Houston Casualty Co. v. St. Paul Fire & Marine Insurance

Citation: 456 F. App'x 312Docket: No. 10-1835

Court: Court of Appeals for the Fourth Circuit; December 5, 2011; Federal Appellate Court

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Unpublished opinion affirmed. Judge Keenan, joined by Judges Davis and Diaz, addressed an insurance coverage dispute involving McGriff, Seibels, Williams, Inc. and St. Paul Fire & Marine Insurance Company. St. Paul denied coverage for claims arising from a personal injury suit filed by Manuel Salazar against McGriff, asserting exclusions under the policies issued to McGriff. Houston Casualty Company, McGriff's professional liability insurer, subsequently sued St. Paul for wrongful denial of coverage and sought contribution for defense costs and settlement. The district court denied Houston’s summary judgment motion and granted St. Paul’s, leading to an appeal by Houston.

Salazar sustained severe injuries at the Lake Murray Backup Dam Project and claimed that McGriff, as the insurance broker, was responsible for safety inspections, which he alleged were not conducted. The OCIP Manual established that McGriff had certain safety responsibilities, including oversight in conjunction with the General Contractor and the Owner’s Safety Representative. Despite Houston providing a defense to McGriff in Salazar's suit, St. Paul refused to participate in the defense or settlement, leading to a $20 million settlement of which McGriff's share was $5 million, covered by Houston and other insurers.

After the appeal, the court confirmed that summary judgment is granted when there are no material facts in dispute, and the moving party is entitled to judgment under the law. The district court's ruling favoring St. Paul was upheld.

Under South Carolina law, insurance policies are interpreted using standard contract construction principles, with courts required to understand policy language in its plain and ordinary meaning. Unambiguous language in an insurance policy must be applied as stated, while ambiguous language is construed against the insurer. Policy exclusions are also interpreted most strongly against the insurer unless the exclusionary language is clear, allowing insurers to limit liability as long as it does not violate statutes or public policy. An insurer is not obligated to defend or settle claims if the allegations fall within a policy exclusion. Coverage and the duty to defend are determined primarily by the allegations in the plaintiff's complaint but can also be influenced by facts known to the insurer outside the complaint.

In the case regarding Salazar's claims against McGriff, the relevant endorsement stated that injuries or damages for which a protected person is liable due to obligations in connection with an insurance contract are not covered. Houston contended that Salazar’s claims were independent of any insurance contract, suggesting the district court erred in its interpretation. However, Salazar's complaint explicitly identified McGriff as the insurance broker for a specific project and detailed duties related to the inspection and safety obligations arising from that role. The court found that Salazar's allegations fell within the exclusion outlined in the policy, thus validating the insurer's position that there was no duty to defend or settle the claims against McGriff.

The claims against McGriff relate to his role as an insurance broker for a project, specifically concerning obligations he assumed in connection with an insurance contract. Houston contends that St. Paul must defend McGriff against Salazar’s claims, arguing that these do not rely on an insurance contract. He claims the negligence allegation is based on a common law duty from a voluntary undertaking, and the breach of contract claim does not specifically reference an insurance contract. However, the endorsement's language excludes coverage for claims stemming from any failure to fulfill obligations related to an insurance contract. Consequently, Salazar’s claims against McGriff are excluded if they arise in connection with an insurance contract, even if the specific contract is not an insurance contract. 

Salazar’s complaint states that McGriff was the insurance broker for the Lake Murray Backup Dam project and had a duty to inspect the facility for safety. The complaint alleges specific contractual duties related to safety inspections. The district court found no claims suggesting McGriff had safety duties outside of his role as broker. Evidence in the record, known to St. Paul when denying coverage, supports the district court’s decision. The OCIP Manual, which McGriff provided, outlined his safety obligations, indicating that safety supervision would be a joint effort involving him. The Manual's provisions for a Project Safety Program, meant to comply with industry and legal standards, confirm that McGriff's obligations were linked to the insurance program. Therefore, even if the OCIP Manual is not a contract, it was part of the insurance program brokered by McGriff, and the claims based on those obligations arose in connection with an insurance contract.

Houston's argument, claiming that McGriff's obligations arose from common law rather than an insurance contract, is rejected. The court asserts that McGriff's duties were inherently linked to the insurance contract, as they originated from McGriff's role in securing insurance for the Project. The voluntary assumption of these obligations does not diminish their connection to the insurance contract. Consequently, the court affirms the district court's ruling that Salazar’s claims are excluded by the Insurance and Related Work endorsement, confirming that St. Paul had no obligation to defend McGriff or contribute to the settlement of Salazar’s claims. South Carolina law governs this issue, and since Salazar’s claims pertained to safety obligations tied to the insurance contract, the court does not need to evaluate other potential exclusions related to professional services.