Bell Lavalin, Inc. v. Simcoe and Erie General Ins. Co.

• Decision Date: 09 August 1995
• Docket Number: No. 93-36024,93-36024
• Citation: 61 F.3d 742
• Parties: 95 Cal. Daily Op. Serv. 6278, 95 Daily Journal D.A.R. 10,722 BELL LAVALIN INC., an Alaska Corporation, Plaintiff-Appellant, v. SIMCOE AND ERIE GENERAL INSURANCE COMPANY, a foreign corporation; The Prudential Assurance Company, a foreign Corporation; Security Insurance Company of Hartford, a Connecticut Corporation; New Rotterdam Insurance Company, a foreign Corporation; The Contingency Insurance Company, Ltd, a foreign Corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 742

61 F.3d 742

95 Cal. Daily Op. Serv. 6278, 95 Daily Journal

D.A.R. 10,722

BELL LAVALIN INC., an Alaska Corporation, Plaintiff-Appellant, v. SIMCOE AND ERIE GENERAL INSURANCE COMPANY, a foreign corporation; The Prudential Assurance Company, a foreign Corporation; Security Insurance Company of Hartford, a Connecticut Corporation; New Rotterdam Insurance Company, a foreign Corporation; The Contingency Insurance Company Ltd, a foreign Corporation, et al., Defendants-Appellees.

No. 93-36024.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 3, 1994.

Decided Aug. 9, 1995.

Kenneth D. Jensen, Jensen, Harris and Roth, Anchorage, AK, for plaintiff-appellant.

Liam J. Moran, Hagans, Brown, Gibbs and Moran, Anchorage, AK, for defendants-appellees.

Appeal from the United States District Court for the District of Alaska.

Before: WOOD, ^* HUG, and TANG, ^** Circuit Judges.

TANG, Senior Circuit Judge:

Simcoe and Erie General Insurance Co. et al. ("Simcoe") insured Bell Lavalin, Inc. ("Bell Lavalin") under a professional liability insurance policy. Bell Lavalin, the prime contractor of a North Slope Alaskan construction project, was sued by one of its subcontractors, Conam Alaska ("Conam"). The jury awarded Conam over $7,000,000 in damages. Bell Lavalin, through its receiver, sued Simcoe for indemnification. The district court granted summary judgment in favor of Simcoe. We have jurisdiction under 28 U.S.C. Sec. 1291 and we affirm.

I. BACKGROUND

F. Robert Bell & Associates ("Bell") and Lavalin, Inc. ("Lavalin") formed Bell Lavalin, an Alaska corporation, to perform engineering and construction work in Alaska. Simcoe insured Bell Lavalin under a primary and excess professional liability insurance policy.

In 1984, Bell Lavalin entered a contract with Atlantic Richfield Company ("ARCO") to design and construct four crude oil tanks on the North Slope of Alaska. Bell Lavalin subcontracted to Conam all construction services and materials necessary to construct the project.

As winter approached, the project quickly fell behind schedule. In August 1985, Bell Lavalin, ARCO, and Conam met to discuss scheduling proposals. Conam left the meeting with the understanding that it received a six-month extension. Later, Bell Lavalin reneged on the extension, forcing Conam to agree to only a one-month extension. Conam agreed, but stated its reservations about the feasibility of completion due to weather.

On November 15, 1985, Conam wrote to Bell Lavalin that further work on the project was commercially impracticable and proposed a revised schedule consistent with the original six-month extension. Bell Lavalin refused to grant Conam the previously promised time extension, stopped payment on a check for over $800,000.00, and directed Conam to continue working. On November 19, 1985, Conam stopped work and left the job site. The job was, at that point, 87% complete. Bell Lavalin terminated Conam and completed the project in March 1986.

Conam subsequently sued Bell Lavalin in Alaska state court. Upon receipt of Conam's complaint, Bell Lavalin tendered defense of the suit to Simcoe. Simcoe accepted, but on the condition that it was reserving its rights to later deny coverage. Simcoe sent the reservation of rights letter to attorney David Miller, who was not an authorized representative of Bell Lavalin. The reservation of rights letter also did not specifically deny coverage for pure contract claims.

Bell Lavalin selected Hugh G. Wade to represent the company. Simcoe paid part, but not all, of Wade's legal bills. Wade provided Simcoe with advance copies of pleadings and detailed litigation reports. Wade also took certain actions to minimize Simcoe's liability for coverage in the event Bell Lavalin lost at trial.

Conam's complaint alleged breach of contract, abandonment of contract, breach of duty of good faith and fair dealing, fraud, and negligent design and engineering. Conam also sought to pierce Bell Lavalin's corporate veil. Bell Lavalin counterclaimed, alleging four claims of breach of contract and one claim of willful interference with contract. The trial court dismissed Conam's fraud and professional negligence claims and Bell Lavalin's willful interference counterclaim.

At trial, the jury found against Bell Lavalin on its breach of contract counterclaims and for Conam on its breach of contract and abandonment of contract counts, awarding Conam $4,230,898.42. ¹ The verdict represents the unpaid value of the performance rendered by Conam to the date it stopped working.

Following the Conam judgment, Bell Lavalin was forced into receivership. One of Conam's attorneys was appointed receiver for Bell Lavalin in order to identify the assets of Bell Lavalin and to satisfy the Conam Judgment. It is the receiver for Bell Lavalin that is pursuing the current action and is the appellant on appeal.

On August 14, 1992, the district court granted summary judgment in favor of Bell Lavalin, finding that the Simcoe policy covered the Conam judgment. On November 13, 1992, the Supreme Court of Alaska reviewed the trial verdict and established that the jury's verdict was based on contract damages and not on professional negligence. See Conam Alaska v. Bell Lavalin, Inc., 842 P.2d 148, 154-159 (Alaska 1992). In light of the Supreme Court of Alaska's decision, the district court on July 16, 1993 reversed its earlier grant of summary judgment and held that Simcoe's policy did not provide coverage for the Conam judgment. ² On September 22, 1993, the court again granted summary judgment in favor of Simcoe, ruling that Simcoe was not estopped from denying coverage. The receiver for Bell Lavalin appeals.

II. DISCUSSION

In this diversity action, Alaska state law governs the interpretation of the insurance policy and the applicability of estoppel. See Allstate Insurance Company v. Ellison, 757 F.2d 1042, 1044 (9th Cir.1985). Federal law governs the standard of review for summary judgment. See Id. In reviewing the district court's grant of summary judgment, we must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989).

A. COVERAGE UNDER THE SIMCOE POLICY

The relevant provision of Simcoe's policy provides The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages if legal liability arises out of the performance of professional services for others in the Insured's capacity as an architect, an engineer, a land surveyor, a project manager, a construction manager, qualified inspectors, including but not limited to the following services: testing, inspecting, investigating, appraising, planning, and consulting, and if such legal liability is caused by an error, omission or negligent act.

Under this provision, Simcoe is liable if three requirements are met: (1) the judgment must be for "damages"; (2) the liability must arise out of Bell Lavalin's "performance of professional service for others in the Insured's capacity as ... a project manager"; and (3) the liability must be "caused by an error, omission or negligent act."

The appellant argues the policy provision is satisfied because Bell Lavalin, as project manager, erroneously or negligently breached the contract between Conam and Bell Lavalin when it refused to grant Conam a time extension. The appellant argues that "[i]t was the wrongful refusal to grant a time extension which resulted in the damages, and the verdict against Bell Lavalin."

The appellant mischaracterizes the source of the damages. The jury did not award damages based on Bell Lavalin's failure to grant a time extension; rather, the jury awarded damages based on the value of the unpaid work that Conam had already performed. At the time of Conam's demobilization of its work force, Conam had completed approximately 87% of its contract work. Conam Alaska v. Bell Lavalin, 842 P.2d 148, 152 (Alaska 1992). The jury's award of $4,230,898.42 constituted approximately 87% of the unpaid value of Conam's contract work. See id. The appellant concedes in its statement of facts that "[t]he verdict represents the unpaid value of the performance rendered by Conam to the date it stopped working."

Under the proper characterization of the source of the damages, the third requirement of Simcoe's policy is not satisfied because Bell Lavalin's refusal to grant a time extension was not the "cause" of the damages. As the district court noted, "[n]o damages were separately awarded" for the failure to grant a time extension. Rather, the cause of the damages is the simple fact that Conam performed 87% of its contract work for Bell Lavalin, and Bell Lavalin refused to pay. Bell Lavalin's failure to grant a time extension is irrelevant to the issue of whether Bell Lavalin owes Conam the value of the unpaid work. Indeed, even if Bell Lavalin had won on the underlying judgment regarding the time extension issue, it would still owe Conam the value of the 87% of the work performed by Conam (except that Bell Lavalin would then be entitled to offset any extra damages it suffered when it hired another subcontractor to complete the remaining 13% of the work).

Because the third requirement of the Simcoe policy provision is not satisfied, ³ we hold that the Simcoe policy does not provide coverage for the underlying judgment in favor of Conam. Any other interpretation of the Simcoe policy would violate the rule that "an insurance policy must be construed so as to 'provide the coverage which a layperson would have reasonably expected, given a lay interpretation of the policy language.' " O'Neill Investigations v. Illinois Employers Insurance of Wausau, 636 P.2d 1170, 1175 (Alaska 1981) (quoting Stordahl v. Government Employees Insurance...