                   IN THE COURT OF APPEALS OF TENNESSEE
                       WESTERN SECTION AT KNOXVILLE
                                                                  FILED
THE VIRGINIA INSURANCE                   )                    February 26, 1998
RECIPROCAL,                              )
                                         )                    Cecil Crowson, Jr.
             Plaintiff/Appellant,        ) Knox Chancery No. 129320-2C ourt Clerk
                                                              Appellate
                                         )
VS.                                      ) Appeal No. 03A01-9705-CH-00177
                                         )
WAGNER, MYERS & SANGER, P.C.,            )
                                         )
             Defendant/Appellee.         )


            APPEAL FROM THE CHANCERY COURT OF KNOX COUNTY
                        AT KNOXVILLE, TENNESSEE
              THE HONORABLE FRANK WILLIAMS, III, CHANCELLOR




LAWRENCE A. WELCH, JR.
Greeneville, Tennessee
Attorney for Appellant


CHARLES A. WAGNER, III
WAGNER, MYERS & SANGER, P.C.
Knoxville, Tennessee
Attorney for Appellee




REVERSED AND REMANDED




                                                              ALAN E. HIGHERS, J.



CONCUR:

DAVID R. FARMER, J.

WILLIAM H. WILLIAMS, Sr. J.
     Plaintiff Virginia Insurance Reciprocal (Insurance Company) appeals the trial court’s
order granting the motion for summary judgment filed by Defendant/Appellee Wagner,

Myers & Sanger, P.C. (Law Firm). In entering a summary judgment in favor of the Law

Firm, the trial court ruled that, under the terms of the parties’ insurance policy, the Law

Firm had no obligation to reimburse the Insurance Company for amounts paid by the

Company within the amount of the policy’s $25,000 deductible. We reverse the trial court’s

judgment and remand for further proceedings.



      The Law Firm was covered by a professional liability insurance policy provided by

the Insurance Company. Under the terms of the policy, the Insurance Company had “the

right to make such investigation and settlement of any claim, proceeding, or suit as it

deem[ed] expedient.” The policy also provided that, if the Insurance Company “paid any

amount in settlement or satisfaction of judgment” within the amount of the policy’s

deductible, the Law Firm would be liable to the Company for any and all such amounts.

(T.R. Vol. I, p. 45) The policy’s per-claim deductible was $25,000.



       During the effective period of the insurance policy, the Law Firm was sued by a

federal savings and loan association. Over the Law Firm’s objections, the Insurance

Company ultimately settled the lawsuit for the amount of the deductible, $25,000. The

Insurance Company then billed the Law Firm for $11,346.86, the amount the Company

claimed was the balance due of the Law Firm’s deductible. The Law Firm previously had

paid the Insurance Company $13,746.88 of the deductible for defense costs and

associated expenses.



       When the Law Firm refused to pay the balance, the Insurance Company filed this

lawsuit. The Law Firm responded by filing a motion for summary judgment in which it

argued that it had no obligation to pay the deductible to the Insurance Company because

the Company’s payment was not made “in settlement or satisfaction of judgment” as

required by the provisions of the insurance policy, but instead was made in settlement of

a claim. The Law Firm reasoned that, inasmuch as the Insurance Company settled the

lawsuit prior to judgment, the deductible did not apply to the settlement amount. The trial



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court agreed and granted the Law Firm’s motion for summary judgment. This appeal

followed.



       On appeal, the Insurance Company contends that the phrase “paid any amount in

settlement or satisfaction of judgment,” when read in conjunction with the other provisions

of the insurance policy, is not ambiguous and, in accordance with its usual and ordinary

meaning, requires that the deductible be applied to the amounts paid by the Company in

settling the lawsuit against the Law Firm. In urging this court to affirm the trial court’s

judgment, the Law Firm contends that the phrase is not ambiguous and that the term

“settlement” refers only to settlement of a judgment and not settlement of a claim or suit.

Alternatively, the Law Firm contends that, if the phrase is ambiguous, this provision should

be construed against the Insurance Company. In essence, the Insurance Company asks

this court to construe the phrase to mean “paid any amount in settlement [of claim] or

satisfaction or judgment,” while the Law Firm asks us to construe the phrase to mean “paid

any amount in settlement [of judgment] or satisfaction of judgment.”



       If it were not for the other provisions of the insurance policy, we might agree with the

Law Firm that this phrase is ambiguous and should be construed against the Insurance

Company. A cardinal principle of insurance law is that any ambiguity in the language

employed in an insurance policy should be construed against the insurer and in favor of

the insured. Alvis v. Mutual Benefit Health & Accident Ass’n, 297 S.W.2d 643, 646 (Tenn.

1956); accord Elsner v. Walker, 879 S.W.2d 852, 855 (Tenn. App. 1994). The paramount

rule of construction in insurance law, however, is to ascertain the intent of the parties,

which is derived from examining the four corners of the policy and giving effect to all its

parts. Blue Diamond Coal Co. v. Holland-America Ins. Co., 671 S.W.2d 829, 833 (Tenn.

1984). Applying this rule of construction, we conclude that the policy provision at issue,

when construed in light of the policy’s other provisions relating to the $25,000 deductible,

does not relieve the Law Firm of liability for amounts paid by the Insurance Company within

the amount of the deductible to settle a claim against the Law Firm.




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       As the Law Firm concedes, the insurance policy gave the Insurance Company the

right to settle any claim or suit as the Company deemed expedient, with or without the Law

Firm’s approval. Under the terms of the policy, the $25,000 deductible applied “to each

claim made under the policy.” The policy defined “claim” as “a demand received by the

insured for money including the service of suit or the institution of other proceedings

against the insured.” Accordingly, the deductible applied to “each claim” made under the

policy without regard to whether or not the claim was successfully pursued to judgment.



       Moreover, in describing how the deductible would be applied to each claim, the

policy provided that the deductible amount of $25,000 would “be subtracted from the total

amount of damages and claims expenses resulting from each claim first made and

reported to the Company during the policy period.” The policy defined “damage” to include

“a monetary judgment, award, or settlement.” Thus, the deductible was to be subtracted

from the total amount of damages (and expenses) resulting from each claim regardless of

whether the damages were paid pursuant to a judgment or a settlement.



       Finally, the insurance policy’s provisions relating to the deductible expressly limited

the Insurance Company’s liability under the policy to “the difference between such

deductible amount and the amount of insurance otherwise applicable.” Such a provision

supports the conclusion that the Law Firm was responsible for the entire amount of the

deductible, regardless of the manner in which the Insurance Company satisfied the claim.

Although the policy did not define the term “deductible,” this construction is further

supported by the usual meaning given this term in insurance law, i.e. the “portion of an

insured loss to be borne by the insured before he is entitled to recovery from the insurer.”

Black’s Law Dictionary 372 (5th ed. 1979).



       In light of these provisions, we conclude that the trial court’s construction of the

policy provision regarding the Law Firm’s obligation to pay the deductible cannot be

sustained. We hold, therefore, that the policy provision at issue, which imposed liability on

the Law Firm for any and all amounts paid “in settlement or satisfaction of judgment” within



                                              4
the amount of the policy’s deductible, applied not only to payments made by the Insurance

Company pursuant to a judgment, but also to those made pursuant to a settlement. We

believe that a contrary interpretation would conflict with the policy’s remaining provisions

relating to the deductible, which indicated that the deductible applied regardless of whether

a claim was successfully pursued to judgment and regardless of whether damages were

paid by the Insurance Company pursuant to a judgment or pursuant to a settlement.



       The trial court’s judgment is hereby reversed, and this cause is remanded for further

proceedings consistent with this opinion. Costs on appeal are taxed to the Law Firm, for

which execution may issue if necessary.




                                                         HIGHERS, J.



CONCUR:




FARMER, J.




WILLIAMS, Sr., J.




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