Ohio Cas. Ins. Co. v. Union Pacific Rr.

• Decision Date: 04 December 2006
• Docket Number: No. 05-3814.,05-3814.
• Citation: 469 F.3d 1158
• Parties: OHIO CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Appellant, Lori Allenbrand; Tri-State Traffic Control, Inc., Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

469 F.3d 1158

OHIO CASUALTY INSURANCE COMPANY, Plaintiff-Appellee, v. UNION PACIFIC RAILROAD COMPANY, Defendant-Appellant Lori Allenbrand; Tri-State Traffic Control, Inc., Defendants.

No. 05-3814.

United States Court of Appeals, Eighth Circuit.

Submitted: June 12, 2006.

Filed: December 4, 2006.

Sean F. Rommel, argued, Texarkana, TX, for appellant.

R. Brent Cooper, argued, Dallas, TX, for appellee.

Before LOKEN, Chief Judge, ARNOLD, Circuit Judge, and DOTY,¹ District Judge.

DOTY, District Judge.

This is a diversity-based insurance coverage dispute that arose out of a fatal automobile collision at a railroad crossing in Lafeyette County, Arkansas. Ohio Casualty Insurance Company ("Ohio Casualty") filed this action seeking a declaratory judgment that it had no duty to defend Union Pacific Railroad Company ("Union Pacific") in litigation commenced as a result of the collision. The district court granted summary judgment in favor of Ohio Casualty, concluding that the railroad was not an additional insured under the policies that Ohio Casualty had issued to Tri-State Traffic Control, Inc. ("Tri-State"), the company Union Pacific hired to provide traffic control services at the crossing. Upon a de novo review of the grant of summary judgment, we reverse.

I. BACKGROUND

Tri-State entered into a contract with Union Pacific to provide traffic control services at Union Pacific construction sites including flaggers, support vehicles, traffic control technicians and traffic control devices ("Tri-State contract"). Specifically, Tri-State was hired to "furnish, transport, place, maintain, and remove approved traffic control warning devices" incidental to crossing closures and traffic detours and to install all warning signs in accordance with local, state and federal regulations. (J.A. at 199.) Union Pacific contracted Tri-State to provide these services on an as needed basis when railroad maintenance work resulted in closures of road crossings or changes to traffic patterns at road crossings.

The Tri-State contract became effective on June 1, 1998, and expired by its terms on June 1, 2000. Under the terms of the Tri-State contract, Tri-State was obligated to procure and maintain general liability insurance for the life of the contract and to name Union Pacific as an additional insured on the policies with respect to all liabilities arising out of work performed by Tri-State on behalf of Union Pacific. Ohio Casualty issued Tri-State a $1 million commercial general liability policy ("primary policy") and a $2 million commercial umbrella excess liability policy ("umbrella policy"), both of which had policy periods from January 22, 2000, to January 22, 2001.

Union Pacific is not a named insured on either policy. Rather, the primary policy contains a Blanket Additional Insured endorsement ("Additional Insured endorsement"), which provides:

WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization whom you are required to name as an additional insured on this policy under a written contract or agreement.

The written contract or agreement must be:

(a) currently in effect or becoming effective during the term of this policy; and

(b) executed prior to the "bodily injury," "property damage," "personal and advertising injury."

(J.A. at 230.) The coverage provided to an additional insured under the primary policy is limited to liability "arising out of" the insured's work for the additional insured. (Id.)

The umbrella policy contains a similar endorsement entitled "Amendment — Who is Insured," which includes as an insured (1) an organization insured under an underlying insurance policy for damages that are covered under the umbrella policy and the underlying policy as well as (2) an organization "for whom [the insured has] agreed in writing prior to injury to provide insurance such as is afforded by this policy but only with respect to operations performed by [the insured] or on [the insured's] behalf." (J.A. at 297.)

On June 1, 2000, the written Tri-State contract expired. Tri-State, however, continued to provide traffic control services for Union Pacific in accordance with the terms of the Tri-State contract.² On August 7, 2000, a train owned and operated by Union Pacific collided with a vehicle driven by Joseph Johnson at a railroad crossing in Lafayette County, Arkansas resulting in severe injuries to Johnson and the deaths of his wife and daughter ("Johnson accident"). On the day of the accident, a Union Pacific construction crew was upgrading the warning devices at the crossing from flashers to automatic lights and gates. Tri-State was providing traffic control services at the work site. Specifically, two Tri-State flaggers were present to provide and maintain traffic control signs and to flag vehicles at the crossing, as directed by the Union Pacific construction crew foreman. When the accident occurred, construction had temporarily ceased and the foreman had released the flaggers for lunch. It is undisputed that the Johnson accident occurred during the policy period of the primary and umbrella policies.

In 2001, Johnson commenced litigation in Arkansas state court against Union Pacific and claimed, inter alia, that Union Pacific breached its duty to provide adequate signs in the construction zone ("Johnson litigation"). The allegations in support of the negligence claim included that Union Pacific failed to implement a traffic control plan, failed to comply with state law to ensure a reasonable level of safety for motor vehicle operators traveling through a construction zone, failed to maintain a reasonably safe construction zone, failed to adequately warn motorists of oncoming trains and failed to utilize proper flagging procedures at the crossing during construction. Ohio Casualty defended Union Pacific in the Johnson litigation, subject to a reservation of rights. Union Pacific ultimately settled the Johnson litigation for $12.5 million, and Ohio Casualty contributed its combined policy limit of $3 million to the settlement, reserving its right to deny coverage. Ohio Casualty commenced this action alleging it had no duty to defend Union Pacific in the Johnson litigation. Following the settlement, however, Ohio Casualty filed an amended complaint seeking a declaratory judgment that the claims Union Pacific settled in the Johnson litigation were not covered by its policies and it did not have a duty to indemnify Union Pacific for the settlement. Ohio casualty sought return of its $3 million as well as the attorney fees and costs it incurred in defending Union Pacific throughout the Johnson litigation.

Ohio Casualty and Union Pacific filed cross motions for summary judgment, and the district court granted summary judgment in favor of Ohio Casualty. In doing so, the court held that the Additional Insured endorsement unambiguously requires that a written contract requiring Tri-State to name Union Pacific as an additional insured be in effect at the time the accident occurred because the drafters intended to avoid coverage for existing losses. The court concluded that a written contract was not in effect on August 7, 2000, because the Tri-State contract expired on June 1, 2000, and an unwritten modification or extension by mutual performance would have been barred by the Nebraska statute of frauds. See Neb.Rev. Stat. § 36-202(1). Because a written contract was not in effect on the date of the accident, the court concluded that Union Pacific was not an additional insured under the primary policy. The court further determined that Union Pacific was not an insured under the umbrella policy because the railroad was not insured under the primary policy and did not meet the definition of an insured under the umbrella policy. In the alternative, the district court held that even if Union Pacific was an additional insured under the respective policies, summary judgment would be warranted in favor of Ohio Casualty because Union Pacific could not establish that the Johnson accident arose out of Tri-State's work. On September 21, 2005, the district court entered a judgment of restitution in favor of Ohio Casualty in the amount of $3,034,565.76.

On appeal, Union Pacific first argues that it was an additional insured under both policies because the Additional Insured endorsement only requires that a written contract be in effect at the time the policy issued or become effective during the term of the policy. In the alternative, Union Pacific argues that the Tri-State contract was in effect on the date of the Johnson accident because the Tri-State contract was extended by mutual performance, the terms of which were contained in the original contract and memorialized in the Contract Change Order.³ Second, Union Pacific argues that the Johnson accident arose out of Tri-State's work as a matter of law. In response, Ohio Casualty argues that Union Pacific is not an additional insured because the written Tri-State contract was not in effect on the date of the Johnson accident and the facts do not establish a causal connection between Tri-State's work and the accident. Ohio Casualty further argues that to hold Union Pacific is an additional insured on the primary policy would violate the "known loss doctrine."

II. DISCUSSION

We review de novo the district court's interpretation of the insurance policy and grant of summary judgment in favor of Ohio Casualty. Macheca Transp. Co. v. Phil. Indem. Ins. Co., 463 F.3d 827, 831 (8th Cir.2006); Mercer v. City of Cedar Rapids, 308 F.3d 840, 843 (8th Cir.2002). Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (19...