Union Ins. Co. v. Hull & Co.
| Citation | 985 F.Supp.2d 951 |
| Decision Date | 04 September 2012 |
| Docket Number | No. 4:10–cv–00337–JEG.,4:10–cv–00337–JEG. |
| Court | U.S. District Court — Southern District of Iowa |
| Parties | UNION INSURANCE COMPANY, Plaintiff, v. HULL & COMPANY, INC., Defendant. |
OPINION TEXT STARTS HERE
Jeffrey W. Lanz, Huber Book Cortese Happe & Lanz PLC, West Des Moines, IA, Daniel G. Litchfield, Stephanie W. Tipton, Litchfield Cavo LLP, Chicago, IL, for Plaintiff.
John T. Clendenin, John F. Lorentzen, Nyemaster Goode West Hansell & O'Brien PC, Des Moines, IA, for Defendant.
This matter is before the Court on Cross–Motions for Summary Judgment brought by Plaintiff Union Insurance Company (Union) and Defendant Hull & Company, Inc. (Hull). On August 1, 2012, the Court held a hearing on the motions. Attorneys Jeffrey Lanz and Stephanie Tipton represented Union, and attorneys John Clendenin and Christian Walk represented Hull. The motions are fully submitted and ready for disposition. On the following analysis, the Court finds Plaintiff's motion must be denied and Defendant's motion must be granted.
I. BACKGROUNDA. The Hull–Union Agreement and Underwriting Guidelines
Union is an Iowa insurance company, and Hull is Florida corporation. On April 1, 2000, Hull entered into an Agency–Company Agreement (the Agreement) with five related insurance companies, including Union. The Agreement, which identifies the insurance companies, including Union, as “Company” and Hull as “Agent or Agency,” provides, in part,
Subject to requirements imposed by law, the terms of this Agreement, the underwriting rules and regulations as contained within the Agent's Manual, and where applicable Addendum I, Agency is authorized to receive, accept and strictly in accordance with Company binding guidelines, bind proposals for contracts of insurance for risks located in the Agency state of domicile and any other states where Agency holds a proper nonresident license and for which a commission is specified in the current Commission Schedule.... It is further understood and agreed that Agency shall under no circumstances have authority to bind any risk for:
(1) Any coverage when such authority has been restricted by submission or prohibited list published in the Agents Manual or any other written notice given to Agency.
(2) Coverage limits in excess of those published in the rate section of the Agent's Manual.
Agreement ¶ 1(A), Def.'s App. 3, ECF No. 61–3.
The Agreement also contains an indemnification provision, which provides, in part,
Agency agrees to indemnify, defend and hold Company harmless against any liability which Company may sustain or incur directly or indirectly due to or arising out of any obligation, act, failure to act, or transaction created or done by the negligence of Agency, Agency's employee, and/or Agency's sub-Agent in violation of, in excess of, or in contravention of the power and authority granted to Agency as set forth and described in this Agreement. Agency shall be liable for all damages, including but not limited to, fines and penalties incurred due to the action of Agency.
Id. ¶ 8(D), Def.'s App. 6.
The Agreement also has an integration clause providing that “[t]his Agreement and its attachments constitute the entire Agreement between the Agency and the Company” and that “[n]o waiver by either party of any provision of this Agreement will be effective unless made in writing and signed by an authorized officer of both parties.” Id. ¶ 12, Def.'s App. 7. Paragraph 6, entitled “Amendment & Termination Procedures,” provides that “[u]nless both Agency and Company agree in writing, any changes, modifications, revisions, deletion[s] or additions to this Agreement are prohibited.” Id. ¶ 6(B), Def.'s App. 5. The Agreement further provides that it supersedes all previous agreements.
Union provided Hull with Revised Underwriting Guidelines (Underwriting Guidelines) in late 2004.1 Although Hull received these Underwriting Guidelines, a representative from Hull did not sign an amendment or modification or any document accepting the Underwriting Guidelines, nor did Union provide Hull with additional compensation. The Underwriting Guidelines were “intended to provide a general framework” for commercial umbrella policies and were not intended to be “all encompassing with regard to class or limit restrictions.” Underwriting Guidelines, Baker Decl. Ex. B, Pl.'s App. 262, ECF No. 60–6. Pursuant to the Underwriting Guidelines, Hull had complete underwriting authority for commercial umbrella and commercial excess liability policies with limits up to $5 million and thus did not need Union's approval to bind such policies. The Underwriting Guidelines provided that “[p]rimary policy (underlying) requirements” were $1 million per occurrence for general liability limits. Id. at 263.
B. The Reinsurance Agreement Between Union and Westport
Union entered into a reinsurance agreement with Westport Insurance Company (Westport) on November 1, 1994 (reinsurance agreement), which applied to losses under Union's commercial and personal umbrella policies written through Hull. In the reinsurance agreement, in pertinent part, Union warrantied that the commercial umbrella policies subject to the reinsurance agreement would be placed above $1 million primary general liability coverage.
Hull negotiated contractual terms and conditions with Westport on Union's behalf; as part of this practice, Hull was aware of the reinsurance agreement between Union and Westport. If a special acceptance from a reinsurer was needed on any Union umbrella policy with respect to a reinsurance obligation, Hull would negotiate that special acceptance with the reinsurer on Union's behalf.
C. The Mt. Hawley Policy
On July 11, 2005, Hull received a Commercial Insurance Application (the Application) submitted on behalf of the Thirsty Parrot, a tavern and restaurant in Colorado. The Application sought excess coverage over an underlying commercial insurance policy issued by Mt. Hawley Insurance Company (Mt. Hawley Policy). The Mt. Hawley Policy, issued on or about July 11, 2005, provided commercial general liability limits of $1 million per occurrence and $2 million in general aggregate limits. The Mt. Hawley Policy also contained an endorsement providing an assault or battery exclusion, which provided that “[t]his coverage does not apply to ‘bodily injury’ ... arising out of an ‘assault or battery’ by any insured, whether provoked or unprovoked by any person, or out of any act or omission in connection with the ... [n]egligent hiring, supervision or training of any ‘employee’ of the insured” or “[i]mplementation of adequate security measures, through security personnel, surveillance or other security devices.” Mt. Hawley Policy Exclusion—Assault or Battery, Pl.'s App. 115, ECF No. 60–5. Form PGL 423 is an additional endorsement that modifies the commercial general liability coverage of the Mt. Hawley Policy by returning the coverage excluded by the prior endorsement but placing a sublimit of $500,000 per occurrence for bodily injury arising out of an assault or battery by any insured. This assault or battery endorsement with a $500,000 wasting sublimit, subject to reduction by defense costs.
After requesting, obtaining, and reviewing pricing information for the excess coverage applied for by the Thirsty Parrot, Hull placed the policy with Union.
D. The Union–Thirsty Parrot Policy
On or about July 27, 2005, in fulfillment of the Application, Union issued a commercial umbrella insurance policy insuring the Thirsty Parrot, Policy No. DXS 2583839–20 (the Union Policy), which was underwritten by Hull. The Union Policy provided umbrella coverage of up to $1 million per occurrence and in the aggregate over the limits set forth in the Union Policy's section entitled “Schedule of Underlying Insurances.” Union's Policy, Def.'s App. 164, ECF No. 61–3.
Condition K of the Union Policy provided that “[t]his insurance is excess over underlying insurance or any other valid and collectible insurance (except other insurance purchased specifically to apply in excess of this insurance) which is available to the insured covering a loss also covered by this policy.” Union Policy § IV—Conditions: K, Def.'s App. 177, ECF No. 61–3.
Condition J of the Policy provided, in part,
1. You will maintain the underlying insurance in full effect during the term of this policy without reduction of coverage or limits except for a reduction of limits solely by payment of damages because of bodily injury, property damage, personal injury or advertising injury....
2. If you fail to maintain the underlying insurance, this insurance shall not replace the underlying insurance but shall apply as if the underlying insurance was valid and collectible.
Id. § IV—Conditions: J, Def.'s App. 176–77.
The Union Policy defines “underlying insurance” as “the insurance policies listed as Underlying Insurance, in the Declarations which provide the coverage and limits stated”; the Union Policy further provides that “[t]he coverage and limits stated in the Declarations for Underlying Insurance, and any renewals or replacements thereof, apply whether or not such is collectible.” Id. § V—Definitions: T, Def.'s App. 181. The declarations page of the Union Policy disclosed that the underlying insurance was $1 million per occurrence.
In the Union Policy, Union agreed only to pay “the ultimate net loss the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury or advertising injury to which this insurance applies.” Id. § I.A.1., Def.'s App. 168. The definition of net loss did not include defense costs.
The Union Policy further provided that Union had
the right and duty to defend any claim or suit seeking damages to which this insurance applies, but only with respect to damages:
a. Not covered by underlying insurance or by any other valid and collectible insurance to the insured; or
b. Covered by underlying insurance or...
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