       RECOMMENDED FOR FULL-TEXT PUBLICATION
            Pursuant to Sixth Circuit Rule 206           2       Motorists Mutual                                No. 02-5577
   ELECTRONIC CITATION: 2004 FED App. 0024P (6th Cir.)           Ins. v. Hammond
               File Name: 04a0024p.06
                                                         Before: COLE and CLAY, Circuit Judges; QUIST, District
                                                                              Judge.*
UNITED STATES COURT OF APPEALS
                                                                                _________________
              FOR THE SIXTH CIRCUIT
                _________________                                                    COUNSEL

MOTORISTS MUTUAL               X                         ARGUED:          Henry K. Jarrett III, JARRETT &
INSURANCE COMPANY ,             -                        CAMPISANO, Louisville, Kentucky, for Appellant. Kenneth
                                                         Gates Doane, Jr., WARD, TYLER & SCOTT, New Albany,
           Plaintiff-Appellee, -                         Indiana, for Appellee. ON BRIEF: Henry K. Jarrett III,
                                -     No. 02-5577
                                -                        JARRETT & CAMPISANO, Louisville, Kentucky, J.
          v.                     >                       Leonard Rosenberg, Louisville, Kentucky, for Appellant.
                                ,                        Kenneth Gates Doane, Jr., WARD, TYLER & SCOTT, New
                                -
VAKISHA L. HAMMOND , as                                  Albany, Indiana, for Appellee.
                                -
Mother and Legal Guardian of -                                                  _________________
VANIQUA HAMMOND , a             -
minor,                          -                                                   OPINION
        Defendant-Appellant. -                                                  _________________
                                -
                                -                          CLAY, Circuit Judge. In this diversity action premised on
                                -                        Kentucky law, Defendant Vakisha Hammond appeals the
                                -                        November 26, 2001, order of the district court granting
                               N                         summary judgment in favor of Plaintiff Motorists Mutual
      Appeal from the United States District Court       Insurance Company (“Motorists Mutual”), declaring that she,
   for the Western District of Kentucky at Louisville.   as mother and legal guardian of Vaniqua Hammond, is not
   No. 99-00803—Thomas B. Russell, District Judge.       entitled to recover any amount from Motorists Mutual
                                                         pursuant to its automobile insurance policy for Albin Used
              Argued: December 12, 2003                  Cars, Inc (“Albin”). She also appeals the district court’s April
                                                         5, 2002, denial of her motion for reconsideration of the
         Decided and Filed: January 15, 2004             November 26, 2001, order. For the reasons that follow, this
                                                         Court finds that Albin owned the car that Vaniqua Hammond
                                                         was occupying at the time of the accident, and, therefore, she


                                                             *
                                                              The Honorable Gordon J. Quist, United States District Judge for the
                                                         W estern District of Michigan, sitting by designation.

                           1
No. 02-5577                          Motorists Mutual      3    4     Motorists Mutual                              No. 02-5577
                                     Ins. v. Hammond                  Ins. v. Hammond

was an insured pursuant to the Motorists Mutual policy and      Hammond, would not recover any amount from Motorists
was entitled to underinsured motorist benefits thereunder.      Mutual under its insurance policy with Albin. In response to
Accordingly, this Court REVERSES the district court’s           the Hammonds’ motion for reconsideration, on April 5, 2002,
grant of summary judgment and denial of reconsideration and     the district court reaffirmed its previous grant of summary
VACATES the related declaratory judgment.                       judgment. Vakisha Hammond, on behalf of Vaniqua
                                                                Hammond, noticed her appeal on April 25, 2002.
                             I.
                                                                B. Substantive Facts
A. Procedural History
                                                                  The following undisputed facts are taken from the district
  On September 16, 1998, a vehicle driven by Patricia           court’s memorandum opinion and order of November 26,
Hastings struck a 1988 Mercury being operated by Vakisha        2001, as well as from the parties’ joint stipulation of the facts.
Hammond. Hammond’s daughter, Vaniqua Hammond, and               For ease of reference, they are set out in bullet-point format:
another individual were passengers in the Mercury at the time
of the accident. Vaniqua allegedly suffered “catastrophic         • On August 12, 1998, Zina Merkin traded in her car, a
injuries.” Vaniqua Hammond eventually settled with Ms.          Mercury, to Swope Auto Center (“Swope”). Merkin executed
Hastings’ insurer for $50,000, representing Hastings’ policy    a request for a duplicate title, a power of attorney to Swope
limit. Vakisha Hammond had purchased the Mercury from           and an odometer statement. Swope prepared a Notice to
Albin, which is insured by Motorists Mutual. Albin had          County Clerk of Vehicle Acquisition form, but did not file it
purchased the Mercury at auction from Swope Auto Center,        with the County Clerk.
which is insured by Motorists Insurance Company. Because
Vakisha Hammond had no automobile insurance at the time,          • On August 18, 1998, Swope auctioned the Mercury, and
she, on behalf of her daughter, sought underinsured motorist    Albin obtained possession.
benefits from Motorists Mutual and Motorist Insurance
Company. Vaniqua Hammond eventually settled her claim             • On August 26, 1998, Swope requested a duplicate title on
against Motorist Insurance Company (Swope’s insurer).           the Mercury, which Swope received prior to September 3,
                                                                1998.
   On December 17, 1999, Motorists Mutual (Albin’s insurer),
an Ohio corporation, filed a complaint for declaratory            • On August 27, 1998, Albin still had no title documents
judgment in the district court against the Hammonds,            from Swope, but nevertheless sold the Mercury to Vakisha
residents of Kentucky. The Hammonds’ suit against               Hammond, who took possession of the car. At the time,
Motorists Mutual, filed in state court, subsequently was        Hammond executed an odometer disclosure statement and a
removed to federal court and consolidated with the district     retail installment contract, financing the purchase price of the
court action where jurisdiction was premised on diversity of    vehicle through Albin. Hammond also executed a Kentucky
citizenship. After reviewing the parties’ cross-motions for     Automobile Dealer Association Form 13, granting Albin
summary judgment, on November 26, 2001, the district court      permission to deliver the necessary title work to the County
entered a declaratory judgment, declaring that Vakisha          Clerk on her behalf.
Hammond, as mother and legal guardian of Vaniqua
No. 02-5577                         Motorists Mutual      5    6    Motorists Mutual                             No. 02-5577
                                    Ins. v. Hammond                 Ins. v. Hammond

  • By September 3, 1998, Swope had all the documents          585 (6th Cir.2002). We also review a district court's
necessary to convey the Mercury to Albin, but did not record   interpretation of an insurance contract de novo. Vencor, Inc.
these documents nor deliver them to Albin.                     v. Standard Life & Accident Ins. Co., 317 F.3d 629, 634 (6th
                                                               Cir.2003) (citing BP Chemicals, Inc. v. First State Ins. Co.,
  • On September 16, 1998, Hammond was driving the             226 F.3d 420, 424 (6th Cir.2000)).
Mercury in which her daughter, Vaniqua Hammond, was a
passenger, when the car was struck by a vehicle driven by                                    III.
Patricia Hastings. Vaniqua Hammond allegedly suffered
“catastrophic injuries” in the accident.                          The central issue in this case is whether Vaniqua
                                                               Hammond, Vakisha Hammond’s daughter, is entitled to
 • On September 17, 1998, Albin paid Swope for the             receive underinsured motorist (“UIM”) benefits pursuant to
Mercury.                                                       Albin’s “garage coverage” automobile insurance policy with
                                                               Motorists Mutual. According to the policy, UIM coverage
  • On September 18, 1998, Swope recorded with the             applies to “covered autos,” meaning cars that Albin “own[s].”
County Clerk the August 12, 1998, documents from Merkin,       (J.A. 147, 151). The policy defines an insured to include
as well as a Notice to County Clerk of Vehicle Acquisition     “[a]nyone … occupying a covered ‘auto’ ….” (J.A. 198.)
form reflecting Albin’s acquisition of the Mercury from        “Occupying” means “in, upon, getting in, on, out or off.”
Swope.                                                         (J.A. 199.) There is no dispute that Vaniqua Hammond was
                                                               in the Mercury at the time of the accident. Thus, if the
   • On October 7, 1998, the Commonwealth of Kentucky          Mercury is a “covered auto” – that is, if Albin owned the
issued title on the Mercury to Hammond.                        Mercury at the time of the Hammonds’ accident, then UIM
                                                               benefits would be payable to Vaniqua Hammond as an
  • On December 7, 1999, Vaniqua Hammond obtained a            “insured” because she would have been occupying a covered
$50,000 settlement from Ms. Hasting’s insurer, which was       auto at the time she was injured.
Hastings’ policy limit.
                                                                 Albin’s garage coverage policy does not define
  • Vakisha Hammond had no automobile insurance, and           “ownership” of an auto. Therefore, the Court must resort to
therefore Vaniqua Hammond sought underinsured motorists        the definition of “ownership” under Kentucky law. At the
benefits from Motorists Mutual, which insures Albin.           outset, it is important to note that the general law of sales
Vaniqua Hammond also sought underinsured motorists             does not apply when determining ownership of a motor
benefits from Motorists Insurance Company, which insures       vehicle for liability insurance purposes. Potts v. Draper, 864
Swope. Vaniqua Hammond settled her claim against               S.W.2d 896, 898 (Ky. 1993). Instead, the Court must look to
Motorists Insurance Company in May 2001.                       Kentucky statutory law on title ownership. Id. (noting that
                                                               the Kentucky legislature had changed “the law of Kentucky
                            II.                                from an equitable title state to a certificate title state”). In
  We review a district court's grant of summary judgment de    determining the “owner” of a vehicle, Ky. Rev. Stat. Ann.
novo. Herman v. Fabri-Centers of Am., Inc., 308 F.3d 580,      § 186A.345 (Banks-Baldwin 2002) dictates that the Court
                                                               utilize the definition of “owner” as set forth in Ky. Rev. Stat.
No. 02-5577                            Motorists Mutual        7    8        Motorists Mutual                                        No. 02-5577
                                       Ins. v. Hammond                       Ins. v. Hammond

Ann. § 186.010(7). Nantz v. Lexington Lincoln Mercury               J.D. Byrider was not an owner because it had not been
Subaru, 947 S.W.2d 36, 37 (Ky. 1997). These are the                 assigned title and received it by the date of Chandler’s
statutory provisions that set out the procedures for                accident. See Nantz, 947 S.W.2d at 37 (“[A]ccording to KRS
transferring vehicle ownership and, in turn, determine when         186A.215, a transfer of title takes place when the seller
an automobile sale has been completed for the purpose of            completes and signs the assignment of title section of the title
insurance coverage. Potts, 864 S.W.2d at 900. Section               certificate and delivers it to the buyer.”); see also Kelly v.
186.010(7) defines “owner” as either (1) a person who holds         McFarland, 243 F. Supp. 2d 715, 718-19 (E.D.Ky. 2001)
legal title to a vehicle or (2) a person who pursuant to a bona     (holding that “the title retained by the dealer must be
fide sale has received physical possession of the vehicle           assigned, and hence fully executed, as prerequisite to
subject to any applicable security interest. Ky. Rev. Stat.         effectuating the transfer of title”). Yet the court in Auto
Ann. § 186.010(7).                                                  Acceptance held:
A. Albin held legal title to the Mercury                                Both the trial court and the Court of Appeals correctly
                                                                        determined that, under Nantz, J.D. Byrider was the owner
  Swope did not transfer title to the Mercury to Albin until            of the Acura for insurance purposes because it retained
September 17 or 18, 1998, a day or two after the accident.              the title to the vehicle.
See Nantz, 947 S.W.2d at 37 (“[A]ccording to [Ky. Stat.
Ann. §] 186A.215, a transfer of title takes place when the          Auto Acceptance, 89 S.W.3d at 401. Since the court
seller completes and signs the assignment of title section of       previously had acknowledged that J.D. Byrider did not
the title certificate and delivers it to the buyer.”).              physically have title at the time of the accident, the only
Nevertheless, the Kentucky Supreme Court’s recent decision          logical interpretation of the court’s holding is that J.D.
in Auto Acceptance Corp. v. T.I.G. Ins. Co., 89 S.W.3d 398          Byrider was the constructive title-holder of the Acura on the
(Ky. 2002), convinces this Court that Albin was an owner at         day of the accident.1
the time of the accident under the first statutory definition of
“owner.”                                                               After holding that J.D. Byrider was the titleholder of the car
                                                                    it had delivered to the purchaser, the court in Auto Acceptance
  In Auto Acceptance, an individual, Wayne Chandler,                went on to hold that J.D. Byrider did not own the Acura for
purchased an Acura Integra from a dealer, J.D. Byrider, Inc.        liability insurance purposes because of Ky. Stat. Ann.
Id. at 400. At the time of the purchase, Chandler presented
J.D. Byrider with proof of insurance for another vehicle;
Chandler’s insurance policy allowed him to add a vehicle to              1
his coverage within 30 days of becoming the vehicle’s owner.               The concept of a dealer holding constructive title to a vehicle is
                                                                    incorporated into the very fabric o f the titling statutes. See Ky. Stat. Ann.
Id. J.D. Byrider then gave Chandler actual possession of the        § 186A.220(1) (providing that a motor vehicle dealer is not required to
Acura, even though it had not yet received a certificate of title   obtain a certificate of title for a car tha t it buys or accep ts in trade, as long
from the previous owner of the vehicle. Id. J.D. Byrider            as it notifies the county clerk of the acquisition within 15 d ays); see also
received the title to the Acura eight days after Chandler was       Hartford Accident & Indem. Co. v. Maddix, 842 S.W .2d 8 71, 8 72 (Ky. Ct.
involved in an accident with the car. Id. Under the court’s         App. 1992) (noting that “a dealer can become the owner of an auto mob ile
                                                                    without actually acquiring title to the automobile”) (emp hasis in original;
previous holding in Nantz, supra, it appeared to follow that        citing Ky. Stat. Ann. § 186A.220.).
No. 02-5577                             Motorists Mutual        9    10    Motorists Mutual                             No. 02-5577
                                        Ins. v. Hammond                    Ins. v. Hammond

§ 186A.220(5), which sets forth “an exception to the general         failed to obtain proof of insurance, as that term is defined by
statutory scheme that makes the title holder the owner of a          Kentucky regulations. See 806 Ky. Admin. Regs. 39:070
vehicle for insurance purposes.” Id. at 401; see also Ky. Stat.      (2002) (listing five different methods of proving motor
Ann. § 186A.220(5) (providing that dealer shall deliver              vehicle insurance). Had Albin complied with § 186A.220(5)
certification of title to purchaser at time of vehicle’s delivery;   (as well as with the requirement in § 186A.220(1) that Albin
alternatively, the dealer may deliver the vehicle to the             notify the county clerk of Hammond’s purchase within 15
purchaser without title, as long as the purchaser consents to        days), Albin would have not have been the Mercury’s owner
have the dealer apply for a registration and title on the            upon delivering it to Hammond. See Ky. Stat. Ann.
purchaser’s behalf: “In so doing, the dealer shall require from      § 186.010(7)(c) (providing that a dealer who delivers a car to
the purchaser proof of insurance … before delivering                 a purchaser pursuant to a bona fide sale “and complies with
possession of the vehicle”). Under this exception, J.D.              the requirements of KRS 186A.220, shall not be deemed the
Byrider was not the owner because it had obtained proof of           owner of that vehicle solely due to an assignment to his
insurance from Chandler and had promised to apply for a              dealership or a certificate of title in the dealership’s name”).
registration and title on Chandler’s behalf before delivering        Since Albin did not comply with these requirements, it
the Acura to him. Auto Acceptance, 89 S.W.3d at 401.                 remained a constructive title-holder of the Mercury.
   The facts herein are identical to the facts in Auto                  Treating a licensed dealer like Albin that holds itself out as
Acceptance with one crucial distinction – the dealer at issue        the true owner of the vehicle with power to convey clear title
in the instant case (Albin) cannot take advantage of the             as a constructive title-holder and charging it with the duty to
exception to the title-holder-as-owner rule. As in Auto              obtain proof of insurance before delivering an automobile to
Acceptance, there were two prior owners of the vehicle at            the purchaser furthers one of the central purposes of
issue in this case (Swope and Albin) and an individual               Kentucky’s titling statute, that of preventing uninsured drivers
purchaser (Hammond). As in Auto Acceptance, the dealer               from taking to the roads. See Auto Acceptance, 89 S.W.3d at
herein (Albin) from whom the individual purchaser                    401 (noting that Kentucky’s registration and titling scheme is
(Hammond) received the vehicle had not yet received the title        designed to fulfill “the important public policy of keeping
from the initial owner (Swope). Accordingly, under Auto              uninsured vehicles off Kentucky highways, roads, and
Acceptance, it follows that Albin was the constructive title         streets”). This approach also is consistent with the Kentucky
owner of the Mercury at the time of the accident, unless Albin       Supreme Court’s announcement that the titling statutes
can invoke the exception set forth in Ky. Stat. Ann.                 require dealers “to obtain insurance coverage for motor
§ 186A.220(5). It cannot.                                            vehicles they sell until they transfer title by executing the
                                                                     appropriate legal documents” and that until the seller has
   Like the dealer in Auto Acceptance, Albin did not assign          taken the statutory steps to properly complete the sale it will
title to Hammond at the time it delivered the Mercury to her,        be considered the owner for purposes of liability insurance.
and instead sought Hammond’s consent to deliver the title            Potts, 864 S.W.2d at 900. Because Albin owned the Mercury
documents to the county clerk on her behalf, thereby                 at the time of the Hammonds’ accident, Vaniqua Hammond
triggering the requirement that Albin withhold delivery of the       was a covered “insured” under the Motorists Mutual
Mercury to Hammond until she provided Albin with proof of            underinsured motorists policy.
insurance. Id. § 186A.220(5). It is undisputed that Albin
No. 02-5577                            Motorists Mutual       11    12   Motorists Mutual                            No. 02-5577
                                       Ins. v. Hammond                   Ins. v. Hammond

B. The Hammonds were permissive users of Albin’s                    statutes clearly makes him an owner and [the individual
   Mercury                                                          purchaser] a permissive user.”).
   Albin also was an “owner” of the Mercury at the time of the         The district court below acknowledged that Albin’s and
Hammonds’ accident pursuant to the second definition under          Swope’s noncompliance with their respective statutory duties
Ky. Rev. Stat. Ann. § 186.010(7)(a) – “a person who pursuant        “would quite possibly render both owners of the vehicle for
to a bona fide sale has received physical possession of the         liability insurance purposes.” (J.A. 26.) Nevertheless, relying
vehicle subject to any applicable security interest.” Albin was     on the Kentucky Supreme Court’s decision in Progressive N.
a bona fide purchaser of the Mercury from Swope. Albin also         Ins. Co. v. Corder, 15 S.W.3d 381 (Ky. 2000), the court
had received physical possession of the Mercury prior to            denied UIM coverage based on its view that public policy
delivering it to Hammond. Although Motorists Mutual                 precludes a recovery in excess of the mandatory minimum
argues that Albin was not an owner under the second                 amount of coverage (a minimum which, in the court’s view,
definition because it was not in physical possession of the car     excludes UIM coverage) “where a party would not be the
at the time of the accident, the definition does not explicitly     vehicle owner under Kentucky’s titling statutes but is deemed
require an owner to be in present possession, only that the         an owner for liability insurance purposes.” (J.A. 27.) The
owner “has received” physical possession at some point in           court further opined that “where true ownership overlaps with
time. The definition’s use of the present perfect tense “has        ownership for liability insurance purposes, recovery is based
described” makes sense in the context of how dealers do             upon actual ownership without having to resort to … public
business. For example, a dealer does not cease to own a car         policy.” Id. The court then held that Albin was not the actual
on its lot merely because it permits a customer to take the car     owner because Swope had not assigned it title by the time of
for a test drive.                                                   the accident. (J.A. 28.) Consequently, any insurance
                                                                    coverage for Hammond would be limited to mandatory
   In this case, Albin had a statutory duty not to relinquish the   minimum coverage. The court denied Vaniqua Hammond’s
Mercury, which it owned by virtue of purchasing and                 claim for UIM coverage because, in the court’s view, the
receiving it from Swope, without first obtaining proof of           coverage sought was “not compulsory liability insurance, but
insurance from Hammond. By the same token, Hammond,                 optional UIM insurance.” Id. Since she had already recovered
who had no insurance, had no legal right under the titling          from the tortfeasor’s insurance carrier for her tort damages,
statutes to take possession of the Mercury from Albin.              she was not entitled to UIM benefits. Id.
Therefore, Albin permitted Hammond to leave the lot with its
car, even assuming that Hammond had an ownership interest             The district court’s reasoning was flawed in several
in the car by virtue of the law of sales. Treating Hammond as       respects. First, the Auto Acceptance decision clarified that
a permissive user of Albin’s car under these circumstances          Albin was an “owner” of the Mercury as that term is defined
serves “the important public policy of keeping uninsured            under the titling statutes. Albin also was an owner by virtue
vehicles off Kentucky highways, roads, and streets.” Auto           of having received possession of the Mercury pursuant to a
Acceptance, 89 S.W.3d at 401. See also Rogers v. Wheeler,           bona fide sale and then permitting Hammond to use the car.
864 S.W.2d 892, 894 (Ky. 1993) (“The failure of [the dealer]        Accordingly, the district court’s public policy concerns must
to comply with the licensing, registration and insurance            be subordinated to the clear mandate of the statutory
                                                                    language.
No. 02-5577                            Motorists Mutual      13    14   Motorists Mutual                            No. 02-5577
                                       Ins. v. Hammond                  Ins. v. Hammond

   Second, the Court disagrees with the district court’s           Hammond under its garage coverage policy. Since Vaniqua
perception of Kentucky public policy.                 Although     Hammond was occupying the vehicle that Albin owned at the
acknowledging that a dealer can become the owner of an             time of the accident, she was an insured who was
automobile without actually acquiring title, the district court    contractually entitled to UIM benefits under the plain terms
found that Swope’s noncompliance with the titling statute          of the policy.
rendered it the owner of the Mercury, and, therefore, Albin’s
transfer of the car to Hammond was “irrelevant.” (J.A. 28.)                                     IV.
This Court strongly disagrees. Regardless of Swope’s
statutory duties, Albin had an independent duty to Hammond            To summarize, had Swope delivered clear title to Albin at
and the public in connection with the transaction, namely, the     the time Albin took possession of the Mercury and/or notified
duty to obtain proof of insurance from Hammond before              the county clerk of the transfer to Albin within 15 days, there
delivering the car to her. By failing to do so, Albin permitted    is no question that ownership would have passed to Albin.
an uninsured driver to take to the road. Accordingly, public       Instead, the actual title remained with Swope. Albin
policy requires that Albin bear the social costs for its non-      knowingly perpetuated Swope’s statutory violations by failing
compliance, in the form of insuring the risk that it unlawfully    to pass clear title to Hammond at the time of delivery and
imposed on Kentucky drivers and passengers. Motorists              committed an independent violation by failing to obtain proof
Mutual counters that this case really involves Albin’s alleged     of insurance before delivery. Under these circumstances,
duty to protect uninsured drivers like Hammond from their          Albin was a constructive titleholder, and therefore an owner
own failure to comply with the law prohibiting driving             of the Mercury at the time of the Hammonds’ accident.
without insurance. The injured party in this case, however,        Alternatively, Albin was an owner of the car under the second
was not the uninsured driver, but the driver’s daughter, who       statutory definition because it had purchased the car from
just as easily could have had no familial relationship with the    Swope, took possession of it and then permitted Hammond to
driver.                                                            use the car even though she was legally prohibited from doing
                                                                   so. Because Albin owned the car at the time of the accident,
   Third, the district court incorrectly described UIM coverage    Albin’s insurance policy entitled Vaniqua Hammond to UIM
as optional insurance, thereby precluding Vaniqua                  insurance benefits.
Hammond’s recovery beyond recovery for tort liability. In
fact, since Albin elected UIM coverage and paid its                  For these reasons, the district court’s grant of summary
premiums, UIM coverage for Vaniqua Hammond (an                     judgment in favor of Motorists Mutual and its denial of
“insured,” as defined by the policy) was mandatory. See            reconsideration are hereby REVERSED and the related
Coots v. Allstate Ins. Co., 853 S.W.2d 895, 898 (Ky. 1993)         declaratory judgment is VACATED. This case shall be
(noting that underinsured motorist coverage is a mandatory         REMANDED for proceedings consistent with this opinion.
contractual obligation to the insured, just like compulsory tort
liability insurance under Ky. Stat. Ann. § 304.39-110,
because “the automobile insurer is required by statute to
provide such coverage”) (emphasis in original). Thus, the
only relevant question is whether Albin owned the Mercury
for purposes of triggering insurance coverage to Vaniqua
