Hanover Ins. Co. v. American Engineering Co.

• Decision Date: 27 January 1997
• Docket Number: 95-5726,Nos. 95-5725,s. 95-5725
• Citation: 105 F.3d 306
• Parties: HANOVER INSURANCE COMPANY, Plaintiff, Intervening Defendant-Appellee, Security Insurance Company of Hartford, Intervening Plaintiff-Appellant (95-5726), v. AMERICAN ENGINEERING COMPANY and its Partners now known as American Consulting Engineers, PLC, Defendants-Appellants (95-5725).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 306

105 F.3d 306

HANOVER INSURANCE COMPANY, Plaintiff, Intervening Defendant-Appellee, Security Insurance Company of Hartford, Intervening Plaintiff-Appellant (95-5726), v. AMERICAN ENGINEERING COMPANY and its Partners now known as

American Consulting Engineers, PLC,

Defendants-Appellants (95-5725).

Nos. 95-5725, 95-5726.

United States Court of Appeals, Sixth Circuit.

Argued May 16, 1996.

Decided Jan. 27, 1997.

Larry C. Deener (argued), Landrum & Shouse, Lexington, KY, J. Denis Ogburn (briefed), Landrum & Shouse, Louisville, KY, for plaintiff, intervening defendant-appellee.

Robert M. Brooks, Boehl, Stopher & Graves, Louisville, KY, Stamping Ground, KY, for intervening plaintiff-appellant.

D. Duane Cook (argued and briefed), Stamping Ground, KY, for defendants-appellants.

Before: BOGGS and MOORE, Circuit Judges; HILLMAN, District Judge. ^*

HILLMAN, District Judge.

Plaintiff-appellee Hanover Insurance Company (Hanover) brought suit against defendant-appellant American Engineering Company (American) to reform a commercial general liability insurance policy. Hanover contended that it erroneously had omitted a rider or endorsement which purportedly would exclude coverage for professional negligence claims made against American for its own acts of professional negligence as well as those of its subcontractors. Appellant Security Insurance Company of Hartford (Security), American's professional liability insurer, intervened in the action.

In May 1994, the case was before this court following the district court's grant of summary judgment to plaintiff Hanover. We concluded that American had raised a genuine issue of material fact and that summary judgment was improper. We therefore reversed the district court's grant of summary judgment and remanded for trial.

On remand, the case was tried to a jury and a verdict was rendered for Hanover. Having lost its case at trial, American ¹ again has appealed to this court. We again reverse.

I.

The legal and factual background of this case is described in this court's decision on the appeal from the order granting summary judgment, reported at Hanover Ins. Co. v. American Engineering Co., 33 F.3d 727 (6th Cir.1994). We will not discuss that background in detail, except to provide those facts necessary to the disposition of issues in this appeal.

Appellant American Engineering Company is a company providing professional engineering services. In June 1989, a bridge designed by American collapsed during construction, resulting in the injuries and deaths of several workers. The cause of the collapse was the failure of a bridge beam designed by a subcontractor for American. As a result of the collapse, multiple defendants were sued, including American. Those lawsuits alleged that American was negligent either through its own actions or through the conduct of its subcontractors.

At the time those complaints were filed, American had a commercial general liability policy and an umbrella policy with Hanover Insurance Company, which it had first obtained in 1987 through the services of its insurance broker, William F. Cowgill. American also had a policy with appellant Security for professional liability coverage.

Hanover's general liability policy as issued contained no exclusion for professional negligence. When American tendered the complaints to Hanover for defense, Hanover denied coverage, alleging that the claims sounded in professional liability. Hanover brought the present action to reform the insurance contract to contain a specific professional liability exclusion, which excluded coverage for claims brought as a result of professional services performed "by [American] or for [American]." Hanover alleged that the parties had not intended the general liability policy to cover professional liability and that the appropriate endorsement had been omitted by mutual mistake.

American counterclaimed for a declaration that the general liability policy covered professional liability and that the Security policy provided excess coverage. It also sought to recover defense costs and the amounts it had paid in settlement. Appellant Security subsequently sought to intervene, claiming equitable subrogation and seeking a declaration that its coverage was in excess of that insured by Hanover's general liability policy.

After discovery, the district court granted Hanover's motion for summary judgment. The court ruled that as a matter of law American had not sought professional liability coverage in the general liability policy and therefore Hanover was entitled to reformation of its policy.

On appeal, American and Security raised three claims. First, they claimed that American had presented sufficient evidence to preclude summary judgment against it. Second, they contended that the district court had erred in denying their cross motions for summary judgment. Finally, they contended that the district court had erred in denying their motions for partial summary judgment for recovery of costs incurred in defense and settlement and for attorney fees in this action.

We concluded that summary judgment was inappropriate for either party. We held that, under Kentucky law, Hanover was required to prove by clear and convincing evidence that a mutual mistake had occurred. We therefore concluded, at the summary judgment stage, Hanover had to prove by clear and convincing evidence to the degree that no rational finder of fact could conclude otherwise, not only that American knew that Hanover intended to include a professional liability exclusion, but also the exact scope of that exclusion. Hanover Ins. Co, 33 F.3d at 731. We held that neither had been proved to the degree required by summary judgment standards.

On remand, the case was tried to a jury and a verdict was rendered for Hanover. American's post-trial motion for judgment as a matter of law or for new trial was denied.

On appeal at this time, American has renewed its claim that it was entitled to a judgment as a matter of law. In addition, American objects to the jury instructions on reformation.

We shall address each claim in turn.

II.

A. Judgment as a Matter of Law

American contends that Hanover failed to prove by clear and convincing evidence that the parties made a mutual mistake. American also asserts that, in Kentucky, the insured is entitled to a presumption in favor of coverage. See St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223 (Ky.1994). Taken together, American asserts it is entitled to judgment as a matter of law.

More specifically, American claims that it has never contended that the Hanover policy was intended to provide coverage for American's own direct professional negligence. Instead, American contends that at the time the policies were written, the insurance broker specifically advised American that the Hanover policies provided coverage for subcontractor negligence. American asserts that it was not aware that Hanover intended to exclude subcontractor professional negligence under the professional liability endorsement.

Hanover's proof at trial consisted of three central elements. First, it was undisputed that American purchased a separate professional liability policy from Security. Hanover argued that American therefore knew that the Hanover policy did not cover professional negligence. Second, Hanover argued that, because the insurance premium for the professional liability policy was substantially larger than the premium charged for the Hanover policies, American must have known the Hanover policies did not cover professional negligence claims of either American or its subcontractors. Third, Hanover argued that because earlier policies held by American through other companies and one earlier Hanover umbrella policy contained a professional liability exclusion, including one that excluded acts of subcontractors, American must have realized that the exclusion was intended to be included in the Hanover policies at issue.

American contends that such circumstantial evidence is insufficient to withstand American's motion for judgment as a matter of law. We disagree. The jury was entitled to infer from Hanover's evidence that American agreed that the policy would exclude all professional liability, including subcontractor professional liability.

In addition, we note that this issue was raised in the earlier appeal from summary judgment. Because we find no substantial difference in the evidence set forth in the motions for summary judgment or at trial, and because this issue was briefed and directly addressed by this court in the earlier decision, our decision in that opinion constitutes law of the case for purposes of this appeal. See Coal Resources, Inc. v. Gulf & Western Ind., 865 F.2d 761, 766, opinion amended on denial of reh'g, 877 F.2d 5 (6th Cir.1989). Accordingly, the district court's denial of American's motion for judgment as a matter of law is affirmed.

B. Jury Instructions on Reformation

American submitted proposed instructions that would have required the jury before finding for Hanover to conclude that American actually agreed to inclusion of all of the terms of Hanover's proposed endorsement, including that American agreed that the endorsement would exclude coverage of acts or omissions of subcontractors. Joint Appendix, pp. 106-07. The district court declined to give those instructions. Instead, the district court instructed the jury that

To reform the insurance contracts in question, the evidence must show that American Engineering Company knew or should have known that the [Hanover policies were] to contain the Architect's and Engineer's professional liability exclusionary endorsement then in use by Hanover Insurance Company.

Trial Transcript, Vol. III, p. 137.

American claims the given instruction was erroneous in two ways. First, American contends that under Kentucky law proof of mutual mistake requires actual agreement by both parties. As a...