Amway Distributors Benefits v. Northfield Ins.

• Decision Date: 19 March 2003
• Docket Number: No. 01-2091.,01-2091.
• Citation: 323 F.3d 386
• Parties: AMWAY DISTRIBUTORS BENEFITS ASSOCIATION, et al., Plaintiffs-Appellants, v. NORTHFIELD INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

323 F.3d 386

AMWAY DISTRIBUTORS BENEFITS ASSOCIATION, et al., Plaintiffs-Appellants, v. NORTHFIELD INSURANCE COMPANY, Defendant-Appellee.

No. 01-2091.

United States Court of Appeals, Sixth Circuit.

Argued: December 13, 2002.

Decided and Filed: March 19, 2003.

COPYRIGHT MATERIAL OMITTED

J.A. Cragwall, Jr. (argued and briefed), Joseph A. Kuiper (briefed), Warner, Norcross & Judd, Grand Rapids, MI, for Plaintiffs-Appellants.

Steven B. Galbraith (briefed), Galbraith & Booms, Southfield, MI, James G. Gross (briefed), Gross, Nemeth & Silverman, Detroit, MI, Larry I. Gramovot (argued and briefed), Tampa, FL, for Defendant-Appellee.

Before KENNEDY and GILMAN, Circuit Judges; SARGUS, District Judge.^*

GILMAN, J., delivered the opinion of the court, in which SARGUS, D.J., joined. KENNEDY, J. (pp. 394-396), delivered a separate dissenting opinion.

OPINION

GILMAN, Circuit Judge.

Amway Distributors Benefits Association and others (collectively, the insureds) brought a breach of contract claim against their excess liability insurer, Northfield Insurance Company, after Northfield refused to indemnify them for losses associated with the settlement of two copyright infringement lawsuits. Northfield moved for summary judgment, arguing that the insureds' conduct did not meet the narrow definition of "Advertising Injury" that Northfield had incorporated into its policy from the underlying primary policy. Holding that Northfield was not responsible for the failure of the underlying carrier to notify the insureds that the scope of the coverage for "Advertising Injury" had been reduced on policy renewal from that originally provided, the district court granted the motion for summary judgment. The insureds then filed a motion for reconsideration pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, arguing that Northfield had changed the language in its own excess policy to reduce the scope of the coverage for "Advertising Injury" without notifying the insureds. Their motion for reconsideration was denied. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.

I. BACKGROUND

The insureds purchased primary general liability insurance policies from Federal/Chubb Insurance Co. (Federal) from 1981 through 1995. Under the terms of the Federal policies from 1981 to 1987, "Advertising Injury" was a covered peril that was defined, in pertinent part, as "injury arising out of ... infringement of copyright." From and after 1988, however, the policy definition of "Advertising Injury" was narrowed to "infringement of copyrighted advertising materials."

Starting in 1986, the insureds submitted their Federal policies to Northfield each year as part of their application for excess coverage. Excess general liability policies were purchased from Northfield from 1986 to 1992. Northfield also provided umbrella liability coverage for the years 1988 and 1989. The insureds had sought an umbrella policy to provide coverage broader than that in the underlying Federal policy, and an excess policy to provide the same coverage but with higher limits than that provided by Federal. The insureds no longer qualified for umbrella coverage after 1990.

Northfield's 1986 and 1987 excess policies' definition of "Advertising Injury" "followed form" with the definition in the then-applicable underlying Federal policy, meaning that it incorporated that definition as part of Northfield's policy. The 1988 and 1989 policies, in contrast, expressly defined "Advertising Injury" to include "injury arising out of ... infringement of copyright, title or slogan." This was consistent with the broader definition of the previous years. (Northfield argues that this definition was intended to apply only to the umbrella coverage provided in those two years, about which more will be said in Part II.C. of this opinion.)

For the years 1990 and 1991, Northfield again followed form with Federal's policies, which meant that the more narrow definition was in effect. In 1992, Northfield rewrote its policy yet again, expressly reciting the narrower definition of "Advertising Injury." At no time were the insureds notified of any of these changes in the definition of "Advertising Injury" or the effect that the changes had on their coverage.

In February of 1996, the insureds were sued for copyright violations by Arista Records. Later that same year, Aerostation Corporation also brought suit against the insureds for copyright violations. Both suits involved claims reaching back to the years when the insureds were covered by Federal and Northfield. Neither suit, however, was based on infringement of copyrighted advertising materials, and thus would not be covered by the narrower definition of "Advertising Injury" in Federal's and Northfield's policies. When Federal denied coverage of the Aerostation claims, relying on the narrow definition of "Advertising Injury" that it had adopted in 1988, Northfield assumed the defense of the claims under a reservation of rights. The insureds subsequently brought suit against Federal, alleging that because they were never notified of the reduction in coverage, Michigan's "renewal rule" precluded Federal from enforcing the narrow definition. Partial summary judgment was granted in favor of the insureds, requiring Federal to defend them in the two copyright infringement lawsuits.

Aerostation's suit was settled for $700,000 in August of 1997. In March of 1998, the insureds settled the Arista lawsuit for $9,000,000 and reached a settlement with Federal that required Federal to reimburse them for one-third of this amount. Following this settlement with Federal, the insureds sought indemnification against Northfield for their excess losses. When Northfield denied coverage, the insureds commenced this suit.

The insureds sought a declaration that Northfield was obligated to indemnify them and provide a defense under its policies. Northfield filed a motion for summary judgment on the ground that the insureds' conduct did not meet the underlying policy's narrow definition of "Advertising Injury." The insureds replied, however, that the narrow definition upon which Northfield relied had been incorporated into the renewal policies without notice to the insureds, and thus, under Michigan's renewal rule, the broader definition of the earlier policies should apply. Northfield maintained, however, that the definition of "Advertising Injury" that it was relying on had remained unchanged since 1988. After a hearing on the motion, the district court granted summary judgment in favor of Northfield, holding that Northfield could rely on the narrow definition first adopted by Federal in 1988 despite the fact that the insureds had never been notified of the 1988 change in the underlying policy by either Federal or Northfield.

The insureds then filed a motion for reconsideration under Rule 59(e) of the Federal Rules of Civil Procedure, arguing that Northfield had misrepresented the terms of its policies when it stated that its own definition of "Advertising Injury" had remained unchanged since 1988. Rather, the insureds argued, Northfield itself had narrowed the definition of "Advertising Injury" starting with its 1990 policy.

The district court ordered Northfield to submit a brief in response to the insureds' belated argument. In its response, Northfield acknowledged the change in definition, but argued that the definition applied only to the policies' umbrella coverage, and not to the excess coverage in question here. The district court agreed with Northfield's interpretation of the policies and denied the motion for reconsideration. Following the denial, the insureds appealed from both the grant of summary judgment and from the denial of their motion for reconsideration.

II. ANALYSIS

A. Jurisdiction and standard of review

Our jurisdiction in this case is based upon diversity of citizenship pursuant to 28 U.S.C. § 1332. The parties do not dispute, and we agree, that Michigan law is controlling in this case. Erie R.R Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

We review the district court's grant of summary judgment de novo. Sperle v. Michigan Dept. of Corr., 297 F.3d 483, 490 (6th Cir.2002). Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In considering such a motion, the court must view the evidence and draw all reasonable inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The central issue 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." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. Argument raised on the motion for reconsideration

Northfield contends that this court cannot properly consider the legal argument raised by the insureds in their motion for reconsideration before the district court. The insureds' initial claim was based on their argument that Northfield should be held liable for changes to the underlying policy that were not brought to their attention. In their motion for reconsideration, the insureds argued for the first time that Northfield had defined "Advertising Injury" explicitly in its 1988 and 1989 excess liability policies, and that its decision in 1990 to incorporate the definition of the underlying Federal policy effected a curtailment of the insureds' coverage without proper notice, in violation of Michigan's renewal rule.

This issue was squarely before the district court on the motion for reconsideration and was briefed by both parties. In addition, the appeal currently before us is from both the grant of summary judgment and...