Court Opinion

ID: 619815
Source: CourtListenerOpinion
Date Created: 2011-12-24 01:01:28+00
Date Added: 2024-06-11T17:50:49.747311
License: Public Domain

FILED
                                                                            DEC 23 2011
                            NOT FOR PUBLICATION
                                                                        MOLLY C. DWYER, CLERK
                                                                         U .S. C O U R T OF APPE ALS

                    UNITED STATES COURT OF APPEALS

                           FOR THE NINTH CIRCUIT

AMERICAN FAMILY MUTUAL                           No. 10-16859
INSURANCE COMPANY, a Wisconsin
corporation,                                     D.C. No. 2:07-cv-02237-NVW

              Plaintiff - Appellant,
                                                 MEMORANDUM *
  v.

NATIONAL FIRE & MARINE
INSURANCE COMPANY, a foreign
corporation; et al.,

              Defendants - Appellees.

AMERICAN FAMILY MUTUAL                           No. 10-17436
INSURANCE COMPANY, a Wisconsin
corporation,                                     D.C. No. 2:07-cv-02237-NVW

              Plaintiff - Appellant,

  v.

NATIONAL FIRE & MARINE
INSURANCE COMPANY, a foreign
corporation and OHIO CASUALTY
GROUP, a foreign corporation, AKA Ohio

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Casualty Insurance Company,

              Defendants - Appellees,

  and

EMPLOYERS MUTUAL CASUALTY
COMPANY, a foreign corporation, AKA
Employers Mutual Casualty Insurance
Company; et al.,

              Defendants.

                    Appeal from the United States District Court
                             for the District of Arizona
                      Neil V. Wake, District Judge, Presiding

                     Argued and Submitted December 5, 2011
                            San Francisco, California

Before: ALARCÓN, CALLAHAN, and N.R. SMITH, Circuit Judges.

        American Family Mutual Insurance Company (“American Family”) appeals

from the United States District Court for the District of Arizona’s grant of

summary judgment in favor of Ohio Casualty Group (“Ohio Casualty”) and

National Fire & Marine Insurance Company (“National Fire”) (collectively

“Appellee Insurers”). American Family contends that the district court erred in

ruling that the Appellee Insurers’ policies provided only excess coverage to George

F. Tibsherany Development Corporation (“GFTDC”), the general contractor for a

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condominium project, as an additional insured. American Family also asserts that

the district court erred in concluding that GFTDC’s tender failed to provide Ohio

Casualty with sufficient information to determine whether coverage existed under

the policy it had issued to a subcontractor. We affirm because we are persuaded

that the Appellee Insurers’ policies provided excess coverage over American

Family’s primary coverage for GFTDC. Because of this conclusion, we do not

address the sufficiency of GFTDC’s tender to Ohio Casualty.

                                         I

      GFTDC, the general contractor for the Astragal Luxury Villas condominium

project (“Astragal Project”) in Maricopa County, Arizona, contracted with

American Family to provide it with Commercial General Liability (“CGL”)

insurance coverage for three policy years that spanned the period of October 11,

2000 to October 11, 2003.

      In connection with the Astragal Project, GFTDC entered into written

agreements with numerous subcontractors, including the following entities:

Trussman, Inc. (“Trussman”), Century Roofing, Inc. (“Century Roofing”),

Diversified Drywall, Inc. (“Diversified Drywall”), Faith Plumbing, Inc. (“Faith

Plumbing”), and R.T. Brown Mechanical, Inc. (“R.T. Brown”) (collectively

“Astragal Subcontractors”). These agreements state that “Subcontractor must

                                         3
maintain the following insurance coverages” and include a provision requiring

each subcontractor to “cause all insurers to name the General Contractor as an

additional insured on all insurance policies required by this section.”

      Ohio Casualty issued CGL coverage to Trussman, and National Fire issued

CGL policies to Century Roofing, Diversified Drywall, Faith Plumbing, and R.T.

Brown. The Ohio Casualty and National Fire policies include blanket additional

insured endorsements that provided coverage to GFTDC. The Astragal

Subcontractors’ policies also contained “other insurance” provisions that purport to

make their coverage excess over other insurance available to GFTDC.

      The additional insured endorsement in the Ohio Casualty policy provides:

             Any coverage provided hereunder shall be excess over any
      other valid and collectible insurance available to the additional
      insured whether primary, excess, contingent or on any other basis
      unless a contract specifically requires that this insurance be primary or
      you request that it apply on a primary basis.

All of the subject National Fire policies contain a blanket additional insured

endorsement, which states:

             A. Who Is An Insured (Section II) is amended to include as an
      insured the person or organization (called “additional insured”) shown
      in the Schedule but only with respect to liability arising out of:

                    1. Your ongoing operations performed for the additional
      insured(s) at the location designated above; or

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                  2. Acts or omissions of the additional insured(s) in
      connection with their general supervision of such operations.

A separate “other insurance” provision that applies to the policy as a whole states:

             If other valid and collectible insurance is available to the
      insured for a loss we cover under Coverage A or B of this Coverage
      Part, our obligations are limited, as follows:

                    This insurance is excess over any other insurance
      whether the other insurance is stated to be primary, pro rata,
      contributory, excess, contingent, or on any other basis unless the other
      insurance is issued to the Named Insured shown in the Declarations of
      this Coverage part and is written explicitly to apply in excess of the
      Limits of Insurance shown in the Declaration of this Coverage
      Part. . . .

The National Fire policies explains the use of the terms “named insured” and

“additional insureds” as follows:

            Throughout this policy the words “you” and “your” refer to the
      Named Insured shown in the Declarations, and any other person or
      organization qualifying as a Named Insured under this policy. . . .

             The word “insured” means any person or organization
      qualifying as such under Section II – Who Is An Insured.

      The Astragal Condominium Unit Owners Association filed a complaint in an

Arizona Superior Court asserting construction defect claims against GFTDC and

the developer for the Astragal Project. GFTDC and the developer filed a third-

party complaint against several of the Astragal Subcontractors. American Family

                                          5
defended GFTDC and paid the amount of the settlement in the state court

litigation.

       Thereafter, American Family filed this litigation in the District of Arizona,

asserting equitable contribution claims in a declaratory relief action against

numerous insurance companies for the Astragal Subcontractors. The named

defendants included Ohio Casualty and National Fire.

       On July 23, 2010, the district court granted summary judgment in favor of

Ohio Casualty and National Fire. The district court concluded that the coverage

available to GFTDC under both Ohio Casualty and National Fire’s policies was

excess over American Family’s coverage. The district court also concluded that

Ohio Casualty and National Fire’s excess coverage was not triggered because, in

settling the Astragal litigation, American Family did not exhaust its policy limits.

In denying Ohio Casualty’s motion for summary judgment on the additional

ground that GFTDC’s tender was insufficient, the district court concluded that

“GFTDC failed to provide Ohio Casualty with sufficient information for Ohio

Casualty to determine whether GFTDC was an additional insured under

Trussman’s policy and whether the suit was potentially within the policy’s

coverage.”

                                           6
      On August 23, 2010, American Family filed a timely first notice of appeal to

this Court. The District Court for the District of Arizona had jurisdiction pursuant

to 28 U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.

                                          II

      American Family maintains that the district court erred in granting summary

judgment in favor of Ohio Casualty and National Fire. It argues that their policies

provided primary coverage not only to the Astragal Subcontractors to whom the

policies were issued, but also to GFTDC, and that the “other insurance” provisions

in the parties’ respective policies are mutually repugnant and unenforceable.

Accordingly, American Family argues that Appellee Insurers should share the

defense and indemnity costs with American Family.

      We review de novo a grant of summary judgment on cross-motions for

summary judgment. Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., 546

F.3d 1142, 1145 (9th Cir. 2008); Nat’l Union Fire Ins. Co. v. Eng’g-Sci., Inc., 884

F.2d 1208, 1210 (9th Cir. 1989). We may affirm for any reason supported by the

record. Travelers Prop., 546 F.3d at 1145.

      “This court reviews de novo the district court’s interpretation of insurance

policies, which present mixed questions of law and fact.” Horvatin v. Allstate Life

Ins. Co., 848 F.2d 1012, 1013 (9th Cir. 1988). Because this litigation is in federal

                                          7
court on the basis of diversity jurisdiction, the law of Arizona applies. Manzarek v.

St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

      Approximately 35 years ago, in the context of examining “other insurance”

clauses in a general homeowner’s liability policy and a policy that applied

specifically to motor vehicle accidents, the Arizona Court of Appeals held that

“where two policies cover the same occurrence and both contain ‘other insurance’

clauses, the excess insurance provisions are mutually repugnant and must be

disregarded. Each insurer is then liable for a pro rate share of the settlement or

judgment.” Harbor Ins. Co. v. United Servs. Auto. Ass’n, 559 P.2d 178, 183 (Ariz.

Ct. App. 1976).

      Two decades ago, the Arizona Supreme Court revisited the analytical

framework to be used in examining potentially competing “other insurance”

provisions. It explained:

      When more than one policy contains an “other insurance”
      provision . . . , courts must resolve the resulting battle of semantics
      over which clause, if any, will be given effect over the other. To do
      this, courts must ask whether the competing “other insurance”
      provision is contradictory and, if so, how mutually repugnant
      provisions should be resolved.

Fremont Indem. Co. v. New England Reins. Co., 815 P.2d 403, 405 (Ariz. 1991).

The Arizona Supreme Court has also explained that the only viable answer to the

                                           8
problem of mutually repugnant “other insurance” provisions is a rule requiring that

the clauses be disregarded and each insurer made liable for a pro rata share of the

settlement or judgment: “No other rule is possible, since if a court were to give

literal effect to each of the excess clauses, each policy would be cancelled out and

the final result would depend upon which policy was read first.” State Farm Mut.

Auto. Ins. Co. v. Bogart, 717 P.2d 449, 452 (Ariz. 1986), superseded by statute on

other grounds as recognized in Consolidated Enters., Inc. v. Schwindt, 831 P.2d

828, 830 (Ariz. Ct. App. 1991).

      Here, the district court recognized, and the parties do not dispute, that the

Arizona Court of Appeals’ 2007 decision in Regal Homes, Inc. v. CNA Ins., 171

P.3d 610 (Ariz. Ct. App. 2007), is central to the resolution of this dispute. Very

much like the issue presented in this matter, Regal Homes involved a dispute over

whether the insurers of a general contractor involved in construction-defect

litigation were entitled to reimbursement for defense costs and indemnity payments

from a subcontractor’s insurer.

                                          A

      The CGL policies American Family issued to GFTDC include an “other

insurance” provision that is quite similar to the “other insurance” provision in the

general contractor’s policy with Auto-Owners Insurance Company, which the

                                           9
Arizona Court of Appeals determined provided “direct primary CGL coverage” to

the general contractor in Regal Homes. Id. at 618. The American Family policy

language in this matter is quite dissimilar from the “other insurance” provision in

the general contractor’s primary policy with Zurich Companies in Regal Homes.

Read together, the relevant portions of the general contractor’s policy with Zurich

and the additional insured endorsement language in the subcontractor’s policy with

a different insurer could not be given effect, because the Zurich policy’s “other

insurance” provision stated that it was excess over any other insurance available to

the general contractor as an additional insured. Id. at 619. The Arizona Court of

Appeals explained that the two carriers “cannot simultaneously be excess carriers”

of the general contractor for the covered period, “while neither serves as a primary

carrier of [the general contractor].” Id.

      The “[a]ny other primary insurance” excess provision in the American

Family policy is the point on which the resolution of American Family’s appeal

turns in this matter. Unlike the Zurich policy in Regal Homes, which purported to

render the coverage under the general contractor’s direct primary CGL coverage

with Zurich only excess over any other insurance provided to the general

contractor as an additional insured, the American Family policy states that it

provides primary CGL coverage for GFTDC and is rendered excess only if there is

                                            10
“[a]ny other primary insurance” available to GFTDC as an additional insured.

Stated otherwise, the Zurich policy in Regal Homes purported to convert from

primary to excess coverage if the general contractor had access to primary, excess,

contingent, or other insurance as an additional insured. In contrast, the American

Family policy purports to convert from primary to excess coverage only if GFTDC

has access to other primary insurance as an additional insured.

                                          B

      The language in the policy Ohio Casualty issued to Trussman, one of the

Astragal Subcontractors, is identical to the language in the additional insured

endorsement in the subcontractor’s policy that the Arizona Court of Appeals

determined (a) did not conflict with the “other insurance” provisions of the general

contractor’s direct primary CGL policy with Auto-Owners, and (b) provided

“additional insured coverage for [the general contractor] that was excess to the

Auto-Owners coverage.” Id. at 618.

      The “other insurance” language in Ohio Casualty’s additional insured

endorsement cannot reasonably be read to contradict, or otherwise be inconsistent

with, the “other primary insurance” provision in the American Family policy. Both

can be given effect without depriving GFTDC of primary coverage. Ohio

Casualty’s additional insured endorsement includes two alternative conditions

                                          11
precedent: (1) an insurance contract provision specifically requiring that the Ohio

Casualty insurance be primary or (2) a request by Trussman that the Ohio Casualty

coverage apply on a primary basis to GFTDC. American Family’s coverage

remains primary because neither condition precedent is satisfied. Accordingly, the

Ohio Casualty coverage available to GFTDC as an additional insured remains

excess. Because there is no evidence that the American Family policy limits were

exhausted by the defense and settlement of the Astragal litigation, neither the

excess coverage nor the duties to investigate and defend under the Ohio Casualty

policies were triggered. See Twin City Fire Ins. Co. v. Burke, 63 P.3d 282, 287

(Ariz. 2003) (“Until a primary insurer offers its policy limit, the excess insurer

does not have a duty to evaluate a settlement offer, to participate in the defense, or

to act at all.”).

                                           C

       Unlike the Ohio Casualty policy language, the wording in the remaining

Astragal Subcontractors’ policies with National Fire does not have a close

“counterpart” in the policies that were considered by the Arizona Court of Appeals

in Regal Homes.

       Read together, the pertinent provisions in National Fire’s policies provide

that the coverage available to any “insured” (named or additional) covered by the

                                          12
policy is excess unless: (1) a “Named Insured,” which includes Diversified

Drywall, Faith Plumbing, Century Roofing, and R.T. Brown in this case, has

coverage under another policy; and (2) that other policy is “written explicitly to

apply in excess” of the coverage provided in the National Fire policy. Stated

otherwise, National Fire’s “other insurance” provision works to convert the direct

primary CGL coverage for its named insureds to excess coverage if those named

insureds obtain any other insurance, unless the named insureds obtain policies that

expressly provide coverage is excess over the primary CGL coverage of the

National Fire policy. For all other “insureds” (including additional insureds like

GFTDC), and for “named insureds” who obtain any coverage that is not expressly

excess over the National Fire coverage, the National Fire policy is excess.

      Accordingly, because GFTDC is afforded only excess coverage as an

additional insured under the National Fire policies, the condition precedent in

American Family’s “other primary insurance” provision is not satisfied to convert

that coverage to excess. Giving literal effect to the pertinent provisions of both

policies does not leave GFTDC without primary coverage, and that result is not

dependent on which policy is read first. See Bogart, 717 P.2d at 452 (stating that

“other insurance” provisions must be disregarded if giving effect to each would

cancel out all coverage “and the final result would depend upon which policy was

                                          13
read first”). This is because the National Fire policy provisions cannot reasonably

be read to contradict, or otherwise be inconsistent with, the “other primary

insurance” clause in American Family’s policy for GFTDC. Finally, as discussed

above, because the American Family policy limits were not exhausted by the

defense and settlement of the Astragal litigation, the excess coverage under the

National Fire policies is not implicated.

                                  CONCLUSION

      We affirm the district court’s grant of summary judgment in favor of

Appellee Insurers Ohio Casualty and National Fire on the ground that the “other

insurance” provisions in their policies and in American Family’s policies are not

mutually repugnant. Because American Family’s policy limits were not exhausted

by its defense of GFTDC and the settlement in the Astragal litigation, the excess

coverage under the Appellee Insurers’ policies was not implicated. Additionally,

we do not address the sufficiency of GFTDC’s tender to Ohio Casualty because the

foregoing conclusions render the issue moot. Each side shall bear its own costs.

      AFFIRMED.

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