Pacific Ins. Co. v. American Nat. Fire Ins. Co.
| Decision Date | 07 July 1998 |
| Docket Number | No. 96-2468,96-2468 |
| Parties | PACIFIC INSURANCE COMPANY, Plaintiff-Appellee, v. AMERICAN NATIONAL FIRE INSURANCE COMPANY, Defendant-Appellant, Rail Link, Incorporated, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: William Henry Shewmake, Shewmake, Baronian & Parkinson, Richmond, Virginia, for Appellant. Scott L. Carey, Bates, Meckler, Bulger & Tilson, Chicago, Illinois, for Appellee Pacific Insurance Before ERVIN and HAMILTON, Circuit Judges, and BLAKE, United States District Judge for the District of Maryland, sitting by designation.
Gary Joseph Spahn, Mays & Valentine, L.L.P., Richmond, Virginia, for Appellee Rail Link. ON BRIEF: Samuel Baronian, Jr., Shewmake, Baronian & Parkinson, Richmond, Virginia, for Appellant. Monica T. Sullivan, Bates, Meckler, Bulger & Tilson, Chicago, Illinois; John H. O'Brion, Jr., Cowan & Owen, P.C., Richmond, Virginia, for Appellee Pacific Insurance. Robert A. Angle, Mays & Valentine, L.L.P., Richmond, Virginia, for Appellee Rail Link.
Affirmed by published opinion. Judge HAMILTON wrote the opinion, in which Judge ERVIN and Judge BLAKE joined.
American National Fire Insurance Company (American National) appeals the district court's entry of judgment in favor of Pacific Insurance Company (Pacific) in this dispute involving which company's insurance policy, issued to the insured, Rail Link, Inc. (Rail Link), covers the settled claim of Charles Womack, a former employee of Rail Link. Because we hold that the district court did not abuse its discretion in reversing its previous entry of judgment in American National's favor and properly granted judgment on the pleadings to Pacific, we affirm.
Rail Link is a railroad company that provides switching operations at various manufacturing plants. Rail Link also provides other railroad services to some of the companies it serves, including leasing and maintaining railroad engines, maintaining and repairing railroad tracks, and cleaning boxcars. In addition to providing contractual switching services for various companies and manufacturers, Rail Link is also the parent of two wholly-owned subsidiary corporations that operate "shortline" railroads. These subsidiaries operate short distance railroad connections in North Carolina and Virginia. Rail Link's president, James Benz, and its general manager, William Jasper, are the sole officers and directors of Rail Link's shortline subsidiaries.
At all times relevant to this litigation, Rail Link maintained three liability insurance policies. First, Rail Link purchased a $500,000 liability policy from the Hartford Insurance Company (the Hartford Policy). Second, Rail Link purchased a $5 million comprehensive railroad liability policy (the Pacific Policy) from Pacific. Third, Rail Link purchased a $4 million excess liability policy (the American National Policy) from American National.
Several provisions of the Pacific Policy and the American National Policy are pertinent to this appeal. First, the Pacific Policy contains an exclusion, known as Exclusion F, which states:
This policy does not apply to:
. . . . .
F. Any liability imposed on the Insured under any of the following:
1. the Employees' Retirement Income Security Act (ERISA) of 1974 as now or hereafter amended;
2. any uninsured motorists, underinsured motorists, automobile no-fault or first party personal injury law;
3. any workers compensation, employers liability (but this does not apply to the Federal Employers' Liability Act; see Employers Liability definition), occupational disease, unemployment compensation, retirement or disability benefits law or statute; or
4. any law similar to 1., 2., or 3. above.
(J.A. 49). The Pacific Policy also defines "Employer's Liability" as "liability imposed on the Insured for Bodily Injury sustained by employees of the Insured in the course of their employment under the Federal Employers Liability Act, U.S.Code (1970) Title 45, Chapter 2, Sections 51-60 and as amended." (J.A. 63).
With respect to the American National Policy, it specifically incorporates certain scheduled underlying policies, including the Hartford Policy. The Hartford Policy and, therefore, the American National Policy exclude claims brought pursuant to the Federal Employers' Liability Act (FELA), 45 U.S.C. §§ 51-60, providing that "[t]his insurance does not cover: ... bodily injury to any person in work subject to the Federal Employer's Liability Act ..., any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment, or any amendments to those laws." (J.A. 114). The American National Policy also provides that American National is not required "to assume charge of the settlement or defense of any claim, suit or proceeding against [the insured]." (J.A. 76).
On January 14, 1995, Womack slipped from a railcar while performing switching operations and suffered catastrophic injuries, including multiple amputations. The injury occurred at a Lubrizol, Inc. plant in Texas, and Womack subsequently filed suit against Rail Link and others in a diversity action in the United States District Court for the Southern District of Texas under the Texas Railroad Liability Act (TRLA), Tex.Rev.Civ. Stat., Art. 6432-6443 (the Underlying Action). Womack sought $52 million in damages under the TRLA; Womack did not assert a claim under FELA. Rail Link subsequently reported the claim to its insurers, including Pacific and American National. Because the Hartford Policy was the primary policy, the defense of the Underlying Action was not tendered to either Pacific or American National.
Rail Link and its insurers then attempted to negotiate a settlement of Womack's claim. During the course of the settlement negotiations, however, a dispute arose over which insurer's policy offered coverage for the Underlying Action. As a result of this dispute, on January 19, 1996, Pacific filed this diversity action in the United States District Court for the Eastern District of Virginia against Rail Link and American National, seeking a declaratory judgment as to which company's policy covered the Womack accident. In its complaint, Pacific alleged that it was not liable for covering the Underlying Action because it did not provide any coverage for any accident arising under the TRLA. American National filed an answer, maintaining that its policy also did not provide coverage for the Womack incident.
In February 1996, the district court held a settlement conference in which all of the parties to the Underlying Action participated, including Womack's attorneys. Ultimately, the parties agreed to settle the Underlying Action for $4.3 million. The entire employer's liability limit of $500,000 under the Hartford policy was paid in connection with the settlement, while American National and Pacific each agreed to pay $1.86 million with a reservation of rights against the other to litigate which insurer's policy covered the Underlying Action. The terms of the settlement were recorded before the district court by a court reporter, and in memorializing the reservation of rights agreement between Pacific and American National, counsel for American National stated:
The payments by Pacific and American National Fire Insurance Company are made with the understanding and agreement between them that Pacific and American National agree that they are reserving their rights against each other and agree to litigate post the settlement in the Womack case as between themselves, that they will litigate the various issues of coverage under their respective policies.
Secondly, they agree that with respect to the applicability of exclusion under Pacific's policy, that issue would be preserved, and if determined that that exclusion applies to Rail Link, Inc. for coverage for the Womack action in settlement, American National will be obligated to reimburse Pacific.
Thirdly, the above-stated stipulation with regard to the exclusion would not apply if somehow American National was determined not to owe coverage to Rail Link for the Womack action in settlement.
In the event that Pacific and American National were determined to both provide coverage to Rail Link for the Womack action and settlement, the issue of priority as between their coverage is agreed to be decided and agreed to effect a reimbursement to carry out the final judicial determination of that issue.
(J.A. 181-82).
After the settlement of the Underlying Action, Pacific amended its complaint to incorporate the terms of the settlement agreement. In response to Pacific's amended complaint, American National filed an amended answer, a counterclaim against Pacific, and a cross-claim against Rail Link, seeking a declaration that American National had no obligation to indemnify Rail Link for liability in the Underlying Action. Because Pacific and American National agreed not to seek reimbursement from Rail Link, Rail Link remained only a nominal party to the declaratory judgment action and had no active role in the litigation.
On July 23, 1996, Pacific moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). In its motion and memorandum in support of its motion, Pacific argued that the Pacific Policy provided no coverage for the Underlying Action, while the American National Policy did provide coverage, because the Underlying Action was brought under the TRLA, rather than FELA, and the Pacific Policy excluded all employers' liability claims except those asserted under FELA. American National opposed Pacific's motion and argued that, because of an ambiguity in the Pacific Policy, Pacific was liable for Womack's TRLA claims asserted in the Underlying Action. American National did not argue that the Underlying Action could have been or should have been brought under FELA.
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