National American Ins. v. American re-Insurance

• Decision Date: 12 February 2004
• Docket Number: No. 03-6088.,03-6088.
• Citation: 358 F.3d 736
• Parties: NATIONAL AMERICAN INSURANCE COMPANY, an Oklahoma Corporation, Plaintiff-Appellant, v. AMERICAN RE-INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

358 F.3d 736

NATIONAL AMERICAN INSURANCE COMPANY, an Oklahoma Corporation, Plaintiff-Appellant, v. AMERICAN RE-INSURANCE COMPANY, Defendant-Appellee.

No. 03-6088.

United States Court of Appeals, Tenth Circuit.

February 12, 2004.

Joseph K. Goerke, Driskill & Jones, (Alison A. Cave, Driskill & Jones, Oklahoma City, OK, and R. Patrick Gilmore, Chandler, OK, with him on the briefs), appearing for Appellant.

Robert D. Allen, Baker & McKenzie, Dallas, TX, (William W. Speed, Law Offices of William W. Speed, Ada, OK, with him on the brief), appearing for Appellee.

Before TACHA, Chief Circuit Judge, McKAY, and TYMKOVICH, Circuit Judges.

TACHA, Chief Circuit Judge.

Plaintiff-Appellant National American Insurance Company ("NAICO") brought breach of contract claims against Defendant-Appellee American Re-Insurance Company ("Am-Re"). Upon motion for summary judgment by Am-Re, the district court held the relevant reinsurance policy language ambiguous, admitted Am-Re's uncontroverted parol evidence supporting its interpretation of the policy, and granted Am-Re summary judgment. This appeal followed. We take jurisdiction under 28 U.S.C. § 1291 and AFFIRM.

I. Background

This case arises out of a dispute concerning the type of reinsurance purchased by a primary insurer. As a foundation for this analysis, we note that insurance companies often cover their potential liabilities in layers. For example, if a policy offers the insured $3 million in coverage, the primary insurer might provide the first $100,000 in coverage, a secondary reinsurer might provide coverage for liabilities from $100,000 to $1,000,000, and a tertiary entity—often Lloyd's of London or a similar institution—would provide coverage for any excess liability. In addition to this layering of liability, insurance companies may purchase differing types of insurance or reinsurance at each level.

This case concerns three types of insurance. "Occurrence-based" insurance requires the insurer to cover any liability that results from an event that occurred during the policy period—even if the injury is discovered and the claim is made after the expiration of the coverage period. This type of insurance contrasts with the second relevant type of insurance—"claims-made." Under this scheme, the date of the discovery of the injury and the claim-filing date must fall within the policy period. Generally, a claims-made policy includes a retroactive date that precludes coverage for liability-producing events occurring prior to that date. See generally In re Silicone Implant Ins. Coverage Litig., 667 N.W.2d 405, 409-10 (Minn.2003) (discussing differences between occurrence-based and claims-made policies). The third type of coverage at issue here is "tail coverage," which one commentator describes as "`occurrence' coverage for occurrences within the policy period producing claims within the specified extended reporting period." Bob Works, Excusing Nonoccurrence of Insurance Policy Conditions in Order to Avoid Disproportionate Forfeiture: Claims-Made Formats as a Test Case, 5 CONN.INS. L.J. 505, 528 n. 36 (1999). We turn now to the facts before us.

The Association of County Commissioners of Oklahoma Self-Insured Group ("ACCO-SIG") provides Oklahoma counties with liability insurance for a wide range of activities — from auto coverage to pollution liability. ACCO-SIG offers occurrence-based coverage to its member counties, while limiting its coverage to the first $50,000 of liability for any claim. Thus, ACCO-SIG purchases reinsurance to cover any liability above $50,000 per claim.

From July, 1, 1995, until July 1, 1997, ACCO-SIG purchased claims-made reinsurance from NAICO. NAICO's reinsurance policy had an "other-insurance clause," which required ACCO-SIG to seek coverage under any other insurance policy that it held prior to seeking coverage from NAICO.¹ Immediately prior to July 1, 1997, several ACCO-SIG member counties submitted 33 claims to ACCO-SIG totaling approximately $1.5 million in liability. NAICO and Am-Re dispute liability for these claims.

On July 1, 1997, ACCO-SIG switched its reinsurance coverage for the next two years to Am-Re. Unlike the NAICO one, the Am-Re policy² does not contain an other-insurance clause. Am-Re also provided ACCO-SIG with retroactive reinsurance for the period July 1, 1992, to July 1, 1997. Whether this retroactive policy is properly construed as occurrence-based or tail coverage forms the crux of this appeal.

ACCO-SIG sought reimbursement from NAICO for the $1.5 million in claims filed by the member counties immediately prior to July 1, 1997. NAICO refused to pay, and, in 1999, ACCO-SIG sued NAICO in Oklahoma state court. NAICO defended, in part, on the theory that Am-Re's retroactive reinsurance triggered the other-insurance clause of NAICO's policy. Thus, in NAICO's view, ACCO-SIG should have looked to Am-Re for coverage. ACCO-SIG and NAICO eventually settled with NAICO paying ACCO-SIG $1.25 million in exchange for ending the litigation and the assignment of ACCO-SIG's rights against Am-Re.

NAICO then launched a diversity suit, pursuant to 28 U.S.C. § 1332, against Am-Re, asserting breach of contract, tortious breach of contract, unjust enrichment, and subrogation claims under Oklahoma law. NAICO seeks to recover the $1.25 million it paid to ACCO-SIG, arguing that the retroactive portion of the Am-Re reinsurance policy places liability for the pre-July 1, 1997, events on Am-Re. NAICO moved for partial summary judgment on these grounds. Am-Re responded by filing a summary judgment motion of its own.

The district court granted Am-Re's motion in an alternative holding. First, the district court held that the Am-Re reinsurance contract was ambiguous. Then, it considered parol evidence of Am-Re and ACCO-SIG's intent to form a retroactive tail coverage policy, finding this evidence uncontroverted by NAICO. In the alternative, the district court held that the parol evidence also supported a finding of mutual mistake as to the Am-Re reinsurance policy. Accordingly, it granted summary judgment for Am-Re. NAICO filed a timely notice of appeal.

II. Standard of Review

We review the district court's "grant of summary judgment de novo, applying the same standards used by the district court." Byers v. City of Albuquerque, 150 F.3d 1271, 1274 (10th Cir.1998). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We view the evidence, and draw reasonable inferences therefrom, in the light most favorable to the non-moving party. Byers, 150 F.3d at 1274.

Although the movant must show the absence of a genuine issue of material fact, it "need not negate the nonmovant's claim." See Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir.1996). Once the movant carries this burden, the nonmovant cannot rest upon its pleadings, but "must bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which [it] carries the burden of proof." Id. "The mere existence of a scintilla of evidence in support of the nonmovant's position is insufficient to create a dispute of fact that is `genuine'; an issue of material fact is genuine only if the nonmovant presents facts such that a reasonable jury could find in favor of the nonmovant." Lawmaster v. Ward, 125 F.3d 1341, 1347 (10th Cir.1997).

III. Discussion

On appeal, NAICO makes three arguments. First, NAICO contests the district court's conclusion that the Am-Re policy is ambiguous. We address this argument below. Second, NAICO argues that, because the district court issued an opinion in the alternative, employing conditional language, it failed to make specific findings of contractual ambiguity. This argument is meritless; thus we reject it summarily. A district court is entitled to offer alternative grounds for its holding. Third, NAICO argues that the equitable doctrine of mutual mistake does not apply here. Because we affirm on ambiguity grounds, we need not address the mutual mistake issue.

A. Oklahoma Contract Law

The parties do not contest that Oklahoma law governs this case. On issues of contractual ambiguity and the use of parol evidence, the law is well settled.

In Oklahoma, unambiguous insurance contracts are construed, as are other contracts, according to their terms. The interpretation of an insurance contract and whether it is ambiguous is determined by the court as a matter of law. Insurance contracts are ambiguous only if they are susceptible to two constructions. In interpreting an insurance contract, this Court will not make a better contract by altering a term for a party's benefit. Max True Plastering Co. v. U.S. Fidelity & Guar. Co., 912 P.2d 861, 869 (Okla.1996) (footnotes omitted).

In interpreting contracts, courts must view the document as a whole so as to give effect to every part of the contract and enable each clause to help interpret the others. Okla. Stat. Ann. tit. 15, § 157. If a contract is ambiguous, the trial court may admit parol evidence to aid in interpretation. Fowler v. Lincoln County Conservation Dist., 15 P.3d 502, 507 (Okla. 2000). Generally, the issue to which parol evidence has been admitted becomes "a mixed question of law and fact to be determined by the trier thereof, whether court or jury." Harjo v. Harjo, 207 Okla. 73, 247 P.2d 522, 526 (1952). Nonetheless, a trial court may consider parol evidence in making its summary judgment ruling if the movant properly submits the evidence along with his motion. Prudential Ins. Co. of Am. v. Glass, 959 P.2d 586, 595 (Okla.1998).

B. The Parties' Interpretations Of The Am-Re Reinsurance Policy

The provisions of the Am-Re reinsurance policy under dispute follow (with the pivotal language placed in bold by this Court):

ARTICLE I

BUSINESS...