Planet Ins. Co. v. Mead Reinsurance Corp.

• Citation: 789 F.2d 668
• Decision Date: 06 May 1986
• Docket Number: No. 85-1535,85-1535
• Parties: PLANET INSURANCE COMPANY, Plaintiff-Appellee, v. MEAD REINSURANCE CORPORATION, Defendant-Appellant. Integrity Insurance Company and Cochise County, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 668

789 F.2d 668

PLANET INSURANCE COMPANY, Plaintiff-Appellee, v. MEAD REINSURANCE CORPORATION, Defendant-Appellant Integrity Insurance Company and Cochise County, Defendants-Appellees.

No. 85-1535.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 11, 1986.

Decided March 19, 1986.

Designated for Publication May 6, 1986.

Richard J. Woods, Nicholas J. Wallwork, O'Connor, Cavanah, Anderson, Westover, Killingsworth & Beshears, Phoenix, Ariz., for Planet Ins. Co.

William C. Smitherman, Joel D. Sacks, Smitherman & Sacks, Tucson, Ariz., for Cochise County.

Lawrence A. Peshkin, E.J. Kotalik, Jr., Fennemore, Craig, von Ammon, Udall & Powers, Phoenix, Ariz., for Integrity Ins. Co. Kevin E. O'Malley, Michael L. Gallagher, Gallagher & Kennedy, P.A., Phoenix, Ariz., Ralph Robinson, Louis H. Castoria, Wilson, Elser, Edelman & Dicker, San Francisco, Cal., for Mead Reinsurance Corp.

On Appeal from the United States District Court for the District of Arizona.

Before BROWNING, Chief Judge, and TANG and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

This appeal involves the relative obligations to pay legal fees of primary and excess insurers under Arizona law. The district court in this declaratory judgment action granted summary judgment in favor of Planet Insurance Company and Integrity Insurance Company, the County's excess insurers. Mead Reinsurance Corporation appeals. We affirm.

FACTS

Mead insured the County of Cochise ("County"), Arizona, for damages arising from bodily injury, property damage, errors or omissions, or personal injury. Generally speaking, the policy provided that Mead would indemnify the County for $975,000 per occurrence, but the County would remain liable for the first $25,000 per occurrence. The County purchased additional insurance from Planet and Integrity, which provided $9,000,000 of coverage per occurrence, but did not cover the first $1,000,000 of liability. Integrity's coverage ran from July 1, 1980 to July 1, 1982. Planet's coverage ran from July 1, 1982 to December 1, 1983.

In June of 1982, the members of an all-Black church filed suit against the County and several county officials. This action is referred to as Thomas v. County of Cochise. The plaintiffs alleged that as the number of Black church members relocating into the area increased, the defendants initiated a deliberate campaign to deny the plaintiffs their civil rights and to discourage the plaintiffs from remaining residents of the area. In support of the allegation that county officials had embarked on a deliberate campaign of intimidation, the complaint listed a variety of specific acts of misconduct.

Plaintiffs filed several amended complaints, alleging that county officials intentionally provoked a riot resulting in the shooting deaths of two plaintiffs and the wounding of two others by the police on October 23, 1982.

During the course of the Thomas litigation, a dispute arose between the insurers. Mead informed Planet and Integrity that Mead considered the County's alleged policy of discrimination to constitute an allegation of a single occurrence. Mead also contended that any funds provided by Mead for defense costs were assessable against the policy limit of liability. In short, Mead contended that it was liable for at most $975,000 and that the excess insurers were responsible to pick up the balance.

Planet filed this action for declaratory relief to resolve this dispute. During the pendency of the action, the district court ordered Mead to continue paying defense costs, subject to Mead's right to recover if Mead ultimately prevailed. The parties represent that Mead provided approximately $1,400,000 in defense funds. Mead and the County stipulated that the Thomas complaint alleged a single occurrence.

Planet, Integrity, and Mead filed cross motions for summary judgment. The district court granted Planet's and Integrity's motions, holding that:

The injuries alleged in Thomas v. Cochise County necessarily result from multiple occurrences. Defense costs may not be assessed against Mead's policy limits. Planet and Integrity, as excess insurance carriers, need not contribute to defense costs until Cochise County's ultimate liability is established by a judgment or settlement in Thomas v. Cochise County. Integrity's liability is limited to excess liability and pro rated defense costs resulting from Count IX of the Third Amended Complaint in Thomas v. Cochise County.

Mead filed its notice of appeal. During the pendency of this appeal, the action in

Thomas v. County of Cochise was settled for $700,000. ¹

JURISDICTION

Although Mead appeals the district court's judgment, Mead argues that the judgment was not final and that we, therefore, lack jurisdiction.

The district court's judgment purports to resolve several issues. The correct resolution of these issues would establish the relationship between the various insurers. The Declaratory Judgment Act contemplates just such a remedy. See United States v. Washington, 759 F.2d 1353, 1357 (9th Cir.) (en banc), cert. denied, --- U.S. ----, 106 S.Ct. 407, 88 L.Ed.2d 358 (1985); 28 U.S.C. Sec. 2201. Even when a district court abuses its discretion by rendering a declaratory judgment that fails to establish legal rights and duties with precision, the judgment may be considered final for purposes of 28 U.S.C. Sec. 1291. See id. at 1356-58. Therefore, we have jurisdiction to hear this appeal.

STANDARD OF REVIEW

We review a district court's summary judgment de novo. Semegen v. Weidner, 780 F.2d 727, 732 (9th Cir.1985). Summary judgment is proper when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Id. The moving party has the burden of establishing the absence of material factual issues. Id. Under Arizona law, the interpretation of an insurance contract is a question of law to be determined by the court. Roberts v. State Farm Fire & Casualty Co., 146 Ariz. 284, 705 P.2d 1335, 1337 (1985); Sparks v. Republic National Life Insurance Co., 132 Ariz. 529, 647 P.2d 1127, 1132, cert. denied, 459 U.S. 1070, 103 S.Ct. 490, 74 L.Ed.2d 632 (1982).

INCLUSION OF DEFENSE COSTS IN POLICY LIMITS

Mead argues that the district court improperly held that Mead was required to expend amounts in excess of the policy limits in defense of the County. Relying primarily on the language of the Insuring Agreement ("Agreement"), Mead contends that the County is self insured to the extent of the County's retained liability and that Mead, therefore, was merely a "first-layer excess insurer." Mead concludes that since it was not a primary insurer, it had no duty to defend the County and that all funds provided for the County's defense were subject to the Agreement's limitation on liability.

Several general principles of Arizona insurance law govern the construction of the Insuring Agreement:

Provisions of insurance policies are to be construed in a manner according to their plain and ordinary meaning. Where the language employed is unclear and can be reasonably construed in more than one sense, an ambiguity is said to exist and such ambiguity will be construed against the insurer. In determining whether an ambiguity exists in a policy, the language should be examined from the viewpoint of one not trained in law or in the insurance business.

* * *

If an insurer desires to limit its liability under a policy, it should employ language which clearly and distinctly communicates to the insured the nature of the limitation.

Sparks, 647 P.2d at 1132-33 (citations omitted); accord Roberts, 705 P.2d at 1337. Additionally,

while an individual clause of an insurance policy, standing alone, might be determined to have no ambiguity, 'the policy must be read as a whole in order to give a reasonable and harmonious meaning and effect to all its provisions.'

Sparks, 674 P.2d at 1134 (quoting Federal Insurance Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 139, 547 P.2d 1050, 1053 (1976)); accord Industrial Indemnity Co. v. Goettl, 138 Ariz. 315, 674 P.2d 869, 876 The Insuring Agreement provides that:

                (Ariz.Ct.App.1983).  Finally, the terms of an insurance policy must be construed to protect the reasonable expectations of the person purchasing the insurance.    Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co., 140 Ariz. 383, 682 P.2d 388, 396-97 (1984)
                

The "Company" [Mead] will indemnify the insured [the County] for ultimate net loss in excess of the retained limit [of $25,000] which the insured shall become legally obligated to pay by reason of liability imposed by law, or liability assumed by contract, insofar as the named insured may legally do so, for damages because of:

A. Bodily Injury or

B. Property Damage or

C. Errors and Omissions or

D. Personal Injury

to which this policy applies, caused by an occurrence which takes place during the policy period.

In a subsequent section entitled "Retained Limit The Company's Limit of Liability," the Agreement further specifies that:

Regardless of the number of (1) insureds under this policy, (2) persons or organizations who sustain injury or damage, or (3) claims made or suits brought on account of bodily injury, property damage, errors and omissions or personal injury, the "Company's" liability is limited as follows:

With respect to bodily injury or property damage or errors and omissions or personal injury or any combination thereof, the "Company's" liability shall be only for the ultimate net loss in excess of the insured's retained limit [of $25,000] as the result of any one occurrence, and then for an amount not exceeding [$975,000] as the result of any one occurrence.

The Agreement defines Ultimate Net Loss as:

(1) The sum actually paid or payable in cash in the settlement or satisfaction of losses for which the insured is liable either by adjudication or compromise with the written consent of the "Company", after making proper deduction for all...