Opinion ID: 1184825
Heading Depth: 2
Heading Rank: 2

Heading: express policy coverage

Text: Providence's insurance policy provided Alaskan General with two major types of coverage: comprehensive general liability insurance and contractual liability insurance. The policy included a Waiver of Subrogation provision. Under the general liability insurance policy, Providence promised to: pay on behalf of the insured [Alaskan General] all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence... . Immediately following this general insuring provision there is a section that the parties refer to as the contractual liability exclusion: This insurance does not apply: (a) to liability assumed by the insured under any contract or agreement except an incidental contract;... The policy defines incidental contract as, among other things, any written ... lease of premises... . If Alaskan General had fulfilled the lease agreement to provide $300,000.00 in insurance for Olympic, Chicago would have been saved $300,000.00 of the wrongful death settlement. Thus, Chicago claims $300,000.00 damages for breach of contract and asserts that this $300,000.00 constitutes sums, within the meaning of the policy, which the insured [became] legally obligated to pay as damages because of ... bodily injury to the firefighter. Chicago concludes that it is entitled to $300,000.00 in compensation from Providence under the general liability policy. In arguing that the general liability policy covers the lease covenant to buy insurance, Chicago first relies upon the policy's contractual liability exclusion. Chicago asserts that this exclusion of liability assumed by the insured under any contract... except an incidental contract implies that the policy insures against liability under any contract defined as incidental. Because the lease covenant is an incidental contract, Chicago claims that Alaskan General's breach gave rise to liability covered by the policy. In order to be covered under the general liability policy, a contract must not only be incidental within the meaning of the policy, but it must also be a contract in which liability is assumed. The chief difficulty with Chicago's argument lies in its premise that the lease was a form of contractual liability or liability assumed by contract. Liability assumed by the insured under any contract refers to liability incurred when one promises to indemnify or hold harmless another, and does not refer to the liability that results from breach of contract. Continental Insurance Co. v. Bussell, 498 P.2d 706, 710 (Alaska 1972); Dreis & Krump Manufacturing Co. v. Phoenix Insurance Co., 548 F.2d 681, 684 (7th Cir.1977); J.L. Simmons Co., Inc. v. Fidelity and Casualty Co., 511 F.2d 87, 96 (7th Cir.1975); Haugan v. Home Indemnity Co., 86 S.D. 406, 197 N.W.2d 18, 23 (1972). [5] See 1 R. Long, Law of Liability Insurance § 1.12 (1981); 2 R. Long, supra §§ 10.17, 10.19. Thus, Chicago overlooks the important distinction between incurring liability through breach of contract and specifically contracting to assume liability for another's negligence. See CM, Inc. v. Canadian Indemnity Co., 635 F.2d 703, 708 (8th Cir.1980). Liability ordinarily occurs only after breach of contract. However, in the case of indemnification or hold harmless agreements, assumption of another's liability constitutes performance of the contract. Because liability assumed by contract refers to a particular type of contract  a hold harmless or indemnification agreement  and not to the liability that results from breach of contract, the contractual liability exclusion applies only to hold harmless agreements. [6] 1 R. Long, supra § 1.12, at 1-26. Alaskan General's agreement to purchase insurance does not constitute a hold harmless contract. Long defines hold harmless agreements as contract[s] by which one party (the indemnitor) assumes the liability to pay damages imposed by law upon the other party (the indemnitee). 2 R. Long, supra § 10.17A, at 10-28. Unless it clearly and unequivocably expresses the intention to shift liability, an agreement will not be construed as holding a party harmless from the consequences of his or her own negligence. Id., at 10-28, 10-28.1, citing Thompson-Starrett Co. v. Otis Elevator Co., 271 N.Y. 36, 2 N.E.2d 35, 37 (1936) and Waterway Terminal Co. v. P.S. Lord Contractors, 242 Or. 1, 406 P.2d 556, 564 (1964). In the lease in question, the parties simply agreed that Alaskan General would purchase insurance which named the lessors as a named insured. On its face, the lease covenant evinces only one clear and unequivocal intention  to transfer the cost of liability insurance to the tenant. If Olympic had intended that the tenant pay personal injury claims against Olympic, then the lease should have so specified, instead of merely requiring the tenant to purchase insurance. There is a critical difference between the two obligations, and we have explained and relied upon this difference in past cases. For example, in Continental Insurance Co. v. Bussell, 498 P.2d 706, we held that an employer's promise to purchase life insurance on behalf of employees did not render him an insurer directly obligated in case of an employee's death. We distinguished in Bussell between promising to pay for insurance and agreeing to insure: When Bussell covenanted to procure a life insurance policy for the benefit of his employees he undertook a duty which could be discharged only by the purchase of such a policy. The union had the right prior to Young's death to insist upon specific performance by Bussell of the obligation to procure the policy rather than await the eventual result of a damage suit based on the breach of the union contract. The union was not required to rely on Bussell's financial responsibility as opposed to that of a life insurance company. Conversely, had Bussell in good faith secured an appropriate policy from a life insurance company, he would have complied with his duty under the union contract regardless of the financial ability of such company to pay the executrix in accordance with the policy terms. Bussell, under the contract, had no direct obligation to pay the ... damages. 498 P.2d at 709 (footnote omitted). Such considerations are equally applicable to the present case. Alaskan General, like the employer in Bussell, agreed only to procure insurance, not to insure. [7] We conclude that Alaskan General's contractual obligation to procure insurance was not a hold harmless or indemnification agreement resulting in policy coverage. Chicago next argues that even were we to hold that the lease covenant is not a liability assumed by contract within the terms of the policy, the breach of contract damages nonetheless constitute sums which the insured [became] legally obligated to pay as damages because of ... bodily injury. The term legally obligated to pay as damages because of ... bodily injury refers to liability imposed by law for torts, and not to damages for breach of contract, except contracts for indemnity. [8] Silva & Hill Construction Co. v. Employers Mutual Liability Insurance Co., 19 Cal. App.3d 914, 97 Cal. Rptr. 498, 504 (1971); Boiler Brick and Refractory Co. v. Maryland Casualty Co., 168 S.E.2d 100, 102 (Va. 1969). Long states: The law imposes upon the insured a liability to pay damages for bodily injuries or damages to property caused by his carelessness and arising out of the ownership, maintenance, care, custody, or use of property. This is the liability upon which the insurer agrees to pay on behalf of the insured all sums which the insured shall become legally obligated to pay. 1 R. Long, supra § 1.10, at 1-25 (emphasis added). In Silva a contractor had promised to build and deliver in good condition a portion of a highway within a prescribed time. Owing to the dereliction of its employees, the contractor failed to perform the contract. The contractor had liability insurance similar to the present policy, which provided that the insurer would pay on behalf of [the contractor] all sums which the [contractor] shall become legally obligated to pay as damages because of property damage... . 97 Cal. Rptr. at 502. Silva held that the contractor's default was simply a breach of ... contract.... Coverage of such an eventuality was never contemplated by the [contractor's property damage liability policy]. Id. at 504. In Boiler Brick a steam boiler supplier that had settled a warranty claim for the cost of replacing a defective boiler sought indemnification from its insurer. The court held that the supplier's liability arose primarily out of its contractual obligation and denied indemnification because the promise to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property covered only tort liability, not damages resulting from assumed or imposed contractual liability. 168 S.E.2d at 102. As discussed previously, we construed a liability policy almost identical to the present policy in Continental Insurance Co. v. Bussell, 498 P.2d 706 (Alaska 1972). In Bussell an employer breached a union contract which required him to buy a $25,000.00 life insurance policy for the benefit of his employees. We held that the employer's policy, which included general and contractual bodily injury liability coverage, did not by its terms cover the breach of contract to procure insurance. Neither of the coverage portions in issue applies to damages arising from an insured's breach of a contractual duty. There is no language in any section of the policy which even tangentially alludes to coverage protecting against breaches of contract. 498 P.2d at 710 (footnote omitted). Chicago attempts to distinguish Bussell as a case in which the insured could not have reasonably expected to be covered by the insurance. Chicago insists that in this case the insured purchased the general liability insurance with the thought that it would satisfy the lease agreement to buy insurance. The only evidence Chicago offers to show Alaskan General's intent is the Waiver of Subrogation clause appended to the policy, which provides in part: It is agreed that the word Insured includes Alaskan General, Inc., Wholesale Division provided the named insured is obligated by virtue of a written contract or agreement to provide insurance such as is afforded by this policy, but only in respect of operations by or on behalf of the named insured or of facilities of the named insured or used by them. Although the Waiver of Subrogation clause mentions contracts to procure insurance, it does not even remotely suggest that the policy insures such contracts. Instead, the clause merely conditions coverage of Alaskan General's wholesale division upon whether the retail division (the named insured) is required to buy insurance. Thus, we hold that Providence's policy does not expressly cover Alaskan General's failure to procure insurance. [9]