Opinion
CIVIL ACTION No. 98-3326, SECTION "K"(5).
November 22, 2000.
ORDER AND REASONS
Before the Court are the following motions that were brought for oral argument on October 25, 2000.
(1) ICRMT Motion for Summary Judgment (Rec. Doc. 546) on coverage defenses raised in Reliance's petition for declaratory relief. (Case Ref. 98-3326 and 99-1782).
(2) Reliance National Insurance Company Motion for Summary Judgment (Rec. Doc. 525) on Exclusions "13J" and "13P" of its policy. Cross motions on this issue were filed by ICRMT (Rec. Doc. 566) and general insurers Lexington Insurance, Westchester Surplus, Westchester Fire and General Star (Rec. Doc. 572). (Case ref 98-3326 and 99-1782). Oppositions were filed by Gottlieb Barnett and Bridges ("GBB") and Connex-Metalna.
(3) Lexington, Westchester Surplus, Westchester Fire and for Summary Judgment (Rec. Doc. 502) on the issue of specific versus general insurance liability. Oppositions were filed by ICRMT and Reliance. (Case Ref. 98-3326 and 99-2062).
Reliance and the ICRMT dispute whether Reliance is obligated to provide coverage for damages which were sustained as a result of the June 1998 toppling of the ship unloader crane at ICRMT's Convent, Louisiana site. Reliance issued a builders risk policy of insurance to ICRMT. Reliance has denied coverage based on an alleged failure to cooperate, and two loss exclusions to the policy. The general insurers deny that, as the issuers of more general policies covering more than the Convent, Louisiana site, that their obligation to pay arises only after Reliance, as the issuer of a policy limited to the Convent site, has paid to its policy limits.
Standard for Motion for Summary Judgment
Rule 56(c) of the Federal Rules of Civil procedure directs that summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavit, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56 (c). The party moving for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." Stults v. Conoco, 76 F.3d 651, 656 (5th Cir. 1996). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986); Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). "Facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
On these motions, the Court construes the meaning of certain terms of the contracts of insurance by applying standard rules of contract interpretation. Under Louisiana law, the insurance policy, like any contract, constitutes the law between the parties. Pareti v. Sentry Indemnity Co., 536 So.2d 417, 420 (La. 1988). The parties' intent, as reflected by the words of the policy, determines the extent of coverage. Reynolds v. Select Properties, Ltd, 634 So.2d 1180, 1183 (La. 1994). Words and phrases used in the policy are to be construed using their plain meaning, unless the words have acquired a technical meaning. Id. Where the language of the contract is clear and unambiguous, the agreement must be enforced as written. Id. Only upon finding a term of the contract ambiguous will the court consider extrinsic evidence in interpreting its meaning. Lloyds of London v. Transcontinental Gas Pipe Line Corp., 101 F.3d 425 (5th Cir. 1996).
I. Coverage defenses in paragraphs 48-96 of Reliance's petition
ICRMT claims, that as a matter of law, the coverage defenses raised in Reliance's petition are inapplicable. The pertinent defenses are: (1) ICRMT violated a duty to cooperate; (2) ICRMT attempted to obstruct Reliance's investigation by refusing to produce documents and employees, excluding Reliance from the site, waiving its rights versus Connex-Metalna and agreeing to cooperate with Connex-Metalna; (3) failing to disclose Connex-Metalna to Reliance; (4) misrepresenting OSHA directives; and (5) misrepresenting the status of the SKLAD bond. The five defenses can be analyzed under two broader headings, the failure to cooperate and the making of material misrepresentations during policy negotiations.
ICRMT presents a two pronged defense to those allegations, (1) that Reliance's allegations are factually untrue; and (2) even if the allegations are true, Reliance was not materially prejudiced in any of the three ways asserted in its petition, namely, (1) an increase in investigation costs; (2) possible loss of evidence; and (3) diminishment of subrogation rights.
Reliance claims that ICRMT glosses over the pertinent facts and underestimates the prejudice caused by its failure to cooperate with Reliance. Reliance argues that the extent of the misrepresentations and the prejudice that followed are fact issues that need to be resolved by a jury.
The Court has reviewed the pleadings, memoranda, exhibits and the relevant law and finds material questions of fact which preclude such action with respect to the failure to cooperate claim, but finds no such impediment to the misrepresentation claim.
A. Analysis
1. Failure to Cooperate
In an insurance contract, the insured's duty to provide information ordinarily arises only under the express policy obligations. National Union Fire Insurance Co. of Pittsburg v. Cagle, 68 F.3d 905, 912 (5th Cir. 1995). "The source of the duty lies in the policy because an insured does not owe an insurer a fiduciary obligation . . . beyond that required by the contract."Id. That being said, insurers are entitled to limit their liability and to impose and to enforce reasonable conditions upon the policy obligations they contractually assume. Id. at 910. Finally, cooperation clauses fulfill the reasonable purpose of "enabl[ing] the insurer to obtain relevant information concerning the loss while the information is fresh . . ." 14 Couch on Insurance, § 199:4 (3d.ed 1999). With those purposes in mind the Court turns to the Reliance policy.
The policy at issue here instructs the insured to cooperate in the event of a loss. See Reliance Policy, Commercial Inland Marine Conditions. Aside from the general duty to "[c]ooperate with us in the investigation or settlement of the claim." Id. at ¶ "C.10", the policy requires ICRMT to "permit . . . inspect[ion] [of] the property and records proving loss." Id. at ¶ "C.6". It also requires that ICRMT "permit [Reliance] to question you under oath . . . about any matter relating to this Insurance or your claim, including your books and records." Id. at ¶ "C.7". Therefore, the policy does impose a duty to cooperate upon ICRMT, the breach of which could have dire consequences that will be laid out below.
"As a general rule, an insured's breach of a cooperation clause precludes coverage and releases the insurer from its responsibilities . . ." 14 Couch on Insurance, § 199:13 (3d.ed 1999). "Where lack of cooperation is exposed, the burden is then on the insured to show that the provision was not breached . . . . or to show that the failure to comply is not prejudicial to the insurer." Id. at § 199:18. "In order for an insurance company to deny liability because of breach of a cooperation clause, the breach must be material and prejudicial."Bernard v. Hungerford, 157 So.2d 246 (La. 1963). "Materiality is not determined by the ultimate importance of the information to the insurer but rather its relevance to the investigation at the time asked." Harary v. Allstate, 988 F. Supp. 93, 106 (E.D.N Y 1997). Whether a cooperation clause has been breached or not is generally a question of fact that must be determined by the facts and circumstances of each case. Id. at 250; Freyou v. Marquette Casualty Company, 149 So.2d 697 (1963); Champion v. Chandler, 1999 WL 820460 (E.D.Pa. 1999); See also 14 Couch on Insurance, § 199:19 (3d.ed. 1999).
The parties briefs and presentations at oral argument were rife with factual disputes. Those many issues of fact that pervade the parties motions must be resolved by the jury. The extent of document production, the nature and effect of employee production, the status of the SKLAD bond and numerous other factual issues cannot be decided at this stage of the proceedings. Additionally, the extent of prejudice, if any, suffered as a result of the alleged failure to cooperate is best left for the jury. Therefore, with respect to a breach of the duty to cooperate, ICRMT's motion must be denied.
2. Material Misrepresentations
"An applicant's misrepresentations are considered to be material misrepresentations so long as they affect the decision of the insurer to undertake the risk." FDIC v. Duffy, 835 F. Supp. 307, 314 (E.D.La. 1993). It has also been held that to be considered material, it is not necessary for the misrepresentations increase the underwriting risk, so long as they effect the decision of the insurer to issue the policy.Manzella v. Paul Revere Life Ins. Co., 872 F.2d 96, 99 (5th Cir. 1989). Moreover, "an insurance policy is void in ab initio if a material oral or written misrepresentation or warranty [is] made in the negotiation of an insurance contract, by the insured in his behalf . . .[if] the misrepresentation . . . is made with intent to deceive or if it would have affected the insurer's decision whether to proceed with the arrangement or the rate charged." FDIC v. Duffy, 835 F. Supp. 307, 314 (E.D.La. 1993) (quoting Estate of Borer v. Louisiana Health Service Indemnity Co., 398 So.2d 1124, 1125 (La. 1981)).
ICRMT argues that as a factual matter, there is no dispute as to the representations that Connex-Metalna was the designer of the ship unloader. Endorsement 7 to the policy explicitly covers "extra expense as a result of damage to the [C]onnex-[M]etalna crane during installation."
Since the endorsement was attached to the insurance policy, it becomes part of the contract of insurance. See Gulf Coast Marine, Inc. v. Young, 608 So.2d 251 (La.App. 5 Cir. 1992); See also Premium Finance Company, Inc. v. Employers Reinsurance Corporation, 979 F.2d 1091 (5th Cir. 1995) (citing Ledbetter v. Concord Gen. Corp., 564 So.2d 732 (La.App. 2 Cir. 1990)). Under the relevant law, Reliance cannot on the one hand maintain that it was unaware of Connex-Metalna's involvement in the matter, and on the other hand receive premiums on a policy which includes "damage to the [C]onnex-[M]etalna crane during installation." Moreover, Reliance's policy underwriter testified that, prior to the crane crash in June 1998, he knew that the cranes manufactured by Connex-Metalna were being imported from Slovenia and with that knowledge, extended coverage for an additional period. See Deposition of Michael Gigante. Therefore, with respect to the misrepresentation or concealment of Connex-Metalna defense, ICRMT's motion is granted.
II. Exclusions under sections "13J" and "13P"
Reliance National Insurance Company has moved for summary judgment, asking this Court to declare that the damage done at the IC Terminal is not covered pursuant to exclusions "13J" and "13P" of the builder's-risk policy. ICRMT and the general insurers (Lexington, Westchester Surplus, Westchester Fire and General Star) have filed cross motions for summary judgment, arguing that the exclusions do not apply because of long settled principles of policy interpretation. Connex-Metalna and GBB also oppose Reliance's motion. The Court will refer to ICRMT, the general insurers, Connex-Metalna and GBB as "the claimants." The Court will now turn to the pertinent provisions of the policy.
A. The policy exclusions
Reliance National Insurance Company policy #NZB0136162 enumerates several exclusions to the builder's risk policy. It states in pertinent part that,
This policy does not insure loss or damage caused by, resulting from, contributed to or aggravated by any of the following perils or general exclusions whether or not any other insured event contributes to the loss except as provided in (C), (D), (I), (M) and (N) . . .
Among the "following perils" and "general exclusions" are sections "13J" and "13P", which respectively exclude,
13J. Loss or damage under any written or implied guarantee or warranty by any contractor, manufacturer or supplier whether or not such are insured under this policy [and]
13P. Any consulting engineer, architect, designer or project consultant for loss or damage arising out of the performance of professional services in their capacity as such, and caused by or resulting from any error, omission or act or failure to act on the part of the consulting engineer, architect, designer or project consultant or any person in their employ or any others for whose acts they are legally liable, whether or not named as an insured under this policy.
1. Policy exclusion "13J"
According to Reliance, its investigation proves that the toppling of the crane was caused by manufacturing or design defects of the crane that were warranted by Connex-Metalna. Reliance alleges that Connex-Metalna breached the warranty found in section "F.15" of the Ship Loader and Unloader Construction and Erection Agreement ("crane contract") entered into between ICRMT and Connex-Metalna, which states in pertinent part;
The contractor warrants that the Ship Loader, Ship Unloader, and each component thereof will be free from all defects in design, materials, equipment, workmanship, for a period of five years for structure and paint and for three years for all other equipment, or equipment manufacturer warranties, from the Substantial Completion Date.
Reliance makes a fact intensive physics argument: The crane fell over for one of two reasons, either the load side components weighed too much or the counter-weight side weighed too little. Reliance weighed all the components as they were salvaged from the river. It claims that the only two components not made by Connex-Metalna (the bucket and test weights) weighed less on the load side than was assumed by Connex-Metalna and GBB. Reliance argues that Connex-Metalna made and warranted all the other components of the crane, therefore it must have done so in deviation of the specifications, causing the fall. Specifically, Reliance claims that the combined weight of the boom and trolley exceeded the specified weight by at least 37.7 short tons. Providing a crane that topples into the river, according to Reliance, is a breach of Connex-Metalna's express and implied warranties of the crane, and thus is an occurrence excluded under section "13J" of the Reliance-ICRMT policy.
Additionally, Reliance argues that Connex-Metalna, in providing the unbalanced crane, also breached implied warranties of fitness and merchantability under New York law (pursuant to the contractual choice of law in Section "F.9" of the crane contract) and Louisiana law. Therefore, Reliance argues that Section "13J" of the policy excludes coverage for the toppling because the damages should be covered by Connex-Metalna warranties.
2. Policy exclusion "13P"
Reliance's arguments in respect to this policy exclusion focus on the conduct of GBB and Hoist Crane. Representatives of each company allegedly were present when the crane toppled during the 125% load test.
As to GBB, Reliance argues that GBB approved the weight testing protocol that it received from Connex-Metalna. Hoist Crane also is alleged to have acted negligently in its supervision of the load test. Simply stated, Reliance says that the testing procedures were conducted based on the assumption that the crane was stable, and that they failed to provide for a failure mode in the event the crane was not stable. Although both GBB and Hoist Crane purported to be experts, Reliance claims that they allowed the 125% test to be performed using a hazardous protocol. It claims that two safer and more reliable measures were available, and that GBB and Hoist Crane failed to avail themselves of those procedures. According to Reliance, the "consultants" breached a duty of care in testing the crane, precluding coverage for any peril that followed under policy exclusion "13P."
Overall, Reliance argues that sections "13J" and "13P" are unambiguous and clearly exclude from coverage any loss arising from any breach of warranty or consultant negligence. Reliance argues that the builder's risk policy is a limited form of property insurance and was not intended to substitute for warranties, performance bonds, or liability insurance. The core of Reliance's argument is that ICRMT should have required all parties to post bonds or otherwise insure themselves to protect ICRMT in the event a disaster occurred. It argues that the plain language of section "13J" excludes coverage for loss or damage under any written or implied warranty and that section "13P" excludes coverage due to the negligence of a consultant.
In opposition, the claimants rely, not on the facts surrounding the accident, but on the four corners of the policy. They contend that the entire policy must be construed to determine the effect of individual provisions. As such, the claimants argues that section "20.B" must be considered in evaluating the purpose of sections 13 "J" "P". Section "20.B" provides in pertinent part:
However, the Company [Reliance] shall be subrogated, to the extent of payment, to all the Insured's rights of recovery against any manufacturer or supplier of machinery, equipment or other property, whether a Named Insured or not, for the cost of making good any loss or damage which said party has agreed to make good under a guarantee or warranty, whether express or implied, or any consulting engineer, architect, or designer, whether a Named Insured or not, for any loss or damage which arises out of the performance of their respective professional activities.
The above cited clause conventionally subrogates Reliance to ICRMT's rights against a warrantor or an entity that provides professional services to ICRMT, the same losses and parties purportedly excluded by "13J" and "13P." Since Reliance can only be subrogated after payment to ICRMT for damage caused by these entities, section 20 would be rendered meaningless by Reliance's argument that sections 13 "J" "P" were construed to exclude coverage for the precise risks of loss to which Reliance expressly subrogates itself. Such a reading would contravene Louisiana law, which mandates that policies be interpreted to give meaning to every policy provision wherever possible and to provide consistent construction as a whole. See C.C. art. 2050;Mobley, 674 So.2d at 1120. The claimants argue that their alternative reading would give meaning to all sections of the policy and give more limited purpose to exclusions "13J" and "13P." They maintain that the exclusions be read to direct that whenever there is a loss arising out of a breach of warranty or professional negligence, Reliance would pay the owner/ICRMT for its loss. However, the third party tortfeasor/warrantor would have no right to claim coverage from Reliance, even if named under the policy, because the third party caused the loss. Reliance could then bring a subrogation action against the third party, whether an insured or not, for the amount paid to ICRMT. In other words, the exclusions prevent a third party from recovering for breach of its own warranty. See e.g. Hennes Erecting Co. v. National Union Fire Ins. Co., 813 F.2d 1074 (10th Cir. 1987).
Alternately, the claimants argue that even under Reliance's reading of the policy, exclusion "13J" has no effect. This is because the express written warranty in paragraph "F.15" of the crane contract does not take effect until the Substantial Completion Date. Section "F.15" of the crane contract states that
The contractor warrants that the Ship Loader, Ship Unloader, and each component thereof will be free from all defects in design, materials, equipment, workmanship, for a period of five years for structure and paint and for three years for all other equipment, or equipment manufacturer warranties, from the Substantial Completion Date.
The Construction and Erection Agreement defined the substantial completion date as the date " when the Ship Loader and Ship Unloader must be capable of safe handling of bulk materials without restriction; it must comply with all applicable codes and regulations and it must be tested and certified for cargo handling use." As the crane was never accepted or certified, the warranty does not attach as a matter of law, and cannot be the basis for exclusion under "13J".
Finally, the claimant ICRMT asserts that its reasonable expectation was to protect itself through a builders risk policy, and if the exclusions were given effect, then its reasonable expectations would not have been met. It asks the Court to interpret the policy to protect the reasonable expectations of the parties.
In sum, the claimants argue that the reasoning of Hennes, the language of the policy and common sense dictate that the owner of a builder's risk policy may recover for losses connected with warranted material. This reasonable interpretation should be adopted because given two readings of an exclusion, the interpretation which favors coverage is applied. Talley, 760 So.2d 1193, 1195. ICRMT argues that even if Reliance's position were also reasonable, the provision would then be ambiguous because of the two reasonable interpretations, and would still provide coverage.
B. Analysis
When a contract can be construed from the four corners of the instrument without looking to extrinsic evidence, the question of contractual interpretation is answered as a matter of law and summary judgment is appropriate. Brown v. Drillers, Inc., 630 So.2d 741 (La. 1994). In interpreting the policy, the courts should use the ordinary rules for analyzing contracts. Thus, to interpret this policy, it should be construed in its entirety to determine the meaning and intent of the parties with regard to the extent of coverage. Hartford Accident Indemnity Co, v. Joe Dean Contractors, Inc., 584 So.2d 1226, 1229 (La.App. 2 Cir. 1991); c.c. arts 2045, 2050. When ascertaining the meaning of a specific provision of the policy, no section is to be construed separately and at the expense of disregarding other sections or placements. Benton Casing Service, Inc. v. Avemco Insurance Company, 379 So.2d 225, 231 (La. 1979). Such an analysis requires that provisions of insurance policies be reviewed in the context of other provisions of the policy to determine their meaning.Mobley v. State Farm Mut. Auto Ins. Co., 674 So.2d 1110, 1117 (La.App. 1996). If the language of the exclusion is subject to two or more reasonable interpretations, the interpretation which favors coverage must be applied. Talley v. Blue Cross Blue Shield of Louisiana, 760 So.2d 1193, 1195 (La.App. 2000). Moreover, Louisiana public policy requires that insurance policies be construed in favor of coverage in contrast to exclusions which are strictly construed. Thomas v. Gallant Ins. Co., 733 So.2d 1236, 1238 (La.App. 1999). Finally, it is a fundamental precept of insurance law that ambiguous provisions must be construed against the insurer. Lake Charles Harbor Terminal Dist. v. Imperial Casualty Indemnity Co., 857 F.2d 286 (5th Cir. 1998).
To interpret the applicability of exclusions "J" and "P", the Court will not consider external evidence or the many issues of fact that support certain arguments. Thus, the contentions concerning "substantial completion" dates, breach of duty and the "reasonable expectations" of the parties will not be decisive in the Court's evaluation of the merit of the parties motions.
However, in this instance the Court can rule upon the merit of the motions through an analysis of the four corners of the policy. Employing such an analysis, the Court finds the claimant's arguments regarding the reconciliation of the exclusions and subrogation provisions to be sound. If sections "13J" and "13P" were designed to exclude coverage for the type of accident at issue here, it is virtually inconceivable to fathom the situation where the subrogation provision, section 20, of the policy would have effect. Obviously, it is impossible to subrogate oneself to the rights of an obligee for an obligation that can never come into existence. Reliance's strained attempts to concoct a situation where a loss would not be covered by either of the exclusions while not eviscerating the subrogation provision is an attempt to construe the exclusions separately at the expense of disregarding other provisions of the policy, and cannot be allowed. Peterson v. Schimek, 729 So.2d 1024, 1028-29 (La. 1999). An attempt to harmonize sections 13 "J" and "P" with sections 13 "C" and "D" produces a similar disconnect. As a matter of common sense application, there is a clear conflict between section "J", which purports to exclude liability for guaranteed or warranted products, and section "D" which provides coverage for "direct physical loss or damage" due to "defective workmanship, materials, or supplies . . ." Likewise, it is equally toilsome to accommodate section "P", the clause excluding coverage for "any error, omission, or act, or failure to act. . ." by "[a]ny consulting engineer, architect, designer, or project consultant . . ." with paragraph "D"'s coverage for "physical loss or damage" on account of a "deficiency in designs, plans, or specifications. . ." At the very least, the claimant's reading is a viable one that creates an ambiguity in the meaning of the policy. As such, the interpretation that favors coverage must be applied. Talley, 760 So.2d at 1195.
Therefore, as a matter of law, this Court finds that when exclusions "13J" and "13P" are read in the context of the policy as a whole they do not apply here. If so, such an interpretation would produce a result that renders several other provisions meaningless, i.e. sections "13C", "13D" and 20. Construing the policy as a whole, the Court finds that the exclusions in "13J" and "13P" are designed to exclude a third party to the policy, such as a supplier of warranted goods or negligent project consultant, from recovering for damages caused by those entities to the insured. Those exclusions cannot be construed to prevent the primary insured from asserting a viable claim against its insurer for damages caused by a breach of warranty or consultant negligence. Therefore, exclusions "13J" and "13P" do not exclude coverage for ICRMT's loss. Such a construction comports with Louisiana law in that it allows the insurance policy to be construed as a whole, and does not construe one part "at the expense of disregarding other sections or provisions." See Central Louisiana Electric Co. v. Westinghouse Electric Corp, 579 So.2d 981, 985 (La. 1991). Accordingly, Reliance's motion for summary judgment is denied, and ICRMT and the general insurers motion is granted.
III. General vs. Specific Insurance
The general insurers have moved for partial summary judgment arguing that their obligations under the policies are secondary and that they be cast with liability under those policies only after Reliance and Royal have exhausted their policy limits. An analysis of the pertinent policies is therefore appropriate.
Royal Insurance Company would also be considered a specific insurer. However, Royal has already paid under its policy.
The relevant policies and their provisions are as follows:
(1) Lexington Insurance Company issued a $5 million insurance policy (No. 8533564), with a $2 million retention, to Illinois Central Railroad to cover a period from June 1, 1998 to June 1, 1999. The primary property policy insured "Illinois Central Corporation, and/or subsidiary, affiliated and allied companies as now exist or may hereafter be constituted or reconstituted." and covered "[a]ll property of every description, real, personal or mixed wherever located and now or hereinafter owned, leased or used by the Insured, including but not limited to the interest in or liability of the Insured for property belonging in whole or in part to others or for which the Insured has in writing assumed liability . . ."
(2) Westchester Surplus Insurance Company issued policy number WXA 643121 to Illinois Central Corp. to cover a period from June 1, 1998 to June 1, 1999. The policy provided $3 million in coverage, with a $2 million retention, for property damage to "[a]ll property of every description, real, personal, or mixed wherever located and now or hereinafter owned, leased, or used by the Insured, including but not limited to the interest in or liability of the Insured for property belonging in whole or in part to others or for which the Insured has in writing assumed liability, whether held by the Insured or others . . ." Its insureds were listed as "Illinois Central Corporation, and/or subsidiary, affiliated and allied companies as now exist or may hereafter be constituted or reconstituted."
(3) Westchester Fire Insurance Company issued First Excess Layer policy number IXA 393822 to Illinois Central Corporation for a period of June 1, 1998 to June 1, 1999 to provide $10 million in coverage for "[a]ll property of every description, real, personal, or mixed, wherever located and now or hereinafter owned, leased, or used by the Insured, including but not limited to the interest in or liability of the Insured for property belonging in whole or in part to others . . . whether held by the Insured or others . . ." The first excess layer policy covers loss in excess of the $10 million Lexington and Westchester Surplus policy limits, including the $2 million retention.
(4) General Star Insurance First Excess Layer issued policy #IPG 357920 for $5 million in coverage for a period extending from June 1, 1998 to June 1, 1999. The policy listed as the named insured "Illinois Central Corporation, and/or subsidiary . . ." and covered loss in excess of the Westchester Surplus and Lexington policy limits and retention of $10 million.
(5) Reliance National Insurance Company issued builders risk policy number NZB0136162 to ICRMT. The policy was extended twice, and provided a maximum limit of $19.42 million to insure construction and installation of the conveyor system at ICRMT's Convent, Louisiana facility.
The policies written by Lexington, Westchester Surplus, Westchester Fire, and General Star were written as part of a multi layered $2.3 billion nationwide commercial property policy in favor of Illinois Central Corp.
The general insurers claim, assuming arguendo that the crane is covered property, that their policies are only secondarily liable because the general policies insure different risks, at different times from the Reliance policy and as a result do not constitute double insurance. Accordingly they claim that "double insurance" doctrine does not apply, and that any payments under the respective policies should be made first by Reliance, who the general insurers claim is the more specific insurer, and that the general insurers, should only pay what is due in excess of the Reliance and Royal policy limits. Lexington, et al claim that its interpretation of the policies reflects the true intent of the parties as manifested in the deposition testimony of several Reliance actors. They claim that this is a viable method of allocation under Fasullo v. American Druggists, 262 So.2d 810 (La.App. 4 Cir. 1972). According to the general insurers, Louisiana law mandates that the insurer covering the more specific property pay first.
Claimant ICRMT argues that the specific insurance/general insurance hierarchy is not the law of Louisiana. It argues that the terms of the policies themselves cover the apportionment of risk, and that in a situation such as the one before the Court, that the insurers should pay on a pro rata basis. It states that the Lexington and Westchester Surplus policies are each entitled "primary property" policies and should be treated as such. The only condition on those policies was that ICRMT pay the first $2 million for any loss, which payment Royal already tendered on behalf of ICRMT. ICRMT contends that the insurance contracts themselves constitute the law among the parties, and as the policies themselves do not delineate between specific and general insurance, that such a distinction cannot be made.
Respondent Reliance states that the general insurers are essentially trying to reform Reliance's contract with ICRMT, an action it has no right to take because the general insurers are not parties to the Reliance-ICRMT policy. It stresses that the policies do not exclude the Convent facility, nor do they purport to exclude property not appearing on a schedule or listing of covered properties. Reliance claims that such detail was unnecessary because the general policies cover property anywhere. Reliance argues that its policy and the general insurance policies contain excess clauses, and that under Louisiana law, such mutually repugnant excess clauses should be disregarded and that coverage should be apportioned on a pro rata basis.
Analysis
The resolution of the specific/general insurance dichotomy involves a two-fold process. First, the Court must determine whether or not the competing policies do indeed cover the same parties for the same interest in the same property for the same risk, in other words, the Court must determine if there is "double insurance." Second, if the Court does find that the competing policies cover the same property, then the Court must decide whether or not Louisiana courts follow the specific/general insurance doctrine to resolve insurance disputes, and if not apply the body of law known as "other insurance" to decide the insurers liability.
Movant presents deposition testimony of Reliance Underwriter Robert Smith, Reliance Vice-President Patricia Coar, and Roe Vaughn, a claims adjuster retained by Reliance, all of whom state that a builder's risk policy is designed to insure during the construction phase of a project, while the general property policy takes effect only when construction is complete. Such an argument overlooks the fact that, as a matter of law, the Court is bound to find the intent of the contracting parties through the words of the contract when those words are unambiguous.
In determining whether the competing policies cover the same risk, then, the text of the policies is the relevant source. Indeed the contracts are the most accurate indicator of the existence of concurrent insurance as such a situation may occur is several ways, such as "where an insured intentionally obtained more than one primary policy covering the same risk, where an insured inadvertently obtained more than one policy covering the same risk . . . or where the insured is an "other insured" under a policy issued to a different named insured." 15 Couch on Insurance, § 217:1 (3d ed. 1999). In this case, the text reveals that all the policies were temporally in effect at the time of the crane collapse. As to the subject matter of the policies, the Reliance specifically covered the construction at the ICRMT facility in Convent and the general insurers covered "all property" owned by Illinois Central Corporation its subsidiaries, allies and affiliates. The coverage of "all property" necessarily incorporates the individual properties owned by that entity and thus includes the property at the Convent terminal. Therefore, to the extent that there is coverage for the crane collapse at the Convent facility, the builders risk policy and general insurance policies provide identical coverage. In other words, the policies at issue here involve the "common phenomenon . . . where a risk is specifically covered under one policy and also covered under another policy, albeit in a more circumspect manner." 15 Couch on Insurance, § 217:3 (3d ed. 1999).
The general insurers also argue that even if their policies do cover the same risk as the Reliance policy, than as the provider of more general coverage, i.e. nationwide coverage for Illinois Central, it should be cast as a secondary insurer. See 6 Appleman, Insurance Law Practice § 3912 (1972). As to Louisiana's law on the subject, the general insurers cite Fasullo v. American Druggists, 262 So.2d 810 (La.App. 4 Cir. 1972) as authority. However, Fasullo has not been followed by other Louisiana courts, and to the extent it has been cited, it is not as binding authority. See e.g. Prudential Assurance Co. v. London Hull Maritime Ins, Co., 621 So.2d 1165, 1167 (La.App. 1 Cir. 1993) (in a contribution case, stating that Fasullo "is no longer good law".) Moreover, Fasullo is distinguishable in that it involved statutory pro rata clauses as opposed to contractual clauses. Thus, the Court finds the general insurer's citation toFasullo unpersuasive.
As there is no binding Louisiana law on the issue, the Court finds the following analysis to be cogent:
As a rule, general policies prorate with specific policies and, hence, constitute "other insurance." Such is the case because, while it is necessary for both policies to insure the same person for the same risk and, in the case of property insurance, for the same interest in the same property, it is not necessary for both policies to cover the identical field. For purposes of an "other insurance" clause, it is sufficient that both policies provide overlapping coverage for the risk involved.
15 Couch on Insurance, § 219:18, pp 219:24-219:25 (3d ed. 1999). Thus, to the extent that the general insurers policies are more broad than the builders risk policy, the Court finds the distinction to be irrelevant in apportioning loss where it is clear that the policies intend to provide primary coverage.
The court next addresses the pro rata division liability. All three primary policies (Reliance, Lexington, and Westchester Surplus) contain "other insurance clauses" that purport to limit their respective policies to excess insurance when there is "other collectible insurance." See Reliance policy, at pg. 14; Lexington policy at pg. 5, Westchester Surplus policy at pg. 5. "When both policies contain "other insurance" clauses which provide that the coverage afforded shall be deemed excess insurance if other insurance exists to cover the loss, most courts hold that the excess clauses operate to cancel each other out and the policy of [all] insurers must be considered primary insurance." Insurance Coverage Disputes, § 11.03[c][2] (citations omitted). Louisiana follows the general trend. See Graves v. Traders Insurance, 214 So.2d 116 (La. 1968). "The courts then apply the majority rule applicable where neither policy contains an "other insurance clause". . . and requires each insurer to pay a pro rata share of any settlement, judgment, or expenses." Insurance Coverage Disputes, § 11.03 [c][2] (citations omitted). At oral argument, counsel for the general insurers conceded that, in the event this Court did not hold that the specific/general insurance doctrine viable in Louisiana, that an apportionment by head would be appropriate. In that case, the three primary insurers would divide liability equally. Once those policy limits are exhausted, the excess insurers, Westchester Fire, and General Star become liable for the remainder. The Court finds the specific/general insurance doctrine to be inapplicable. Therefore, the general insurers motion is denied. Accordingly,
IT IS ORDERED that ICRMT's Motion for Summary Judgment on coverage defenses raised in Reliance's petition is DENIED with respect to the duty to cooperate and GRANTED with respect to the disclosure of Connex-Metalna.
IT IS FURTHER ORDERED that Reliance's Motion for Summary Judgment on Exclusions "13J" and "13P" of its policy is DENIED and the Cross Motions for Summary Judgment filed by ICRMT, Lexington Insurance, Westchester Surplus, Westchester Fire and General Star are GRANTED.
IT IS FURTHER ORDERED that the Motion for Summary Judgment filed by Lexington Insurance, Westchester Surplus, Westchester Fire and General Star with respect the order of allocation among insurer is DENIED.