Commercial Union Insurance Co. v. Bituminous Casualty Corp

Citations: 851 F.2d 98; 1988 U.S. App. LEXIS 9226; 1988 WL 68782Docket: 87-5826

Court: Court of Appeals for the Third Circuit; July 7, 1988; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The case involves a dispute between Commercial Union Insurance Company (plaintiff) and Bituminous Casualty Corporation (defendant) regarding indemnification for a loss at the Marlton Shopping Center. Kode Development Associates, the property owner, had a builders insurance policy from Commercial Union, while Bituminous Casualty provided specific peril coverage to subcontractor Pharaoh Construction. After a windstorm caused a masonry building’s collapse, Pharaoh claimed against Bituminous, which denied coverage. Kode Development then claimed from Commercial Union, which paid the loss but sought contribution from Bituminous.

Commercial Union filed a declaratory judgment action, but the district court granted summary judgment for Bituminous, citing a waiver of subrogation rights in the American Institute of Architects contract between Kode Development and Arnko Builders. The appellate court reviewed the summary judgment under a plenary standard and determined that lack of subrogation rights does not bar an insurer from seeking contribution from another insurer liable for the same loss. Consequently, the court reversed the district court's ruling and remanded for further proceedings, clarifying that subrogation principles did not preclude the action for contribution.

The district court granted summary judgment for Bituminous based on Article 11.3.6 of the American Institute of Architects Agreement, which waives the owner's rights against subcontractors. Consequently, the court ruled that Commercial Union could not pursue subrogation against either Pharaoh or its insurer. Although the district court's conclusion on subrogation aligns with New Jersey law—where subrogation is derivative, allowing insurers to claim rights from their insured against third parties responsible for a loss—the court noted that this decision does not resolve Commercial Union's claim. New Jersey law stipulates that subrogation is not applicable without a third party liable for the loss, as established in prior cases. Article 11.3.6 shifts the ultimate risk of loss to the owner, precluding the insurer's right to subrogate against subcontractors for property loss. The policy behind this article is to minimize disputes among parties involved in construction projects. Since there is no tortfeasor or other responsible party identified in this case, Commercial Union lacks the right to proceed against Bituminous or its insurer via subrogation. However, the case is not entirely resolved, as Commercial Union seeks a direct claim against Bituminous for contribution or indemnity. The court will assess whether Bituminous is entitled to summary judgment regarding this claim, following New Jersey's legal definitions of contribution, which involve shared burdens among parties and correcting any unequal distribution of those burdens.

A common burden can arise through contracts, leading to the principle of contribution among insurers, who share liability for a common obligation even if bound by separate contracts. In this case, both Commercial Union and Bituminous Casualty issued policies for damages to a masonry wall, with the AIA agreement acknowledging shared insurer responsibilities. The AIA does not prevent one insurer from seeking contribution from another. Bituminous, arguing for summary judgment, contended that if the AIA does not bar the action, then the insurers should share the loss pro rata. However, this argument was not pursued on appeal. The court found that the AIA does not preclude the action, leading to a remand to determine how to apportion the loss. 

Bituminous claimed its policy is co-primary with Commercial Union's, suggesting equal sharing or proportionate sharing based on policy limits, while Commercial Union asserted its coverage is excess compared to Bituminous's primary coverage. The determination of primary versus excess coverage hinges on the specific policy terms, with New Jersey law stating that conflicting excess provisions are disregarded. Both policies contained "other insurance" clauses, indicating coverage only in excess of other insurance. Following precedent, if these clauses conflict, the policies are treated as providing general coverage, necessitating loss apportionment according to their explicit terms or equally if no provisions exist. Recent rulings support using established industry standards to resolve such disputes, which both parties agree applies in this case.

Further examination of New Jersey law reveals that parties in this case incorrectly assume all excess insurance clauses for the same property and risk are mutually exclusive. Mutual repugnancy of excess clauses applies only when the insured interests are identical in both policies. The Cosmopolitan case established that a pro rata loss rule is applicable when both policies represent the same intent regarding insurance coverage and limiting liability due to another carrier's coverage. 

The court in Pasker appears to have misapplied the standards for determining which policy is primary and which is excess, leading to potentially flawed arguments from both parties regarding loss apportionment. The Guiding Principles were intended to provide a framework for evaluating whether excess clauses conflict, specifically when covering the same property and interest, yet the Pasker court did not adequately address whether the interests at stake were indeed the same. 

In the current case, the insurable interests are ambiguous; while the owner Kode's contract suggests coverage for all interests, Commercial Union's policy seems to cover only Kode, leaving subcontractor Pharaoh uninsured. The summary judgment from the district court is reversed, and the case is remanded for further proceedings. Parties are encouraged to present additional evidence or arguments regarding whether subcontractor coverage exists and the appropriate method for apportionment, if necessary.

Jurisdiction for this diversity action is established in the U.S. District Court for the District of New Jersey, with New Jersey law applying. The Commercial Union policy stipulates that it serves as excess insurance over any other available coverage. The Bituminous Inland Floater policy states that it only applies as excess insurance when other valid and collectible insurance exists at the time of loss, requiring that all amounts due from other insurance be exhausted before the policy contributes to any loss. The insured is to be reimbursed for the difference between the amounts from other insurance and the actual loss sustained, subject to policy limits.

The standards from the Pasker case outline "General Principles" for insurance priority, indicating that insurance for a specifically described item at a designated location is primary to other insurance. Conversely, insurance for the same item without a designated location is considered excess in relation to primary insurance. Similar principles apply to groups or classes of related items, specifying varying levels of priority based on the specificity of the description and designation of location.