Rusthoven v. Commercial Standard Insurance Co.
1986 Minn. LEXIS 797, 387 N.W.2d 642 (1986)
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Rule of Law:
When an insurance policy contains irreconcilably inconsistent endorsements regarding coverage limits, the policy is ambiguous and must be construed against the insurer and in favor of the insured, provided the result does not exceed the reasonable expectations of the insured.
Facts:
- Andrew Rusthoven, Jr., an employee of R.E.T.E.N.O. Carriers, Inc., was injured in an accident on March 8, 1981, while driving a tractor-trailer for his job.
- The accident was allegedly caused by an unidentified car that crossed the centerline, forcing Rusthoven's vehicle off the road.
- At the time of the accident, R.E.T.E.N.O. leased 67 vehicles, all of which were covered under a single truckers' policy issued by Commercial Standard Insurance Company (Commercial).
- The premium for the Commercial policy was calculated based on R.E.T.E.N.O.'s gross receipts, not on a per-vehicle basis.
- The Commercial policy contained two contradictory endorsements regarding the limit of uninsured motorist (UM) coverage.
- Endorsement CA 21 07 set a flat limit of $25,000 per person, 'Regardless of the number of covered autos.'
- Endorsement CA 21 24 stated, 'If there is more than one covered auto our limit of liability for any one accident is the sum of the limits applicable to each covered auto.'
- Rusthoven also had a personal auto insurance policy with Western National Mutual Insurance Company (Western).
Procedural Posture:
- Andrew Rusthoven sued Commercial Standard Insurance Company and Western National Mutual Insurance Company in Kandiyohi County District Court (trial court).
- The trial court judge ruled that the applicable coverage under the Commercial policy was limited to $25,000.
- Rusthoven (plaintiff-appellant) and Western (defendant-appellant) appealed the trial court's ruling to the Minnesota Court of Appeals (intermediate appellate court).
- A divided Court of Appeals affirmed the district court's decision.
- Rusthoven and Western appealed to the Supreme Court of Minnesota.
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Issue:
Does an insurance policy with contradictory endorsements—one setting a single liability limit regardless of the number of vehicles and another setting the limit as the sum of the limits for each covered vehicle—create an ambiguity that must be construed against the insurer to provide the greater coverage?
Opinions:
Majority - Yetka, J.
Yes. An insurance policy with such contradictory endorsements creates an ambiguity that must be construed against the insurer. The two endorsements, CA 21 07 and CA 21 24, are irreconcilably inconsistent. One establishes a single limit of $25,000, while the other explicitly provides for 'stacking' the limits by stating the liability is the 'sum of the limits applicable to each covered auto.' Citing the principle that ambiguous contracts, especially adhesion contracts, are construed against the drafter, the court must interpret the policy in favor of the insured. This results in coverage of $25,000 multiplied by the 67 covered vehicles, for a total of $1,675,000. This amount is not considered to be beyond the reasonable expectations of the insured.
Dissenting - Coyne, J.
No. While the policy endorsements are irreconcilable, the only reasonable interpretation of the policy as a whole limits the uninsured motorist coverage to $25,000. The clause in endorsement CA 21 24 allowing for the 'sum of the limits applicable to each covered auto' is meaningless because nowhere in the policy is there a limit of liability applicable to a single covered vehicle; all stated limits apply to persons and accidents. Furthermore, the premium was based on gross receipts, not a per-vehicle charge, which is inconsistent with stacked coverage. The majority misapplies the 'reasonable expectations' doctrine, which should be based on what the contracting parties (the insurer and the employer) would have objectively expected, not the subjective hope of an injured driver after an accident. It is unreasonable to believe the trucking company expected to purchase $1,675,000 in UM coverage in this context.
Analysis:
This decision strongly reaffirms the principle of contra proferentem (construing ambiguity against the drafter) in the context of insurance law. It demonstrates that courts will hold insurers to the literal language of their policies, even when conflicting endorsements lead to a massive expansion of coverage. The case highlights the tension between this traditional rule and the more modern 'reasonable expectations' doctrine, with the majority using the latter to validate the outcome of the former. This holding serves as a significant warning to insurers about the critical importance of internal consistency in policy documents, as any ambiguity can be resolved in favor of the insured to the maximum extent possible.
