City of Idaho Falls v. Home Indem. Co.

• Decision Date: 12 January 1995
• Docket Number: No. 20716,20716
• Citation: 888 P.2d 383,126 Idaho 604
• Parties: CITY OF IDAHO FALLS, a municipal corporation, Plaintiff-Appellant-Cross Respondent, v. The HOME INDEMNITY CO., a corporation, Defendant-Respondent-Cross Appellant, and Emmett E. Gallup, an individual; and Twin City Fire Insurance Company, a corporation, Defendants. Pocatello, September 1994 Term
• Court: Idaho Supreme Court

Page 383

888 P.2d 383

126 Idaho 604

CITY OF IDAHO FALLS, a municipal corporation, Plaintiff-Appellant-Cross Respondent, v. The HOME INDEMNITY CO., a corporation, Defendant-Respondent-Cross Appellant, and Emmett E. Gallup, an individual; and Twin City Fire Insurance Company, a corporation, Defendants.

No. 20716.

Supreme Court of Idaho,

Pocatello, September 1994 Term.

Jan. 12, 1995.

Holden, Kidwell, Hahn & Crapo, Idaho Falls, for plaintiff-appellant-cross respondent. Dale W. Storer argued.

Thomsen & Stevens, P.A., Idaho Falls, and Cozen and O'Conner, Seattle, WA, for defendant-respondent-cross appellant. John P. Erlick argued.

SILAK, Justice.

This is an insurance coverage dispute. The City of Idaho Falls (City) purchased from The Home Indemnity Company (Home) an errors and omissions liability policy which required Home to indemnify and defend the City as provided in the policy. Thereafter, the City was sued in several class action complaints involving the City's contract with the Washington Public Power Supply System (WPPSS). Home denied coverage, and the City filed this declaratory judgment action to require Home to defend and indemnify it in the WPPSS litigation.

I. BACKGROUND AND PROCEEDINGS BELOW

The policy the City purchased from Home was issued for a three year period, from June 30, 1982 to June 30, 1985. The policy included a one year "Prior Acts Endorsement," effective retroactively for the period June 30, 1981 through June 30, 1982. The policy insured against "wrongful acts" which occurred during the policy period. By definition, wrongful acts included "any actual or alleged error, misstatement, act, omission, neglect or breach of duty" by the insured.

Beginning in March 1983, the City was named as a defendant in a substantial number of bondholder lawsuits alleging securities fraud violations, negligence, misrepresentations, and omissions by the named defendants. (hereafter "WPPSS Litigation") The WPPSS Litigation spawned from bond financing for two nuclear power plants in the State of Washington, which were never fully constructed. For a more detailed history, see Asson v. City of Burley, 105 Idaho 432, 670 P.2d 839 (1983). Ultimately, most of the WPPSS Litigation was consolidated into a class action in the United States District Court for the Western District of Washington (herein "MDL-551"). The MDL-551 complaint alleged in part:

During the Class Period for this claim, [1/22/82-6/15/83] the defendants, ... issued public statements and reports, including the 14 Official Statements, ... which were materially false and misleading....

* * * * * *

From January 23, 1982, and continuing through June 15, 1983, the defendants ... engaged and participated in or aided and abetted a plan and continuous course of conduct to conceal adverse material information....

When the City was served with process with two WPPSS Litigation complaints, the City tendered them to Home requesting that Home defend and indemnify the City. Home declined coverage on grounds that most of the wrongful acts were alleged to have occurred before the retroactive date of the Home policy. The City then hired a Seattle law firm to represent it in the WPPSS Litigation, and as of September 1989, had incurred $1,024,923 in defense costs. In September 1988, the City was among a group of defendants who settled with the MDL-551 plaintiffs. For its share of the settlement, the City agreed to pay $3,646,929.

The City commenced this action on November 22, 1985, against Home, Twin City Fire Insurance Company, and Emmett Gallup In December 1989, the district court granted partial summary judgment against Home for an additional $500,000, plus prejudgment interest, holding that the wrongful acts asserted during the first policy year were not the same or related to the wrongful acts alleged during the Prior Acts Endorsement period. The district court further rejected Home's argument that the City failed to demonstrate it satisfied the $1,000 deductible for each claim. The court also granted partial summary judgment in favor of Home, dismissing the City's claim for a third $500,000. Following the filing of motions for reconsideration by the City and Home, the district court reaffirmed its earlier ruling.

[126 Idaho 606] an insurance broker. The claims against Twin City and Emmett Gallup were resolved below. In 1988, the City and Home entered into a stipulation for partial dismissal wherein Home agreed to pay $500,000 in consideration of the City dismissing some of its claims. Under the stipulation, Home waived all defenses with respect to its duty to defend and indemnify the City in the WPPSS litigation. However, the parties specifically reserved their right to litigate the amount of the policy limits under the facts of the case.

II. ISSUES

There are three main issues in this appeal. The first concerns the policy limit for the Prior Acts Endorsement portion of the policy. The City contends that the policy limit is $1,500,000, while Home contends it is $500,000.

The second issue is whether the claims of the plaintiffs in the WPPSS Litigation asserted during the first year of the policy are claims that arise out of the "same or related wrongful acts" as claims asserted beforehand, during the Prior Acts Endorsement period. Home contends all such claims are the same or related, and therefore subject to a single $500,000 limit for the Prior Acts Endorsement period. The City contends they are not the same or related, and are thus recoverable within the policy limits of both periods.

The third issue is whether the $1,000 deductible in the Home policy applies separately to the damages claim of each bondholder in the WPPSS Litigation.

III. STANDARD OF REVIEW

In an appeal from an order of summary judgment, this Court's standard of review is the same as the standard used by the district court in ruling on the motion for summary judgment. Farm Credit Bank of Spokane v. Stevenson, 125 Idaho 270, 272, 869 P.2d 1365, 1367 (1994); East Lizard Butte Water Corp. v. Howell, 122 Idaho 679, 681, 837 P.2d 805, 807 (1992). All disputed facts are to be construed liberally in favor of the non-moving party, and all reasonable inferences that can be drawn from the record are to be drawn in favor of the non-moving party. Bonz v. Sudweeks, 119 Idaho 539, 541, 808 P.2d 876, 878 (1991). Summary judgment shall be granted if the court determines that "the pleadings, depositions, 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 a judgment as a matter of law." I.R.C.P. 56(c); Bonz, 119 Idaho at 541, 808 P.2d at 878. The fact that the parties have filed cross-motions for summary judgment does not change these standards; this Court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration. Bear Island Water Ass'n, Inc. v. Brown, 125 Idaho 717, 721, 874 P.2d 528, 532 (1994) (citing cases).

IV. ANALYSIS

A. POLICY LIMIT FOR PRIOR ACTS ENDORSEMENT

The Home policy provided an "aggregate" errors and omissions liability limit of $500,000. This $500,000 limit applied separately to each annual period of coverage pursuant to Condition 10 of the policy 10. Three Year Policy: If this policy is issued for a period of three years any limit of the company's liability stated in this policy as "aggregate" shall apply separately to each consecutive annual period thereof.

The policy term was for three years, but also included a Prior Acts Endorsement retroactively covering the year before the three-year term. The Prior Acts Endorsement does not state a numerical liability limit. Rather, it provides in pertinent part:

1. Such insurance as is afforded by the Errors and Omissions Liability Coverage is extended to include any wrongful act which occurred on or after the retroactive date shown hereon and prior to the inception date of the policy and which arises out of the discharge of duties by an insured on behalf of a public entity.... (emphasis original)

* * * * * *

4. All other terms and conditions of this policy shall apply to such prior acts as if such prior acts had occurred during the policy period.

The district court held that the foregoing language is clear and unambiguous, and establishes a $500,000 liability limit for the Prior Acts Endorsement period. We agree.

It is undisputed that the policy provided $500,000 coverage for each year of the prospective period, June 30, 1982--June 30, 1985. (See Condition 10 quoted above) Under the express terms and conditions of the policy, the amount of insurance (and Home's exposure) was limited to $500,000 per year between 1982 and 1983. The Prior Acts Endorsement declares that "[s]uch insurance as is afforded by the Errors and Omissions Liability Coverage is extended to include any wrongful act which occurred on or after the retroactive date ..." (emphasis added) and "[a]ll other terms and conditions of this policy shall apply to such prior acts as if such prior acts had occurred during the policy period." (emphasis added) One "condition" of the policy incorporated by the Prior Acts Endorsement was Condition 10's limitation that the "aggregate" liability ($500,000) applies to each "annual" period. The Prior Acts Endorsement was an "extension" for another "annual" period. Hence, the liability limit of the Prior Acts Endorsement was $500,000 for that annual period.

The City argues that the language in paragraph 4 of the Prior Acts Endorsement stating "as if such prior acts had occurred during the policy period" means that Prior Acts coverage exists as if the wrongful acts fell within the entire three-year policy period, allowing for a combined limit of $1.5 million. We find this interpretation insupportable. The City's interpretation ignores the express language in Condition 10 that the aggregate limit ($500,000)...