footnotes omitted). The Kansas

Court of Appeals applied this rule of construction in holding that declarations

recorded on the face sheet of a policy were incorporated by reference into the

                                         -11-
policy, where the policy referred to “the declarations made a part hereof” and

provided that the agreement was “in reliance upon the statements in the

declarations.” Thompson v. Harold Thompson Trucking, 748 P.2d 430, 434

(Kan. Ct. App. 1987) (quotations omitted); see also Sw. Nat’l Bank v. Simpson &

Son, Inc., 799 P.2d 512, 518-519 (Kan. Ct. App. 1990) (holding separate

document was incorporated into agreement that stated it was to be used only with

the separate document). Here, there is no ambiguity regarding Lincoln General’s

intent to incorporate the terms of the Rental Agreement into the LG Policy, which

clearly stated that the “insurance provided by this policy for the rentee is subject

to the terms, conditions, restrictions and limitations contained in the rental

agreement.” Aplt. App’x at 134.

      Defendants have cited no Kansas authority precluding a rental-car

company’s insurer from making a rentee’s liability coverage subject to the terms

and conditions of the rental agreement. Nor do they cite any case holding that an

insurer cannot incorporate into the policy a rental-agreement term excluding

coverage for a rentee. Other courts have looked to the terms of a vehicle rental

agreement to determine the extent of insurance coverage, when those terms were

incorporated into a liability policy using substantially similar language as that

used by Lincoln General in the LG Policy. In Ryder TRS, Inc. v. Randazzo,

81 S.W.3d 669, 672 (Mo. Ct. App. 2002), the policy language stated that the

coverage provided to a rentee of a moving van was subject to the terms and

                                         -12-
conditions of the rental agreement. Although the policy had a coverage limit of

$2 million, the rental agreement limited coverage to $25,000. See id. at 672-73.

The court held that the policy language and rental agreement terms were

unambiguous in limiting the coverage available to a rentee to that lesser amount.

See id. at 673; see also Harrison v. Ford Motor Credit Co., 655 A.2d 931, 932-33

(N.J. Super. Ct. App. Div. 1994) (construing policy issued to rental-car company,

which incorporated terms of rental agreement, as limiting coverage for rentees to

the minimum dollar amount required by law, per language in the rental

agreement); Leinas v. Liberty Mut. Ins. Co., 642 N.E.2d 598, 598-99 (Mass. App.

Ct. 1994) (same); Guardian Ins. Co. of Can. v. Liberty Mut. Ins. Co.,

742 F. Supp. 626, 627, 629 (M.D. Fla. 1990) (same, applying Florida law). We

conclude that, like these other courts, the Kansas Supreme Court would look to

the terms of a rental agreement incorporated into a rental-car company’s

insurance policy to determine the extent of the rentee’s coverage.

                                         D.

      The question remains whether the LG Policy and Rental Agreement terms

clearly and unambiguously excluded liability coverage for Ms. Baker with respect

to the rental-car accident. The Rental Agreement provided that “no insurance

coverage of any kind or type is provided by rentor” and “the rentor is not

providing any type of insurance protection.” Aplt. App’x at 12. The Rental

                                        -13-
Agreement further advised Ms. Baker “to contact []her insurance agent or broker

to make certain []she and the rented vehicle are protected.” Id.

      Defendants argue that, because the Rental Agreement only excluded

insurance coverage “provided by rentor,” the broad reference to “no insurance

coverage of any kind or type” does not encompass coverage under the LG Policy

by Lincoln General. Thus, they maintain that coverage under the LG Policy for a

rentee was not excluded because it was not “provided by” A-OK. We reject

Defendants’ contention. First, KAIRA requires every vehicle owner to “provide”

liability insurance in accordance with the act. Kan. Stat. Ann. § 40-3104(a)

(“Every owner shall provide motor vehicle liability insurance coverage in

accordance with the provisions of this act for every motor vehicle owned by such

person . . . .”). As Defendants emphasize, A-OK is neither an insurer nor a

self-insurer; thus, the only insurance coverage A-OK could “provide” for its

rental cars was the coverage under the LG Policy. Moreover, Defendants’

construction fails to read the Rental Agreement and LG Policy terms together. In

the LG Policy, Lincoln General unambiguously made coverage for a rentee

subject to the terms and conditions in the Rental Agreement. Thus, a reasonable

person reading the LG Policy, along with the statement in the Rental Agreement

that no insurance of any kind or type is provided by rentor, would not conclude

that she had coverage under the LG Policy as a rentee of A-OK. We hold that the

                                        -14-
LG Policy unambiguously excluded liability coverage for Ms. Baker’s use of the

rental car, as authorized by § 40-3107(h)(1). 5

                                          E.

      In their final contention, Defendants assert that the exclusion of coverage in

the Rental Agreement was ineffective because the agreement had already expired

by its terms two weeks after the rental period began and before the date of the

accident. They raised this argument for the first time in their motion for

reconsideration. The district court denied their motion because they failed to

support it with any ground warranting reconsideration of the court’s summary

judgment ruling. Specifically, the court held that Defendants could have, but did

not, make their argument regarding expiration of the Rental Agreement in

response to Lincoln General’s summary judgment motion, nor did they explain

why they failed to do so. See Servants of the Paraclete v. Does, 204 F.3d 1005,

1012 (10th Cir. 2000) (“[A motion for reconsideration] is not appropriate to

revisit issues already addressed or advance arguments that could have been raised

in prior briefing.”). Defendants identify no abuse of discretion in the district

court’s denial of their motion for reconsideration. Nor do we accept their

invitation to address the merits of their argument for the first time on appeal. See

5
      We note that Ms. Baker had her own insurance policy that provided
coverage for her as the driver of the rental car. In a case where the rentee has no
insurance, there may be public policy concerns with respect to an exclusion of
coverage. But we need not, and do not reach that issue in this case.

                                         -15-
O’Connor v. City & Cnty. of Denver, 894 F.2d 1210, 1214 (10th Cir. 1990)

(“[W]e will not consider claims abandoned in the district court.”).

      The judgment of the district court is AFFIRMED.

                                                    Entered for the Court

                                                    David M. Ebel
                                                    Circuit Judge

                                        -16-