Opinion
Case No. 8:03CV281.
March 8, 2005
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on the cross-motions for summary judgment filed by Defendant WG, Inc. ("WG") (Filing No. 36), Defendant Republic Western Insurance Company and its insureds, Colberg Harvesting, Inc., and Colberg Transporation, Inc. (hereafter "Republic Western" and collectively "Colberg") (Filing No. 39); and Plaintiff National American Insurance Company ("NAICO") (Filing No. 40). At issue are the parties' rights and responsibilities under certain insurance contracts. The motions have been fully briefed (Filing Nos. 38, 43, 53, 56, 60, 62, and 63, attachment 1). Evidence has been submitted by the parties in support of their respective positions, and has been considered by the Court. (Filing Nos. 37 (WG), 41-52, 55 (Republic Western), and 54 (NAICO)).
NAICO's motion for leave to file a reply brief (Filing No. 63) is granted.
For the reasons provided below, WG's motion will be granted in part and denied in part; NAICO'S motion will be granted in part and denied in part; and Republic Western's motion will be denied.
FACTUAL AND PROCEDURAL BACKGROUND
The parties were involved in the settlement of litigation arising out of a collision that occurred on August 13, 2001, between a car driven by a minor, Chelsea Quellhorst, and a truck operated by Jonathan D. Howard. On the day of the accident, Howard was employed by WG. Howard was driving a truck on a public roadway owned by Colberg Harvesting. Investigation revealed that on the day of the accident, Colberg Harvesting and WG were working together harvesting crops at the same location. (Filing No. 50, Ex. F, Houghton Dep. at 30:1-6).Immediately after the accident, NAICO received notice of the Quellhorst claim and investigated. NAICO's claims adjuster quickly identified coverage issues that might arise under the policy. (Filing No. 50, Ex. F, Gary Houghton Dep. 26-33; 39).
On October 18, 2001, Quellhorst filed a complaint in the United States District Court for the District of North Dakota seeking damages for the serious injuries that she sustained (Filing No. 54, Ex. E). WG was not named in the complaint. On February 7, 2002, Quellhorst filed an amended complaint, which added WG as a defendant. (Filing No. 54, Ex. B). The Amended Complaint alleged that Howard, WG, Colberg Harvesting, and Colberg Transporation, were negligent in causing the accident, and among other things, that Colberg and WG were acting as a joint venture at the time of the accident. Id. Colberg filed a cross-claim against WG seeking contribution and indemnity.
Republic Western provided a defense for Colberg and Howard in the underlying action. When NAICO learned that WG was named as a defendant in the Quellhorst lawsuit on or about February 18, 2002, NAICO hired counsel to represent WG. (Houghton Dep. 38-41). Through counsel, on April 14, 2003, NAICO tendered defense of WG to Republic Western in the underlying action. Republic Western refused to defend WG in the litigation. (Filing No. 50, Ex. D). The counsel retained by NAICO for WG's benefits represented WG throughout the underlying litigation.
The Quellhorst lawsuit was eventually compromised and settled on or about October 6, 2003. (Filing No. 54, Ex. M). WG states that it first learned that NAICO had been providing its defense in the underlying action under a reservation of rights when NAICO filed this action. I find no evidence that NAICO had previously notified WG that it was providing its defense under a reservation of rights regarding coverage. (See Filing No. 37, Kirk Grove Aff. at ¶ 8; Filing No. 49., Ex. E, Dick F. Harrison Dep. at 23:7-18, 33:13-20; Ex. F, Houghton Dep. at 43:5-13; 49-51).
"Reservation of rights is a means by which prior to determination of the liability of the insured, the insurer seeks to suspend the operation of waiver and estoppel. When coverage is in doubt, the insurer may offer to defend the insured, reserving all of its policy defenses in case the insured is found liable. Upon such notification the insured may either accept the reservation of rights and allow the company to defend or it may reject the reservation of rights and take over the defense itself." City of Carter Lake v. Aetna Cas. and Sur. Co., 604 F.2d 1052, 1060 n. 7 (8th Cir. 1979).
WG moves for summary judgment against NAICO because NAICO's reservation of rights was not timely, and WG relied on NAICO's actions in assuming its defense in the underlying action to its prejudice. WG also seeks attorneys fees from NAICO pursuant to Neb. Rev. Stat. § 44-359. NAICO contends that WG is not entitled to summary judgment in this case because WG was an insured under the Republic Western policy, and the Republic Western policy is primary to the NAICO policy.
NAICO and Republic Western have filed separate motions for summary judgment. NAICO moves for summary judgment seeking declaratory relief 1) that the Republic Western auto policy is primary to NAICO's policy, and that NAICO provides only excess coverage; that 2) WG is an insured under the Republic Western policy; and 3) that NAICO is entitled to equitable subrogation from Republic Western for those amounts that NAICO paid on behalf of WG to the Quellhorst settlement and in attorneys fees and costs of defense. Republic Western moves for summary judgment seeking declaratory relief that NAICO had a duty to defend WG, Howard, and the Colberg entities under NAICO's CGL policy and the commercial auto policy that NAICO wrote for WG. By failing to assume the duty to defend Howard when it tendered Howard's defense to NAICO, Republic Western contends that it is entitled to contribution and indemnity from NAICO in the amount that Republic Western contributed on behalf of Howard and Colberg to Quellhorst in settlement of the underlying litigation.
For the reasons explained more fully below, I conclude that WG is entitled to summary judgment against NAICO on its claim for coverage. NAICO is entitled to summary judgment against Republic Western on the primary/excess coverage issues. NAICO is not entitled to contribution or indemnity from Republic Western for the amounts it paid toward the settlement and for WG's defense. Republic Western is not entitled to summary judgment on any of its counterclaims or defenses.
POLICY LANGUAGE
At the time of the accident, WG had a two-part policy of insurance through NAICO comprised of a Commercial General Liability ("CGL") policy and a commercial auto policy. Colberg had an auto policy through Republic Western. Relative to coverage for autos, the NAICO policy states, "For any covered auto you own, this Coverage Form provides primary insurance. For any covered "auto" you don't own, the insurance provided by this Coverage Form is excess over any other collectible insurance." (Filing No. 54, Ex. A, hereafter "NAICO auto policy" at Section IV(B)(5)(A)). NAICO argues in its motion for summary judgment that its auto policy language, when read in conjunction with the language set out in the following paragraph from Republic Western's policy, establishes that Republic Western's coverage is primary and NAICO's coverage is excess for the August 13, 2001, accident.
The Republic Western policy states that if certain other provisions of the policy do not apply, then its coverage is "primary for any covered `auto' you own and excess for any covered `auto' you don't own." (Filing No. 44 and 45, Ex. B, hereafter "Republic Western policy" at section V(B)(5)(c)). "[I]nsureds" are defined in the Republic Western policy to include "[a]nyone else while using with your permission a covered "auto" you own. . . ." ( Id. at Section II, (A)(1)(b)). The Republic Western policy also provides coverage for "[a]nyone liable for the conduct of an "insured" described above but only to the extent of that liability." ( Id. at Section II, (A)(1)(e)).
In its motion for summary judgment, Republic Western contends that the Commercial General Liability ("CGL") portion of the NAICO policy provides primary coverage for the Quellhorst accident. The CGL portion of the NAICO policy states, in part:
We will pay those sums that the insured become legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damage. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.
Filing No. 54, Ex. A, NAICO CGL at Section I, 1.a.
"Insureds" are defined in the CGL policy to include WG as the named insured and its employees "for acts within the scope of their employment by [WG] or while performing duties related to the conduct of [WG's] business." (NAICO GCL, Section II, 1.a. and II, 2.a). The CGL policy "applies to "bodily injury" and "property damage" only if . . . caused by an "occurrence." (NAICO CGL at Section I, 1.b.(1)). "Occurrence" is defined by the policy as "[a]n accident. . . ." (NAICO CGL at Section V, 13).
NAICO's CGL policy also contains an exclusion for "Aircraft, Auto or Watercraft" that excludes from coverage, "`Bodily injury' or `property damage' arising out of the . . . use . . . of any . . . `auto' . . . owned or operated by . . . or loaned to . . . any insured. (NAICO CGL Section 1, 2(g))." "Auto" is defined as "a land motor vehicle . . . designed for travel on public roads . . . [b]ut `auto' does not include `mobile equipment.'" (NAICO CGL, Section V, 2). "Mobile equipment" is defined to include "farm machinery . . . for use principally off public roads." (NAICO CGL, Section V, 12).
Based on this language, Republic Western argues that the truck Howard was operating on the day of the Quellhorst accident was farm machinery for which there is primary coverage under NAICO's CGL policy. Specifically, Republic Western argues that WG and Howard were insureds under the NAICO CGL policy provisions, that the Quellhorst accident was a covered occurrence under the policy, and that the CGL's auto exclusion does not apply because the truck that Howard was operating on the day of the accident was being used a "farm machinery" for "use principally off the public roads."
ANALYSIS
I conclude that under the unambiguous language of the policies, Republic Western's policy provides primary insurance coverage for the Quellhorst accident in favor of Howard, the Colberg entities, and WG. The Republic Western policy language clearly covers the risk of loss associated with any "auto" owned by Colberg. It is undisputed that the truck that Howard was driving on the day of the accident was owned by Colberg. There is no dispute that Howard was driving the truck with Colberg's permission, and, therefore, he falls within the policy's definition of "insured." There is no dispute that Howard was WG's employee at the time of the accident, and that Howard was acting in the scope of his employment at the time of the accident. Therefore, to the extent that WG is liable for the accident, WG's liability derives from Howard's employment relationship with WG. Republic Western's policy includes coverage for "[a]nyone liable for the conduct of an `insured' described above but only to the extent of that liability," which applies to WG. The conclusion that Republic Western's policy is primary is buttressed by the language in the NAICO auto policy that clearly states that its coverage is excess for autos not owned by WG. Accordingly, NAICO's motion for summary judgment seeking a declaration as to the primary character of Republic Western's coverage for the August 13, 2001, accident is granted.
Given that conclusion, NAICO acted reasonably in tendering WG's defense to Republic Western. However, because NAICO's tender was made without a reservation of its right to dispute coverage later, I conclude that NAICO is estopped from denying coverage under its policy to WG. An insurer is estopped from asserting non-coverage, despite an applicable exclusion in the policy, if the insured can satisfy a three part test: 1) the insurer had sufficient knowledge of facts or circumstances indicating non-coverage; 2) the insurer assumed or continued defense of the insured without a reservation of rights; and 3) the insured suffered some type of harmed or prejudiced as a result of the insurer's actions. First United Bank of Bellevue v. First American Title Ins. Co., 496 N.W.2d 474, 480 (Neb. 1993).
Shortly after the accident, NAICO investigated Quellhorst's claim. NAICO employees, Harrison and Houghton, identified coverage issues almost immediately. NAICO tendered WG's defense to Republic Western, and when the tender was rejected, NAICO retained legal counsel for the benefit of WG. The counsel retained by NAICO for WG represented WG through all stages of the underlying litigation and through settlement, during a period of approximately two years. During this time, NAICO never notified WG in writing that it was reserving its right to deny coverage under the policy.
WG contends that it was harmed and prejudiced as a result of NAICO's action. WG has offered the Affidavit of Kirk Grove in support of its motion. Grove is the President of WG, Inc., and he states that after WG was sued, NAICO "immediately undertook to defend WG," "assumed control in the handling of the matter," and "made all decisions regarding adjusting, defending, and settling the case without my input." (Grove Aff. At 5 and 6). Grove also states that "[a]t no time during NAICO's handling of the underlying matter did WG receive a letter from NAICO reserving their rights to deny coverage," and that "WG was first made awar[e] of NAICO's intent to deny coverage when NAICO filed the present action in the United States District Court for the District of Nebraska." Id. at ¶¶ 8 and 9.
Defendant WG relies on National Union Fire Ins. Co., v. Bruecks, 139 N.W.2d 821, 829 (Neb. 1966), for the proposition that an insured may show the requisite prejudice necessary for estoppel if the insurer assumed complete control over the matter for an unreasonable amount of time, with the insured cooperating fully with the insurer under the terms of the policy. Id. In that case, the Nebraska Supreme Court found that National Union's "complete control over the matter for a period of seventeen months, with the consequent need of cooperation with National under the terms of the policy," was sufficient to constitute the requisite prejudice to the insured. In this case, there is no evidence of non-cooperation by WG, and the evidence of NAICO's control over WG's defense in the underlying litigation is undisputed. The facts of this case, consistent with the holding of National Union Fire v. Bruecks, mandate the conclusion that NAICO is estopped from asserting non-coverage under its auto policy against WG.
Even though the Court concludes that Republic Western's coverage is primary, I conclude that NAICO has no equitable right to subrogation from Republic Western for the $25,000 NAICO paid on behalf of WG toward the Quellhorst settlement or for the amounts NAICO paid on behalf of WG related to its defense. "An insurer's conduct after a loss which is inconsistent with a right of subrogation under particular circumstances waives its subrogation rights and serves as a defense against a subrogation action. 17 Lee R. Russ Thomas F. Segalla, Couch on Insurance § 224:140 (3d ed. 2001). Because NAICO participated in the settlement with and paid defense costs without reserving its right to dispute coverage at a later time, this Court finds that NAICO has relinquished its right to contribution from Republic Western for these amounts.
Where, as here, both insurers fully participated in settlement . . . without objection or reservation of rights, either participant should in equity be held to have waived any rights to contribution from the other and should be estopped from recovering any amount from the other insurer. See Hanover Ins. Co. v. Travelers Ins. Co., 355 F.2d 552, 552-53 (2d Cir. 1966).Design Professionals Ins. Companies, Inc. v. St. Paul Fire and Marine Ins. Co., 940 P.2d 1193, 1198 (N.M.App. 1997).
I have considered Republic Western's argument that NAICO's CGL policy provided primary coverage to WG, Howard, and the Colberg entities, but I find no coverage in the CGL policy. Specifically, I conclude that the truck operated by Howard on the day of the Quellhorst accident cannot fairly and reasonably be construed as "mobile equipment" under the CGL policy, because it is not "farm machinery" designed for "use principally off public roads." (NAICO CGL policy at Section V, 12.a). The truck was used to carry harvested crops from the field to areas for storage, which frequently meant that the truck was being operated on public roads. (See, e.g., Filing No. 54, Ex. G, Jolynn Colberg Dep. 22-26; and Ex. J, Howard Dep. at 26-27; 73-74). At the time of Howard's collision with Quellhorst, the truck was being operated on a public road. Accordingly, I conclude that the "mobile equipment" exception to the "Aircraft, Auto or Watercraft" exclusion does not apply to the facts of this case. While there is coverage under the NAICO commercial auto policy, the NAICO coverage is excess to the primary insurance coverage afforded under the Republic Western policy. Finally, Republic Western's attempt to piggy-back onto WG's estoppel argument is denied based on the general principle that only parties to the contract of insurance, or those persons in privity, can claim the benefit of estoppel. See generally, 17 Lee R. Russ Thomas F. Segalla, Couch on Insurance § 239:104 (3d ed. 2001); and 2 Eric Mills Holmes, Holmes' Appleman on Insurance 2d § 8:1 (1999). Because I find that Republic Western's coverage for this accident was primary and NAICO's was excess, and because there is no special relationship or privity between NAICO and Republic Western, there is no legal basis for Republic Western to seek contribution or indemnification from NAICO for amounts that Republic Western contributed to the settlement in the Quellhorst action. Accordingly, Republic Western's motion for summary judgment shall be denied in all respects.
IT IS ORDERED:
1. Defendant Republic Western Insurance Company's unopposed Motion to substitute a new exhibit D for the Exhibit D originally submitted (Filing No. 55) is granted;
2. Plaintiff National American Insurance Company's Motion for Leave to file a Reply Brief (Filing No. 63) is granted, and the brief that was filed as an attachment to Filing No. 63 has been considered;
3. The Motion for Summary Judgment filed by Defendant WG, Inc., (Filing No. 36) is granted, except with regard to it's request for attorney fees. The part of WG, Inc.'s motion that relates to an award of attorney's fees shall be separately briefed pursuant to the following schedule:
a. WG, Inc. may supplement, but is not required to supplement, its brief in support of an award of attorney's fee on or before March 16, 2005; and
b. Plaintiff National American Insurance Company may file a responsive brief on or before March 24, 2005;
4. The Motion for Summary Judgment filed by Defendant Republic Western Insurance Company and its insureds, Colberg Harvesting, Inc., and Colberg Transporation, Inc. (Filing No. 39), is denied in all respects; and
5. The Motion for Summary Judgment filed by Plaintiff National American Insurance Company (Filing No. 40) is granted in part and denied in part as follows:
a. The motion is granted with regard to the declaratory relief sought in that this Court concludes that the insurance coverage provided by Republic Western's policy is primary, that the insurance coverage provided in National American Insurance Company's commercial automobile policy is excess for the accident of August 13, 2001;
b. The motion is denied in all other respects.
6. A separate judgment shall be entered after that part of WG's motion relative to attorney's fees has been resolved.