State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company, Plaintiffs/Respondents, v. Michael J. Esswein and Glennetta Esswein, Defendants/Respondents, and Chrysler Insurance Company, Defendant/Appellant.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Eastern District Case Style: State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company, Plaintiffs/Respondents, v. Michael J. Esswein and Glennetta Esswein, Defendants/Respondents, and Chrysler Insurance Company, Defendant/Appellant. Case Number: 72990 Handdown Date: 08/10/1999 Appeal From: Circuit Court of St. Louis County, Hon. Harry J. Stussie Counsel for Appellant: Thomas Walsh and David Slavkin Counsel for Respondent: Paul E. Kovacs, Thomas B. Weaver, David G. Ott and Jeffrey T. McPherson Opinion Summary: Defendant Chrysler Insurance Company appeals from a declaratory judgment, declaring, among other things, that the coverage it provided under its Dealer Daily Rent-A-Car insurance policy issued to Chrysler Credit Corporation was primary and had no limits of liability with respect to an accident involving a vehicle rented by Glennetta Esswein. REVERSED AND RENDERED. Division Two holds: The trial court erred in entering judgment in favor of Respondents in that the intent of the parties was to contract for the minimum amount of liability coverage required by the financial responsibility law of the state in which the vehicle was rented. Citation: Opinion Author: James R. Dowd, Presiding Judge Opinion Vote: REVERSED AND RENDERED. Crahan and Teitelman, JJ., concurs. Opinion:

Defendant Chrysler Insurance Company ("Chrysler Insurance") appeals from a declaratory judgment, declaring, among other things, that the coverage provided by Chrysler Insurance under its Dealer Daily Rent-A-Car insurance policy issued to Chrysler Credit Corporation was primary and had no limits of liability with respect to an accident involving a vehicle rented by Mrs. Esswein. Reversed and rendered. FACTS On March 3, 1993, Mrs. Esswein rented a van from King Auto Leasing, Inc. ("King Auto Leasing") in St. Louis, Missouri. She signed a standard form rental agreement that provided, among other things, third party liability protection. (FN1) The limits of liability contained in the rental agreement, as provided by Paragraph 10, were the minimum required by the state in which the vehicle was rented. Mrs. Esswein and several members of her family, including her son Michael Esswein, a twenty-one-year-old seminary student, planned to use the van to take a trip to Connecticut. On March 5, 1993, while she was driving through Ohio, the van skidded off the highway into a ditch and overturned. Michael suffered severe injuries and was rendered quadriplegic. At the time of the accident, Mrs. Esswein was insured by State Farm Mutual Automobile Insurance Company under three policies each with a limit of liability for bodily injury of $300,000 per person and $300,000 per accident and by State Farm Fire and Casualty Company under a personal liability umbrella policy with a limit of liability of $1,000,000. Additionally, King Auto Leasing and its rental customers were covered by a master Commercial Auto Coverage Policy, No. CAR10100, issued by Chrysler Insurance to Chrysler Credit Corporation to provide liability insurance for vehicles owned by Chrysler dealers participating in the Dealer Daily Rent-A-Car Program. Mrs. Esswein qualifies as an insured according to the language of the policy which defines "insured" as: "Anyone else while using with your permission a covered 'auto' you own . . . ." The rental agreement between Mrs. Esswein and King Auto Leasing gave her express permission to use the vehicle. After the accident, Michael asserted a claim against Mrs. Esswein, alleging that she negligently caused bodily injury to him. Mrs. Esswein called upon State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (collectively "State Farm") to defend and indemnify her against Michael's claim. On January 31, 1994, State Farm instituted this declaratory judgment action against Mrs. Esswein and Michael seeking a declaration of the parties' rights and liabilities under the State Farm policies. Specifically, State Farm requested a determination of whether its liability was limited to $25,000 by reason of a household exclusion in its policies which limited coverage to that amount for "bodily injury to any insured or member of an insured's family residing in insured's household." State Farm amended its petition on August 5, 1994 to add Chrysler Insurance as a defendant and to request

a further declaration that the Chrysler policy provided primary coverage for the accident and that Chrysler Insurance was liable for the $25,000 per-person coverage required by the Missouri Motor Vehicle Responsibility Law. On April 3, 1996, an evidentiary hearing was held primarily to determine whether Michael was a member of the household of Mrs. Esswein and Lawrence Esswein and thus subject to the exclusionary clause. On May 13, 1996, Michael filed a crossclaim against Mrs. Esswein seeking to recover for the personal injuries he sustained from the accident. On May 28, 1996, State Farm filed its Second Amended Petition asking the court to declare that Chrysler Insurance has the primary obligation to defend Mrs. Esswein for all amounts she would be legally liable to pay in damages to Michael as a result of the accident. State Farm asserted that Chrysler's policy provides for no limits of liability because the only language governing limits, Endorsement No. 3, did not apply to vehicles driven in Ohio. Endorsement No. 3 reads in pertinent part as follows: POLICY NUMBER: CAR10100 THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. CA 99 27 01 87 SPLIT LIABILITY LIMITS DOES NOT APPLY IN OHIO * * * THE LIABILITY COVERAGE LIMIT OF INSURANCE APPLICABLE TO THE SCHEDULE ABOVE IS THE MINIMUM FINANCIAL RESPONSIBILITY LIMIT ESTABLISHED BY THE FINANCIAL RESPONSIBILITY LAW OR OTHER APPLICABLE STATUTE ("STATUTORY LIMITS") OF THE STATE OR OTHER JURISDICTION IN WHICH A COVERED "AUTO" IS BEING USED. On July 22, 1996, Mrs. Esswein filed a crossclaim against Chrysler Insurance seeking a declaration that it was obligated to defend and indemnify her against Michael's claim. She also filed a counterclaim against State Farm seeking a declaration that State Farm was obligated to defend and indemnify her for Michael's claim to any extent that Chrysler Insurance's policy does not provide coverage. The trial court heard final arguments on January 30, 1997 and the case was taken as submitted. Chrysler Insurance submitted proposed Findings of Fact, Conclusions of Law, and Declaratory Judgment with a supportive law memorandum. Among the exhibits were Plaintiff's Exhibit 5, the policy of insurance issued by Chrysler Insurance, and Plaintiff's Exhibit 6, the rental agreement. On February 13, 1997, the trial court issued Findings of Fact, Conclusions of Law and Declaratory Judgment. The trial court found that at the time of the accident Michael lived at the seminary and was not a resident of the household of Mrs. Esswein and Lawrence Esswein. Accordingly, the trial court found that Michael was not subject to the household exclusion and that State Farm had limits of liability for Michael's claim against Mrs. Esswein of $300,000 and $1,000,000.

The court concluded, however, that State Farm's policies provided excess coverage. Subsequently, Michael settled with State Farm for $1,300,000, subject to reimbursement of any amount recovered from Chrysler Insurance up to the amount of the settlement. As to Chrysler Insurance, the trial court found that Chrysler's policy of insurance is primary and has no limits of liability for accidents that take place in the State of Ohio. The court reasoned that the limit of insurance section of the liability portion of the policy states that the limit of insurance under the liability coverage is the amount shown for liability coverage in the declarations. The court noted, however, that the policy does not indicate an amount for liability coverage in the declarations, but rather refers to Endorsement No. 3 for limitations of liability. Endorsement No. 3 declares that it modifies insurance provided under the policy. At the top of Endorsement No. 3, the Chrysler policy states: "DOES NOT APPLY IN OHIO." Accordingly, the court concluded that the Chrysler policy contained no limits of liability for accidents in Ohio and that Chrysler Insurance must indemnify Mrs. Esswein to the full extent of any and all amounts owed by her to Michael as a result of the accident. Chrysler Insurance declined the opportunity to defend Mrs. Esswein against Michael's claim and, on May 13, 1997, Mrs. Esswein consented to the entry of a judgment against her in favor of Michael for $5,700,000 conditioned on a covenant to execute only on the insurance policies. Michael filed a Motion for Approval of a Settlement, and on May 19, 1997, the trial court entered judgment pursuant to the consent judgment. On July 1, 1997, the trial court sustained Michael's Motion for Approval of a Settlement. Chrysler Insurance filed this appeal on August 11, 1997.(FN2) STANDARD OF REVIEW In reviewing a declaratory judgment, we will sustain the trial court's judgment unless there is no substantial evidence to support it, unless it is against the weight of the evidence, unless it erroneously declares the law, or unless it erroneously applies the law. State Farm Mutual Auto. Ins. Co. v. Flanary, 879 S.W.2d 720, 721 (Mo.App. S.D.1994). The trial court's interpretation of a contract involves legal conclusions that are not binding on appeal. Goldenstein & Price, L.C. v. Tonkin & Mondl, L.C., 974 S.W.2d 543, 551 (Mo.App. E.D.1998). Therefore, appellate review is de novo, and no deference is given to the trial court's interpretation of the contract. ANALYSIS On appeal Chrysler Insurance contends that the trial court erred in declaring that the Chrysler policy provided unlimited coverage.(FN3) Respondents assert that Chrysler Insurance has not preserved this issue for appellate review because the issue was never presented to the trial court. Our review of the record reveals that Chrysler Insurance has consistently argued that the insurance policy provided the minimum amount of liability insurance required by law.

Accordingly, we find that the issue of how much liability coverage is provided by the insurance policy has been preserved for appellate review. Although neither party claims the policy is ambiguous, they each advance a different interpretation of the policy. Mrs. Esswein claims that the language of Endorsement No. 3--"DOES NOT APPLY IN OHIO"--refers to the limit of liability. Under this interpretation, Endorsement No. 3 would not apply in Ohio and, therefore, the policy would provide unlimited liability coverage in Ohio. The second interpretation, which is asserted by Chrysler Insurance, is that "DOES NOT APPLY IN OHIO," which appears directly under the heading "SPLIT LIABILITY LIMITS," modifies that heading only and means that there will be no difference in coverage in Ohio as between each person, each accident, and property damage. According to Chrysler Insurance, if it had been intended for Endorsement No. 3 not to apply in Ohio, "DOES NOT APPLY IN OHIO" would have been placed directly below the heading "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." A contract is ambiguous only if it is susceptible to two or more reasonable interpretations. Goldstein & Price, L.C. v. Tonkin & Mondl, L.C., 974 S.W.2d 543, 552 (Mo.App. E.D.1998). Although a contract is not ambiguous simply because the parties disagree over its interpretation, the interpretations offered by Mrs. Esswein and Chrysler Insurance demonstrate that the policy is susceptible to two conflicting interpretations. Though Mrs. Esswein's interpretation of the contract language may initially appear to be plausible, the resolution of the issue at bar is not entirely dependent on the meaning of the words "Split Liability Limits" and "Does Not Apply in Ohio." While the language in question and the manner in which it is organized on the endorsement is hardly a model of artful drafting, we are nonetheless called upon to determine whether the parties selling and purchasing the insurance policy intended to provide unlimited coverage The cardinal rule in the interpretation of a contract is to ascertain the intention of the parties and to give effect to that intention. Peterson v. Continental Boiler Works, Inc., 783 S.W.2d 896, 901 (Mo. banc 1990); Schwartz v. Custom Printing Co., 926 S.W.2d 490, 493 (Mo.App. E.D.1996). "In order to determine the intent of the parties, it is often necessary to consider not only the contract between the parties, but subsidiary agreements, the relationship of the parties, the subject matter of the contract, the facts and circumstances surrounding the execution of the contract, the practical construction the parties themselves have placed on the contract by their acts and deeds, and other external circumstances that cast light on the intent of the parties." Butler v. Mitchell-Hugeback, Inc., 895 S.W.2d 15, 21 (Mo. banc 1995) (internal quotations omitted). After reviewing the policy and the rental agreement, we conclude that the parties intended to contract only for the

minimum amount of liability coverage. A close examination of the policy indicates that Chrysler Insurance intended to provide the statutory minimum limits of liability. Specifically, the language at the bottom of Endorsement No. 3 provides: "THE LIABILITY COVERAGE LIMIT OF INSURANCE APPLICABLE TO THE SCHEDULE ABOVE IS THE MINIMUM FINANCIAL RESPONSIBILITY LIMIT ESTABLISHED BY THE FINANCIAL RESPONSIBILITY LAW OR OTHER APPLICABLE STATUTE ('STATUTORY LIMITS') OF THE STATE OR OTHER JURISIDICTION IN WHICH A COVERED 'AUTO' IS BEING USED." Furthermore, the language in Section IIA(2)(b) of the policy states: While a covered auto is away from the state where it is licensed, we will: (1) Increase the Limit of Insurance for Liability Coverage to meet the limits specified by a compulsory or financial responsibility law of the jurisdiction where the covered "auto" is being used . . . . (2) Provide the minimum amounts and types of other coverages, such as no-fault, required of out-of-state vehicles by the jurisdiction where the covered "auto" is being used. The apparent purpose of these provisions is to provide the minimum amount of liability insurance required to comply with each state's financial responsibility law. We find no affirmative evidence anywhere in the policy that suggests an intent to provide unlimited liability in Ohio or anywhere else. While the language at the top of Endorsement No. 3 is indeed cryptic, it does not communicate expressly or impliedly any intent to provide unlimited coverage and consequently cannot serve to void Endorsement No. 3 in its entirety. Given that the policy was designed to comply with the financial responsibility laws, it would be unreasonable to conclude that Chrysler Insurance intended to limit its liability to the minimum in every state, with the exception of Ohio, where it would have no limit of liability. The rental agreement further evidences an intent to provide the minimum limits of liability. The rental agreement constitutes the entire contract between King Auto Leasing and Mrs. Esswein and is the only document viewed by Mrs. Esswein. Paragraph 10 of the rental agreement provides as follows: THIRD PARTY LIABILITY PROTECTION. Anyone authorized by this Agreement to drive Vehicle is covered by an automobile liability insurance policy AGAINST LIABILITY TO THIRD PARTIES ONLY (NOT INCLUDING, TO EXTENT PERMITTED BY LAW, ANY OF SUCH DRIVER'S FAMILY MEMBERS RELATED BY BLOOD, MARRIAGE OR ADOPTION RESIDING IN THEIR HOUSEHOLD), for bodily injury, death or property damage caused by or arising from use or operation of Vehicle as permitted by this agreement. The amount of coverage provided under this Agreement is equal to the minimum financial responsibility limits established by the Financial Responsibility law or other applicable statute ("Statutory Limits") of the state or other jurisdiction in which Vehicle was rented. Protection hereunder shall automatically conform to basic requirements of any mandatory "No Fault" law which may be applicable, BUT DOES NOT INCLUDE "UNINSURED MOTORIST," "UNDERINSURED MOTORIST" OR SUPPLEMENTARY "NO FAULT" OR OTHER OPTIONAL PROTECTION; AND DAILY RENTAL COMPANY AND RENTER HEREBY REJECT, TO EXTENT PERMITTED BY LAW, INCLUSION OF ANY SUCH PROTECTION. In the event that coverage is imposed, by operation of law, for benefit of any person other than Renter, then limits of such coverage shall be Statutory Limits of state or other

jurisdiction in which accident occurred. Daily Rental Company warrants that to the extent permitted by law protection described in this Paragraph 10 is primary with respect to any insurance available to Renter. Renter and Additional Renter(s) hereby indemnify and hold Daily Rental Company, its agents and employees harmless from and against all loss, liability and expense whatsoever in excess of limits of liability protection provided for herein, as a result of bodily injury, death or property damage caused by, or arising from use or operation of Vehicle. . . . x0 (bold emphasis added). The sentence in boldface above plainly limits the amount of liability coverage to the statutory minimum of the state where the van was rented.(FN4) Mrs. Esswein did not testify as to what her intent was when signing the rental agreement. In any event, it would not be reasonable to conclude that Mrs. Esswein would have contemplated that by virtue of signing a standard rental agreement, she would receive unlimited liability coverage in Ohio.(FN5) CONCLUSION The trial court erred in interpreting the insurance policy to provide unlimited liability limits. We hold that the parties intended to contract for liability insurance in the amount of the statutory minimum in the state in which the vehicle was rented. Accordingly, the trial court's judgment is reversed. Pursuant to Rule 84.14, we are authorized to finally dispose of this case unless justice otherwise requires. Meiners v. Meiners, 858 S.W.2d 788, 791 (Mo.App. E.D.1993). On review, we may dispense with the remand process and render the judgment that should have been rendered by the trial court. Because the vehicle was rented in Missouri, we declare that Chrysler's insurance policy provided $25,000 in liability coverage, the minimum amount of liability insurance required by Missouri's Motor Vehicle Financial Responsibility Law. Sec. 303.190 RSMo 1994. Footnotes: FN1.King Auto Leasing, as the owner of the van, was required by the Missouri Motor Vehicle Financial Responsibility Law to provide a minimum amount of $25,000 of liability insurance. Sec. 303.190 RSMo 1994. FN2.Michael contends that this appeal should be dismissed as untimely. We disagree. Chrysler Insurance filed a notice of appeal on March 25, 1997 that this Court dismissed as premature. Chrysler Insurance filed this appeal on August 11, 1997. Rule 81.05(b) provides: "In any case in which a notice of appeal has been filed prematurely, such notice shall be considered as filed immediately after the time the judgment becomes final for the purposes of appeal." FN3.Chrysler Insurance does not contest on appeal that its coverage is primary. FN4.Paragraph 10 also provides that in the case coverage is imposed for the benefit of someone other than the renter, the limit of liability is the statutory minimum of the state in which the accident occurred. However, in this case, coverage is being imposed for the benefit of the renter, Mrs. Esswein, in order to indemnify her from Michael's settlement. Thus, this provision does not apply here. FN5.In their brief, Chrysler Insurance, alternatively requests that we reform the insurance policy pursuant to Restatement (Second) of Contracts sec. 204 (1981) by supplying reasonable limits of liability. We note that Chrysler Insurance makes this argument for the first time on appeal. If Chrysler Insurance had filed such a claim with the trial court any question regarding the proper interpretation of the insurance policy could have been resolved in that proceeding. While Mrs. Esswein's criticism of Chrysler Insurance's failure to make such a claim at the trial level is justified, she could

not have presented an effective response because she was never a party to or even saw the insurance policy and the rental agreement gives her no such expectation. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.