Opinion ID: 166749
Heading Depth: 4
Heading Rank: 1

Heading: Does the Policy’s Contract Exclusion Apply?

Text: Cust-O-Fab argues the district court fundamentally misconstrued the Policy in applying the EBL Endorsement contract exclusion. The district court relied on a portion of the Policy that expressly excludes “any loss or claim arising out of a failure of performance of any contract by an insurer.” App. 140 (emphasis added). With no explanation, the district court concluded the word “insurer” should be read as “insured.” Having so concluded, the district court agreed with Admiral that the Texas lawsuit involved a contract claim against Cust-O-Fab, and therefore applied the exclusion to deny coverage. The question on appeal is whether the contract exclusion applies to the Hospital’s claims for purposes of summary judgment. We begin with the plain language of the Policy. Littlefield v. State Farm Fire and Cas. Co., 857 P.2d 65, 69 (Okla. 1993) (holding “a policy is ambiguous only if it is susceptible to two interpretations; [i]f the language is unambiguous, -8- it is construed in its plain and ordinary sense.”) Quite simply, there is little ambiguity as to what the contract says— the printed text employs the word “insurer.” What Admiral argues, and the district court apparently accepted, is not that the term “insurer” is ambiguous standing alone but ambiguous when the Policy as a whole is examined. Cust-O-Fab argues, however, there is no ambiguity. It asserts that the natural interpretation of the exclusion language applies to third-party insurance providers such as health, life and unemployment insurers, and not to Cust-O-Fab. Cust-O-Fab argues that this interpretation of the Policy makes sense because many different types of insurance will be provided by other companies. Admiral would not be insuring the performance of those insurance carriers as a part of its EBL Endorsement and naturally would want to exclude any possibility it could be bound under the Policy. Ordinarily, that would be the end of our inquiry. Admiral, however, argues—and the district court agreed—that the contract term must be understood to refer to the “insured.” It claims that a contrary understanding would be “frivolous” since the term would then refer back to Admiral, and Admiral cannot insure itself. We disagree. First, the Policy refers to “an insurer” and that term can plausibly have the meaning supplied by Cust-O-Fab. Nowhere else in the Policy does Admiral refer to itself as the “insurer”; rather Admiral is referred to in the Policy as “we, us and our.” Second, the Policy also defines and refers to -9- Cust-O-Fab using the term “you” throughout the policy, not the term “insured.” Third, the term “insured” is expressly defined by the Policy as “any person or organization” designated by the Policy. App. 108. And finally, the EBL Endorsement specifically covers Cust-O-Fab and “any other person for whose acts you [Cust-O-Fab] are legally liable” for the administration of the employee benefits program. App. 139. Thus, no obvious linguistic reason or drafting convention arising from the Policy would suggest that the term “insurer” was a typographical error. For these reasons, we cannot agree with the district court that the Policy’s contract clause unequivocally applies to the Hospital’s claims. It may well be that the Policy should be read the way the Admiral posits. No claim of contract ambiguity has been raised, nor has Admiral raised a claim that the contract must be reformed to reflect its interpretation of the term “insurer.” But on this record, summary judgment was improper because a significant fact question remains as to the meaning of the Policy’s terms. 2. Does the Conduct at Issue Fall within the Definition of “Administration”? A related question, with its answer partially contingent upon the analysis above, remains for remand. That question is whether the Policy’s “administration” provision applies to the interaction between Cust-O-Fab and its agents and the Hospital. While the district court found that Cust-O-Fab was -10- acting pursuant to the administration provision when it initially informed Cummings and Hospital that Cummings was covered under the Plan, the court went on to find that it was the alleged breach of contract with the Hospital that was the cause of the Hospital’s harm, not the negligent interpretation of benefits. The district court never expressly addressed whether the definition of “administration” includes (1) the representations (by Spectrum and Beech Street) that form the basis for the Hospital’s negligent misrepresentation claim or (2) the agreement negotiated by MSM for discounted fees, which underlies the contract claim. Therefore, the district court must first determine on remand whether the Policy’s contract exclusion applies to “insurers” or to Cust-O-Fab. Then, based on the facts of this case, whether the Policy’s “administration” provision covered the acts and omissions of Cust-O-Fab and its agents in their interaction with the Hospital. If so, then Admiral owes Cust-O-Fab a duty of defense in the Texas lawsuit. 2 2 The district court held that the conduct at issue in this case falls within the definition of “administration.” Admiral cites Maryland Casualty Co. v. Economy Bookbinding Corp. Pension Plan & Trust, 621 F. Supp. 410 (D.N.J. 1985), to support its argument to the contrary, but we agree with the district court that this case does not weigh in Admiral’s favor. In Maryland Casualty, the court reasoned that the term “administration” limits coverage to liability incurred “in relatively routine, ministerial acts performed in relation to the Pension Plan, and avoids coverage of liability incurred in the decision-making and monitoring (continued...) -11- 3. Does the Policy Cover the Negligent Misrepresentation Claims Asserted in the Texas Lawsuit? The district court also found that since the breach of contract exclusion relieved Admiral of its duty to defend on breach of contract claims, the remaining negligence claims were not covered. In other words, because the negligent misrepresentation claim was simply a variation of the contract claim, it fell away with the contract exclusion. We disagree that the contract exclusion necessarily applies to the Hospital’s negligent misrepresentation claim. It is possible in the Texas lawsuit that Cust-O-Fab can be found liable for tort injuries above and beyond the Hospital’s contract claim. Under Texas law, negligent misrepresentation is a separate and distinct claim from breach of contract. Airborne Freight Corp. v. C. R. Lee Enters., Inc., 847 S.W.2d 289, 295 (Tex. App. 1992). The tort of negligent misrepresentation requires: • a representation made by the defendant in the course of business or in a transaction in which it has a pecuniary interest; 2 (...continued) involved in managing the Plan's investments.” Id. at 413. However, the claims at issue in the underlying suit in Maryland Casualty (embezzlement and violations of fiduciary duty and ERISA, among others) were, on the scale of acts from “ministerial” to “discretionary,” clearly at the latter end. The same is not true here. -12- • the defendant supplied false information for the guidance of others in their business; • the defendant did not exercise reasonable care or competence in obtaining or communicating the information; and • the plaintiff suffered pecuniary loss by justifiably relying on the defendant’s representation. Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 706 n.24 (Tex. 2002) (citing Federal Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). While the Hospital’s legal theories are not entirely clear, the negligent misrepresentation claim goes to the various conversations and communications by and among Spectrum, Beech Street and the Hospital in the aftermath of the accident. The contract claim, in contrast, appears to be based on MSM’s negotiation with the Hospital which led to a reduced payment for the medical expenses. In addition, the Hospital has asserted tort damages for the entire amount it expended in caring for Cummings. The contract claim, however, asserted damages of only 80 percent of the total amount, reflecting the twenty percent discount negotiated by MSM. Accordingly, on this record, we cannot determine with any certainty whether Cust-O-Fab will become “legally obligated to pay as damages” any sums to the Hospital based on either theory. On remand, the district court will need to address this issue in light of its resolution of the contract exclusion and the scope of the administration provision. -13- 4. Does the Policy Indemnify Cust-O-Fab for Damages Asserted in the Texas Lawsuit? Finally, Cust-O-Fab argues the district court misconstrued Admiral’s duty to indemnify Cust-O-Fab in the Texas lawsuit. Since we are remanding for further proceedings regarding Admiral’s duty to defend, the question of Admiral’s duty to indemnify should be reexamined in light of Admiral’s duty to defend.