Ohio Casualty Insurance v. Unigard Insurance

Citations: 564 F.3d 1192; 2009 U.S. App. LEXIS 11104; 2009 WL 1160297Docket: No. 08-4003

Court: Court of Appeals for the Tenth Circuit; April 28, 2009; Federal Appellate Court

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The Ohio Casualty Insurance Company initiated a declaratory judgment action to clarify its and Unigard Insurance Company's obligations to defend the Cloud Nine defendants in the EdiZone, L.C. v. Cloud Nine, LLC lawsuit. Ohio Casualty provided coverage from June 10, 2001, to June 10, 2002, while Unigard's coverage spanned from December 12, 2002, to December 12, 2005. The district court determined that both insurers had a duty to defend and ordered them to equally share the defense costs based on the “equal shares” provision in Ohio Casualty’s policy.

Ohio Casualty contends that this provision should not apply to successive policies like Unigard’s, arguing instead for the “time on the risk” allocation method, as established in Sharon Steel Corp. v. Aetna Casualty, Surety Co. Under this method, costs would be divided based on the duration each insurer was responsible for the risk. Conversely, Unigard maintains that the “equal shares” provision applies to both successive and concurrent policies, supporting the district court's ruling for equal cost-sharing.

Due to the unresolved legal issues surrounding Utah law, the court seeks guidance from the Utah Supreme Court on whether the defense costs should be allocated under the “equal shares” method or the “time on risk” method. The relevant background includes EdiZone alleging multiple claims against the Cloud Nine defendants, including patent infringement, breach of contract, and various forms of unfair competition, stemming from a licensing agreement for the manufacture of gel technology products. Ohio Casualty's policy includes coverage for “Personal and Advertising Injury Liability” and asserts a duty to defend against related lawsuits.

No duty exists for the insured to be defended against suits seeking damages for “personal and advertising injury” that fall outside the insurance coverage. The insurer may voluntarily investigate and settle related claims. The insurance policy applies to injuries caused by business offenses occurring within the designated coverage territory during the specified policy period. Ohio Casualty's coverage spanned from June 10, 2001, to June 10, 2002, while Unigard's coverage was from December 12, 2002, to December 12, 2005. Notably, Cloud Nine lacked commercial liability insurance between June 10, 2002, and December 12, 2002. 

Following EdiZone's lawsuit in a Utah federal court, Cloud Nine sought defense from both insurers. Unigard agreed to defend, but Ohio Casualty declined, prompting Ohio Casualty to file for a declaratory judgment asserting no duty to defend or indemnify Cloud Nine. Unigard intervened, initially claiming no duty but alternatively stating that if it had such duty, Ohio Casualty shared the same responsibility due to similar policy terms. 

The district court ruled in favor of Unigard's partial summary judgment motion, determining that Ohio Casualty had a duty to defend the EdiZone case due to the allegations of an advertising injury and mandated that both insurers equally share defense costs. This ruling was supported by the “Other Insurance” provision in Ohio Casualty’s policy, which stipulates that if other valid insurance exists, obligations are shared equally unless specified otherwise. The court emphasized that under Utah law, insurers must defend all claims in a suit, covered or not, until they can limit the case to claims outside their policy.

Following the district court's ruling, Ohio Casualty and Unigard shared the defense costs of the EdiZone case equally. In July 2007, they settled with EdiZone, leading to the dismissal of claims against the Cloud Nine defendants and rendering further issues in the declaratory judgment moot. Ohio Casualty contends that the district court incorrectly applied the "other insurance" provision, arguing it only applies if there is concurrent coverage for a loss. During Ohio Casualty's coverage period from June 10, 2001, to June 10, 2002, Unigard did not cover the Cloud Nine defendants. Therefore, Ohio Casualty insists that costs should be allocated using the time-on-the-risk method established by the Utah Supreme Court.

In contrast, Unigard defends the district court’s conclusion, asserting that "a loss we cover" includes both isolated incidents and ongoing damage claims that span multiple policy periods, justifying the application of the other insurance provision to both concurrent and successive policies. Ohio Casualty's position is supported by various legal authorities that argue other insurance clauses typically do not apply to successive policies, as they cover different timeframes and risks. Critics argue that applying these clauses to successive policies is flawed and may unfairly assign liability outside the covered periods. Conversely, some courts support the application of the other insurance clauses to successive policies, aligning with Unigard's interpretation.

In Federal Insurance Co. v. Cablevision Systems Development Co., the Second Circuit determined that under New York law, insurers with successive policies should share defense costs equally, as they cannot defend only parts of the claims. The Supreme Court of Minnesota supports this view, indicating that when using the pro-rata-by-time-on-the-risk method for liability allocation, defense costs should also be evenly distributed among insurers covering a common insured. Utah courts have not definitively addressed the application of other insurance provisions in successive policies. The case of Sharon Steel suggests that equitable principles should guide the apportionment of defense costs unless specified by policy language, but it does not clarify the interpretation of "contribution by equal shares" in the context of multiple valid insurance policies.

The court intends to certify this unresolved question to the Utah Supreme Court to promote comity and federalism. The current appeal is stayed pending the resolution of this certified question. Additionally, EdiZone's product, Intelli-Gel, has applications in cushioning and pressure relief for patients, and Ohio Casualty has agreed to defend the Cloud Nine defendants under a reservation of rights due to new allegations in the Second Amended Complaint related to the EdiZone case. The appeal focuses solely on the method of apportioning defense costs, not the ultimate settlement costs.