Mountain Fuel Supply v. Reliance Ins. Co.
| Decision Date | 17 May 1991 |
| Docket Number | No. 87-1564,87-1564 |
| Parties | MOUNTAIN FUEL SUPPLY, a Utah corporation, and CNA Insurance Company, Plaintiffs-Appellees, v. RELIANCE INSURANCE COMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Terry M. Plant (Scott W. Christensen of Hanson, Dunn, Epperson & Smith, Salt Lake City, Utah, with him on the brief), for plaintiffs-appellees.
Raymond M. Berry (John R. Lund of Snow, Christensen & Martineau, Salt Lake City, Utah, with him on the brief), for defendant-appellant.
Before HOLLOWAY, Chief Judge, and McKAY and EBEL, Circuit Judges.
Defendant-appellant, Reliance Insurance Company (Reliance), appeals from a judgment for $392,525 in favor of plaintiffs-appellees, Mountain Fuel Supply Company (Mountain Fuel) and CNA Insurance Company (CNA). The judgment resulted from a suit filed by Mountain Fuel and one of its insurers, CNA 1, against Reliance, an insurer of Darenco, Inc. (Darenco), and Freberg & Freberg (Freberg), Darenco's insurance agent. Darenco is a general contractor that was employed by Mountain Fuel to build a gas sweetening plant at
Butcherknife Springs, Wyoming. Mountain Fuel sued to obtain reimbursement for all settlement and defense costs incurred in a prior personal injury suit filed by Albert McDonald against Mountain Fuel regarding an accident which occurred at Butcherknife Springs. Mountain Fuel claims that although Darenco's comprehensive liability policy issued by Reliance does not specifically mention Mountain Fuel, the return and approval of Mountain Fuel certificates of insurance, by Reliance's agent Freberg, gave Mountain Fuel named insured status and protection from liability at
Butcherknife Springs.
I
Many companies, including Mountain Fuel, require any hired company to present a certificate of insurance as evidence that the hired company has insurance. The certificate often used, called an ACORD certificate, lists a number of basic policy details and states that it "is issued as a matter of information only and confers no rights upon the certificate holder" and that it "does not amend, extend or alter the coverage afforded by the policies listed below." 2 See Brief of Appellant, Attachment F. Although the ACORD certificate is used for many insurance certificates, it is not the exclusive format used. 3
Mountain Fuel had its own insurance certification form, which included a number of provisions not found in the ACORD certificate, two of which are critical in the instant case. The first is paragraph (f) stating that Mountain Fuel Supply Company is a named insured under each of the policies listed above, and each of the policies above is primary coverage to Mountain Fuel Supply Company. This primary coverage applies to the full policy limits prior to any other insurance coverage which Mountain Fuel Supply Company may have in the event of a claim under any of said policies.
The second is a clause stating that
[t]his certificate of insurance does not amend, extend or otherwise alter the terms and conditions of the insurance coverage in the policies identified above, except as above set forth.
On December 15, 1977, Mountain Fuel entered into a contract with Darenco for the construction of Butcherknife. The contract contained a "hold harmless" agreement specifying that Darenco would obtain liability insurance to cover both Darenco's and Mountain Fuel's liability regarding Darenco's work at Butcherknife. 4 Such indemnification was to be demonstrated by submission of a completed Mountain Fuel insurance certificate. See I R. Doc. 51, Ex. E at 9-10.
On June 10, 1977, Freberg, an insurance agency used by Darenco, returned to Mountain Fuel a Mountain Fuel certificate, filled out and signed by Freberg. The certificate identified Highlands Insurance Company as Darenco's insurer until June 9, 1978. I R. Doc. 51. Freberg signed the certificate as "agent" of Highlands. Id.
The following year, at the expiration of the Highlands policy, Reliance began to insure Darenco with a policy which was to run from June 9, 1978, until June 9, 1979. There is no record that any certificate of insurance, either an ACORD or a Mountain Fuel form, had been issued to Mountain Fuel regarding the 1978-1979 Reliance policy. See Mountain Fuel Supply and CNA Ins. Co. v. Freberg & Co. and Reliance Ins. Co., No. C-84-2175W at 4, II R. Doc. 83 (D.Utah Oct. 23, 1986) () (hereinafter "II R. Doc. 83, Mem. Dec. 10/23/86").
The Reliance policy (stated on the certificate to be issued by Reliance and Harbor Insurance Companies) was renewed on June 9, 1979, for a one year period. Id. On June 11, 1979, a signed Mountain Fuel certificate regarding this policy was returned to Mountain Fuel by Freberg. Id; I R. Doc. 51, Ex. B. The certificate indicated that Mountain Fuel was to receive fifteen days' notice prior to cancellation of the policy. I R. Doc. 51, Ex. B. Mountain Fuel returned this certificate and requested the completion of a new one with a sixty day notice period. On July 24, 1979, Freberg returned the new Mountain Fuel certificate, identical to the one of June 11, except it indicated a 60 day notice period and it was not signed by Freberg. See Brief of Appellees, Attachment F. Both the June 11 and July 24 certificates indicated that the Reliance/Harbor insurance policy involved was "Expiring" on June 9, 1980. Despite Freberg's issuance of these certificates, containing paragraph (f), see Part I, supra, no endorsement was made to the Reliance/Harbor policy to include Mountain Fuel as a named insured.
On June 9, 1980, Reliance issued a renewal policy, due to expire on June 9, 1981, to Darenco. As in the previous Reliance/Harbor policies issued to Darenco, no mention was made of Mountain Fuel. At this time, Freberg issued an ACORD certificate to Mountain Fuel. This is the first ACORD certificate received by Mountain Fuel regarding Darenco.
Although the ACORD certificate did not meet Mountain Fuel's certification requirements, they did not notify Darenco of this problem until some months later. On January 9, 1981, Mountain Fuel sent a letter to Darenco with three paragraphs checked to show why the submitted certificate was not acceptable. The checked paragraphs read:
Information must be provided on Mountain Fuel Supply Company Certificate of Insurance Exhibit 'B' form. 1 Form(s) attached.
Paragraph (F) must not be excluded from Certificate. It is our intent that your company's insurance is primary but only with respect to operations performed for or on behalf of Mountain Fuel Supply Company.
The Certificate does not reflect at least a 30 day notice of cancellation requirement.
I R. Doc. 46, Ex. B. The letter was attached to a Mountain Fuel certificate. 5 Darenco forwarded the letter to Freberg, but Freberg did not notify Reliance about the letter until January 27, 1981, one day after the McDonald accident. 6 Reliance subsequently endorsed Mountain Fuel on the policy as an additional insured, effective January 27, 1981, the date of the request. I R. Doc. 46, Ex. E.
The McDonald complaint alleged that Mountain Fuel had failed to maintain a safe place to work, but it did not allege any specific design defects. Consequently, Mountain Fuel did not investigate possible connection to the design or construction of the water tank, treating the case as a simple "slip and fall." In November 1983 Mountain Fuel deposed McDonald's recently retained liability expert, Dr. Rudi Limpert. Limpert indicated that McDonald would be claiming that the railing on the stairway was significantly lower than that required by the American Petroleum Institute (API) design standards. IX R. at 57-60.
Mountain Fuel then sought leave to join general contractor Darenco and the manufacturer of the water tank as additional parties. Leave was denied because of the impending trial date of January 23, 1984. Mountain Fuel attempted to tender the defense to Darenco's insurer by sending a letter to Highlands by way of Freberg, apparently not realizing that Reliance was the present insurer of Darenco. Freberg routed the letter to Reliance on January 16, 1984, one week before trial. This tender was rejected. On January 20, 1984, McDonald accepted Mountain Fuel's offer of settlement for $250,000. Reliance was notified of the settlement and soon thereafter, it denied coverage and refused to pay anything to Mountain Fuel.
Ruling on cross motions for summary judgment by Reliance and Mountain Fuel, the district court granted partial summary judgment for Mountain Fuel. The court's rulings included:
1. The 1979 Certificate, as a matter of law, makes Mountain Fuel a named insured under the Reliance insurance policies in effect from June of 1979 to June of 1980.
2. The Accord [sic] certificate, as a matter of law, fails to specifically inform Mountain Fuel of a change in its status as a named insured.
3. As a consequence, the insurance coverage in effect on January 26, 1981, when Albert McDonald was injured, is the same as the insurance coverage which was in effect from June of 1979 to June of 1980.
II R. Doc. 83 at 12, Mem. Dec. 10/23/86. Reliance moved to vacate the partial summary judgment, which motion was denied the following day. 7
Shortly before the jury trial, the court ruled that the policy conditions, particularly requiring notification to Reliance, could release Reliance from its duty to defend and to reimburse Mountain Fuel only if Reliance proved it had actually been prejudiced by the breach of the conditions. See Court's Letter to Counsel, Brief of Appellant, Attachment B. At the outset of the trial, the court ruled that Reliance could prove actual prejudice only by showing that if it had handled the McDonald case from the beginning, it would have achieved a better result than CNA did. IX R. at 5. Reliance asserted affirmative defenses based on Mountain...
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