In re Aramark Leisure Services

• Citation: 523 F.3d 1169
• Decision Date: 21 April 2008
• Docket Number: No. 07-4120.,07-4120.
• Parties: In re ARAMARK LEISURE SERVICES, as owner of a certain 1997 19' Mirage Runabout for exoneration from or limitation of liability, Plaintiff, v. Charles F. Kendrick, Claimant/Third Party Plaintiff-Appellee, v. Albany Insurance Company, Third Party Defendant-Appellant, Traci A. Sevy, Claimant-Amicus Curiae.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

523 F.3d 1169

In re ARAMARK LEISURE SERVICES, as owner of a certain 1997 19' Mirage Runabout for exoneration from or limitation of liability, Plaintiff, v. Charles F. Kendrick, Claimant/Third Party Plaintiff-Appellee, v. Albany Insurance Company, Third Party Defendant-Appellant, Traci A. Sevy, Claimant-Amicus Curiae.

No. 07-4120.

United States Court of Appeals, Tenth Circuit.

April 21, 2008.

Patrick J. Corbett, Rubin, Fiorella & Friedman, LLP, New York, N.Y. (C. Richard Henriksen, Jr., Henriksen & Henriksen, Salt Lake City, UT, with him on the briefs), for Third Party Defendant-Appellant.

John W. Holt, (Linette B. Hutton with him on the brief), Winder & Haslam, PC,

Salt Lake City, UT, for Claimant/Third Party Plaintiff-Appellee.

Mark T. Ethington, Larson, Turner, Dalby & Ethington, L.C., South Jordan, UT, for Claimant-Amicus Curiae.

Before BRISCOE, and GORSUCH, Circuit Judges, and PARKER, District Judge.^*

BRISCOE, Circuit Judge.

After renting a boat from Aramark Leisure Services ("Aramark"), Charles Kendrick was involved in a boating accident. Faced with potential damage claims from Kendrick and his co-passenger, Aramark brought a special proceeding in federal district court under the Limitation of Vessel Owner's Liability Act, 46 U.S.C. § 30501 et seq.¹ As part of that proceeding, Kendrick filed a claim against Aramark, and Kendrick also brought a third-party claim against Aramark's insurer, Albany Insurance Company ("Albany"). Albany responded by arguing that Kendrick's personal liability insurance with Shelby Insurance Company ("Shelby") provided Kendrick with primary coverage, and that, pursuant to an "escape clause" in the Albany policy, Albany was not required to extend coverage to Kendrick. While the litigation was ongoing, Shelby became insolvent, and the Utah Property and Casualty Insurance Guaranty Association ("UPCIGA") became potentially responsible for Shelby's obligations. In a letter, the UPCIGA stated that, under the exhaustion provision in Utah Code Ann. § 31A-28-213(1)(a), Albany was required to provide primary coverage to Kendrick. The district court agreed with the UPCIGA, and Albany has appealed. We have jurisdiction under 28 U.S.C. § 1291 and reverse and remand for further proceedings.

I.

On September 1, 2001, Traci Sevy and Charles Kendrick were vacationing together at Lake Powell, in southern Utah. Kendrick rented a 1997 Mirage Runabout boat from Aramark Leisure Services at the Bullfrog Marina. At the time of the rental, Aramark had an insurance policy with Albany Insurance Company. At some point during the rental period, and while Kendrick was operating the boat, it collided with a canyon wall or cliff.² The boat was severely damaged, and Sevy sustained serious personal injuries and lost various items of personal property. A few months later, Sevy filed a lawsuit in Utah state court, alleging claims against Kendrick for negligence and conversion.

Aramark brought a special proceeding under the Limitation of Vessel Owner's Liability Act, 46 U.S.C. § 30501 et seq., in the United States District Court for the District of Arizona, asking for exoneration from, or limitation of, any liability resulting from the boating accident. Aramark named Sevy and Kendrick as potential claimants. The case was then transferred to the United States District Court for the District of Utah, where Sevy and Kendrick each filed a notice of claim.

Kendrick also filed a third-party complaint against Albany, alleging that, "[b]y virtue of his rental and use of the Runabout, Kendrick was also insured under the Albany Policy with respect to Sevy's allegation [in Utah state court that] he was negligent." Kendrick Compl., ROA, Vol. I, at 41. Kendrick explained that he had liability coverage under a homeowner's insurance policy with Shelby Insurance Company, and that, "[a]s a result of the existence of Kendrick's homeowners policy with Shelby, Albany has denied coverage and has refused to defend Kendrick in connection with the subject accident." Id. at 42. Kendrick asked the court for a declaratory judgment "that the Albany Policy constitutes primary coverage in connection with the claims asserted by Sevy against Kendrick." Id. at 42.

Albany filed an answer, admitting that it had denied coverage and asserting a host of affirmative defenses. Both Kendrick and Albany filed motions for summary judgment. At issue was the effect of two contractual provisions. The first provision, in Albany's insurance contract with Aramark, provided:

15. Special Conditions

Where the Assured is, irrespective of the section, covered or protected against any loss or claim which would otherwise have been paid by this Company, under this section there shall be no contribution or participation by this Company on the basis of excess, contributing, deficiency, concurrent, or double insurance or otherwise.

Insurance in excess of the limits of liability stipulated herein permitted.

Albany Contract, ROA, Vol. I, at 104. Albany argued that, because Kendrick was covered under his policy with Shelby, this "escape clause" applied, and the Albany policy did not cover Kendrick. The second provision at issue, in Shelby's insurance contract with Kendrick, provided:

8. Other Insurance — Coverage E — Personal Liability. This insurance is excess over other valid and collectible insurance except insurance written specifically to cover as excess over the limits of liability that apply in this policy.

Shelby Contract, ROA, Vol. I, at 135. Kendrick argued that, under this "excess clause," the escape clause in the Albany policy did not apply, and Albany was Kendrick's primary insurer. Both parties essentially conceded that, in the absence of the Shelby policy, Albany would have provided primary coverage to Kendrick, and in the absence of the Albany policy, Shelby would have provided primary coverage to Kendrick.

After the parties filed their cross-motions for summary judgment, but before the district court held a hearing, Shelby became insolvent. On August 1, 2006, a Texas state court issued an order placing Shelby into liquidation. Kendrick filed a motion to dismiss or stay the action, arguing that the Texas state court's liquidation order prevented the case from going forward. Albany opposed the motion, arguing, in part, that Shelby was not a party to the case. Kendrick replied that, although Shelby was not named as a party, it had been prosecuting the action on Kendrick's behalf.

At a hearing on September 19, 2006, the district court indicated that, "if there were no receivership issue, ... I'm quite inclined to say that the Albany clause is going to prevail probably, and that Shelby would be the primary insurer." Hearing, Supp. ROA, at 12 (citing Utah Power & Light Co v. Fed. Ins. Co., 983 F.2d 1549 (10th Cir.1993)). The district court explained, however, that "everything change[d]" once Shelby entered liquidation proceedings. Id. at 12-13. Ultimately, the district court declined to rule on the cross-motions for summary judgment, and instead allowed the parties to submit supplemental briefing on the effect of Shelby's insolvency.³

The main source of controversy resulting from Shelby's insolvency was the role of the Utah Property and Casualty Insurance Guaranty Association.⁴ In particular, the parties disputed the effect of the following statutory provision:

Any person who has a claim against an insurer, whether or not the insurer is a member insurer, under any provision in an insurance policy, other than a policy of an insolvent insurer that is also a covered claim, is required to first exhaust that person's right under that person's policy.

Utah Code Ann. § 31A-28-213(1)(a). In a letter dated September 29, 2006, the UPCIGA stated its position that, under § 31A-28-213(1)(a), the "UPCIGA is secondary to any other insurance coverage," and "Albany Insurance is primary." UPCIGA Letter, Doc. 78 attachment. Kendrick adopted the UPCIGA's position in his supplemental brief, arguing that "[t]he obvious purpose of this provision is to assure that other sources of insurance are all exhausted before the Association is asked to cover a claim." Kendrick Supp. Br., Supp. ROA, at 28. Albany countered by contending that "for the same reasons that Shelby is primarily liable for coverage of Kendrick's claim, [the UPCIGA] is also liable thereon." Albany Supp. Br., Supp. ROA, at 35.

At a subsequent hearing, the district court adopted the position of the UPCIGA and Kendrick. The district court explained that the statute is "quite clear" that "the [Albany] policy must be exhausted," and that the UPCIGA "is a fund of last resort, a guarantor of last resort." Hearing, Supp. ROA, at 57. Moreover, while the UPCIGA "to some degree steps into Shelby's shoes, it does not absolve the fact that Albany is the insured that must pay first." Id. at 57-58. The district court later entered a written order incorporating its ruling, which is now appealed.

II.

A. Federal subject-matter jurisdiction

Although neither party contests subject-matter jurisdiction, neither party provides any analysis of the issue — or even the correct citation to the statutory provision granting federal subject-matter jurisdiction over admiralty disputes. Before we address the merits of the case, therefore, we must first determine whether the federal district court, and likewise this court, has subject-matter jurisdiction over the dispute between Kendrick and Albany. Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977) ("[W]e are obliged to inquire sua sponte whenever a doubt arises as to the existence of federal jurisdiction.").

Although the dispute between Kendrick and Albany might not, by itself, fall within our subject-matter jurisdiction,⁵ we have subject-matter jurisdiction over the claim pursuant to 28 U.S.C. § 1333(1) and 28 U.S.C. § 1367. Section 1333(1) provides the federal courts with subject-matter jurisdiction over admiralty...