435 F.

3d 431

CANAL INSURANCE COMPANY, Appellant

v.
UNDERWRITERS AT LLOYD'S LONDON
No. 04-3714.

United States Court of Appeals, Third Circuit.

Argued September 27, 2005.
Filed January 27, 2006.

Walter H. Swayze, III, Esquire (Argued), Michael J. Farrell, Esquire,

Segal, McCambridge, Singer & Mahoney, Philadelphia, PA, for
Appellant.
Timothy A. Kulp, Esquire (Argued), Margolis Edelstein, Philadelphia,
PA, Lawrence D. Wright, Esquire, Ronald S. Collins, Jr., Wright &
O'Donnell, Conshohocken, PA, for Appellee.
Brian J. Hunt, Anndra L. Masters, Williams, Montgomery & John,
Chicago, IL, for Amicus-Appellant.
Before: ALITO, AMBRO and LOURIE, * Circuit Judges
AMBRO, Circuit Judge.

This is an insurance coverage dispute arising out of a motor vehicle accident

involving a truck owned by Sukhjit Singh and a passenger vehicle driven by
Suzanne Espenshade. At the time of the accident, the truck, used for hauling
freight, was on the road principally for Singh to seek its sale or trade-in. Among
the issues before us is whether a policy issued by Underwriters at Lloyd's
London (Underwriters) covering Singh's truck, but excluding "business uses,"
nonetheless insures this accident. We believe the answer is no, and therefore
affirm the District Court's decision. We affirm as well the Court's
determinations that Singh's expectation of business coverage cannot unloose
the policy's unambiguous language to the contrary, and that Pennsylvania
public policy does not undermine non-coverage in this case.

I. Facts and Procedural History

2

The material facts are undisputed. At all times relevant to this litigation, Singh
was an independent trucker, or "owner operator," who leased his tractor trailers
to interstate motor carriers for the purpose of hauling freight. Singh enjoyed a
business relationship with BIR Transport Company (BIR), an interstate trucking
outfit and Department of Transportation authorized motor carrier, based upon a
long-term lease agreement. According to the agreement, Singh leased a
Kenworth Tractor to BIR when BIR required a tractor truck to haul freight.

As of the date of the accident, two relevant insurance policies were in effect.
Canal Insurance Company (Canal) insured BIR through a "Commercial
Trucking Liability" policy, providing indemnity and defense to BIR for
liabilities arising from the operation of vehicles specifically noted in the Canal
policy and used for BIR business purposes. BIR identified the Tractor as an
insured vehicle subject to the terms of the Canal commercial trucking liability
policy. In addition, Singh was covered by a "Non-Trucking Liability" policy
with Underwriters that also identified the Tractor as an insured vehicle. Under
the terms of that policy, certain uses of the Tractor, including "business uses,"
were excluded from coverage.

On April 20, 2000, Singh completed an interstate hauling operation for BIR
with his Tractor. Four days later, on April 24, 2000, he hired a third party to
drive the Tractor and its empty trailer from Harrisburg, Pennsylvania, to a
Kenworth truck dealership in Chester, Pennsylvania, in order to attempt a sale
or trade-in for a new tractor. Although BIR was made aware of the plan to go to
the dealership, it is undisputed BIR did not dispatch the Tractor. In the event a
hauling load from BIR became available in the Chester area, however, Singh
directed his driver to make the trip with an empty trailer attached.

En route to the dealership, Singh's truck collided with a vehicle owned and
driven by Espenshade. As a result of the accident, Espenshade filed a lawsuit in
Philadelphia, Pennsylvania, against all potential tortfeasors. Underwriters
expressly refused either to defend the defendants or to indemnify Canal in the
state action on the ground that the use of the Tractor on the day of the accident
did not fall under the provisions of its non-trucking liability policy. Canal, on
the other hand, defended and indemnified Singh, his driver, and BIR in the
lawsuit. Ultimately, Canal settled the Espenshade suit, agreeing to pay $58,500
compensation in exchange for full liability releases for all three defendants. It is
undisputed that Canal incurred an additional $27,459 in litigation expenses to
resolve the matter, resulting in a total indemnification and defense cost of
$85,959.

Canal filed a declaratory action pursuant to 28 U.S.C. 2201 in the Eastern

District of Pennsylvania seeking indemnification from Underwriters for the
monies Canal spent defending and insuring the defendants in the Espenshade
lawsuit. Canal Ins. Co. v. Underwriters at Lloyd's London, 333 F. Supp. 2d 352
(E.D. Pa. 2004). Subsequent to discovery, the parties filed cross-motions for
summary judgment. Id. at 352. The District Court determined that Singh's act of
hiring an employee to drive his Tractor to a dealership in order to trade the
vehicle or otherwise attempt a sale was an activity promoting the "business
purposes of the [i]nsured" under the terms of Underwriters' business use
exclusion. Id. at 355-56. As a result, the Court concluded that coverage was
properly denied by Underwriters. Id. at 357. Judgment was entered granting
Underwriters' motion for summary judgment and denying Canal's cross-motion
for summary judgment. This appeal followed.1

II. Preliminary Matters

7

Summary judgment is appropriate if there are no genuine issues of material fact

presented and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct.
2548, 91 L.Ed.2d 265 (1986). In determining whether a genuine issue of fact
exists, we resolve all factual doubts and draw all reasonable inferences in favor
of the nonmoving party. Hugh v. Butler County Family YMCA, 418 F.3d 265,
267 (3d Cir. 2005). "The interpretation of the scope of coverage of an insurance
contract is a question of law properly decided by the court, a question over
which [this court] exercise[s] plenary review." Med. Protective Co. v. Watkins,
198 F.3d 100, 103 (3d Cir. 1999); McMillan v. State Mut. Life Assurance Co. of
Am., 922 F.2d 1073, 1074 (3d Cir. 1990).

Where federal jurisdiction is based on diversity of citizenship, as it is here, we

apply the choice-of-law rules of the state in which the district court sat. St. Paul
Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n.3 (3d Cir. 1991) (citing
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85
L.Ed. 1477 (1941)). As previously noted, this action was filed in the Eastern
District of Pennsylvania. Under Pennsylvania choice-of-law rules, an insurance
contract is governed by the law of the state in which the contract was made.
Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880
(Pa. Super. Ct. 1966); see also McMillan, 922 F.2d at 1074. "An insurance
contract is `made' in the state in which the last act legally necessary to bring the
contract into force takes place." Crawford, 221 A.2d at 880. Here, the parties
agree that the insurance contract was `made' in Pennsylvania and, consequently,
Pennsylvania substantive law applies.

III. Merits
9

A. Ambiguity of Underwriters' Business Use Exclusionary Language

10

Canal contends Underwriters' business use exclusionary language, which

prohibits any use of the covered vehicle that promotes the "business purposes"
of the insured, is sufficiently ambiguous to merit an interpretation in favor of
coverage. Underwriters, on the other hand, maintains that its business use
exception is unambiguous and coverage was properly denied.

11

It is uncontested Underwriters' policy names Singh as the insured and lists the
Tractor as a covered vehicle. The policy, however, excludes from coverage
certain "business uses." Exclusion 8 specifically provides that the policy does
not insure

12

[a] covered automobile while it is engaged in Business Use, such as proceeding

to a new location, pursuant to the request, direction, control and/or dispatch of
any person or entity other than the insured, or complying with any term of a
presently effective, written lease with a motor carrier.

13

The policy also excludes insurance for "a covered automobile while used in the
course and scope of the commercial business of the insured, i.e. Business Use."
Under the policy, that

14

includes, but is not limited to[,] any use of the covered auto that promotes the
business purposes of the Insured or the purposes of a written, permanent lease
that the Insured has signed with a motor carrier such as hauling a load for the
motor carrier, being under the request, direction, control and/or dispatch to haul
a load for the motor carrier with a pick up of a load, laying over on the road on
the way to pick up a load or traveling for the purposes of repairing or
maintaining the covered auto. The foregoing examples of "Business Use" are
illustrative and non-exhaustive.

15

(Emphasis added.) Thus, if at the time of the accident, Singh's Tractor was
engaged in an activity "promot[ing] [Singh's] business purposes," Underwriters'
business uses exclusion applies and coverage could be denied.

16

The legal axioms governing insurance policy interpretation are well settled in
Pennsylvania. "Where an insurer relies on a policy exclusion as the basis for its
denial of coverage and refusal to defend, the insurer has asserted an affirmative

defense and, accordingly, bears the burden of proving such defense." Madison
Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 106 (Pa.
1999). The goal of interpreting an insurance policy, like the goal of interpreting
any other contract, is to determine the intent of the parties as manifested by the
language of the policy.
17

The task of interpreting [an insurance] contract is generally performed by a

court rather than by a jury. The goal of that task is, of course, to ascertain the
intent of the parties as manifested by the language of the written instrument.
Where a provision of a policy is ambiguous, the policy provision is to be
construed in favor of the insured and against the insurer, the drafter of the
agreement. Where, however, the language of the contract is clear and
unambiguous, a court is required to give effect to that language.

18

Gene & Harvey Builders v. Pennsylvania Mfrs. Ass'n, 512 Pa. 420, 517 A.2d
910, 913 (Pa. 1986) (quoting Standard Venetian Blind Co. v. Am. Empire Ins.
Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa. 1983)) (additional citations omitted).
This rule of strict construction against the insurer is especially true should the
ambiguity exist as an exception to general liability. Celley v. Mut. Benefit &
Health Ass'n, 229 Pa.Super. 475, 324 A.2d 430, 435 (Pa. Super. Ct. 1974).

19

Contractual language is ambiguous "if it is reasonably susceptible of different

constructions and capable of being understood in more than one sense."
Hutchison v. Sunbeam Coal Co., 513 Pa. 192, 519 A.2d 385, 390 (Pa. Super.
Ct. 1986). "This is not a question to be resolved in a vacuum. Rather,
contractual terms are ambiguous if they are subject to more than one reasonable
interpretation when applied to a particular set of facts." Madison Constr. Co.,
735 A.2d at 106. Courts should not, however, distort the meaning of the
language or resort to a strained contrivance in order to find an ambiguity.
Steuart v. McChesney, 498 Pa. 45, 444 A.2d 659, 663 (Pa. Super. Ct. 1982). In
any event, "[t]he polestar of our inquiry . . . is the language of the insurance
policy." Madison Constr. Co., 735 A.2d at 106.

20

As stated above, this controversy turns on whether the phrase "any use of the
covered auto that promotes the business purposes of the [i]nsured" applies
unambiguously to Singh's use of the Tractor at the time of the accident.
Underwriters' policy does not provide specific examples of activities that would
promote Singh's business purposes. Where critical terms are left undefined in a
policy, Pennsylvania case law instructs that

21

[w]ords of common usage in an insurance policy are to be construed in their

natural, plain, and ordinary sense, Easton v. Washington County Ins. Co., 391
Pa. 28, 137 A.2d 332, 335 (1957); Blue Anchor Overall Co. v. Pennsylvania
Lumbermens Mut. Ins. Co., 385 Pa. 394, 123 A.2d 413, 415 (1956), and we
may inform our understanding of these terms by considering their dictionary
definitions.
22

Madison Constr. Co., 735 A.2d at 108. The District Court heeded this
guidance, reasoning that

23

[t]he term "promotes" is defined in Webster's Ninth Collegiate Dictionary

(1990) as "to contribute to the growth or prosperity of" or "furthers." It is
beyond argument that trading up one tractor for another (or attempting to do so)
"further[ed]" or "contribute[d] to the growth or prosperity of" Mr. Singh's truck
leasing business.

24

Since Mr. Singh is the insured, engaged in the business of leasing tractors, and
further since the act of traveling from Harrisburg to Chester "contribute[d] to
the growth or prosperity of" or "futher[ed][,]" i.e., "promote[d][,]" the business
purposes of Mr. Singh's leasing business, the losses resulting from the accident
fall within the exclusion of the Underwriters policy.

25

Canal Ins. Co., 333 F. Supp. 2d at 355. We agree. See Standard Venetian Blind
Co., 469 A.2d at 567 (stating exclusions from coverage effective against
insured if clearly worded and conspicuously displayed, irrespective of whether
the insured read limitations or understood their effect); cf. Ayers v. Kidney, 333
F.2d 812, 813 (6th Cir. 1964) (ruling exclusion "while the automobile or any
trailer attached thereto is used to carry property in any business" clear and
unambiguous); Wenkosky v. Protective Ins. Co., 698 F. Supp. 1227, 1230-31
(M.D. Pa. 1988) (holding exclusion "[w]hile the automobile or any trailer
attached thereto is used to carry property in any business" is unambiguous)
(emphasis in text).

26

Canal, however, does not contend it was unreasonable for the District Court to
interpret the plain meaning of "business purposes" to include Singh's desire to
trade or sell the Tractor. See Aplt. Br. at 19. Rather, it maintains that
Underwriters' business use exception relating to acts promoting the business
purposes of the insured is overly broad and ambiguous. This is because the
exception can be reasonably construed to mean that only acts related to or
furthering the business of a commercial carrier (such as BIR) are subject to
exclusion; not acts merely related to selling or trading the Tractor. Id. In other
words, "traveling to negotiate a possible sale or trade of a vehicle is not

`business use' since it does not relate to a carrier-directed activity and is not
maintenance or repair of the vehicle." Aplt. Rep. Br. at 4. Thus, the question we
must resolve is whether Canal's alternative interpretation of Underwriters'
business use exclusion renders the exception ambiguous with regard to the facts
of this case. Complicating this determination is the absence of controlling state
precedent.
27

When there is no Pennsylvania Supreme Court decision directly on point, we

are charged with predicting how it would resolve the question at issue.
Travelers Indem. Co. of Illinois v. DiBartolo, 131 F.3d 343, 348 (3d Cir. 1997).
In order to do so, we must take into consideration (1) what the Pennsylvania
Supreme Court has said in related areas, (2) the decisional law of the
Pennsylvania intermediate courts, (3) federal cases interpreting state law, and
(4) decisions from other jurisdictions that have discussed the issue. Werwinski
v. Ford Motor Co., 286 F.3d 661, 675 (3d Cir. 2002).

28

Canal contends that Mr. Singh is an independent interstate truck driver; his
business is driving a commercial tractor-trailer to transport the goods of thirdparties on behalf of a commercial carrier. Mr. Singh does not make his living
leasing vehicles as a dealership or rental agency might. Also, rather than
functioning as a salaried employee of BIR and using a BIR-owned tractor, Mr.
Singh chose to purchase his own tractor and enter into a leasing arrangement
with BIR whereby Mr. Singh would be responsible for his own vehicle
presumably in return for a greater share of the profit.

29

Aplt. Br. at 20. "Accordingly, an understanding of Mr. Singh's business reveals

it is not so clear that the act of driving the Tractor to a dealership in order to
trade or otherwise negotiate a sale unambiguously `promotes the business
purposes' of Mr. Singh." Id.

30

The weight of relevant authority does not support Canal's reasoning. "Business
use" and "business pursuits" exclusions are standard clauses in many insurance
policies, including homeowners', personal umbrella, and other general liability
policies. See generally Construction and Application of "Business Pursuits"
Exclusion Provision in General Liability Policy, 48 A.L.R. 3d 1096 2 (West
2005). In a typical policy, the insurer states that personal liability coverage
shall not apply "to bodily injury or property damage arising out of business
pursuits of any insured except activities therein which are ordinarily incident to
nonbusiness pursuits." See, e.g., Bullock v. Pariser, 311 Pa. Super. 487, 457
A.2d 1287, 1288 (1983). "The purpose of a `business pursuits' exclusion is to
help the insurer keep premiums at a reasonable level by eliminating a type of
coverage that (1) normally requires specialized underwriting and rating, (2) is

not essential to most purchasers of the policy, and (3) is provided by other
insurance contracts a business owner is likely to have." Avoiding the "Business
Pursuits" Exclusion Insured's Activity as Not Business Pursuit, 15 Am. Jur.
Proof of Facts 3d 515 1 (West 2005); see also Rykill v. Franklin Fire Ins.
Co., 80 Pa. Super. Ct. 492, 494 (1923) (stating "[i]t is a matter of common
knowledge that the premium rate of insurance upon automobiles used for
commercial purposes is higher than on cars used for pleasure. The obvious
reason for this is the increased hazard.").
31

The Superior Court of Pennsylvania has interpreted the above-stated boilerplate

"business pursuits" language in the context of a homeowners' insurance policy.
In Bullock, the plaintiff was bitten by a dog at the defendants' home, where
they conducted a business partnership known as "Kiddie Castle." The
Pennsylvania Insurance Guaranty Association (PIGA) contended that the dog
bite incident was covered by the separate homeowners' policies of the
defendants. These homeowners' policies had been issued by two separate
insurance companies. It was agreed that both policies contained an exclusion
for "bodily injury or property damage arising out of business pursuits of any
insured except activities therein which are ordinarily incident to non-business
activities." 457 A.2d at 1288. The Superior Court affirmed the trial court's
finding that the business pursuits exclusion applied to the dog bite incident
because "the liability in this case arose from a strictly business related
endeavor. . . ." Id. at 1289 (quoting Bullock v. Pariser, 11 Pa. D. & C.3d 77,
82-83 (1979)).

32

The Court expressly rejected PIGA's argument that, "because the [child care]
business can operate profitably with or without a guard dog, . . . the purchase
and maintenance of a guard dog is not, itself, a business pursuit," stating that
[w]e find this argument to be entirely unconvincing. The fact that a business
might continue to make a profit in the absence of any number of activities
conducted in furtherance of its interests does not prevent such activities from
being "business pursuits." For example, a retail store may make a profit while
employing only one salesperson, yet the hiring of a second salesperson is
clearly a "business pursuit."

33

Id. at 1289. On the basis of this reasoning, the Court held that the defendants
need not be in the "security dog" business in order for the business pursuits
exclusion of their homeowner's policies to apply.

34

Here Canal contends that, because Singh is neither in the truck leasing business
(though in fact he undoubtedly is) nor the truck sales business (which he
undoubtedly is not), the business uses exception cannot apply to his attempt to

sell or trade the Tractor. The Superior Court of Pennsylvania, however,

instructs that Mr. Singh need not be in either the truck leasing or truck sales
business in order for the "business use" exclusion to apply. It is implicit in the
language of Bullock that a "business pursuits" clause applies where the liability
arises from a business-related endeavor and the activity in question is
"conducted in furtherance of [the business'] interests . . . ." Id. at 1289.
Similarly, Underwriters' "business uses" exception applies where the liability
arises from any "business use" and the activity at issue promotes the business
purposes of the insured.
35

In this case, these criteria are satisfied. The alleged liability arose from an
endeavor the possible trade or sale of a commercial vehicle that was an
exclusively business-related activity. Singh himself testified that the sole
purpose of the trade or sale of the Tractor was to further or promote his
business interests.2 See Sun Alliance Ins. Co. of Puerto Rico v. Soto, 836 F.2d
834 (3d Cir. 1988) (relying on the testimony of an insured in order to determine
the coverage question against him).

36

Beyond Bullock, several decisions interpreting "business pursuits" exclusions

under Pennsylvania law in non-trucking contexts counsel in favor of the
conclusion that Underwriters' business use exclusion is unambiguous and
applies here. One such case is Travelers Indem. Co. v. Fantozzi, 825 F. Supp.
80 (E.D. Pa. 1993). There, the insured parents and their minor son were sued
after the son sexually molested a child whom the parents were babysitting. The
parents' homeowner's policy excluded coverage for bodily injury "arising out of
the business pursuits of any insured except those of a clerical office employee."
Id. at 84-85. The policy defined "business" to include "trade, business or
occupation." Id. at 85. In coming to its determination that the "business
pursuits" exclusion was unambiguous, id. (citing Myrtil v. Hartford Fire Ins.
Co., 510 F. Supp. 1198, 1201 (E.D. Pa. 1981) (finding the same language
"clearly not ambiguous")), the Court explained that where the applicability of a
business pursuits exception is at issue in the Third Circuit, an activity
encompassed within that exclusion requires two elements.

37

The first is continuity, or customary engagement in the activity. The second,

profit motive, may be shown by such activity as a means of livelihood, a means
of earning a living, procuring subsistence or profit, commercial transactions or
engagements.

38

Sun Alliance Ins. Co., 836 F.2d at 836. The Travelers Court concluded that the
continuity element was clearly satisfied: "The [defendant parents] took care of
[the victim child] on a daily basis over the course of more than four years.

Thus, the time of the babysitting services was neither irregular nor of limited
duration." Travelers Indem. Co., 825 F. Supp. at 85. Because "the [defendant
parents] agreed to babysit on a full-time basis as a means of gaining temporary
income while [the defendant dad] was laid off from his customary job" and
there was "no dispute that the [defendants] were motivated by a desire for
compensation," the Court further held that the babysitting services satisfied the
profit motive element of the "business pursuits" exclusion. Id. As a result, the
non-commercial homeowner's policy did not provide coverage for claims made
by the victim child's family in the underlying tort action.
39

Underwriters' non-trucking liability policy similarly precludes coverage here.

Singh's admitted purpose in trading or selling the Tractor was the furtherance of
his personally owned and operated profit-making activity leasing
commercial trucks to motor carriers. Moreover, Singh testified that he had
operated that business on a continuous basis for approximately ten years.
Because Singh's activity satisfies both prongs of the business pursuits exclusion
test profit motive and continuity Underwriters' policy precludes coverage
to Singh for claims made while he was engaged in that activity.
B. Reasonable Expectations of the Insured

40

Canal further argues that "the great weight of authority in Pennsylvania

strongly favors a conclusion that the Pennsylvania Supreme Court would in this
case permit the reasonable expectations of the insured to be relied on to
determine whether facially unclear insurance policy language is ambiguous,
and further find such ambiguity to preclude exclusion and favor coverage of
Mr. Singh." Aplt. App. at 26. Specifically, Canal claims that Singh reasonably
expected the business use exclusion to apply only to acts related to or furthering
the business of a commercial carrier, not to acts related to selling or trading the
Tractor. Id. at 19. Because Underwriters' construction of its exclusionary
language is contrary to the reasonable expectations of the insured, Canal
contends that the language is ambiguous and should be interpreted in favor of
Singh. Relying on Matcon Diamond v. Pennsylvania Nat'l Ins. Co., 815 A.2d
1109, 1114 (2003), the District Court here disagreed, explaining that it is well
settled in Pennsylvania that the reasonable expectations doctrine does not
provide relief where the language of the contract is clear and unambiguous:

41

Canal also argues that Underwriters' position is precluded by the doctrine of

"reasonable expectations of the insured" as that doctrine has developed under
Pennsylvania law. The Court disagrees. The Supreme Court of Pennsylvania
has held that the "polestar" for determining the parties' intent is the language of
the policy itself. To that end, the Superior Court of Pennsylvania has noted that,

"generally, courts cannot invoke the reasonable expectation doctrine to create

an ambiguity where the policy itself is unambiguous." As recognized by the
Matcon court, the highest court in Pennsylvania has limited the argument that
the reasonable expectations of the insured trump the clear and unambiguous
language of a policy to two occasions: (1) protecting non-commercial insureds
from policy terms which are not readily apparent; and (2) protecting noncommercial insureds from deception by insurance agents.
42

Canal Ins. Co., 333 F. Supp. 2d at 356-57 (internal citations omitted). The
Court expressly declined Canal's invitation to look beyond the "plain and
unambiguous language of the policy in order to scrutinize what Mr. Singh's
expectations may have been regarding coverage" because Canal "advanced no
argument that Underwriters' policy terms were not readily apparent or that there
was deception by the insurance agents." Id. at 357.

43

Our Court recently weighed in on the Pennsylvania reasonable expectations

doctrine, stating that

44

Pennsylvania case law . . . dictates that the proper focus for determining issues
of Insurance coverage is the reasonable expectations of the insured. In most
cases, the language of the insurance policy will provide the best indication of
the content of the parties' reasonable expectations. Courts, however, must
examine the totality of the insurance transaction involved to ascertain the
reasonable expectations of the insured. As a result, even the most clearly
written exclusion will not bind the insured where the insurer or its agent has
created in the insured a reasonable expectation of coverage. However, this
aspect of the doctrine is only applied "in very limited circumstances" to protect
non-commercial insureds from policy terms not readily apparent and from
insurer deception. Absent sufficient justification, however, an insured may not
complain that his or her reasonable expectations were frustrated by policy
limitations that are clear and unambiguous.

45

Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d Cir. 2005)
(internal citations and quotations omitted). In this context, the District Court's
refusal to look beyond the plain meaning of the unambiguous exclusionary
language to Singh's reasonable expectations is consistent with the interpretation
of Pennsylvania case law in our Circuit.
C. Public Policy Considerations

46

Canal further argues that Underwriters' exclusionary language violates

Pennsylvania public policy ensuring adequate insurance is available to parties

injured in motor vehicle accidents because (1) enormous gaps between nontrucking and commercial liability trucking insurance may exist as a result of the
exclusion, and (2) the exclusion is in conflict with the Motor Vehicle Financial
Responsibility Law (MVFRL), 75 Pa. Cons. Stat. 1701 et seq. Underwriters
contends that in cases examining the ambiguity of insurance policy terms, i.e.,
cases where the issue is one of contract interpretation, the Pennsylvania
Supreme Court has held that public policy arguments are irrelevant.
47

Relying on Madison, 735 A.2d at 108 n.7, 3 Pennsylvania courts repeatedly

have stated "when the question is one of contract interpretation, public policy
arguments are irrelevant." Matcon Diamond, 815 A.2d at 1112; Wagner v. Erie
Ins. Co., 801 A.2d 1226, 1231 (2002); Municipality of Mt. Lebanon v. Reliance
Ins. Co., 778 A.2d 1228, 1232 (Pa. Super. Ct. 2001). In Madison, the
Pennsylvania Supreme Court instructed that "[t]he court's only aim [in a
contract interpretation case is] to ascertain the intent of the parties as
manifested by the language of the written instrument." 735 A.2d at 108.
Immediately thereafter, it dropped a footnote stating that

48

[t]he same principle precludes consideration of the public policy arguments

advanced by Madison and its amicus. There is no claim of unconscionability
before us. The question to be decided, therefore, is not whether the insurance
industry should be allowed to issue commercial general liability policies
containing the absolute pollution exclusion clause. That question is a matter for
the legislature and the Insurance Commissioner of the Commonwealth. The
pertinent question is, rather, whether such clause, contained in the contract of
insurance entered into between Madison and Harleysville, by its terms operates
to relieve Harleysville of its obligation to defend Madison in the underlying
personal injury action. That is a matter for judicial resolution in accordance
with accepted principles of contract interpretation.

49

Id. at n.7.

50

The same analysis necessarily applies here. Canal advances no argument that
Underwriters' exclusion is unconscionable. Therefore, the question is not
whether the insurance industry should be allowed to issue non-trucking liability
policies containing extremely broad business use exclusion clauses. Rather, it is
whether the business use exclusionary clause by its terms operated to relieve
Underwriters of its obligation to indemnify Singh in the Espenshade suit.

51

The District Court did not address whether Canal's public policy arguments

were relevant. Instead, the Court stated:

52

[Canal] also argues that public policy supports its argument that the phrase is
ambiguous. For this proposition, [Canal] cites Lincoln General Ins. v. Liberty
Mut. Ins. Co., 804 A.2d 661 (Pa. Super. Ct. 2002) and Connecticut Indemnity
Co. v. Stringfellow, 956 F. Supp. 553 (M.D. Pa. 1997). The Court will assume
that indeed there is a public policy to ensure a source of compensation for
injured parties when a lease agreement, common in the trucking industry, might
create confusion over who would be responsible for accidents. However, there
are statutory and regulatory mandates, such as those discussed in Prestige
Casualty, 99 F.3d at 1342[,] and Carolina Casualty Ins. Co. v. Ins. Co. Of
North America, 595 F.2d 128, 134-35 (3d Cir. 1979)[,] in place in recognition
of this policy. Moreover, given that the injured parties in this case have already
been compensated, the public policy favoring compensation has been
vindicated.

53

333 F. Supp. 2d at 357 n.5. The Court is correct that public policy ensures a
source of compensation for injured parties when a lease agreement might lead
to a gap in coverage and statutory and regulatory mandates are in place that
demand the provision of such compensation. Pursuant to 49 U.S.C. 13906(a)
(1), 31139(b)(2) and 49 C.F.R. 387 (the federal statutory and regulatory
provisions discussed in Prestige Casualty and Carolina Casualty), an MCS-90
endorsement must accompany any liability policy issued to a registered motor
carrier.4 Indeed, Canal concedes that the mandatory MCS-90 endorsement
accompanying its policy with BIR required it to indemnify and defend BIR in
the Espenshade suit. Moreover, the undisputed fact that the parties injured in
this case have been compensated counsels against any argument that a ruling in
favor of no coverage on the basis of a business use exclusion in a non-trucking
policy severely undermines the long-standing public policy favoring victim
compensation. Canal is correct, however, that if its insurance policy does not
apply to Singh's trucking activity at the time of the Espenshade suit, there is a
broad gap of coverage here because, under those circumstances, neither Canal
nor Underwriters was obligated to defend or indemnify Singh. The question
then becomes whether such a gap in coverage offends Pennsylvania public
policy.

54

As mentioned at the beginning of this section, Canal contends that

Underwriters' business use exclusion offends public policy because it conflicts
with the MVFRL. Specifically, Canal claims that Underwriters' exclusion is in
tension with the MVFRL because it "is in place to ensure that adequate liability
coverage is maintained on all vehicles driven within this Commonwealth so as
to protect innocent Pennsylvania residents who become victims of motor

vehicle accidents" and "the very purpose of non-trucking insurance is to provide

independent owner-operators . . . adequate insurance coverage to ensure
compensation for such victims of motor vehicle accidents involving tractors and
trailers not being used for commercial purposes related to the motor carrier's
business at the time of the accident." Aplt App. at 42-43. Under Pennsylvania
law, stipulations in a contract of insurance in conflict with, or repugnant to,
statutory provisions that are applicable to, and consequently form a part of, the
contract must yield to the statute, and are invalid, since contracts cannot change
existing statutory laws. Prudential Property and Cas. Ins. Co. v. Colbert, 572
Pa. 82, 813 A.2d 747 (Pa. 2002).
55

The MVFRL requires that every insurance policy issued in Pennsylvania

include underinsurance motorist coverage unless it is rejected by the insured.
Allwein v. Donegal Mutual Ins. Co., 448 Pa.Super. 364, 671 A.2d 744, 756 (Pa.
Super. Ct. 1996). Simply stated, the statute requires insurance companies to
offer underinsurance coverage to its insured, which its insureds can reject. Id.
(Under the MVFRL, "insurers . . . must offer underinsurance to their insureds;
they do not have to provide underinsurance.") (emphasis in original). Pertaining
to the public policy concerns of the MVFRL, the Pennsylvania Supreme Court
has stated that

56

[t]he repeal of the No-Fault Act . . . and the enactment of the MVFRL reflected
a legislative concern for the spiraling consumer cost of automobile insurance
and the resultant increase in the number of uninsured motorists driving on
public highways. The legislative concern for the increasing cost of insurance is
the public policy that is to be advanced by statutory interpretation of the
MVFRL. This reflects the General Assembly's departure from the principle of
"maximum feasible restoration" embodied in the now defunct No-Fault Act.

57

Burstein v. Prudential Property and Cas. Ins. Co., 570 Pa. 177, 809 A.2d 204,
207 (Pa. 2002). The Court went on to say that "[i]ndeed, the Legislature's
concern for the increasing cost of automobile insurance and the parallel aim of
cost containment are easily gleaned from the legislative history of the
MVFRL." Id. While the Court recognized "that other public policies may
underlie the MVFRL, the legislative concern for the spiraling consumer cost of
automobile insurance is its dominant and overarching public policy." Id. at 207
n. 4. Because Pennsylvania's Supreme Court points out that the purpose of
MVFRL is to control the cost of consumer auto insurance, not "maximum
feasible restoration" to accident victims, Canal's submission that any gap in
insurance coverage created by Underwriters' business use exclusion conflicts
with MVFRL is unpersuasive. This is because

58

[p]ublic policy is to be ascertained by reference to the laws and legal precedents

and not from general considerations of supposed public interest. As the term
"public policy" is vague, there must be found definite indications in the law of
the sovereignty to justify the invalidation of a contract as contrary to that
policy.. . . Only dominant public policy would justify such action. In the
absence of a plain indication of that policy through long governmental practice
or statutory enactments, or of violations of obvious ethical or moral standards,
the Court should not assume to declare contracts. . . contrary to public policy.
The courts must be content to await legislative action.

59

Id. at 207 (quoting Eichelman v. Nationwide Ins. Co., 551 Pa. 558, 711 A.2d
1006, 1008 (Pa. 1998)) (emphases added); see also Hall v. Amica Mut. Ins. Co.,
538 Pa. 337, 648 A.2d 755, 760 (Pa. 1994). Given that (1) controlling state case
law indicates that public policy considerations do not apply here because this is
a case of contract interpretation, Madison, 735 A.2d at 108 n.7, (2) there are no
uncompensated victims here, cf. Paylor v. Hartford Ins. Co., 536 Pa. 583, 640
A.2d 1234, 1240 (Pa. 1994) (stating application of public policy concerns in
determining the validity of an insurance exclusion depends on the factual
circumstances presented in each case), and (3) Canal has pointed to no state or
federal statute that is offended by the potential gap in coverage due to
Underwriters' exclusion, the gap created by Underwriters' broad exclusionary
language is a matter for the Pennsylvania legislature.

*****
60
61

For the reasons explained above, we affirm the District Court's ruling that
Underwriters' broad "business use" exclusionary language, which prohibits
"any use of the covered auto that promotes the business purpose of the
[i]nsured," unambiguously denies coverage to Singh for liability arising from
the Espenshade accident. We also affirm the District Court's determinations
that neither the doctrine of reasonable expectations nor Pennsylvania public
policy make Underwriters liable for the accident.

Notes:
*

Honorable Alan D. Lourie, Circuit Judge for the United States Court of
Appeals for the Federal Circuit, sitting by designation

The parties are diverse and the amount in controversy exceeds the jurisdictional
requirement. Thus, the District Court properly asserted subject matter
jurisdiction pursuant to 28 U.S.C. 1332. We have jurisdiction pursuant to 28

U.S.C. 1291
2

In relevant part, Mr. Singh testified at his deposition as follows:

[Q] Why were you looking to trade in the truck?
[A] Because this truck required too much repair on it. Spending spent too
much money on the engine. So, I didn't want to spend anymore.
[Q] How many miles were on the truck that day?
[A] I don't remember.
[Q] Were you looking to trade in for a new truck?
[A] Yeah, a brand new truck.
[Q] Would that have cost less to maintain?
[A] Yeah. When you drive to California back and forth you have to have a
good truck to run [sic] California back and forth.
[Q] What's that, over 3,000 miles each way?
[A] Yeah. Because you have to six, seven days back and forth from
California.
[Q] Your arrangement with BIR at the time in April of 2000, did that
arrangement include you paying for maintenance of your trucks?
[A] Yeah, I'm paying money.
[Q] Okay.
[A] Everything is mine. They have to give me the load, BIR, that's it. They
don't have nothing else to do. If something break down or something, if it break
down . . . I have to pay for everything from my pocket.
[Q] Okay. So, it was a better business arrangement for you to have a new truck

that would require less maintenance than it was to have the 1996 truck that
required a lot of maintenance.
[A] Yeah.
(Emphases added.)
3

BothMatcon Diamond and Reliance Ins. Co. cite Madison at footnote 8 for the
proposition that when the question is one of contract interpretation, public
policy arguments are irrelevant. Language to this effect in Madison is actually
found in footnote 7 of the opinion. See Madison, 735 A.2d at 108 n.7.

The MCS-90 endorsement is a federally required form endorsement which

states that commercial liability insurers, such as Canal, must pay any "final
judgment" recovered against the insured for public liability resulting from
negligence in the operation, maintenance, or use of motor vehicles subject to
financial responsibility requirements of the Motor Vehicle Act regardless
whether the vehicle is described in the policy. Should a commercial liability
insurer fail to pay any final judgment rendered against its insured, it becomes
personally responsible for the judgmentSee Aplt. App. at 50. The MCS-90
endorsement in our case states:
In consideration of the premium stated in the policy to which this endorsement
is attached, the insurer (the company) agrees to pay, within the limits of
liability described herein, any final judgment recovered against the insured for
public liability resulting from negligence in the operation, maintenance or use
of motor vehicles subject to the financial responsibility requirements of
Sections 29 and 30 of the Motor Carrier Act of 1980 regardless whether each
motor vehicle is specifically described in the policy and whether or not such
negligence occurs on any route or in any territory authorized to be served by the
insured or elsewhere . . . . It is understood and agreed that no condition,
provision, stipulation, or limitation contained in the policy, this endorsement, or
any other endorsement thereon, or violation thereof, shall relieve the company
from liability or from the payment of any final judgment, within the limits of
liability herein described, irrespective of the financial condition, insolvency or
bankruptcy of the insured. . . . The insured agrees to reimburse the company for
any payment made by the company on account of any accident, claim, or suit
involving a breach of the terms of the policy, and for any payment that the
company would not have been obligated to make under the provisions of the
policy except for the agreement contained in the endorsement.
It is further understood and agreed that, upon failure of the company to pay any

final judgment recovered against the insured as provided herein, the judgment
creditor may maintain an action in any court of competent jurisdiction against
the company to compel such payment.
Id. The MCS-90 endorsement is, in effect, suretyship by the insurance carrier to
protect the public a.k.a. a safety net. T.H.E. Ins. Co. v. Larsen Intermodal
Servs., Inc., 242 F.3d 667, 672 (5th Cir. 2001) (noting that "[t]he First Circuit
has aptly described the obligation placed upon the insurer by the MCS-90 as
one of suretyship"). Thus, an insurer's responsibilities under the endorsement
are triggered when the policy to which it is attached does not provide coverage
to the insured. The peculiar nature of the MCS-90 endorsement grants the
judgment creditor the right to demand payment directly from the insurer, and
simultaneously grants the insurer the right to demand reimbursement from the
insured.