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### STATE OF MICHIGAN

COURT OF APPEALS

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,

Plaintiff, UNPUBLISHED March 16, 2017

v No. 329277 Oakland Circuit Court XL INSURANCE AMERICA, INC., ZURICH AMERICAN INSURANCE COMPANY, ROBERT BOSCH, LLC, VOLKSWAGEN GROUP OF AMERICA, INC., CBS RADIO, INC., OF DETROIT, VOLKSWAGEN OF AMERICA, INC., ANTHONY MICHAEL PRAINITO, ACE GROUP, GRANGE INSURANCE COMPANY OF MICHIGAN, and ACE PROPERTY & CASUALTY INSURANCE COMPANY, LC No. 2014-139843-CB

Defendants,

and

ALLIANZ GLOBAL RISKS US INSURANCE COMPANY,

Defendant/Cross-Plaintiff/CrossDefendant-Appellant,

and

IRONSHORE SPECIALTY INSURANCE COMPANY,

Defendant/Cross-Defendant/CrossPlaintiff-Appellee.

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,

Plaintiff,-2- v No. 329293 Oakland Circuit Court XL INSURANCE AMERICA, INC., ZURICH AMERICAN INSURANCE COMPANY, ROBERT BOSCH, LLC, VOLKSWAGEN GROUP OF AMERICA, INC., CBS RADIO, INC., OF DETROIT, VOLKSWAGEN OF AMERICA, INC., ANTHONY MICHAEL PRAINITO, ACE GROUP, and GRANGE INSURANCE COMPANY OF MICHIGAN,

Defendants,

and

ALLIANZ GLOBAL RISKS US INSURANCE COMPANY,

Defendant/Cross-Plaintiff/CrossDefendant,

and

IRONSHORE SPECIALTY INSURANCE COMPANY,

Defendant/Cross-Defendant/CrossPlaintiff-Appellee,

and

ACE PROPERTY & CASUALTY INSURANCE COMPANY, LC No. 2014-139843-CB

Defendant-Appellant.

Before: R IORDAN , P.J., and M ETER and F ORT H OOD , JJ.

P ER C URIAM

. In these consolidated appeals, ACE Property & Casualty Insuran ce Company (“ACE”), and Allianz Global Risks US Insurance Company (“Allianz”) appea l as of right the trial court’s-3- order granting summary dispositio n to Ironshore Specialty Insur ance Company (“Ironshore”). We affirm.

This declaratory judgment acti on involves a dispute among seve ral insurance companies over what portion of two automobile negligence settlements each of them should be required to pay. The underlying negligence actions arose out of a motor ve hicle accident occurring on August 10, 2012. On that day, Anthony Prainito was driving a v ehicle in the course of his employment with CBS Radio, Inc., of Detroit (“CBS Radio”) when he allegedly turned in front of another vehicle driven by James Cram and in which L. Brooks Patterson was a passenger. As a result of the collision, Patterson and Cram were seriously in jured. Volkswagen of America (“Volkswagen”) was the titled ow ner of the vehicle operated by Prainito. The vehicle had been on loan to Robert Bosch, LLC (“Bosch”), an entity which, in tur n, during the Woodward Dream Cruise, loaned the vehicle to CBS Radio, Prainito’s employer. On March 11, 2013, both Patterson and Cram file d third-party no-fault actions against P rainito, CBS Radio, and Bosch.

At the time of the accident, Volkswagen was insured under a pr imary policy issued by XL Insurance America, Inc. (“XL”), and an excess policy issued by Ironshore. Bosch was insured under a primary policy issued by Zurich American Insura nce Company (“Zurich”) and an excess policy issued by Allianz. Finally, CBS Radio was ins ured by a primary policy issued by The Travelers Property Casualty Company of America (“Travele rs”) and an excess policy issued by ACE. On March 31, 2014 , Travelers filed this declara tory judgment act ion naming as defendants XL, Ironshore, Allianz, Zurich, Bosch, and Volkswage n. Thereafter, a plethora of cross-claims and third-part y complaints were filed.

On August 11, 2014, the parties in the underlying negligence a ctions and several of the insurers in this declaratory action reached a settlement, the t erms of which were sealed by the trial court. The parties represent that as a result of the set tlement agreement, Zurich, Travelers, and XL, as primary insurers, te ndered their policy limits. All ianz and ACE represent that as a result of this settlement, Zurich , Travelers, XL, Volkswagen, B osch, CBS Radio, and Prainito were released and dismissed from the declaratory judgment actio n. There still remained, however, an undisclosed settlement balance to be satisfied by s ome or all of the three excess insurers, i.e., Allianz, ACE, and Ironshore. Apparently, as pa rt of the settlement, the three excess insurers agreed “to fund the settlement subject to the resoluti on of the priority of coverage among them.”

On December 17, 2014, Allianz and ACE, jointly, and Ironshore filed cross-motions for summary disposition. The parties all argued that the resolutio n of the priority issue turned on the interpretation of each policy’s “o ther insurance” clause. The ACE policy contains the following “other insurance” clause:

J. Other Insurance

If valid and collectible “other insurance” applies to damages that are also covered by this policy, this policy will apply excess of the “o ther insurance” and will not contribute with such “other insurance”. This provisio n will not apply if the “other insurance” is writt en to the excess of this policy.-4- Allianz’s “other insurance” clau se is substantially similar to the ACE policy and provides:

L. Other Insurance

If valid and collectible insurance applies to damages that are also covered by this policy, this policy will apply as excess of the “other insurance” and will not contribute with the “other insurance”. However, this provi sion will not apply if the “other insurance” is speci fically written to be excess o f this policy.

The “other insurance” clause relevant to Ironshore’s coverage i s markedly different from the ACE and Allianz policies. Indeed, an “other insurance” clause is not specifically written into the Ironshore policy. Instead, the nature of the “other insurance” clause applicable to the Ironshore coverage is discerned by readi ng the terms of both the Ironshor e policy and the XL (primary) policy. The Ironshore policy incorporates by reference the ter ms of the XL policy. The Ironshore policy provides:

A. This Policy shall provide t he Insured with Commercial Exce ss Liability Insurance coverage in accordance with the same warran ties, terms, exclusions and limitations as are contained, on the Inception D ate of this Policy, in the applicable Controlling Underlying Policy(ies) , subject to the premium, limits of liability, retention, policy period, warranties, excl usions, limitations and any other terms and conditions of this Policy, including any an d all endorsements attached hereto, inconsistent w ith or supplementary to the appl icable Controlling Underlying Policy(ies).

The Ironshore policy identifies the XL policy as a “Controlling Underlying Policy.” With respect to “other insurance,” the XL policy provides, through E ndorsement 15, the following:

5. Other Insurance

a. For any covered “auto” you own, this coverage form provide s primary insurance; however, if there is other collectible insurance the insurance provided by this coverage form is excess over such other collectible ins urance. . . .
The XL policy further states under the “other insurance” sectio n:
d. When this Coverage Form and any other Coverage Form or pol icy covers on the same basis either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.

In their joint motion for summar y disposition and in response to Ironshore’s motion, Allianz and ACE argued that because Ironshore’s policy included a pro-rata “other insurance” clause, and ACE’s and Allianz’s policies contained a “true exce ss” other insurance clause, the excess policies issued by ACE and Allianz provided secondary co verage to that of the Ironshore policy. Allianz and ACE asserted that Ironshore’s policy limit s must be exhausted before ACE and Allianz would be required to pay.-5- By contrast, in its own motion for summary disposition and in response to ACE and Allianz’s joint motion for summary disposition, Ironshore argue d that its policy coverage was specifically written to be excess whenever there was other coll ectible insurance. It further argued that the ACE and Allianz policies both stated that their “other insurance” clauses would not apply when the “other insura nce” is written to be excess of their policies. Ironshore then reasoned that by operation of this language, the ACE and Allian z policies ceased to be excess under these circumstances and must be exhausted before Ironshor e’s policy was exposed to liability. Ironshore argued, in the alternative, that at most, liability for the “second layer” of coverage would simply need to be apportioned among the three in surers on the basis of the policy limits.

After considering the language of the policies, and attempting to reconcile them, the trial court held that the ACE and Allianz policies were higher in pri ority than the Ironshore policy and, therefore, the coverage provided by those policies must be exhausted before Ironshore’s coverage was triggered. Accordingly, the court denied ACE and Allianz’s joint motion for summary disposition and granted summary disposition in Ironshor e’s favor. Thereafter, the trial court considered and denied mo tions for reconsideration and the se appeals ensued.

This Court reviews de novo a tr ial court’s decision regarding a motion for summary disposition. Spiek v Dep’t of Transp , 456 Mich 331, 337; 572 NW2d 201 (1998). The parties, in their cross motions, all moved for summary disposition pursuant to MCR 2.116(C)(10). “Summary disposition is approp riate under MCR 2.116(C)(10) if t here is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law.” West v Gen Motors Corp , 469 Mich 177, 183; 665 NW2d 468 (2003). When considering a motion for summary disposition under MCR 2.116(C)(10), a court must view the evidence submitted in the light most favorable to the nonmoving party. Id . The interpretation of an insurance contract is a question of law that this Court reviews de novo. Corwin v DaimlerChrysler Ins Co , 296 Mich App 242, 253; 819 NW2d 68 (2012).

An analysis of the issue presented on appeal must begin with r eviewing principles applicable to the interpretation of contracts. “[I]nsurance po licies are subject to the same contract construction principles that apply to any other specie s of contract.” Rory v Continental Ins Co , 473 Mich 457, 461; 703 NW2d 23 (2005). “The primary goal in the construction or interpretation of any contract i s to honor the intent of the pa rties[.]” Klapp v United Ins Group Agency
, Inc , 468 Mich 459, 473; 663 NW2d 447 (2003) (quotation marks and c itation omitted). Insurance-contract language is given its ordinary and plain mea ning, Royal Prop Group

, LLC v Prime Ins Syndicate

, Inc , 267 Mich App 708, 715; 706 NW2d 426 (2005), and courts must “ give effect to every word, phrase, and clause in a contract and avoi d an interpretation that would render any part of the contract surplusage or nugatory,” Klapp , 468 Mich at 468. “If the contractual language is unambiguous, courts must interpret and enforce the contract as written[.]” In re Smith Trust , 480 Mich 19, 24; 745 NW2d 754 (2008).

Generally, there are three tiers, or layers, of insurance cove rage that govern payment priority: (1) primary coverage; (2) excess “other insurance” co verage; and (3) “true excess” coverage. See Bosco v Bauermeister , 456 Mich 279, 281-282, 304; 571 NW2d 509 (1997). In Bosco
, the Court explained that “true excess” coverage “occurs where a single insured has two policies covering the same loss, but one policy is written with the expectation that the primary-6- will conduct all of the investigation, negotiation and defense of claims until its limits are exhausted. . . .” Id . at 295 (quotation marks and citation omitted). In this case, the trial court concluded that all three policies provided “true excess” covera ge. Consequently, it turned to the “other insurance” clauses within the policies in an effort to d iscern the priority of three policies occupying the same tier.

In St Paul Fire & Marine Ins Co v Am Home Assurance Co , 444 Mich 560, 564; 514 NW2d 113 (1994), the Michigan Supreme Court explained that an “ other insurance” clause is a provision included in insurance co ntracts “to vary or limit the insurer’s liability when additional insurance coverage can be established to cover the same loss.” In general, there are three types of “other insurance” clauses: (1 ) pro-rata clauses, (2) escape or no-liability clauses, and (3) excess clauses. Id

. at 565. A pro-rata clause “pur ports to limit the insurer’s lia bility to a proportionate percentage of all in surance covering the event[.] ” Id . Usually, a pro-rata clause includes language that “creates a formula for establishing the liability of an insurer when other, collectible insurance exists on a proportionate basis.” See id . at 566-567. An escape or noliability “other insurance” clau se provides that there shall be no liability if the risk is covered by other insurance. Id

. at 565. Lastly, an excess “other insurance” clause “limits the insurer’s liability to the amount of loss i n excess of the coverage provi ded by the other insurance.” Id

. When competing policies all cont ain “other insurance” clauses, coverage disputes inevitably arise. In Pioneer State Mut Ins Co v TIG Ins Co
, 229 Mich App 406, 411-412; 581 NW2d 802 (1998), this Court recognized that “[a] variety of com binations of the clauses may occur (e.g., pro rata versus excess, pro rata versus escape, ex cess versus excess) and the courts have developed different rules f or resolving these conflicts.” For example, in St Paul Fire , 444 Mich at 575-576, the Court held t hat a policy with a pro-rata “ other insurance” clause will pay before a policy with an excess “other insurance” clause. In St Paul Fire

, id . at 577, the Court also recognized that it may be necessary to declare “other insu rance” clauses irreconcilable “when the applicable portions of the two other insurance clause s are identical excess clauses.” Under such circumstances, “there is no rational reason to give the language of one policy preference over identical la nguage in the other policy.” Id . at 578. In Pioneer , 229 Mich App at 414, this Court held that there was no rational way to reconcil e competing excess clauses and therefore concluded that covera ge should be apportioned between the policies in a reasonably equitable manner.

ACE and Allianz argue that their policies include excess “othe r insurance” clauses while Ironshore’s is intended to be a pro-rata “other insurance” poli cy. They then rely on St Paul Fire, 444 Mich at 575-576, for the proposition that a policy with a p ro-rata “other insurance” clause will provide coverage before a policy with an excess “other ins urance” clause. However, appellants’ analysis and interpr etation does not comport with t he plain language of the policies.

Both the ACE and Allianz policies contain language typical of an excess “other insurance” clause. ACE’s policy provides: “If valid and collec tible ‘other insurance’ applies to damages that are also covered by this policy, this policy will apply excess of the ‘other insurance’ and will not contribute with such ‘other insurance’. ” Similarly, the Allianz policy states: “If valid and collectible Insurance applies to damages that are also covered by this policy, this policy will apply as excess of the ‘other insurance’ and w ill not contribute with the ‘other insurance’.” Ironshore/XL’s E ndorsement 15 provides that “[i]f there is other collectible-7- insurance the insurance provided by this coverage form is exces s over such other collectible insurance,” and the polic y further provides:

d. When this Coverage Form and any other Coverage Form or pol icy covers on the same basis, either excess or primary, we will pay only our share. Our Share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis.

ACE and Allianz argue that this additional language unambiguous ly established that the “other insurance” clause incorporated into the Ironshore policy is a p ro-rata clause. We disagree.

The language of the Ironshore policy, as provided in Endorseme nt 15, clearly and unambiguously evidences an intent that the policy will be “exce ss” over all other collectible insurance. That the Ironshore policy also contains some langua ge generally indicative of a prorata “other insurance” clause does not nullify that intent. In deed, when carefully examined, the policy language at issue does not even suggest the presence of conflicting provisions within the Ironshore policy. We note that in subparagraph 5(d), the Irons hore policy merely provides for a pro-rata obligation when the Ir onshore policy and “any other” p olicy “ covers on the same basis

. . .” (emphasis added). In the present case, the phrase “covers o n the same basis” can only reasonably refer to circumstances where the competing coverage is also “excess.” Thus, this language merely reflects the law that when two competing polici es are irreconcilable because their “other insurance” clauses are identical, “the courts shou ld attempt to apportion coverage between the policies in a reasonably equitable manner.” See Pioneer, 229 Mich App at 414-415 (“Here, we are not confronted with two different ‘layers’ of co verage. Rather, the excess provisions of both of the competing policies are, for all inten ts and purposes, essentially at the same ‘layer.’ Under such circumstances, liability is to be app ortioned on the basis of the policy limits.”). Essentially, the Ironshore pro-rata language simply requires Ironshore to do by contract what it would be re quired to do under prevailing legal authority.

Because it appears that all three policies contain excess “oth er insurance” clauses, it would be natural to conclude tha t their obligations, therefore, would simply be proportionately shared. However, the additional language found in the ACE and Allianz “other insurance” clauses requires one to engage in further analysis. As indicat ed earlier, ACE’s “other insurance” clause provides:

J. Other Insurance

If valid and collectible “other insurance” applies to damages that are also covered by this policy, this policy will apply excess of the “o ther insurance” and will not contribute with such “other insurance”. This provision will not apply if the “other insurance is written to the excess of this policy. [Emphasis added.]

Similarly, the Allianz “other insurance” clause states:-8- L. Other Insurance

If valid and collectible insurance applies to damages that are also covered by this policy, this policy will apply as excess of the “other insurance” and will not contribute with the “other insurance”. However, this provision will not apply if the “other insurance” is specifically written to be excess of this policy. [Emphasis added.]

Considering the structure of the paragraphs, “this provision” c learly refers to the “this policy will apply excess of” clause. Consequently, based on the plain lang uage of the contract, ACE’s and Allianz’s policies evidence an intent that their coverage would be “excess” to other valid and collectible insurance unless the “other insurance” is written to be excess of their policie s.
Reconciling this additional language found in ACE’s and Allian z’s policies with the Ironshore policy compels us to c onclude that the trial court di d not err when it held that ACE and Allianz were first in priority. Because the Ironshore/XL polic y was written to be excess of all other insurance coverage, and th e ACE and Allianz policies prov ide that their “other insurance” clauses will not apply when the “other insurance” is written to be excess of their policies, it must be concluded that only the Ironshore “other insurance” clause i s truly excess. Put another way, the ACE and Allianz policies cease to be excess under the circu mstance present in this case, and the Ironshore policy is excess over any other co llectible insur ance.
In response to this reasoning, ACE and Allianz argue that beca use the Ironshore policy does not specifically, by name, reference the ACE and Allianz p olicies, the Ironshore policy is not specifically written to be in excess of their policies. Ho wever, accepting this interpretation of their policies would render nugatory the clear language of t he Ironshore policy that its coverage is excess of all other collectible insurance. Courts must give effect to every word, clause, and phrase in a contract and must avoid rendering any p art surplusage or nugatory. Klapp , 468 Mich at 468. Moreover, in St Paul Fire , 444 Mich at 562, the Court held that courts must attempt to reconcile the plain language of competing polic ies before imposing a proration in accordance with the policy li mits. The foregoing analysis f urthers the Supreme Court’s directives. Accordingly, the trial court did not err when it h eld that the ACE and Allianz policy limits must be exhausted before any obligation is imposed on Ir onshore.

Affirmed.

/s/ Michael J. Riordan /s/ Patrick M. Meter /s/ Karen M. Fort Hood