Phila. Indem. Ins. Co. v. Lexington Ins. Co.

• Decision Date: 19 January 2017
• Docket Number: Nos. 16–5008 & 16–5010,s. 16–5008 & 16–5010
• Citation: 845 F.3d 1330
• Parties: PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff–Appellee/Cross–Appellant, v. LEXINGTON INSURANCE COMPANY, Defendant–Appellant/Cross–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

845 F.3d 1330

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff–Appellee/Cross–Appellant,

v.LEXINGTON INSURANCE COMPANY, Defendant–Appellant/Cross–Appellee.

Nos. 16–5008 & 16–5010

United States Court of Appeals, Tenth Circuit.

Filed January 19, 2017

Peter E. Kanaris (Cheryl L. Mondi, with him on the briefs), Fisher Kanaris, P.C., Chicago, Illinois, appearing Appellant/Cross–Appellee.

Ann E. Buckley (Martin J. Buckley, with her on the briefs), Buckley & Buckley, LLC, St. Louis, Missouri, appearing for Appellee/Cross–Appellant.

Before HOLMES, MATHESON, and McHUGH, Circuit Judges.

MATHESON, Circuit Judge.

Philadelphia Indemnity Insurance Company ("Philadelphia") and Lexington Insurance Company ("Lexington") insured the same school building that suffered fire damage. In this declaratory judgment action, they dispute their relative responsibilities to pay for the loss.

Charter school Tulsa School of Arts and Sciences ("TSAS") leased the Barnard Elementary School building from the Independent School District No. 1 of Tulsa County, Oklahoma ("District"). As required under the lease, TSAS acquired an insurance policy for the Barnard building. The policy TSAS purchased through Philadelphia named the District as the loss payee. The District had a separate insurance policy with Lexington that also covered the Barnard building, among other District buildings.

The district court ordered Philadelphia to pay 54 percent and Lexington to pay 46 percent of the approximately $6 million loss. Lexington appeals, arguing it should have no obligation to pay. Philadelphia cross-appeals, arguing Lexington should have to pay more.

Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

A. Factual History

In 2012, an Oklahoma charter school, TSAS, leased a building for its operations from the District. The building—the Barnard Elementary School—was one of more than 100 facilities owned by the District and covered for fire damage under its insurance policy from Lexington.

The lease agreement required TSAS to acquire its own insurance policy for the building. TSAS secured a policy from Philadelphia, under which TSAS was the named insured and the District was the loss payee.

The Lexington and Philadelphia policies were similar. They had the same effective dates: July 1, 2012, to July 1, 2013. They both protected against fire damage to the Barnard building. And the policies had identically worded "Other Insurance" provisions, which stated:

1. You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.

2. If there is other insurance covering the same loss or damage, other than that described in 1 above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.

App., Vol. 1 at 125 (Philadelphia policy); App., Vol. 2 at 286 (Lexington policy).

An important difference between the policies was their coverage limits. The parties stipulate that Philadelphia's policy limit was $7 million. The Lexington policy, which covered many District buildings, had a total coverage limit of $100 million per occurrence, but, as we discuss below, the parties dispute whether that is the relevant limit here.

Fire damaged the Barnard building on September 5, 2012. The insurers agreed the total adjusted loss was $6,014,359.06. It is unclear from the record whether the District or TSAS, or both, made claims under either the Lexington or Philadelphia policies, or how long it took the insurer(s) to pay the claim(s), but counsel for Philadelphia said at oral argument that "the insureds have been paid, and as far as they're concerned it's over." Oral Arg. at 20:18–25. As between the insurers, however, litigation ensued.

B. Procedural History

In March 2013, Philadelphia filed a complaint in the U.S. District Court for the Northern District of Oklahoma seeking a declaratory judgment.¹

The parties cross-moved for summary judgment. In a December 2015 order, the district court granted Philadelphia's motion and denied Lexington's motion. Phila. Indem. Ins. Co. v. Lexington Ins. Co. , No. 13–CV–165–JED–FHM, 2015 WL 8485249, at *3 (N.D. Okla. Dec. 9, 2015).

The district court concluded that, under Oklahoma law, the policies' "other insurance" provisions canceled each other out because the "two insurers have provided insurance policies that cover the same loss." Id. at *2. The court rejected Lexington's arguments that (1) Philadelphia lacked standing to sue, (2) the different named insureds on the two policies and the alleged different interests insured precluded sharing, (3) the parties to the lease—TSAS and the District—had agreed that TSAS would acquire primary insurance and that Philadelphia's policy was therefore the policy of first resort, and (4) the Philadelphia policy was more "specific" such that its coverage was primary with Lexington providing only excess coverage. Id. at *1–3.

Having concluded that the "other insurance" clauses were mutually defeating, the district court ruled that "Philadelphia and Lexington shall share coverage of the loss ‘on a pro rata basis according to the ratio each respective policy limit bears to the cumulative limit of all concurrent policies.’ " Id. at *3 (quoting Equity Mut. Ins. Co. v. Spring Valley Wholesale Nursery, Inc. , 747 P.2d 947, 954 (Okla. 1987) ). But because the relevant limit on the Lexington policy was unclear, the court ordered briefing on that narrow issue. Id.

After briefing, the district court ruled that Lexington's relevant policy limit for purposes of the pro rata calculation equaled the total amount of damage to the building, $6,014,359.06. App., Vol. 2 at 459. The court selected this number based on an "Occurrence Limit of Liability Endorsement" ("Endorsement") in the Lexington policy. The court concluded that applying the $100 million overall limit per occurrence, which Philadelphia argued should apply, would require it to ignore the unambiguous terms of the Endorsement. Id.

The district court arrived at its pro rata apportionment as follows:

• $6,014,359.06 was the total amount of the loss.

• $7 million was the Philadelphia policy limit.

• $6,014,359.06 was the relevant Lexington policy limit per the Endorsement.

• $13,014,359.06 was the total amount of coverage ($7 million plus $6,014,359.06—the sum of the policy limits).

• 53.79 percent was Philadelphia's percentage share of the loss. This was the proportion of Philadelphia's policy limit to the total amount of coverage: ($7 million / $13,014,359.06) x 100 = 53.79 percent.

• $3,235,123.74 was Philadelphia's share of the loss (53.79 percent x $6,014,359.06).

• 46.21 percent was Lexington's percentage share of the loss. This was the proportion of Lexington's policy limit to the total amount of coverage: ($6,014,359.06 / $13,014,359.06) x 100 = 46.21 percent.

• $2,779,235.32 was Lexington's share of the loss (46.21 percent x $6,014,359.06).

The court ordered each insurer to pay its respective percentage of the loss and entered a final judgment to that effect. Id. at 459–60.

Lexington appeals the district court's summary judgment order requiring that the loss be shared. Philadelphia cross-appeals and challenges the district court's apportionment of the loss.

II. DISCUSSION

We (A) consider, and reject, Lexington's argument that Philadelphia lacks standing. We then (B) reach the merits issues and (1) conclude the insurers here must share the loss under Oklahoma law and (2) reject Philadelphia's argument against the district court's pro rata apportionment. Accordingly, we affirm the district court's judgment.

A. Philadelphia's Standing

We must first address Lexington's argument that Philadelphia lacks standing under Article III of the Constitution. See Cornhusker Cas. Co. v. Skaj , 786 F.3d 842, 851 (10th Cir. 2015) ("Standing is a threshold issue in every case before a federal court ... because the standing issue implicates a federal court's subject-matter jurisdiction." (quotations, internal citation, and emphasis omitted)). "[W]e review questions of standing de novo." Colo. Outfitters Ass'n v. Hickenlooper , 823 F.3d 537, 544 (10th Cir. 2016). We agree with the district court that Philadelphia has standing.

1. Legal Background

The Constitution limits federal court jurisdiction to certain cases and controversies.

See U.S. Const. art. III, § 2. In the declaratory judgment context, the Supreme Court has explained Article III's case-or-controversy requirement as follows: " ‘Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’ " MedImmune, Inc. v. Genentech, Inc. , 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co. , 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941) ).

The case-or-controversy requirement raised here is standing. As a general matter, "a plaintiff must demonstrate standing to sue by establishing ‘(1) an injury in fact, (2) a sufficient causal connection between the injury and the conduct complained of, and (3) a likelihood that the injury will be redressed by a favorable decision.’ " Colo. Outfitters Ass'n , 823 F.3d at 543 (alterations and some internal quotation marks omitted) (quoting Susan B. Anthony List v. Driehaus , ––– U.S. ––––, 134 S.Ct. 2334, 2341, 189 L.Ed.2d 246 (2014) ).

2. Analysis

Philadelphia has standing. Its alleged injury is financial, definite, and concrete. Philadelphia's interests are adverse to Lexington's: One insurer or...