Commercial Union Ins. Co. v. Walbrook Ins. Co., Ltd.

• Decision Date: 05 August 1993
• Docket Number: No. 92-2415,92-2415
• Citation: 7 F.3d 1047
• Parties: COMMERCIAL UNION INSURANCE CO., Plaintiff, Appellant, v. WALBROOK INSURANCE CO., LTD., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1047

7 F.3d 1047

COMMERCIAL UNION INSURANCE CO., Plaintiff, Appellant, v. WALBROOK INSURANCE CO., LTD., et al., Defendants, Appellees.

No. 92-2415.

United States Court of Appeals, First Circuit.

Heard Aug. 5, 1993.

Decided Sept. 28, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Nov. 22, 1993.

Stephen A. Cozen, with whom Cozen and O'Connor, Lawrence T. Bowman, Richard C. Bennett, Philadelphia, PA, Parker, Coulter, Daley & White, Richard L. Neumeier, Quinn and Morris and Robert H. Quinn, Boston, MA, were on brief for plaintiff, appellant.

Robert J. Brown with whom Mendes & Mount, John J. Curley, Mark A. DiTaranto, New York City, Badger, Dolan, Parker & Cohen, James B. Dolan and Erin R. Boisvert, Boston, MA, were on brief for defendants, appellees.

Before CYR and STAHL, Circuit Judges, and FUSTE, ^* District Judge.

CYR, Circuit Judge.

In 1982, Commercial Union Insurance Company ["CU"] brought the present lawsuit seeking a judicial declaration that an umbrella insurance policy issued by Walbrook Insurance, et al. [collectively, "Weavers"] covered CU's liability for damages to third parties as a result of an industrial explosion. ¹ Following extended discovery proceedings, both CU and Weavers moved for summary judgment. The district court entered summary judgment for Weavers, and CU appealed. We now reverse.

I BACKGROUND

CU's loss prevention department provided safety inspections to industrial facilities on a "fee-for-services" basis. Between 1973 and 1975, a CU inspector conducted several inspections of the Peterson/Puritan aerosol-packing plant in Cumberland, Rhode Island. On January 17, 1976, a gas line exploded at the Peterson plant, killing or injuring several people [the "Peterson Incident"]. CU was named as a defendant in several tort suits stemming from the Peterson Incident. The present insurance-contract litigation is an outgrowth of CU's attempt to obtain coverage under its umbrella policy with Weavers for claims arising out of the Peterson Incident.

A. The Insurance Policies

At the time of the Peterson Incident, CU carried a primary corporate liability policy underwritten by Travelers Insurance Company [the "Travelers Policy"], covering up to $1 million of CU's liability for occurrences during the Travelers Policy period--January 1 through July 1, 1976. However, the main body of the Travelers Policy specifically excluded occurrences involving malpractice by CU's engineers.

To fill part of this gap in coverage, Travelers issued a separate "Engineers Professional Liability ["EPL"] Endorsement." But though the main body of the Travelers Policy provided coverage on an occurrence-basis, the Travelers EPL Endorsement covered only claims filed during the policy period. Thus, even with the EPL Endorsement, the Travelers Policy left uncovered EPL occurrences for which no claim was filed within the policy period.

At the time of the Peterson Incident, CU also carried an umbrella policy issued by Weavers ["Weavers Umbrella"], which covered "all sums ... imposed upon [CU] by law ... or assumed under contract ... for damages on account of ... personal injuries, property damage, [or] advertising liability ... arising out of each occurrence happening anywhere in the world." Immediately following the quoted language is a section entitled "LIMIT OF LIABILITY," subsection (a) of which provides that if an occurrence is covered by another specified policy, the Weavers Umbrella would pay only the excess over the other policy's limits, up to the Weavers Umbrella policy limits. If an occurrence was not covered by another policy, the next subsection ((b)) provides that the Weavers Umbrella would cover the excess over a $25,000 "self-insured retention," i.e., a deductible, up to the Weavers Umbrella limits. The latter clause in turn was modified by a two-part EPL Endorsement ["Weavers EPL Endorsement"].

The first part of the Weavers EPL Endorsement, which we refer to as the "Weavers EPL Extension," provides that this policy is extended to include Engineers Professional Liability as more fully described in the underlying General Liability policy/ies [i.e., the Travelers Policy] ... and that as respects such coverage this policy is subject to the same warranties, terms and conditions ... as are contained in the said underlying policy/ies....

The parties agree that the Weavers EPL Extension afforded coverage on a "claims-basis" only, since its terms explicitly incorporate the terms and conditions of the underlying Travelers Policy, itself claims-based.

On the same page with the Weavers EPL Extension appears language amending the "LIMIT OF LIABILITY" section of the Weavers Umbrella policy [the "Liability Amendment"]. The language of the Liability Amendment is substantially identical to the language in the main body of the Weavers Umbrella, except that it amends the ultimate net loss limit contained in subsection (b) of the Weavers Umbrella to provide coverage for: "the excess of ... $25,000 ultimate nett [sic] loss in respect of each occurrence not covered by said underlying [Travelers] insurances but in respect of engineering services liability $250,000 ultimate nett [sic] loss [for] each occurrence not covered by said underlying [Travelers] insurance."

B. The Peterson Claims

Although it was later discovered that none of the lawsuits against CU arising out of the Peterson Incident [the "Peterson Claims"] were filed within the Travelers Policy period, Travelers initially undertook the defense of the Peterson Claims at CU's request. Weavers monitored Travelers' defense of the Peterson Claims during this period as well.

Later, in June 1982, CU informed Travelers that it had determined that no timely claim based on the Peterson Incident had been filed during the Travelers Policy period. CU accordingly released Travelers from all obligations under the Travelers Policy, "in the interest of 'fair business dealings.' " Meanwhile, CU settled the Peterson Claims for approximately $2.5 million, obtaining primary indemnification in the amount of $1 million from American Employers Insurance Company ["American Employers"]. ²

Upon learning that CU had released Travelers, Weavers informed CU that the Weavers Umbrella did not cover the Peterson Claims. Consequently, in November 1982, CU brought the present action for a judicial declaration that the Weavers Umbrella covered the Peterson Claims, and therefore that Weavers must indemnify CU for the approximate $1.5 million cost of settling the Peterson Claims over and above the $1 million paid by American Employers. ³ After years of contentious discovery proceedings, CU and Weavers filed cross-motions for summary judgment. The district court thereafter granted summary judgment in favor of Weavers.

CU advances alternative arguments on appeal. First, it urges that the main body of the Weavers Umbrella must cover EPL on an occurrence basis because the Weavers EPL Endorsement, rather than diminishing the EPL coverage extended under the main body of the Weavers Umbrella, provides additional EPL coverage on a claims-basis. Alternatively, CU insists, the Peterson Claims pleaded in its complaint include non-EPL claims which are covered under the main body of the Weavers Umbrella. ⁴

Weavers proposes a very different interpretation, one which results in no EPL coverage under the main body of the Weavers Umbrella. As Weavers sees it, the sole source of EPL coverage is the Weavers EPL Endorsement itself. But since the EPL coverage provided in the Weavers EPL Endorsement is concededly claims-based, CU's

declaratory judgment action fails as a matter of law, because the Peterson Claims were not filed within the Weavers Umbrella policy period.

II DISCUSSION

A. Summary Judgment Standard

We review a grant of summary judgment de novo, employing the same criteria incumbent upon the district court in the first instance. Pedraza v. Shell Oil Co., 942 F.2d 48, 50 (1st Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 993, 117 L.Ed.2d 154 (1992). Summary judgment is appropriate where the record, viewed in the light most favorable to the nonmoving party, reveals no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Mesnick v. General Elec. Co., 950 F.2d 816, 822 (1st Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 2965, 119 L.Ed.2d 586 (1992). This contract dispute presents pure issues of law for the court.

B. Construction of the Weavers Umbrella Policy

The proper construction of an insurance contract is a matter of law for both trial and reviewing courts. Cody v. Connecticut General Life Ins. Co., 387 Mass. 142, 439 N.E.2d 234, 237 (1982). Insurance contract terms are given their ordinary meaning, Continental Cas. Co. v. Canadian Universal Ins. Co., 924 F.2d 370, 374-75 (1st Cir.1991) (applying Mass. law), based on an examination of the entire policy, including its endorsements, see Falmouth Nat'l Bank v. Ticor Title Ins. Co., 920 F.2d 1058, 1061 (1st Cir.1990) (applying Mass. law), with a view to effectuating the intentions of the parties, Eagle-Picher Indus., Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12, 17 (1st Cir.1982) (applying Ill. & Ohio law), cert. denied, 460 U.S. 1028, 103 S.Ct. 1279, 1280, 75 L.Ed.2d 500 (1983), but without "disregard[ing] the plain language of the policy in order to give effect to what [the court considers to have been the probable] intentions of the parties," Reliance Ins. Co. v. Aetna Cas. & Sur. Co., 393 Mass. 48, 468 N.E.2d 621, 624 (1984).

1. EPL Coverage Under the Main Body of the Weavers Umbrella

The district court held that the Weavers Umbrella did not address EPL claims and that the Weavers EPL Endorsement did not cover the Peterson Claims. We conclude that the plain language in the main body of the Weavers Umbrella itself afforded CU occurrence-based EPL coverage.

Section I of the Weavers Umbrella (entitled "COVERAGE") states that:

[Weavers] hereby agree[s], subject...