EMJ Corp. v. Hudson Specialty Ins. Co.

• Decision Date: 16 August 2016
• Docket Number: No. 15–60254,15–60254
• Citation: 833 F.3d 544
• Parties: EMJ Corporation; Westchester Fire Insurance Company, Plaintiffs–Appellees Cross–Appellants v. Hudson Specialty Insurance Company, Defendant–Appellant Cross–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

833 F.3d 544

EMJ Corporation; Westchester Fire Insurance Company, Plaintiffs–Appellees Cross–Appellants

v.Hudson Specialty Insurance Company, Defendant–Appellant Cross–Appellee

No. 15–60254

United States Court of Appeals, Fifth Circuit.

August 16, 2016

Jonathan D. Hacker, Bradley Garcia, O'Melveny & Myers, L.L.P., Washington, DC, John Burley Howell, III, Mark David Jicka, Esq., Jackson, Watkins & Eager, P.L.L.C., MS, for Plaintiff–Appellee Cross–Appellant.

Louis G. Baine, III, Thurman Lavelle Boykin, III, Page, Kruger & Holland, P.A., Jackson, MS, David Charles Frederick, Esq., Kellogg, Huber, Hansen, Todd, Evans, & Figel, P.L.L.C., Washington, DC, for Defendant–Appellant Cross–Appellee.

Before STEWART, Chief Judge, and JONES and DENNIS, Circuit Judges.

EDITH H. JONES, Circuit Judge:

This is an appeal and a cross-appeal of a dispute concerning excess insurance policies and pro rata coverage. We largely agree with the district court's well-reasoned resolution of these issues and affirm.

BACKGROUND

In early 2005, Westchester was a commercial umbrella insurer for EMJ Corporation, a general contractor building a J.C. Penney store in Southaven, Mississippi. During that project, EMJ subcontracted with Contract Steel Construction, Inc. for steel erection services. As part of the subcontract, Contract Steel agreed to obtain insurance to protect it and EMJ from personal injury claims. Contract Steel purchased a commercial umbrella policy from Hudson Insurance.

Contract Steel installed a ladder leading from the ground to the roof of the building. The ladder was too short and was installed at an angle. Contract Steel made EMJ aware of this and EMJ accepted the ladder as it was. Two weeks later, a building inspector examining Contract Steel's work fell off the ladder and suffered a severe spinal injury.

The inspector filed suit against a group of defendants, including EMJ, in Mississippi state court seeking damages of $25 million. All of the defendants were dismissed until only EMJ was left and EMJ settled for five million dollars. Of this amount, EMJ's primary liability insurer covered one million dollars. Westchester covered the remaining four million dollars.

EMJ and Westchester filed suit against Hudson in the federal district court seeking reimbursement for the four million dollar settlement. In September 2014, the district court held a trial. The court made a series of rulings as a matter of law and a jury rendered a verdict on a limited fact question. The court entered judgment for EMJ and Westchester and awarded the full four million dollars against Hudson.

Upon Hudson's motion for reconsideration, the district court reversed its earlier ruling on the priority of coverage. It now determined that the four million dollars should be apportioned between Hudson and Westchester based on their policy limits. This led the district court to determine that Hudson was responsible for paying Westchester only $667,000 in damages. The district court denied Westchester's motion to reconsider. Both parties appealed.

We turn first to Hudson's arguments that it is not obliged to pay anything because its policy was never triggered. We then consider Westchester's arguments that Hudson must reimburse it in full. The arguments are assessed under Mississippi law because the parties agree it governs this case.

DISCUSSION

I. Hudson's appeal: Whether it is obligated to indemnify EMJ for the legal settlement?

The main thrust of Hudson's appeal is that it has no duty to indemnify EMJ for the inspector's fall because the conditions of its policy were not satisfied. Hudson asserts four arguments for non-coverage: First, there was no “occurrence” under its policy. Second, EMJ's actions did not cause the inspector's fall. Third, EMJ was not an “additional insured” under its policy. Finally, EMJ did not exhaust all of the primary collectible insurance available to cover the inspector's fall.

A. Was the inspector's fall an “occurrence” under Hudson's policy?

Hudson first argues that its policy was never triggered because there was no “occurrence” as defined by its policy. The district court granted judgment as a matter of law on this issue, holding that the inspector's fall was a covered occurrence. This court reviews the district court's grant of judgment as a matter of law (JMOL) de novo. See Weiser–Brown Operating Co. v. St. Paul Surplus Lines Ins. Co. , 801 F.3d 512, 525 (5th Cir. 2015). JMOL is proper where a “party has been fully heard by the jury on a given issue, and there is no legally sufficient evidentiary basis for a reasonable jury to have found for that party with respect to that issue.” Id. (internal quotation marks omitted). To reverse a JMOL, “there must be more than a mere scintilla of evidence in the record to render the grant of JMOL inappropriate.” Id. We review questions of contract and insurance policy interpretation de novo. Am. States Ins. Co. v. Nethery , 79 F.3d 473, 475 (5th Cir. 1996).

Under the policy, a covered “bodily injury” must be caused by an “occurrence.” Hudson's policy defines an “occurrence” as an “accident,” but it does not cover any injuries “expected or intended from the standpoint of the insured.”

This coverage language is common in the insurance industry and has been analyzed several times by the Mississippi Supreme Court. Time and again, that court has held that there is only one relevant consideration in determining if an injury is covered by such a policy: There is coverage unless the “chain of events leading to the injuries complained of were set in motion and followed a course consciously devised and controlled by [the insured] without the unexpected intervention of any third person or extrinsic force.” Architex Ass'n, Inc. v. Scottsdale Ins. Co. , 27 So.3d 1148, 1153–54 (Miss. 2010) (emphasis omitted) (quoting U.S. Fid. & Guar. Co. v. OmniBank , 812 So.2d 196, 200 (Miss. 2002) (en banc) (quoting Allstate Ins. Co. v. Moulton , 464 So.2d 507, 509 (Miss. 1985) )).

Hudson responds that, under Mississippi law, whether there was an “occurrence” is determined by examining the actions of the insured, not the actions of the injured party. Further, if the insured's action (the one that eventually led to the injury) was intentional, it cannot, as a matter of law, constitute an occurrence in Mississippi. Because EMJ intentionally accepted the ladder, it cannot be an “occurrence.” The district court erred, according to Hudson, by “conflating an intended action with unintended results.”

We agree with the district court that the inspector's fall was an occurrence under Hudson's policy. This follows from the Mississippi Supreme Court's instruction regarding the “only relevant consideration.” Here, EMJ did not consciously devise or control the chain of events that led to the inspector's injuries. Hudson's contrary argument errs because it ignores the import of the Mississippi Supreme Court's instruction that we must consider whether the injuries to be covered were intended or expected by EMJ's actions, not whether the action that caused those injuries was intentionally taken. EMJ surely intended to accept the ladder, but EMJ did not intend for the inspector to fall and be grievously injured.

Our conclusion is supported by contrasting the Mississippi Supreme Court's precedents in this area. In Architex, the court considered a general contractor's suit against its insurer for coverage of poor workmanship completed by subcontractors. 27 So.3d at 1154. The insurer refused coverage because the general contractor's action was the intentional hiring of the subcontractor. The Mississippi Supreme Court affirmed coverage. Id. at 1161–62. The intentional act may have “set in motion” the events leading to the damages, but those damages did not result from “a course consciously devised and controlled by [the general contractor], without the unexpected intervention of any third person or extrinsic force.” Id. at 1159. Under Architex, an intentional action taken without an intent or expectation of damages does not defeat a finding of “occurrence.”

Similarly, in Southern Farm v. Allard, a man fired a warning shot not intended to strike anyone, but a victim had unexpectedly stepped into the path of the bullet and was injured. See S. Farm Bureau Cas. Ins. Co. v. Allard , 611 So.2d 966, 967–68 (Miss. 1992). Firing the warning shot was an occurrence, the court concluded, because no injury was expected or intended by the insured. Id. at 968. Once again, an intentional act taken without the intention of causing the complained-of injury was found to be an occurrence. See also OmniBank , 812 So.2d at 201 (discussing Allard ).

The cases that Hudson relies on—OmniBank and Moulton —are inapposite because they concern intentional actions taken with the intention or expectation of causing injury. In OmniBank, a car owner sued the company that financed her car for wrongfully force-placing insurance coverage on the car. 812 So.2d at 197–98. The lender sued its insurer after the insurer refused to defend the car owner's suit. Id. at 198. The Mississippi Supreme Court determined there was no “occurrence,” because the lender intentionally force-placed the coverage and intentionally charged the car owner for that coverage. Id. at 201. In other words, the injuries complained of (the cost of the force-placed coverage) were “set in motion and followed a course consciously devised and controlled by [the lender], without the unexpected intervention of any third person or extrinsic force.” Id.

In Moulton, a woman sought coverage from her homeowners insurance after she was sued for malicious prosecution. 464 So.2d at 508. The Mississippi Supreme Court held that her actions leading to the malicious prosecution suit were not “occurrences:” “[The homeowner] obviously intended to swear out the complaint against [the plaintiff]. Although she may not have intended him to suffer humiliation and embarrassment, she certainly intended for him to be arrested.” Id. at 510.

The...