Harco National Insurance v. Arch Specialty Insurance

Citation: 328 F. App'x 678Docket: Nos. 08-2269-cv(L), 08-2300-cv(con), 08-2350-cv(con)

Court: Court of Appeals for the Second Circuit; May 13, 2009; Federal Appellate Court

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An appeal was filed regarding a district court's April 9, 2008, order granting summary judgment to Harco National Insurance Company against Arch Specialty Insurance Company, Axis Specialty Insurance Company, and Zurich North American Insurance Company, while denying cross-motions for summary judgment from Arch and Zurich. The appeal also questions Final Money Judgments entered on May 14, 2008. Relevant facts include a car accident involving Mary Brace and a tractor-trailer driven by David Boyle, leased by Boyle's employer, JM Truck and Excavating, from DeCarolis Truck Rental, with the trailer leased from ATCO. JM held a $1 million liability policy from National Casualty Company, while Zurich, Axis, and Arch provided policies to ATCO with combined limits of $22 million. Harco issued a $1 million Business Auto Policy and a $10 million Commercial Umbrella Policy to DeCarolis. The parties settled the lawsuit for $11 million, with National contributing its policy limit. The district court ruled that Zurich's $2 million coverage must be exhausted first, followed by Axis's $5 million, with Arch covering the remainder, and concluded that Harco was not liable under its policies. 

The appellants contend that the district court misinterpreted the Harco Umbrella Policy's exclusion of Boyle and JM from coverage, arguing that the exclusion does not apply since "automobile" is not defined in the policy but is used interchangeably with "auto" and "covered auto," which do include the tractor. They assert that Harco bears the burden of demonstrating the applicability of the exclusion. Harco argues that the term "automobile" encompasses motor vehicles generally, as distinguished from "private passenger autos." The district court, referencing extrinsic evidence including affidavits, determined that the parties intended "automobile" to include tractor-trailers and did not err in considering this evidence.

A court's determination of ambiguity in an insurance provision allows for the introduction of extrinsic evidence to clarify the parties' intentions during contract formation. The appellants' claim that "automobile" excludes commercial vehicles lacks support; thus, JM and Boyle are not considered "insureds" under the Harco Umbrella Policy. Regarding Exclusion 17, the Harco Umbrella Policy excludes coverage for any "covered auto" leased to others, but an exception for bodily injury caused by an "occurrence" related to ownership applies. The court agrees that the exception offers coverage solely for DeCarolis's liability as the tractor's owner, not for JM or Boyle as insureds. The appellants argue that the Harco Umbrella Policy violates New York Vehicle and Traffic Law (VTL) and NYCRR regulations requiring permissive user coverage, but the court finds that VTL § 345(f) exempts excess insurance from such regulations. Furthermore, the Harco Primary Policy's lease agreement required JM to secure primary coverage, which was fulfilled. The Harco Primary Policy's exclusion of liability assumed under agreement is valid, and the Harco Umbrella Policy's incorporation of this exclusion also remains valid. As a result, the Harco Umbrella Policy does not violate any regulations, and the available coverage sufficiently protects Mary Brace, aligning with New York's public policy ensuring access to financially responsible insured parties for injury recovery.

Axis contends that the Harco Primary Policy, issued to DeCarolis (the tractor owner), extends coverage to ATCO (the trailer owner). The policy's definition of “insured” includes DeCarolis and anyone using a covered auto with his permission. The parties agreed that both DeCarolis's tractor and ATCO's trailer qualify as “covered autos,” but only the tractor is one that DeCarolis owns or borrows, making Boyle an insured solely while using the tractor. The policy's provision for those liable for an insured's conduct does not apply to ATCO since its liability originates from Boyle's use of its trailer. Zurich claims that even if the Harco Umbrella Policy does not cover Boyle, it should provide primary coverage for DeCarolis, asserting that such coverage must be exhausted first. However, Zurich's policy states its coverage is excess when the covered vehicle is a trailer not owned by ATCO. The Harco Umbrella Policy does not insure Boyle, and it is acknowledged that Boyle is the primary tort-feasor, while DeCarolis's liability is vicarious. Courts generally hold that the insurance of a passive tort-feasor (DeCarolis) is excess to that of an active tort-feasor (Boyle). The district court's ruling on coverage priority and the final judgment is affirmed. Zurich's argument that JM qualifies as an insured under the Harco Umbrella Policy is rejected. Axis and Arch argue that the Harco Umbrella Policy provides primary coverage for DeCarolis, but specific endorsements clarify that it does not cover the first $500,000 in losses regardless of the primary policy's status. Harco raised these provisions during reconsideration, countering Axis and Arch’s claims. Zurich did not address this during the initial summary judgment, and the court concludes that there were no coverage gaps, thus the Harco Umbrella Policy does not drop down. Boyle's lack of coverage under the Harco Primary Policy for his use of the tractor is supported by an endorsement requiring JM to secure primary coverage, which JM did from National. Axis's assertion that the endorsement does not pertain to the trailer is dismissed, and the relevant endorsements prevent the Harco Umbrella Policy from providing primary coverage. Zurich's objections regarding Harco's late invocation of these provisions are noted, but the court assumes without ruling that Harco may have waived its argument against Zurich.