Fed.-Mogul U.S. Asbestos Pers. Injury Trust v. Cont'l Cas. Co.

• Decision Date: 08 July 2011
• Docket Number: No. 10–1290.,10–1290.
• Citation: 666 F.3d 384
• Parties: FEDERAL–MOGUL U.S. ASBESTOS PERSONAL INJURY TRUST, Plaintiff–Appellant, v. CONTINENTAL CASUALTY COMPANY, Defendant,Continental Insurance Company, Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

666 F.3d 384

FEDERAL–MOGUL U.S. ASBESTOS PERSONAL INJURY TRUST, Plaintiff–Appellant,
v.
CONTINENTAL CASUALTY COMPANY, Defendant,Continental Insurance Company, Defendant–Appellee.

No. 10–1290.

United States Court of Appeals, Sixth Circuit.

Argued: June 10, 2011.Decided and Filed: July 8, 2011.

[666 F.3d 386]

ARGUED: Andrea Kay Hopkins, Gilbert LLP, Washington, DC, for Appellant. Steven M. Crane, Berkes Crane Robinson & Seal LLP, Los Angeles, CA, for Appellee. ON BRIEF: Barry Buchman, Gilbert LLP, Washington, DC, Cynthia M. Filipovich, Clark Hill PLC, Detroit, MI, for Appellant. Steven M. Crane, Berkes Crane Robinson & Seal LLP, Los Angeles, CA, David J. Bloss, Bloss Betz, Grand Rapids, MI, for Appellee.Before: COLE, McKEAGUE, and GRIFFIN, Circuit Judges.

OPINION COLE, Circuit Judge.

This is an insurance duty-to-defend case. Plaintiff–Appellant Federal–Mogul U.S. Asbestos Personal Injury Trust filed a complaint in the district court seeking declaratory relief. The Trust holds an umbrella insurance policy issued by Defendant–Appellee Continental Insurance Company and claims that pursuant to that policy, Continental is now required to defend the Trust against certain claims. Continental, contending it is under no duty to defend, moved to dismiss the complaint for failure to state a claim. The district court agreed and dismissed the complaint. Because the declaratory relief sought by the Trust is precluded by the facts alleged, we AFFIRM the judgment of the district court.

I. BACKGROUND

Federal–Mogul U.S. Asbestos Personal Injury Trust (“Trust”) is a trust created by the Chapter 11 bankruptcy plan of the Federal–Mogul Corporation. From 1965 to 1981, a division of the Federal–Mogul Corporation, the Vellumoid Company, manufactured and sold automotive products containing asbestos. Subsequently, numerous lawsuits were filed against the Federal–Mogul Corporation for asbestos-related injuries arising from Vellumoid's products (“Vellumoid claims”). Federal–

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Mogul Corporation's bankruptcy plan established that the Trust bears liability for these claims. In addition, the plan assigned the Trust the right to insurance proceeds and coverage under the insurance policies held by the Federal–Mogul Corporation.

The Trust holds three primary-level general insurance policies that cover it for both liability and defense costs arising out of the Vellumoid claims, one each from Travelers Indemnity Company, Globe Indemnity Company, and Liberty Mutual Insurance Company. The Trust alleged that the limits of the Travelers Policy have been exhausted, but the other two primary policies are currently defending the Trust against the Vellumoid claims. The policy held by the Trust at issue here is Continental's umbrella policy SRU 3196774 (“Policy”). The only primary policy covering the Vellumoid claims that is listed in the umbrella Policy's Underlying Insurance Schedule is the Travelers Policy.

The Trust filed this action seeking declaratory relief in the district court, claiming that the Policy requires Continental to defend the Trust against the Vellumoid claims. Continental moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). At a hearing, the district court orally granted Continental's motion to dismiss. The Trust appeals.

II. ANALYSIS A. Standard of Review

We review the grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) de novo, see Harbin–Bey v. Rutter, 420 F.3d 571, 575 (6th Cir.2005), and may “affirm the district court's dismissal of a plaintiff's claims on any grounds, including grounds not relied upon by the district court,” Hensley Mfg. v. ProPride Inc., 579 F.3d 603, 609 (6th Cir.2009). In determining whether a party has failed to state a claim, we construe the complaint in the light most favorable to the non-moving party and accept all factual allegations as true. See Harbin–Bey, 420 F.3d at 575. To survive a Rule 12(b)(6) motion to dismiss, a complaint “need contain only ‘enough facts to state a claim to relief that is plausible on its face.’ ” Paige v. Coyner, 614 F.3d 273, 277 (6th Cir.2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

B. Legal Framework

Because this is a diversity case, we apply substantive state law. See Anton v. Nat'l Union Fire Ins. Co., 634 F.3d 364, 367 (6th Cir.2011). The parties agree that Michigan law applies. An insurer's duty to defend is “defined by policy language,” Frankenmuth Mut. Ins. Co. v. Cont'l Ins. Co., 450 Mich. 429, 537 N.W.2d 879, 880 (1995), and “the policy language is most important in our analysis,” Bosco v. Bauermeister, 456 Mich. 279, 571 N.W.2d 509, 513 (1997). Interpretation of the policy is a question of law, see Minges Creek, L.L.C. v. Royal Ins. Co. of Am., 442 F.3d 953, 956 (6th Cir.2006) (citing Schmalfeldt v. N. Pointe Ins. Co., 469 Mich. 422, 670 N.W.2d 651, 653 (2003)), and Michigan courts “look to the language of the insurance policy and interpret the terms therein in accordance with Michigan's well-established principles of contract construction,” Citizens Ins. Co. v. Pro–Seal Serv. Group, Inc., 477 Mich. 75, 730 N.W.2d 682, 685 (2007) (quoting Henderson v. State Farm Fire & Cas. Co., 460 Mich. 348, 596 N.W.2d 190, 193–94 (1999)). These principles include:

First, an insurance contract must be enforced in accordance with its terms. A court must not hold an insurance company liable for a risk that it did not assume. Second, a court should not create ambiguity in an insurance policy

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where the terms of the contract are clear and precise. Thus, the terms of a contract must be enforced as written where there is no ambiguity.

Id. (quoting Henderson, 596 N.W.2d at 193–94). We must view the policy as a whole, striving to give meaning to each of its terms and avoid redundancy or surplusage. Cincinnati Ins. Co. v. Zen Design Group, Ltd., 329 F.3d 546, 553 (6th Cir.2003) (interpreting Michigan law). Any ambiguities should be construed against the insurer and in favor of the insured. Id.

C. Interpretation of the Policy

Both parties agree that the Policy is an umbrella policy. An umbrella policy serves two functions: “1) to provide for a higher limit of liability for those losses typically covered by liability insurance-general liability ...; [and] 2) to provide for some coverage of those less common losses not typically covered by liability insurance....” Am. Special Risk Ins. Co. v. A–Best Prods., Inc., 975 F.Supp. 1019, 1022 (N.D.Ohio) (quoting Garmany v. Mission Ins. Co., 785 F.2d 941, 948 (11th Cir.1986)), aff'd, 166 F.3d 1213 (6th Cir.1998). The first scenario is typically referred to as vertical coverage and the latter as horizontal. Id.; see also Yaffe Cos. v. Great Am. Ins. Co., 499 F.3d 1182, 1188 (10th Cir.2007) (“Umbrella policies differ from standard excess policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage).” (quoting Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir.1993))).

The Policy's Insuring Agreement states that Continental must “pay on behalf of the insured the ultimate net loss, in excess of the applicable underlying or retained limit, which the insured shall become obligated to pay....” (Policy, Dist. Ct. Docket No. 24, at 12.) “Ultimate net loss” is defined to exclude “all loss expenses and legal expenses (including attorney's fees ...),” and provides that “[e]xcept as set forth...