Court Opinion

ID: 4224379
Source: CourtListenerOpinion
Date Created: 2017-11-29 17:00:27.825849+00
Date Added: 2024-06-11T14:42:25.692060
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                      File Name: 17a0663n.06

                                                   No. 16-2222

                                UNITED STATES COURT OF APPEALS
                                     FOR THE SIXTH CIRCUIT

NORTHERN INSURANCE COMPANY OF NEW )                                                             FILED
YORK,                              )                                                     Nov 29, 2017
                                   )                                                 DEBORAH S. HUNT, Clerk
     Plaintiff-Appellee,           )
                                   )                                        ON APPEAL FROM THE
v.                                 )                                        UNITED STATES DISTRICT
                                   )                                        COURT FOR THE EASTERN
TARGET CORPORATION; TARGET STORES, )                                        DISTRICT OF MICHIGAN
                                   )
     Defendants-Appellants.        )
                                   )

BEFORE:            KEITH, BATCHELDER, and SUTTON, Circuit Judges.

           ALICE M. BATCHELDER, Circuit Judge. Appellants Target Corporation and Target

Stores (collectively, “Target”) have an indemnification agreement with Home Niches, Inc.

(“Home Niches”). Walsay, Inc. (“Walsay”)1 assumed Home Niches’s indemnification obligation

under that agreement. The present insurance-coverage dispute arises from this arrangement.

The sole question on appeal is whether that arrangement is an “insured contract,” as defined by

the pertinent insurance policy between Walsay and Appellee Northern Insurance Company of

New York (“Northern Insurance”). The district court found that the arrangement was not an

insured contract, granted Northern Insurance’s motion for summary judgment in its declaratory

judgment action against Target, and denied Target’s cross-motion for partial summary judgment.

Finding no error, we affirm.

1
    The parties stipulated to dismissal with prejudice of Home Niches and Walsay on December 3, 2015.
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

                                                         I.

         The relevant facts are undisputed, and the relationships between the various entities were

ably mapped by the district court in its summary judgment opinion. We repeat here only the

necessary facts.

                                                         A.

         Home Niches is a household-products distributor that supplied products to Target

pursuant to a 2004 “Partners Online Agreement.” In part, the Partners Online Agreement

provides that Home Niches would indemnify and defend Target for liabilities arising from

products manufactured or supplied by Home Niches.                   Specifically, the Partners Online

Agreement states:

         Vendor [Home Niches] shall defend, indemnify and hold harmless Purchaser
         [Target], its parent, affiliates, agents and employees, from and against any and all
         liability, claims, suits, actions, losses and expenses . . . relating to or arising out of
         any claim or demand of any kind or nature, which any buyer . . . may make
         against [Target], based upon or arising out of the manufacture, delivery, ticketing,
         labeling, packaging, placement, promotion, sale or use of the Goods [delivered to
         Target].

         In 2010, Home Niches began to wind down its dealings with Target. On March 11, 2011,

Walsay and Home Niches executed an “Assumption Agreement” in which Walsay assumed

Home Niches’s indemnification obligation to Target. The Assumption Agreement provides:

         Vendor [Home Niches] and Assignee [Walsay] acknowledge and agree that:

         (1) [Home Niches] hereby assigns to [Walsay] all of its right, title and interest in
             and to its account with Target.
         (2) [Walsay] will assume and be directly liable to Target with respect to all
             claims, liabilities, and other amounts owed by [Home Niches] to Target as of
             the date of the assignment or arising from transactions between [Home
             Niches] and Target prior to the date of the assignment (“Existing Liabilities”).
         (3) In the event [Walsay] fails to pay the Existing Liabilities, [Home Niches] will
             pay such amounts directly to Target.

                                                        -2-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

          (4) [Walsay] will be solely responsible with respect to all claims, liabilities, and
              other amounts owed by [Walsay] to Target that are incurred following the date
              of assignment.
          (5) As part of the above assignment, [Home Niches] is transferring to [Walsay] its
              Partners Online registration. As such, [Walsay] agrees that it is subject to the
              terms and conditions relating to such registration, including the agreement that
              all business conducted by [Walsay] with Target is in accordance with the
              terms, conditions and other provisions set forth in Partners Online including,
              without limitation, the Conditions of Contract.

          At all times relevant to this case, Walsay was insured by Northern Insurance. The

Northern Insurance policy provided coverage for certain bodily injury damages. The policy

states:

          We [Northern Insurance] will pay those sums that the insured [Walsay] becomes
          legally obligated to pay as damages because of “bodily injury” or “property
          damage” to which this insurance applies. We will have the right and duty to
          defend [Walsay] against any “suit” seeking those damages. However, we will
          have no duty to defend [Walsay] against any “suit” seeking damages for “bodily
          injury” or “property damage” to which this insurance does not apply.

          Certain obligations are excluded from coverage, although the policy provides limited

exceptions to those exclusions. As relevant here, Northern Insurance’s policy does not apply to

“‘[b]odily injury’ or ‘property damage’ for which [Walsay] is obligated to pay damages by

reason of the assumption of liability in a contract or agreement.” This exclusion, however, does

not apply to liability for damages: “(1) That [Walsay] would have in the absence of the contract

or agreement; or (2) [a]ssumed in a contract or agreement that is an ‘insured contract’ provided

the ‘bodily injury’ or ‘property damage’ occurs subsequent to the execution of the contract or

agreement.” The term “insured contract” means:

          That part of any other contract or agreement pertaining to your business . . . under
          which you assume the tort liability of another party to pay for “bodily injury” or
          “property damage” to a third person or organization. Tort liability means a
          liability that would be imposed by law in the absence of any contract or
          agreement.

                                                        -3-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

In sum, the Northern Insurance policy covered tort liability that Walsay assumed by agreement.

However, if Walsay does not assume tort liability under an agreement, then a claim for bodily

injury damages is excluded from coverage.

                                                         B.

         In 2012, a child suffered an injury while using a product that was supplied by Home

Niches and purchased at Target. The child’s mother, Angela Neal, filed a products liability

action against Target, Home Niches, and Walsay, and Target asserted cross-claims seeking

indemnification. Target ultimately settled with Neal, and the United States District Court for the

Northern District of Illinois found that Home Niches and Walsay had breached their

indemnification obligation to Target. Neal v. Target Corp., No. 13-cv-5907, 2015 WL 4021050,

at *5–6 (N.D. Ill. July 1, 2015). Target then sought coverage for those amounts under Walsay’s

policy with Northern Insurance.

                                                         C.

         Northern Insurance filed the instant declaratory judgment action against Target in the

United States District Court for the Eastern District of Michigan, seeking to determine the

availability and scope of insurance coverage under the policy issued to Walsay. Northern

Insurance sought summary judgment, arguing that neither the Partners Online Agreement nor the

Assumption Agreement was an insured contract and that Target’s claim was excluded from

coverage. Target filed a cross-motion for partial summary judgment, arguing that Walsay’s

indemnity obligation to Target is an insured contract under the Northern Insurance policy. The

district court granted Northern Insurance’s motion for summary judgment and denied Target’s

cross-motion. The district court explained that neither the Partners Online Agreement nor the

Assumption Agreement was an insured contract and that the two agreements could not be

                                                        -4-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

combined to create an insured contract that satisfied the exception to exclusion from coverage.

Target timely appealed that decision.2

                                                         II.

         “We review a district court’s grant of summary judgment de novo and consider the facts

and any inferences drawn in the light most favorable to the non-moving party.” Savage v. Fed.

Express Corp., 856 F.3d 440, 446 (6th Cir. 2017) (citing Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 255 (1986)). Summary judgment is proper only “if the movant shows that there is

no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a).

         This court has diversity jurisdiction over this insurance-coverage dispute, and the parties

agree that Michigan law governs the matter. Under Michigan law, “insurance policies are

subject to the same contract construction principles that apply to any other species of contract,”

and “unless a contract provision violates law or one of the traditional defenses to the

enforceability of a contract applies, a court must construe and apply unambiguous contract

provisions as written.” Rory v. Cont’l Ins. Co., 703 N.W.2d 23, 26 (Mich. 2005). “It is the

insured’s burden to establish that his claim falls within the terms of the policy,” but “the insurer

should bear the burden of proving an absence of coverage.” Hunt v. Drielick, 852 N.W.2d 562,

565 (Mich. 2014) (internal alterations and citations omitted). “Exclusionary clauses in insurance

policies are strictly construed in favor of the insured.” Id. (quoting Auto-Owners Ins. Co. v.

Churchman, 489 N.W.2d 431, 434 (Mich. 1992)) (internal alternations omitted). “However, ‘it

2
  Target’s notice of appeal also identified the district court’s order denying Target’s earlier motion for partial
summary judgment. That motion was denied without prejudice, and Target reasserted its arguments in the later
motion for summary judgment. Target does not raise any arguments regarding that order on appeal, and has
therefore abandoned the issue. “An appellant abandons issues not raised and argued in his initial brief on appeal.”
Hih v. Lynch, 812 F.3d 551, 556 (6th Cir. 2016) (citing United States v. Johnson, 440 F.3d 832, 845–46 (6th Cir.
2006)).

                                                        -5-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

is impossible to hold an insurance company liable for a risk it did not assume,’ and, thus, ‘clear

and specific exclusions must be enforced.’”                    Id. at 566 (internal alterations and citations

omitted).

                                                        III.

         Target has conceded that, absent an exception, its claim is excluded from coverage under

the Northern Insurance policy. Accordingly, the only issue on appeal is whether the insured-

contract exception to exclusion applies. Target asserts that the Assumption Agreement between

Home Niches and Walsay is an insured contract because the damages in this case are tort

damages and Target is “another party,” as referenced in the insured-contract definition. Further,

even if the Assumption Agreement is not an insured contract, Target argues, the Partners Online

Agreement and the Assumption Agreement, read together, comprise an insured contract because

they “assume the tort liability of another party.” Target’s arguments are unavailing.

         First, Target incorrectly focuses on the nature of the damages in the underlying suit rather

than the nature of the liability at issue. To be an insured contract, an agreement must “assume

the tort liability of another party,” and tort liability is liability “that would be imposed by law in

the absence of any contract or agreement.” Even though Target was subject to tort liability,

Walsay and Home Niches were not. As the district court explains, Home Niches is not liable to

Target or to Angela Neal in tort. Instead, Home Niches is liable to Target solely because of the

indemnification provision in the Partners Online Agreement. See Neal, 2015 WL 4021050, at *4

(“According to Target, this [Partners Online Agreement indemnification] provision is dispositive

on the question of who is required to defend against plaintiff’s claims and on the question of who

will be required to pay any judgment entered in plaintiff’s favor on those claims.”). Because

Home Niches’s obligation to Target is based on the Partners Online Agreement, Walsay assumed

                                                        -6-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

Home Niches’s contractual liability in the Assumption Agreement. See Colony Nat’l Ins. Co. v.

Manitex, L.L.C., 461 F. App’x 401, 404–05 (5th Cir. 2012) (reviewing an identical insured-

contract definition under Texas law and finding that, because Manitex assumed Powerscreen’s

liability, and “Powerscreen’s liability arose strictly from a contract,” Manitex’s liability “was not

‘tort liability’”); Dale Osburn, Inc. v. Auto Owners Ins. Co., No. 242313, 2003 WL 22718194, at

*5 (Mich. Ct. App. Nov. 18, 2003) (“[B]ecause Edison’s liability to MFC arises from a

reciprocal indemnity provision in the Sibley Quarry Agreement, Edison’s liability to MFC is

liability imposed by contractual agreement.”). Therefore, because Home Niches was not liable

to Target in tort, Walsay did not assume tort liability in the Assumption Agreement.

         Second, Target is not “another party” as referenced by the insured-contract definition.

The Northern Insurance policy does not define the term “party.” “Where a term is not defined in

the policy, it is accorded its commonly understood meaning.” City of Grosse Pointe Park v.

Mich. Mun. Liab. & Prop. Pool, 702 N.W.2d 106, 113 (Mich. 2005) (citing Allstate Ins. Co. v.

McCarn, 645 N.W.2d 20, 22 (Mich. 2002)). In the legal sense, “party” is commonly understood

to mean “[a] person or entity that participates in a transaction, [or] makes a contract.” American

Heritage Dictionary 1286 (5th ed. 2011); see also Black’s Law Dictionary 1297 (10th ed. 2014)

(defining “party” as “[s]omeone who takes part in a transaction ”).

Target is not a party to the operative agreement here, which is the Assumption Agreement

between Walsay and Home Niches. The policy language requiring that an insured contract

“assume the tort liability of another party” is clear. Even if, as Target argues, it is a beneficiary

to the agreement or was required to consent to the assignment of obligations, such circumstances

do not make Target a “party” to the Assumption Agreement, and Target has cited no support for

that proposition.

                                                        -7-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

         The policy language also indicates that “another party” should be understood to mean

another party to the contract. The insured-contract definition distinguishes “you” (the insured),

“another party,” and a “third person.” “Another party” and “third person” are used to refer to

different entities or persons. However, under Target’s interpretation, the two terms collapse to

mean the same thing: a non-party. The Ninth Circuit has rejected a similar legal argument,

determining that “[t]he ‘insured contract’ exception applies if the insured has assumed a

contracting party’s tort liability against a third party. . . . If [plaintiff’s] interpretation was

credited, the exception would swallow the contractual liability exclusion, and transform all

routine indemnification agreements into insurance contracts.” APL Co. Pte. v. Valley Forge Ins.

Co., 541 F. App’x 770, 772–73 (9th Cir. 2013) (emphasis added) (citing Golden Eagle Ins. Co. v.

Ins. Co. of the W., 99 Cal. App. 4th 837, 847 (Cal. Ct. App. 2002)). The term “another party,”

therefore, means another party to the purported insured contract. Target is not a party to the

Assumption Agreement and, because Target is the only entity with tort liability, the Assumption

Agreement is not an insured contract.

         Finally, the Assumption Agreement and the Partners Online Agreement may not be read

together to create an insured contract. As detailed above, an insured contract is “[t]hat part of

any other contract or agreement” under which Walsay “assume[d] the tort liability of another

party.” This language indicates that an insured contract is a singular agreement that directly

assumes the tort liability of another party. Target has cited no authority, and we have found

none, directing otherwise. In the present case, Walsay entered into one contract with Home

Niches (the Assumption Agreement) to assume Home Niches’s liability under a second contract

(the Partners Online Agreement). Walsay did not directly assume Target’s tort liability, but

instead, assumed Home Niches’s indemnification obligation to Target.

                                                        -8-
No. 16-2222, N. Ins. Co. of New York v. Target Corp., et al.

         Nonetheless, Target argues that the resolution of liability in the underlying case in the

Northern District of Illinois also resolves the present dispute because that court found that

Walsay assumed Target’s tort liability.               Target’s shorthand reference to the two-contract

arrangement detailed above is misleading. Simply because the district court in the underlying

case found that Walsay and Home Niches were contractually responsible for indemnifying

Target’s tort liability does not mean that it found that Walsay assumed Target’s tort liability.

Moreover, in considering Neal’s and Target’s later motions to enforce the settlement agreement

in the underlying case, the district court determined that “both Target and Northern left to

another day whether and in what respect Target can recover from Northern[] in the Michigan

Coverage Action.” Neal v. Target Corp., No. 13-cv-5907, 2016 WL 3365432, at *6 (N.D. Ill.

June 15, 2016). The district court in the underlying case, therefore, did not address the issue

presented here and its resolution of liability does not affect the instant insurance-coverage

dispute.

                                                        IV.

         Accordingly, the district court correctly determined that the insured-contract exception to

exclusion from coverage did not apply in this matter.               The district court properly granted

Northern Insurance’s motion for summary judgment and denied Target’s cross-motion for partial

summary judgment. We affirm.

                                                        -9-