Heubel Materials Handling Co. v. Universal Underwriters Ins. Co.

• Citation: 704 F.3d 558
• Decision Date: 30 January 2013
• Docket Number: Nos. 12–1777,12–1951.,s. 12–1777
• Parties: HEUBEL MATERIALS HANDLING COMPANY, INC., a Missouri corporation, Plaintiff–Appellant v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Kansas corporation, Defendant–Appellee. Universal Underwriters Insurance Company, a Kansas corporation, Third Party Plaintiff–Appellee v. The Raymond Corporation, a New York corporation; Liberty Mutual Insurance Company, Third Party Defendant. Heubel Materials Handling Company, Inc., a Missouri corporation, Plaintiff v. Universal Underwriters Insurance Company, a Kansas corporation, Defendant. Universal Underwriters Insurance Company, a Kansas corporation, Third Party Plaintiff–Appellee Liberty Mutual Insurance Company, Third Party Defendant v. The Raymond Corporation, a New York corporation, Third Party Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

704 F.3d 558

HEUBEL MATERIALS HANDLING COMPANY, INC., a Missouri corporation, Plaintiff–Appellant

v.UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Kansas corporation, Defendant–Appellee.

Universal Underwriters Insurance Company, a Kansas corporation, Third Party Plaintiff–Appellee

v.The Raymond Corporation, a New York corporation; Liberty Mutual Insurance Company, Third Party Defendant.

Heubel Materials Handling Company, Inc., a Missouri corporation, Plaintiff

v.Universal Underwriters Insurance Company, a Kansas corporation, Defendant.

Universal Underwriters Insurance Company, a Kansas corporation, Third Party Plaintiff–Appellee

Liberty Mutual Insurance Company, Third Party Defendant

v.The Raymond Corporation, a New York corporation, Third Party Defendant–Appellant.

Nos. 12–1777, 12–1951.

United States Court of Appeals, Eighth Circuit.

Submitted: Nov. 14, 2012.

Filed: Jan. 30, 2013.

Patrick S. Nolan, argued, Milwaukee, WI, Todd A. Scharnhorst, Kansas City, MO, Scott K. Logan, Ryan C. Fowler, Prairie Village, KS, on the brief, for appellants.

Timothy J. Ahrenhoesterbaeumer, argued, Brian E. McGovern, James R. Walsh, on the brief, Chesterfield, MO, for appellee.

Before SMITH, BEAM, and GRUENDER, Circuit Judges.

GRUENDER, Circuit Judge.

Heubel Materials Handling Company, Inc. (“Heubel”) and the Raymond Corporation (“Raymond”) appeal the order of the district court ¹ granting summary judgment in favor of Universal Underwriters Insurance Company (“Universal”) on Heubel's claim for coverage under a Universal insurance policy. The district court held that Heubel's breach of a cooperation clause in the Universal policy absolved Universal of the duty to defend or provide coverage for a products liability lawsuit against Heubel. For the reasons discussed below, we affirm.

I. Background

Heubel is an authorized dealer of Raymond materials handling equipment (such as forklifts). Heubel participates in the Raymond Dealer Defense and Indemnification Program, which is mandatory for all Raymond dealers. The purpose of the program is to “maintain a product liability and loss prevention defense and indemnification program” and to “provide for a uniform defense” of product liability lawsuits. The program provides:

In the event a personal injury suit is filed against a Raymond Dealership arising from an alleged Raymond product failure ... Raymond or its insurance carrier will pay legal costs incurred in the defense of such suit and, except for property damages, will indemnify the Dealership, to the fullest extent allowed by law, in the event of a settlement or adverse judgment, up to the limit of existing coverage.

The dealers contribute to the funding of the program by paying a two-percent surcharge on Raymond parts. This money is not held separately, but goes directly into Raymond's general funds, out of which general funds Raymond pays for an insurance policy from Liberty Mutual to cover its obligations under the Raymond indemnification program. The program requires dealers to “[f]ully cooperate with Raymond and its Defense Counsel with investigations and defense of claims.” It also states that dealers “should maintain business insurance coverage as deemed appropriate.”

Heubel later obtained a separate general liability insurance policy from Universal. The Universal policy gives Universal the right and duty to defend any suit for covered damages and requires the insured to “cooperate and assist [Universal] in the investigation, settlement, defense, enforcement of contribution or indemnification.”

In August 2007, William Harris was severely injured while operating a Raymond “walkie-rider” forklift that had been serviced by Heubel. Harris filed a personal injury suit in the District of Kansas alleging that Heubel failed to properly service the forklift. See Harris v. Heubel Material Handling, Inc., No. 6:09–cv–01136 (D.Kan.). He did not name Raymond as a defendant. Heubel gave immediate notice to Raymond after the accident, and Raymond paid for and controlled the defense of the underlying suit from the outset.²

In contrast, Heubel did not give notice to Universal until more than six months after the underlying lawsuit was filed. Universal initially agreed to defend Heubel, subject to a full reservation of rights based on Heubel's late notice, and asked Heubel to identify any other relevant insurance policies. In response to the reservation of rights, Heubel sued in Missouri state court for a declaratory judgment that, under Missouri law, the insurer's reservation of rights entitled Heubel to choose its own counsel and control the defense of the underlying suit.

Universal removed the declaratory judgment action to federal court, withdrew its reservation of rights, and offered to retain counsel to defend Heubel going forward and to reimburse Heubel for interim defense costs incurred after the notice date. However, Universal also informed Heubel that Universal would require Heubel to cooperate in pursuing indemnification from Raymond. Heubel responded by amending its complaint to seek a declaratory judgment that “Universal's requirement that Heubel pursue and enforce indemnity [against Raymond] creates a potential or actual conflict of interest between Universal and Heubel,” which again would entitle Heubel to select its own counsel and control the defense of the underlying suit. Heubel also added claims for breach of the insurance contract.

Universal counterclaimed for a declaratory judgment that Heubel's lack of cooperation absolved Universal of any duty to provide coverage. Universal also filed third-party complaints against Raymond and Liberty Mutual, seeking a declaratory judgment that, to the extent Universal was still bound to honor its policy, any coverage would apply only after all coverage from the Raymond indemnification program was exhausted. On cross motions for summary judgment, the district court held that Heubel had breached the cooperation clause of the Universal policy; that the breach was not excused by a conflict of interest or reservation of rights; and that the lack of cooperation substantially prejudiced Universal, absolving it of the duty to defend or provide coverage for the underlying suit. Based on the holding of no coverage, the district court did not reach the issue of whether Universal's coverage would be secondary to the Raymond indemnification program.

Heubel and Raymond now appeal the grant of summary judgment, arguing that (1) Heubel was absolved from performing under the cooperation clause due to a reservation of rights by Universal or, alternatively, a conflict of interest between Universal and Heubel, and (2) even if there was a breach of the cooperation clause, any prejudice to Universal from Heubel's control of the defense in the underlying suit was negated by Universal's contractual inability to pursue an indemnification claim against Raymond.

II. Discussion

“We review the grant of summary judgment de novo.” Discovery Grp. LLC v. Chapel Dev., LLC, 574 F.3d 986, 988 (8th Cir.2009). Where, as here, there are no material facts in dispute, the only question is whether Universal is entitled to judgment as a matter of law. Id. The parties agree that Missouri law governs the interpretation of the insurance policies in this diversity action. See Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 542 (8th Cir.2012). “If the Supreme Court of Missouri has not addressed an issue, we must predict how the court would rule, and we follow decisions from the intermediate state courts when they are the best evidence of Missouri law.” Id. (quoting Eubank v. Kan. City Power & Light Co., 626 F.3d 424, 427 (8th Cir.2010)).

“Cooperation clauses such as the one at issue here are valid and enforceable under Missouri law.” Med. Protective Co. v. Bubenik, 594 F.3d 1047, 1051 (8th Cir.2010). “To deny liability coverage under such a provision, an insurer must prove: (1) a material breach of the cooperation clause; (2) the existence of substantial prejudice as a result of the breach; and (3) the exercise of reasonable diligence to secure the insured's cooperation.” Id. Heubel challenges the first two elements.

A. Was Heubel absolved from performing under the cooperation clause due to a reservation of rights by, or a conflict of interest with, Universal?

Under Missouri law, a “reservation of rights” refers to an insurer's offer “to defend its insured but reserve the right to later disclaim coverage.” Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 88 (Mo.Ct.App.2005) (per curiam). The insured may reject an insurer's offer to defend with a reservation of rights, and if the insurer refuses to withdraw the reservation of rights, the insured is then free to hire independent counsel to defend the underlying suit and obtain compensation from the insurer if the underlying suit later is held to be covered by the policy. Id. While Universal withdrew its initial, express reservation of rights based on late notice, Heubel nevertheless asserts that Universal again reserved its rights when it refused Heubel's demand to stipulate that Universal would “satisfy any judgment ... [in the underlying suit] on a primary, non-contributing basis,” see Heubel'sProposed Stipulation and Order forwarded Feb. 26, 2010, that is, when it refused Heubel's demand to forgo any indemnification claim against Raymond.

Heubel's proposed stipulation asked Universal to disclaim a right expressly recognized in the Universal policy, the right to ask the insured to cooperate in pursuing indemnification from another party. Rather than reserving “the right to later disclaim coverage,” Truck Ins. Exch., 162 S.W.3d at 88, Universal offered complete coverage but refused to concede its indemnification claim against Raymond. Because Universal did not reserve the right to disclaim coverage of any damages that might be awarded or legal fees that might be incurred in the underlying suit, its action does not qualify as a reservation of rights.

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