Asher v. Unarco Material Handling Inc
| Decision Date | 06 January 2011 |
| Docket Number | Civil Action No. 06-548-ART |
| Parties | WILLIAM H. ASHER, et al., Plaintiffs, v. UNARCO MATERIAL HANDLING, INC., et al., Defendants. v. LEXINGTON INSURANCE CO., Intervening Defendant. |
| Court | U.S. District Court — Eastern District of Kentucky |
This is a dispute over obligations—was Lexington Insurance Co., the liability insurer of Atlas Material Handling, Inc., obligated to defend and indemnify Unarco Material Handling, Inc., in the underlying Asher litigation? Unarco contends that, as an additional insured to Atlas, Lexington owed it certain duties under the Atlas/Lexington insurance policy. In Lexington's view, Unarco does not even qualify as an additional insured. Lexington is wrong.
The facts of this case are well-established. See Asher v. Unarco Material Handling, Inc., No. 06-548-ART, 2010 WL 3119281 (E.D. Ky. July 28, 2010). Briefly, in October 2005, Wal-Mart hired Unarco to repair, replace, and install storage racks at its London, Kentucky Distribution Center. R. 820, Attach. 1 at 2. Unarco, in turn, subcontracted the work to Atlas, a company providing, among other things, rack repair services. Id. Atlas next subcontracted the installation work to Rack Conveyor Installations, Inc. ("RCI").
On October 31, Unarco faxed Atlas a Proposal and Subcontract, along with a Purchase Order. R. 821, Attach. 5. That fax informed Atlas that all insurance needed to be up-to-date and on file with Unarco before work could begin. It also instructed Atlas to verify that Unarco had Atlas's most recent insurance certificate. Id. According to Lexington, no other discussions of insurance took place until after the Asher injuries. R. 821, Attach. 7 at 10.
Work at the facility began on November 29, 2005, and ended on December 12, 2005, when Wal-Mart realized its employees were suffering severe symptoms from exposure to dangerous and harmful conditions inside the building where the work was being performed. R. 1, Attach. 2 at 9. The plaintiffs, Wal-Mart employees, filed suit against Unarco and Atlas in November 2006. R. 1, Attach. 1. Atlas next filed a third-party complaint against RCI, R. 24, and Unarco filed cross-claims against Atlas and RCI, R. 67. In November 2008, the parties reached a settlement after six weeks of trial.
Following the settlement, Unarco filed an intervening complaint against Atlas's insurer, Lexington, for breach of contract, common law bad faith, and violation of the Unfair Claims Settlement Practices Act. R. 737. In October 2009, Unarco moved for summary judgment on these claims. The Court dismissed Unarco's motion without prejudice until it could resolve a choice of law issue, ultimately determining that Kentucky law applied to this dispute. R. 814. The parties agreed to postpone discovery on the claims involving bad faith and the Unfair Claims Settlement Practices Act until after the Court resolved the liability questions. Unarco nowrenews its motion for partial summary judgment against Lexington, R. 820, and Lexington, likewise, moves for summary judgment, R. 821. Unarco maintains it qualified as an additional insured under the Atlas/Lexington insurance policy and that Lexington therefore owed Unarco a defense and coverage under the policy. Lexington disputes this contention. For the following reasons, Unarco is entitled to summary judgment on its claim that it was entitled to a defense as an additional insured under the Atlas/Lexington policy. Because Unarco fails to develop its argument that it is entitled to indemnification directly from Lexington, its motion for summary judgment on that issue is denied. Finally, the Court declines to consider at this time Unarco's claim that it is entitled to all damages flowing from the breach of Lexington's duty to defend.
Summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party "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." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). For the defendants to prevail, they must demonstrate that no reasonable jury could find for the plaintiff. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The plaintiff, in turn, must provide sufficient evidence for "reasonable jurors [to] find by a preponderance of the evidence that the plaintiff is entitled to a verdict." Id.
The Court previously determined that Kentucky law should apply to the claims. R. 814. Under Kentucky law, the interpretation and construction of an insurance contract is a questionof law for the court unless factual disputes exist. See Kemper Nat'l Ins. Cos. v. Heaven Hill Distilleries, Inc., 82 S.W.3d 869, 871 (Ky. 2002) (citations omitted); see also Hanover Ins. Co. v. Am. Eng'g Co., 33 F.3d 727, 730 (6th Cir. 1994) (). The insured has the burden of demonstrating coverage under an insurance contract. Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 878 (Ky. 2006). Also, the plain and ordinary meaning of terms in insurance policies controls when those words are clear and unambiguous. Nationwide Mut. Ins. Co. v. Nolen, 10 S.W.3d 129, 131 (Ky. 1999). But when those words prove to be ambiguous and it was the insurer who drafted the policy, ambiguities must be resolved in favor of the insured. Kentucky Farm Bureau Mut. Ins. Co. v. McKinney, 831 S.W.2d 164, 166 (Ky. 1992).
Here, Unarco satisfies that burden and demonstrates that its liability arose out of Atlas's work. Lexington does not dispute that it failed to defend Unarco in the Asher litigation. Thus, summary judgment is appropriate for Unarco on its claim that Lexington breached its duty to defend.
Any obligations that Lexington owes Unarco flow from the Atlas/Lexington insurance policy. The relevant portions of this document are Endorsement Nos. 011 and 012.1Specifically, Endorsement No. 011 provides: "Who Is An Insured is amended to include anyperson or organization you [Atlas] are required to include as an additional insured on this policy by a written contract or written agreement in effect during this policy period and executed prior to the 'occurrence' of the 'bodily injury' or 'property damage'." R. 820, Attach. 8 at 30 (emphasis added). The policy goes on to limit the additional insured's coverage to liability "arising out of 'your [Atlas's] work' or 'your [Atlas's] product'." Id.
Unarco argues this provision is a "blanket additional insured endorsement." R. 823 at 5. A blanket endorsement is a contract requiring one party to obtain insurance covering the other party—even if the other party is not named. BP Chems., Inc. v. First State Ins. Co., 226 F.3d 420, 425 (6th Cir. 2000). This Court previously found that Atlas never actually included Unarco as a named additional insured. See R. 814.
Thus, for Unarco to claim coverage under the Atlas/Lexington policy, it must satisfy three requirements under the contract. R. 820, Attach. 8 at 30. First, Unarco must point to a separate written contract between Atlas and Unarco requiring Atlas to include Unarco as an additional insured. Second, Unarco must show that the parties executed the contract "prior to the occurrence" of events giving rise to the Asher litigation. And finally, Unarco must show that the claims against it arose out of Atlas's work. Unarco identifies three primary documents creating additional insured status: (1) the Atlas/Unarco Subcontract, (2) the Atlas/Unarco Purchase Order, and (3) the Supplementary Payments section of the Atlas/Lexington policy. Lexington disputes Unarco's reliance on each of these documents.
On October 31, prior to the start of work at the Wal-Mart Distribution Center, employeesof Atlas and Unarco exchanged a series of faxes. R. 820, Attach. 4; R. 821, Attach. 5. Specifically, Unarco's Angie Pfeffer faxed Atlas's David Oronato the following documents: a Proposal and Subcontract, Supplementary Terms and Conditions, a Project Completion Sign-Off Sheet, and a Purchase Order. R. 821, Attach. 5. Oronato signed the applicable documents and returned them to Pfeffer. R. 820, Attach. 4. While some dispute exists as to whether the Purchase Order Terms and Conditions were sent with the Purchase Order, no one disputes that the Subcontract's Supplementary Terms and Conditions were sent on October 31—prior to the occurrence of the Asher injuries.
The Subcontract itself is brief. The introductory paragraph explains that the Subcontract is subject to the attached Supplementary Terms and Conditions. R. 821, Attach. 5 at 6. The very first term and condition, Supplementary Term and Condition No. 1, states: "Installer agrees to be bound by the terms and conditions of the contract which Unarco Material Handling, Inc. proposes to enter into, or has entered into, with the General Contractor, or Owner, and the documents referred to therein, as far as applicable to the work covered hereby, and agrees to assume toward Unarco all obligations and responsibilities that Unarco assumes toward the General Contractor, or Owner [Wal-Mart], which said contract and the documents referred to therein are made a part hereof." Id. at 3 (emphasis added). This provision requires Atlas to assume toward Unarco any obligations that Unarco Assumes toward Wal-Mart. So what obligations did Unarco assume toward Wal-Mart? Unarco assumed a number of obligations, but most relevant for this issue is the requirement that Unarco name Wal-Mart as an additional insured in all insurance policies. R. 820, Attach. 2 at ¶ 16. Thus, under the Atlas/Unarcocontract, in order to assume the responsibilities toward Unarco that...
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