Coleman Co., Inc. v. California Union Ins. Co.

• Decision Date: 07 April 1992
• Docket Number: No. 91-3006,91-3006
• Citation: 960 F.2d 1529
• Parties: The COLEMAN COMPANY, INC., Plaintiff-Appellee, v. CALIFORNIA UNION INSURANCE COMPANY, a foreign corporation; Indemnity Insurance Company of North America, a foreign corporation, Defendants-Appellants, and AVRECO, INC., a foreign corporation, Defendant-Third Party Plaintiff, v. INSURANCE MANAGEMENT ASSOCIATES, INC., Third Party Defendant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1529

960 F.2d 1529

The COLEMAN COMPANY, INC., Plaintiff-Appellee, v. CALIFORNIA UNION INSURANCE COMPANY, a foreign corporation;

Indemnity Insurance Company of North America, a foreign corporation, Defendants-Appellants, and AVRECO, INC., a foreign corporation, Defendant-Third Party Plaintiff, v. INSURANCE MANAGEMENT ASSOCIATES, INC., Third Party Defendant.

No. 91-3006.

United States Court of Appeals Tenth Circuit.

April 7, 1992.

Rehearing Denied April 30, 1992.

Robert G. Martin II (Alvin D. Herrington with him on the brief) of McDonald, Tinker, Skaer, Quinn & Herrington, Wichita, Kan., for defendants-appellants.

Gerald Sawatzky (Darrell L. Warta and Stephen M. Kerwick with him on the brief) of Foulston & Siefkin, Wichita, Kan., for plaintiff-appellee.

Before ANDERSON, TACHA and BALDOCK, Circuit Judges.

BALDOCK, Circuit Judge.

At issue in this declaratory judgment action is the interpretation under Kansas law of an umbrella insurance policy ¹ issued by defendant-appellants California Union Insurance Company ("Cal Union") and Indemnity Insurance Company of North America ("Indico") to plaintiff-appellee The Coleman Company, Inc. ("Coleman"). ² Specifically, we must determine whether defense costs incurred by the insured, Coleman, which are clearly included in calculating the limit of liability of the underlying policy, are also included in calculating the attachment point of the umbrella policy. On cross-motions for summary judgment, the district court construed the policy as ambiguous, and held that, under Kansas law, the policy must be interpreted against Cal Union. Our jurisdiction arises under 28 U.S.C. § 1291, and our review is de novo. Hocker v. New Hampshire Ins. Co., 922 F.2d 1476, 1480 (10th Cir.1991). While we do not agree with the district court that the umbrella policy is ambiguous, we affirm the district court's order because the terms of the policy unambiguously support Coleman's construction. See Scivally v. Time Ins. Co., 724 F.2d 101, 103 (10th Cir.1983) ("trial court's decision will be affirmed if the record reveals another ground which supports the decision").

While the umbrella policy at issue in this case was for the years 1980-85, a discussion of the circumstances leading to an earlier excess policy for the years 1978-79 is helpful in understanding the source of this dispute and the parties' knowledge in entering into the disputed insurance contract. In 1977, third-party-defendant Insurance Management Associates ("IMA"), a retail insurance broker, proposed a liability insurance plan to Coleman, a manufacturer of recreational and household goods. The plan provided that Coleman would retain primary coverage of $2.5 million, to include losses and expenses, after which umbrella liability coverage would attach. IMA contacted defendant and third-party-plaintiff Avreco Inc., a wholesale insurance broker, which, in turn contacted Cal Union about obtaining umbrella coverage for Coleman. Avreco submitted materials it had received from IMA to Cal Union, see Aplee.App. 1-97, including a proposed underlying comprehensive general liability ("CGL") policy which included defense costs in its limits of liability. ³ See id. at 37.

Cal Union initially declined to write umbrella coverage for Coleman, but after two subsequent inquiries by Avreco, Cal Union "indicate[d]" that it would write an excess policy "to follow Commercial Union primary which [sic] standard CGL/Products form." ⁴ Aplts.App. at 375. Avreco responded with a "firm order to bind and issue coverage...." Id. at 376. The following day, Cal Union communicated to Avreco that the excess policy was binding as of January 1, 1978, and that a copy of the underlying policy was required. Aplee.App. at 98. Three months later, the underlying policy, which included defense costs within the policy limits, was sent to Cal Union. See id. at 99-135, 107. Cal Union subsequently drafted an endorsement to the 1978 excess policy stating that an obligation to defend was not within the excess policy's coverage. ⁵ Cal Union then issued the 1978 excess policy, and an identical policy was issued for 1979.

With this background in mind, we address the policy at issue. Beginning in 1980 and continuing through 1985, Cal Union issued an umbrella policy which is different from the 1978-79 excess policy. ⁶ In interpreting this policy, we must "consider the instrument as a whole and endeavor to ascertain the intention of the parties from the language used, taking into account the situation of the parties, the nature of the subject matter and the purpose to be accomplished." American Media, Inc. v. Home Indem. Co., 232 Kan. 737, 658 P.2d 1015, 1018 (1983); Mah v. United States Fire Ins. Co., 218 Kan. 583, 545 P.2d 366, 369 (1976); Bramlett v. State Farm Mut. Auto. Ins. Co., 205 Kan. 128, 468 P.2d 157, 159 (1970). The umbrella policy must be "construed according to the sense and meaning of the terms used, and if the language is clear and unambiguous, it must be taken in its plain, ordinary and popular sense...." American Media, 658 P.2d at 1018; Mah, 545 P.2d at 369; Bramlett, 468 P.2d at 159. "The test to be applied in determining the intention of the parties ... is not what the insurer intended the policy to mean, but what a reasonable person in the position of the insured would understand it to mean." ⁷ American Media, 658 P.2d at 1019; Fancher v. Carson-Campbell, Inc., 216 Kan. 141, 530 P.2d 1225, 1229 (1975). See also St. Paul Fire & Marine v. Medical Protective Co., 691 F.2d 468, 470 (10th Cir.1982).

The "Insuring Agreement" of the umbrella policy provides that Cal Union will indemnify [Coleman] for ultimate net loss in excess of the retained limit hereinafter stated which [Coleman] shall become legally obligated to pay as damages because of [p] A. personal injury [p] B. property damage [p] C. advertising injury [p] to which this insurance applies, caused by an occurrence....

Aplts. Brief, ex. B. The "Insuring Agreement" also imposes a "duty" on Cal Union to defend

[w]ith respect to any personal injury, property damage or advertising injury not within the terms of coverage of underlying insurance but within the terms of coverage of this insurance, or [p] [i]f the limits of liability of the underlying insurance are exhausted because of personal injury, property damage or advertising injury....

Id. Costs incurred by Cal Union in defending Coleman are "in addition to the amount of ultimate net loss payable...." Id.

As Cal Union's duty to indemnify for "ultimate net loss" is triggered when the "retained limit" is exceeded, the critical definition in calculating the attachment point of the umbrella policy is "retained limit." This term is defined in a separate section entitled "Retained Limit--The Company's Limit of Liability." This section provides that Cal Union's "liability is limited ... [to] the ultimate net loss in excess of [Coleman's] retained limit...." Id. "Retained limit" is then defined, in relevant part, as

an amount equal to the limits of liability indicated beside the underlying insurance listed in Schedule A hereof, plus the applicable limits of any other underlying insurance collectible by [Coleman].

Id. Schedule A, in turn, lists the underlying insurance carrier, the underlying policy by number, and the limit of liability, per occurrence and in the aggregate, on the underlying policy.

Coleman continues to maintain that the umbrella policy unambiguously provides that defense costs are included in calculating the attachment point. Coleman argues that the policy's definition of "retained limit" which directs the reader to a specific underlying policy in Schedule A unambiguously incorporates the manner by which the underlying policy's limit of liability is calculated in order to calculate the retained limit of the umbrella policy. Given that the underlying policy clearly includes defense costs in its limit of liability, such costs should also be included in determining the retained limit of the umbrella policy.

We agree with the district court that this section "does nothing, explicitly or implicitly, to 'incorporate' the terms of the underlying policy." Coleman Co. v. California Union Ins. Co., No. 87-1700-K, slip op. at 16, 1990 WL 146513 (D.Kan. Sept. 6, 1990). The use of the language "amount equal to the limits of liability indicated beside the underlying insurance listed in Schedule A hereof," as opposed to language such as "as provided by" or "as contained in" expresses a "manifest intent and effect of this provision ... simply to allow the insurer and insured to designate the total amount of the limits of liability in a separate schedule." Id. at 16-17. Indeed, Coleman's construction reads out the phrases "amount equal to" and "indicated beside." Because we must construe the policy "from the sense and meaning of the terms used," we cannot read out this language. Therefore, the definition of "retained limit" simply indicates that it is an amount as indicated in Schedule A, and gives us no guidance on how to calculate this amount.

Coleman's construction of the umbrella policy, however, is supported by an endorsement which provides that "coverage" under the umbrella policy "shall follow and be subject to the same terms and conditions of the underlying policy...." ⁸ In Home Ins. Co. v. American Home Products Corp., 902 F.2d 1111 (2d Cir.1990), the court recognized that a similar "following form" agreement subjected the excess insurer to the same " 'terms conditions and exclusions' " of the underlying policy. ⁹ Id. at 1113. Similarly, in Juntunen v. Sea-Con Services, Inc., 879 F.2d 154, 156 (5th Cir.1989), the court interpreted a similar provision stating that the excess policy "shall follow the terms, conditions, definitions and exclusions of the controlling underlying policy" as permitting the excess insurer to reduce its limit of liability by the amount of attorney fees and defense costs it incurred because the underlying policy...