Court Opinion

ID: 4259050
Source: CourtListenerOpinion
Date Created: 2018-03-28 19:00:26.017787+00
Date Added: 2024-06-11T12:57:00.554884
License: Public Domain

PUBLISHED

                       UNITED STATES COURT OF APPEALS
                           FOR THE FOURTH CIRCUIT

                                      No. 17-1149

CONTINENTAL CASUALTY COMPANY,

                    Plaintiff - Appellee,

             v.

AMERISURE INSURANCE COMPANY,

                    Defendant - Appellant.

                                      No. 17-1208

CONTINENTAL CASUALTY COMPANY,

                    Plaintiff - Appellant,

             v.

AMERISURE INSURANCE COMPANY,

                    Defendant - Appellee.

Appeals from the United States District Court for the Western District of North Carolina,
at Charlotte. Graham C. Mullen, Senior District Judge. (3:14-cv-00529-GCM)

Argued: January 23, 2018                                       Decided: March 28, 2018
Before MOTZ, TRAXLER, and KEENAN, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge Keenan
wrote the opinion, in which Judge Motz and Judge Traxler joined.

ARGUED: Richard Leonard Pinto, PINTO, COATES, KYRE & BOWERS, PLLC,
Greensboro, North Carolina, for Appellant/Cross-Appellee. Karen Ventrell, CNA
COVERAGE LITIGATION GROUP, Washington, D.C., for Appellee/Cross-Appellant.
ON BRIEF: Adam L. White, PINTO, COATES, KYRE & BOWERS, PLLC,
Greensboro, North Carolina, for Appellant/Cross-Appellee. David J. Redding, Ty K.
McTier, REDDING JONES PLLC, Charlotte, North Carolina, for Appellee/Cross-
Appellant.

                                        2
BARBARA MILANO KEENAN, Circuit Judge:

       In this insurance coverage dispute, we consider whether claims in an underlying

personal injury suit against two contractors were covered under policies issued by

Amerisure Insurance Company (Amerisure), in which the contractors were “additional

insureds.” Contending that the claims were excluded from coverage, Amerisure refused

to participate in the contractors’ defense, and did not contribute to a final settlement of

the lawsuit.   Thereafter, Continental Casualty Company (Continental), which had

defended the contractors under the terms of a different policy and had paid the settlement

amount, filed the present suit against Amerisure asserting that Amerisure had breached its

duty to defend.    Continental sought a declaratory judgment requiring Amerisure to

reimburse Continental for the full settlement amount plus prejudgment interest and for

the fees and costs Continental incurred in defending the underlying action.

       After the parties filed cross-motions for summary judgment, the district court

denied Amerisure’s motion and granted Continental’s motion in part, concluding that

Amerisure was liable to Continental for repayment of the $1.7 million settlement plus

prejudgment interest. However, the district court denied Continental’s motion to hold

Amerisure liable for full payment of Continental’s defense costs and fees, determining

that Amerisure should be required to pay only half those amounts.

       Upon our review, we affirm the district court’s judgment that Amerisure

improperly relied on a policy exclusion to avoid its duty to defend, and that Amerisure

was liable under the terms of its policies to pay the full cost of the settlement plus pre-

judgment interest. However, we vacate the court’s judgment with respect to defense fees

                                            3
and costs, and hold that Amerisure was liable for the full amount of those fees and costs

because Continental did not have an independent duty to defend in the underlying

lawsuit. Accordingly, we affirm in part, and vacate in part, the district court’s judgment.

                                             I.

       KBR Building Group, LLC (BE&K) served as the general contractor on a

construction project to build a hospital for the Charlotte Mecklenburg Hospital Authority

(the Hospital Authority) in Pineville, North Carolina. BE&K entered into a subcontract

with SteelFab to supply and construct the steel infrastructure for the hospital. SteelFab,

in turn, entered into a contract (the SteelFab-CSS subcontract) with a “second-tier”

subcontractor, Carolina Steel and Stone, Inc. (CSS), to erect the steel structure.

       While working on this portion of the project, Dustin Miller, a CSS employee,

tripped and fell 30 feet to the ground after his safety cable broke (the accident). Miller

suffered serious injuries, including “paralysis from his chest down.” At the time of the

accident, CSS held both commercial general liability (CGL) and umbrella insurance

policies issued by Amerisure (the Amerisure policies). As required by the SteelFab-CSS

subcontract, the Amerisure policies included SteelFab and BE&K as “additional

insureds.”

       The Amerisure policies complied with the minimum coverage amounts required

by the SteelFab-CSS subcontract, namely, a total of $2,000,000. The Amerisure CGL

policy provided a limit of liability of $1,000,000 per occurrence, while the umbrella

                                              4
policy provided an additional $5,000,000 per occurrence. 1 Additionally, the SteelFab-

CSS subcontract stated that “the insurance required of [CSS] must be primary and

noncontributory with SteelFab’s Insurance program.” (emphasis added).

      In addition to its “additional insured” status under Amerisure’s policies, SteelFab

held its own CGL policy issued by Continental, which policy contained an “additional

insured” endorsement covering BE&K. BE&K also was insured under the Hospital

Authority’s “rolling owner controlled insurance program” (ROCIP). 2 By enrolling in the

ROCIP, BE&K also had coverage under policies issued by a separate insurance provider.

Although the terms of the ROCIP required participation by all tiers of contractors,

participation was not automatic, and BE&K did not enroll either SteelFab or CSS in the

ROCIP. Instead, as required by an additional provision of the ROCIP, these unenrolled

subcontractors maintained their own insurance coverage as previously described.

      After the accident, Miller filed the underlying personal injury action against

defendants BE&K and SteelFab, alleging numerous theories of negligence and breach of

contract (the Miller action). Miller alleged, in relevant part, that BE&K and SteelFab

failed to provide a safe work environment, failed to ensure that their subcontractors

      1
        The certificate of liability insurance that CSS issued to SteelFab indicates that
CSS obtained umbrella liability coverage with only $1,000,000 per occurrence. Any
discrepancy in the amount of coverage provided by the Amerisure umbrella policy,
however, does not affect our analysis in this case.
      2
         The ROCIP was defined as an insurance program in which coverage is provided
“on a construction project ‘wrap-up’ basis for contractors . . . of any tier that have been
properly enrolled, while performing operations at the construction project sites.”

                                            5
followed certain safety measures, failed to properly inspect certain safety features, failed

to control and supervise the workplace, and failed to warn subcontractors about the lack

of safety measures. Miller did not name CSS as a defendant, but was paid workers’

compensation benefits based on his status as a CSS employee.

       Continental agreed to defend the Miller action subject to a full reservation of

rights. When Continental sought Amerisure’s participation in this defense, Amerisure

declined on the ground that any defense of Miller’s claims was subject to a “controlled

insurance program” exclusion (the CIP exclusion) contained in the Amerisure policies.

Amerisure contended that this exclusion precluded coverage and excused any duty to

defend because the Hospital Authority had a ROCIP in effect on the date of Miller’s

accident.

       Ultimately, BE&K and SteelFab reached a settlement agreement with Miller for

$1.7 million. Continental paid the settlement amount and expended more than $660,700

in related attorneys’ fees and costs.

       Continental filed the present action in the district court seeking a declaratory

judgment that Amerisure breached its duty to defend the Miller action, and requiring

Amerisure to reimburse Continental for the cost of the settlement plus the costs and fees

incurred in defending the Miller action. The parties filed cross-motions for summary

judgment.

       The district court denied Amerisure’s motion. The court granted Continental’s

motion in large part, concluding that Amerisure had breached its duty to defend the

Miller action and that, under the terms of Amerisure’s policies, Amerisure was liable to

                                             6
reimburse Continental for the $1.7 million settlement amount. With regard to costs and

fees, however, the district court held that “[e]quity dictates that the defense costs be

shared equally among the two insurers,” and ordered Amerisure to reimburse Continental

for half the associated costs and fees. The parties filed timely cross-appeals.

                                             II.

       These appeals present three primary issues for our review: (1) whether the CIP

exclusion in the Amerisure policies excused Amerisure from defending the Miller action;

(2) if Amerisure breached its duty to defend, whether Amerisure was liable to reimburse

Continental for the full $1.7 million settlement under the coverage provided in the

Amerisure policies; and (3) if Amerisure breached its duty to defend, whether Amerisure

was required to reimburse Continental for the full amount of the costs and fees incurred

by Continental in defending the Miller action. 3

       Our review of these issues presents questions of law concerning the interpretation

of insurance policy language, which questions we consider de novo. Perini/Tompkins

Joint Venture v. Ace Am. Ins. Co., 738 F.3d 95, 101 (4th Cir. 2013) (setting forth standard

       3
        Amerisure also contends on appeal that the district court abused its discretion in
excluding the testimony of one of Amerisure’s expert witnesses, Walter E. Brock, Jr.
The district court ruled that Brock’s opinion was “nothing other than his interpretation of
the CIP exclusion.” Brock also offered opinions on additional matters regarding the
relevant policy language. We hold that the court did not abuse its discretion in
concluding that Brock’s testimony did not aid in resolving any factual issues but
improperly addressed issues of law. See Fed. R. Evid. 702(a); Forrest Creek Assocs. v.
McLean Savs. & Loan Ass’n, 831 F.2d 1238, 1242 (4th Cir. 1987); Adalman v. Baker,
Watts & Co., 807 F.2d 359, 367 (4th Cir. 1986).

                                             7
for reviewing district court’s award of summary judgment and decision regarding

contract interpretation). We apply North Carolina law, because this case arose under the

district court’s diversity jurisdiction, and the relevant insurance policies were delivered in

North Carolina. 4 See Fortune Ins. Co. v. Owens, 526 S.E.2d 463, 466 (N.C. 2000).

       Because insurance policies are contracts, we apply familiar rules of construction to

discern the intent of the parties. Gaston Cty. Dyeing Mach. Co. v. Northfield Ins. Co.,

524 S.E.2d 558, 563 (N.C. 2000). When the policy language is clear and unambiguous, a

court is required to enforce the policy as written. Id. Terms defined in insurance policies

are applied to all clauses of the insurance contract, while undefined terms are construed

in accordance with their ordinary meaning. Harleysville Mut. Ins. Co. v. Buzz Off Insect

Shield, LLC, 692 S.E.2d 605, 612 (N.C. 2010). When “the meaning of words or the

effect of provisions is uncertain or capable of several reasonable interpretations, the

doubts will be resolved . . . in favor” of coverage. Gaston Cty., 524 S.E.2d at 563

(citation omitted).   With these principles in mind, we turn to address the parties’

arguments.

                                               A.

       We first consider whether the district court erred in holding that Amerisure

breached its duty to defend BE&K and SteelFab in the Miller action. According to

Amerisure, the CIP exclusion in its CGL and umbrella policies exempted Amerisure from

       4
        Both parties and the district court agreed that North Carolina law governs this
coverage dispute.

                                              8
any obligation to defend the action because the ROCIP, a controlled insurance program,

had been implemented by the Hospital Authority.            We disagree with Amerisure’s

position.

       Under North Carolina law, an insurer’s obligation to defend its insured in a lawsuit

is established by comparing the terms of the policy with the allegations in the plaintiff’s

complaint. St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 919 F.2d 235, 239 (4th

Cir. 1999). In reading these documents “side-by-side,” an insurer determines whether the

events as alleged are covered or excluded under a particular policy. Id. (quoting Waste

Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 378 (N.C. 1986)).

“Allegations of facts that describe a hybrid of covered and excluded events or pleadings

that disclose a mere possibility that the insured is liable . . . suffice to impose a duty to

defend.” Waste Mgmt., 340 S.E.2d at 377 n.2. Thus, an insurer must defend its insured

against a lawsuit unless no allegation is “even arguably covered by the policy.” Vigilant,
919 F.2d at 240 (citation omitted).    Accordingly, if any of the allegations in the Miller

complaint arguably fell within the coverage afforded by Amerisure, it had a duty to

defend its insured in the underlying action.

       Amerisure does not dispute that BE&K and SteelFab were insureds under the

Amerisure policies, or that Miller’s injuries qualified as a covered occurrence within the

applicable policy periods. Nevertheless, Amerisure contends that it was exempted from

any duty to defend by the CIP exclusion in both Amerisure policies.

       The Amerisure policies include standard language detailing Amerisure’s duty to

defend: “We will pay those sums that the insured becomes legally obligated to pay as

                                               9
damages because of ‘bodily injury’ . . . to which this insurance applies. We will have the

right and duty to defend the insured against any ‘suit’ seeking those damages.” The CIP

exclusion provided:

      This insurance does not apply to “bodily injury” . . . arising out of . . .
      [CSS’s] ongoing operations . . . if such operations were at any time
      included within a “controlled insurance program” for a construction project
      in which you are or were involved. 5 (emphasis added).

Accordingly, under the Amerisure policies, the CIP exclusion applied only if two

conditions were satisfied: (1) Miller’s injuries “arose out of” CSS’s operations, 6 and (2)

CSS’s operations were “included” in the ROCIP.

       With respect to the first condition, we strictly construe the phrase “arising out of”

when that phrase appears in a policy exclusion. See Southeast Airmotive Corp. v. U.S.

Fire Ins. Co., 337 S.E.2d 167, 169 (N.C. Ct. App. 1985) (explaining that exclusions from

liability in policies are not favored). Thus, coverage “will not be denied where there is

more than one cause of an injury and only one of the causes is excluded.” Nationwide

Mut. Fire Ins. Co. v. Nunn, 442 S.E.2d 340, 343 (N.C. Ct. App. 1994). Under the plain

language of Amerisure’s CIP exclusion, only injuries arising from CSS’s operations were

excluded. Accordingly, any injuries allegedly arising out of the operations of BE&K or

SteelFab were not subject to the CIP exclusion.

       5
        The CIP exclusions refer to “your” operations. “Your” is defined by the
Amerisure policies as the “named insured,” or CSS only.
       6
           “Operations” is not defined in the Amerisure policies.

                                              10
       At the time of Miller’s accident, he unquestionably was performing work for CSS

while “installing metal decking.” However, Miller’s complaint alleged more than one

potential cause of his injuries. Numerous allegations in his complaint rested on the

failures of BE&K and SteelFab with respect to their supervisory role over CSS’s

operations and safety procedures.       Miller also alleged that BE&K and SteelFab,

independently from CSS, failed to provide adequate safety equipment and procedures,

causing Miller’s injuries. Regardless of the actual cause of those injuries, at the time

Amerisure refused to defend the Miller action, the allegations presented a distinct

possibility that Miller’s injuries arose from those other contractors’ operations.

       Because Miller’s injuries arguably “arose out of” operations other than those

conducted exclusively by CSS, the first condition of the CIP exclusion was not satisfied.

Therefore, we need not consider the second condition of the CIP exclusion, and conclude

that Amerisure was not entitled under the policy language to rely on the CIP exclusion to

avoid its duty to defend in the Miller action. Accordingly, we hold that the district court

did not err in concluding that Amerisure breached its duty to defend against the

underlying personal injury action.

                                             B.

       We next address the question whether the district court erred in holding Amerisure

liable for the full amount of the $1.7 million settlement paid by Continental. According

to Amerisure, its coverage was capped at $1,000,000 per occurrence as provided in the

Amerisure CGL policy.        Although Amerisure had issued CSS an umbrella policy

providing an additional $5,000,000 in coverage, Amerisure contends that the umbrella

                                             11
coverage was not triggered in this case. Amerisure maintains (1) that CSS did not agree

to extend the umbrella coverage to the additional insureds, SteelFab and BE&K, or

alternatively, (2) that Continental’s CGL policy took priority over Amerisure’s umbrella

policy based on those policies’ “other insurance” provisions.          We disagree with

Amerisure’s position.

       The Amerisure umbrella policy coverage provision stated:

       We will pay on behalf of the insured the ‘ultimate net loss’ in excess of the
       ‘retained limit’ because of ‘bodily injury’ . . . to which this insurance
       applies. We will have the right and duty to defend the insured against any
       ‘suit’ seeking damages for such ‘bodily injury’ . . . when the ‘underlying
       insurance’ does not provide coverage or the limits of the ‘underlying
       insurance’ have been exhausted. (emphasis added).

       The policy provided that any “additional insured” under the CGL policy, namely,

SteelFab and BE&K, “automatically” were insureds under the umbrella policy. The

umbrella policy defined “retained limit” as the amount of “underlying insurance”

coverage appearing in the Declarations. “Underlying insurance” was defined as any

policy “listed in the Declarations under the [s]chedule of ‘underlying insurance.’” The

only CGL policy listed in the umbrella policy’s Declarations of underlying insurance was

the Amerisure CGL policy, with a $1,000,000 limit. And, notably, the Continental CGL

policy was not listed in the Declarations.

       Accordingly, under the plain language of the Amerisure umbrella policy, coverage

was triggered when the Amerisure CGL policy limit had been exhausted. Because the

settlement amount of the Miller action exceeded the $1,000,000 limit in the Amerisure

CGL policy, the umbrella coverage necessarily was triggered.

                                             12
      Amerisure contends, nevertheless, that its coverage of SteelFab and BE&K as

additional insureds was limited to the $1,000,000 CGL policy. Amerisure relies on

language in the umbrella policy stating that “the most we will pay on behalf of the

additional insured is the amount of insurance required by the contract, less any amounts

payable by the underlying insurance.” However, the relevant contract, the SteelFab-CSS

subcontract, plainly required CSS to obtain $1,000,000 in CGL coverage and an

additional $1,000,000 in umbrella coverage. The subcontract also stated that SteelFab

and BE&K “shall be named as additional insureds on” CSS’s CGL policy. 7 Moreover,

SteelFab’s specifications regarding CSS’s insurance obligations plainly required that CSS

obtain $2,000,000 in “minimum” CGL and umbrella coverage “with additional insured

endorsement.”     Thus, we conclude that the SteelFab-CSS subcontract required

$2,000,000 in total coverage, including coverage provided to the additional insureds

under both a CGL and an umbrella policy, and that the Amerisure policies complied with

these requirements.

      Our conclusion that the Amerisure umbrella policy coverage was triggered is

unaffected by the “other insurance” provisions in the Continental CGL policy and the

Amerisure umbrella policy. The Continental CGL policy stated:

      7
        We find no merit in Amerisure’s argument that its umbrella coverage did not
extend to SteelFab and BE&K because one of the subcontract’s provisions is silent
regarding additional insureds with respect to umbrella coverage. We read the subcontract
as a whole, and its provisions specifically required that the umbrella coverage obtained
by CSS include an “additional insured” endorsement covering SteelFab and BE&K.

                                           13
          If other valid [] insurance is available to [SteelFab and BE&K] for a loss
          we cover . . . our obligations are limited as follows: [] Primary Insurance –
          This insurance is primary except when . . . [t]his insurance is excess over:
          [a]ny other primary insurance available to you.” (emphasis added).

Under this language, depending on the effect of other relevant coverage, the Continental

CGL policy was either a “primary” policy or an “excess” policy to another primary

policy.

          The Amerisure umbrella policy’s “other insurance” provision stated that the policy

was “excess over . . . any other insurance whether primary [or] excess.” However,

Amerisure did not issue its umbrella policy contingent on the existence of the Continental

CGL policy. Instead, the umbrella policy coverage was triggered when the limit of the

“underlying insurance” was exhausted. And, only the Amerisure CGL policy was listed

as “underlying insurance” in the policy Declarations.        See Gaston Cty, 524 S.E.2d at

308-09 (construing similar policy language to mean that an excess policy attached

immediately above identified underlying policies regardless of other insurance

provision).

          Moreover, any ambiguity arising from consideration of the “other insurance”

provisions is resolved by the terms of the SteelFab-CSS subcontract that required

Amerisure’s policies to be “primary and non-contributory” to all other insurance

provided to SteelFab, including the Continental CGL policy. 8 We therefore conclude that

          8
        Although Amerisure objects to any reliance on the terms of the SteelFab-CSS
subcontract to interpret the meaning of Amerisure’s negotiated insurance policy with
CSS, the policies issued by Amerisure plainly refer to and incorporate the terms of the
(Continued)
                                               14
the Amerisure umbrella policy coverage was triggered immediately upon the exhaustion

of the Amerisure CGL policy, and that the Continental CGL policy did not take priority

over that umbrella policy.     Accordingly, the district court did not err in holding

Amerisure liable for the full $1.7 million settlement amount.

                                             C.

      Finally, we address whether the district court erred in concluding that Amerisure

and Continental should bear equally the fees and costs associated with defending the

Miller action. Amerisure submits that Continental had an independent duty to defend the

Miller action and, thus, was fully responsible for paying those fees and costs. In its

cross-appeal, Continental argues that Amerisure solely was liable for payment of these

amounts, because Amerisure’s CGL policy provided coverage that was “primary without

contribution,” and Continental did not have a separate duty to defend. We agree with

Continental’s position.

      As explained above, Amerisure had a duty to defend the Miller action under the

Amerisure CGL policy, which provided that coverage afforded to an additional insured

shall be “primary and without contribution” from the additional insured’s own insurance.

In consistent fashion, Continental’s CGL policy established that Amerisure’s CGL policy

was “primary” to Continental’s “excess” CGL policy. Under Continental’s CGL policy,

“[w]hen this insurance is excess, we will have no duty . . . to defend the insured against

SteelFab-CSS contract in several respects.       Thus, we find no merit in Amerisure’s
objection.

                                            15
any ‘suit’ if any other insurer has a duty to defend the insured against that ‘suit.’ If no

other insurer defends, we will undertake to do so, but we will be entitled to the insured’s

rights against all those other insurers.” (emphasis added). Accordingly, the relevant

policies provided that Amerisure had a duty to defend without contribution, and that

Continental did not have a duty to defend.

       In concluding that the parties should share equally in the defense costs and fees,

the district court erroneously relied on decisions that are distinguishable from the present

case in one critical respect. See Ames v. Continental Cas. Co., 340 S.E.2d 479, 486 (N.C.

Ct. App. 1986); Vigilant, 919 F.2d at 240-41. In Ames and Vigilant, the insurers who

bore equal shares of liability each had independent duties to defend based on the nature

of their primary coverage, which was applicable to acts occurring during different periods

of time. Ames, 340 S.E.2d at 486; Vigilant, 919 F.2d at 240-41. In the present case,

however, one occurrence triggered coverage under concurrent, not consecutive, insurance

policies, which clearly allocated the insurers’ respective duties to defend. Therefore, we

conclude that the district court erred in assigning equal responsibility to Amerisure and

Continental for payment of the defense fees and costs incurred in defending the Miller

action, and that Amerisure is liable for the full amount of those defense fees and costs.

                                             III.

       For these reasons, we affirm the portion of the district court’s judgment holding

that Amerisure breached its duty to defend, and was liable under the terms of its policies

                                             16
for the full cost of the $1.7 million settlement plus prejudgment interest. 9 We vacate the

portion of the district court’s judgment holding Amerisure and Continental liable in equal

shares for the cost and fees incurred in defending the Miller action. We remand the case

to the district court for entry of an award in Continental’s favor for the full amount of its

fees and costs incurred in defending the Miller action.

                                                                     AFFIRMED IN PART,
                                                                      VACATED IN PART,
                                                                       AND REMANDED

       9
          Although Amerisure seeks reversal of the district court’s award of prejudgment
interest, Amerisure fails to provide any argument or citation for this assertion. Thus,
Amerisure has waived any challenge to the award of prejudgment interest. See Fed. R.
App. P. 28(a)(9)(A) (“[T]he [appellant’s] argument . . . must contain . . . appellant’s
contentions and the reasons for them, with citations to the authorities and parts of the
record on which the appellant relies.”).

                                             17