Employers Ins. Co. of Wausau v. The Marley Co.
| Decision Date | 17 November 2006 |
| Docket Number | No. 05-C-695-C.,05-C-695-C. |
| Citation | 461 F.Supp.2d 879 |
| Parties | EMPLOYERS INSURANCE COMPANY OF WAUSAU, Plaintiff, v. THE MARLEY COMPANY, Layne and Bowler Division of the Marley Company, Layne and Bowler, Inc., Layne Christiansen Company, Layne-Western Company, Inc., Engineers and Fabricators Company, Marley Cooling Technologies, Inc, and The Marley Cooling Tower Company, Defendants. |
| Court | U.S. District Court — Western District of Wisconsin |
Rolf E. Gilbertson, for Plaintiff.
In this civil action for declaratory and monetary relief, plaintiff Employers Insurance Company of Wausau contends that defendants The Marley Company, LLC, Engineers and Fabricators Company, Layne and Bowler, Inc., Layne Christiansen Company, Layne-Western Company, Inc., Marley Cooling Technologies, Inc. and The Marley Cooling Tower Company breached their insurance agreements with plaintiff by failing to pay premiums as required under the terms of a retrospective premium endorsement that applied to each of defendants' policies. Plaintiff seeks money damages for past breach and judgment declaring that it is excused from further performance of its duties under the agreement because of defendants' alleged breach.
Now before the court is the motion for partial summary judgment of defendants The Marley Company and SPX Cooling Technologies, which defendant Layne Christiansen Company has joined. Defendants' motion presents one discrete question: Does the retrospective premium endorsement permit plaintiff to charge defendants for reserves set aside for the estimated cost of defending future claims made under the policy? Because the policy is unambiguous in limiting defense costs to expenses already incurred and does not provide for reserves for estimated future defense expenses, defendants' motion will be granted.
Before turning to the undisputed facts, I note that both parties' proposed findings of fact suffer from several deficiencies. Many of the facts proposed by defendants appear irrelevant to their summary judgment motion, while many of plaintiffs responses to defendants' proposed facts are unrelated to the facts proposed. Other proposed facts are unsupported by the materials to which they cite. I have disregarded immaterial facts and have not treated as disputed facts not placed directly in dispute or supported by admissible evidence.
From the parties' proposed findings of fact and the terms of the retrospective premium endorsement, I find the following facts to be material and undisputed.
Plaintiff Employers Insurance Company of Wausau is a Wisconsin corporation with its principal place of business in Wausau, Wisconsin.
Defendant The Marley Company, LLC is a Delaware corporation with its principal place of business in North Carolina. It is the successor in interest to defendants Engineers and Fabricators Company, The Marley Company and Layne and Bowler, Inc.
Defendant Layne Christiansen Company is a Delaware corporation, with its principal place of business in Kansas. Defendant Layne Christiansen Company was known formerly as Layne-Western Company, Inc.
Defendant SPX Cooling Technologies, Inc. is a Delaware corporation with its principal place of business in either Kansas or North Carolina. (It is undisputed that defendant SPX Cooling Technologies's principal place of business is not in Wisconsin.) Defendant SPX Cooling Technologies, Inc. was known formerly by the names Marley Cooling Technologies, Inc. and The Marley Cooling Tower Company.
The relationship between defendants and plaintiff dates back to 1958, when defendants first purchased general liability policies from plaintiff. From 1975 to 1983, plaintiff provided defendants with general liability, workers' compensation and automobile liability policies that contained a retrospective premium endorsement.
Generally speaking, when a policy contains a retrospective premium endorsement, the premium is calculated annually and is adjusted over time according to the changing value of the claims that arise under the policy. Under the terms of the retrospective premium endorsement at issue in this lawsuit, plaintiff calculated defendants' premiums by adding the basic premium, "excess loss premium" and "converted losses." This figure was then multiplied by a "state tax multiplier." This premium amount was subject to both minimum and maximum limits.
The retrospective policy endorsement defines "coverted losses" as the product of incurred losses and a specified loss conversion factor. "Incurred losses" are defined as the sum of all losses paid, reserves for estimated unpaid losses, premiums on bonds paid for by company, interest accruing after entry of a judgment against the insured, allocated loss adjustment expenses, and expenses incurred in seeking recovery against third parties.
In recent years, defendants have been the subjects of a number of asbestosis claims. Beginning in July 2003, plaintiff sent defendants the first of several retrospective premium bills that form the basis of this lawsuit. Plaintiff contends that defendants owe more than $5 million for retrospective premium adjustments invoiced from 2003 to 2005.
OPINIONDiversity of citizenship provides the ground for the exercise of federal jurisdiction over this lawsuit. In a lawsuit based upon diversity, the court applies the choice of law principles of the jurisdiction in which it sits to determine the substantive law that will govern the case. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In this court, Wisconsin's choice of law principles apply.
In disputes regarding the interpretation of contracts, Wisconsin uses the "grouping of contacts" test to determine the law that should govern a dispute. Urhammer v. Olson, 39 Wis.2d 447, 450, 159 N.W.2d 688, 689 (1968); see also Employers Insurance of Wausau v. Certain Underwriters Lloyd's London, 202 Wis.2d 673, 691, 552 N.W.2d 420, 427 (Ct.App. 1996). Under this test, a court applies the law of the state with which the contract has the most significant relationship. Schlosser v. Allis-Chalmers Corp., 86 Wis.2d 226, 239, 271 N.W.2d 879, 885 (1978).
In this case, the relevant insurance policies were issued in Wisconsin to defendants, who do business in Kansas. Although defendants do not suggest which state's substantive law should governs this claim, plaintiff contends that the court should apply Wisconsin law. Because the contracts were issued in Wisconsin and parties have offered no reason why Kansas law should apply to this case, I will apply Wisconsin law. State Farm Mutual Auto. Insurance Co. v. Gillette, 2002 WI 31, ¶ 51 251 Wis.2d 561, 641 N.W.2d 662 ().
Retrospective premium policies, such as those at issue in this lawsuit, are used most commonly "in situations in which risk is difficult to determine in advance." Employers Ins. of Wausau v. Titan International, Inc., 400 F.3d 486, 487 (7th Cir. 2005); 5 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 69.15 (3d ed.1996). Typically, a retrospective premium has two components: a basic premium and a conversion loss factor. Marten Transport Ltd. v. Hartford Specialty Co., 194 Wis.2d. 1, 10 n. 2, 533 N.W.2d 452, 454, n. 2 (1995) (citing J. Long & D. Gregg, Property and Liability Insurance Handbook 540 (1965)). The basic premium is the portion of the standard premium that is set aside to cover the insurer's expenses and profit. Id. Payments and reserves on losses incurred by the insured during the policy period are then multiplied by a loss conversion factor to cover the expenses and profit of the third-party administrator of services for the insurer. Id. The two sums are combined and modified by additional factors in order to account for premium taxes. Id. The final sum is the premium paid by the insured.
[A]ny losses paid by [the insurer] are converted into additional premiums paid by [the insured]. The result of this shifting of money is that [the insurer's] loss payments are, to a significant degree, simply advances on behalf of [the insured]. As one Commentator has noted, under a retrospectively rated policy, "an insurer is in effect, settling, in part at least, with the insured's money ..." 14 Appleman, Insurance Law and Practice § 7849.25, at 139. The purpose of a retrospective premium provision is "to make the premium more closely reflect the actual loss and cost experience of the insured averaging out such experience over an extended period ...."
The retrospective premium endorsement at issue in this case differed only slightly from the standard policy described above. The premium was calculated by adding three factors: the basic premium, excess loss premium and converted losses. Converted losses were the product of "incurred losses" and a loss conversion factor. The question is whether the endorsement permitted plaintiff to include in the category of incurred losses reserves set aside to defend against estimated future claims brought under the policies.
Under Wisconsin law, insurance policies are interpreted in the same manner as other contracts. When interpreting the terms of an insurance policy, courts aim to enforce the intent of the parties, giving the words in the policy their common and ordinary meaning so that the construction conforms to the understanding of a reasonable person in the position of the insured. State Farm Mutual Automobile Insurance Co. v. Langridge, 2004 WI 113, ¶¶ 13-14, 275 Wis.2d 35, 683 N.W.2d 75; Stuart v. Weisflog's Showroom Gallery, Inc., 2006 WI App 184, ¶ 18, ___ Wis.2d ___, 722 N.W.2d 766. Ambiguities are to be resolved in favor of...
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...case, I apply the law of the state with which the contract has the most significant relationship. Emp'rs Ins. Co. of Wausau v. The Marley Co., 461 F. Supp. 2d 879, 881 (W.D. Wis. 2006) (citing Schlosser v. Allis-Chalmers Corp., 86 Wis. 2d 226, 239 (1978)). I make this determination by consi......