Affiliated FM Ins. Co. v. Owens-Corning Fiberglas Corp.

• Decision Date: 14 February 1994
• Docket Number: No. 92-4116,OWENS-CORNING,92-4116
• Citation: 16 F.3d 684
• Parties: P AFFILIATED FM INSURANCE COMPANY, Plaintiff-Appellee, v.FIBERGLAS CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 684

16 F.3d 684

1994 Fed.App. 47P

AFFILIATED FM INSURANCE COMPANY, Plaintiff-Appellee, v. OWENS-CORNING FIBERGLAS CORPORATION, Defendant-Appellant.

No. 92-4116.

United States Court of Appeals Sixth Circuit.

Argued Oct. 8, 1993.

Decided Feb. 14, 1994.

Donald B. Hilliker (argued), William M. Cohn (briefed), Michael M. Marick, Pope & John, Chicago, IL, and H. Buswell Roberts, Jr., Nathan & Roberts, Toledo, OH, for plaintiff-appellee.

Mitchell F. Dolin (argued and briefed), Richard D. Shore, Covington & Burling, Washington, DC and Kevin E. Joyce and William M. Connelly, Connelly, Soutar & Jackson, Toledo, OH, for defendant-appellant.

Before: MERRITT, Chief Judge; and NORRIS and SUHRHEINRICH, Circuit Judges.

SUHRHEINRICH, Circuit Judge.

Affiliated FM Insurance Company ("Affiliated FM") filed suit seeking a declaratory judgment as to its obligations under the insurance policy it issued to Owens-Corning Fiberglas Corporation ("Owens-Corning"). The parties filed cross-motions for summary judgment and the district court granted judgment to Affiliated FM, declaring that Affiliated FM Insurance was not obliged under its policy to pay attorney fees or other defense costs incurred by Owens-Corning in its defense of asbestos-related, personal injury claims. Owens-Corning appeals the judgment. For the following reasons, we REVERSE and REMAND to the district court for further proceedings.

I.

During the time that Affiliated FM's policy provided third-layer excess liability insurance coverage, from July 9, 1974 through October 22, 1976, Owens-Corning purchased a multi-layered insurance program for third-party claims and liabilities. Under this program, the primary insurance layers covered the payment of defense costs in addition to liability. The excess layers, including the Affiliated FM policy, covered a fixed percentage or quota share of the total limits contained in their respective layers. The excess layer policies, referred to as "following-form" policies incorporated by reference the terms and conditions of designated underlying policies.

Affiliated FM has indemnified Owens-Corning for asbestos claims under its policy; however, Owens-Corning demands Affiliated FM also pay attorneys' fees and other defense costs connected to the asbestos claims.

The two-page policy at issue includes the "Insuring Agreement," a "Definitions" section and a "Conditions" section. The Insuring Agreement provides that Affiliated FM will indemnify Owens-Corning "in accordance with the applicable insuring agreements of the Primary Insurance," but in the "Conditions" section of its policy limits this to the extent that the policies are not inconsistent. ¹ 1] The Affiliated FM policy provides for coverage for loss subject to the limits of the excess liability coverage. The "Definitions" section of the policy defines loss as "the sums paid in settlement of losses" and "exclude[s] all expenses and costs." The section then defines costs as follows:

... interest on judgments, investigations, adjustment and legal expenses (excluding, however, all expense for salaried employees and retained counsel of and all office expense of the insured).

The district court construed the contractual language, finding that the Affiliated FM policy differed from the Primary Insurance policy in that it unambiguously excluded from coverage, the costs and expenses associated with Owens-Corning's defense of asbestos claims. We disagree.

II.

We review de novo the district court's legal conclusion regarding ambiguity. Construction Interior Sys., Inc. v. Marriott Family Restaurants, Inc., 984 F.2d 749, 755 (6th Cir.) (citation omitted), cert. denied, --- U.S. ----, 114 S.Ct. 194, 126 L.Ed.2d 152 (1993). We uphold the grant of summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, 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); Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir.1988). Because this declaratory judgment action is in federal court pursuant to diversity of citizenship, Ohio law applies. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, cert. denied, 305 U.S. 637, 59 S.Ct. 108, 83 L.Ed. 410 (1938).

Under Ohio substantive law, the courts construe insurance contracts in accordance with the same rules as other written contracts. Rhoades v. Equitable Life Assurance Soc'y, 54 Ohio St.2d 45, 374 N.E.2d 643, 644 (1978). An ambiguity exists "only where a term cannot be determined from the four corners of the agreement or where contract language is susceptible to two or more reasonable interpretations." Potti v. Duramed Pharmaceuticals, Inc., 938 F.2d 641, 647 (6th Cir.1991). In construing a contract, a court not only must give meaning to every paragraph, clause, phrase and word, omitting nothing as meaningless, or surplusage; Heifner v. Swaney, 1992 WL 198120 (Ohio App. Aug. 27, 1992) (citing Cincinnati v. Cincinnati St. R. Co., 24 Ohio Dec. 210 (1911)), it must consider the subject matter, nature, and purpose of the agreement. Blosser v. Carter, 67 Ohio App.3d 215, 586 N.E.2d 253 (1990); Bennett v. Heidinger, 30 Ohio App.3d 267, 507 N.E.2d 1162 (1986).

III.

The parties in this case dispute the parameters of the word "loss" in the Insuring Agreement. Affiliated FM contends that the loss covered by the policy does not include Owens-Corning's defense costs because the policy defines loss to exclude costs and legal expenses. Affiliated FM submits that Condition 2 of the policy provides additional support for its position as it gives Affiliated FM the option to participate in defense or settlement of claims. Condition 2 of the policy requires that notice of any accident likely to involve its policy be given to Affiliated FM, which may opt to participate in the defense. Expense or costs incurred with both Affiliated FM's and Owens-Corning's consent results in liability for defense costs. Affiliated FM contends that the option to defend outlined in Condition 2 supports its position that it is not liable for defense costs unless it asserts its option.

Owens-Corning contends that the language in the Insuring Agreement, "loss subject to the limits," confirms that the only...