Northland Ins. Co. v. Guardsman Products, Inc., 97-1023
| Decision Date | 22 April 1998 |
| Docket Number | No. 97-1023,97-1023 |
| Citation | 141 F.3d 612 |
| Parties | NORTHLAND INSURANCE COMPANY, Plaintiff-Appellant, v. GUARDSMAN PRODUCTS, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Paul B. Hines (briefed), Galbraith & Booms, Southfield, MI, Craig E. Farmer (argued and briefed), Frank J. Torrano (briefed), Farmer & Murphy, Rancho Cordova, CA, for Plaintiff-Appellant.
Peter L. Gustafson, Norbert F. Kugele (argued and briefed), Warner, Norcross & Judd, Grand Rapids, MI, for Defendant-Appellee.
Before: RYAN, COLE, and CLAY, Circuit Judges.
OPINION
Appellant, Northland Insurance Company ("Northland") appeals from the district court's orders granting appellee's, Guardsman Products, ("Guardsman") motion for summary judgment and denying Northland's motion for summary judgment. For the reasons set forth below we AFFIRM the district court's judgments.
Guardsman was a manufacturer of paints, lacquers, and other wood finish products; it had its principal place of business in Michigan. 1 In 1984, Guardsman negotiated with McAlear Associates ("McAlear"), an insurance broker also located in Michigan, to purchase insurance from Northland, a Minnesota company. McAlear had an agency agreement with Northland, thus, Guardsman ordered Northland's insurance coverage through McAlear. McAlear billed Guardsman for the insurance premiums and Guardsman paid McAlear the required payment.
McAlear sold various Northland insurance policies to Guardsman for three years. The specific policy at issue in this case, is a products liability policy which covered the period from December 15, 1984 to December 15, 1985 and has a $550,000 limit of liability for each occurrence. In assessing whether to underwrite the products liability policy, Northland took into consideration the fact that Guardsman had manufacturing plants in several states, including California, and sold its products worldwide. Northland noted, however, that in assessing the risk "the manufacturing location is less relevant than where a product may be purchased, consumed, [and] distributed." (J.A. at 472.)
The policy at issue provides, in relevant part, the following:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence, if the bodily injury or property damage is included within the completed operations hazard or the products hazard, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage....
(J.A. at 410.)
5. Other Insurance: The insurance afforded by this policy is primary insurance, except when stated to apply in excess of or contingent upon the absence of other insurance. When this insurance is primary and the insured has other insurance which is stated to be applicable to the loss on an excess or contingent basis, the amount of the company's liability under this policy shall not be reduced by the existence of such other insurance.
(J.A. at 402.)
The policy also included a Certificate of Facultative Reinsurance and a Hold Harmless Agreement. (J.A. at 417-420.) The reinsurance certificate was issued by G.C.I.; it requires Guardsman to pay a $50,000 self-insured retention ("SIR") for each occurrence. Details Of Reinsurance Afforded is as follows:
POLICY LIMITS & REINSURER REINSURANCE BASIS OF
TYPE OF INSURANCE APPLICATION RETENTION ACCEPTED ACCEPTANCE
ITEM 1 ITEM 2 ITEM 3 ITEM 4 ITEM 5
Products Liability 550,000/700,000 50,000 each 100% of the Primary
Combined Single occurrence limits as coverage
Limit 200,000 stated in stated in
annual Item 3 Item 3
aggregate
(J.A. at 417.)
Moreover, in the hold harmless agreement, Guardsman agreed "not to pursue against the Northland Insurance Company ... any claim or claims ... under or against or arising out of the first $50,000/200,000 occurrence/aggregate for Products Liability...." (J.A. at 419.)
In 1988, Guardsman was sued by CorryHiebert, a manufacturer of commercial office furniture products. CorryHiebert's principal place of business is in California. CorryHiebert filed suit, in California district court, on September 14, 1988. CorryHiebert contended that beginning sometime in 1984, Guardsman sold and delivered defective lacquer to CorryHiebert's California plant, and that CorryHiebert used the defective lacquer on its office furniture products. CorryHiebert alleged several claims, but only pursued claims for breach of express warranty, and breach of implied warranty. It sought damages for replacement costs, lost profits and loss of goodwill.
Prior to the filing, on August 4, 1988, Guardsman notified McAlear about the potential claim. McAlear sent notification to both Northland and ITT Hartford ("Hartford"), Guardsman's insurance carrier prior to Northland. However, when the complaint was filed in September, it only alleged sales from September 1983 to November 1984, the period in which Guardsman was covered by the Hartford policy. Accordingly, Hartford retained counsel, in California, from the law firm Murchison & Cumming, to defend the suit.
Attorney Steven Smilay of Murchison & Cumming represented Guardsman in the CorryHiebert suit. It became apparent, during discovery, that some of the sales in question occurred during the Northland policy period. As a result, on May 17, 1990, Attorney Smilay notified Northland of its possible liability. Although it was sent this additional notification, Northland did not participate in the defense of Guardsman, opting instead to continue to monitor the case through the counsel retained by Hartford. On August 9, 1990, Northland sent a letter to Attorney Smilay informing him that Attorney Bryon Hollins was now assigned to monitor the CorryHiebert suit on behalf of Northland, and that all correspondence and information regarding the case should be sent to his attention.
On July 30, 1991, the district court dismissed, on summary adjudication, CorryHiebert's damage claim for lost profits. Thereafter, in accordance to defense counsel's recommendation, the parties agreed to submit the suit to arbitration before retired Judge Gerald J. Lewis. The agreement provided that CorryHiebert would be entitled to appeal the district court's dismissal of the lost profits claim. On June 10, 1993, judgment was entered in favor of CorryHiebert and the amount of $480,882 was awarded for rework damages. CorryHiebert appealed the district court's decision regarding the lost profits claim. In June 1994, Judge Lewis reinstated the lost profits claim finding that the district court erred in granting summary judgment.
Prior to the arbitration agreement, Guardsman asked for assurances from defense counsel that coverage would exist for the claims being submitted to Judge Lewis. On November 30, 1992, Attorney Smilay wrote to a Guardsman's officer stating that the various insurance companies involved with this case approved the submission of the CorryHiebert suit to arbitration and that coverage should not be an issue. Northland was not identified as one of the carriers contacted by Attorney Smilay; however, a copy of the November 30, 1992 letter was sent to Attorney Hollins.
On the newly revived issue of lost profits, Guardsman, CorryHiebert, and the insurance carriers coordinated a settlement conference. Northland was invited to participate in the settlement negotiations. In a February 14, 1995 letter, Northland notified Guardsman that although it agreed to contribute $500,000 to the settlement, it was reserving its right to recover the $500,000, stating that
[i]t is our belief that all claims with potential for coverage have already been disposed of and, further, that lost profits would not be covered by the Northland policy.... We reserve the right to file a Declaratory Relief Action to resolve the question of coverage which exists at this time, and any other coverage issues which come to light in the future.
In April of 1995, Guardsman agreed to settle the lost profits claim by paying CorryHiebert $1 million--$50,000 of which would come from Guardsman pursuant to the SIR provision in the Northland policy; $500,000 from Northland; and $450,000 from American Empire.
After the settlement, Northland filed suit against Guardsman in the U.S. District Court for the Central District of California seeking a declaratory judgment, reimbursement, and specific performance. The case was eventually moved to the Western District of Michigan pursuant to 28 U.S.C. § 1404(a). After discovery, both parties filed cross-motions for summary judgment. On September 25, 1996, the cross-motions were heard before Judge Robert Holmes Bell. On October 1, 1996, the court granted Guardsman's motion and denied Northland's motion, finding that Northland was estopped from denying coverage under the policy. On October 11, 1996, Northland filed a motion for reconsideration which was denied by the court on November 19, 1996. Northland filed a timely notice of appeal on December 18, 1996.
"We review the district court's grant of summary judgment de novo, using the same standard as that used by the district court." Taylor v. Mich. Dep't of Corrections, 69 F.3d 76, 79 (6th Cir.1995).
Summary judgment is appropriate when 'there is no genuine issue of material fact.' Fed.R.Civ.P. 56(c). The moving party bears the initial burden of proving that no...
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