Gulf Underwriters Ins. Co. v. Burris

• Decision Date: 03 May 2012
• Docket Number: No. 11–1967.,11–1967.
• Citation: 674 F.3d 999
• Parties: GULF UNDERWRITERS INSURANCE COMPANY, Plaintiff–Appellee, v. Lowell P. BURRIS; Joyce P. Burris, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

674 F.3d 999

GULF UNDERWRITERS INSURANCE COMPANY, Plaintiff–Appellee,

v.Lowell P. BURRIS; Joyce P. Burris, Defendants–Appellants.

No. 11–1967.

United States Court of Appeals, Eighth Circuit.

Submitted: Dec. 15, 2011.Filed: March 27, 2012.Rehearing Denied May 3, 2012.

Thomas Francis Handorff, argued, Minneapolis, MN, for appellants.

Thomas Arthur Gilligan, Jr., argued, Nicholas John O'Connell, Murnane Brandt, on the brief, St. Paul, MN, for appellee.

Before LOKEN, BRIGHT, and SHEPHERD, Circuit Judges.

LOKEN, Circuit Judge.

Lowell Burris was seriously injured in August 2001 when he fell from a ladder manufactured in Wisconsin by Versa Products, Inc. (“Versa”), and purchased from Menard, Inc. (“Menard”). In March 2003, when Burris's attorney allegedly wrote Versa asserting a product liability claim, Versa and an affiliate were named insureds and Menard was an additional insured under a “claims made” Commercial General Liability insurance policy issued in Wisconsin by Gulf Underwriters Insurance Company (“Gulf”). The policy included a $50,000 “Self–Insured Retention” endorsement (the “SIR”).

In August 2007, Burris and his wife commenced a product liability action against Menard, Versa, and Versa's affiliate in Minnesota state court. After Menard removed the action to federal court, which has diversity jurisdiction, Gulf commenced this action seeking a judgment declaring “that the policy issued by Gulf to [the named insureds] does not afford coverage to them or Menard, Inc. for any claim made by [Burris] under the terms of the Gulf Policy.” The district court granted Gulf's motion for a summary declaratory judgment on the ground that Versa's dissolution after expiration of the policy meant that the insured “cannot meet its obligations under the SIR,” a material breach that terminates Gulf's obligations under the policy. Burris appeals. We review de novo the district court's interpretation of the insurance policy under governing Wisconsin law. See Rural Mut. Ins. Co. v. Welsh, 247 Wis.2d 417, 633 N.W.2d 633, 635–36 (App.2001). We reverse and remand with directions to dismiss Gulf's declaratory judgment action with prejudice.

I.

As this is a diversity action, we interpret Gulf's Commercial General Liability policy in accordance with Wisconsin law. The Wisconsin courts apply well-known principles of contract interpretation in resolving insurance coverage disputes. Words and phrases in insurance policies are subject to the rules of construction that apply to contracts generally. An unambiguous policy will be construed according to its plain meaning. But if the policy language is ambiguous, that is, susceptible to more than one reasonable construction, ambiguities will be construed in favor of the insured. See, e.g., Frost ex rel. Anderson v. Whitbeck, 257 Wis.2d 80, 654 N.W.2d 225, 229–30 (2002).

Unlike Gulf's briefs and the district court's Opinion and Order, which quoted only excerpts, we begin by quoting the entire SIR endorsement because, in our view, that is all one needs to decide the issue raised on appeal:

This endorsement forms a part of the policy to which it is attached. Please read it carefully.

SELF–INSURED RETENTION

(WITH AGGREGATE SELF–INSURED RETENTION)

DEFENSE COSTS CONTRIBUTING TO RETENTION LIMIT

In consideration of the premium charged, it is hereby agreed that such coverage as is afforded by this policy shall be excess of a $50,000 Self–Insured Retention each “occurrence.” It is also agreed that all expenses and costs under the Supplementary Payments section stated in the Coverage Form (Section 1) shall contribute to the exhaustion of the $50,000 Self–Insured Retention Limit and all such expenses and costs shall be entirely borne by the insured.

All the terms of this policy including, but not limited to, those with respect to notice of “claim” or “suit” and the Company's right to investigate, negotiate, defend and settle any “claim” apply irrespective of the application of the Self–Insured Retention.

The Company may, but is not obligated to, pay all or part of the Self–Insured Retention to effect settlement of any “claim,” “suit” or expense. Upon notification of the action taken, the insured shall promptly reimburse the Company for such Self–Insured Retention amount paid by the Company. Failure of the insured to pay such Self–Insured Retention amount within ten (10) days after receipt of a written request for such payment shall subject the policy to cancellation in accordance with the terms and conditions relating to non-payment of premium.

This endorsement does not in any way relieve the insured of his responsibility to report any incident that might give rise to a “claim” as stated elsewhere in this policy.

The Self–Insured Retention obligation to this contract shall be considered to be an executory contract under all circumstances and payments on this obligation shall be paid by the insured. Failure to make the payment entitles the insurer to terminate the contractual obligation between the parties as a failure to the Self–Insured Retention endorsement is a material breach as to the entire contract. In the event of a bankruptcy filing, the contract is deemed executory as under 11 U.S.C. 365, and the payments of the Self–Insured Retention shall be made on a monthly basis and treated as an administrative expense under 11 U.S.C. 507(a)(1).

The Self–Insured Retention amount applies under Bodily Injury Liability, Property Damage Liability, Personal Injury Liability and Advertising Injury Liability Coverage combined to all damages because of “bodily injury,” “property damage,” “personal injury” and “advertising injury” as the result of any one “occurrence” or offense regardless of the number of persons or organizations who sustain damages because of that “occurrence” or offense.

* $250,000 Annual Aggregate. However, in the event of cancellation of this policy, the aggregate Self–Insured Retention is not subject to pro-rata or short rate reduction of the stated Annual Aggregate.

Gulf asserted, and the district court ruled, that the policy provides no coverage for the claim asserted by Burris solely because the SIR expressly provides that Versa's inability to comply with its SIR obligations “is a material breach as to the entire contract” that terminates Gulf's obligations under the policy. But that assertion is squarely contrary to another term of the SIR, which provides: “All the terms of this policy ... apply irrespective of the application of the Self–Insured Retention.” Beyond question, “the terms of this policy” include its coverage provisions. Thus, while the amount of coverage set forth in the policy declarations is affected by the amount of Self–Insured Retention, the coverage of third-party liability claims continues to be defined exclusively by the provisions of the policy's Commercial General Liability Coverage Form. In other words, as one would expect, the policy's drafters did not intend the self-insured endorsement to affect Gulf's obligations under the policy to third party claimants. Under Wisconsin law, “Where the endorsement expressly provides that it is subject to all terms, limitations, and conditions of the policy, it does not abrogate or nullify any provision of the policy unless it is so stated in the endorsement.” Inter–Ins. Exch. of Chi. Motor Club v. Westchester Fire Ins. Co., 25 Wis.2d 100, 130 N.W.2d 185, 188 (1964).

If confirmation of this interpretation is needed, we readily find it in the third paragraph of the SIR, which Gulf deceptively omitted from the SIR excerpts quoted in its briefs to the district court and to this court. That paragraph provides in part: “Failure of the insured to pay such Self–Insured Retention amount within ten (10) days after receipt of a written request for such payment shall subject the policy to cancellation in accordance with the terms and conditions relating to non-payment of premium.” By contrast, the fifth paragraph, on which Gulf relies, provides: “The Self–Insured Retention obligation [is] an executory contract ... and payments on this obligation shall be paid by the insured. Failure to make the payment entitles the insurer to terminate the contractual obligation between the parties as a failure to the Self–Insured Retention endorsement is a material breach as to the entire contract.” (Emphases added.) Note this provision does not refer to cancellation of the policy nor to the cancellation terms of the policy, all of which require ten or thirty days notice of cancellation. In other words, the “termination” referred to in the fifth paragraph is not a “cancellation” of the policy. And without cancellation of the policy, Gulf's contention that existing third party claimants are deprived of coverage is unsound. At a minimum, these inconsistent termination/cancellation provisions within the SIR itself create an ambiguity that must be resolved in favor of the insured. See Dowhower v. Marquez, 268 Wis.2d 823, 674 N.W.2d 906, 913 (App.2003).¹

Citing only a general principle, Gulf asserted, and the district court recited, that the SIR is an “executory contract.” We fail to see how that is even relevant to this coverage issue. But in any event, as Gulf and its attorneys must have known, every court in the country to consider a related issue has ruled “that insurance policies for which the policy periods have expired and the premium has been paid are not executory contracts, despite continuing obligations on the part of the insured.” In re Vanderveer Estates Holding, LLC, 328 B.R. 18, 26 (Bankr.E.D.N.Y.2005), and cases cited; accord In re Liquidation of Inter–Am. Ins. Co. of Ill., 329 Ill.App.3d 606, 263 Ill.Dec. 422, 768 N.E.2d 182, 191 (2002). These cases confirm that the paragraph in the SIR calling it an “executory contract” was an attempt (likely futile) to improve Gulf's position in asserting claims for the pre-petition obligations of bankrupt insureds.

Another error in granting summary judgment was that Gulf submitted n...