Summary
In Millard Refrigerated Services, a fire occurred in a portion of the space leased by the tenant, but was not extinguished because the sprinkler system, which was specifically excluded from the tenant's lease, had been cut off by the landlord at the main water valve.
Summary of this case from Phoenix Ins. Co. v. GainerOpinion
8:00CV91.
March 22, 2002
MEMORANDUM AND ORDER
This matter is before the court on Travelers Indemnity Company of Illinois' ("Travelers") Motion to Alter or Revise Judgment pursuant to Fed.R.Civ.P. 54(b), Filing No. 55; Travelers' Supplemental Motion to Alter or Revise, Filing No. 59; and Millard Refrigerated Services' ("Millard") Motion for Summary Judgment, Filing No. 46.
I. Background
As noted in earlier orders in this case, this is an action for a declaration of rights and liabilities under a commercial general liability ("CGL") policy and a commercial excess liability ("umbrella") policy of insurance in connection with a fire at Millard's warehouse. The subject policies were issued by Travelers to Signature Foods ("Signature") as named insured. Signature leased space from Millard at its warehouse and the policies at issue were purchased by Signature pursuant to the lease agreement. The lease required that Millard be added to the policies as an additional insured. Travelers filed this action seeking a declaration regarding whether Millard is an insured under the policies; Millard counterclaimed seeking a declaration that Travelers has a duty to defend and to indemnify Millard against any judgment rendered against it in the underlying action, SFH, Inc. v. Millard Refrigerated Serv., Inc., No. 8:99CV487 (D.Neb.) ("the underlying action"), as well as for any other claims filed against Millard as a result of the fire, and also counterclaimed for bad faith refusal to defend and bad faith denial of its claim. See Filing No. 6.
The underlying action was tried to a jury from October 31, 2001, to November 8, 2001. The jury found Millard and Larsen Realty liable for $11,212,573.00 in damages to SFH, Inc. (formerly known as Signature Foods). See SFH, Inc. v. Millard Refrigerated Serv., Inc., No. 8:99CV487, Filing No. 174 (D.Neb. Nov. 8, 2002). Post-trial motions are presently pending in that case. See id. at Filing Nos. 180, 181, and 182.
II. Travelers' Motions to Alter or Revise
In the earlier order, this court found that Millard was an insured under the policies at issue and that Travelers had a duty to defend Millard. Filing No. 45. Travelers seeks reconsideration of that order. It now contends that evidence adduced at the trial in the underlying action shows that the court's earlier ruling is erroneous.
Travelers moves to alter or amend under Rule 54(b), which provides that "any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties . . . is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." Fed.R.Civ.P. 54(b). Thus, a district court retains the inherent power to reexamine and, if appropriate, to revise its earlier orders, until final judgment is entered. See, e.g., SLA Property Management v. Angelina Cas. Co., 856 F.2d 69, 72 (8th Cir. 1988). Although Rule 54(b) does not furnish criteria to be applied by a district court when facing a request that its earlier rulings be modified, those criteria can be derived from a variant of the law of the case doctrine. See Conrod v. Davis, 120 F.3d 92, 95 (8th Cir. 1997) (noting the "law of the case" doctrine is a discretionary tool that permits a district court to effectively manage the legal issues arising during litigation, but does not deprive the district court of the ability to reconsider earlier rulings — the district court can correct errors to avoid later reversal). As a general proposition, orderly and efficient case administration suggests that questions once decided not be subject to continued argument. Id. It must be emphasized that, because reconsideration interrupts the flow of litigation toward its conclusion, it "should not serve as a vehicle to identify facts or raise legal arguments which could have been, but were not, raised or adduced during the pendency of the motion of which reconsideration was sought." Hagerman v. Yukon Energy Corp., 839 F.2d 407, 414 (8th Cir. 1988).
The court has reviewed Travelers' submission in support of its motion to reconsider. Travelers' contentions are a rehash of the arguments that this court rejected in the earlier order. Travelers again argues that Millard should not be considered an additional insured and that the damages did not "arise out of" the "ownership, maintenance, or use of the insured property." For the same reasons set forth in the earlier order, the court rejects those arguments. Accordingly, the court reaffirms its findings that the additional insured endorsement does not limit the policy's coverage to cases involving a claim by a third party or exclude coverage for Millard's own negligence and that the liability in the underlying action "arises out of" maintenance of the leased premises. See, e.g., Marathon Ashland Pipeline, LLC, v. Maryland Cas. Co., 243 F.3d 1232, 1240 (10th Cir. 2001) (additional insured's coverage not limited to vicarious liability); Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 499 (5th Cir. 2000) (rejecting argument that policy language limited endorsement's coverage to additional insured's liability arising from named insured's negligence, interpreting "arose out of" clause broadly to cover injuries "connected to" insured's operations) ; Merchants Ins. Co. v. United States Fidelity and Guar. Co., 143 F.3d 5, 9-10 (1st Cir. 1998) (additional insured endorsement covered additional insured for its own negligence); McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 254 (10th Cir. 1993) (an endorsement provision provides coverage for an additional insured's liability arising out of its own negligence ); Admiral Ins. Co. v. Trident NGL, Inc., 988 S.W.2d 451 (Tex.Ct.App. 1999) (coverage provided for additional insured's sole negligence resulting in injuries to named insured's employee); Philadelphia Elec. Co. v. Nationwide Mut. Ins. Co., 721 F. Supp. 740, 742 (E.D.Pa. 1989) (holding that additional insured was covered for its own negligence); Casualty Ins. Co. v. Northbrook Property Casualty Ins. Co., 501 N.E.2d 812, 815 (Ill.App. 1986) (holding that phrase "arising out of operations performed for the additional insured by the named insured" covered additional insured for its own negligence).
The evidence adduced in the underlying action, in any event, does not change the court's conclusion that Millard is an insured under the policy and that the causal connection necessary for coverage under the additional insured endorsement has been established. The location of the sprinkler system valve or controls is of no consequence to the court's determination. It is undisputed that the sprinkler heads in the area of the fire were located in Signature Foods' leased space, and thus any deactivation of the sprinkler system is related to and causally connected to the maintenance of the premises leased to Signature Foods. Whether or not deactivation of the sprinkler system was provoked by the actions of Signature's cleaning crew is similarly irrelevant — the evidence adduced at trial supports the jury's finding that Millard's gross negligence proximately caused Signature's damages and it is clear that Millard's actions arose out of maintenance of the leased premises. The court thus finds the motion to alter or amend and the supplemental motion to alter or amend should be denied.
III. Millard's motion for summary judgment A. Indemnification
Millard moves for summary judgment on its claim for a declaratory judgment that Travelers has a duty to indemnify it under the policies. In opposition to Millard's motion, Travelers again argues that the damages at issue in the underlying action do not "arise out of" activities covered in the policy and that the lease agreement, CGL and umbrella policies do not cover Millard's own negligence. It also asserts that it has no duty to indemnify under the umbrella policy because the policy excludes damage to Signature's property and further argues that indemnification under these circumstances is contrary to Nebraska public policy.
Travelers' argument that Millard's potential obligations under the policy are remote and contingent pending trial in the underlying action has been rendered moot by the trial. Similarly, Travelers' suggestion that the court delay ruling on the indemnity issue until the ruling on the Rule 54(b) motion is rendered moot by this order.
On a motion for summary judgment, the question before the court is whether the record, when viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(C); Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir. 1995). Where unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate. Id.
An insurance policy is a contract. Callahan v. Washington Nat. Ins. Co., 608 N.W.2d 592, 597 (Neb. 2000). The construction of an insurance contract is purely a question of law. Union Ins. Co. v. Land and Sky, Inc., 529 N.W.2d 773, 776 (Neb. 1995). The burden is on the insured to prove coverage where denied by the insurer. Id. at 714. However, the burden to prove that an exclusionary clause applies rests on the insurer. See Thorell v. Union Ins. Co., 492 N.W.2d 879, 882 (1992). Moreover, exclusionary clauses will be liberally construed in favor of the insured. Modern Sounds Systems, Inc. v. Federated Mut. Ins. Co., 262 N.W.2d 183, 187 (Neb. 1978).
In interpreting a contract, a court must first determine, as a matter of law, whether the contract is ambiguous. Day v. Toman, 266 F.3d 831, 836 (8th Cir. 2001) (applying Nebraska law). Whether ambiguity exists is an objective determination. Id. The court must give the terms of contracts their plain and ordinary meaning as ordinary, average, or reasonable persons would understand them. Id. When a clause can be fairly interpreted in more than one way, there is ambiguity to be resolved by the court as a matter of law. Land Sky, 529 N.W.2d at 700. Ambiguity will be resolved in favor of the insured. John Markel Ford, Inc. v. Auto-Owners Ins. Co., 543 N.W.2d 173, 178 (Neb. 1996). Thus, the court first looks to the insurance policy itself to determine whether Travelers has a duty to indemnify.
This court has already found that the allegations involved in the underlying action involve facts which reasonably fall within the CGL policy coverage, giving rise to a duty to defend. Filing No. 45, Memorandum and Order at 11. The duty to defend, however, is broader than the duty to indemnify. GRE Ins. Group/Tower Ins. Co. v. Complete Music, Inc., 271 F.3d 711, 714 n. 4. (8th Cir. 2001). Under Nebraska law, the duty to indemnify arises from the actual coverage provided in an insurance policy. Id. at 713.
The CGL policy provides coverage for "Bodily Injury and Property Damage Liability" as follows: "[w]e will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily in jury' or `property damage' to which this insurance applies." Plaintiff's Index of Evidence in Support of its Motion for Summary Judgment (attached to Filing No. 19), Ex. 2, CGL Policy, § (I)(A)(1)(a). The phrase "to which this insurance applies" contemplates damage due to fire. Id. at § (I)(A)(2) (stating certain exclusions do not apply to damage by fire of premises "rented to you") (emphasis added); id., Manufacturers and Wholesalers Xtend Endorsement, "Fire damage Liability Extension" § (E)(1)(a-e) (broadening coverage to eliminate certain exclusions to coverage for damages caused by fire, explosion, lightning, smoke or water). The coverage applies to Millard as an additional insured "only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you." Id., Additional Insured Endorsement.
Having resolved the meaning of other terms of the policy as it has, the court finds no ambiguity in the indemnification clauses. Millard has shown that the fire at issue was causally connected to the "maintenance" of the leased premises. There is no exclusion for direct as opposed to vicarious liability. See supra at p. 3-5. The court finds, under the language of the CGL policy, that Travelers has a duty to indemnify Millard for "those sums [Millard] becomes obligated to pay as damages."
A finding of ambiguity would yield the same result.
The umbrella policy, in turn, provides for payment "on behalf of the insured the `ultimate net loss' in excess of the `applicable underlying limit' which the insured becomes legally obligated to pay as damages" for liability under the underlying insurance. Plaintiff's Index of Evidence in Support of its Motion for Summary Judgment (attached to Filing No. 19), Ex. 3, Umbrella Policy, § (1I)(a). The umbrella policy defines an insured as "[a]ny person or organization insured under any policy of the underlying insurance." Id., § (II)(2)(h). The underlying insurance is, of course, the CGL policy. Millard qualifies as an insured under the umbrella policy because it is an insured under the CGL policy. See Filing 45, Memorandum Opinion and Order at 7, supra at 5. Travelers argues that Millard is excluded from coverage under the umbrella policy under an endorsement stating that insurance does not apply to "property damage to . . . [p]roperty you own, rent, or occupy." Plaintiff's Index of Evidence in Support of its Motion for Summary Judgment (attached to Filing No. 19), Ex. 3, Umbrella Policy, Exclusion — Real and/or Personal Property (emphasis added). That exclusion does not support Millard's contention. See Wyner v. North Am. Specialty Ins. Co., 78 F.3d 752, 757 (1st Cir. 1996) (interpreting "you" and "your" as including landlord as additional insured; ordinary and common meaning in context is not to draw distinction between named insured tenant and additional insured landlord, but between insured and insurer). The court thus finds a duty to indemnify under the umbrella policy.
Travelers also argues that the lease agreement shows the intent of the parties is to provide coverage to Millard under the policy of insurance issued to Millard by Sentry Insurance Company. Travelers relies on ¶¶ 12,13, and 14 of the lease in support of this contention. The effect of those paragraphs of the lease agreement on the rights and liabilities of Millard and SFH (formerly, Signature) are presently at issue in pending post-trial motions in the underlying action. See SFH, Inc. v. Millard Refrigerated Serv., Inc., No 8:99CV487, Millard's Brief in Support of Motions for Judgment Notwithstanding the Verdict and to Alter or Amend Judgment and for a New Trial at 22-29. To avoid inconsistent rulings, this court will not address those arguments at this time. In any event, the rights and responsibilities of Sentry Insurance with respect to the policy it issued to Millard are not at issue in this case. Sentry Insurance is not a party to this litigation. If Travelers sought a declaration of Sentry's duties under that policy, it could have filed a declaratory judgment action against Sentry.
B. Breach of duty to defend
Millard also seeks a declaration that Travelers has breached its duty to defend and seeks damages for that breach. The court finds that the undisputed evidence shows that Travelers has breached its duty to defend. Although district courts have broad power under 28 U.S.C. § 2202 to craft damages awards in declaratory judgment actions to effectuate their judgment, Bancinsure, Inc. v. BNC Nat'l Bank, N.A., 263 F.3d 766, 772 (8th Cir. 2001), the damages for breach of duty to defend are coextensive with the damages Millard seeks for its bad faith claim. The court finds the determination of the amount of such damages should properly be reserved for trial.
IT IS HEREBY ORDERED THAT:
1. Travelers' motions to alter or amend, Filing Nos. 55 and 59, this court's earlier order, Filing No. 45, are denied.
2. Millard's motion for summary judgment, Filing No. 46, seeking a declaration that Millard had a duty to indemnify is granted; the court enters a declaratory judgment of indemnity in favor of Millard.
3. Millard's motion for summary judgment, Filing No. 46, seeking a declaration that Travelers has breached its duty to defend is granted; determination of damages for that breach will be addressed at trial.
4. This case is referred to Magistrate Judge Thomas D. Thalken for a trial setting.