Mission Nat. Ins. Co. v. Duke Transp. Co., Inc.

• Decision Date: 25 June 1986
• Docket Number: No. 86-4138,86-4138
• Citation: 792 F.2d 550
• Parties: MISSION NATIONAL INSURANCE COMPANY, Plaintiff-Appellee, v. DUKE TRANSPORTATION COMPANY, INC., Defendant-Appellant. DUKE TRANSPORTATION, INC., Plaintiff-Appellant, v. MISSION NATIONAL INSURANCE COMPANY, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 550

792 F.2d 550

MISSION NATIONAL INSURANCE COMPANY, Plaintiff-Appellee, v. DUKE TRANSPORTATION COMPANY, INC., Defendant-Appellant.

DUKE TRANSPORTATION, INC., Plaintiff-Appellant, v. MISSION NATIONAL INSURANCE COMPANY, Defendant-Appellee.

No. 86-4138

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

June 25, 1986.

Colleen McDaniel, Lafayette, La., for defendant-appellant.

Montgomery, Barnett, Brown, Read, Hammond & Mintz, Wood Brown, III, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before GEE, REAVLEY, and HILL, Circuit Judges.

ROBERT MADDEN HILL, Circuit Judge:

In this Louisiana diversity case, Duke Transportation Company (Duke) appeals from the district court's grant of a motion for summary judgment in favor of Mission National Insurance Company (Mission). The district court held that Mission, an excess insurance carrier, was not required to provide primary coverage to or to defend its insured, Duke, after the primary insurance carrier, Northwest Insurance Company (Northwest), became insolvent. Finding the district court's ruling entirely correct, we affirm.

I.

Neither party contests the facts of this case. Duke purchased primary insurance coverage from Northwest for general liability, automobile, and worker's compensation claims. The Northwest policy provided for general liability coverage up to a maximum amount of $300,000 for an injury to one person. Duke also purchased umbrella or excess insurance coverage from Mission. The Mission policy provided for individual occurrence and aggregate annual maximum liability coverage in the amount of $5,000,000, subject to the following limitations:

The Company shall only be liable for ultimate net loss the excess of either

(a) the limits of the underlying insurance as set out in the attached schedule [$300,000] in respect of each occurrence covered by said underlying insurance, or

(b) the amount as set out in item 2(c) of the Declarations [$10,000] ultimate net loss in respect of each occurrence not covered by said underlying insurance, (hereinafter called the "underlying limits"),

and then only up to a further sum as stated in item 2(a) of the Declarations [$5,000,000] in all in respect of each occurrence--subject to a limit as stated in item 2(b) of the Declarations [$5,000,000] in the aggregate for each annual period during the currency of this Policy separately in respect of Products Liability and in respect of Personal Injury (fatal or non-fatal) by Occupational Disease sustained by any employees of the Insured.

In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of losses paid thereunder, this policy subject to all the terms, conditions and definitions hereof shall

(1) in the event of reduction pay the excess of the reduced underlying limit

(2) in the event of exhaustion continue in force as underlying insurance.

(emphasis added). The Mission policy also contained the following limited obligation to defend:

As respects occurrences covered under this policy, but not covered under the underlying insurances as set out in the attached schedule or under any other collectible insurance, the Company shall

(a) defend in his name and behalf any suit against the Insured alleging liability insured under the provisions of this policy and seeking damages on account thereof, even if such suit is groundless, false or fraudulent, but the Company shall have the right to make such investigation, negotiation and settlement of any claim or suit as many be deemed expedient by the company.

(b) pay all premiums on bonds to release attachments for an amount not in excess of the limit of liability of this policy, all premiums on appeal bonds required in any such defended suit but without any obligations to apply for or furnish such bonds, all costs taxed against the insured in any such suit, all expenses incurred by the Company and all interest accruing after the entry of judgment until the company has paid, tendered or deposited in court that part of such judgment as does not exceed the limit of the Company's liability thereon.

(c) reimburse the Insured for all reasonable expenses, other than loss of earnings incurred at the Company's request

(emphasis added).

When it became apparent that due to insolvency Northwest would be unable to fulfill its obligations of primary coverage and defense and would be placed in liquidation, Duke requested that Mission provide Duke with primary coverage and defense for suits arising during the period covered by the Northwest policy. After Mission refused the request to provide primary coverage and to defend the pending suits, Duke brought a declaratory judgment action in Louisiana state court, requesting that the court require Mission to provide primary coverage and to defend Duke. Mission removed the case to federal district court and also filed a declaratory judgment action asking the district court to declare that Mission owed no primary insurance coverage or duty to defend to Duke; the district court consolidated the two cases. On cross-motions for summary judgment the district court granted Mission's motion. The district court stated that:

Under the plain language of Mission's policy there is no obligation to pay for any loss which is within the limits of the Northwest policy, that is, until the loss exceeds $300,000. The occurrences involved in these cases were covered by the underlying insurance. Further reduction or exhaustion of the limits of the underlying insurance can only be accomplished under the terms of umbrella policy by payment of losses under the underlying insurance and not by the insolvency of Northwest. See, Molina v. U.S. Fire Ins. Co., 574 F.2d 1176, 1178 (4th Cir.1978).

The provision of the insurance agreement containing Mission's obligation to defend provides that Mission shall defend every case not covered by the underlying coverage or, by other collectible insurance. Since it is undisputed that the claims involved herein were covered under the Northwest policy, there is no duty to defend by Mission.

(emphasis in original). This appeal followed.

II.

A.

Duke argues that the district court erred in its interpretation of the insurance contract. Duke reads the limitation of liability section as limiting Mission's liability to amounts over the primary coverage only when the primary coverage remains collectible. In the case where the primary insurer collapses, Duke reads the policy as providing "drop down" coverage, i.e., the excess insurer drops down and assumes the primary insurer's responsibilities.

Duke bases its argument on its interpretation of the words "covered" and "not covered" in subsections (a) and (b) of the limitation of liability section of the Mission policy. Duke interprets "covered" to mean covered by the coverage terms of an underlying policy on which the insured can collect. Mission, and the district court, interpret "covered" to mean covered by an underlying policy without regard to whether the insured can collect from the primary insurer.

While our research has not uncovered, nor have the parties cited to us, any Louisiana cases or any other...