Wal-Mart Stores, Inc. v. Rli Ins. Co.

• Decision Date: 05 June 2002
• Docket Number: No. 01-1898WA.,01-1898WA.
• Citation: 292 F.3d 583
• Parties: WAL-MART STORES, INC., and National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Appellants, v. RLI INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

292 F.3d 583

WAL-MART STORES, INC., and National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Appellants, v. RLI INSURANCE COMPANY, Appellee.

No. 01-1898WA.

United States Court of Appeals, Eighth Circuit.

Submitted: January 14, 2002.

Filed: June 5, 2002.

Rehearing and Rehearing En Banc Denied: July 16, 2002.

Michael J. Wahoske, argued, Minneapolis, MN (Vernle C. Durocher, Jr. and David Y. Trevor, Minneapolis, MN, on the brief), for appellant Wal-Mart.

Thomas A. Weaver, argued, St. Louis, MO (Douglas R. Richmond and Patrick J. Kenny, St. Louis, MO, on the brief), for appellant National Union Fire Insurance Co.

David M. Donovan, argued, Liitle Rock, AR, for appellee.

Before LOKEN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.

RICHARD S. ARNOLD, Circuit Judge.

This is a dispute between several insurers and an insured. The parties disagree about the interpretation of multiple insurance contracts and an indemnity clause in a vendor agreement. Wal-Mart and its insurer, National Union, brought this action for declaratory judgment in the District Court for the Western District of Arkansas to determine their responsibility for an $11 million products-liability settlement. Wal-Mart and National Union argued that they were protected from liability by an indemnity clause in the vendor agreement between Wal-Mart and its supplier, Cheyenne, and that RLI Insurance Company, which insured Cheyenne and Wal-Mart, had no claim against them for any part of the settlement.

The District Court ruled against Wal-Mart and National Union. It ordered that they pay RLI, the excess insurer of Cheyenne, $10 million. Two bases underlay this conclusion: first, that the language of the insurance policies governed the allocation of liability for the settlement, not the indemnity agreement between Cheyenne and Wal-Mart; and second, that Wal-Mart's insurance with National Union was underlying insurance under RLI's policy and must be exhausted before RLI is obligated as an excess insurer.

Wal-Mart and National Union appeal the District Court's decision. They argue that the result of the decision is to make a covered insured (Wal-Mart) liable to its own insurer (RLI), in violation of an axiomatic insurance principle. They also assert that the District Court's decision will result in unnecessary and circular litigation, wherein RLI will ultimately still be held liable for the entire settlement because of Cheyenne's promise to indemnify Wal-Mart. We agree with Wal-Mart and National Union and reverse the decision of the District Court. We direct entry of an order granting summary judgment to Wal-Mart and National Union.

I.

This litigation arises out of a sales agreement between Cheyenne and Wal-Mart. Cheyenne distributes halogen lamps. Wal-Mart and Cheyenne entered into a vendor agreement, under which Cheyenne would supply lamps for Wal-Mart to sell at its retail stores. As part of this agreement, Cheyenne promised to indemnify Wal-Mart from any liability resulting from its sales of the lamps. Cheyenne was also required to demonstrate proof of at least $2 million of liability insurance. Cheyenne was covered by two insurance companies. St. Paul was its primary insurer; this policy had a $1 million limit for products liability. RLI was an excess insurer beyond the St. Paul coverage; this RLI policy had a $10 million limit for products liability. Wal-Mart was a covered insured under both the St. Paul and RLI policies. Additionally, Wal-Mart had its own insurer, National Union, which covered it with a $10 million policy limit.

A lamp, distributed by Cheyenne and purchased at Wal-Mart, allegedly was defective, causing a fire that severely injured a girl named Jasmine Boykin. Her family sued Wal-Mart, Cheyenne, and other parties in a California state court for personal injuries. This "Boykin" litigation was eventually settled for $11 million. All parties agreed that St. Paul was liable for the first $1 million of the settlement. Cheyenne, Wal-Mart, and their insurers disagreed, however, about their respective responsibilities for the remaining $10 million of the settlement. Eventually, RLI paid the $10 million but reserved its right to seek recovery from National Union and Wal-Mart.

Wal-Mart and National Union then brought this declaratory-judgment action to determine whether they owed RLI any portion of the $10 million it had paid in the Boykin settlement. They argued that the vendor agreement, containing the indemnity clause, governed the apportionment of liability between Wal-Mart and Cheyenne's insurers. RLI filed a counterclaim contending that as an excess insurer, it was entitled to contribution from Wal-Mart's insurer, National Union.

Both parties moved for summary judgment. On February 23, 2000, the District Court granted partial summary judgment in favor of RLI. Although it acknowledged that "a contract with an indemnification clause ... may shift an entire loss to a particular insurer notwithstanding the existence of an `other insurance' clause in its policy," the Court ruled that the "other insurance" clauses in the RLI and National Union policies made RLI's coverage of Wal-Mart secondary to National Union's coverage. Addendum to Appellant Wal-Mart's Brief (hereinafter "ADD") 19, quoting Lee R. Russ & Thomas F. Segalla, 15 Couch on Insurance § 219:1, at 219-7 (3d ed.1999).

A year later, all parties again moved for summary judgment. Wal-Mart and National Union requested reconsideration of the earlier order of the District Court. They also argued the entire settlement should be attributed to Cheyenne's liability, rather than to any wrongdoing by Wal-Mart, which was indemnified by Cheyenne. The District Court rejected these arguments and ruled in favor of RLI. Wal-Mart Stores, Inc. v. RLI Ins. Co., 163 F.Supp.2d 1025, 1044 (W.D.Ark.2001). It determined that the "other insurance" provision in RLI's policy stating that all other coverage must be exhausted before RLI becomes liable was controlling, and that National Union and Wal-Mart were therefore responsible for reimbursing RLI the $10 million it had paid for the settlement. National Union and Wal-Mart appeal this decision.

II.

We review a district court's grant of summary judgment de novo. Generali/US Branch v. Bierman, 153 F.3d 865, 867 (8th Cir.1998). The District Court applied Arkansas law to analyze the provisions in the contracts. We do the same.

Insurance policies are contracts, and so, as with any contract, we begin our analysis with the language of the agreements. The pivotal provision in the view of the District Court was the "other insurance" clause in RLI's policy.

Whenever the insured is covered by other primary, excess or excess-contingent insurance not scheduled on this policy as scheduled underlying insurance this policy shall apply only in excess of, and will not contribute with, such other insurance. This policy shall not be subject to the terms, conditions or limitations of any such other insurance. In the event of payment under this policy where the insured is covered by such other insurance, we shall be subrogated to all of the insured's rights of recovery against such other insurance.

ADD 16.

The parties agree that Wal-Mart was an "insured" of RLI for purposes of this clause. They also agree that National Union's policy was not scheduled insurance on the RLI policy. This provision states that RLI's policy will apply only in excess of other unscheduled insurance. This is the core of RLI's argument that its policy is excess to Wal-Mart's coverage by National Union.

Before deciding this issue, we must look to the competing "other insurance" clause in National Union's policy that covered Wal-Mart. It states that National Union's insurance was primary unless specified conditions occurred as described in part "B. Excess Insurance." This clause, in relevant part, reads:

This insurance is excess over any of the other insurance, whether primary, excess, contingent or on any other basis:... 4) That was bought specifically for an Insured.

ADD 7. Wal-Mart and National Union contend that the National Union policy is excess insurance because Cheyenne purchased the RLI policy specifically for Wal-Mart. The District Court rejected this argument. ADD 18. National Union argues that, in so doing, the District Court impermissibly decided a disputed question of fact on a motion for summary judgment.

We find it unnecessary to resolve these issues about the "other insurance" clauses. Even if the RLI policy was not bought specifically for Wal-Mart (and the evidence is in conflict on this point), we hold that RLI is liable for the $10 million settlement. We reach this conclusion despite the language in RLI's policy, quoted above, that purports to make RLI an excess insurer when an insured, such as Wal-Mart, has other insurance, as it does here with National Union.

In our opinion, on the facts of this case, the indemnity agreement controls the outcome, not the "other insurance" clauses. Three reasons persuade us this is the correct result. First, examination of the relationships between the parties has convinced us that Cheyenne intended to and did make a valid promise to indemnify Wal-Mart for claims arising from the halogen lamps, and that RLI provided liability insurance to Cheyenne that covers both the Boykin settlement and Cheyenne's indemnification obligation. In this situation we think consideration of the indemnity agreement reflects the intention of the parties and does not unfairly prejudice the insurers. Second, we believe that to make Wal-Mart, an insured of RLI, liable to its insurer, RLI, for the settlement would turn the nature of insurance on its head and violate the principle that insureds cannot be liable to insurers for covered losses. Third, we conclude that to make Wal-Mart or National Union liable to RLI would simply be the first step in a circular chain of litigation that ultimately would end with RLI still having to pay the $10...