Indian Harbor Insurance Co v. F&MEQUIPMENT, LTD, f/k/a FURNIVAL MACHINERY COMPANY

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 14-1897
____________
INDIAN HARBOR INSURANCE CO
v.
F&M EQUIPMENT, LTD,
f/k/a FURNIVAL MACHINERY COMPANY,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D. C. Civil Action No. 2-12-cv-01506)
District Judge: Honorable Petrese B. Tucker
Argued on January 14, 2015
Before: AMBRO, FUENTES and ROTH, Circuit Judges
(Opinion filed: October 15, 2015)

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Thomas M. Peterson, Esquire (Argued)
Deborah E. Quick, Esquire
Morgan, Lewis & Bockius
One Market
Spear Street Tower
San Francisco, CA 94105
Counsel for Appellant
Joel C. Hopkins, Esquire (Argued)
Saul Ewing
Two North Second Street
Penn National Insurance Tower, 7th Floor
Harrisburg, PA 17101
Counsel for Appellee
O P I N I O N
ROTH, Circuit Judge:
This case concerns the contractual meaning of the
word “renewal.” F&M Equipment, Ltd., f/k/a Furnival
Machinery Company and Indian Harbor Insurance Company
agreed to a ten-year insurance policy that included a promise
by Indian Harbor to offer a renewal. At the end of the ten
years, Indian Harbor offered a “renewal” contract with

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substantially different terms to Furnival, which rejected it.
Indian Harbor sought a declaratory judgment that its contract
offer constituted a renewal and Furnival counterclaimed for
breach of the original contract. The District Court denied
Furnival’s summary judgment motion, holding that Indian
Harbor’s offer constituted a renewal because an insurance
company need only notify the insured that a policy will
change for the later offer of a contract to constitute a renewal.
Furnival now appeals. For the foregoing reasons, we will
vacate the judgment of the District Court. We conclude that,
for a contract to be considered a renewal, it must contain the
same, or nearly the same, terms as the original contract.
I.
In December 2001, Furnival and Indian Harbor agreed
to a Pollution and Remediation Legal Liability Policy. The
Policy is a seventy-four page document detailing the terms
and conditions of the insurance coverage offered by Indian
Harbor. The terms and conditions include: (1) $10 million in
liability protection; (2) insurance coverage for twelve specific
Furnival locations; and (3) a ten-year period of coverage from
the purchase date. One of the sites covered by the Policy is
the Elizabethtown Landfill Site, which Furnival was obligated
to clean up pursuant to a consent decree with the federal
government. Indian Harbor knew about the consent decree at
the time the Policy was issued. The Policy also includes a
separate section for “Endorsements.” Endorsement No. 16
lists five reasons for which Indian Harbor may “refuse to
offer a renewal extension of coverage,” and states that
Indian Harbor “shall not cancel nor non-renew this Policy

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except for the reasons stated above.”1 It is undisputed that
none of the listed reasons for non-renewal occurred.
1 Endorsement No. 16 reads in relevant part:
I. The INSURED and the Company agree
that the Company may cancel at any
time or refuse to offer a renewal
extension of coverage for the following
reasons:
a. the INSURED has made a material
misrepresentation . . .[ ; or]
b. the INSURED materially breaches .
. . ; or
c. material failure on the part of the
INSURED to comply with Policy
terms, conditions, or contractual
duties; or
d. a material change in the operations
or lack of operations performed by
the INSURED. . ..
II. Furthermore, the INSURED and the
Company agree that the Company may
refuse to offer a renewal extension of
coverage to the INSURED for the
following reason:

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In 2001, Furnival paid Indian Harbor a $520,498
premium for the Policy and accompanying Endorsements. In
June 2006, the parties modified the contract to include
Endorsement No. 23, which increased the Policy’s limit from
$10 million to $14 million for an additional premium of
$55,798.
In September 2011, near the end of the initial coverage
period, Indian Harbor sought a renewal application from
Furnival. On December 30, 2011, Furnival requested that
Indian Harbor provide Furnival with “[p]roposed premiums
payable and all other relevant terms and conditions for a
renewal policy that the named insured is entitled to and
allowed to elect under the policy.” In late January 2012,
Indian Harbor sent Furnival’s insurance broker its version of
a renewal offer (the Indication of Coverage). The Indication
provided $5 million of coverage over a one-year term, and
omitted coverage for Elizabethtown, the only previously
insured site for which Furnival had made a claim. Unsatisfied
with the terms of the Indication, Furnival rejected it and, two
days later, requested that Indian Harbor send an offer to
a. loss of reinsurance or a substantial
decrease in reinsurance has
occurred. . ..
The Company agrees that it shall not cancel
nor non-renew this Policy except for the
reasons stated above.
All other terms and conditions remain the
same.

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renew under the same terms and conditions as the Policy. On
January 31, 2012, Indian Harbor informed Furnival that it
would not provide a revised offer. In February 2012,
Furnival sent Indian Harbor a notice accepting “the renewal
extension that Indian Harbor was obligated to offer under
Endorsement No. 16,” along with a check for $520,498 to
serve as the premium for the renewed Policy. Indian Harbor
returned the check and rejected Furnival’s request.
On March 23, 2012, Indian Harbor filed a Complaint
against Furnival, seeking declaratory judgment on four issues:
(1) [Indian Harbor] made an offer to renew the
Policy as required by Endorsement No. 16;
(2) Furnival rejected [Indian Harbor]’s offer to
renew the Policy, resulting in its termination
on December 31, 2011;
(3) [Indian Harbor] had no obligation to offer to
renew the Policy under the same terms and
conditions as the expiring Policy; and
(4) Furnival’s attempt to renew the Policy under
the same terms and conditions as the
expiring Policy is without force and effect.
Furnival filed a counterclaim for breach of contract, and
eventually moved for summary judgment.
The District Court denied Furnival’s motion. Indian
Harbor argued, as it does here, that state law permits an
insurance company to renew a policy with different terms
than the original policy if notice of the changes is given. The
District Court reasoned that Furnival “inadvertently
acknowledged” that the “general rule of ‘same terms and

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conditions as contained in the original policy,’” contains an
“‘unless otherwise expressed’ exception.”2 Accordingly, as
Indian Harbor undisputedly gave notice of its intent to change
the policy, the court held that Indian Harbor satisfied its
obligation to renew.
II.3
This Court reviews the district court’s denial of
summary judgment de novo.4 Summary judgment is
appropriate if there is no genuine issue of material fact and
the movant is entitled to judgment as a matter of law.5 This
Court “exercise[s] plenary review over questions of contract
interpretation.”6
Sitting in diversity, we apply the law of the state in
which the case originates, in this case Pennsylvania. “Under
Pennsylvania law, an insurance contract is governed by the
law of the state in which the contract was made.”7 In
Pennsylvania, “[t]he fundamental rule in interpreting the
2 Indian Harbor Ins. Co. v. F & M Equip. Ltd., No. 2:12-CV-
01506 PBT, 2013 WL 4405685, at *4 (E.D. Pa. Aug. 15,
2013).
3 The District Court had jurisdiction pursuant to 28 U.S.C. §
1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.
4 Meyer v. CUNA Mut. Ins. Soc., 648 F.3d 154, 162 (3d Cir.
2011).
5 Id.
6 Great Am. Ins. Co. v. Norwin Sch. Dist., 544 F.3d 229, 243
(3d Cir. 2008).
7 Meyer, 648 F.3d at 162 (citing Crawford v. Manhattan Life
Ins. Co., 221 A.2d 877 (Pa. Super. Ct. 1966)).

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meaning of a contract is to ascertain and give effect to the
intent of the contracting parties.”8 Where writing is “clear
and unequivocal,” the intent of the parties is found “in the
writing itself . . .. A contract contains an ambiguity if it is
reasonably susceptible of different constructions and capable
of being understood in more than one sense.”9 Specifically,
insurance contracts must be interpreted in light of the
insured’s reasonable expectations.10 If an ambiguity is
otherwise unresolvable, inferences should be drawn against
the insurance company, the author of the policy.11
We must determine what the parties meant when they
agreed that Indian Harbor would not “refuse to offer a
renewal extension of coverage.”12 Furnival argues that a
“renewal” requires a new contract that contains the same
material terms as, or substantially similar terms to, the
original contract.13 Indian Harbor responds that such a rule
8 Murphy v. Duquesne Univ., 777 A.2d 418, 429 (Pa. 2001).
9 Id.
10 Bensalem Twp. v. Int’l Surplus Lines Ins. Co., 38 F.3d
1303, 1308-09 (3d Cir. 1994).
11 Meyer, 648 F.3d at 163.
12 Furnival and Indian Harbor argue that the phrases “renewal
extension” and “renewal extension of coverage” respectively
have independent meanings that happen to align with their
interpretations of the word “renewal.” We do not believe that
the additional words provide useful clues as to the meaning of
the operative word “renewal.”
13 See, e.g., Borders v. Great Falls Yosemite Ins. Co., 72 Cal.
App. 3d 86, 97 (Cal. Ct. App. 1977); Gaston-Lincoln Transit,
Inc. v. Maryland Cas. Co., 201 S.E.2d 211, 216 (N.C. Ct.
App. 1973). Indian Harbor characterizes Furnival’s argument

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would lock it into the same contract for eternity, and that
cannot be what the parties intended. For its part, Indian
Harbor argues that a renewal need only be any offer of a new
contract, so long as advance notice is provided for any
changed terms and the terms are commercially reasonable.
Furnival responds that this argument renders the promise of
renewal illusory, because Indian Harbor is always free to
offer a new contract, and its reasoning allows it to offer a
“renewal” that is of no use to Furnival.
Case law on this subject is quite thin. Neither we nor
the Pennsylvania courts have considered the meaning of
renewal in this context. In Flanagan v. Fidelity Bank, the
Superior Court of Pennsylvania considered whether a
certificate of deposit (CD) that automatically renewed after its
expiration continued accruing interest at its original rate.14
The court held that, because the CD renewed, the original
interest rate applied, rather than either zero interest or market
rates. In so holding, the court relied on Black’s Law
Dictionary: “To ‘renew’ a contract means to begin again or
continue in force the old contract.”15 But that court did not
consider whether modifications to a contract would render it a
nonrenewal. If the bank had notified the customer that the
CD would change to a new market rate upon its expiration,
as requiring a renewal to have identical terms. In its brief,
however, Furnival uses the phrases “same material terms” and
“substantially the same terms” interchangeably, relying on
cases that use both. For the purpose of our analysis, we treat
them as separate concepts.
14 652 A.2d 930, 932 (Pa. Super. Ct. 1995).
15 Black’s Law Dictionary, 5th ed., quoted in Flanagan, 652
A.2d at 932.

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there is no evidence that the court would have considered it a
nonrenewal. Similarly, if a landlord “renews” a tenant’s lease
at a new market rate, is that not also a renewal? A renewal
contract need not contain identical terms to the original.16
Indian Harbor, for its part, points to Schock v. Penn
Township Mutual Fire Insurance Association, where the
Pennsylvania Superior Court noted that “[a] renewal of a
policy of . . . insurance is, in effect, a new contract of
insurance, and, unless otherwise expressed, on the same terms
and conditions as the original policy.”17 Indian Harbor seeks
a rule that any new contract with notice of new terms
qualifies as a renewal. But case law states only that, if an
insurance company renews a contract and wants to change
terms, it must give notice of the change or the terms will be
the same. Neither case law nor logic suggests that notice
implies that such a new contract is a renewal. Imagine an
insurance company that initially agreed to a 100-year contract
with a promise of renewal and subsequently gives notice that
the “renewal” runs for thirty days. We would be hard pressed
16 See Am. Cas. Co. of Reading, Pa. v. Continisio, 17 F.3d 62,
65 (3d Cir. 1994) (“[A] change in material terms [does not
necessarily] constitute[] constructive nonrenewal of an
insurance policy.”); Stowe Twp. v. Standard Life Ins. Co. of
Ind., 507 F.2d 1332, 1337 (3d Cir. 1975) (surveying
“renewal” insurance contracts with terms different than the
original).
17 24 A.2d 741, 743 (Pa. Super. Ct. 1942) (emphasis added).
Indian Harbor also notes that Gaston-Lincoln Transit, on
which Furnival relies, contains similar language, that
“substantially the same terms” apply on renewal “absent
notice to the contrary.” 201 S.E.2d at 216.

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to consider that a renewal. Tellingly, the cases on which
Indian Harbor relies consider whether a new insurance policy
may change terms at all, rather than asking whether the
change in terms is so drastic as to render it effectively a
nonrenewal.18 While the terms of a renewal contract may
change with notice, the key question is how similar the new
contract must be, and whether the Indication here meets that
standard.
Regardless of the particular degree of similarity
required, Indian Harbor’s position cannot be what the parties
intended.19 There is no difference between what Indian
Harbor proposes and what it had every right to do without a
prior promise to renew. If any new offer counts as a renewal,
the promise of a renewal is illusory: Indian Harbor may
easily satisfy its obligation by offering a contract which it
knows does not satisfy Furnival’s needs. Indian Harbor
argues that the common law duty of good faith and fair
dealing provides a backstop that would prevent commercially
unreasonable insurance contracts. But the relevant provision
of the contract is a promise to offer a renewal, not a
reasonable insurance contract. The common law duty,
therefore, merely reinforces the idea that Indian Harbor
cannot satisfy its obligation by offering a renewal that it
knows Furnival will decline. It does not further explicate
what constitutes a “good faith” renewal offer.
18 Continisio, 17 F.3d at 66 (“[I]f an insured accepts coverage
on different terms, with knowledge of the change in coverage,
a valid renewal could exist.”).
19 Murphy 777 A.2d at 429 (ascertaining the parties’ intent is
the fundamental rule of contractual interpretation).

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On the question of what constitutes a renewal, it is
clear under our precedent that a renewal need not be identical
to the original.20 But to hold that it can be any modification
at all would not give effect to the parties’ intentions. In
McCuen v. American Casualty Co. of Reading, Pennsylvania,
the Eighth Circuit considered a situation similar to the one
presented here: a new insurance contract with terms
“substantially and materially different from the policy then in
effect.”21 The McCuen court reasoned that “[r]efusing to
provide coverage and refusing to renew coverage are not
identical concepts. . .. [The insurer] did not refuse to provide
(deny) any coverage at all, it simply refused to provide the
same coverage as was provided under the existing policy—it
refused to renew.”22 The court held that a renewal requires
“continuation of coverage on the same, or nearly the same,
terms as the policy being renewed.”23 We agree with the
McCuen court and believe that this rule best accords with the
intentions of the parties.
III.
The Indication differed from the Policy in four ways:
1) an updated price; 2) one year of coverage instead of ten; 3)
$5 million coverage limit instead of $14 million; 4) exclusion
20 Continisio, 17 F.3d at 65.
21 946 F.2d 1401, 1404 (8th Cir. 1991).
22 Id.
23 Id. (citing Davis v. Travelers Ins. Co., 196 N.W.2d 526,
530 (Iowa 1972)). The court ostensibly followed Iowa law,
but Davis actually stated that unless otherwise expressed, the
terms must be the same. The McCuen court added flexibility
in holding that a renewal could be “nearly the same” as well.

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of Elizabethtown. As discussed above, a reasonable change
in price should not alone render a new contract a nonrenewal.
But the remaining terms must be recognizable extensions of
the initial Policy, and they are not. The length of coverage is
different, the amount of coverage is different, and the scope
of coverage is different. The general subject matter is the
same and the parties are the same, but this is not enough.
Because Indian Harbor did not offer a contract that is either
the same or nearly the same as the Policy, it breached its
promise to offer a renewal extension of coverage.
While Indian Harbor breached, Furnival was not
entitled to merely send Indian Harbor a check for $520,498
because Indian Harbor need not have offered an identical
policy. Furthermore, after the 2006 modification to add
Endorsement No. 23, that premium was no longer even
accurate. Per Endorsement No. 16, Indian Harbor must offer
a contract that can be considered a renewal, and then the
parties can negotiate the details.
Indian Harbor complains that holding it to its promise
would require renewing the renewal provision itself, and that
would obligate Indian Harbor to recursively renew the
contract in perpetuity. To the extent Indian Harbor argues
that a contract it drafted was not careful enough, we are
unmoved. Moreover, in future policies, Indian Harbor need
not incorporate the broad renewal provisions that are included
here. The issue of a perpetual contract is, however, a
question for another day. We hold here only that the terms of
a renewal must be the same or nearly the same as the initial
contract. The question of being held to a perpetual renewal is
not before us and we will not opine on such a question at this
time.

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IV.
For the reasons stated above, we will vacate the
judgment of the District Court and remand this case to the
District Court to order summary judgment in favor of
Furnival on the issue of Indian Harbor’s breach and for
further proceedings not inconsistent with this opinion.

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