Commerce & Indus. Ins. Co. v. Century Sur. Co.
| Decision Date | 30 April 2020 |
| Docket Number | Case No. 19-3635 |
| Parties | COMMERCE & INDUSTRY INSURANCE COMPANY, Plaintiff-Appellant, v. CENTURY SURETY COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
NOT RECOMMENDED FOR PUBLICATION
File Name: 20a0236n.06
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO
BEFORE: MOORE, McKEAGUE, and READLER, Circuit Judges.
An ATV accident on the Alaska Peninsula over ten years ago spawned this insurance dispute; today, a federal court based in Ohio resolves it with the help of Pennsylvania law. What takes us all over the map are dueling policies issued to contractors at the accident site by jurisdictionally diverse insurers—the plaintiff, Commerce & Industry, and the defendant, Century Surety. Commerce argues that its insurance coverage took a backseat to Century's, so Century must pay for all the legal defense costs associated with the ATV accident. Century responds that the district court got it right in splitting costs between the two of them. The district court got it mostly right, but not all right. We accordingly AFFIRM in part, VACATE in part, and REMAND.
Weston Solutions was a contractor working on a decontamination project in the remote town of Port Heiden, Alaska. It subcontracted for transportation services with Aniakchak, a local company presumably named after the nearby ancient volcano, Mount Aniakchak. In remote Alaska, though, "transportation services" is a euphemism for ATV rides, which have their risks. So Weston and Aniakchak agreed in their subcontract that Aniakchak would "indemnify, defend and hold harmless" Weston and its employees in the event of an accident resulting from Aniakchak's work. Aniakchak further agreed that it would maintain a commercial general liability insurance policy (a "CGL" policy) that named Weston as an "additional insured," covering Weston for such an accident. Weston already had its own CGL policy issued by Commerce; Aniakchak's CGL policy was issued by Century, and Weston was named as an additional insured through an "endorsement" to the policy (an amendment, basically) after the subcontract was executed.
What does that all mean? It means that in the event of an accident involving Aniakchak, Weston was doubly insured—through the policy Commerce directly issued it, and through the additional insured provision in the policy Century issued Aniakchak.
That's how these subcontracts normally work, by the way. A contractor hires a subcontractor to perform some work. Pursuant to the subcontract, the subcontractor maintains a CGL policy that, in addition to covering the subcontractor, covers the contractor as an additional insured. The idea is that if a third party gets hurt because of the subcontractor's work, and that third party sues the contractor, the subcontractor's insurer will take care of everything. But contractors already have CGL policies of their own which cover them in the event of such an accident. So to avoid overlapping coverage, a contractor's insurer will include a provision in itspolicy saying that if the contractor is covered as an additional insured in a subcontractor's policy, the contractor's policy is "excess." This is called an "other insurance" provision. Usually, it operates such that the contractor will first rely on its coverage as an additional insured (the contractor's "other insurance"), then turn to its own insurer. See, e.g., First Mercury Ins. Co. v. Cincinnati Ins. Co., 882 F.3d 1289, 1301-04 (10th Cir. 2018); Wright-Ryan Constr., Inc. v. AIG Ins. Co. of Canada, 647 F.3d 411, 414-17 (1st Cir. 2011).
That's what the subcontract between Weston and Aniakchak contemplated. The subcontract mandates that Weston's additional insured coverage through Aniakchak's insurance be "primary" to Weston's own CGL coverage. Accordingly, Aniakchak's policy with Century contains a standard additional insured provision for Weston: Century covers Weston as an additional insured "but only with respect to 'bodily injury,' 'property damage,' or 'personal and advertising injury' caused, in whole or in part, by" Aniakchak or those working on its behalf "in the performance of [its] ongoing operations for [Weston.]" Century Policy, R. 37-6, PageID 1454. And sure enough, the Century policy provides that its coverage is "primary and non-contributory" with respect to its additional insureds. Id. These provisions operate seamlessly with Weston's CGL policy with Commerce: Commerce's coverage is excess when other insurance is available to Weston as an additional insured. Commerce Policy, R. 37-13, PageID 1510.
Simple enough (for insurers, at least). There's just one problem. Century's policy also includes an other-insurance provision, but it's broader. It says that if an "insured" under the Century policy has any other insurance available to it, then Century's coverage is excess—even if the other insurance is itself excess. Century Policy, R. 37-6, PageID 1436. We'll see how that complicates things later on.
With that groundwork, we turn to the accident. Just before the project in Port Heiden finished, an Aniakchak ATV crashed en route from a Weston barbecue, injuring the passenger, an engineer named Kathryn Daniel. Daniel sued three parties in Alaska state court for her injuries: Weston, Aniakchak, and Konan Lind, the ATV driver. In her first complaint, filed in 2011, she alleged that (1) Weston itself was negligent, (2) Aniakchak was negligent and vicariously liable for Lind's negligence as Lind's employer, and (3) Lind was negligent. Two years later, in 2013, Daniel filed a second, amended complaint. In the second complaint, she added allegations that Lind was also employed by Weston, and that Weston was vicariously liable for Lind's negligence.
The litigation in Alaska has since resolved. Its outcome is irrelevant here because the insurers are fighting over who has to pay defense costs—an obligation that arises from an insurer's broad contractual "duty to defend" its insureds in litigation. The parties agree that their policies provide a duty to defend only when their coverage is primary. And generally, an insurer's duty to defend kicks in when a complaint alleges there was an injury that potentially falls within the scope of the defendant's insurance coverage.
You might see where things are headed now. Weston might have been doubly covered—through normal CGL insurance with Commerce, and as an additional insured in Century's policy. If so, which coverage was primary (that is, which insurer had to pay Weston's defense costs)? What about Lind—was there an issue of primacy there, too? And did it matter when Daniel alleged Lind was a Weston employee? Commerce sued Century for a declaratory judgment to figure this all out.
With respect to Weston's defense, Commerce argued that Weston was possibly covered as an additional insured under Century's policy because Daniel's injuries were allegedly caused "inpart" by Aniakchak. And additional insured coverage is "primary and non-contributory," according to the Century policy. Thus, Commerce said, its coverage was excess per its own other-insurance provision, vitiating its duty to defend Weston. Century responded that even if that's so, the broad other-insurance provision in Century's policy also deems Century's coverage excess, because other insurance was available to Weston through Commerce. And if both policies are excess, they conflict, making both insurers responsible for defense costs.
As for Lind's defense, Commerce reiterated its Weston-based arguments: Lind was an additional insured, so Century's coverage was primary. Commerce alternatively argued that if its own coverage was primary, then it couldn't be responsible for defense costs incurred by Lind before he was alleged to be Weston's employee. Commerce's policy only covered Weston and its employees, not Aniakchak employees. For its part, Century countered that only Weston is an additional insured under its policy, not Weston employees. On top of that, Commerce's other-insurance provision applies only when Weston is additionally insured, not Lind. And, according to Century, Commerce was obligated to pay all defense costs once Commerce's policy became primary, even costs incurred before that point.
The district court held in Century's favor on both points. See Commerce & Indus. Ins. Co. v. Century Sur. Co., 313 F. Supp. 3d 877 (S.D. Ohio 2018). Century's policy, governed by Alaska law, and Commerce's policy, governed by Pennsylvania law, conflicted with respect to Weston's defense. Both policies claimed they were excess. So both insurers had to pay. Id. at 883-84. As for Lind, while both policies provided primary coverage, Commerce's other-insurance provision was inapplicable. Commerce alone thus had to pay for Lind's defense. Moreover, as the primary insurer, Commerce was in for a penny, in for a pound—all defense costs, even those incurred before Daniel alleged Weston employed Lind, were Commerce's responsibility. Id. at 884-85.
Commerce appeals, and both sides renew their arguments from below. We review the district court's grant of summary judgment de novo. K.V.G. Props., Inc. v. Westfield Ins. Co., 900 F.3d 818, 821 (6th Cir. 2018).
We deal with Weston first. To start, we don't doubt that given Daniel's allegations, Weston potentially qualified as an additional insured, engendering Century's duty to defend under that provision. Under Alaska law, which applies to the Century policy, the duty to defend arises where "a complaint states a cause of action within, or potentially within, the policy coverage." Afcan v. Mut. Fire, Marine & Inland Ins. Co., 595 P.2d 638, 645 (Alaska 1979). Here, the additional insured provision—specifically its coverage of Weston for injury "caused, in whole or in part, by" Aniakchak—"plainly extends coverage beyond underlying lawsuits in which a plaintiff expressly raises claims against [Aniakchak], requiring only that [Aniakchak's] acts...
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