Continental Casualty Insurance v. Zurich American Insurance , 402 F. App'x 174 ( 2010 )

FILED
NOT FOR PUBLICATION OCT 28 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
CONTINENTAL CASUALTY No. 09-35484
INSURANCE COMPANY, an Illinois
corporation, DC No. 3:07 CV-0913 KI
Plaintiff - Appellee,
MEMORANDUM *
v.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation;
TCR PACIFIC NORTHWEST
CONSTRUCTION 2002 LIMITED
PARTNERSHIP, a foreign limited
partnership,
Defendants,
and
SAFWAY SERVICES, INC., a Delaware
corporation,
Defendant - Appellant.
CONTINENTAL CASUALTY No. 09-35523
INSURANCE COMPANY, an Illinois
corporation, DC No. 3:07 CV-0913 KI
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Plaintiff - Appellant,
v.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation,
Defendant,
and
TCR PACIFIC NORTHWEST
CONSTRUCTION 2002 LIMITED
PARTNERSHIP, a foreign limited
partnership; SAFWAY SERVICES, INC.,
a Delaware corporation,
Defendants - Appellees.
CONTINENTAL CASUALTY No. 09-35696
INSURANCE COMPANY, an Illinois
corporation, DC No. 3:07 CV-0913 KI
Plaintiff - Appellant,
v.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation;
TCR PACIFIC NORTHWEST
CONSTRUCTION 2002 LIMITED
PARTNERSHIP, a foreign limited
partnership,
Defendants,
2
and
SAFWAY SERVICES, INC., a Delaware
corporation,
Defendant - Appellee.
CONTINENTAL CASUALTY No. 09-35697
INSURANCE COMPANY, an Illinois
corporation, DC No. 3:07 CV-0913 KI
Plaintiff - Appellee,
v.
ZURICH AMERICAN INSURANCE
COMPANY, a New York corporation,
Defendant,
and
TCR PACIFIC NORTHWEST
CONSTRUCTION 2002 LIMITED
PARTNERSHIP, a foreign limited
partnership,
Defendant - Appellant,
v.
SAFWAY SERVICES, INC., a Delaware
corporation,
Defendant - Appellee.
3
Appeals from the United States District Court
for the District of Oregon
Garr M. King, District Judge, Presiding
Argued and Submitted October 5, 2010
Portland, Oregon
Before: TASHIMA, PAEZ, and CLIFTON, Circuit Judges.
The parties appeal from the district court’s grant of summary judgment in a
coverage dispute between contractors on a Portland apartment construction project.
At issue is responsibility for defense costs incurred in a personal injury action
brought by an employee of subcontractor Safway Services, Inc. (“Safway”), who
suffered serious injuries while working on the project. We have jurisdiction under
29 U.S.C. § 1291. We affirm in part and reverse in part the district court’s grant of
summary judgment in favor of general contractor TCR Pacific Northwest
Construction (“TCR”) and Continental Casualty Insurance Company
(“Continental”), the insurer of subcontractor Performance Contracting, Inc.
(“PCI”). We have jurisdiction over Continental and TCR’s appeals of the district
court’s post-judgment order on attorneys’ fees, Whitaker v. Garcetti, 486 F.3d 572,
585 (9th Cir. 2007), and we affirm.
1. This court reviews de novo a district court’s decision to grant
summary judgment. McDonald v. Sun Oil Co., 548 F.3d 774, 778 (9th Cir. 2008),
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cert. denied sub nom. Sunoco, Inc. v. McDonald, 129 S. Ct. 2825 (2009). Safway
challenges the district court’s determination that the “procure insurance” provision
of Safway’s contract with PCI is valid under Oregon law. Safway first argues that
the provision is invalid under Or. Rev. Stat. § 656.018, Oregon’s workers’
compensation exclusivity statute. The Oregon Court of Appeals has held that
§ 656.018 does not void contractual agreements to procure insurance. Montgomery
Elevator Co. v. Tuality Cmty. Hosp., 790 P.2d 1148, 1149-50 (Or. Ct. App. 1990)
(in banc). In the absence of contrary case law, there is no “convincing evidence”
that the Oregon Supreme Court would reach a different conclusion. Briceno v.
Scribner, 555 F.3d 1069, 1080 (9th Cir. 2009) (“In the absence of a
pronouncement by the highest court of a state, the federal court must follow the
decision of the intermediate appellate courts of the state unless there is convincing
evidence that the highest court of the state would decide differently.”)
Accordingly, we conclude that § 656.018 does not void Safway’s contractual
promise to procure insurance.
Safway next argues that Oregon’s anti-indemnity law, Or. Rev. Stat. §
30.140, voids the “procure insurance” provision. This statute specifically does not
affect an indemnification provision “that requires a person or that person’s surety
or insurer to indemnify another against liability for damage” to the extent that
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damage “arises out of the fault of the indemnitor.” Or. Rev. Stat. § 30.140(2).
Here, the plain language of the contractual procure insurance provision limits
coverage to liability arising out of Safway’s own negligence. Furthermore, even if
the provision could be read as improperly requiring Safway to procure insurance
covering the upstream contractors for their own negligence, it can still be enforced
to the extent it requires coverage for liability arising out of Safway’s own
negligence. See Hays v. Centennial Floors, Inc., 893 P.2d 564, 567 (Or. Ct. App.
1995). Accordingly, we conclude that § 30.140 does not void Safway’s promise to
procure insurance.
Safway contends that even if the provision is valid, Safway did not breach it
by obtaining a policy with a $1 million self-insured retention.1 We disagree.
Safway is correct that the contract does not explicitly prohibit self-insured
retentions. However, the contract requires Safway to procure “primary” insurance,
with minimum limits of $1 million, issued by “an A-rated or better carrier
satisfactory to [PCI].” Under this language, if Safway intended to self-insure in an
1
Safway contends that Continental is not entitled to enforce the
contract because it is not a party to the contract. As PCI’s insurer and by the terms
of its contract with PCI, Continental is properly subrogated to PCI’s contract
claims against Safway. Nat’l Fire Ins. Co. v. Mogan, 206 P.2d 963, 969 (Or. 1949)
(holding that insurer was subrogated to the insured’s rights arising out of breach of
contract of bailment).
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amount equal to the dollar amount of coverage it agreed to obtain, it should have
notified PCI to allow PCI to decide whether Safway’s self-coverage was
“satisfactory.” Instead, Safway obtained a policy with a self-insured retention, so
that Safway’s insurer had no duty to defend until the retention was exhausted
(which, in this case, it never was). As a consequence, Safway’s insurer did not
provide the upstream contractors with the primary coverage they expected. See
Ostrager & Newman, 1 Handbook on Insurance Coverage Disputes § 6.03[a] (15th
ed. 2010) (“Excess or secondary insurance is coverage that attaches only after a
predetermined amount of primary coverage has been exhausted.”). Accordingly,
we conclude that Safway breached its promise to procure insurance.
Finally, Safway appeals the district court’s damages award, contending that
the district court improperly included attorneys’ fees unrelated to the underlying
personal injury suit. We agree. On this point, we reverse and remand to the
district court to subtract from the damages award the disputed attorneys’ fees
arising out of: (1) Continental and TCR’s coverage dispute with Safway; (2)
TCR’s coverage dispute with Continental; and (3) TCR’s dispute with PCI relating
to PCI’s contractual obligations to TCR. This requires a $35,248.50 deduction
from TCR’s damages award and a $19,160 deduction from Continental’s damages
award.
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2. In its cross-appeal, Continental contends that it is entitled to its
attorneys’ fees incurred in the coverage action from Safway under Or. Rev. Stat. §
742.061. We agree. The Oregon Supreme Court has held that entities other than
traditional insurance companies may be considered “insurers” under Oregon law if
they elect to self-insure. Haynes v. Tri-County Metro. Transp. Dist. of Or., 103
P.3d 101, 104 (Or. 2004); Or. Rev. Stat. § 731.106 (defining “insurer”). Here, to
the extent of the self-insured retention, Safway acted as a self-insurer: it received,
reviewed, and rejected tenders of defense from Continental and TCR. In other
instances, Safway has accepted tenders and paid for the defense of third parties to
the extent of its retained limits. In this way, Safway’s conduct is indistinguishable
from a traditional third-party insurance company. See, e.g., Hillegass v. Landwehr,
499 N.W.2d 652, 655 (Wis. 1993) (finding it “fundamentally unfair” to allow
companies “to self-insure and thereby escape both the expense of premium
payments and the possibility of being held liable as primary insurer”); State Farm
Mut. Auto. Ins. Co. v. Budget Rent-A-Car Sys., Inc., 359 N.W.2d 673, 676 (Minn.
Ct. App. 1984) (“Budget made a risk management decision not to buy coverage for
the first $100,000. To treat Budget as anything other than an insurer for the first
8
$100,000 would create a windfall for Budget.”). We reverse and remand to the
district court to determine the appropriate award under § 742.061.2
3. Continental and TCR filed separate appeals of the district court’s post-
judgment attorneys’ fees order. Where, as here, a district court’s award of
attorneys’ fees turns on a question of state law or of contract interpretation, this
court reviews de novo. FDIC v. Lugli, 813 F.2d 1030, 1034 (9th Cir. 1987). TCR
and Continental each contend that Safway is bound by the attorneys’ fees provision
of TCR’s contract with PCI. We disagree. The PCI-Safway contract specifically
limits the incorporation of the TCR-PCI contract to those terms and conditions
“related directly or indirectly to the Work and the performance thereof.”
Continental and TCR’s assertion that the attorneys’ fees provision relates
“indirectly” to the erection and dismantling of scaffolding would render this
limiting language meaningless. See Yogman v. Parrott, 937 P.2d 1019, 1021 (Or.
1997) (en banc). Accordingly, we conclude that Continental and TCR are not
contractually entitled to attorneys’ fees. We affirm the district court’s post-
judgment attorneys’ fees order.
2
Our determination that Continental is not entitled to its attorneys’ fees
related to its coverage dispute with Safway as contract damages does not prevent
the district court from considering on remand whether such fees are recoverable
under § 742.061.
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Each party shall bear its own costs on appeal.
AFFIRMED in part, REVERSED in part, and REMANDED.
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