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Mutual Assurance Society of Virginia v. Federal Insurance Co.

United States District Court, E.D. Virginia, Richmond Division

January 15, 2020

MUTUAL ASSURANCE SOCIETY OF VIRGINIA, Plaintiff,
v.
FEDERAL INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION

          M. HANNAH LAUCK UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on two motions:

(1) Defendant Federal Insurance Company's ("Federal") Motion for Summary Judgment (the "Federal Motion for Summary Judgment"), (ECF No. 9); and,
(2) Plaintiff Mutual Insurance Society of Virginia's (the "Society") Motion for Summary Judgment (the "Society Motion for Summary Judgment"), [1] (ECF No. 11).

         Federal and the Society filed Cross-Motions for Summary Judgment pursuant to Federal Rule of Civil Procedure 56, [2] and both Federal and the Society responded to the Cross Motions. (ECF Nos. 13, 14). These matters are ripe for disposition.

         The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).[3] For the reasons stated below, the Court will grant the Federal Motion for Summary Judgment and deny the Society Motion for Summary Judgment.

         I. Procedural and Factual Background

         This indemnity and contribution action arises out of a dispute between Federal and the Society as to the proper allocation of coverage liability between the insurers stemming from a wrongful death settlement.

         A. Factual Background[4]

         1. Wrongful Death Settlement

         On November 8, 2017, a wrongful death action styled Estate of Graham McCormick v. J. Randolph Hooper, et al., (the "McCormick Lawsuit") was filed in the Circuit Court for die City of Richmond (the "Richmond Circuit Court"). The McCormick Lawsuit sought "damages arising from fatal injuries suffered in a boating accident that occurred on or about August 11, 2017" and named three defendants: J. Randolph Hooper ("Rand"), the operator of the boat at me time of the accident, and his parents, Gary Hooper and Lucy W. Hooper, the owners of the boat. (Compl ¶ 7, ECF No. 1-2.)

         The McCormick Lawsuit implicated the coverage of three separate insurance policies. First, GEICO Marine Insurance Company ("GEICO") issued a "marine liability policy ... with limits of $500, 000" to Gary Hooper that covered Rand Hooper as a "person... operating an . 'insured boat' with [Gary Hooper's] direct and prior permission." (Mem. Supp. Society Mot. Sum. J. 3, ECF No. 12; GEICO Policy 19, ECF No. 1-2.) Second, the Society issued a "homeowner's policy with limits of $500, 000 ... to Rand Hooper" that provided coverage to him as the "permissive user of another's boat." (Mem. Supp. Society Mot. Sum. J. 3, 11). Third, Federal issued "a group personal excess liability policy with limits of $5, 000, 000" to Davenport & Company. (Id.) The Federal Policy "via an endorsement, lists Lucy W. Hooper as a person insured under the policy." (Id.) The Federal Policy covered Rand Hooper as a permissive user of the boat. (See Federal Policy, Mem. Supp. Society Mot. Sum. J., ECF No. 12-2.)

         On April 23, 2018, the McCormick Lawsuit settled in exchange for payment of four million dollars. (See McCormick-Hooper Settlement, ECF No. 1-2.) In order to finalize the settlement agreement, the three insurance companies-GEICO, the Society, and Federal-agreed to contribute certain shares of the settlement subject to a reservation of rights "to pursue contribution, indemnification and/or subrogation... regarding each insurer's proportionate share of the Settlement Sum." (Compl. ¶ 15.) Both GEICO and the Society exhausted their coverage limits and each contributed $500, 000.00. (Id. ¶ 14.) Federal contributed the remaining $3, 000, 000.00. (Id.)

         Exercising its preserved right to pursue contribution, the Society now contends that it "paid more than its proportionate share of the settlement amount." (Compl. ¶ 2.) Specifically, the Society contends that both its policy and Federal's are indistinguishable "excess" insurance policies which cannot be reconciled by the plain language of their "other insurance" clauses. The Society maintains that they should have shared liability with Federal on a pro-rata basis, and seeks reimbursement from Federal in the amount of $181, 818.18.

         B. Procedural History

         On December 27, 2018, the Society filed suit in the Richmond Circuit Court against Federal and GEICO. On January 25, 2019, before GEICO had made an appearance in the Richmond Circuit Court, Federal removed the case to this Court pursuant to 28 U.S.C §§ 1332, 1441, and 1446. (See Not. Removal, ECF No. 1.)

         On February 19, 2019, the Society filed a Notice of Voluntary Dismissal as to GEICO, (ECF No. 2), pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i).[5] The Court dismissed GEICO, (ECF No. 3), and allowed the case to proceed against Federal. Following an Initial Pretrial Conference, Federal and the Society filed the Cross-Motions for Summary Judgment, and both Parties responded.

         II. Legal Standard

         A. Standard of Review: Rule 56

         Summary judgment under Rule 56 is appropriate only when the Court, viewing the record as a whole and in the light most favorable to the nonmoving party, determines that there exists no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986); Liberty Lobby, 477 U.S. at 248-50. "The interpretation of an insurance policy is a question of law that is particularly well suited for summary judgment." Minn. Lawyers Mut. Ins. Co. v. Protostorm LLC, 197 F.Supp.3d 876, 882 (E.D. Va. 2016) (citing St. Paul Fire & Marine Ins. Co. v. Jacobson, 826 F.Supp. 155, 157 (E.D. Va. 1993), affd, 48 F.3d 778 (4th Cir. 1995)).

         "A fact is material if the existence or non-existence thereof could lead a jury to different resolutions of the case." Thomas v. FTS USA, LLC, No. 3:13cv825, 2016 WL 3653878, *4 (E.D. Va. June 30, 2016) (citing Liberty Lobby, 477 U.S. at 248). Once a party has properly filed evidence supporting its motion for summary judgment, the nonmoving party may not rest upon mere allegations in the pleadings, but instead must set forth specific facts illustrating genuine issues for trial. Celotex Corp., 477 U.S. at 322-24. The parties must present these in the form of exhibits and sworn affidavits. Fed.R.Civ.P. 56(c).

         A court views the evidence and reasonable inferences drawn therefrom in the light most favorable to the nonmoving party. Liberty Lobby, 477 U.S. at 255. Whether an inference is reasonable must be considered in conjunction with competing inferences to the contrary. Sylvia Dev. Corp. v. Calvert Cty., 48 F.3d 810, 818 (4th Cir. 1995). Nonetheless, the nonmoving "party is entitled 'to have the credibility of his [or her] evidence as forecast assumed.'" Miller v. Leathers, 913 F.2d 1085, 1087 (4th Cir. 1990) (en banc) (quoting Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979)).

         In the end, the non-moving party must do more than present a scintilla of evidence.

Rather, the non-moving party must present sufficient evidence such that reasonable jurors could find by a preponderance of the evidence for the non-movant, for an apparent dispute is not genuine within contemplation of the summary judgment rule unless the non-movant's version is supported by sufficient evidence to permit a reasonable jury to find the facts in his [or her] favor.

Sylvia Dev. Corp., 48 F.3d at 818 (internal quotations, citations, and alterations omitted). The ultimate inquiry in examining a motion for summary judgment is whether there is "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the [nonmoving party's] evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249-50 (internal citations omitted). Where the court is faced with cross-motions for summary judgment, as in the instant case, the court must review each motion separately on its own merits. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003).

         B. Insurance Contract Interpretation Under Virginia Law[6]

         As with other contracts, the Court will interpret an insurance policy "in accordance with the intention of the parties gleaned from the words they have used in the document. Each phrase and clause of an insurance contract should be considered and construed together and seemingly conflicting provisions harmonized when that can be reasonably done." TravCo Ins. Co. v. Ward, 736 S.E.2d 321, 325 (Va. 2012) (quoting Floyd v. Northern Neck Ins. Co., 427 S.E.2d 193, 196 (Va. 1993)). "It is axiomatic that when the terms in a contract are clear and unambiguous, the contract is construed according to its plain meaning." Id. (quoting Barber v. VistaRMS, Inc., 634 S.E.2d 706, 712 (Va. 2006)). "Words that the parties used are normally given their usual, ordinary, and popular meaning. No word or clause in the contract will be treated as meaningless if a reasonable meaning can be given to it, and there is a presumption that the parties have not used words needlessly." Id. (quoting City of Chesapeake v. States Self-Insurers Risk Retention Group, Inc., 628 S.E.2d 539, 542 (Va. 2006)).

         C. Primary, Excess, and "Other Insurance" Clauses

         Policyholders often purchase several layers of insurance coverage to best guard against risk. Primary insurance "is typically the first layer of coverage" and generally "impose[s] on the insurer a duty to defend, subject to the terms of the insurance contract." 23-145 Appleman on Insurance Law & Practice Archive § 145.1 (2nd 2011). Excess insurance-sometimes referred to as umbrella or catastrophic insurance-provides coverage beyond primary insurance. A "true excess policy is triggered on the exhaustion of the limits of the primary policy." Id.

         Because policyholders may purchase overlapping coverage, insurance policies "generally contain 'other insurance' clauses that attempt to define the insurer's responsibility for payment when other insurance coverage is available." Horace Mann Ins. Co. v. Gen. Star Nat 7 Ins. Co., 514 F.3d 327, 330 (4th Cir. 2008). These "other insurance" clauses are valid and enforceable, and may transform a primary insurance policy into an excess insurance policy. See 15 Russ & Segalla, Couch on Insurance § 219. As the United States Court of Appeals for the Fourth Circuit has explained:

[a] primary liability insurance policy that contains an excess other-insurance clause thus effectively operates as an excess policy if other insurance is available. That is, even though the policy would provide primary, first-dollar coverage for an insured loss if no other insurance policy covered the loss, it will provide excess coverage when other insurance is available. Primary liability policies with excess other-insurance clauses are ... referred to as "coincidental excess" policies.

Horace Mann, 514 F.3d at 330 (citing Fireman's Fund Ins. Co. v. CNA Ins. Co., 862 A.2d 251, 266 (Vt. 2004)).

         Interpretation and application of "other insurance" clauses may become complicated when "multiple liability policies potentially provide coverage for a given loss and each of the policies contains an other-insurance clause." Id. at 331. Where two policies purport to be excess to one another, the majority of courts, including the Supreme Court of Virginia, have found that dissimilar "other insurance clauses" may be reconciled. See Med. Protective Co. v. Nat 7 Union Fire Ins. Co. of Pittsburg, PA, 25 Fed.Appx. 145, 147-48 (4th Cir. 2002) (interpreting the Supreme Court of Virginia's ruling in GEICO v. Universal Underwriters Ins. Co., 350 S.E.2d 612, 615 (Va. 1986)). However, if the "other insurance" clauses of two policies have the same effect, then neither provides purely primary coverage and the insurers should share contribution on a pro-rata basis. See Aetna Cas. & Sur. Co. v. Nat'l Union Fire Ins. Co., 353 S.E.2d 894, 897 (Va. 1987) ("when other insurance clauses of two policies are of identical effect in that they operate mutually to reduce or eliminate the amount of collectible insurance available, neither provides primary coverage and... pro rata distribution... [is] appropriate.") In other words, "other insurance" or excess clauses that are "alike ... are mutually repugnant." Nat'l Union Fire of Pittsburgh, 25 Fed.Appx. at 149; see also Horace Mann, 514 F.3d at 331 ("some courts find conflicting other-insurance clauses to be 'mutually repugnant' and thus unenforceable and require the insurers to bear pro-rata shares of the total liability.")

         The decision to declare two policies mutually repugnant, and thus force pro-rata distribution, should not be taken lightly. "Excess insurance is generally available at a lesser cost than the primary policy since the risk of loss is less than for the primary insurer." Gabarick v. Laurin Mar. (Am.), Inc., 649 F.3d 417, 422 (5th Cir. 2011) (alteration and quotation marks omitted). "Permitting a primary insurer to invoke an 'other insurance' clause vis a vis an excess policy would be unfair because a primary insurer would be allowed to charge a higher premium for insuring a greater risk... [but] shift the loss to an excess carrier which charged a lower premium." Am. Auto. Ins. Co. v. First Mercury Ins. Co., 2017 WL 3575882, at *2, *10 (D.N.M. Mar. 31, 2017) (citing Reliance Nat7 Indem. Co. v. Gen. Starlndem. Co., 72 Cal.App.4th 1063, 1074 (1999)). In such a case, pro-rata distribution would alter "the basic rules construing primary and excess policies," defeat the bargained for expectations of the excess insurer, and distort the insurance market. Reliance, 72 Cal.App.4th at 1083.

         III. The Society and Federal Policies

         A. The Society Policy

         The Society Policy states that it pays $500, 000.00 "for the 'bodily injury' or the 'property damage' which results from the maintenance, use, loading, or unloading of a watercraft which is not owned by or rented to an 'assured' if the loss is a result of the activities of an 'assured.'" (Society Policy 14, Mem. Supp. Society Mot. Sum. J., ECF No. 12-3.) However, for all injuries arising out of the "maintenance, use, loading, or unloading of a watercraft," the Society Policy purports to be

... excess over other valid and collectible insurance that applies to the loss or claim. (However, this does not apply to insurance written specifically to provide coverage in excess of the "limits" that apply in this policy.) If the other insurance is also excess, "we" pay ...

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