Terra Industries v. National Union Fire
| Citation | 383 F.3d 754 |
| Decision Date | 10 September 2004 |
| Docket Number | No. 03-3374.,03-3374. |
| Parties | TERRA INDUSTRIES, INC.; Terra International, Inc., Appellees, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Appeal from the United States District Court for the Northern District of Iowa, Mark W. Bennett, Chief Judge.
William P. Rector, argued, Moline, Illinois, for appellant.
Andrew R. Running, argued, Chicago, Illinois (Thomas L. Campbell on the brief), for appellee.
Before MORRIS SHEPPARD ARNOLD, MAGILL, and MURPHY, Circuit Judges.
National Union Fire Insurance Company appeals the district court's1 grant of summary judgment in favor of its insureds, Terra Industries and Terra International, Inc. (hereinafter referred to collectively as "Terra"). We affirm the judgment of the district court.
Until 1999, Terra manufactured and distributed methyl parathion, a pesticide intended for agricultural use. From 1993 to 1997, Terra maintained primary liability insurance policies with CIGNA for claims against Terra stemming from use of the pesticide. These were so-called fronting policies, meaning that Terra's $1 million deductible under the policies for any one year equaled CIGNA's policy limits for that year. Terra also had an excess "claims-made" policy during this period with Lexington Insurance Company that provided coverage after the CIGNA policy limits were exhausted but only for claims made during the Lexington policy's coverage years. When the Lexington policy expired in 1997, Terra purchased a replacement excess policy with National Union that was an "occurrence" policy, meaning that it covered only those claims that were based on incidents that occurred during the policy's coverage years. Moving from a claims-made policy to an occurrence policy created a gap in excess coverage for Terra: Claims made against Terra after the Lexington policy expired in 1997 that were based on incidents that occurred before the National Union policy went into effect would not be covered by either policy. To address this difficulty, Terra and National Union agreed to what is called a sunrise endorsement to the excess policy.
This case arises out of the parties' differing interpretations of the sunrise endorsement. National Union refused to pay any of Terra's litigation costs for defending and settling several methyl parathion suits, where the claims were made after 1997 but were based on pre-1997 occurrences. These suits stemmed from purchases of methyl parathion made during two years when Terra's CIGNA policies were in effect, and Terra does not dispute that the claims are covered by those policies. National Union argues that Terra must exhaust this primary CIGNA coverage before National Union becomes obligated to pay. This would effectively mean that Terra would pay up to $1 million as a deductible for each of the two policy years implicated by the underlying suits before the CIGNA policies were exhausted and National Union's policy would become available. The claims totaled less than $1.8 million, and the parties agree that National Union's obligation to pay any part of these claims would not arise if Terra was required to exhaust its CIGNA coverage. But Terra asks us to uphold the district court's ruling that under the sunrise endorsement Terra was not required to exhaust its CIGNA coverage and that National Union's coverage would become available once Terra's liability for all the claims exceeded $1 million.
The parties agree that Iowa law governs this diversity case. To determine the point at which National Union's coverage becomes available to Terra under the sunrise endorsement, we construe the insurance policy "as a whole, not by its separate provisions," LeMars Mut. Ins. Co. v. Farm & City Ins. Co., 494 N.W.2d 216, 218 (Iowa 1992). We must "seek to ascertain from [the policy's] words the intent of the insurer and insured at the time the policy was sold." Grinnell Mut. Reinsurance Co. v. Voeltz, 431 N.W.2d 783, 785 (Iowa 1988). To do that, Iowa law requires that we give terms that are undefined by the policy the meaning that a reasonable person would give them. AMCO Ins. Co. v. Rossman, 518 N.W.2d 333, 334 (Iowa 1994). Iowa courts have held that while an insurance policy and its endorsements should be construed, if possible, to give effect to all provisions, where provisions in the body of the policy are in "irreconcilable conflict" with those of an endorsement, the provisions of the endorsement control. Motor Vehicle Cas Co. v. LeMars Mut. Ins. Co., 254 Iowa 68, 72, 116 N.W.2d 434, 436 (1962).
Terra's main policy with National Union provides liability coverage for post-1997 occurrences for "sums in excess of the Retained Limit." As relevant, the policy defines "Retained Limit" as "the applicable limits of the underlying policies listed in the Schedule of Underlying Insurance and the applicable limits of any other underlying insurance providing coverage to [Terra]." Attached to the main policy is a Schedule of Underlying Insurance that specifically lists the CIGNA policies. Because the main policy does not provide coverage until Terra's primary insurance has been exhausted it is plainly an excess policy. But we will not assume that the endorsement was intended to provide only excess coverage simply because it was added to an excess policy. Instead we must examine the specific terms of the parties' entire agreement to determine the endorsement's meaning.
The sunrise endorsement states, in relevant part, as follows:
This contract will provide coverage only for those Occurrences happening on or between the dates January 1, 1985 and July 1, 1997 which would otherwise be covered by the terms and conditions of this contract and which had not been reported to the Insured or to any of the Insured's Insurance Carriers on or between the dates January 1, 1985 and July 1, 1997....
Solely as respects the coverage afforded by this contract the following underlying coverages and limits (known herewith as the Schedule of Underlying Insurance) apply. It is understood that these limits are unimpaired.
General Liability $1,000,000 each occurrence
Products/Completed
Operations Liability $1,000,000 each occurrence
Automobile Liability $1,000,000 each occurrence
Employers Liability $1,000,000 each occurrence
Aircraft Liability $1,000,000 each occurrence
. . .
All other terms and conditions of this policy remain unchanged.
The parties agree that of the limits listed in the sunrise endorsement, only the $1 million in Products/Completed Operations Liability is applicable to the methyl parathion claims. For the reasons that follow we believe that the terms of the National Union policy and the endorsement support the conclusion that the CIGNA policies (and prior claims made against them) are of no consequence to the sunrise-endorsement claims.
We are not convinced by National Union's contention that although the CIGNA policies are not mentioned in the endorsement, they nevertheless must be exhausted as "other underlying insurance." As we have said, under the main policy National Union agrees to pay "sums in excess of the Retained Limit," which is the sum of two items: the limits in the "policies" listed in the "Schedule of Underlying Insurance" (which includes the CIGNA policies) and the applicable limits of "any other underlying insurance." Although the sunrise endorsement does not refer to any "Retained Limit," National Union argues that Terra must also exhaust the "Retained Limit" before coverage is available under that endorsement. According to National Union, because the endorsement states that its "underlying coverages and limits" are "(known herewith as the Schedule of Underlying Insurance)" (emphasis added), the monetary limits in the endorsement replace only the "Schedule of Insurance" part of the "Retained Limit" in the main policy. Since the main policy states that the "Retained Limit" also includes "other underlying insurance," the argument goes, the CIGNA policies must be exhausted as "other underlying insurance," even though they are omitted from the "Schedule of Underlying Insurance" in the sunrise endorsement.
But we do not believe that a parenthetical reference to "Schedule of Insurance" is what is most important in the endorsement. While the main policy plainly provides coverage in excess of other listed and unlisted insurance policies, the sunrise endorsement makes no reference whatsoever to any other insurance policies or to "Retained Limits" and contains a schedule of "underlying coverages and limits" in specific monetary amounts. The endorsement refers to these monetary amounts as "the... underlying coverages and limits" that are applicable "[s]olely as respects the coverage afforded by this contract" (emphasis added). We believe that this language indicates that the monetary limits are unique to the sunrise endorsement and are the exclusive "underlying coverages and limits" that must be exhausted before coverage becomes available under that endorsement.
We also reject as unreasonable National's Union's interpretation of the phrase "other underlying insurance" to include the CIGNA policies for purposes of the endorsement but not for purposes of the main policy. "Other underlying insurance," as used in insurance contracts, generally refers to primary policies that the insurer was unaware of or that did not exist at the time that the policy was agreed to. Thus the phrase was not intended to cover policies that National Union could have spelled out in the endorsement's Schedule of Underlying Insurance, as it did in the main policy's Schedule of Underlying Insurance. The excess insurer's rationale for separating known and unknown policies is to ensure...
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