Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-3-2005

In Re: Montgomery
Precedential or Non-Precedential: Precedential

Docket No. 04-1749

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Recommended Citation
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                                           PRECEDENTIAL

       UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT

               Nos. 04-1749 and 04-1880

IN RE: MONTGOMERY WARD & CO., INCORPORATED,

                                                   Debtor

       RELIANCE INSURANCE COMPANY;
         UNITED PACIFIC INSURANCE;
            RELIANCE SURETY CO;
  RELIANCE NATIONAL INDEMNITY COMPANY;

                           v.

COLONIAL PENN FRANKLIN INSURANCE COMPANY

   Travelers Casualty and Surety Company, as assignee
        of the indemnity and certain other rights of
      Reliance Insurance Company, for itself and as
      successor in interest by merger with Reliance
   Surety Company, United Pacific Insurance Company
       and Reliance National Indemnity Company,

                                Appellants in No. 04-1749

         AIG Premier Insurance Company, (f/k/a
      Colonial Penn Franklin Insurance Company,
  successor in interest for Forum Insurance Company)*,

                                Appellant in No. 04-1880

              * (Pursuant to FRAP 43(b))
       On Appeal from the United States District Court
                for the District of Delaware
               (D.C. Civ. No. 01-cv-00421)
        Honorable Joseph J. Farnan, Jr., District Judge

                 Argued September 22, 2005

 BEFORE: ROTH, FISHER and GREENBERG, Circuit Judges

                 (Filed: November 3, 2005)

Brian P. Flaherty (argued)
Wolf, Block, Schorr & Solis-Cohen
1650 Arch Street
22nd Floor
Philadelphia, PA 19103

  Attorneys for Appellants/Cross-Appellees

Jeffrey C. Wisler
Marc J. Phillips
Connolly Bove Lodge & Hutz
The Nemours Building
1007 North Orange Street
P.O. Box 2207
Wilmington, DE 19899

Donald Flayton (argued)
Kenneth M. Gorenberg
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Suite 3000
Chicago, IL 60606

  Attorneys for Appellee/Cross-Appellant

                              2
                   OPINION OF THE COURT

GREENBERG, Circuit Judge.

           I. FACTUAL AND PROCEDURAL HISTORY

       Plaintiffs Reliance Insurance Company, Reliance Surety
Company, United Pacific Insurance Company, and Reliance
National Indemnity Company (hereinafter “Reliance”)1 appeal
from a judgment of the district court dismissing objections to
and adopting the proposed findings of fact and conclusions of
law of the bankruptcy court in this non-core case, and ultimately
holding that Forum Insurance Company (hereinafter “Forum”)2

       1
         Reliance Insurance Company, Reliance Surety Company,
United Pacific Insurance Company, and Reliance National
Indemnity Company initiated this action by filing a complaint in
the Eastern District of Pennsylvania. Reliance Insurance Company
and United Pacific Insurance Company are Pennsylvania
corporations with their principal places of business in Philadelphia,
Pennsylvania. Reliance Surety Company is a Delaware corporation
with its principal place of business in Philadelphia, Pennsylvania,
or in Delaware. Plaintiff Reliance National Indemnity Company is
a Wisconsin corporation with its principal place of business in
Wisconsin or in Philadelphia, Pennsylvania.

       At this point in the litigation, Travelers Casualty and Surety
Company of America, as assignee of the indemnity and certain
other rights of Reliance Insurance Company, for itself and as
successor in interest by merger with United Pacific Insurance
Company and Reliance National Indemnity Company is the
successor to the original plaintiffs. Nevertheless, as a matter of
convenience we will refer to the plaintiffs-appellants as “Reliance.”
       2
        Colonial Penn Franklin Insurance Company (now known
as AIG Premier Insurance Company) is the interested appellee as
the successor in interest by merger to Forum Insurance Company.

                                 3
was not obligated to indemnify Reliance for losses it sustained
on surety bonds it executed on behalf of Montgomery Ward &
Co., Inc. (hereinafter “Montgomery Ward”), Forum’s Chicago-
based parent. Even though it was the prevailing party in the
district court, Forum has cross-appealed from the district court’s
judgment to the extent that the court did not uphold certain of its
affirmative defenses to this action as the district court declined
to address those defenses. Montgomery Ward was at an
intermediate level in a corporate hierarchy topped by
Montgomery Ward Holding Corp. which owned all of the stock
of Montgomery Ward. Forum was, in turn, an indirect
subsidiary of Montgomery Ward.3

        Prior to the execution of the agreement underlying this
litigation, Reliance had executed surety bonds on behalf of other
companies in the Montgomery Ward family. In conjunction with
these bonds, Reliance secured a cross-indemnity agreement from
Montgomery Ward and Montgomery Ward Holding Corp. as
security for its undertakings and to protect it against the potential
for up-streaming of funds from Montgomery Ward to
Montgomery Ward Holding Corp. Forum was not a party to, nor
was it mentioned in that indemnity agreement, and Reliance did
not issue on behalf of Forum the surety bonds that that
agreement secured. The parties refer to the Montgomery Ward
and Montgomery Ward Holding Corp. cross-indemnity

As a matter of convenience we will refer to the defendant-appellee
as “Forum.” At all times material to this litigation, Forum was an
Illinois corporation with its principal place of business in
Schaumburg, Illinois.
       3
           The Montgomery Ward corporate hierarchy was as follows:

                       Montgomery Ward Holding Corp.
                       Montgomery Ward & Co., Inc.
                       (Montgomery Ward)
                       Signature Financial/Marketing, Inc.
                       Montgomery Ward Insurance Co.
                       Forum Insurance Company

                                  4
agreement as the “Montgomery Ward Agreement” and we will
use the same term to describe it.4

        In 1996, Forum requested that Reliance issue two surety
bonds on its behalf that Forum needed in connection with
workers’ compensation obligations it was undertaking in
California and Arizona. At that time Reliance sought an
additional indemnity agreement as its underwriters doubted that
the extant Montgomery Ward Agreement reached far enough
down the Montgomery Ward corporate hierarchy to cover losses
that Reliance might incur by reason of issuing surety bonds on
behalf of Forum. Ultimately Forum and Montgomery Ward
jointly signed an indemnity agreement prepared by Reliance,
entitled “Continuing Agreement of Indemnity Miscellaneous
Surety Bonds,” which read, in pertinent part:

        THIS AGREEMENT is made by the Undersigned
        for the continuing benefit of RELIANCE
        INSURANCE COMPANY, UNITED PACIFIC
        INSURANCE COMPANY, RELIANCE
        NATIONAL INDEMNITY COMPANY and/or
        RELIANCE SURETY COMPANY (hereinafter

        4
            The Montgomery Ward Agreement provided, in pertinent
part:

        THIS AGREEMENT is made by the Undersigned
        for the continuing benefit of [the Reliance group] for
        the purpose of saving each and all of them harmless
        and indemnifying each and all of them from all loss
        and expense in connection with any Bonds executed
        on behalf of any one or more of the following
        persons, firms or corporations: Montgomery Ward
        Holding Corp. and Montgomery Ward & Co.,
        Incorporated

        (hereinafter referred to as Applicant)

App. at 14 (emphasis in original).

                                  5
       referred to collectively as the Surety) for the
       purpose of saving each and all of them harmless
       and indemnifying each and all of them from all
       loss and expense in connection with any Bonds
       executed on behalf of any one or more of the
       following persons, firms or corporations: Forum
       Insurance Company and Montgomery Ward & Co.,
       Incorporated.

       (hereinafter referred to as Applicant)

App. at 58 (emphasis in original). Significantly, the agreement
underscored Forum and Montgomery Ward. The parties refer to
this agreement as the “Forum Agreement,” and we will use the
same term to describe it. Reliance subsequently issued two
surety bonds on behalf of Forum, but inasmuch as Reliance
never had to make any payment on the Forum bonds it never
sought indemnification on the Forum Agreement for them.

       In 1997, Montgomery Ward experienced financial
difficulties and defaulted on the surety obligations Reliance had
undertaken on its behalf. In light of the defaults, the obligees on
these bonds made demands on Reliance for payment which
Reliance satisfied. These payments directly led to this litigation
as Reliance regarded the Forum Agreement as having created a
cross-indemnification obligation requiring Forum to indemnify
Reliance for those payments, and Reliance naturally requested
Forum to honor that obligation.5 Forum refused payment as it
denied that the Forum Agreement obligated it to indemnify
Reliance for those payments. Consequently, Reliance filed a
diversity of citizenship action in 1997 in the Eastern District of
Pennsylvania against Forum to recover its losses on the
Montgomery Ward bonds from Forum on the Forum Agreement.

      Inasmuch as Montgomery Ward filed a Chapter 11
bankruptcy petition in the District of Delaware, the district court

       5
        We are not certain of the extent of recovery Reliance now
seeks, but it undoubtedly is multi-million dollars in scope.

                                 6
in the Eastern District of Pennsylvania transferred Reliance’s
case to the District of Delaware in which the district court
referred the case to the bankruptcy court. The matter then went
forward as an adversary proceeding in the bankruptcy court
related to the bankruptcy case. Eventually, Reliance and Forum
filed cross-motions for summary judgment in the adversary
proceeding asking the bankruptcy court to construe the Forum
Agreement and enter judgment in its favor.

        Reliance argued that Forum was required to reimburse it
for the payments it made on the Montgomery Ward bonds as, in
its view, the Forum Agreement’s plain words provided that its
cross-indemnification provision applied to surety bonds Reliance
issued on behalf of Forum and to surety bonds Reliance issued
on behalf of Montgomery Ward. Forum contended, however,
that the Forum Agreement required it to indemnify Reliance only
on bonds that Forum and Montgomery Ward jointly sought. Its
motion contended that the only bonds to which the Forum
Agreement therefore could apply were ones which Forum itself
requested and that inasmuch as Reliance never had to make good
on behalf of Forum, Forum could not be liable to Reliance.6

         Obviously Forum was taking an internally inconsistent
position as it contended that it could be liable only on bonds that
it jointly sought with Montgomery Ward yet it acknowledged
that it would have been liable to Reliance on the Forum
Agreement if Reliance had incurred a loss on the bonds Reliance
issued solely on its behalf.7 Forum’s position led it to argue that

       6
       As we point out below, Forum and Montgomery Ward did
not apply for any bonds jointly.
       7
           Forum set forth its position as follows:

               However, contrary to Reliance’s claim, giving
       the relevant language its plain and ordinary meaning,
       the Agreement provides that its scope is limited to
       bonds jointly applied for by Forum and Wards.
       Therefore, the only bonds which this agreement can
       apply to are two surety bonds which Forum itself

                                    7
it was entitled to summary judgment because the language of the
Forum Agreement did not reach the bonds at issue in this
litigation and Forum was not a party to the Montgomery Ward
Agreement and thus could not be liable under it. In addition,
Forum raised numerous affirmative defenses.8

       requested, which were never in default, and which
       Reliance admits are not at issue in this litigation.

App. at 247 (emphasis in original). The problem with this
statement is that the second sentence could not follow from the first
and the word “[t]herefore” connecting them was not appropriate as
Montgomery Ward did not apply for the two surety bonds Forum
requested from Reliance.

         Forum adheres to its inconsistent position on this appeal.
Thus, after telling us that “the language [of the Forum Agreement]
can reasonably be interpreted as covering only bonds jointly
applied for by Forum and Montgomery Ward,” appellee’s br. at 20,
it tells us that “Forum has always denied that the Forum Agreement
was intended to apply to bonds other than certain bonds specifically
requested and applied for by Forum.” Id. at 39. Of course, those
bonds are the two bonds for Forum’s California and Arizona
workers’ compensation obligations for which Montgomery Ward
did not apply.
       8
         The affirmative defenses are that the Forum Agreement, if
found to apply as Reliance contends, is unenforceable: due to
vagueness and indefiniteness; due to the absence, inadequacy, or
failure of consideration; because it is illegal under the Illinois
Insurance Code; because it is void or voidable by the Illinois
Director of Insurance; as it violates public policy as reflected in the
provisions of the Illinois Insurance Code; because it was executed
by a Forum officer acting beyond the scope of his authority;
because the officer who signed it had neither actual nor apparent
authority to do so; because it was a product of mutual mistake;
because it was a product of Forum’s unilateral mistake; as barred
by the doctrine of equitable estoppel; and as barred by the doctrine
of promissory estoppel. Forum also alleges that Reliance breached
its duty of good faith and fair dealing.

                                  8
        Prior to a trial in the adversary proceeding, the bankruptcy
court, in response to the parties’ cross-motions for summary
judgment, determined that the Forum Agreement was
ambiguous, a conclusion that led it to deny the motions.9 The
court believed that an ambiguity arose from the combination of
the phrase, “any one or more of the following persons, firms or
corporations” followed by “Forum Insurance Company and
Montgomery Ward & Co. Incorporated” described singularly as
“Applicant.” 10

       Thereafter the bankruptcy court conducted a bench trial to
determine the scope of the Forum Agreement in the face of the
ambiguity and, in particular, to determine if the parties had
reached a meeting of the minds on the question of whether the
Forum Agreement covered the Montgomery Ward bonds. On
June 1, 2001, the bankruptcy court entered a judgment against
Reliance, accompanied by a memorandum opinion, which the
court stated constituted its findings of fact and conclusions of
law. Ruling in favor of Forum, the bankruptcy court held that
the extrinsic evidence surrounding the execution of the Forum
agreement indicated that Forum never intended to indemnify
Reliance for losses Reliance suffered by reason of being a surety
on the Montgomery Ward bonds. Rather, Forum could be
responsible only for losses Reliance suffered on account of the

       9
         The bankruptcy court entered summary judgment in
Reliance’s favor with respect to Forum’s affirmative defense of
illegality but did not rule on any of Forum’s other affirmative
defenses.
       10
         Reliance summarizes the court’s analysis succinctly:
“[T]he court held, it was possible that the contract could be read in
either one of two ways: It could be read as Reliance suggested; to
apply to bonds executed on behalf of Forum and to bonds executed
on behalf of Montgomery Ward; or [i]t could be read as Forum
suggested; to apply only to bonds executed pursuant to a joint
application by Forum and Montgomery Ward . . . .” Appellant’s br.
at 11.

                                 9
issuance of Forum’s own bonds.11

       Reliance filed objections to the ruling pursuant to Federal
Rule of Bankruptcy Procedure 9033, and also filed an appeal
under 28 U.S.C. § 158 as a protective measure in the event that
the district court determined that the bankruptcy court’s
adjudication was a final judgment. Reliance took these
alternative steps out of caution because it was not sure whether
the bankruptcy court proceedings should be regarded as core or
non-core within the Montgomery Ward bankruptcy proceedings.

        When the district court considered the case, it, too, was
unsure as to how to treat the bankruptcy court proceedings.
Thus, the district court on March 14, 2002, remanded the case to
the bankruptcy court for it to determine if the matter was core or
non-core. The bankruptcy court on July 1, 2002, found that the
matter was non-core following which on October 22, 2002, the
district court, which agreed that the matter was non-core, entered
an order concluding that the bankruptcy court’s findings were to
be treated as proposed findings of fact and conclusions of law to
which Reliance could file objections.12

       11
          The items of extrinsic evidence considered by the court,
which led to its conclusion that Forum never intended to indemnify
Reliance for losses it suffered by reason of issuance of the
Montgomery Ward bonds, were: the failure to obtain a resolution
by the board of directors or side letter approving of the cross-
indemnification agreement, as was done for the Montgomery Ward
Agreement and was mandated by Reliance’s own underwriting
guide; the increase in Reliance’s financial exposure due to the
issuing of bonds for Forum was disproportionately small compared
to the potential $40 million liability that Forum was to assume on
the Montgomery Ward bonds; and “the credible evidence adduced
at trial established that Forum did not want a cross-indemnity and
the broker had no idea that Reliance wanted a cross-indemnity.”
App. at 20.
       12
        The bankruptcy court makes final decisions in core matters
which can be appealed to the district court. But in non-core cases
the bankruptcy court can make only recommendations to the

                                10
        The district court, exercising de novo review, ruled on the
matter on February 13, 2004, entering judgment in favor of
Forum. It adopted all of the bankruptcy court’s post-trial
proposed findings of fact and conclusions of law and issued its
own memorandum opinion. The district court agreed with the
bankruptcy court’s conclusion that the Forum Agreement was
ambiguous, a conclusion it predicated on the use of the singular
word “Applicant,” in connection with the phrase “any one or
more of the following persons, firms or corporations” in the
Forum Agreement. The court continued by noting that because
it “reasonably interpreted” the Forum Agreement to be
ambiguous, it was necessary and appropriate to consider
extrinsic evidence related to the parties’ intent. The district
court noted that “the extrinsic evidence adduced at trial
demonstrated that Forum was only willing to give an indemnity
with respect to the two bonds for which it had applied and that
Forum did not intend to indemnify Reliance for Montgomery

district court. No party questions the bankruptcy and district
courts’ determinations that this matter was non-core. Nevertheless,
in view of the jurisdictional significance of this determination we
have reviewed the matter ourselves, see In re Guild & Gallery Plus,
Inc., 72 F.3d 1171, 1176 (3d Cir. 1996), and are satisfied that it is
non-core. We note, however, that this case differs from Guild &
Gallery Plus because that case was initiated as an adversary
proceeding in the bankruptcy court whereas Reliance brought this
action in the Eastern District of Pennsylvania invoking its diversity
of citizenship jurisdiction which survived the case’s transfer to
Delaware and the change in parties that we describe in supra notes
1 and 2. See Freeport-McMoRan, Inc. v. KN Energy, Inc., 498
U.S. 426, 111 S.Ct. 858 (1991). Moreover, in Guild & Gallery
Plus the bankruptcy court attempted to exercise core jurisdiction
whereas in this case the bankruptcy court treated the case as a non-
core matter, so that the district court exercised original jurisdiction,
and thus did not act in an appellate capacity. The confluence of
these circumstances satisfies us that the district court in Delaware
had subject matter jurisdiction in this case.

                                  11
Ward’s bonds.” 13 App. at 55.

        Reliance filed an appeal to this court from the February
13, 2004 judgment and Forum filed a cross-appeal which it
explains was intended “principally to preserve on appeal all of
Forum’s affirmative defenses, which the District Court did not
reach or need to reach for its decision, but any one of which
would preclude Reliance’s claims, even if Reliance’s
construction of the Forum Agreement were correct.” Appellee’s
br. at 7.

                           II. DISCUSSION

       a. Jurisdiction

        Reliance initiated this matter as a diversity of citizenship
action in the Eastern District of Pennsylvania which had
jurisdiction under 28 U.S.C. § 1332. On Forum’s motion, the
court transferred the case to the District of Delaware.14 In
Delaware the district court referred the matter to the bankruptcy
court which considered it under 28 U.S.C. § 157(c)(1) and thus
made proposed findings of facts and conclusions of law.
Reliance filed objections to those findings and conclusions
pursuant to Rule 9033 following which the district court on a de
novo basis entered a final judgment adopting the proposed
findings of fact and conclusions of law. Consequently, the
operative determination from which the parties have appealed is

       13
         Inasmuch as the district court adopted the bankruptcy
court’s proposed findings of facts and conclusions of law, it
declined to address the counter-objections which Forum lodged as
alternative arguments in the event that the court declined to adopt
the bankruptcy court’s proposed findings of fact and conclusions
of law.
       14
            The diversity jurisdiction survived the transfer. See supra
note 12.

                                   12
that of the district court and not the bankruptcy court.15 We have
jurisdiction under 28 U.S.C. § 1291.

       b. Standard of Review

        We exercise plenary review of the legal question of
whether an agreement is ambiguous. LaSalle Nat'l Bank v. Serv.
Merch. Co., 827 F.2d 74, 78 (7th Cir. 1987); see also Nat’l Tea
Co. v. Am. Nat'l Bank and Trust Co., 427 N.E.2d 806, 808 (Ill.
App. Ct. 1981). If we determine that an agreement is
unambiguous, we then must declare its meaning as a matter of
law. LaSalle Nat'l Bank, 827 F.2d at 78. But if we find an
agreement to be ambiguous its meaning becomes a question for
the trier of fact. Id. In that event we would review the district
court’s findings of fact on a clear error basis. Henglein v. Colt
Indus. Operating Corp., 260 F.3d 201, 208 (3d Cir. 2001).16
Forum, which is an Illinois corporation and at the time the
Forum agreement was executed had its principal office in
Illinois, contends that Illinois law is applicable in this action, and
we will decide the case on that basis.17

       c. Reliance’s appeal

       15
        Nevertheless we make frequent reference to the
bankruptcy court’s determinations as the district court adopted its
findings of fact and conclusions of law.
       16
         As will be seen we do not find the agreement to be
ambiguous and, accordingly, we do not exercise clear error review
on this appeal.
       17
         There is a choice-of-law disagreement in this case, though
its resolution does not impact the outcome of this appeal. While
Forum contends that Illinois law is applicable, Reliance believes
that Pennsylvania law applies. The bankruptcy and district courts
cited law from both jurisdictions. We agree with Forum, however,
to the extent that it indicates that “there is little if any practical
significance to the choice of law, at least as to the fundamental
contract interpretation issues in this case.” Appellee’s br. at 23 n.7.

                                  13
         The central issue on Reliance’s appeal is whether the
Forum Agreement is ambiguous so that it reasonably can be
construed to mean either that (a) it is applicable to bonds
Reliance executed on behalf of Forum and to bonds Reliance
executed on behalf of Montgomery Ward, or (b) it applies only
to bonds Reliance executed pursuant to a joint application by
Forum and Montgomery Ward. The bankruptcy and district
courts analyzed the Forum Agreement and concluded that it was
ambiguous and thus looked to extrinsic evidence to ascertain the
parties’ intent. Of course, they did not adopt the first possibility,
i.e., that it was applicable to bonds Reliance executed on behalf
of either Forum or Montgomery Ward.

        A court should construe an indemnity agreement in
accordance with general principles of contract law. Taracorp,
Inc. v. NL Indus., Inc., 73 F.3d 738, 743 (7th Cir. 1996)
(applying Illinois Law). A court’s primary objective in
construing an agreement is to determine and give effect to the
parties’ intentions at the time they entered into the agreement.
Sheridan v. James W. Rouse & Co., 441 N.E.2d 647, 650 (Ill.
App. Ct. 1982). If the agreement’s terms are plain and
unambiguous, a court must ascertain the parties’ intent solely
from its language. Western Ill. Oil Co. v. Thompson, 186
N.E.2d 285, 287 (Ill. 1962); Country Serv. & Supply Co. v.
Harris Trust & Sav. Bank, 430 N.E.2d 631, 634-35 (Ill. App. Ct.
1981).18 Forum acknowledges that, “[t]he terms of the

       18
         Neither party seriously argues that there is a conflict in the
law of contractual interpretation between Pennsylvania and Illinois,
the two jurisdictions whose law the parties contend could apply in
this case. See Appellee’s br. at 23. However, it appears that
Pennsylvania law may be more permissive than Illinois law in
allowing the introduction of extrinsic evidence to establish an
ambiguity. Compare Bohler-Uddeholm Am., Inc. v. Ellwood
Group, Inc., 247 F.3d 79, 92-93 (3d Cir. 2001) (holding that
Pennsylvania law allows use of extrinsic evidence to establish a
latent ambiguity), with Air Safety, Inc. v. Teachers Realty Corp.,
706 N.E.2d 882, 885 (Ill. 1999) (holding that Illinois law follows
a strict “four corners” approach and does not allow extrinsic

                                  14
agreement should be given their plain and ordinary meaning,
unless to do so would do violence to the evident intent and
purpose of the contracting parties.” Appellee’s br. at 25 (citing
Perkins & Will v. Sec. Ins. Co., 579 N.E. 2d 1122, 1126 (Ill.
App. Ct. 1991)).

        The traditional test for determining whether an agreement
is ambiguous is the four corners or plain meaning test. Under
this test, a written agreement is “presumed to speak [to] the
intention of the parties who signed it. It speaks for itself, and the
intention with which it was executed must be determined from
the language used.” URS Corp. v. Ash, 427 N.E.2d 1295, 1299
(Ill. App. Ct. 1981) (quoting Western Ill. Oil Co. v. Thompson,
186 N.E.2d at 287). The Court of Appeals for the Seventh
Circuit explained the virtues of the four corners test in Matthews
v. Sears Pension Plan, 144 F.3d 461, 466 (7th Cir. 1998)
(applying Illinois law):

       If a written contract is clear, that is, if reading it
       one doesn't sense any ambiguity, gap, or
       contradiction that makes one doubt one's ability to
       understand the contract merely by reading it, the
       court normally won't look further for evidence of
       meaning. This is the venerable ‘four corners’ rule.
       Its purpose is to protect contracting parties from
       the uncertainty that would attend their obligations
       if a judge or jury were free to consider evidence
       that would contradict the terms of a written
       contract . . . . In such a regime all contracts would
       be revisable by judges and juries . . . . The security
       that one seeks from having a written statement of
       one's legal rights and duties would be destroyed.

evidence to establish an ambiguity in an integrated contract). We
need not resolve this possible conflict between Pennsylvania and
Illinois law in the context of this case, as both the contractual
language and extrinsic evidence of the parties’ intent demonstrate
conclusively that the Forum Agreement is susceptible to only one
interpretation. See also infra note 19.

                                 15
As Forum argues, “[c]ontract construction is limited to the
language of the contract only where that language is
unambiguous.” Appellee’s br. at 28 (citing River Forest State
Bank & Trust Co. v. Rosemary Joyce Enter., Inc., 689 N.E.2d
163, 167 (Ill. App. Ct. 1997); Hullett v. Towers, Perrin, Forster
& Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994)).19

       19
         Certain Illinois appellate decisions, however, have
suggested that a court may consider extrinsic evidence in
determining whether a contract is ambiguous. See, e.g., Ash, 427
N.E.2d at 1300 (appellate court held that in most circumstances a
trial court should admit extrinsic evidence of intent before it
determines whether an ambiguity exists in a contract); see also
Sunstream Jet Express, Inc. v. Int’l Air Serv. Co., 734 F.2d 1258,
1268 (7th Cir. 1984) (citing cases). The Court of Appeals for the
Seventh Circuit recognized this apparent split, i.e., as to whether or
not consider extrinsic evidence in determining whether a contract
is ambiguous, in Metalex Corp v. Uniden Corp., 863 F.2d 1331,
1335 (7th Cir. 1988).

        The Illinois Supreme Court, however, has held, “that the
four corners rule precludes the consideration of extrinsic evidence
where a contract contains an integration clause and is facially
unambiguous.” Air Safety, Inc. v. Teachers Realty Corp., 706
N.E.2d 882, 886 (Ill. 1999). The court, however, expressly
declined to rule on whether a court may apply the provisional
admission approach (i.e., the “extrinsic ambiguity approach”) to
interpret a contract which does not contain an integration clause .
Id. at 885 n.1. It did note, however, that it never formally had
adopted an approach that allowed the use of extrinsic evidence to
determine if, in fact, a contract was ambiguous. Id. at 885.

        Recent opinions from Illinois appellate courts have
indicated that Illinois will follow Air Safety closely and utilize a
strict adherence to the four corners interpretive approach. See, e.g.,
Platt v. Gateway Int’l Motorsports Corp., 813 N.E.2d 279, 283 (Ill.
App. Ct. 2004); Duresa v. Commonwealth Edison Co., 807 N.E.2d
1054, 1062-63 (Ill. App. Ct. 2004). While it is true that the Forum
Agreement does not have an integration clause that absence is not
significant as the agreement is so clear and cannot be construed as

                                 16
        Illinois law makes clear that merely because the “parties
to a contract disagree about its meaning does not [necessarily]
show that it is ambiguous.” FDIC v. W.R. Grace & Co., 877
F.2d 614, 621 (7th Cir. 1989). Rather, an agreement is
ambiguous only if it is “reasonably or fairly susceptible to more
than one construction.” Omnitrus Merging Corp. v. Ill. Tool
Works, Inc., 628 N.E.2d 1165, 1168 (Ill. App. Ct. 1993)
(internal quotation marks and citation omitted); Lenzi v. Morkin,
452 N.E.2d 667, 669 (Ill. App. Ct. 1983) (emphasis added), aff'd
on other grounds, 469 N.E.2d 178 (Ill. 1984)20 ; see also Emerson
Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 164 (3d Cir.
2001) (“The determination whether a contract term is ambiguous
is a question of law that requires a court to hear the proffer of the
parties and determine if there [are] objective indicia that, from
the linguistic reference point of the parties, the terms of the
contract are susceptible of different meanings.”) (citations and
internal quotation marks omitted).

       Forum contends that, “[b]ecause the language can
reasonably be interpreted as covering only bonds jointly applied
for by Forum and Montgomery Ward, the Bankruptcy Court
correctly denied Reliance’s Motion for Summary Judgment.”
Appellee’s br. at 20. It continues by noting, “the words Reliance
actually wrote into the Forum Agreement cover bonds applied
for by ‘Forum and Montgomery Ward.’ Reliance elected to
identify the covered bonds as those requested by one set of joint
applicants. Consequently, under the plain language, if Forum –
one of the requisite joint applicants – did not apply for a given
bond, that bond is not covered by the Forum Agreement.” 21

Forum urges.
       20
          In its opinion the Supreme Court of Illinois indicated that
“[i]n the absence of an ambiguity, the intention of the parties at the
time the contract was entered into must be ascertained by the
language utilized in the contract itself, not by the construction
placed upon it by the parties.”
       21
         The joint application approach largely is centered around
the definition of the word “and” defined as, “a logical operator that

                                 17
Appellee’s br. at 27. The bankruptcy and district courts,
apparently seeing this meaning as an alternative reading to the
one put forth by Reliance, i.e., that the Forum Agreement
applied to surety bonds Reliance issued on behalf of either
Montgomery Ward or Forum, found that the Forum Agreement
was ambiguous, and thus searched outside its four corners for
additional indicators of the parties’ intent.22

        We hold that the bankruptcy and district courts’
conclusions are erroneous because the Forum Agreement is not
ambiguous as there is no competing valid interpretation of the
Forum Agreement that differs from that Reliance advances.
Initially in this regard we point out that Forum’s construction is
not reasonable because Reliance did not issue any bonds to
which Forum’s proposed reading would apply and Montgomery
Ward was not an applicant to the two bonds Forum needed to
secure its California and Arizona workers’ compensation
obligations. Certainly, Forum, at the very least, must have
intended the Forum Agreement to apply to those bonds, and
Forum acknowledges as much. However, if we follow Forum’s
approach, given that Montgomery Ward was not an applicant for

requires both of two inputs to be present or two conditions to be
met.” App. at 257 (Forum’s Brief for Summary Judgment quoting
Merriam-Webster Collegiate Dictionary, tenth edition, 1994). As
Reliance notes, see appellant’s br. at 17 n.8, this definition of “and”
was coined and used in computer programming. It is more
commonly thought of as “AND.” Reliance argues that a more
appropriate definition of “and” is simply a conjunction used to join
words in a list. Appellant’s br. at 16.
       22
         The district court also found ambiguity in the singular use
of the word “Applicant” in connection with the phrase “any one or
more of the following persons, firms or corporations.” App. at 54.
The use of the phrase “Applicant” was chosen to define a particular
entity or entities for ease or use throughout the remainder of the
document. As Reliance notes, Forum said in its opening brief on
its motion for summary judgment, “[g]iving it its plain and ordinary
meaning, ‘applicant’ denotes the person or persons who ‘apply’ for
the issuance of a bond . . . .” App. at 255; Appellant’s br. at 16.

                                  18
the bonds that Forum sought, we would be holding that Forum
signed an indemnity agreement that did not even apply to the
bonds it sought from Reliance and for which it was giving
Reliance an indemnification.

      The case is remarkable because the bankruptcy court
understood that its reasoning was anomalous as it explained:

       [A]lthough everybody on this record has agreed
       that the Forum bonds were covered, that was the
       intent, this agreement doesn’t cover the Forum
       bonds in and of themselves, anyway, because as I
       understand it, Montgomery Ward was not an
       applicant on the Forum bond request. And so to
       that extent, it doesn’t reach those bonds either.

App. at 1345. Nevertheless the bankruptcy court erroneously
concluded that because Reliance suffered no losses on the Forum
bonds, the issues of whether the Forum bonds were covered by
the Forum Agreement and Reliance’s corresponding
interpretation were not germane. Remarkably, faced with the
problem that the phantom ambiguity it identified could mean that
Forum’s own bonds were not covered by the Forum Agreement,
the bankruptcy court opined that if there had been a loss on the
Forum bonds it might have been necessary “to reform the
[Forum Agreement] so that it can be covered.” Id. at 1348.
Thus, the bankruptcy court rejected a finding that the Forum
Agreement meant what it said in favor of according it a meaning
that could not have reflected the parties’ intent.

        It should be obvious that a construction of an agreement
that is inconsistent with the very purpose for which the parties
entered into the agreement cannot possibly be reasonable.
Simply stated, Reliance never issued a surety bond jointly on
behalf of both Forum and Montgomery Ward; thus, the Forum
Agreement, as construed by Forum, did not secure Reliance for
anything. Reliance correctly notes, “[t]his realization . . . .
should have ended the inquiry as to contract’s interpretation,
compelling a conclusion in favor of Reliance, since only one
interpretation of the words – the one proffered by Reliance –

                               19
produced the result everyone – even Forum – agreed was their
intent.” Appellant’s br. at 20. Given that there was only one
construction of the agreement that was reasonable, it was not
ambiguous, and, therefore, the bankruptcy and district courts
erred by looking at extrinsic evidence to decipher the intent of
the parties.

       As we have emphasized, this case does not turn on
extrinsic evidence. Nevertheless we make a comment on one
point that the district court made with respect to that evidence. It
said that the “evidence adduced at trial demonstrated that Forum
was only willing to give an indemnity with respect to the two
bonds for which it had applied and that Forum did not intend to
indemnify Reliance for Montgomery Ward’s bonds.” App. at
55. Yet that finding cannot be squared with the language of the
Forum Agreement in which Forum, in the plainest terms, agreed
to save harmless and indemnify Reliance from all loss and
expense “in connection with any Bonds executed on behalf of
any one or more of the following persons, firms or corporations:
Forum Insurance Company and Montgomery Ward & Co.,
Incorporated.” App. at 58. If Forum was willing to give an
indemnity only with respect to the bonds it sought then surely it
should have insisted that Montgomery Ward & Co., Incorporated
be deleted from the quoted phrase as its presence there could not
have been consistent with its intent.

       But even laying that point aside, the plain language of the
Forum Agreement necessitates that Forum’s argument must fail,
and we independently and principally predicate our result on that
language. As Forum notes in its brief, “the terms of the
agreement should be given their plain and ordinary meaning . . .
.” Appellee’s br. at 25 (citing Perkins & Will v. Sec. Ins. Co. of
Hartford, 579 N.E. 2d at 1126). The Forum Agreement
guarantees Reliance against loss in connection with bonds
executed: “on behalf of any one or more of the following
persons, firms, or corporations: Forum Insurance Company and
Montgomery Ward & Co., Incorporated.” App. at 58 (emphasis
added with respect to “any one or more” ). The district court,
adopting the conclusions of the bankruptcy court, found that the
only intent of the Forum Agreement was to provide an

                                20
indemnification for the Forum bonds.23 This understanding, i.e.,
that the agreement was applicable only in cases in which the
bond was issued on behalf of Forum, could not possibly be
correct; after all, why would Montgomery Ward even be
mentioned if that was the case? Nor, of course, could the Forum
Agreement apply to bonds issued only on behalf of Montgomery
Ward because in that event there would be no rationale as to why
Forum would be mentioned. Moreover, Montgomery Ward and
Forum are treated identically in the critical language in the
Forum Agreement we quote above. Furthermore, the
indemnification could not be exclusive to either Forum or
Montgomery Ward, as the agreement clearly indicated that the
indemnification was for payments Reliance made on behalf “of
any one or more” of the listed companies. App. at 58. Finally,
the argument that the agreement requires a joint application
cannot be squared with its “any one or more” language.

        We emphasize the following point. “One or more” must
mean (1) Forum or (2) Montgomery Ward or (3) Forum and
Montgomery Ward. The word “one” when followed by “more”
when, in turn, followed by the listing of two entities simply must
mean either entity or both entities. It cannot mean only both
entities as the word “one” plainly is intended to mean something
less than and different than “more.” Indeed, this dual meaning
explains why the disjunctive “or” is used between “one” and
“more.” Overall, we have no doubt but that the district court
erred as a matter of law when it rejected Reliance’s claim for
indemnification from Forum for Reliance’s losses on the
Montgomery Ward bonds on the ground that the Forum
Agreement did not include those bonds. Thus we are

       23
         The bankruptcy court stated, “[t]he only shared intent was
to provide indemnity for the Forum bonds. There was no evidence
that Forum intended to indemnify Reliance for the Montgomery
Ward bonds.” App. at 42. The district court opined, “Forum did
not intend to indemnify Reliance for Montgomery Ward’s bonds.”
App. at 55.

                                21
constrained to reverse.24

       d. Forum’s appeal

        At the time that the bankruptcy court denied both parties
summary judgment it ruled against Forum on its contention that
the Forum Agreement could not be enforced against it on the
ground that it was illegal. It did not rule, however, on Forum’s
other affirmative defenses. When the case reached the district
court it adopted the bankruptcy court’s proposed findings of fact
and conclusions of law entered on June 1, 2001, after the bench
trial, but did not adopt the bankruptcy court’s determination on
the summary judgment rejecting the illegality defense. Rather it
indicated that:

              Because the Court adopts the proposed
       findings of facts and conclusions of law issued by
       the Bankruptcy Court, the Court declines to
       address Forum’s Counter - Objections which were
       lodged with the Court as alternative arguments in
       the event that the Court declined to adopt the
       Bankruptcy Court’s proposed findings of fact and
       conclusions of law.

App. at 57 n.2. Forum has raised the same issues on these
appeals. We, however, will not consider them in the first
instance as the district court did not pass on them.25 Thus, on the
remand that we are directing, Forum may renew its affirmative
defenses in their entirety, including the illegality defense. We,

       24
         In its brief Reliance contends that the district court held
that Forum’s president did not have the authority to sign the Forum
Agreement. Forum answers that the court did not make such a
finding. We agree with Forum as we do not find that the court’s
discussion gives us an independent basis to affirm and accordingly
we will not consider the point. Forum, however, may raise the
point on the remand that we are directing.
       25
        We also point out that the disposition of one or more of the
defenses might require fact finding.

                                22
however, will dismiss Forum’s cross-appeal as it was neither
necessary nor appropriate for Forum to file it as it does not seek
any relief on the cross-appeal beyond the upholding of the
district court judgment of February 13, 2004. See Rite Aid of
Pa., Inc. v. Houston, 171 F.3d 842, 853 (3d Cir. 1999). Indeed,
in its brief it almost acknowledges as much as it indicates that it
filed its appeal principally to preserve its affirmative defenses.

                       III. CONCLUSION

        For the foregoing reasons the judgment of February 13,
2004, will be reversed, and the case will be remanded to the
district court for further proceedings consistent with this opinion.
By this opinion we have established that the Forum Agreement
as executed is applicable to the Montgomery Ward bonds and
that Forum’s cross-indemnification obligation applies to losses
Reliance suffered on those bonds. Thus, the remaining issues
relate to Forum’s affirmative defenses and, if it is liable,
damages. Forum’s appeal will be dismissed.

                                 23