Ferguson v. Coregis Insurance , 527 F.3d 930 ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOHN M. FERGUSON, as the Father 
of and on behalf of Richard F. No. 06-35867
McLeod, D.C. No.
Plaintiff-Appellant,
 CV-05-00321-
v. EJL/MHW
COREGIS INSURANCE COMPANY, OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the District of Idaho
Edward J. Lodge, District Judge, Presiding
Argued and Submitted
April 7, 2008—Seattle, Washington
Filed June 3, 2008
Before: David R. Thompson, William A. Fletcher, and
Carlos T. Bea, Circuit Judges.
Per Curiam Opinion
6263
FERGUSON v. COREGIS INSURANCE CO. 6265
COUNSEL
Gary I. Amendola, Amendola, Anderson & Doty, PLLC,
Coeur d’Alene, Idaho, for the plaintiff-appellant.
Brian K. Julian, Amy G. White, Anderson, Julian & Hull,
LLP, Boise, Idaho, for the defendant-appellee.
OPINION
PER CURIAM:
What happens when an insurance company includes a pol-
icy endorsement meant to reduce the dollar limits to which it
will respond for its policyholder’s liability, but does so by ref-
erence 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 pur-
suant to 28 U.S.C. § 1332. Coregis then filed a motion for
summary judgment; Ferguson responded and filed a cross-
motion for summary judgment. The district court denied Fer-
guson’s motion, but granted Coregis’s.
We review the district court’s rulings on summary judg-
ment 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”
6266 FERGUSON v. COREGIS INSURANCE CO.
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 inter-
pretation of a contract is the local law of the state that has ‘the
most significant relationship to the transaction and the par-
ties.’ ” Indus. Indem. Ins. Co. v. United States, 757 F.2d 982,
985 (9th Cir. 1985). The Policy was issued in Idaho, the plain-
tiff is an Idaho citizen, the insured school is located in Idaho,
and all relevant events took place in Idaho. Further, both par-
ties 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 con-
tract was unambiguous; the limit was $500,000 because
$500,000 is the only dollar amount referred to in Idaho Code
§ 6-924.1The policy provides in several places that the “general lia-
bility 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:
1
All sections referred to herein are from the Idaho Code, unless other-
wise specified.
FERGUSON v. COREGIS INSURANCE CO. 6267
Idaho School Package Policy
Section II, General Liability, Wrongful Acts and
Premises Medical Payments Coverage; D. Condi-
tions; 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 indi-
cated 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 jurisdic-
tion 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 repeti-
tion 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, pro-
vides as follows:
Policy Limits—Minimum Requirements
2
This endorsement purports to replace a section that was not a part of
the Policy. There is no section II.D.8(a) in the original policy, nor is there
any paragraph limiting the company’s liability, other than the $2,000,000
policy limits.
3
The district court thought this language regarding actions outside Idaho
would be superfluous if § 6-924 did not apply, but this reasoning does not
remedy the problem that the endorsement refers to a supposed limitation
of liability that does not exist in § 6-924. Neither the coverage provisions
nor the definitions of an “occurrence” limit the policy limits.
6268 FERGUSON v. COREGIS INSURANCE CO.
Every policy or contract of insurance or comprehen-
sive liability plan of a governmental entity as permit-
ted 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 con-
tract, we begin by interpreting the plain language of the insur-
ance 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 ambigu-
ity, the plain meaning governs. Id. at 245.
Where the policy is “reasonably subject to differing inter-
pretations, the language is ambiguous and its meaning is a
question of fact.” Id. To determine the meaning of an ambigu-
ous 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 pre-
sumed or inferred.” Id.[3] We agree with the district court that the Policy is unam-
biguous, but we disagree on the outcome. The endorsement
states the Company’s liability is limited to “the limit of liabil-
FERGUSON v. COREGIS INSURANCE CO. 6269
ity 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 indi-
cated 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 liabili-
ty.” No such “limit of liability” exists in § 6-924.4 This refer-
ence 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 Can-
yon 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 suf-
ficiently definite and certain in order to be enforceable” and
where testimony conflicted about the amount of an oral con-
tract for a loan, the terms were obviously not certain); Mathe-
son 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);
4
The grammatical structure of the sentence reinforces this interpretation.
The phrase “per the amount indicated by the Idaho Code § 6-924” is a
modifying clause which modifies the subject of the sentence: “limit of lia-
bility.” Such limit cannot be gleaned unless there is a limit of liability
amount stated in § 6-924. Because no such limit of liability exists in § 6-
924, the modifying clause fails to modify.
6270 FERGUSON v. COREGIS INSURANCE CO.
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 uncer-
tain to constitute an enforceable contract right”).
[5] Because § 6-924 mandates a minimum amount of cov-
erage, not a maximum limit on liability, the Policy endorse-
ment provision which refers to a “limit of liability” refers to
a non-existent standard. Section 6-924 simply does not con-
tain any limit of liability any more than would a contract to
price season tickets “per the amount indicated” for Los Ange-
les’s professional football team. Under familiar rules of con-
tract 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 control-
ling 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.
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.