U.S. Fire Ins. Co. v. Federal Ins. Co.

• Decision Date: 30 September 1988
• Docket Number: D,Nos. 1140,1224,s. 1140
• Parties: UNITED STATES FIRE INSURANCE COMPANY, Plaintiff-Appellant, Cross-Appellee, v. FEDERAL INSURANCE COMPANY, Aetna Insurance Company, John Boyle Bell and Michael Bell, Defendants. Appeal of FEDERAL INSURANCE COMPANY, Defendant-Appellee, Cross-Appellant. ockets 88-7087, 88-7131.
• Court: U.S. Court of Appeals — Second Circuit

Page 882

858 F.2d 882

UNITED STATES FIRE INSURANCE COMPANY, Plaintiff-Appellant, Cross-Appellee, v. FEDERAL INSURANCE COMPANY, Aetna Insurance Company, John

Boyle Bell and Michael Bell, Defendants.

Appeal of FEDERAL INSURANCE COMPANY, Defendant-Appellee,

Cross-Appellant.

Nos. 1140, 1224, Dockets 88-7087, 88-7131.

United States Court of Appeals, Second Circuit.

Argued May 6, 1988.

Decided Sept. 30, 1988.

Michael F. Close, Keene Valley, N.Y. (Barry, McTiernan & Moore, New York City, on the brief), for plaintiff-appellant-cross-appellee.

Brian F. McDonough, New York City (William G. Becker, Jr., Shanley & Fisher, P.C., New York City, on the brief), for defendant-appellee-cross-appellant.

Before LUMBARD, OAKES, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiff United States Fire Insurance Co. ("U.S. Fire") appeals from a final judgment entered in the United States District Court for the Southern District of New York following a bench trial before Bernard Newman, Judge, ^* awarding U.S. Fire $61,057.50 as reimbursement from defendant Federal Insurance Co. ("Federal") for one-sixth of an amount paid by U.S. Fire in settlement of a personal injury suit against their common insured, 670 F.Supp. 1191 (S.D.N.Y.1987). On appeal, U.S. Fire contends (1) that Federal should have been required to reimburse it for the entire amount of its settlement payments, and (2) that U.S. Fire was entitled to prejudgment interest. Federal cross-appeals, contending that it is not liable to U.S. Fire for any portion of the settlement. We affirm so much of the judgment as awarded U.S. Fire $61,057.50 and reverse so much of the judgment as denied it prejudgment interest on that amount.

I. BACKGROUND

The following facts are not in dispute. In 1981, Michael Bell ("Bell"), the parties' common insured, was involved in an automobile accident. Bell was driving a car owned by John Boyle & Co. ("Boyle"), of which his father was president. A passenger in the car suffered personal injuries in the accident and brought an action for damages against Bell and Boyle. That action triggered disputes over the proper allocation of liability among the insurers who had issued four insurance policies, each of which covered Bell at the time of the accident: (1) a primary insurance policy issued by Federal to Boyle (the "business auto policy") in the amount of $500,000; (2) a primary insurance policy issued by Aetna Casualty & Surety Co. ("Aetna") to Bell's mother (the "personal auto policy"), also in the amount of $500,000; (3) a "Personal Excess Liability Policy" issued by Federal to Bell's father (the "excess policy") in the amount of $2,000,000; and (4) a "Commercial Comprehensive Catastrophe Liability Policy" issued by U.S. Fire to Boyle (the "catastrophe policy") in the amount of $10,000,000. As discussed in greater detail in part II.A. below, both Federal's excess policy and U.S. Fire's catastrophe policy contained provisions stating that the policy's coverage did not come into play until the insured had exhausted other available sources of insurance (the "exhaustion provisions").

The personal injury suit was settled for $1,366,345. Of this amount, Federal paid $500,000 under its business auto policy but nothing under its excess policy, and Aetna eventually contributed $500,000 under the personal auto policy. At issue on this appeal is the remaining $366,345, paid by U.S. Fire under its catastrophe policy. U.S. Fire commenced the present action against Federal in state court, from which it was removed to the district court.

To the extent pertinent here, U.S. Fire contended that its catastrophe policy was excess to both (a) the primary insurance policies and (b) Federal's excess policy, and that U.S. Fire was entitled to recover the entire $366,345 from Federal. Federal, on the other hand, contended that its excess policy was excess to both (a) the primary After a bench trial on stipulated facts, the district court held that U.S. Fire was entitled to recover one-sixth of the $366,345 from Federal. In an Opinion, Findings of Fact and Conclusions of Law dated October 7, 1987, the court found that since both U.S. Fire's catastrophe policy and Federal's excess policy purported to provide coverage only after all other available insurance had been exhausted, the two exhaustion provisions canceled each other out, and both U.S. Fire and Federal must contribute to the $366,345 portion of the settlement in proportion to their respective policy limits. Since the limits of the pertinent U.S. Fire and Federal policies were, respectively, $10,000,000 and $2,000,000, the court concluded that the ratio of their liability was 5 to 1 and ordered Federal to reimburse U.S. Fire for one-sixth of the $366,345 paid by U.S. Fire, or $61,057.50.

policies and (b) U.S. Fire's catastrophe policy, and that Federal was not liable for any part of the $366,345.

In a Memorandum dated November 24, 1987 ("Memorandum"), the court rejected U.S. Fire's request for prejudgment interest on the ground that N.Y.Civ.Prac.L. & R. ("CPLR") Sec. 5001(a) (McKinney 1963) allows an award of such interest only when the court has found a breach of contract. The court's rationale for concluding that U.S. Fire's action was not grounded in contract was as follows:

The New York Court of Appeals has often noted that there is a fundamental distinction between contribution and indemnity. See, e.g., McDermott v. City of New York, 50 N.Y.2d 211, 428 N.Y.S.2d 643, 406 N.E.2d 460 (1980); .... The right to contribution is not founded on, nor does it arise from, contract. It exists where ratable or proportional reimbursement is sought. Conversely, the right to indemnity springs from an express or implied contract in situations where full, not partial, reimbursement is sought....

In the underlying matter, a ratable distribution of insurance proceeds was ordered. Consequently, the parties' insurance action was founded upon the right of contribution and not indemnification.

Memorandum at 3-4 (other citations omitted).

These appeals followed.

II. DISCUSSION

On its appeal, U.S. Fire urges principally that we review the insurance policies de novo and find that its catastrophe policy applied only after exhaustion of Federal's excess policy. Federal argues that the "clearly erroneous" standard of review set forth in Fed.R.Civ.P. 52(a) applies and that the district court erred in not inferring, from a disparity in the premiums charged for the two policies, that Federal's excess policy applied only after exhaustion of U.S. Fire's policy.

We note that though the events and the language of the pertinent insurance policies were stipulated in the district court, the proper inferences to be drawn from the language remained in dispute. Accordingly, the trial court's factual findings may not be overturned unless they are clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 574-75, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985); Apex Oil Co. v. Vanguard Oil & Service Co., 760 F.2d 417 (2d Cir.1985). Under that standard of review, we conclude that the district court's findings that (1) both policies purported to be available only after other insurance was exhausted, and (2) neither policy expressly limited its liability to amounts in excess of amounts collectible under other excess policies, were not clearly erroneous, and we affirm the ruling that U.S. Fire and Federal must contribute ratably to so much of the settlement as was not paid by the primary insurers.

U.S. Fire also contends that it is entitled to prejudgment interest and that it should be awarded such interest on the entire amount that it paid in the settlement. To the extent that U.S. Fire seeks to recover from Federal interest on any sum greater than the sum awarded to it from Federal, its claim is frivolous. To the extent that U.S. Fire seeks prejudgment interest on the amount Federal is required to contribute,

however, its argument has merit and we therefore reverse so much of the judgment as denied such interest.

A. Liability

The general rule under New York law is that "[t]here is [a] well-settled equitable right to contribution, where there is concurrent insurance even in the absence of a policy provision for apportionment," Travelers Insurance Co. v. General Accident, Fire & Life Assurance Corp., 28 N.Y.2d 458, 463, 322 N.Y.S.2d 704, 706-07, 271 N.E.2d 542, 544-45 (1971), and that where each of the policies covering the risk "generally purports to be excess to the other, the excess coverage clauses are held to cancel out each other and each insurer contributes in proportion to its limit amount of insurance ...." Lumbermens Mutual Casualty Co. v. Allstate Insurance Co., 51 N.Y.2d 651, 655, 435 N.Y.S.2d 953, 955, 417 N.E.2d 66, 68 (1980) ("Lumbermens "); accord State Farm Fire & Casualty Co. v. LiMauro, 65 N.Y.2d 369, 373-74, 492 N.Y.S.2d 534, 538, 482 N.E.2d 13, 17 (1985) ("State Farm "). Thus, though it is possible for an insurer to provide "that it would, in effect, supply only the final tier of coverage," if other policies similarly purported to provide final-tier coverage, all such insurers would be required "to contribute ratably" toward any settlement. Lumbermens, 51 N.Y.2d at 656 n. *, 435 N.Y.S.2d at 956 n. *, 417 N.E.2d at 68 n. *. The general rule of ratable contribution is inapplicable, however, if it "would effectively deny and clearly distort the plain meaning of the terms of the policies." Id. at 655, 435 N.Y.S.2d at 955, 417 N.E.2d at 68.

The Lumbermens court determined that the general rule did not apply to three policies at issue before it because the plain language of each demonstrated that the respective parties to each insurance "contract did not bargain for a ratable contribution with any of the [other] policies." Id. at 656, 435 N.Y.S.2d at 955, 417 N.E.2d at 68; see id. at 655, 435 N.Y.S.2d at 955, 417 N.E.2d at 68. Rather, the court concluded that three tiers of coverage had been agreed to on...