
USCA1 Opinion

	




          November 24, 1992                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 92-1360                               CANAL INSURANCE COMPANY,                                 Plaintiff, Appellee,                                          v.                              DARRELL A. BENNER, ET AL.,                                Defendants, Appellees,                                 ____________________                                    GARY LEBRETON                                Defendant, Appellant.                                 ____________________          No. 92-1420                               CANAL INSURANCE COMPANY,                                 Plaintiff, Appellee,                                          v.                                 DARRELL A. BENNER,                                 Defendant, Appellant.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                     [Hon. Morton A. Brody, U.S. District Judge]                                            ___________________                                 ____________________                                        Before                              Torruella, Circuit Judge,                                         _____________                            Aldrich, Senior Circuit Judge,                                     ____________________                              and Boudin, Circuit Judge.                                          _____________                                _____________________               Valerie Stanfill, with whom Paul F. Macri, Berman & Simmons,               ________________            _____________  _________________          P.A., Peter B.  Bickerman and Lipman & Katz, P.A.,  were on brief          ____  ___________________     ___________________          for appellants LeBreton and Benner.               John W. Ballou, with  whom Mitchell & Stearns, was  on brief               ______________             __________________          for appellee Canal Insurance Company.                                 ____________________                                 ____________________                    Per  Curiam.   On this appeal,  we review  the district                    ___________          court's  interpretation of  a motor  vehicle liability  insurance          policy.  The district court initially found an  "occupant hazard"          exclusion clause in the policy void as contrary to public policy.          It then held  that the amount of coverage under  the policy would          be limited  to the minimum  amount required by  Maine's Financial          Responsibility Law, rather  than the full  and greater amount  of          liability coverage provided  by the policy.  The  insured appeals          the latter determination.  We affirm.                                          I                    Darrell Benner was the named insured in a motor vehicle          liability  insurance policy  issued  by Canal  Insurance  Company          ("Canal").    The   policy  contained  an   endorsement  entitled          "Occupant Hazard Excluded," which reads as follows:                      It is  agreed that  such insurance  as is                      afforded by the policy for  Bodily Injury                      Liability does not apply to Bodily Injury                      including  death  at  any time  resulting                      therefrom, sustained by any  person while                      in  or upon,  entering or  alighting from                      the automobile.                      It is  further agreed that,  in the event                      the company shall,  because of  provision                      of  the Federal or  State statutes become                      obligated to pay any sum or sums of money                      because  of such  bodily injury  or death                      resulting  therefrom, the  insured agrees                      to reimburse the company  for any and all                      loss, costs  and expense incurred  by the                      company.                    On  August 30, 1990, Gary LeBreton was a passenger in a          tractor  trailer owned by Benner  and driven by  Keith Whitney on          State Highway Route 137 in the Town of Knox, Waldo County, Maine.                                         -3-          The tractor left the road, overturned and LeBreton was injured.                      LeBreton  brought suit  against Benner  and Whitney  in          Waldo County Superior Court seeking damages for his injuries.  In          that action, LeBreton alleges that Whitney's  negligent operation          of  the tractor trailer caused the injuries he sustained and that          Benner is  liable because Whitney was acting as Benner's employee          at the time of the accident.                      Benner  called   upon  Canal  to  defend   him  in  the          litigation and  to indemnify  him  up to  the policy  limit.   In          response, Canal  brought this declaratory judgment  action in the          District Court for the District  of Maine seeking a determination          that  it  was not  obligated under  the  policy to  defend either          Benner,  or his  employee, Whitney,  nor to  indemnify  Benner or          Whitney for any damages that they may have to pay to LeBreton.                      The parties  filed cross-motions for  summary judgment.          The  district   court  granted  summary  judgment   in  favor  of          appellants Benner, Whitney and LeBreton finding that the Occupant          Hazard  Exclusion  was  contrary  to  public  policy  because  it          conflicted   with   Maine's   Financial    Responsibility   Law.1          Regarding the  amount of coverage to be  paid by the insurer, the          court  concluded that Canal was  obligated to pay  to its insured                                        ____________________          1   Section 780  of that law  requires that "[e]very  operator or          owner of  a motor vehicle, trailer, or  semitrailer registered in          this  State  shall maintain  at all  times  the amounts  of motor          vehicle liability insurance or financial responsibility specified          in  Section 787."   29 M.R.S.A.    780.   Section  787 requires a          minimum  $20,000 for  one  person and  $40,000  for two  or  more          persons  injured in the same accident and $10,000 of coverage for          property damage.                                         -4-          the minimum  amount required by Maine's  financial responsibility          statute -- $20,000 for  any one person injured -- rather than the          full amount  of liability coverage  of $750,000  provided by  the          policy.  The  district court's determination to limit coverage to          the minimum  amount required by  Maine's financial responsibility          Law was premised on two "facts":                      First,  the premium  paid for  the policy                      was undoubtedly based on the inclusion of                      the occupant exclusion.  Second, and more                      importantly, even though the exclusion is                      contrary  to  public  policy the  insurer                      would still have the opportunity to limit                      its policy to the minimum amount required                      by the statute, and limit excess coverage                      by an occupant exclusion.                    Unsatisfied  with this  result,  appellants Benner  and          LeBreton  appeal claiming  that  the district  court should  have          awarded  the full amount  of liability  coverage provided  by the          policy.2                                          II                    Rule  56(c) of  the  Federal Rules  of Civil  Procedure          mandates  the  entry  of  summary  judgment  "if  the  pleadings,          depositions, answers to interrogatories, and admissions on  file,          together  with  the affidavits,  if any,  show  that there  is no          genuine issue as to any material  fact and that the moving  party          is entitled  to judgment as a  matter of law."   See also Celotex                                                           ________ _______          Corp. v.  Catrett,  477 U.S.  317,  323 (1986).    We review  the          _____     _______          district  court's grant  of summary  judgment de  novo.   FDIC v.                                                        __  ____    ____                                        ____________________          2  Canal has  not appealed the district court's  holding that the          occupant hazard exclusion is void.                                          -5-          World  University Inc.,  No. 92-1389,  slip. op.  at 4  (1st Cir.          ______________________          October  22, 1992) ("Our review  of a summary  judgment ruling is          plenary.").                                            III                    The issue of whether, if an endorsement in an insurance          policy is held void as contrary to the State's public policy, the          limit of liability  under the  policy will apply  (in this  case,          $750,000)  or whether  the limits  should  be those  contained in          State  law  ($20,000)  has  divided courts.    Some  courts  have          concluded that  the liability  limit  is the  full and  generally          greater amount of coverage.  E.g., State Farm Mut. Auto. Ins. Co.                                       ____  ______________________________          v. Wagamon, 541 A.2d  557 (Del. 1988);  Meyer v. State Farm  Mut.             _______                              _____    ________________          Auto.  Ins.  Co., 689  P.2d  585 (Colo.  1984);  Missouri Medical          ________________                                 ________________          Insurance  Co. v. Wong,  676 P.2d 113 (Kan.  1984).  Other courts          ______________    ____          limit the liability to the minimum statutory requirements.  E.g.,                                                                      ____          Collins v. Farmers Ins. Co., 822 P.2d 1146 (Or. 1991); Walther v.          _______    ________________                            _______          Allstate  Ins.  Co., 575  A.2d 339  (Md.  App. 1990);  State Farm          ___________________                                    __________          Mutual v. Nationwide Mut., et  al, 566 P.2d 81 (Md.  1986); Tibbs          ______    _______________________                           _____          v. Johnson, 632 P.2d 904 (Wash. 1981); De Witt v. Young, 625 P.2d             _______                             _______    _____          478 (Kan. 1981);  Estate of  Neal v. Farmers  Ins. Exchange,  566                            _______________    ______________________          P.2d 81 (Nev. 1977); State Farm  Mutual Auto Ins. Co. v.  Shelly,                               ________________________________     ______          231 N.W.2d 641 (Mich. 1975).                     Maine's  Supreme Judicial  Court has  not decided  this          issue.   Not  surprisingly, both  parties contend that  the Maine          courts would follow their respective interpretation of the effect          of  finding the  endorsement void.    Appellants assert  that the                                         -6-          district court's  decision was contrary to the  clear language of          the  policy because  the  policy provided  coverage of  $750,000.          They  argue that  Canal  could have  drafted its  occupant hazard          endorsement so that  if the exclusion were held invalid, coverage          would  be limited to the  minimum amount of  the relevant state's          financial responsibility  statute.   Appellants'  argument has  a          superficial appeal, but no  real substance.  Absent bad  faith on          the  insurer's  part,  why  should  a  state  requirement  for  a          mandatory minimum impose not only  the minimum, but an additional          amount  on this  particular  insurer simply  because, in  another          connection,  it  had  undertaken  additional  coverage?   Without          reaching constitutional  questions, this would  be an exaggerated          application of public policy.                    Appellants  further argue  that public  policy concerns          should have led  the district  court to apply  the policy  limit.          The  district  court's  decision  limits  recovery  available  to          injured  parties  to the  minimum  amount  which the  Legislature          established was necessary even  though the legislative intent was          to maximize insurance coverage.                      Finally, appellants argue that  there is no evidence in          the  record to  support  the district  court's finding  that "the          premium  paid  for  the  policy  was  undoubtedly  based  on  the          inclusion of the occupant exclusion."   This last argument defies          common sense because the  premium that one pays for  an insurance          policy is based on the amount of risk.                     In Nichols v. Anderson, 837 F.2d 1372 (5th Cir. 1988),                        _______    ________                                         -7-          the Fifth Circuit held  that if an  exclusion in a motor  vehicle          policy is held invalid as  against public policy, coverage should          be  limited to  the extent  required to  meet the  State's public          policy.  The  motor vehicle insurance policy in Nichols contained                                                          _______          an endorsement limiting coverage to accidents within 150 miles of          McCrory,  Arkansas.    The  Fifth Circuit found  that endorsement          void  as against  the  public policy  of  Arkansas. Id.  at  1374                                                              __          (citing Nichols v. Anderson, 788 F.2d  1140 (5th Cir. 1986)).  In                  _______    ________          the absence  of Arkansas decisions providing  guidance, the Fifth          Circuit relied  on Section  184  of the  Restatement (Second)  of                                                   ________________________          Contracts.  The court found as follows:          _________                      Subsection  184(1)  states  that if  less                      than  all of  a contract  violates public                      policy, the rest  of the contract  may be                      enforced unless the unenforceable term is                      an  essential  part   of  the   contract.                      Clearly  in this case  we should not void                      the entire insurance  contract, for  such                      an action would contravene  the [State's]                      policy   requiring   minimum   coverages.                      Subsection     184(2)     expands     the                      Restatement's rule and applies it  to the                      ___________                      specific term that  was found to  violate                      public   policy.     According   to  that                      subsection,  a court may  treat only part                      of a term as invalid if the parties acted                      in good faith.   This rule is intended to                      apply when a  term is invalid  because it                      is too broad and a narrower term would be                      enforceable.           Nichols, 837 F.2d  at 1375 (citing    184 comment  b).  Based  on          _______          Section  184(2) of the  Restatement, the Fifth  Circuit held that                                  ___________          when there is no  claim of bad faith,  courts should "adjust  the          contract  as little as  possible to enable the  parties to have a          contract as  close to what  they intended as  possible."  Id.  at                                                                    __                                         -8-          1376.  Since the  radius exclusion clause was invalid  as against          state  policy,  which required  $25,000  of  coverage, the  Fifth          Circuit found that the  insurer should be liable for  $25,000 and          not for the $100,000 policy limit.                    We  find  the  Fifth  Circuit's  reasoning persuasive.3          Basic  canons of  contractual interpretation support  the holding          that when an  exclusionary clause is  invalidated, the effect  of          the invalidation is to require the insurer to provide coverage up          to  the statutory minimum.   Appellant's have made  no claim that          Canal  acted in bad faith.    The  district court's determination          that  "the premium paid for  the policy was  undoubtedly based on          the inclusion of the occupant exclusion" is eminently reasonable.          Insurance  policies are issued based  on risk, and excluded risks          lower the  exposure  and concomitantly  the premium.   Since  the          exclusion is  invalid due to the Financial Responsibility Law, an          insurers' exposure  -- particularly when there  was no bargaining          process relative to  that exposure  -- should be  limited to  the          minimum required by Maine's Financial Responsibility Law.                      The judgment of the district court is affirmed.                                                          ________                                        ____________________          3  In  their Reply  Brief, appellants argue  that Nichols is  not                                                            _______          applicable because  in Maine ambiguous insurance  policies are to          be  construed  against the  drafter.   That  argument  misses the          point.   The  insurance contract  at issue  is not  ambiguous; it          contained  an exclusion that was contrary to the public policy of          Maine.                                         -9-
