Yaffe Companies v. Great American Ins. Co., 06-7057.

• Decision Date: 27 August 2007
• Docket Number: No. 06-7057.,06-7057.
• Citation: 499 F.3d 1182
• Parties: The YAFFE COMPANIES, INC., Plaintiff-Appellant, v. GREAT AMERICAN INSURANCE COMPANY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

499 F.3d 1182

The YAFFE COMPANIES, INC., Plaintiff-Appellant, v. GREAT AMERICAN INSURANCE COMPANY, INC., Defendant-Appellee.

No. 06-7057.

United States Court of Appeals, Tenth Circuit.

August 27, 2007.

Harvey D. Ellis, Jr. (Kevin D. Gordon and Jesse C. White, with him on the brief), Crowe & Dunlevy, Oklahoma City, OK, for Plaintiff-Appellant.

Edward J. Main (James K. Secrest, II, and Roger N. Butler, Jr., with him on the brief), Secrest, Hill & Butler, Tulsa, OK, for Defendant-Appellee.

Before BRISCOE, HARTZ, and GORSUCH, Circuit Judges.

HARTZ, Circuit Judge.

This appeal arises out of a claim under a commercial umbrella insurance policy. The district court entered summary judgment in favor of Great American Insurance Company, Inc., denying the claim of the Yaffe Companies, Inc. on the ground that the policy unambiguously precluded coverage. Yaffe Cos., Inc. v. Great Am. Ins. Co., No. CV-05-466-FHS, 2006 WL 1388448, at *3, *5 (E.D.Okla. May 12, 2006). We hold that the policy is ambiguous and reverse and remand for further proceedings.

I. BACKGROUND

On December 28, 2004, an explosion at Yaffe's scrapyard in Muskogee, Oklahoma, caused significant property damage and bodily harm. When it filed its complaint, Yaffe had incurred $1,785,986.89 in liability on claims by numerous parties. Two insurance policies cover Yaffe's liability. One is a commercial general-liability policy issued by ACE American Insurance Company (ACE). The policy provides coverage up to $1,000,000 per occurrence, with a general aggregate limit of $2,000,000 and a deductible of $10,000 per claim. The other policy is a commercial umbrella policy with Great American. As a general matter, umbrella policies provide two types of insurance coverage: (1) excess coverage for events also covered by other underlying insurance policies that provide primary protection and (2) primary coverage for events not covered by other policies. See Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir.1993). The Great American policy has a coverage limit of $25,000,000. But its excess coverage does not begin until the amount that Yaffe "becomes legally obligated to pay," Great American policy § I, exceeds the policy's "Retained Limit," which is "the total amounts stated as the applicable limits of the underlying policies [in the policy schedule]," id. § II.G.1. (Citations to the Great American policy, Aplt.App. Vol. I at 73-132, will refer to sections of the policy rather than pages of the appendix.)

The source of the difficulty in this case is the type of deductible in the ACE policy. The deductible is $10,000 per claim. That the deductible is per-claim rather than per-occurrence is apparently unusual. See 1 Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 9.02, at 557 (2006) (in commercial general-liability policies "there is typically one deductible for each occurrence"). The nature of the deductible makes a substantial difference in the ACE policy's coverage of the Muskogee explosion. Because most claims were under $10,000, the policy covers only $497,999.10 of Yaffe's total liability of $1,785,986.89. If the $10,000 deductible had been per occurrence, ACE would have had to pay $1,000,000, and there would be no dispute that Great American must cover the total liability in excess of $1,000,000 (or perhaps $1,010,000).

Yaffe sought coverage from Great American in the amount of $785,986.89, the difference between the total amount of the claims against it arising from the explosion and $1,000,000. (Yaffe also raised a separate claim, but it is not pursued on appeal.) Great American denied the claim, noting that ACE had paid only $497,999.10 and asserting that the Great American policy does not provide coverage until the $1,000,000 limit of the ACE policy has been exhausted.

On October 14, 2005, Yaffe filed an action against Great American in Oklahoma state court, claiming that Great American had breached its insurance contract and seeking a declaration of coverage. Great American timely removed the case to the United States District Court for the Eastern District of Oklahoma on November 21, 2005, claiming diversity jurisdiction under 28 U.S.C. § 1332(a)(1) because Yaffe is an Oklahoma corporation with its principal place of business in Oklahoma and Great American is an Ohio corporation with its principal place of business in Ohio. The next day Great American filed a counterclaim against Yaffe, seeking a declaration that it has no obligation to provide coverage on claims arising from the Muskogee explosion until Yaffe has exhausted the ACE policy's $1,000,000 limit.

On March 28, 2006, Great American moved for summary judgment. Yaffe responded and Great American replied. On April 21, shortly after Great American filed its reply in support of summary judgment, Yaffe moved to compel discovery, seeking information and documents from Great American regarding its construction of its umbrella policies with similar language. Yaffe then filed its own motion for summary judgment on May 5.

One week later, before Great American had filed a response to Yaffe's summary-judgment motion, the district court granted Great American's summary-judgment motion while denying Yaffe's motion. It ruled that the Great American policy is unambiguous and that Great American is obligated to make payments under its policy only "when Yaffe becomes legally obligated to pay sums in excess of or, stated another way, after exhaustion of, the $1,000,000 coverage provided by the ACE policy." Yaffe, 2006 WL 1388448, at *3. The district court also denied Yaffe's motion to compel discovery, reasoning that such information, "while potentially relevant to a tort claim for bad faith," had no relevance to the contract claims because it had determined that the contract was to be interpreted based on its language alone. Aplt.App. Vol. 2 at 519 (Op. & Order, May 12, 2006). Judgment was entered the same day.

Yaffe appeals the grant of summary judgment to Great American, the denial of its own summary-judgment motion, and, in the alternative, the denial of its motion to compel discovery.

II. DISCUSSION

A. Standard of Review

"[A]n order denying summary judgment is reviewable when . . . it is coupled with a grant of summary judgment to the opposing party." Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124 (9th Cir.2002); see McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 253 (10th Cir.1993) ("Where we reverse a summary judgment order in favor of one party, . . . we will review the denial of the other party's cross-motion for summary judgment under the same standards applied by the district court so long as it is clear that the party opposing the cross-motion had an opportunity to dispute the material facts."); James Wm. Moore et al., Moore's Federal Practice § 56.41[1], at 56-284.1 (3d ed.2006); 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2715, at 268 (3d ed.1998). Thus, we review both the grant of summary judgment to Great American and the denial of summary judgment to Yaffe. "We review de novo a district court's grant or denial of summary judgment, and we apply the same legal standard to be employed by the district court under Federal Rule of Civil Procedure 56(c)." Maldonado v. City of Altus, 433 F.3d 1294, 1302 (10th Cir.2006) (brackets and internal quotation marks omitted), overruled on other grounds as recognized by Metzler v. Fed. Home Loan Bank of Topeka, 464 F.3d 1164, 1171 n. 2 (10th Cir.2006). Summary judgment is appropriate if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

B. Motions for Summary Judgment

Yaffe contends that summary judgment for Great American was improper, and summary judgment for it was proper, because (1) the policy's unambiguous terms require Great American to provide coverage once Yaffe's liability for the explosion exceeded $1,000,000, and (2) even if the policy is ambiguous, that ambiguity must be construed against the drafter and in favor of Yaffe's reasonable expectations of insurance coverage. Great American counters that summary judgment was proper because the terms of its policy unambiguously indicate that it is not obligated to provide coverage until the $1,000,000 per-occurrence limit of the ACE policy has been exhausted. It makes no alternative argument in the event that we hold the policy to be ambiguous.

Oklahoma substantive law applies to this diversity action. See Air Liquide Am. Corp. v. Cont'l Cas. Co., 217 F.3d 1272, 1275 (10th Cir.2000). Its approach to interpreting insurance policies is unremarkable:

The foremost principle is that an insurance policy is a contract. Parties are at liberty to contract for insurance to cover such risks as they see fit and they are bound by terms of the contract. It necessarily follows that courts are not at liberty to rewrite the terms of an insurance contract. The interpretation of the policy, with its exclusions, is a law question, unless the facts necessary to apply the decided law question are in dispute.

When addressing a dispute concerning the language of an insurance policy, our first step is to determine as a matter of law whether the policy language at issue is ambiguous. If it is not ambiguous, we accept the language in its plain, ordinary and popular sense. We must construe the policy to give a reasonable effect to all of its provisions, construing liberally words of inclusion in favor of the insured and construing strictly words of exclusion against the insurer.

Duensing v. State Farm Fire & Cas. Co., 131 P.3d 127, 134 (Okla.Civ.App.2005) (citations omitted) (summarizing Oklahoma Supreme Court caselaw). "Insurance contracts are ambiguous only if they are susceptible to two constructions." Max True Plastering Co. v. U.S. Fid. & Guar. Co., 912 P.2d 861, 869 (Okla.1996). When a contract is ambiguous,...