Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-07222/USCOURTS-caDC-96-07222-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 3, 1997 Decided October 28, 1997

No. 96-7215

HARTFORD ACCIDENT & INDEMNITY COMPANY,

APPELLANT/CROSS-APPELLEE

v.

PRO-FOOTBALL, INC., D/B/A WASHINGTON REDSKINS,

APPELLEE/CROSS-APPELLANT

Consolidated with

No. 96-7222

Appeals from the United States District Court 

for the District of Columbia 

(No. 94cv02266)

Mark E. Solomons argued the cause for appellant/crossappellee. With him on the brief was Michael R. Goodstein. 

Paul H. Friedman entered an appearance.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 1 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Barry W. Levine argued the cause for appellee/crossappellant. With him on the brief was Mark A. Packman.

Before: WALD, WILLIAMS and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

Concurring opinion filed by Circuit Judge WALD.

WILLIAMS, Circuit Judge: This case deals with a so-called 

"retrospective rating" insurance policy, evidently a type common for workers' compensation. The insured employer pays 

an estimated premium, which is typically based on data about 

the insured's payroll and the classifications of its employees 

for risk purposes, and which is subject to later correction. 

The classifications of course vary radically by activity; here, 

for example, the initial rate per $100 of payroll for "athletic 

team or parkcontact sports"the policy was issued to the 

owner of the Washington Redskinswas nearly 40 times the 

premium for "clerical office employees." The rates, fixed by 

law, also vary markedly according to the jurisdiction where 

employees may routinely seek compensation, depending on 

benefit levels and likelihood of recovery in the jurisdiction. 

They are, for example, far higher in the District of Columbia 

than in Virginiamore than double in this case. Both jurisdictions allow recovery by an employee who is injured within 

their respective borders or whose employment is principally 

located there.

The policy calls for initial payment of an estimated premium, to be followed by adjustments to reflect actual circumstances. Here, during the third of three successive one-year 

policies, the District of Columbia Court of Appeals affirmed 

the decision of the D.C. Department of Employment Services 

that the players performed "the principal services for which 

they were hired" in the District, where they played their 

home games (R.F.K. Stadium), rather than in Redskins Park 

in Virginia, where they spend a majority of their time at 

practice. Pro-Football, Inc. v. D.C. Department of Employment Services, 588 A.2d 275 (D.C. 1991) ("Anderson"socalled after one of the player claimants). The players were 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 2 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

thus entitled to invoke D.C. law as a basis for recovery for 

injuries occurring anywhere (as the players had sought 

throughout the period of the three policies).

The parties agree that the provisions on premium adjustment allow the insurer to make a retrospective premium 

change to reflect changes in the employer's payroll or in the 

job classifications of particular employees. The question is 

whether the terms of the policy also permit a premium 

adjustment for a change in the jurisdiction whose law is 

available to employees, such as resulted from the Anderson

decision. The district court read the policy as denying the 

insurer such a power. We reverse.

* * *

Hartford Accident and Indemnity Company provided the 

Washington Redskins' owner/operator, Pro-Football, Inc. 

("PFI"), with a workers' compensation insurance policy for 

three successive annual policy periods, from July 14, 1988 to 

July 14, 1991. The policy was a standard form, assigned risk 

policy administered by the National Council on Compensation 

Insurance ("NCCI"), designed for employers like PFI who 

cannot purchase coverage on the voluntary workers' compensation market and who cannot or are not willing to selfinsure. See generally 9 Arthur Larson & Lex K. Larson, 

Larson's Workers' Compensation Law §§ 92.53-92.65 (1997) 

(describing assigned risk, retrospective rating policies). Under the policy, PFI's premiums were initially based on the 

parties' use of Virginia as the expressly assumed principal 

location of the players' services.

Under both the District of Columbia and the Virginia 

workers' compensation insurance plans ("WCIPs"), the NCCI 

directs insurers in the state pool to issue coverage to employers eligible for assigned risk insurance. When PFI submitted 

an application for Virginia assigned risk coverage, NCCI 

assigned the application to Hartford, which was obligated to 

issue a policy. The policy issued by Hartford consisted of 

manuals (by reference), standard forms, an Information Page 

(actually several pages) of figures specific to PFI, and rates; 

the forms and manuals were approved, and the rates set, by 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 3 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

NCCI. (The policy forms for the District and Virginia 

WCIPs are identical in all material respects.) The terms and 

rates for the policy were not negotiated; neither Hartford 

nor PFI could legally have altered them.

Retrospective rating plans of the sort embodied in this 

policy are used when the size of the insured's risks is difficult 

to measure at the beginning of the policy period, see Lee R. 

Russ & Thomas F. Segalla, 5 Couch on Insurance § 69.15 (3d 

ed. 1996) ("Couch"). Courts routinely enforce the retrospective provisions in such plans. See, e.g., L.C. Worley v. 

Travelers Indemnity Co., 183 S.E.2d 91 (Ga. Ct. App. 1971); 

Great American Ins. Co. v. Nova-Frost, Inc., 362 N.W.2d 358 

(Minn. Ct. App. 1985); Texas Soap Mfg. Co. v. American 

Auto. Ins. Co., 227 S.W.2d 376 (Tex. Civ. App. 1950). Workers' compensation in general, and professional football in 

particular, present the kind of uncertainty that makes retrospective rating appropriate, because the insured's activities 

and the size of its payroll are likely to vary considerably over 

the course of the policy term.

Premiums under the policy are calculated as the product of 

the work classification rate for a specific jurisdiction and the 

amount of payroll allocated to employees in that classification 

and jurisdiction (the "premium basis") up to a regulated 

maximum amount. Initial premiums (at least for years other 

than the first one) also incorporate an "experience modification factor" (or "mod"), a prospective adjustment to take 

account of prior years' claims experience for the particular 

employer. All the factors other than actual payrollthe 

rates, classifications, premium basis maxima, and modare 

set by NCCI.

Following attempts by several injured Redskin players to 

collect the higher District benefits for injuries received outside the District, the Director of the District of Columbia 

Department of Employment Services ruled on or about July 

10, 1989, just before the end of the first policy year, that the 

players' place of principal employment was the District rather 

than Virginia. The D.C. Court of Appeals issued its decision 

in Anderson, affirming the Director, in March 1991.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 4 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Hartford, relying upon the policy provision that allowed 

calculation of the "final premium" after the policy's expiration, then wrote PFI that it had reclassified Redskin players 

and coaches as District of Columbia employees for all three 

policy years. For the then-current policy year, 1990-91, 

Hartford issued an endorsement, or formal amendment, implementing the reclassification. Hartford then billed PFI for 

the difference in premium levelsa difference, after adjustments, of $5,350,762. PFI refused to pay, and Hartford filed 

suit under the federal courts' diversity jurisdiction. PFI 

counterclaimed for breach of contract and fiduciary duty, 

fraud, bad faith, and negligent misrepresentation.

On cross-motions for summary judgment the district court 

granted summary judgment for PFI, ruling that the policy 

did not permit Hartford to change the jurisdictional basis of 

the premium calculation retroactively. Hartford Accident &

Indemnity Co. v. Pro-Football, Inc., d/b/a The Washington 

Redskins, No. 94-2266 (D.D.C. Aug. 21, 1996) ("Mem. Op."). 

The district court also suggested that any reclassification 

might have to be by formal endorsement, which Hartford had 

failed to issue except for the final policy year at issue. 

Finally, the district court struck the affidavit of a Hartford 

expert because it was submitted after the close of discovery, 

and rejected PFI's counterclaims as time-barred under the 

District's statute of limitations. All of these decisions are on 

appeal.

I.

The district court noted, and the parties agree, that the 

task in contract interpretation is to decide "what a reasonable 

person in the position of the parties would believe the language meant." Mem. Op. at 8 (citing 1010 Potomac Assoc. v. 

Grocery Mfrs. of America, Inc., 485 A.2d 199, 205 (D.C. 

1984)). In the particular context of insurance, under District 

of Columbia law,

[s]ince insurance contracts are written exclusively by 

insurers, courts generally interpret any ambiguous provisions in a manner consistent with the reasonable expectaUSCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 5 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

tions of the purchaser of the policy. However, when 

such contracts are clear and unambiguous, they will be 

enforced by the courts as written, so long as they do not 

'violate a statute or public policy.'

Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35 

(D.C. 1996) (citations omitted). See also GEICO v. Fetisoff,

958 F.2d 1137, 1141 (D.C. Cir. 1992) ("Under District of 

Columbia law, '[c]lear and unambiguous language [in an insurance policy] should be construed according to its everyday 

meaning.' ") (quoting Continental Casualty Co. v. Cole, 809 

F.2d 891, 896 (D.C. Cir. 1987)). Thus, as we understand 

District law, no preference for the insured's reading arises 

unless the contract is ambiguous, and even then the preference involves no more than accepting what the insured might 

reasonably believe over an alternative reasonable interpretation offered by the insurer.

The parties also wrestle with the issue of whether the 

special status of this insurance contractimposed on the 

parties as NCCI's standard formcalls for any modification 

of the standard rule for interpreting insurance contracts. 

Commentators have urged, and many (perhaps most) jurisdictions have agreed, that since the basis for the standard rule

the insurer drafted the contract without negotiating it with 

the insuredis absent, the presumption in favor of the insured's reasonable interpretation should be relaxed: "The 

rule of construction against the insurer does not apply where 

... the language was prescribed by statute and controlled by 

Division of Insurance rather than the individual insurer." 2 

Couch § 22:15. See also John A. Appleman & Jean Appleman, 13 Appleman, Ins. L. & P. § 7407 (1981) ("While North 

Carolina and a few other states still apply the doctrine of 

construing policies against the insurer to instances of standard policies, the better authority is to the effect that the 

doctrine of liberal construction has no place under those 

circumstances.").1 There appears to be no District of Colum-

__________

1 Accord, e.g., Kisting v. Westchester Fire Ins. Co., 290 F.Supp. 

141, 147 (D.C. W.D. Wis. 1968), aff'd, 416 F.2d 967 (6th Cir. 1969) 

(applying Wisconsin law); Hankins v. Public Service Mut. Ins. Co.,

63 A.2d 606 (Md. 1949); Charles Dowd Box Co. v. Firemen's Fund 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 6 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

bia precedent on the construction of state-mandated policy 

language or forms. In any event, because we do not find the 

language ambiguous, or as reasonably permitting PFI's proposed interpretation, we need not resolve that contest.

We now turn to interpreting the policy itself. (The text of 

the key printed provisions of the policythe "boilerplate"is 

set forth in the Appendix.)

Did the Final Premium Clause entitle Hartford to adjust the 

premium for jurisdictional change?

The Final Premium Clause explicitly describes the premium shown on the Information Page as "an estimate" and 

states that the "final premium will be determined after this 

policy ends by using the actual, not the estimated, premium 

basis and the proper classification and rates that lawfully 

apply to the business and work covered by this policy." 

Hartford's decision to charge District rates for the players 

and coaches in 1991 in the wake of Anderson tracks these 

terms. Thereafter, only the D.C. classifications and rates 

would qualify as the "proper classification and rates that 

lawfully apply" to the affected employees. The logic of any 

insurance policy, prospective or retrospective, requires premium levels to track expected benefits.2 A retrospective-rating 

policy allows post-signature events to affect both sides of the 

balance. Here Hartford accounted for a large, legally mandated, rise in benefit levels through an appropriate adjustment to its premium calculation, as the policy contemplated.

The district court came to a contrary conclusionhere 

urged on us by PFIby treating the Final Premium Clause 

__________

Ins. Co., 351 Mass. 113, 218 N.E.2d 64 (1966); Del Guidici v. 

Importers' & Exporters' Ins. Co., 120 A. 5 (N.J. 1923).

2 As used here, "expected" refers to the average of possible 

outcomes, each specific outcome discounted for its probability.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 7 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

as limited by the Classifications Clause. It read the latter as 

contemplating only changes to business and work classifications (and the rate and premium basis changes that follow a 

classification change). It then read the Final Premium 

Clause as permitting Hartford to make only two types of 

independent changes to the policy factors: changes to premium basis (payroll) determined under the Audit Clause, and 

changes to work classifications determined under the Classifications Clause; rate adjustments would be restricted to the 

consequences of changes in these two types of factors. Mem. 

Op. at 9-11. This interpretation left no room in the Final 

Premium Clause for a change in rates corresponding to a 

change in the workers' jurisdictional basis, whether the 

change arose from an exogenous legal event such as the 

Anderson decision, or from changes in actual work location 

(or new information about work location) such as might be 

revealed during the audit process.

This reading sacrifices the fundamental principles of the 

policy to symmetryand a false symmetry at that. The 

Final Premium Clause calls comprehensively for retrospective 

adjustment of the premium to conform to "the actual ... 

premium basis and the proper classification and rates that 

lawfully apply." Here the D.C. Court of Appeals reached a 

conclusive (and retroactive) determination that the jurisdictional predicate of the players' benefit eligibility was not, in 

fact, Virginia, but rather the District of Columbia. Hartford 

correctly concluded that the change in the jurisdictional predicate for benefits entailed a matching change in the "actual" 

rates. PFI's reading, by contrast, rewrites the phrase "proper classification and rates" to eliminate any independent 

meaning for "rates."

We see no basis for the assumption that the Audit Clause

authorizing inspection of the insured's books for up to three 

years after the policy period for information to "be used to 

determine final premium"must refer solely to changes in 

premium basis (i.e., payroll limited by the NCCI-imposed 

maxima). Mem. Op. at 10. An audit might reveal, as Hartford's apparently did, see Appendix for PFI on Cross-Appeal 

at 106, that all claims by players are being filed in another 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 8 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

jurisdiction. Since it is the function of the Audit Clause to 

gather data for the correct calculation of the premium, it 

would be arbitrary to perform the final premium calculation 

in disregard of a highly relevant fact so gathered, simply 

because the scope of the Classifications Clause is limited to 

changes in classifications.

In fact, the Information Page states, "All information required below is subject to verification and change by audit." 

The information set forth "below" included rates calculated 

for various job classifications on a jurisdiction-specific basis, 

so that the natural, indeed inescapable, reading is that the 

provision for change applies to the jurisdictional as well as 

the other aspects of the premium calculation. By contrast, on 

a narrow reading of the Audit Clause's scope, it remains 

mysterious how information relevant to the Classifications 

Clause will be gathered except through the insured's goodfaith disclosure. But under a harmonious reading of the 

three clauses, the Audit Clause has potential to generate data 

for all aspects of the Final Premium calculation, as well as for 

reclassifications under the Classifications Clause.

Granted, our construction of these clauses makes partially 

redundant the separate clause governing ordinary, nonjurisdictional, changes to work classifications. Why should 

such changes be addressed not only in the Audit and Final 

Premium Clauses, but also in a special clause of their own, 

the Classifications Clause? One plausible answer is that 

changes sought by the insurer to work classifications may be 

likely to engender the greatest resistance by the insured, and 

may be the most disputable, so the function of the special 

Classifications Clause is just to underscore the insurer's 

power to make those changes. In any event, PFI's reading of 

the clause to suggest that it puts jurisdictional changes 

entirely off the map presents a far greater anomaly, for under 

PFI's reading the insurer would be unable to adjust for a 

change in one of the most significant elements in its exposure. 

PFI appears to believe that somewhere in the policy Hartford promised that the rates for players would be calculated 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 9 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

on the assumption that Virginia was their principal place of 

employment, regardless of whatever might prove the case. It 

is not clear just where PFI finds any such promise. One 

possibility is the page of the Information Page that covers the 

players (as well as the clerical staff working at Herndon and 

the athletic team operational staff), which says, as a heading: 

"Named Insured and Location Address of Operations Covered by this Schedule," together with the address of the 

Herndon facility. (A similar page covers those understood to 

be working in the District.)

Far from representing any promise, however, the heading 

appears to be no more than a device for organizing information, framing the then-estimated classifications, rates and 

payroll for the workers thought to be located at the places 

shown on the particular pages. Furthermore, as Hartford 

rightly points out, PFI's restrictive reading would illogically 

bind the insurer to the insured's declaration of address 

despite misrepresentation, a simple out-of-state move during 

the policy year, or an honest error. PFI offers no construction of the policy that applies the retroactive adjustment 

clause to any of those scenarios. Nor does it explain why the 

parties would limit the insurer to such alternative remedies as 

a fraud claim (which would encompass only some misrepresentation cases) or a rise in the mod (which would be prospective only).

Courts in other jurisdictions, faced with similar or identical 

policy language, have held that the retrospective ratechanging power encompassed erroneous jurisdictional assignments. In D.A.X., Inc. v. Employers Ins. of Wausau, 659 

N.E.2d 1150 (Ind. Ct. App. 1996), the insurer discovered that 

the policy's jurisdictional assumption was wrong. The insured, an employee-leasing company, had declared that its 

operations were entirely in Indiana, because of its office 

location. Because the insurer found that claims were being 

filed in Illinois, it launched an audit under the standard Audit 

Clause, concluded that under rules promulgated by NCCI the 

correct site was Illinois, and accordingly adjusted the premium. The trial court enforced the insurer's claim to the higher 

premium. On appeal the insured claimed that the trial court 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 10 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

judgment had wrought an unconstitutional "impairment" of 

contract and an unjustified contract reformation. The appellate court rejected both theories, finding that the trial court 

"simply enforced the contract the way it was written." Id. at 

1156. The court read the Final Premium Clause (identical to 

the clause at issue here) as permitting the insurer to use the 

"rates and classifications from such other states as may 

lawfully apply," which, given the NCCI rating rule, meant the 

Illinois rates. Id. at 1157.

And in a New Hampshire case also involving a retrospective rating policy, with language similar though not identical 

to ours, the insurer discovered during its post-policy audit 

that many of the insured's employees, classified as working in 

New Hampshire, had in fact been working in Massachusetts, 

and accordingly recalculated the premium. Continental Ins. 

Co. v. Seppala & Aho Constr. Co., Inc., 430 A.2d 157 (N.H. 

1981). A clausethe counterpart of our Final Premium 

Clausestated that "the earned premium," as opposed to the 

initial "estimated premium," "shall be computed in accordance 

with the rule, rates, rating plans, premiums and minimum 

premiums applicable to this insurance." Id. at 158. The 

court held that this clause clearly and unambiguously gave 

the insurer the power to re-rate the policy with a corrected 

jurisdictional classificationindeed, to the point of making 

clear that the insurer's agent had no authority to represent 

that only New Hampshire rates would be charged. Id. at 

159. We agree with these decisions.

Must Hartford's power to correct the premium be exercised 

through an endorsement?

There are two provisions that might give rise to an obligation by Hartford to exercise its premium-revising power by 

means of an endorsement. First, PFI relies on Subsection A 

of the "General Section," which provides that the "terms of 

this policy may not be changed or waived except by endorsement issued by us to be part of this policy."

But we do not see the insurer's exercise of the power 

expressly granted by the Final Premium Clause as the 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 11 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

"change" of a term of the Policy: it is an exercise of a power 

that a specific policy termthe Final Premium Clause

expressly grants the insurer to use "the actual, not the 

estimated, premium basis and the proper classification and 

rates that lawfully apply to the business and work covered by 

this policy" (emphasis added). That, of course, was the view 

of the courts in D.A.X. and Continental Insurance. Moreover, the Final Premium Clause expressly says that the final 

premium "will be determined after this policy ends." It 

seems odd to say that an activity explicitly slated to occur 

after the policy "ends" constitutes a "change" of the thenexpired policy's terms. (PFI's theory, incidentally, further 

entailsimplausibly, given the Audit Clausethat application 

of the Final Premium Clause to correct premium basis would 

also require an endorsement.) Because PFI's reading of 

Subsection A fails to accord independent force to the Final 

Premium Clause, it fails to give "a reasonable, lawful, and 

effective meaning to all [the policy's] terms." 1010 Potomac 

Assoc., 485 A.2d at 205.

Moreover, PFI offers no rationale whatsoever for applying 

the General Section endorsement requirement to adjustments 

under the Final Premium Clause. Hartford, by contrast, 

suggests that endorsements are issued only during a policy's 

term, and that the purpose of the requirement is to provide 

notice to the insured to enable it to decide either to cancel or 

at least not to renew the policy. We do not feel qualified to 

embrace that view, but it is, at least, a plausible one.

We can imagine two ways that a post-expiration endorsement requirement might possibly have some purpose beyond 

that contributed by the final billing itself.3 First, an endorsement requirement might make it easier for insurance regulators to monitor assigned risk policies in their jurisdictions, 

as is apparently the regulators' charge under the D.C. WCIP. 

See D.C. WCIP at 9 ("The Plan Administrator shall monitor 

and review servicing carrier performance by ... (3) conduct-

__________

3 Although these arguments were not advanced by either party, 

we raise them ourselves in order to test whether our own reading of 

the contract is indeed the only reasonable construction of its terms.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 12 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

ing on-site audits; and (4) reviewing any other information 

that relates to the servicing carrier."). Both D.C. and Virginia require that copies of the policy declarations "and all 

endorsements" must be filed with the appropriate administrator, see D.C. WCIP at 7, Virginia WCIP at 2.

But if regulators want information on ultimate premiums 

paid, a requirement of endorsements for jurisdictional 

changes under the Final Premium Clause is a strangely 

incomplete solution. We know that the final bill will reflect 

changes to estimated payroll, but even PFI does not contend 

that a post-expiration, ordinary correction of the payroll 

constitutes a "change" to the policy, such as to warrant 

formal endorsement. Either the regulators do not depend on 

a formal endorsement process for their information-gathering 

needs, or they don't monitor the policies as closely as this 

suggestion assumes.

A second possible justification for requiring post-policy 

jurisdictional adjustments to take the form of endorsements 

might look to the interests of employee-claimants. If the 

jurisdictional possibilities open to claimants were governed by 

the insurance contract, specification of jurisdictional change 

in an endorsement might make it easier for claimants to 

ascertain their appropriate jurisdictional bases. Of course, 

the premise is faulty. Claimants' jurisdictional options depend on state law, as Anderson shows, not on arrangements 

between the employer and its insurer.

Thus an endorsement attached to a final premium billing, 

issued after the expiration of a policy, would perform no 

notice function beyond that of the billing itself. It would be a 

purely formal gesture.

Unsurprisingly, PFI has shown no reason to think that it 

was harmed by Hartford's non-issuance of an endorsement 

when it made its final billing for the expired terms.4 By 

__________

4 PFI does claim that it was injured by Hartford's not having 

issued an endorsement immediately after the Director's initial 

adverse Anderson decision and instead waiting until the D.C. Court 

of Appeals ruling to change the policy rates. Whatever the merits 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 13 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

contrast, Hartford's behavior in issuing an endorsement only 

to the current 1990-91 policy year is consistent with the 

rationale for the requirement: it provided PFI with notice in 

case it should wish to find other insurance or self-insure in 

the future (as apparently it chose to do).

An alternative source of an endorsement requirement 

would be the Classifications Clause's statement that if exposures are different from those described by the estimated 

classifications, "we will assign proper classifications, rates and 

premium basis by endorsement to this policy" (emphasis 

added). Since PFI's position rests heavily on a notion that 

the Classifications Clause does not cover jurisdictional 

change, and Hartford agrees on that point, it seems plain that 

it cannot be a source of any endorsement obligation that 

would be applicable here.

Accordingly, we reverse the grant of summary judgment in 

favor of PFI and remand for the district court to enter 

summary judgment for Hartford.

II.

The district court rejected PFI's counterclaims as timebarred by the District of Columbia statute of limitations. 

Since PFI's claims arise under District law, the applicable 

statute of limitations is also that of the District. See Guaranty Trust Co. v. York, 326 U.S. 99 (1945); Kuwait Airways 

Corp. v. American Security Bank, N.A., 890 F.2d 456, 460 

(D.C. Cir. 1989). This is true even though Rule 12(a)(4) of 

the Federal Rules of Civil Procedure extends the time for a 

responsive pleading to ten days after the denial of a motion 

under Rule 12, and PFI advanced its counterclaim in an 

answer timely filed under that rule. See 6 Charles Alan 

Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice 

& Procedure 1419 (2d ed. 1990, Supp. 1997).

An agreement between the parties tolled the statute until 

October 22, 1994; PFI's answer and counterclaim were filed a 

__________

of this defense, it depends entirely on the timing, not the form, of 

Hartford's action and was not the basis of the district court's ruling.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 14 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

year later. But Hartford filed its complaint on October 20, 

1994, and defendant argues that this further tolled the statute. While there is considerable law (and sensible policy) on 

PFI's side, the controlling lawthat of the Districtis 

against it.

In Sears, Roebuck and Co. v. Goudie, 290 A.2d 826 (D.C.

1972), the court considered whether a counterclaim filed too 

late (assuming no tolling) could be saved by the doctrine of 

relation back to a prior, timely counterclaim that had been 

dismissed on substantive grounds. The court found no relation back because the new counterclaim was insufficiently 

related to the dismissed one. Id. at 830. A necessary 

premise of the entire discussion was that the filing of the 

complaint did not toll the statute on the counterclaim. And 

the court made this premise specific, saying that a genuine 

counterclaim, i.e., one going "beyond matters of defense" such 

as recoupment, "must be viewed as an affirmative cause of 

action and should therefore be tested apart from the primary 

claim in determining whether the statute of limitations 

would bar the counterclaim." Id. (emphasis added). This 

superseded the contrary, more lenient, rule of De Vito v. 

Hoffman, 199 F.2d 468 (D.C. Cir. 1952). Because PFI's 

counterclaims concededly go "beyond matters of defense," 

they must be assessed separately, and thus fail.

III.

In the course of its ruling on the cross motions for summary judgment, the court held that the parties' failure to 

observe discovery rulesspecifically failure to request extension of a discovery deadlinebarred use of experts' affidavits 

submitted to bear upon the construction of the policy. Mem. 

Op. at 12 n.10. Hartford contests the exclusion of its expert's 

affidavit.

Hartford's contention appears mootat least in the sense 

that, as we have construed the portions of the policy relevant 

to this appeal without consideration of any extrinsic evidence, 

such evidence can make no contribution to resolution of the 

case. Hartford suggests, however, that we should address 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 15 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

the court's discovery ruling because, even if it wins on the 

basic issue of its power to adjust the premium by reference to 

jurisdictional mistake, as it has, "[d]amages would still need 

to be addressed."

At the time the district court exercised its discretion in 

ruling on this discovery issue it was simultaneously making 

summary judgment rulings that brought the case to a complete end (subject, of course, to appellate review). We do not 

know if that circumstance colored the court's ruling on the 

issue. Rather than entangle ourselves in what is surely a 

messy issue, and perhaps a completely unnecessary one, we 

simply note that if indeed there are remaining factual issues 

to be resolved on remand, the court may wish to re-examine 

its discovery ruling. 

* * *

Accordingly, the judgment of the district court is reversed 

in part and affirmed in part, as stated above.

So ordered.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 16 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

APPENDIX

General Section

A. The Policy

This policy includes at its effective date the Information 

Page and all endorsements and schedules listed there.... 

The only agreements relating to this insurance are stated in 

this policy. The terms of this policy may not be changed or 

waived except by endorsement issued by us to be part of this 

policy.

Part FivePremium

A. Our Manuals

All premium for this policy will be determined by our 

manual of rules, rates, rating plans and classification. We 

may change our manuals and apply the changes to this policy 

if authorized by law or a governmental agency regulating this 

insurance.

B. Classifications

Item 4 of the Information Page shows the rate and premium basis for certain business or work classifications. These 

classifications were assigned based on an estimate of the 

exposures you would have during the policy period. If your 

actual exposures are not properly described by those classifications, we will assign proper classifications, rates and premium basis by endorsement to this policy.

C. Remuneration

Premium for each work classification is determined by 

multiplying a rate times a premium basis....

E. Final Premium

The Premium shown on the Information Page, schedules, 

and endorsements is an estimate. The final premium will be 

determined after this policy ends by using the actual, not the 

estimated, premium basis and the proper classification and 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 17 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

rates that lawfully apply to the business and work covered by 

this policy. If the final premium is more than the premium 

you paid to us, you must pay us the balance....

G. Audit

You will let us examine and audit all your records that 

relate to this policy. These records include ledgers, journals, 

registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving 

data. We may conduct the audits during regular business 

hours during the policy period and within three years after 

the policy period ends. Information developed by audit will 

be used to determine final premium....

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 18 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

WALD, Circuit Judge, concurring: I differ with the reasoning of the majority on only one aspect of this case, the issue 

of whether the Final Premium Clause should be read to 

permit Hartford to change the jurisdictional basis of closed 

policies without issuing an endorsement.

I find the evidence on which the majority relies on this 

issuepolicy language, caselaw, and the purported lack of 

any reason for requiring endorsements to closed policies

unconvincing. The language of the Final Premium Clause 

seems to me to be ambiguous. It could be read to provide 

the insurer with only a substantive right to adjust the terms 

of a closed policy, or it could also furnish a specific procedure 

for doing so, and so excuse compliance with the General 

Section's endorsement requirement. As for the cases cited 

by the majority, D.A.X., Inc. v. Employers Ins. of Wausau,

659 N.E.2d 1150 (Ind. Ct. App. 1996) and Continental Ins. Co. 

v. Seppala & Aho Constr. Co., 430 A.2d 157 (N.H. 1981), in 

neither of them does it appear that any party raised the 

question of whether an endorsement was required to effect a 

change in policy terms. (Indeed, the policies involved may 

not have even contained an endorsement requirement like the 

one here.) Nor do I agree with the majority's conjecture that 

requiring endorsements to closed policies would be a "purely 

formal gesture." Majority opinion at 13. Formality can, at 

times, be very useful. The record now before us contains 

little evidence about the practices of the insurance industry or 

the usual behavior of regulators, and the parties did not 

argue this issue in any detail. We simply cannot be certain 

that insurers, insureds, and third parties would have no use 

for endorsements to closed policies.

Ultimately what I find dispositive in this case is that the 

parties' course of performance under the policy indicates that 

they appeared to have implicitly agreed that the Final Premium Clause permitted changes in policy terms without an 

endorsement. "[E]vidence of circumstances surrounding the 

contract formation and the parties' conduct in performing it

is relevant to ascertaining their intent." Dano Resource 

Recovery, Inc. v. District of Columbia, 620 A.2d 1346, 1653 

(D.C. 1993) (emphasis added). In October 1989, after the 

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 19 of 20
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

1988-89 policy had closed, Hartford audited that policy year 

and issued a "Statement of Premium Adjustment," presumably under the Final Premium Clause, which set forth revised 

figures for PFI's payroll and associated adjustments to the 

policy premium. No corresponding endorsement is appended 

to the copy of the 1988-89 policy that appears in the record. 

I find this to be strong enough evidence that the parties read 

the Final Premium Clause as providing both a substantive 

right to change policy terms and a procedure for effecting 

such changes to concur with the result reached by the panel.1

__________

1

I agree with the panel majority that we need not decide whether

the doctrine that ambiguities in a contract are construed against its 

drafter applies in this case. In discussing this issue in dicta, 

however, the majority observes that it is unclear how District of 

Columbia law would treat state-mandated policy language. In fact, 

NCCI, the entity that drafted the policy language, appears to be 

dominated by the insurance industry. See William Hager, Data 

Value Depends on Accuracy, Not Independence, NATL UNDERWRITER PROP. & CAS. RISK & BENEFIT MGMT. Dec. 13, 1993, (stating that, 

of twenty-one seats on NCCIs board of directors, all but four are 

occupied by insurance industy representatives). The question, 

therefore, might be better framed as how District of Columbia law 

would treat a policy whose use is mandated by law, but which was 

ultimately drafted by an entity with interests closely aligned with 

those of the insurer.

USCA Case #96-7222 Document #305762 Filed: 10/28/1997 Page 20 of 20