JNJ Logistics, L.L.C., et al v. Scottsdale Insurance Company

Filing

OPINION filed : We REVERSE the district court's grant of summary judgment to Scottsdale and REMAND for further proceedings, decision not for publication. Julia Smith Gibbons (Authoring) and Deborah L. Cook, Circuit Judges and The Honorable Stephen J. Murphy , III, U.S. District Judge for the Eastern District of Michigan. [14-5900, 14-5947]

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 15a0478n.06
Case Nos. 14-5900/5947
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

JNJ LOGISTICS, LLC,
Plaintiff-Appellant,
and
SEARS LOGISTICS SERVICES, INC.,
Intervening Plaintiff-Appellant,
v.
SCOTTSDALE INSURANCE COMPANY,
Defendant-Appellee.

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FILED
Jun 30, 2015
DEBORAH S. HUNT, Clerk
ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE WESTERN
DISTRICT OF TENNESSEE
OPINION

BEFORE: GIBBONS and COOK, Circuit Judges; MURPHY, District Judge.*
JULIA SMITH GIBBONS, Circuit Judge. This appeal turns on a single issue: whether
the designation of “Sears, 3456 Meyers, Memphis, TN 38108” as an additional insured under a
policy held by JNJ Logistics, LLC extended coverage to Sears Logistics Services, Inc. (“SLS”).
The district court concluded as a matter of law that it did not and granted summary judgment to
Scottsdale Insurance Company. Because the insurance policy contains a latent ambiguity and
there is a genuine issue of material fact about whether the parties intended SLS to be an
additional insured, we reverse the district court’s grant of summary judgment to Scottsdale and
remand for further proceedings.
*

The Honorable Stephen J. Murphy III, United States District Judge for the Eastern
District of Michigan.

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I.
JNJ Logistics, LLC (“JNJ”) provides hostling services—drivers, tractors, and related
equipment for moving trailers at warehouses—to corporate customers in Tennessee and
Mississippi. One of JNJ’s customers was Sears Logistics Services, Inc., which warehouses and
distributes goods sold in Sears, Roebuck and Company retail stores. In its contracts with SLS,
JNJ agreed to procure and maintain commercial general liability insurance that named SLS as an
additional insured. Pursuant to that contractual obligation, JNJ purchased an insurance policy
from Scottsdale Insurance Company (“Scottsdale”) that was first effective on May 9, 2000.
Scottsdale acknowledges that JNJ’s 2000 policy named SLS as an additional insured. It was
renewed on January 1, 2001 for one year and again on January 1, 2002 for another year.
On January 1, 2003, Scottsdale issued what it characterizes as a “new” policy to JNJ
under a different policy number, although the first page of the 2003 policy states that it is a
renewal of JNJ’s original policy that dated back to 2000. Under the 2003 policy, JNJ was
charged a $200 premium for two additional insureds, but the policy did not spell out who those
additional insureds were.
The 2003 policy was renewed on January 1, 2004. Enclosed in the policy renewal
documentation transmitted from the Southern General Agency of Tennessee to Scottsdale was a
list of JNJ’s locations as of December 16, 2003. Included on the list were “Sears—3456 Myers
[sic], Memphis, TN,” and “Sears SLS—10425 Ridgewood Dr., Olive Branch, MS.” According
to Scottsdale, this list was provided by JNJ. Like the 2003 policy, the 2004 policy included a
$200 premium for two additional insureds; unlike the 2003 policy, it named the additional
insureds, one of which was listed simply as “Sears, 3456 Meyers, Memphis, TN 38108.” 3456

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Meyers1 is the location of a warehouse owned, operated, and managed by SLS. The facility is
under the sole custody and control of SLS, and other than SLS no entity with “Sears” in its name
operates at 3456 Meyers in Memphis. Furthermore, no business called simply “Sears” has ever
operated at 3456 Meyers. John Ennis, Sr., the sole member of JNJ Logistics, LLC, says that his
understanding was that SLS had been added to JNJ’s policy as an additional insured.
On July 20, 2004, a man named Darius Grove was allegedly struck by a forklift driven by
an SLS employee at SLS’s facility at 10425 Ridgewood Drive, Olive Branch, Mississippi.
Grove was an employee of JNJ Express, Inc.; JNJ Express is a separate entity from JNJ
Logistics, although Ennis is also the president of JNJ Express. Grove sued SLS, but not JNJ, in
Mississippi state court. SLS then filed a third-party complaint against JNJ for contractual and
common-law indemnity.

Grove settled his claims against SLS in 2011 and the case was

dismissed, but SLS’s third-party claims against JNJ were expressly preserved.
On November 29, 2004, more than four months after Grove’s injury, JNJ’s policy was
amended to add “SLS, Inc.” as an additional insured, in exchange for an additional premium of
$102.50. Scottsdale maintains that this amendment was made at JNJ’s request, and in support of
this assertion offers an email exchange between Barkley Insurance and the Southern General
Agency of Tennessee, which indicates that Barkley Insurance asked that SLS be added to JNJ’s
policy and that the Southern General Agency did so after confirming with Barkley Insurance
what interest SLS had in JNJ. Ennis says that he did not ask to add “SLS, Inc.” as an additional
insured and has no idea why that amendment was made.

1

The other record documents are inconsistent in referring to this address either as “3456
Meyers Road” or “3456 Meyers Avenue.” Whether 3456 Meyers sits on a “Road” or “Avenue”
is immaterial to the parties’ arguments, so we will simply sidestep this inconsistency and refer to
3456 Meyers.
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SLS and JNJ tendered claims to Scottsdale for coverage relating to Grove’s injury but
Scottsdale denied them on the basis that SLS was not an additional insured at the time of Grove’s
injury. In September 2010, JNJ brought a declaratory judgment and breach of contract action
against Scottsdale in Tennessee state court, arguing that “Sears, 3456 Meyers” referred to SLS,
that the policy provided coverage to SLS at its Ridgewood location as well (where Grove had
been injured), and that Scottsdale had wrongfully rejected coverage. Scottsdale removed the
case to federal court on the basis of diversity jurisdiction.2 SLS filed an amended intervening
complaint in February 2011, joining JNJ in arguing that Scottsdale wrongfully denied coverage
to SLS.
During summer 2012 the parties filed cross-motions for summary judgment.

On

November 19, 2012, the district court denied JNJ’s and SLS’s motions for summary judgment
and granted Scottsdale’s motion for summary judgment on the issue of Scottsdale’s denial of
coverage to SLS. The district court held that “as a matter of law, SLS is not an additional
insured under the JNJ-Scottsdale policy.”

Essential to this ruling was the district court’s

conclusion that “‘Sears’ is a different corporate entity from ‘Sears Logistic [sic] Services.’”
The central issue remaining for trial, which is not the subject of this appeal, was whether
Scottsdale breached its contract with JNJ by refusing to provide a defense to JNJ in SLS’s thirdparty action on the common-law indemnity claims. After a bench trial, the district court ruled in
favor of JNJ on that issue. Final judgment was entered on July 10, 2014.

2

JNJ filed an amended complaint in January 2011 that added a claim for violation of
Tennessee’s bad faith statute, Tenn. Code Ann. § 56-7-105. That claim was resolved by the
parties during the pendency of this appeal.
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JNJ and SLS timely appealed. Focusing solely on the issue of whether SLS was an
additional insured, they challenge the district court’s decision denying their motions for
summary judgment and granting Scottsdale’s motion for summary judgment.
II.
We review de novo the district court’s order granting summary judgment to Scottsdale.
Keller v. Miri Microsystems LLC, 781 F.3d 799, 806 (6th Cir. 2015). Our review of the district
court’s order denying summary judgment to JNJ and SLS is also de novo because the district
court framed its decision as having been “made on purely legal grounds.” Liberty Mut. Fire Ins.
Co. v. Kay & Kay Contracting, LLC, 545 F. App’x 488, 491 (6th Cir. 2013) (quoting Am.
& Foreign Ins. Co., Inc., v. Sequatchie Concrete Servs., Inc., 441 F.3d 341, 344 (6th Cir. 2006)).
Summary judgment is proper when “there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In making this assessment we view the
record and all inferences drawn therefrom in the light most favorable to the nonmoving party.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

Summary

judgment is improper if the nonmoving party has produced evidence “such that a reasonable jury
could return a verdict” in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The ultimate inquiry is “whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.”
Id. at 251–52.
In determining whether a genuine dispute of material fact exists, we will apply the
substantive law of the state of Tennessee for the following reasons. To determine the applicable
substantive law in a diversity-jurisdiction case, federal courts apply the choice-of-law rules of the
forum state: here, Tennessee. Mill’s Pride, Inc. v. Cont’l Ins. Co., 300 F.3d 701, 704 (6th Cir.
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2002) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Tennessee’s
choice-of-law rules provide that claims based on a contract are presumed to be governed by the
law of the jurisdiction in which the contract was executed, absent contrary indications such as a
contractual choice-of-law clause. Town of Smyrna, Tenn. v. Mun. Gas Auth. of Ga., 723 F.3d
640, 645 (6th Cir. 2013) (citing Vantage Tech., LLC v. Cross, 17 S.W.3d 637, 650 (Tenn. Ct.
App. 1999)). The claims in this case are based on the insurance policy issued by Scottsdale’s
agent, which was executed in Tennessee and does not contain a choice-of-law clause. This
points us to Tennessee’s substantive law. The district court applied Tennessee’s substantive law
and the parties did not object; we will do so as well.
III.
“The central tenet of contract construction is that the intent of the contracting parties at
the time of executing the agreement should govern.” Planters Gin Co. v. Fed. Compress
& Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002) (citing Empress Health & Beauty Spa,
Inc. v. Turner, 503 S.W.2d 188, 190 (Tenn. 1973)). The first step in ascertaining the parties’
intent is to look at the plain meaning of the words in the contract and determine whether the
language is ambiguous. Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006) (citing
Planters Gin, 78 S.W.3d at 890). “If the language is clear and unambiguous, the literal meaning
controls the outcome of the dispute.” Id. “If, however, the words in a contract are susceptible to
more than one reasonable interpretation,” i.e., if the language is ambiguous even after applying
the pertinent rules of construction, then the court may consult parol evidence, “including the
contracting parties’ conduct and statements regarding the disputed provision,” in order to
ascertain the parties’ intent. Id. at 611–12. Ambiguity does not arise merely because the parties
interpret contractual provisions differently; “[a] contract is ambiguous only when it is of
uncertain meaning and may fairly be understood in more ways than one.” Johnson v. Johnson,
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37 S.W.3d 892, 896 (Tenn. 2001) (quoting Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801,
805 (Tenn. 1975)).
There are two types of ambiguities that may arise in a contract: patent and latent. See
Gredig v. Tennessee Farmers Mut. Ins. Co., 891 S.W.2d 909, 915 (Tenn. Ct. App. 1994) (citing
Union Planters Corp. v. Harwell, 578 S.W.2d 87, 92 (Tenn. Ct. App. 1978)). The distinction
between the two has been characterized as “ambiguous terms” versus “ambiguous facts.” Id. “A
patent ambiguity is one produced by the uncertainty, contradictoriness, or deficiency of the
language of an instrument . . . .” Teague v. Sowder, 114 S.W. 484, 488 (Tenn. 1908) (quoting
Weatherhead v. Sewell, 28 Tenn. 272, 295 (Tenn. 1848)). By contrast, a latent ambiguity arises
not “from the words themselves, but from the ambiguous state of extrinsic circumstances to
which the words of the instrument refer.” Id. (internal quotation marks omitted). Unlike a patent
ambiguity, which is apparent on the face of the document, a latent ambiguity arises “when the
document’s terms are applied or executed.” Horadam v. Stewart, 2008 WL 4491744, at *6
(Tenn. Ct. App. 2008) (quoting Black’s Law Dictionary 88 (8th ed. 2004)).
The additional insured endorsement at issue here did not contain a patent ambiguity. As
the district court noted, the plain language of the policy is quite clear that “Sears, 3456 Meyers”
is an additional insured.

But when the time comes to figure out who or what “Sears,

3456 Meyers” is, a latent ambiguity arises from extrinsic facts: no entity with the legal name
“Sears” operates or has ever operated at 3456 Meyers in Memphis. What is more, there is
apparently no entity in either Tennessee or Mississippi known solely by the legal name “Sears.”
Rather, 3456 Meyers is under the sole custody and control of Sears Logistics Services, Inc.,
which is a distributor for and wholly owned subsidiary of Sears, Roebuck and Company, which
in turn is a wholly owned subsidiary of Sears Holdings Corporation.

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The term “Sears,

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3456 Meyers” thus is subject to several different reasonable interpretations: it might refer to
Sears Logistics Services, Inc.; Sears, Roebuck and Company; Sears Holdings Corporation; or
perhaps some other entity with “Sears” in its name.

That is not to say that all of these

interpretations are equally likely, but they are sufficiently plausible to make the additional
insured designation ambiguous.
Deciding whether resolution of a contractual ambiguity presents a question of law or
question of fact can be a thorny problem; different jurisdictions have taken different approaches
at different times depending on the type of contract at issue. See generally Randall H. Warner,
All Mixed Up About Contract: When Is Contract Interpretation a Legal Question and When Is It
a Fact Question?, 5 Va. L. & Bus. Rev. 81 (2010). Tennessee’s approach, however, is that when
ambiguity remains after the court applies the pertinent rules of construction, the “legal meaning
of the contract become[s] a question of fact.” Planters Gin, 78 S.W.3d at 890 (internal quotation
marks and alterations omitted); see also Gredig, 891 S.W.2d at 915 (citing Harwell, 578 S.W.2d
at 92) (holding that resolution of a latent ambiguity in an insurance contract—whether or not
Harwell, who was on leave at the time of the acts complained of, was an “employee” in the
ordinary sense of the word—presented a question of fact for resolution by the jury).
In this case, both sides have produced evidence such that a reasonable jury could resolve
this factual dispute in their favor. JNJ and SLS, for their part, have presented evidence that could
allow a reasonable jury to conclude that “Sears, 3456 Meyers” made SLS an additional insured.
As discussed above, JNJ had a contractual obligation to secure insurance coverage for SLS, and
Scottsdale admits that SLS was an additional insured under JNJ’s policy until January 1, 2003.
SLS was the only business with “Sears” in its name with which JNJ did business. JNJ and SLS
have introduced evidence showing that the facility at 3456 Meyers is and was under the sole

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control of SLS and that no other entity with “Sears” in its name has ever operated at that
location. Furthermore, a fax sent from JNJ to Barkley Insurance and the Southern General
Agency (Scottsdale’s agents) in 2000 states that JNJ operated at “Sears Logistics Services” at
3456 Meyers, which could be construed by a reasonable jury to mean that Scottsdale had actual
knowledge that the “Sears” doing business at 3456 Meyers was SLS. JNJ also points out that the
additional insured endorsement that names “Sears, 3456 Meyers” insured the “organization”
listed, but the term “organization” is not defined in the policy. Ruth Crocker, an underwriter at
Southern General Agency, testified in a deposition that the 3456 Meyers address did not
designate a location where work was being performed but merely “a mailing address to deliver
the additional insured endorsement to.” JNJ argues that it therefore expected not only that SLS
was covered, but that SLS was covered for its operations at the Ridgewood location (where
Grove was injured) as well as the Meyers location. JNJ also points to a document entitled
“Detail Loss Information for Selected Policy,” prepared by Scottsdale after JNJ’s and SLS’s
claims were filed, which lists one of the claimants as “Sears (SLS Logistics)” at the location of
3456 Meyers in Memphis. Taken together, this evidence raises a genuine issue of material fact
about whether the parties intended “Sears, 3456 Meyers” to extend coverage to SLS.
In Tennessee, as in other jurisdictions, the general rule of long standing is that “in
construing an insurance policy, uncertainties or ambiguities must be construed strongly against
the insurer and in favor of the insured.” Travelers Ins. Co. v. Aetna Cas. & Sur. Co., 491 S.W.2d
363, 366 (Tenn. 1973). Notwithstanding this background rule, we think Scottsdale has also
raised a genuine issue of material fact that precludes entry of summary judgment in favor of JNJ
and SLS. Scottsdale points out that the list of locations submitted with JNJ’s 2003 policy
renewal listed “Sears” at the 3456 Meyers location, but “Sears SLS” at the 10425 Ridgewood

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location. Scottsdale asserts that this list was provided by JNJ. The record does not allow us to
assess definitively whether this assertion is true, but if it is, it tends to show that JNJ viewed
“Sears” at 3456 Meyers as a different entity from SLS. Scottsdale further points out that JNJ’s
policy was amended in November 2004—months after Grove’s injury—to add “SLS, Inc.” as an
additional insured, and that when JNJ’s policy was renewed on January 1, 2005, it included three
additional insureds: “SLS, Inc.” at 10425 Ridgewood Drive in Olive Branch, “Sears” at 3456
Meyers in Memphis, and “Coors Brewery” at 5151 Raines Road in Memphis. These facts also
could be read by a reasonable jury to suggest that the parties viewed “Sears, 3456 Meyers” as a
different entity from SLS.
The ultimate touchstone is the intent of the parties, Christenberry v. Tipton, 160 S.W.3d
487, 494 (Tenn. 2005), and in these muddled circumstances, ascertaining who the parties
intended to cover with the additional insured designation for “Sears, 3456 Meyers” is a question
for the finder of fact. Summary judgment was improper.
IV.
We reverse the district court’s grant of summary judgment to Scottsdale and remand for
further proceedings.

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