Old Republic Insurance v. Concast, Inc.

Citations: 588 F. Supp. 616; 1984 U.S. Dist. LEXIS 18379Docket: 83 Civ. 986 (RLC)

Court: District Court, S.D. New York; March 22, 1984; Federal District Court

SummaryOriginalCytator Case TreatmentAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Old Republic Insurance Co. filed a lawsuit against Concast, Inc., Sumitomo Heavy Industries, Ltd. (SHI), and Federal Insurance Company, seeking a declaratory judgment that its Umbrella Policy with Concast does not extend coverage to SHI. Old Republic provides excess liability insurance to Concast, while Federal serves as Concast’s primary insurer. The case centers on a subcontract between Concast and SHI, which includes a provision requiring Concast to provide products liability coverage to SHI.

Two motions for summary judgment were presented: one by Concast, joined by SHI, against Old Republic, and a cross-motion from Old Republic against Concast, SHI, and Federal. Concast argued that the language of Old Republic's policy clearly indicates that SHI is covered under either of two provisions. Conversely, Old Republic contended that its policy prohibits adding SHI as an assured, either entirely or without prior notification, which Concast allegedly failed to provide.

The court, however, disagreed with Old Republic's interpretation of the policy, granting summary judgment to Concast and SHI. Additionally, summary judgment was awarded to Federal due to a lack of actual controversy with Old Republic.

The background details reveal that Concast, engaged in engineering and manufacturing steel-making equipment, subcontracted with SHI in March 1979 for components of a continuous casting complex intended for National Steel Corporation. SHI lacked products liability insurance, and the subcontract stipulated that SHI would be included as an additional named insured under Concast's insurance policy. Concast had a primary liability insurance policy with Federal, renewed annually, and arranged for a $10 million excess liability policy with Old Republic that began on April 30, 1981. This policy mirrored the previous coverage provided by Puritan Insurance Company.

Concast asserts that, per their subcontract with SHI, it directed James to acquire insurance coverage for SHI under all relevant liability policies regarding the continuous casting complex. In December 1980, James obtained a certificate from Federal, confirming SHI as an additional insured on the primary policy, but no certificate was secured from Old Republic. Following injuries to three Granite City employees on July 7, 1981, who sued Concast, SHI, and others, Federal defended and indemnified SHI, while Old Republic denied coverage, claiming SHI was not an insured under its excess policy. Old Republic subsequently initiated a declaratory judgment action regarding the policy's definition of "assured." 

The disputed definitions clarify that "Assured" includes individuals or entities to whom the Named Assured (Concast) is contractually obligated to provide insurance, limited to the extent of that obligation. The Court determined that SHI qualifies as an assured under definition (c), based on Concast's contractual obligation outlined in the subcontract. However, Old Republic contests this interpretation, arguing that the subcontract does not create an obligation for excess liability insurance specifically. The Court must interpret the phrase "insurance such as is afforded by this policy" to ascertain if it solely pertains to the excess liability insurance provided by Old Republic or encompasses broader products liability coverage. Ultimately, the Court will consider the plain meaning of the terms, noting that the policy is characterized as a liability insurance policy, specifically a products liability policy.

Definition (c) of the subcontract between Concast and SHI is to be interpreted broadly, affirming that Concast is required to include SHI in its products liability policy. The court emphasizes that any ambiguity in an insurance agreement should be resolved in favor of the insured. Old Republic's narrow interpretation, suggesting that SHI would only be covered under Concast's primary liability policy, is unsupported. Testimonies from Concast, SHI, and James indicate a mutual intent to provide comprehensive product liability coverage to SHI. The use of singular terms in the subcontract does not negate this intent, as discussions focused on product liability insurance in general, rather than specific policies. Furthermore, Old Republic’s argument that a conflict exists between definitions of coverage in the policy is unfounded; definition (c) does not limit coverage to only ongoing operations, and had Old Republic intended to impose restrictions, it could have included explicit limiting language. Thus, the court rejects Old Republic's interpretations as illogical and lacking in evidence.

Clarity regarding the limitations of liability insurance is essential in this case. The court references prior cases, particularly Gulf Oil Corp. v. Mobile Drilling Barge, affirming that the insurer bears the burden of demonstrating the absence of coverage in clear terms understandable to the average person, as established in Henning v. Metropolitan Life Ins. Co. Since such notice was not provided, and the court finds Old Republic's arguments unmeritorious, it grants summary judgment in favor of Concast, confirming that SHI is covered under Old Republic's policy. Additionally, Concast and SHI are awarded reasonable costs and attorneys' fees due to Old Republic's refusal to defend and indemnify SHI in the related claims, deviating from the general rule in New York that typically does not allow recovery for litigation expenses. Federal, having issued a primary liability insurance policy to Concast and subsequently adding SHI as an additional insured, has fulfilled its obligations in defending Concast and SHI against personal injury suits following the Granite City Accident. Consequently, there is no justiciable controversy between Federal and Old Republic, leading to summary judgment in Federal's favor. The order includes references to specific contract clauses and deposition transcripts that support the court's findings.

James' failure to secure a certificate of insurance for SHI under the excess insurance policy is deemed irrelevant to the intent of SHI and Concast during the drafting of section 7.5. This error, made by James' representative, does not affect the interpretation of the negotiators’ intent since acquiring the certificate was not a prerequisite for SHI’s coverage. Both Concast and SHI, lacking familiarity with insurance practices, relied on James’ expertise, and their lack of objection to the single Federal insurance certificate cannot imply their intent was limited to obtaining primary coverage only.

Old Republic’s arguments about the term "facilities" in definition (c) are noted but deemed unnecessary to address as its claims regarding "operations" have already been dismissed. The testimony from representatives of Concast, SHI, and James consistently indicates that their intent was to provide product liability coverage to SHI matching Concast's coverage limits. The discussions focused on product liability insurance, suggesting no need to differentiate between policies.

The drafting of section 7.5 by businessmen, who may not have had sophisticated legal knowledge, implies that they did not intend for the language to carry legal nuances. Concast argues that adopting Old Republic's interpretation would be illogical, as it lacks reasoning for why SHI would seek only limited liability coverage or why Concast would accept substantial liability on SHI's behalf. James has been brought in as a third-party defendant and has no incentive to admit that it was instructed to secure both primary and excess coverage when section 7.5 was written.

Additionally, Old Republic claims that the subcontract's provisions cannot extend products liability coverage due to an alleged conflict between definitions. This assertion suggests that definition (c) limits coverage to operations by or on behalf of the Named Assured, while the definition of Products Liability applies only to injuries or damages arising from the Named Assured's products after operations are complete.

Concast is barred from using definition (c) of its insurance policy as it pertains to ongoing operations versus completed operations. The argument that definition (c) limits coverage to ongoing operations lacks merit, as the policy's language is broad. Old Republic, the insurer, failed to demonstrate any intended limitations within the policy, which typically includes such clauses in definitions of products liability. The burden lies with the insurer to provide clear notice of coverage limitations, which has not been fulfilled in this case. Consequently, the court grants summary judgment in favor of Concast, affirming that SHI is covered under Old Republic's policy. Additionally, reasonable costs and attorneys' fees are awarded to Concast and SHI due to Old Republic's refusal to defend and indemnify SHI, which constitutes a breach of the contractual relationship. In contrast, Federal, which provided coverage for Concast and added SHI as an additional insured, has fulfilled its obligations by defending and indemnifying them after the Granite City Accident. Therefore, there is no controversy between Federal and Old Republic, leading to summary judgment in favor of Federal as well.

CONCAST is required to provide and maintain product liability insurance for the MACHINE for two years post-start-up, covering personal or bodily injury, death, and property damage. SHI must be included as an additional named insured on CONCAST's policy, and there must be a waiver of subrogation against SHI. A legal precedent is referenced (Old Republic Ins. Co. v. Concast, Inc.), indicating that prior injury claims were settled after a declaratory judgment action, with SHI incurring costs of approximately $1.7 million. Discussions among the businessmen involved indicated that the insurance coverage was meant to be comprehensive; if they had intended to restrict coverage to a primary policy, explicit language would have been included. An error by James, who failed to secure a certificate of excess insurance for SHI, does not reflect the original intent of the negotiators. The absence of a certificate was not a prerequisite for coverage, and both parties relied on James’ expertise regarding insurance matters. Old Republic’s claims about the interpretation of insurance terms and the use of operations were dismissed as unfounded. Definitions related to named assured products and completed operations hazards are also provided, clarifying the scope of coverage.