Marathon Ashland Pipe Line v. Maryland Casualty Co.

• Decision Date: 16 March 2001
• Docket Number: 98-8110,98-8114,98-8081,Nos. 98-8080,s. 98-8080
• Citation: 243 F.3d 1232
• Parties: (10th Cir. 2001) MARATHON ASHLAND PIPE LINE LLC, and PLATTE PIPE LINE COMPANY, Plaintiffs-Appellants, v. MARYLAND CASUALTY COMPANY, Defendant-Appellee
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1232

243 F.3d 1232 (10th Cir. 2001)

MARATHON ASHLAND PIPE LINE LLC, and PLATTE PIPE LINE COMPANY, Plaintiffs-Appellants, v. MARYLAND CASUALTY COMPANY, Defendant-Appellee.

Nos. 98-8080, 98-8081, 98-8110, 98-8114

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

March 16, 2001

Appeal from the United States District Court for the District of Wyoming. (D.C. Nos. 97-CV-1037-J & 97-1039-J) [Copyrighted Material Omitted] Peter Buscemi, of Morgan, Lewis & Bockius, LLP, Washington, D.C. (Mark A. Srere, Morgan, Lewis & Bockius, LLP, Washington, D.C., and Richard E. Day and Ann M. Rochelle, of Williams, Porter, Day & Neville, P.C., Casper, Wyoming, with him on the briefs), for Plaintiffs-Appellants.

James C. Nielsen, of Wright, Robinson, Osthimer & Tatum, San Francisco, California (J. Kent Rutledge, of Lathrop & Rutledge, P.C., Cheyenne, Wyoming, with him on the briefs), for Defendant-Appellee.

Before SEYMOUR, EBEL and HENRY, Circuit Judges.

SEYMOUR, Circuit Judge.

Marathon Ashland Pipe Line LLC and Platte Pipe Line Company (hereinafter collectively referred to as "Marathon")¹ appeal from the district court's grant of summary judgment in favor of Maryland Casualty Company on an insurance coverage dispute and Marathon's bad faith and assigned claims. Marathon also appeals several of the district court's discovery orders and its grant of costs to Maryland Casualty. After fully reviewing the record, we affirm in part, reverse in part, and remand.

I BACKGROUND

Marathon is a Wyoming-based company that operates an energy pipeline and related properties. Marathon entered into a service contract with Steel Structures, Inc. ("SSI"), a building erection company, covering any work SSI would perform at Marathon's request. In addition to providing the terms for this work, the service contract required SSI to acquire a liability insurance policy and to name Marathon as an additional insured under that policy. Pursuant to this agreement, SSI endorsed Marathon as an additional insured on its commercial general liability (CGL) policy with Maryland Casualty, which included a supplemental employer's liability insurance (SELI) provision. The policy provided for a $500,000 per accident limit on the CGL coverage, and a $1 million limit on the SELI coverage.

During the summer of 1996, Marathon requested that SSI hire Justis Berg, a seventeen-year old high school student, to work at Marathon's direction for the summer. The undisputed facts show that this type of arrangement was not an isolated event. Marathon had requested that SSI hire a specified individual as a temporary employee to work under Marathon's control and direction several times over the thirty-year term of their relationship. Under this arrangement, SSI hired Mr. Berg and paid his wages, tax withholdings, and workers' compensation premiums. Marathon directed and controlled all of Mr. Berg's work assignments, was responsible for his training and supervision, and reimbursed SSI's expenses related to Mr. Berg.

On June 28, 1996, while Mr. Berg was mowing a steep incline at Marathon's site in Casper, the front-loader he was driving overturned. After losing a leg and suffering other permanent injuries as a result of the accident, Mr. Berg tendered his claim as an injured SSI employee to Maryland Casualty. On October 1, Maryland Casualty denied his request for indemnification based on the CGL policy's workers' compensation and employee exclusions. This denial made no mention of potential coverage under other provisions in the CGL policy applying to temporary workers.

In March 1997, Mr. Berg filed a personal injury action against Marathon, alleging that he was injured due to Marathon's negligence. Mr. Berg asserted he was hired by SSI pursuant to the contract with Marathon, "whereby Marathon agreed to compensate [SSI] in exchange for the right to exclusive use of Berg's services throughout the summer of 1996." App., Vol. 1 at 33, 9. On April 14, Marathon notified Maryland Casualty of the Berg suit, requesting a copy of the policy and a defense as an additional insured. Although Marilyn Griffith, a Maryland Casualty claims adjuster, left one telephone message with Marathon's counsel a few weeks later purporting to offer to share in defense costs with other insurers, Maryland Casualty did not respond in writing to Marathon's repeated requests to provide a defense until many months later, and never provided Marathon with a copy of the policy.

Marathon wrote the company again in late April stating there were no other insurers, demanding a defense, and requesting a copy of the policy. The letter warned that Marathon would sue SSI for breach of contract if Maryland Casualty's silence continued. Maryland Casualty did not respond. On May 23, Marathon filed a third-party complaint against SSI in the Berg suit, asserting that SSI was liable to Marathon for failing to procure insurance covering its liability arising from SSI's operations, as required by the service contract. SSI tendered this complaint to Maryland Casualty and requested a defense. Maryland Casualty responded immediately, providing SSI with defense counsel from the law firm of Murane & Bostwick.

On July 15, after Maryland Casualty had still failed to respond to its inquiries, Marathon filed the present action against Maryland Casualty seeking a declaration that the SSI policy provides defense and indemnity coverage to Marathon and alleging a bad faith tort claim. On August 15, Maryland Casualty finally informed Marathon that it would defend the company in the Berg lawsuit under a reservation of rights as to coverage. Recognizing that Marathon had already procured its own defense counsel, Maryland Casualty requested that Marathon forward all of the bills it had already incurred. Marathon did not respond.

Marathon entered into settlement negotiations with Mr. Berg and SSI, ultimately settling with Mr. Berg for an undisclosed amount in late September. Marathon also settled with SSI, which confessed judgment for breach of the service contract provisions. SSI assigned to Marathon all of its rights against Maryland Casualty in exchange for Marathon's agreement not to enforce its confessed judgment against SSI.

In the present action, Marathon seeks a declaration that its liability to Mr. Berg is covered under the CGL and SELI provisions of the policy, and that Maryland Casualty had a duty to defend Marathon in the Berg suit. In addition to these contractual claims, Marathon alleges Maryland Casualty acted in bad faith by its failure to defend and its delay in responding to Marathon's requests. Under the assignment of claims from SSI, Marathon also alleges Maryland Casualty acted in bad faith toward SSI by causing Marathon to sue SSI and by refusing to grant SSI permission to settle that action (hereinafter the "assigned claims").

Concluding there were no genuine issues of material fact, the district court granted Maryland Casualty summary judgment on all of Marathon's claims. The district court held that Marathon was not covered under the policy. See Marathon Pipeline Co. v. Maryland Casualty Co., 5 F. Supp. 2d 1252, 1257 (D. Wyo. 1998). In subsequent orders, the district court also held that Maryland Casualty had no duty to defend Marathon in the Berg suit, and that as a result Marathon could not claim bad faith. With respect to the assigned claims, the court held that because Maryland Casualty fully defended SSI against Marathon's third-party complaint, Marathon as SSI's assignee could not assert bad faith against Maryland Casualty.

During the discovery phase, Marathon attempted to review Maryland's claims file and other documents which Maryland refused to reveal under a claim of attorney-client privilege. After reviewing the materials in camera, the district court held they did not raise an issue of material fact and declared them non-discoverable. Finally, the court granted Maryland Casualty's request for deposition costs incurred during discovery.

Marathon appeals each of these rulings. We address each issue in turn. "We review the district court's grant of summary judgment de novo, applying the same legal standards used by that court. Summary judgment should not be granted unless the evidence, viewed in the light most favorable to the party opposing the motion, shows there are no genuine issues of material fact and the moving party is due judgment as a matter of law." Blackhawk-Central City Sanitation Dist. v. American Guar. & Liab. Ins. Co., 214 F.3d 1183, 1187-88 (10th Cir. 2000) (citations omitted). "[W]hen, as here, a federal court is exercising diversity jurisdiction, it must apply the substantive law of the forum state." Id. The parties agree that Wyoming law governs our interpretation of the insurance policies. We review the district court's determination of Wyoming law de novo. See id.

II COVERAGE

Under Wyoming law, interpretation of the insurance policy "is a question for the court to resolve as a matter of law." State ex rel. Farmers Ins. Exch. v. District Court of the Ninth Judicial Dist., 844 P.2d 1099, 1102 (Wyo. 1993). The Wyoming Supreme Court has set forth several basic principles to follow. See id. at 1101-02. First, the words used in the policy must be given their "common and ordinary meaning," and must not be tortured to create an ambiguity. Id. at 1101. Second, "[t]he intention of the parties is the primary consideration and is to be ascertained, if possible, from the language employed in the policy, viewed in the light of what the parties must reasonably have intended." Id. The language "should not be so strictly construed as to thwart the general object of the insurance," and, absent ambiguity, "the policy will be enforced according to its terms." Id. at 1101-02. Finally, where policy language is "ambiguous and uncertain" or "fairly susceptible of two constructions," the interpretation "favorable to the insured will be adopted." Id. at 1102 (citations omitted).

A. Coverage under the...