Court Opinion

ID: 3209138
Source: CourtListenerOpinion
Date Created: 2016-06-03 16:00:59.904339+00
Date Added: 2024-06-11T12:05:44.100231
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                                                                     June 3, 2016
                   UNITED STATES COURT OF APPEALS
                                                                Elisabeth A. Shumaker
                                TENTH CIRCUIT                       Clerk of Court

 PEERLESS INDEMNITY
 INSURANCE COMPANY, an Illinois
 corporation,

              Plaintiff - Appellant,

 v.                                                      No. 15-8014
                                                          (D. Wyo.)
 STEVEN N. SWANNER; ASER L.                    (D.C. No. 2:14-CV-00099-SWS)
 AUGUSTE; and RAJASEKAR
 AZHAGAPPAN,

              Defendants - Appellees.

 and

 CLOUD PEAK HOSPITALITY, doing
 business as Holiday Inn,

              Defendant.

                           ORDER AND JUDGMENT *

Before TYMKOVICH, Chief Judge, KELLY, and LUCERO, Circuit Judges.

       *
         This order and judgment is not binding precedent except under the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. Background

      Cloud Peak operates a Holiday Inn in Sheridan, Wyoming. As a service to

its guests and employees, the hotel offers free shuttle rides around town as well as

to and from employees’ homes. A hotel employee was assigned to drive the

Holiday Inn shuttle, and two employees, Aser Auguste and Rajasekar

Azhagappan, caught a ride home after their shifts ended. Both lived about five

miles from work, but because neither had a car or driver’s license, they relied on

the free shuttle.

      During the drive to the employees’ homes, the driver—who was allegedly

intoxicated—lost control of the vehicle and crashed. The employees suffered

injuries as a result of the crash.

      The employees filed for and received worker’s compensation coverage.

Under Wyoming law, injuries incurred during travel to or from work in an

employer’s vehicle is covered by the worker’s compensation statute. See Wyo.

Stat. § 27-14-102(a)(xi)(D). The passengers also filed suit against the driver in

Wyoming state court, alleging he was under the influence of drugs or alcohol at

the time of the accident and his negligence caused their injuries. The state trial

court determined that due to their worker’s compensation recovery, the

passengers could recover against the driver but only if they proved willful and

wanton misconduct, as opposed to mere negligence.

                                          -2-
      The driver sought indemnity under Cloud Peak’s insurance policies issued

by Peerless. Arguing it was not obligated to defend and indemnify the driver due

to exclusions in the policies, Peerless then sought a declaratory judgment in

federal court. Cloud Peak, the driver, and the injured employees were named as

defendants in the declaratory judgment action. 1

      The district court analyzed the insurance policies under Wyoming law, and

found (1) the exclusions relating to injuries caused by fellow-employees and

expected or intended bodily injury did not apply; and (2) Peerless was required to

indemnify the driver because, notwithstanding these exclusions, the policy

covered the driver’s activities.

      Exercising jurisdiction under 28 U.S.C. § 1291, we AFFIRM.

                                   II. Analysis

      Peerless contends that two exclusions in the policies precluded coverage for

the driver. The district court held that neither exclusion applied, and issued a

declaratory judgment finding that Peerless was required to indemnify the driver.

As we explain, we agree with the district court that the insurance policies’

exclusions do not bar coverage. We review the district court’s order de novo.

      1
          On June 29, 2015, we granted Cloud Peak’s unopposed motion to dismiss
itself as a party in this appeal.

                                         -3-
      A. The Insurance Policies

      Cloud Peak maintained two insurance policies with Peerless: (1) an

automobile policy, and (2) a commercial umbrella liability policy. A permissive

user of Cloud Peak’s automobiles qualified as an “insured” under both policies.

As relevant here, the two policies were nearly identical. For our purposes we

focus on three provisions in the policies.

      First, each policy contains a “Fellow-employee” exclusion. Under this

exclusion, coverage is excluded for

             “Bodily injury” to any fellow “employee” of the “insured”
             arising out of and in the course of the fellow “employee’s”
             employment or while performing duties related to the
             conduct of your business.

Aplt. App. Vol. I at 53–54.

      In addition, the policies contain an exclusion for “‘Bodily injury’ or

‘property damage’ expected or intended from the standpoint of the ‘insured.’” Id.

      Finally, the policies contain a “Severability Clause” that provides:

             “Insured” means any person or organization qualifying
             as an insured in the Who Is An Insured provision of the
             applicable coverage. Except with respect to the Limit of
             Insurance, the coverage afforded applies separately to
             each insured who is seeking coverage or against whom a
             claim or “suit” is brought.

Aplt. App. Vol. I at 61–62.

                                         -4-
      B. Fellow-employee Exclusion

      Peerless first argues that because the driver and the injured employees were

all employees of Cloud Peak, coverage is excluded under the fellow-employee

exclusions in the policies. Because this is a diversity case, we are bound by the

Wyoming Supreme Court’s interpretation of Wyoming law, including principles

of contract interpretation. See First Am. Kickapoo Operations, LLC v.

Multimedia Games, Inc., 412 F.3d 1166, 1172 (10th Cir. 2005). We find that the

exclusion does not apply for two reasons. First, Wyoming Supreme Court

precedent forbids the application of the exclusion in this context. Second, the

plain language of the exclusion shows that it does not apply.

              1. Binding Wyoming Precedent

      The Wyoming Supreme Court has previously analyzed when a fellow-

employee exclusion (referred to as a “cross-employee exclusion” in the opinion 2)

precludes coverage. In Barnette v. Hartford Insurance Group, 653 P.2d 1375

(Wyo. 1982), the Supreme Court considered the exclusion in a case where one

employee had injured his fellow employee in an automobile accident, resulting in

      2
          The cross-employee exclusion stated:

                    None of the following is an insured:
                    (i) any person while engaged in the business of his
                    employer with respect to bodily injury to any fellow
                    employee of such person injured in the course of his
                    employment.
653 P.2d at 1377.

                                         -5-
a lawsuit. The defendant-employee sought indemnity from the corporation’s

automobile liability insurer, which claimed the cross-employee exclusion

precluded coverage. As here, there was no issue that the defendant employee was

an “insured” under the policy. In addition, the policy contained a severability

clause similar to the one in Cloud Peak’s policy with Peerless.

      The Barnette court found the cross-employee exclusion did not preclude

coverage for the defendant-employee. Id. at 1383. In analyzing the policy, the

court concluded the following rule controls:

             The cross-employee exclusionary clause denies indemnity
             where the injured person is an employee of the insured
             seeking coverage but—it does not deny indemnity where
             the injured person is not an employee of the insured who
             seeks protection under the policy.

Id. at 1379 (emphasis in original). In other words, “[i]f . . . the insured in

question is not an employer who seeks policy protection from the claims of

employees, then the cross-employee exclusionary rule cannot interfere with the

coverage of that insured.” Id. at 1383. The court then relied on the severability

clause, finding that the driver of the vehicle was an insured vis-a-vis the injured

employee. The court emphasized the importance of the severability clause,

stating that it was designed to clarify when “coverage would extend to an

additional insured seeking protection from the claim of a co-employee and who

was not himself or herself the claimant’s employer.” Id. at 1376. The

severability clause “comes to [the] rescue” for employees who cause injuries to

                                          -6-
their fellow employees. Id. at 1378. The court emphasized that insurance

companies had inserted the severability clause to “clarify the problem” of injuries

to cross employees, and by adding the clause the person seeking protection is the

“insured” under the policy. Id. And because an insured who is not the employer

of the injured party is not “obligated to protect employees through either

compensation contribution or private insurance,” the court held that coverage

should not be denied. Id.

      The Wyoming Supreme Court’s holding is clear: when a fellow-employee

(or cross-employee) exclusion is combined with a severability clause, coverage

will not be precluded when the insured in question is a fellow employee seeking

policy protection. Peerless argues that Barnette is of “limited use in this case”

because the Wyoming Supreme Court seemed to confuse the fellow-employee

exclusion, which addresses injuries to one employee caused by another employee,

with an “employee of the insured” exclusion, which addresses injuries to an

employee caused by an employer. Aplt. Reply Br. at 8–9. But Barnette is on-

point Wyoming Supreme Court precedent, and controls the outcome here.

      This is not the first time we have recognized the binding nature of Barnette.

In State Farm v. Dyer, 19 F.3d 514, 522 (10th Cir. 1994), we held that a fellow-

employee exclusion applied only because the policy did not contain a severability

clause. “We agree with the trial court’s conclusion that the State Farm liability

insurance policy does not contain a severability clause and for that reason,

                                         -7-
Barnette is not controlling.” Similarly, in an unpublished opinion, we relied on

Barnette in declining to apply a fellow-employee exclusion where the person

seeking coverage was not the employer of the injured employee. See Rodabaugh

v. Continental Cas. Co., 1995 WL 471082 (10th Cir. 1995). In that case, after a

fatal car accident, the estate of the dead employee sued the other employees for

causing the accident. Because the accident happened during the course of

employment, the defendants sought coverage under their employer’s insurance

and the insurance company claimed the fellow-employee exclusion precluded

coverage. As in Peerless’s case, the insurance policy had a severability clause,

and separate exclusions for fellow-employee injuries and “employee of the

insured” injuries. Nonetheless, we noted that the exclusion in Barnette contained

nearly identical wording, and therefore held that we were bound by the Wyoming

Supreme Court’s decision applying coverage in such cases. Id. at *4. 3

      3
         We recognize that other courts have questioned the logic of Barnette
and—when in a position to do so—come to a different conclusion. For example,
the Missouri Supreme Court criticized the Barnette decision, citing the opinion’s
apparent confusion between fellow-employee exclusions and “employee of the
insured” exclusions. See Baker v. DePew, 860 S.W.2d 318, 322 (Mo. 1993) (“In
Barnette, the Wyoming court was actually considering a fellow employee
exclusion clause (which they referred to as a ‘cross-employee’ exclusion clause).
However, virtually all of the cases that the Wyoming court discussed and the
treatises relied upon involved employee exclusion clauses. The Wyoming court
apparently either never distinguished between the two or assumed that both
clauses have the same purpose and therefore should be applied in the same
manner to reach the same result.”). The Missouri Supreme Court correctly noted
that nearly all of the cases cited by the Barnette majority dealt with exclusions for
injuries caused by an employer rather than a fellow employee. Id.; cf. Barnette,
                                                                        (continued...)

                                         -8-
      Here, too, we find Barnette controls and affirm the district court’s

conclusion that the fellow-employee exclusion does not preclude coverage. 4

            2. The Exclusion’s Language

      The policy also excludes coverage for injuries arising from the employees’

employment. Peerless contends the exclusion applies here.

      3
       (...continued)
653 P.2d at 1380–83 (citing multiple cases that involved “employee of the insured
exclusions” rather than “fellow-employee exclusions” to support its holding).

       We agree that the Barnette majority’s holding seems to rest on inapplicable
case law insofar as it relies on decisions about “employee of the insured”
exclusions. We also have difficulty understanding how a clause that explicitly
refers to “bodily injury to any fellow employee,” id. at 1377 (emphasis added),
does not cover a situation where one employee injures another. And the parties’
inclusion of the clause in the policy seems to show some intent to preclude
coverage in these situations. But we are not in a position to disregard the ruling.
Sitting in diversity we must defer to Wyoming law as determined by its highest
court.
      4
         Peerless argues that Cloud Peak has waived any argument regarding
Barnette and the severability clause because they did not file a cross-appeal from
the district court’s order. That order did not address whether Barnette controlled
the outcome. Rather, the district court based its holding on its finding that the
passengers’ injuries did not arise out of and in the course of their employment, as
required by the exclusion. So the district court did not find against the appellees
on the Barnette issue, as Peerless argues, but instead cabined its analysis to only
one justification. “[W]e may affirm on any basis supported by the record, even if
it requires ruling on arguments not reached by the district court or even presented
to us on appeal.” Richison v. Ernest Grp., Inc., 634 F.3d 1123, 1130 (10th Cir.
2011); see also Wyoming v. U.S. Dep’t of Agric., 661 F.3d 1209, 1254 n.33 (10th
Cir. 2011) (“[A]n appellee is generally permitted to ‘defend the judgment won
below on any ground supported by the record without filing a cross appeal.’”).
The appellees have not waived their Barnette argument and we address it on
appeal.

                                        -9-
      The policy generally excludes coverage for injuries that “aris[e] out of and

in the course of the fellow ‘employee’s’ employment or while performing duties

related to the conduct of [Cloud Peak’s] business.” Aplt. App. Vol. I at 53–54.

The district court held that the injuries did not “arise out of” the injured

employees’ employment, and therefore the exclusion did not apply. Peerless

argues the district court erred when it failed to import the “employer conveyance

rule” from the Wyoming worker’s compensation statute into the insurance policy,

which covers injuries occurring during travel to or from the place of employment

while riding in an employer-owned conveyance. See Wyo. Stat. § 27-14-

102(a)(xi)(D).

      Applying the employee conveyance rule, Peerless contends, would place

the injuries within the “course of employment” and preclude coverage under the

exclusion. We agree with the district court that established principles of

Wyoming law call for a straightforward interpretation of the policy’s language.

This interpretation should look only to the clause’s language and plain meaning,

and not rules or definitions taken from other sources, such as the worker’s

compensation statute. See Shaffer v. WINhealth Partners, 261 P.3d 708, 711

(Wyo. 2011). Had the contracting parties—Peerless and Cloud Peak—wished to

include the limitation contained in the employer conveyance rule in the policy

they easily could have. But they did not, and we will not alter the unambiguous

contractual terms they actually chose.

                                          -10-
      Peerless argues that even without the employer conveyance rule the

exclusion applies because the injured employees were acting within the course of

their employment at the time the accident occurred. After analyzing the

undisputed facts, and giving the exclusion its plain meaning, we agree with the

district court that the passengers’ injuries did not “aris[e] out of and in the course

of” their employment.

      First, the employees were neither on the clock nor performing any duties

related to their employment at the time of the accident. In addition, the

employees were not required to travel in the van as part of their employment at

the Holiday Inn. Rather, the hotel gratuitously offered the shuttle rides for the

convenience of its employees. This fact distinguishes the case from some of

those cited by Peerless in support of its argument. For example, Peerless cites to

Garrett v. New Hampshire Insurance Co., 860 F. Supp. 2d 1203, 1212 (D. Or.

2012), where the court found a logging employee’s injury while riding in his

employer’s shuttle arose out of and in the course of his employment. But in that

case the employee “understood that if he wanted to stay employed with [the

employer], he had to ride in the company truck” due to the dangerous nature of

the logging roads. Id. at 1211. In other words, the job required transportation in

the employer’s conveyance. By contrast, the passengers here rode in the Holiday

Inn shuttle for their own convenience because they did not own vehicles. Nothing

about their jobs dictated how they traveled to or from work.

                                          -11-
      Thus, we agree with the district court’s conclusion that “[t]here is no nexus

between their injuries and their courses of employment.” Aplt. App. Vol. I at 61.

We stress that even were we to agree with Peerless’s argument here, however, we

would still hold that the Barnette decision forecloses a finding that the exclusion

applies.

      C. Expected or Intended Bodily Injury Exclusion

      Peerless next argues that coverage is precluded by the “Expected or

Intended Bodily Injury” exclusion in both policies. As noted, the state trial court

ruled that the employees must prove wanton and willful misconduct to recover

against the driver under Wyoming law. Peerless claims that if the employees

make that showing—and recover at trial—then they will have necessarily proven

that the driver expected or intended the passengers’ injuries, triggering the

exclusion. The district court disagreed, finding the two standards are not

equivalent under state law. We agree with the district court that the employees

can succeed at trial without showing the driver “expected or intended” their

injuries, so the exclusion does not apply.

      The Wyoming Supreme Court has defined willful and wanton misconduct

in several cases. In Danculovich v. Brown, 593 P.2d 187, 191, 193 (Wyo. 1979),

the court said willful and wanton misconduct does not require “intent to cause

injury or damage,” but rather the “intent to do an act, or an intent to not do an act,

in reckless disregard of the consequences, and under such circumstances and

                                         -12-
conditions that a reasonable man would know, or have reason to know, that such

conduct would, in a high degree of probability, result in substantial harm to

another.” In another case, the court stated willful and wanton misconduct

requires “a state of mind approaching intent to do harm.” Formisano v. Gaston,

246 P.3d 286, 291 (Wyo. 2011). Peerless would prefer we adopt the second

definition, which more closely tracks the exclusion’s language requiring intent to

cause the injury. But as the district court recognized, a state of mind

“approaching” intent to do harm is not the same.

      Construing the policy in favor of the insured—the driver in this

instance—and noting the intent standard adopted by the Wyoming Supreme Court,

we conclude the exclusion does not equate to willful and wanton misconduct.

Shaffer, 261 P.3d at 711. First, the exclusion requires intent or an expectation of

injury viewed “from the standpoint of the ‘insured.’” By contrast, in analyzing

whether conduct is willful and wanton, the Wyoming Supreme Court looks to

what a “reasonable man” knows or should know. Danculovich, 593 P.2d at 193.

In other words, one analysis requires a subjective test while the other uses an

objective one. The jury in the passengers’ suit could conclude that a reasonable

man should have known that driving while impaired could lead to injury without

also concluding that the driver himself intended or expected such a result.

      Second, willful and wanton misconduct requires intent only to do the act

which causes the injury. The actor need not intend to cause the injury. See id.

                                         -13-
The exclusion, however, requires the injury itself be intended or expected.

Determining whether this requirement is satisfied calls for a different analysis

than the willful or wanton misconduct question. So, again, the jury could

conclude that the driver intended to commit the act that caused the

injury—driving under the influence—without also intending to cause the injury

itself.

          In sum, we reject Peerless’s argument that the expected or intended injury

exclusion necessarily applies if the injured employees succeed at trial.

          D. Rule 59(e) Motion

          After the district court denied Peerless’s motion for summary judgment and

issued a declaratory judgment in favor of the appellees, Peerless filed a Rule

59(e) motion to alter or amend the judgment. As relevant here, the district court

denied the motion. Peerless argues the district court abused its discretion in

denying the motion because it failed to determine how the Wyoming Supreme

Court would have decided the case. Peerless is correct that when faced with

unsettled issues of state law, federal courts should predict how the state’s highest

court would interpret the issue. 5 See Cornhusker Cas. Co. v. Skaj, 786 F.3d 842,

852 (10th Cir. 2015). In making this prediction, the court is “free to consider all

resources available, including decisions of [Wyoming] courts, other state courts

          5
         Given the on-point holding in Barnette, we doubt that the applicability of
the fellow-employee exclusion to Peerless’s policy could be called an “unsettled
issue” of Wyoming law.

                                           -14-
and federal courts, in addition to the general weight and trend of authority.”

FDIC v. Schuchmann, 235 F.3d 1217, 1225 (10th Cir. 2000).

      As we read the district court’s thorough order, it did just that. The district

court discussed precedent from this court, the Wyoming Supreme Court, and other

federal district courts. It extensively discussed Wyoming law as interpreted by

the Wyoming Supreme Court in deciding the two exclusions did not apply. The

court also cited and applied the Wyoming Supreme Court’s principles of contract

interpretation. Furthermore, as discussed above, we agree with the district court’s

legal conclusions and believe the Wyoming Supreme Court would agree as well.

The district court did not abuse its discretion in denying the Rule 59(e) motion.

                                III. Conclusion

      We AFFIRM the district court’s denial of Peerless’s motion for summary

judgment and its issuance of declaratory judgment in favor of the appellees.

                                                     ENTERED FOR THE COURT

                                                     Timothy M. Tymkovich
                                                     Chief Judge

                                         -15-