BP Chemicals v. First State Insurance Co., s. 99-3429

• Citation: 226 F.3d 420
• Decision Date: 27 April 2000
• Docket Number: 99-3485,Nos. 99-3429,s. 99-3429
• Parties: (6th Cir. 2000) BP Chemicals, Inc., Plaintiff-Appellant/Cross-Appellee, v. First State Insurance Company, Defendant-Appellee/Cross-Appellant. Argued:
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 420

226 F.3d 420 (6th Cir. 2000)

BP Chemicals, Inc., Plaintiff-Appellant/Cross-Appellee, v. First State Insurance Company, Defendant-Appellee/Cross-Appellant.

Nos. 99-3429, 99-3485

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: April 27, 2000

Decided and Filed: August 29, 2000

Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 96-00046--Donald C. Nugent, District Judge. [Copyrighted Material Omitted] Thomas S. Kilbane, SQUIRE, SANDERS & DEMPSEY, Cleveland, Ohio, for Appellant. Bruce M. Allman, THOMPSON, HINE & FLORY, Cincinnati, Ohio, for Appellee. ON BRIEF: Thomas S. Kilbane, Steven A. Friedman, SQUIRE, SANDERS & DEMPSEY, Cleveland, Ohio, for Appellant. Bruce M. Allman, Laurie J. Nicholson, THOMPSON, HINE & FLORY, Cincinnati, Ohio, Timothy J. Coughlin, THOMPSON, HINE & FLORY, Cleveland, Ohio, for Appellee.

Before: GUY, BOGGS, and SUHRHEINRICH, Circuit Judges.

OPINION

RALPH B. GUY, JR., Circuit Judge.

Plaintiff, BP Chemicals, Inc., appeals from the entry of judgment in favor of defendant, First State Insurance Company, in this breach of contract action for indemnification under an excess liability insurance policy purchased by its contractor, Bath Electrical Systems, Inc. BP sought to recover more than $2,000,000 it paid in settlement of an underlying negligence action seeking damages for the electrocution death of a Bath employee performing work at a BP plant.

BP argues that the district court properly found it was an insured under First State's excess policy, but erred (1) by failing to determine whether the policy covered BP for its own negligence, and (2) by finding the cross-liability exclusion in the excess policy barred any coverage. Arguing that the district court properly found the exclusion barred coverage, First State also urges in its cross-appeal that we affirm on the alternative grounds that either BP was not an insured, or the policy did not cover BP's own negligence. After careful review of the arguments presented and the applicable law, we affirm.

I.

In 1993, BP Chemical and Bath Electrical contracted for Bath to provide cleaning and maintenance services for the electrical systems at a BP plant in Port Lavaca, Texas. The scope-of-work provisions in the BP-Bath contract required BP to provide appropriate diagrams of the electrical power distribution and to perform all switching necessary to de-energize and isolate plant electrical equipment. Bath employees, including Bryan Swift, were instructed to not work on circuits that had not been verified as de-energized. After the plant was partially shut down, several BP employees and Swift de-energized, tagged, and locked out certain transformer equipment.

On September 21, 1993, Swift, a Bath supervisor, was troubleshooting a problem with an electrical circuit. Swift had "Butch" Amaimo, a BP employee, unlock one de-energized cubicle. Finding no problem, Swift opened an adjacent compartment that was not locked out, tagged, or de-energized. There was evidence that Amaimo told Swift only that it was an "incoming" panel and then left him alone, despite knowing from past experience that oral warnings can be insufficient. Also, BP did not provide the detailed drawings it had of the compartment's interior to Swift or any other Bath employee. Swift was electrocuted when he made contact with the energized cables.

A wrongful death action was filed in the Texas state courts alleging that Swift's death was caused by both BP's negligence and Bath's gross negligence. The claim against BP was settled during trial for $3,000,000 plus a $50,000 ad litem fee. First State does not contest the reasonableness of the settlement. After the settlement, the claim against Bath was dismissed by the state court.

Although the negligence issue was not decided in the state court proceeding, the district court determined that the insurance question in this case depended upon the relative negligence of BP, Bath, and Swift. The issue was tried to a jury and the jury returned a special verdict finding BP's negligence was a proximate cause of the injuries suffered by Swift, but Bath was not negligent. The jury specifically found that BP was 75% negligent, Swift was 25% negligent, and Bath was 0% negligent. Significantly, BP does not appeal the jury's verdict or the denial of its post-trial motion for judgment as a matter of law, or for a new trial.

The BP-Bath contract required that Bath obtain and maintain the insurance policies, including any special coverage provisions, specified in Exhibit A. Exhibit A, a form prepared by BP, required that Bath have at least $1,000,000 in comprehensive general liability insurance and obtain an Additional Insured endorsement.¹ Bath had previously purchased a $1,000,000 general liability policy from National Union Fire Insurance Company covering the period from November 1, 1992, to November 1, 1993. Bath also obtained an insurance policy from First State covering the same period, which provided $5,000,000 in excess liability and umbrella coverage. The excess coverage was neither mentioned in nor required by the BP-Bath contract. BP first learned of the excess policy during discovery in the state court action. Exhibit A of the BP-Bath contract listed the National Union policy and, on the same page, both Bath and an agent for National Union certified that the general liability policy had limits of at least the amount specified and contained the listed endorsements (Certificate of Insurance).

BP's preprinted contract contained an indemnification clause in paragraph 11(a), which purported to hold BP harmless from all liabilities and claims for loss or injury to person or property in "any manner arising out of or in connection with the WORK." The indemnification provision also stated that the indemnity obligation would not apply to the extent that BP was provided coverage as an additional insured as specified in Exhibit A². Bath took exception to this indemnification clause and proposed another in lieu of the standard provision. After BP proposed further changes, the negotiated indemnification agreement became part of the contract. In that provision, Bath agreed to indemnify BP against "any and all losses, expenses, demands and claims" that may be claimed or for which suit is brought for any actual or alleged bodily injury or death occurring to any person whatsoever, "arising out of, in connection with, or resulting in whole or in part out of the acts or omissions of BES, INC., or any subcontractors employed by or under the direct control of BES, INC. and their respective officers, agents and employees in the performance of the work in accordance with this Agreement [BP-Bath contract]." The indemnity obligation was limited, however, as follows:

Such obligation shall not apply when the liability arises solely from the negligence of Owner, its employees or agents. Such obligation shall also be limited, in a case involving or alleging joint negligence between BES, INC., and Owner, its employees or agents, to BES, INC.'s actual percentage of comparative negligence, if any, found by the trier of fact in a cause of action brought against BES, INC. arising out of the performance of the work or alleged negligence in accordance with this Agreement.

(Emphasis added.)

At BP's request, the primary liability insurer, National Union, provided a defense in the underlying lawsuit based upon BP's status as an additional insured under its policy. Despite National Union's determination that it should assume the defense and indemnify BP, First State denied there was coverage under the excess policy for a litany of reasons. The underlying action was settled with the advice of National Union's representatives, and National Union tendered the limits of the primary policy. When First State refused to tender the additional $2,050,000 due under the settlement, BP paid it from its own funds and brought this action.³

In the course of considering the parties' several motions for summary judgment, the district court concluded that since BP was an additional insured under National Union's primary policy, BP also was an insured under First State's excess policy. Without deciding whether the underlying policy covered BP for its own negligence, the district court found that any excess liability coverage for BP's own negligence would be excluded by the separate cross-liability exclusion found only in the excess policy.⁴ After the jury determined that BP was negligent and Bath was not, the district court entered judgment in favor of First State. BP appealed and First State cross-appealed.

II.

We review the district court's interpretation of an insurance contract de novo. See Parameter Driven Software, Inc. v. Massachusetts Bay Ins. Co., 25 F.3d 332, 336 (6th Cir. 1994). We also review the grant of summary judgment de novo. See, e.g., Smith v. Ameritech,129 F.3d 857, 863 (6th Cir. 1997). Although the district court denied First State's motion for summary judgment and BP's cross-motion for summary judgment, the court interpreted the insurance policies and determined the scope of coverage. The only issue tried to the jury was the allocation of fault in Swift's death. The entry of judgment in this case was based upon a determination that First State was entitled to judgment as a matter of law and was essentially a grant of summary judgment. On appeal, the parties contest the district court's conclusions of law and do not suggest that questions of fact remained for trial.

The parties agree that Texas law governs this action. Under Texas law insurance policies are construed under the rules of contract construction. See Balandran v. Safeco Ins. Co., 972 S.W.2d 738 (Tex. 1998); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). When interpreting a contract, the court's primary concern is to give effect to the written expression of the parties' intent. See Forbau v. Aetna Life Ins. Co., 876...