Opinion ID: 2313119
Heading Depth: 2
Heading Rank: 1

Heading: The Liberty Policies require Liberty to defend Conrail

Text: Pacific's first argument raises the question of whether Conrail is covered under the Additional Insured Clause of the Liberty Policies. [32] The scope of an insurance policy's coverage is prescribed by the language of the policy. [33] The Additional Insured Clause [34] of the Liberty Policies has two aspects. The first expands the definition of an insured to include any person or organization for whom Julian has agreed in writing to provide liability insurance; the second restricts the coverage of an insured to only liability arising out of Julian's operations.
Liberty contends that the first aspect of the Additional Insured Clause is not met; that is, in order for Pacific to qualify as an additional insured under the policy, Julian must have agreed in writing to provide liability insurance to Conrail. Liberty argues that the DelDOT/Julian Contract required Julian to purchase RPPLI, a specific insurance, but not to provide liability insurance to Conrail, because the latter term refers only to general liability insurance. Liberty reasons that if general liability policies were meant to cover RPPLI, there would be no reason to procure specific RRPLI, which costs an additional premium. We find that the term liability insurance as it appears in the Additional Insured Clause is unambiguous. We therefore give that term its plain and ordinary meaning, [35] which would encompass Railroad Protective Public Liability Insurance, the species of liability insurance required by the DelDOT/Julian Contract. [36] But, even if liability insurance were found to be ambiguous and could be read (as Liberty argues) to exclude the agreement to purchase RPPLI, Liberty's argument still fails because ambiguities are construed strongly in favor of the insured, not the insurer. [37] Under the plain language of the DelDOT/Julian Contract, Julian agreed to obtain RPPLI in the name of Conrail covering any liability arising out of Julian's construction activities at or near the Mt. Pleasant Crossing. Therefore, Conrail satisfies the first aspect of the Additional Insured Clause. [38]
We turn next to the issue of whether Conrail, as an insured under the Liberty Policies, falls within the second aspect or condition of the Additional Insured Clause; that is, whether the coverage Conrail seeks is based on liability arising out of Julian's operations. We agree with the Superior Court that the language of the Additional Insured Clause is unambiguous and that its plain meaning controls. By its express terms, the Liberty Policies provide coverage for Conrail only with respect to liability arising out of [Julian's] operations. [39] Thus, our focus must be upon the scope of the term arising out of as defined in the Liberty Policies. This Court has previously held that, under general insurance contract principles, and consistent with New York law, the term arising out of is one that lends itself to uncomplicated common understanding. [40] Specifically, if there is some meaningful linkage between the product and the third party claim, the `arising out of' language unambiguously applies. [41] Cases from other jurisdictions also establish extensive support for a broad construction of that phrase. [42] We agree and hold that under Delaware law, the term arising out of is broadly construed to require some meaningful linkage between the two conditions imposed in the contract. Here, Liberty's coverage of Conrail (that is, whether Liberty has a duty to defend Conrail) under the Additional Insured Clause depends on whether there was a meaningful linkage between Julian's operations and Conrail's resulting liability in the wrongful death actions.
Liberty takes the position that the Flowers and Fydenkevez Complaints allege specific acts and omissions against Conrail as a result of Conrail's own work, and not because of Julian's operations. The Superior Court reasoned that the only way a meaningful linkage could be established would be if Conrail's alleged liability was based upon Julian's operations or personnel under an agency or vicarious liability theory, neither of which were alleged. Although that might be one way a meaningful linkage could be established, it is not the only way. The Flowers and Fydenkevez Complaints alleged, among other things, that Julian failed to employ a flagman, and removed and obstructed warning signs and signals at the Mt. Pleasant Crossing. A meaningful linkage between these operations and the claims of negligence brought against Conrail can be found in the allegations that Conrail had notice and knowledge of the dangerous condition which had been created at the Mt. Pleasant Crossing, yet failed to exercise reasonable care to eliminate it. [43] A reasonable inference that can be drawn from these allegations is that: (i) Conrail had notice that Julian's operations had negligently created a dangerous condition at the Mt. Pleasant Crossing, and (ii) aware of that dangerous condition, Conrail had a duty to remedy the condition and for failing to do so, was liable. Conrail's notice that a dangerous condition had been created can be inferred, apart from Julian's operations, from the allegation that Conrail permitted trees, bushes, undergrowth and other vegetation to obstruct the view of the railroad tracks from the highway. [44] Even if the Complaints can be read in two ways, any doubt must be resolved in favor of the insured. Because the Flowers and Fydenkevez Complaints can be read as alleging a meaningful linkage between Julian's operations and Conrail's resulting liability, the second condition of the Additional Insured Clause is met. Because at least one theory alleged in the Complaints triggers coverage under the Liberty Policies, Conrail is an insured under the policy, and Liberty had a duty to defend Conrail. [45]
The Superior Court also held, in the alternative, that the Flowers and Fydenkevez claims were not covered under the Liberty Policies because coverage for an insured contract excludes injuries or losses that occur within fifty feet of railroad property. [46] In relevant part, the Liberty Policies define insured contract to include [t]hat part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for `bodily injury' or `property damage' to a third person or organization.... [47] Further, an insured contract also does not include that part of any contract or agreement ... [t]hat indemnifies any person or organization for `bodily injury' or `property damage' arising out of construction or demolition operations, within 50 feet of any railroad property and affecting any railroad bridge or trestle, tracks, road-beds, tunnel, underpass or crossing. [48] This analysis is relevant only to an exclusion from coverage for bodily injury claims where the insured's obligation to pay damages to a third party is based on the insured's assumption of liability in an insured contract and comes into play only where the coverage sought is based on liability assumed under such a contract. Here, Conrail's potential obligation to pay damages is not based on Conrail's having assumed liability under an insured contract. It is based on claims in the wrongful death actions that Conrail was negligent. Because the rights asserted by Conrail are not based on an insured contract, the Superior Court's denial of coverage predicated on liability arising out of an insured contract was erroneous.
Liberty also argues that a construction in favor of Conrail would provide coverage for Conrail's own negligence in contravention to legislatively defined public policy that precludes contractual indemnification for a party's own negligence. [49] Pacific responds that 6 Del. C. § 2704 applies to construction contracts, not to liability insurance policies issued to insure against losses or damages due to the insured's own negligence. In Chrysler Corp. v. Merrell & Garaguso, Inc ., this Court addressed a similar issue in determining whether the statutory restriction in 6 Del. C. § 2704, which precludes an owner from requiring a contracting party to indemnify against the indemnitee's own negligence, also invalidate[s] the enforceability of liability insurance purchased for the benefit of the owner. [50] We held: While we agree that the requirement to purchase insurance may, under certain circumstances, be unenforceable, we reject the inference that such insurance, once secured, is unenforceable against the issuer of the insurance. [51] Further: [T]he insurance savings provision reflected in [6 Del. C. § 2704(b)] is a statement of legislative purpose that cannot be negated by an all-encompassing construction of the anti-indemnification policy set forth in [6 Del. C. § 2704(a)]. The savings provision has meaning only if it cannot be used as a shield by insurers to decline coverage for insurance once purchased and duly issued to any insured, however identified or designated. [52] The insurance at issue here was purchased from Liberty by Julian and is enforceable against Liberty. Insurance companies are sophisticated entities who can protect their own interests either in refusing to issue additional insured coverage or restricting such coverage with notice to the insured or third parties. [53] Consistent with our holding in Chrysler, Liberty had a duty to defend Conrail. The Superior Court erred in granting summary judgment in favor of Liberty.