John M. Ferguson v. Coregis Insurance Company

What happens when an insurance company includes a policy
endorsement meant to reduce the dollar limits to which it
will respond for its policyholder's liability, but does so by reference
to a non-existent standard? What should happen: the
endorsement is ineffective to reduce those limits.

Plaintiff-Appellant, John M. Ferguson, filed this action on
behalf of his son, Richard F. McLeod, in Idaho state court
seeking a declaratory judgment as to the "general liability
limit" of the insurance policy ("the Policy") sold to the Coeur
d'Alene School District by the Defendant-Appellee, Coregis
Insurance Company. Coregis removed the action to federal
district court, invoking that court's diversity jurisdiction pursuant
to 28 U.S.C. § 1332. Coregis then filed a motion for
summary judgment; Ferguson responded and filed a crossmotion
for summary judgment. The district court denied Ferguson's
motion, but granted Coregis's.

We review the district court's rulings on summary judgment
de novo. Summers v. A. Teichert & Son, Inc., 127 F.3d
1150, 1152 (9th Cir. 1997). We reverse both the district
court's grant of summary judgment in favor of Coregis, and
its denial of Ferguson's cross-motion for summary judgment
because the judgment determined the "general liability limit"
FERGUSON v. COREGIS INSURANCE CO. 6265
by means of a non-existent standard. A judgment cannot be
entered to enforce a contract's term when that term does not
exist.

Because this case arises under diversity jurisdiction, we
must apply the relevant state's substantive law. Allstate Ins.
Co. v. Hughes, 358 F.3d 1089, 1094 (9th Cir. 2004). "Idaho
has adopted the Restatement rule that the law governing interpretation
of a contract is the local law of the state that has ‘the
most significant relationship to the transaction and the parties.'

" Indus. Indem. Ins. Co. v. United States, 757 F.2d 982,
985 (9th Cir. 1985). The Policy was issued in Idaho, the plaintiff
is an Idaho citizen, the insured school is located in Idaho,
and all relevant events took place in Idaho. Further, both parties
concede Idaho law applies. Accordingly, Idaho law
applies. See id. at 985-86.

The sole issue in this case is the policy's limits for "general
liability" coverage granted to the school. The plaintiff asserts
the liability limits are $2,000,000; the insurance company
asserts they are $500,000. The district court found the contract
was unambiguous; the limit was $500,000 because
$500,000 is the only dollar amount referred to in Idaho Code
§ 6-924.1

The policy provides in several places that the "general liability
limit" is $2,000,000 per occurrence. The policy also has
the following endorsement:

Idaho Tort Claim Act Endorsement
This endorsement modifies insurance provided under
the following:

Idaho School Package Policy
Section II, General Liability, Wrongful Acts and
Premises Medical Payments Coverage; D. Conditions;

8. Limits of Liability, a. is deleted in its
entirety and replaced by the following:[2]
8. a. The limit of liability per the amount indicated
by the Idaho Code § 6-924 as applicable to
each occurrence or each wrongful act, is the limit of
the Company's liability for all damages sustained as
the result of any one occurrence or wrongful act;
unless § 6-924 is ruled invalid thereby reverting to
the limit of liability as stated in the Declarations. The
amount determined by a court of competent jurisdiction
for liable action taken outside the state of Idaho
renders the liability limitation included in the Idaho
Code § 6-924 inapplicable and the limit of liability
as stated in the Declarations then applies.[3] All injury
or damage arising out of the continuation or repetition
of substantially the same condition or the same
proximate cause shall be considered as arising out of
one occurrence or one wrongful act.

Section 6-924, referenced in the endorsement, provides
as follows:

Policy Limits - Minimum Requirements

Every policy or contract of insurance or comprehensive
liability plan of a governmental entity as permitted
under the provisions of this chapter shall provide
that the insurance carrier pay on behalf of the
insured governmental entity or its employee to a
limit of not less than five hundred thousand dollars
($500,000) for bodily or personal injury, death, or
property damage or loss as the result of any one (1)
occurrence or accident, regardless of the number of
persons injured or the number of claimants.
Idaho Code § 6-924 (emphases added).

[1] Under Idaho law, when interpreting an insurance contract,
we begin by interpreting the plain language of the insurance
policy as a whole to determine whether there is an
ambiguity; such interpretation is a question of law appellate
courts review de novo. Clark v. Prudential Prop. & Cas. Ins.
Co., 66 P.3d 242, 244-45 (Idaho 2003). If there is no ambiguity,
the plain meaning governs. Id. at 245.

Where the policy is "reasonably subject to differing interpretations,
the language is ambiguous and its meaning is a
question of fact." Id. To determine the meaning of an ambiguous
contract, we "must determine what a reasonable person
would have understood the language to mean and the words
used must be construed given their ordinary meaning." Id.

[2] "[B]ecause insurance policies are contracts of adhesion,
. . . ambiguities must be construed most strongly against the
insurer." Id. "The burden is on the insurer to use clear and
precise language if it wishes to restrict the scope of coverage
and exclusions not stated with specificity will not be presumed
or inferred." Id.

[3] We agree with the district court that the Policy is unambiguous,
but we disagree on the outcome. The endorsement
states the Company's liability is limited to "the limit of liability per the amount indicated by the Idaho Code § 6-924." The
problem with this language is that there is no such "limit of
liability" in § 6-924. Section 6-924 states a required per
occurrence minimum amount of insurance a governmental
entity must purchase. Section 6-924 simply does not set a
maximum limit of liability. It sets a minimum dollar amount
of coverage.

[4] If the endorsement referred only to "the amount indicated
by the Idaho Code § 6-924," then we would agree with
the district court, but that is not the language Coregis used.
Instead the endorsement refers to a supposed "limit of liability."

No such "limit of liability" exists in § 6-924.4 This reference
to a non-existent standard renders the endorsement
uncertain and unenforceable. Under Idaho law, "[t]o be
enforceable, a contract must be complete, definite and certain
in all of its material terms, or contain provisions which are
capable in themselves of being reduced to certainty." Dante
v. Golas, 823 P.2d 183, 186 (Idaho Ct. App. 1992) (holding
that a lease option was unenforceable because "its essential
terms were unstated and uncertain") (citing Giacobbi Square
v. PEK Corp., 670 P.2d 51, 53 (1983)); see also Black Canyon
Racquetball Club, Inc. v. Idaho First Nat'l Bank, N.A.,
804 P.2d 900, 902 (Idaho 1991) (holding that Idaho has a
"well-established rule that the terms of a contract must be sufficiently
definite and certain in order to be enforceable" and
where testimony conflicted about the amount of an oral contract
for a loan, the terms were obviously not certain); Matheson
v. Harris, 572 P.2d 861, 863 (Idaho 1977) (noting that the
Idaho Supreme Court had previously held a contract was
unenforceable where it referred to a non-existent mortgage);

Irwin Rogers Ins. Agency, Inc. v. Murphy, 833 P.2d 128, 133
(Idaho Ct. App. 1992) (holding that a contract term that
allowed the insureds to pay their accounts "as funds became
available" was a standard that was "too indefinite and uncertain
to constitute an enforceable contract right").

[5] Because § 6-924 mandates a minimum amount of coverage,
not a maximum limit on liability, the Policy endorsement
provision which refers to a "limit of liability" refers to
a non-existent standard. Section 6-924 simply does not contain
any limit of liability any more than would a contract to
price season tickets "per the amount indicated" for Los Angeles's
professional football team. Under familiar rules of contract
interpretation, a contract term with no meaning cannot be
enforced.

Even if the Policy were ambiguous, Ferguson would still
prevail. If Coregis intended to refer not to § 6-924 but instead
to § 6-926, a section which does establish liability limits, the
liability limit would be $2,000,000 because that is what the
school district purchased. Unlike § 6-924, which does not
have a limitation of liability, § 6-926 limits a governmental
entity's liability to $500,000, "unless the governmental entity
has purchased applicable, valid, collectible liability insurance
coverage in excess of said limit, in which event the controlling
limit shall be the remaining available proceeds of such
insurance." The latter phrase would control because the
school district contracted for $2,000,000 in coverage, not
$500,000. Under Idaho law, we must construe ambiguities in
the contract against Coregis because it did not use "clear and
precise language . . . to restrict the scope of coverage." Clark,
66 P.3d at 245.

* * *

http://www.ca9.uscourts.gov/ca9/newopinions.nsf/C05CC6AEA12D32E68825745D005820E7/$file/0635867.pdf?openelement

Accordingly, we reverse the judgment of the district court,
and render judgment in Ferguson’s favor. The limits of the
Policy are $2,000,000.00.
REVERSED.

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