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Encompass Indemnity Co. v. Marquardt

United States District Court, W.D. Kentucky, Louisville Division

October 27, 2017

JAMES MARQUARDT, et al., Defendants.



         Plaintiff Encompass Indemnity Company seeks a declaratory judgment that it has no duty to provide additional payment to Defendants James, Tanya, and Katherine Marquardt under an insurance policy James and Tanya Marquardt purchased from Encompass. (Docket No. 1) Defendants allege that Encompass failed to pay them the full benefits of the policy, thereby breaching the contract. (D.N. 7) Encompass has moved for partial summary judgment on the issue of excess underinsured motorist benefits. (D.N. 16) Because the policy, when read as a whole, indicates that the Marquardts did not contract for such coverage, Encompass is entitled to judgment as a matter of law, and the Court will accordingly grant its motion for partial summary judgment.

         I. Background

         This action arises out of an insurance policy issued by Encompass to James and Tanya Marquardt. (D.N. 16-1, PageID # 278) The policy provides, among other coverages, “Underinsured Motorist Coverage” with a per-person/per-accident limit of $250, 000/$500, 000. (D.N. 16-8, PageID # 325) The policy also contains a “Personal Umbrella Coverage Endorsement, ” which Defendants argue includes excess underinsured motorist benefits beyond the “Underinsured Motorist Coverage” limits. (D.N. 16-7)

         On November 25, 2015, while walking, Tanya Marquardt and her daughter, Katherine Marquardt, were struck by an automobile and injured. (D.N. 7, PageID # 242) At the time of the accident, Defendants were covered by the Encompass policy described above. Subsequently, the insurance company that covered the automobile's driver tendered $1, 500, 000 to Defendants, which was the maximum amount the driver's insurance policy provided for such an accident. (D.N. 16-1, PageID # 279) This amount did not wholly cover the injuries Defendants sustained in the accident. (Id.) On August 4, 2016, Encompass tendered $250, 000 in underinsured motorist benefits to Defendants for Tanya Marquardt's claim related to the accident, pursuant to the per-person limit under the policy's “Underinsured Motorist Coverage.” (Id., PageID # 280) Encompass also related its position that, under the plain language of the policy, there was no excess underinsured motorist benefit under the Umbrella Coverage. Defendants disagreed, claiming that the Umbrella Coverage provides excess underinsured motorist benefits. (D.N. 1, PageID # 3-4) Encompass thus filed this action seeking declaratory judgment that it has no duty to provide excess underinsured motorist benefits under the Umbrella Coverage. (Id.) Encompass has moved for partial summary judgment as to its claim. (D.N. 16)

         II. Legal Standard

         In order to grant a motion for summary judgment, the Court must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Here, the parties' sole disagreement concerns the interpretation of the policy at issue. Thus, there is no genuine dispute of material fact. See Equitania Ins. Co. v. Slone & Garrett, P.S.C., 191 S.W.3d 552, 556 (Ky. 2006) (“It is well settled that the interpretation of contracts is an issue of law for the court to decide.”). Accordingly, the Court need only decide if Encompass is entitled to judgment as a matter of law. As the moving party, Encompass bears the initial burden of convincing the Court that it is so entitled. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

         Because this is a diversity action, Kentucky law governs the substantive issues. Erie v. Tompkins, 304 U.S. 64 (1938); see also Associated Indus. of Kentucky, Inc. v. U.S. Liability Ins. Grp., 531 F.3d 462, 465 (6th Cir. 2008) (applying Kentucky law in a diversity action concerning the interpretation of an insurance contract). “When no ambiguity exists in the contract, [Kentucky courts] look only as far as the four corners of the document to determine the parties' intentions.” 3D Enter. Contracting Corp. v. Louisville & Jefferson Cty. Metro. Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005). “Terms in an insurance policy are to be given their plain meanings, and courts should not make a different insurance contract for the parties by enlarging the risk contrary to the natural and obvious meaning of the existing contract.” Pierce v. W. Am. Ins. Co., 655 S.W.2d 34, 36 (Ky. Ct. App. 1983). Furthermore, when construing a portion of a contract, “[t]he whole of the contract should be read.” Speedway Superamerica, LLC v. Erwin, 250 S.W.3d 339, 343 (Ky. Ct. App. 2008).

         Defendants argue that the “reasonable expectations doctrine” applies to this case. (D.N. 17, PageID # 349-50) The doctrine “is based on the premise that policy language will be construed as laymen would understand it and applies only to policies with ambiguous terms.” True v. Raines, 99 S.W.3d 439, 443 (Ky. 2003) (internal quotations omitted). “[W]hen such an ambiguity exists, the ambiguous terms should be interpreted in favor of the insured's reasonable expectations.” Id. (internal quotations omitted). Additionally, if “from the language, there is doubt or uncertainty as to its meaning, and it is susceptible to two interpretations, one favorable to the insured and the other favorable to the insurer, the former will be adopted.” St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 227 (Ky. 1994) (emphasis added).

         Yet as even Defendants note, strict construction against the insurer cannot overcome “plain, clear language resulting in strained or forced construction.” Kemper Nat'l Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 873 (Ky. 2002). Moreover, “the mere fact that a party attempts to muddy the water and create some question of interpretation does not necessarily create an ambiguity. Only actual ambiguities, not fanciful ones, will trigger application of the doctrine.” True, 99 S.W.3d at 443 (alterations and citations omitted); see also St. Paul Fire. & Marine Ins. Co., 870 S.W.2d at 226 (“Neither should a nonexistent ambiguity be utilized to resolve a policy against the company.”). As detailed below, many of the “ambiguities” Defendants cite are strained readings of the policy, when the policy is read as a whole. Accordingly, the reasonable expectations doctrine is inapplicable and there is no need to construe the policy against Encompass.

         III. Application

         There are three portions of the policy at issue: (1) the “Underinsured Motorist Coverage, ” the “Umbrella Coverage Endorsement, ” and (3) the “Coverage Summary” issued to Defendants on or about September 11, 2015. (D.N. 16-1, PageID # 281)

         In support of its motion, Encompass cites the Umbrella Coverage Endorsement's ...

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