North American Dealer Co-Op; National Administrative Dealer Services, Inc. v. INTERSTATE INDEMNITY COMPANY On Appeal from the United States District Court for the…

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-1453
NORTH AMERICAN DEALER CO-OP;
NATIONAL ADMINISTRATIVE DEALER SERVICES, INC.
Appellants
v.
INTERSTATE INDEMNITY COMPANY
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 04-cv-3609)
District Judge: Honorable John R. Padova
Argued April 21, 2006
Before: McKEE, BARRY, and VAN ANTWERPEN, Circuit Judges.
(Filed May 10, 2006)
Fred A. Greenberg (Argued)
111 Forrest Avenue
Narberth, PA 19072
Counsel for Appellants
James A. Keller (Argued)
Saul Ewing LLP
Centre Square West
1500 Market Street, 38 Floorth

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Philadelphia, PA 19102
Counsel for Appellee
____
OPINION OF THE COURT
VAN ANTWERPEN, Circuit Judge.
Appellants, a co-op and its program administrator, who offer automobile dealers
refunds on unused extended service contracts, seek review of the District Court’s grant of
appellee insurance company’s motion to dismiss. We have jurisdiction pursuant to 28 U.S.C.
§ 1291. For the reasons set forth below, we will affirm.
I.
Because we write solely for the benefit of the parties, we state the facts only as they
pertain to our analysis.
The North American Dealer Co-op (“NADC”) is a Colorado corporation that provides
its members, automobile dealers, with the ability to sell to consumers extended service
contracts with money-back guarantees. If the consumer does not file a claim under the
extended service contract, the consumer receives a refund from the dealer. The dealer then
receives a refund from NADC. NADC maintained a reserve of funds for this purpose, and
also bought insurance to cover any shortfalls. Through its administrative company, National
Administrative Dealer Services, Inc. (“NADS”), also a Colorado corporation, NADC
purchased this insurance, a “Vehicle Service Contract Reimbursement Guarantee Policy.”

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from the Interstate Indemnity Company (“Interstate”), an Illinois corporation.
The insurance policy (“the Policy”) forms the heart of this dispute, and we will
therefore describe it in some detail. The Policy went into effect on April 1, 2001. While
almost all insurance policies set a finite policy period, Interstate filled in the blanks on the
Policy’s declaration page to read, under the Item 2 heading, Policy Period, “FROM: April
1, 2001. TO: Continuous Until Cancelled.”
Paragraph 17 of the Policy, entitled CANCELLATION OF THE POLICY, reads in
pertinent part:
“A. Cancellation by the Company
This policy may be cancelled by the Company for non-payment of premium by
mailing written notice of such cancellation to the Named Insured . . . at least ten (10)
days prior to the effective date of such cancellation. The Company may cancel this
policy for any other reason by mailing written notice . . . at least ninety (90) days prior
to the effective date of such cancellation.
If the policy has been in effect for more than sixty (60) days, it may be cancelled by
the Company only for one of the following reasons:
1. Non-payment of premium;
2. Material increase in the risk;
3. Any fraudulent act, material misrepresentation or false statement knowingly
made by the Named Insured, any Member, and/or the Program Administrator.
The effective date of cancellation stated in the notice shall become the end of the
policy period. . . .
B. Non-Renewal by the Company
This policy may be non-renewed by the Company by mailing written notice of such
non-renewal to the Named Insured at the address shown in Item 1 of the policy
Declarations at least ninety (90) days prior to any policy expiration or anniversary
date. . . .
C. Cancellation by the Insured
The Named Insured shall have the right to cancel this policy by surrendering the
policy to the Company or by mailing to the Company written notice of its intent to do

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so. Any such written notice must specify the effective date of cancellation by the
Insured. The time of surrender by the Named Insured or the effective date of
cancellation stated in the notice shall become the end of the policy period. . . .
D. Non-Renewal by the Insured
The Named Insured may non-renew this policy by mailing a notice of non-renewal
intent to the Company prior to any policy expiration or anniversary date. Failure by
the Named Insured to provide any renewal information and/or any [of] the renewal
premium requested by the Company prior to the policy expiration or anniversary date
shall be considered notice of intent by the Named Insured to non-renew this policy.
. . .
In the event of cancellation or non-renewal, the Company, Named Insured, Program
Administrator, and/or any Members shall remain liable for all of their respective
duties and obligations hereunder with respect to Guarantees effective and originated
prior to the date of cancellation or non-renewal.”
Interstate drafted the Policy and all declaration pages, and filled in any relevant blanks in the
Policy form.
The Policy remained in full effect without incident until December 2003. In a letter,
Interstate informed NADS, the administrator, that “the policy for the North American Dealer
Co-Op is being cancelled effective April 1, 2004, per the terms of that contract. All duties
required by this contract will be in force until the contract non-renews.” The letter was
accompanied by a Notice of Nonrenewal of Insurance, stating: “We will not renew this
policy when it expires. Your insurance will cease on the Expiration Date shown above
[04/01/2004]. The reason for nonrenewal is PROGRAM IS NO LONGER AVAILABLE.”
The letter was also sent to one of NADC’s agents, which stopped writing NADC policies.
On April 15, 2004, NADC notified Interstate that it believed the cancellation was ineffective,

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NADC and NADS are Colorado corporations with principal places of business in1
Colorado. Interstate is an Illinois corporation with principal place of business in California.
The Complaint alleged damages in excess of $75,000. The District Court therefore had
jurisdiction under 28 U.S.C. § 1332.
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null, and void. When negotiations failed, NADC and NADS filed this diversity suit against1
Interstate, alleging, inter alia, breach of contract due to wrongful cancellation, and seeking
damages and a declaratory judgment. Interstate filed a motion to dismiss the Complaint
under Fed.R.Civ.P. 12(b)(6).
On November 16, 2004, the District Court granted the motion to dismiss in part, ruling
that although under Colorado contract law insurance contracts are construed against insurers
in case of ambiguity, the contract was unambiguous and permitted Interstate to cancel by
non-renewal. The District Court dismissed all claims based on an alleged wrongful
cancellation of the policy, but denied Interstate’s motion as to the remaining claims. On
February 4, 2005, pursuant to a settlement between the parties, the District Court dismissed
all of the remaining claims, and made its November 16, 2004, Order final for purposes of
appeal.
II.
We exercise de novo review over the grant of a motion to dismiss pursuant to
Fed.R.Civ.P. 12(b)(6), and apply the same standard as required of the District Court:
“[A]ccept[ing] all well-pleaded allegations in the complaint as true, and view[ing] them in
the light most favorable to the plaintiff,” we will grant the motion if “it appears beyond doubt

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Both parties noted their agreement at oral argument.2
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that the plaintiff can prove no set of facts in support of his claim which would entitle him to
relief.” Carino v. Stefan, 376 F.3d 156, 159 (3d Cir. 2004).
III.
We apply Pennsylvania’s choice of law rules, which provide that an “insurance
contract is governed by the law of the state in which the contract was made. An insurance
contract is ‘made’ in the state in which the last act legally necessary to bring the contract into
force takes place. In most cases, this last act is delivery of the policy to the insured and the
payment of the first premium by him.” J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356,
360-61 (3d Cir. 2004) (citations and quotation marks omitted). Here, given that the insurance
policy at issue was delivered to NADC and NADS (collectively, “appellants”) at their
Colorado offices, we agree with the District Court and the parties that Colorado law applies.2
IV.
The District Court held that even though the Policy states that it is “Continuous Until
Cancelled,” Interstate was unambiguously permitted to “cancel” the Policy by “non-renewal.”
Appellants argue that “cancellation” cannot be read as synonymous with “non-renewal,” and
therefore that Interstate wrongfully cancelled the Policy because “cancellation” as defined
by the Policy required cause. Interstate does not allege that any of the for-cause provisions
of ¶ 17.A apply, and instead argues that because ¶ 17 overall is titled “Cancellation of the
Policy,” that paragraph encompasses both the “Cancellation” and “Non-Renewal”

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subparagraphs A-D, and Interstate could accordingly “cancel by non-renewal.” We agree
with the District Court that the Policy unambiguously permitted Interstate to terminate the
Policy by complying with the non-renewal provision of ¶ 17.B.
“An insurance policy is merely a contract that courts should interpret in line with well-
settled principles of contract interpretation.” Cyprus Amax Minerals Co. v. Lexington Ins.
Co., 74 P.3d 294, 299 (Colo. 2003). Under Colorado law, if there is an ambiguity in an
insurance contract, it must be construed against the insurer. Id. Courts “should give the
words contained in the [insurance] contract their plain and ordinary meaning, unless contrary
intent is evidenced in the policy.” Id. Appellants have not met their burden of showing an
ambiguity in the terms of the Policy.
While the Policy is far from a model of clear drafting, its dual use of “cancellation”
does not create an ambiguity. “[A]lthough a term used in a contract is ambiguous when it
is susceptible to more than one reasonable interpretation, a mere potential for more than one
interpretation of such term considered in the abstract, does not create an ambiguity.” Allstate
Ins. Co. v. Juniel, 931 P.2d 511, 513 (Colo. App. Ct. 1996) (citations omitted). Rather, the
Policy groups several methods of termination together under a single heading, “Cancellation
of the Policy.” We agree with the District Court that the Policy term, “Continuous Until
Cancelled,” logically refers to the intent of the parties to use “cancellation” in a broad sense,
as in the capitalized, bold-faced heading of ¶ 17. To conclude otherwise, we would be forced
in essence to read out various terms of the Policy. The Policy unambiguously permitted

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Interstate to use this method of cancellation; therefore, appellants’ breach of contract claims
fail as a matter of law.
V.
We conclude that appellants have not met their burden of showing an ambiguity in
how the Policy uses the term “cancellation.” We will accordingly affirm the District Court’s
grant of Interstate’s motion to dismiss under Fed.R.Civ.P. 12(b)(6). We have considered all
other arguments made by the parties on appeal, and conclude that no further discussion is
necessary.

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