Overthrust Constructors, Inc. v. Home Ins. Co.

• Decision Date: 05 November 1987
• Docket Number: Civ. No. 86-C-0986G.
• Citation: 676 F. Supp. 1086
• Parties: OVERTHRUST CONSTRUCTORS, INC., Plaintiff, v. The HOME INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Utah

676 F. Supp. 1086

OVERTHRUST CONSTRUCTORS, INC., Plaintiff, v. The HOME INSURANCE COMPANY, Defendant.

Civ. No. 86-C-0986G.

United States District Court, D. Utah, C.D.

November 5, 1987.

Paul M. Belnap, Salt Lake City, Utah, for plaintiff.

Joseph J. Joyce, Salt Lake City, Utah, for defendant.

MEMORANDUM DECISION AND ORDER

J. THOMAS GREENE, District Judge.

This matter came before the court on August 3, 1987, pursuant to plaintiff's Motion for Partial Summary Judgment and defendant's Motion for Summary Judgment. Overthrust Constructors, Inc. ("Overthrust") was represented by Paul M. Belnap, and The Home Insurance Company ("Home Insurance") was represented by Joseph J. Joyce. The parties submitted memoranda and presented oral argument, after which the court took the matter under advisement. The court is now fully advised and enters its Memorandum Decision and Order.

BACKGROUND

On or about July 10, 1983, James Rice, an employee of Overthrust, was injured while working on a project in Wyoming due to the collapse of a wall brace constructed by Harv & Higam Masonry, Inc. ("Harv & Higam"). Home Insurance had issued a general liability policy to Overthrust that was in effect at the time Rice was injured. As a result of the injury, Rice brought suit against Harv & Higam for negligence, strict liability, res ipsa loquitur, and intentional and willful acts. Harv & Higam then brought a third-party complaint against Overthrust for contribution and indemnity for any negligence of Overthrust that had caused or contributed to Rice's injury, and Overthrust tendered the defense of the Harv & Higam claims to Home Insurance. After Home Insurance refused to defend the suit, Overthrust employed its own counsel and ultimately was dismissed as a party on Motion for Summary Judgment. See Memorandum Decision and Order in Rice v. Harv & Higam Masonry, Inc., No. C84-624G, slip op. (D.Utah August 21, 1986) Available on WESTLAW, 1986 WL 15996.

Overthrust filed the present action against Home Insurance to recover costs and attorneys' fees paid in defense of the Harv & Higam claims as well as costs and attorneys' fees for bringing this suit against Home Insurance. Overthrust also claims that Home Insurance willfully and in bad faith refused to defend Overthrust in the prior litigation, entitling Overthrust to punitive damages.

LEGAL ANALYSIS

I. Choice of Law

The court must first determine what law governs. Because the policy does not contain a choice-of-law provision, the law of three states could control: (1) New York, Home Insurance's principal place of business; (2) Utah, Overthrust's principal place of business; and (3) Wyoming, the state in which Rice was injured. The basis of this court's jurisdiction is diversity of citizenship under 28 U.S.C. § 1332 (1982). A federal district court in a diversity case must apply the conflict of law rules of the state where it sits. Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3, 4, 96 S.Ct. 167, 168, 46 L.Ed.2d 3 (1975); Dresser Indus. Inc. v. Sandvick, 732 F.2d 783, 785 (10th Cir. 1984). Accordingly, Utah's conflict of laws rules will be used to decide which state law should apply here.

The Utah Supreme Court has made no pronouncement that fits the facts of this case.¹ Most of Utah's sister states have adopted or found guidance in contract actions from the "most significant relationship" approach taken in the Restatement (Second) of Conflicts of Laws § 188 (1971).² The court considers it likely that the Supreme Court of Utah also would seek guidance from the Restatement. Cf. Unibase Systems, Inc., v. Professional Key Punch, No. C86-213G, slip op. at 6-7 (D.Utah July 14, 1987) Available on WESTLAW, 1987 WL 41873. The relevant section of Restatement of Conflicts provides the following:

(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

Id. § 188 (1971) (emphasis added).

This litigation has little significant contact with Wyoming and New York. The only connections to Wyoming are that Overthrust was incorporated there, and that James Rice was injured there. New York's only connection is that Home Insurance's principal place of business is in New York. By way of contrast, there is significant relationship to the State of Utah in this litigation. First, Overthrust's principal place of business is in Utah. Second, the location of most of Overthrust's construction sites, the subject matter of its contracts, is most likely in Utah. Third, the place of performance is in Utah because payment under insurance policies are made at the principal location of the insured object or risk.³ Fourth, the place of contracting is in Utah because the policy must be countersigned in Utah.⁴

Based upon the foregoing, this court holds that Utah has the most significant relationship to this litigation and its law applies.

II. The Duty to Defend

Having determined that Utah law governs, this court must now apply Utah law to this case.⁵ Under Utah law an insurer has a duty to defend when the allegations in a suit against the insured, if proven, could result in liability under the policy. In this regard, the Utah Supreme Court in Deseret Federal Savings & Loan Assoc. v. United States Fidelity & Guar. Co., 714 P.2d 1143 (Utah 1986) recently stated:

The duty to defend is broader than the duty to indemnify, but the insurer's obligation is not unlimited; the duty to defend is measured by the nature and kinds of risks covered by the policy and arises whenever the insurer ascertains facts which give rise to the potential of liability under the policy.

....

The insurer must make a good faith determination based on all the facts known to it, or which by reasonable efforts could be discovered by it, that there is no potential liability under the policy. This means that there are no disputed facts which if proved by the plaintiff at trial would result in liability under the policy.

Id. 1146-47 (citations omitted).

The policy Home Insurance issued to Overthrust is a general liability policy which covers 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 bodily injury ... to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the Insured seeking damages on account of ... bodily injury ... even if any of the allegations of the suit are groundless, false or fraudulent....

Insurance Policy, Section I (emphasis in original). However, coverage is limited by a number of exceptions. Under exclusion (j), the insurance coverage does not apply,

to bodily injury to any employee of the Insured arising out of and in the course of his employment by the Insured or to any obligation of the Insured to indemnify another because of damages arising out of such injury; but this exclusion does not apply to liability assumed by the Insured under an incidental contract.

(Emphasis added.)

The essential question presented is whether the claims for contribution or indemnity, or both, were excluded under exclusion (j).

"Bodily Injury to Employees" Exclusion

The first part of exclusion (j) relates only to claims based on "bodily injury of an employee." The reason for the exclusion is that employees present a special kind of risk to employers, a risk normally covered by workmen's compensation. See Larson Constr. Co. v. Oregon Auto. Ins. Co., 450 F.2d 1193, 1196 (9th Cir.1971). The plain meaning of the language would lead an insured reasonably to believe that it excludes only direct actions by employees: the special employee risk already covered by workmen's compensation. Id.; see also Royal Globe Ins. Co. v. Poirier, 120 N.H. 422, 415 A.2d 882, 885 (1980). An insured is entitled the broadest protection that the policy could reasonably be understood to provide. Fuller v. Director of Finance, 694 P.2d 1045, 1047 (Utah 1985).

Home Insurance argues that the language in the first part of exclusion (j) is broad enough also to exclude third party claims for contribution against an insured employer. However, the second part of exclusion (j) addresses such indirect claims. It excludes obligations of Overthrust to "indemnify another." This is complimentary to the first part of exclusion (j), which excludes only direct claims. This court holds that the first part of exclusion (j) having to do with "bodily injury to any employee of the Insured arising out of and in the course of his employment by the Insured" does not apply to third-party contribution or indemnity claims.

"Indemnify Another" Exclusion

It is not clear whether the "indemnify another" language embraces implied indemnity claims as distinguished from written contracts of indemnity. We need not reach that issue of coverage, however, unless the exclusion is broad enough to cover third party claims for contribution.

Contribution and indemnity have separate meanings and should not be confused. Contribution, as distinguished from indemnity, constitutes a claim for partial liability, typically in cases where a joint tortfeasor sues to recover the amount or proportion that another joint tortfeasor contributed to the tort. See Unigard Ins. Co. v. City of LaVerkin, 689 P.2d 1344, 1346 (Utah 1984). Indemnity, on the other hand, is an action against the primary wrongdoer for all the damages caused. See Olson Farms, Inc. v. Safeway Stores, Inc., 649 F.2d 1370, 1378 (10th Cir.1979). Thus, this court considers...