Travelers Property Casualty Co of America v. Xl Insur America Inc ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
TRAVELERS PROPERTY CASUALTY UNPUBLISHED
COMPANY OF AMERICA, March 16, 2017
Plaintiff,
v No. 329277
Oakland Circuit Court
XL INSURANCE AMERICA, INC., ZURICH LC No. 2014-139843-CB
AMERICAN INSURANCE COMPANY,
ROBERT BOSCH, LLC, VOLKSWAGEN
GROUP OF AMERICA, INC., CBS RADIO,
INC., OF DETROIT, VOLKSWAGEN OF
AMERICA, INC., ANTHONY MICHAEL
PRAINITO, ACE GROUP, GRANGE
INSURANCE COMPANY OF MICHIGAN, and
ACE PROPERTY & CASUALTY INSURANCE
COMPANY,
Defendants,
and
ALLIANZ GLOBAL RISKS US INSURANCE
COMPANY,
Defendant/Cross-Plaintiff/Cross-
Defendant-Appellant,
and
IRONSHORE SPECIALTY INSURANCE
COMPANY,
Defendant/Cross-Defendant/Cross-
Plaintiff-Appellee.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,
Plaintiff,
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v No. 329293
Oakland Circuit Court
XL INSURANCE AMERICA, INC., ZURICH LC No. 2014-139843-CB
AMERICAN INSURANCE COMPANY,
ROBERT BOSCH, LLC, VOLKSWAGEN
GROUP OF AMERICA, INC., CBS RADIO,
INC., OF DETROIT, VOLKSWAGEN OF
AMERICA, INC., ANTHONY MICHAEL
PRAINITO, ACE GROUP, and GRANGE
INSURANCE COMPANY OF MICHIGAN,
Defendants,
and
ALLIANZ GLOBAL RISKS US INSURANCE
COMPANY,
Defendant/Cross-Plaintiff/Cross-
Defendant,
and
IRONSHORE SPECIALTY INSURANCE
COMPANY,
Defendant/Cross-Defendant/Cross-
Plaintiff-Appellee,
and
ACE PROPERTY & CASUALTY INSURANCE
COMPANY,
Defendant-Appellant.
Before: RIORDAN, P.J., and METER and FORT HOOD, JJ.
PER CURIAM.
In these consolidated appeals, ACE Property & Casualty Insurance Company (“ACE”),
and Allianz Global Risks US Insurance Company (“Allianz”) appeal as of right the trial court’s
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order granting summary disposition to Ironshore Specialty Insurance Company (“Ironshore”).
We affirm.
This declaratory judgment action involves a dispute among several insurance companies
over what portion of two automobile negligence settlements each of them should be required to
pay. The underlying negligence actions arose out of a motor vehicle accident occurring on
August 10, 2012. On that day, Anthony Prainito was driving a vehicle in the course of his
employment with CBS Radio, Inc., of Detroit (“CBS Radio”) when he allegedly turned in front
of another vehicle driven by James Cram and in which L. Brooks Patterson was a passenger. As
a result of the collision, Patterson and Cram were seriously injured. Volkswagen of America
(“Volkswagen”) was the titled owner of the vehicle operated by Prainito. The vehicle had been
on loan to Robert Bosch, LLC (“Bosch”), an entity which, in turn, during the Woodward Dream
Cruise, loaned the vehicle to CBS Radio, Prainito’s employer. On March 11, 2013, both
Patterson and Cram filed third-party no-fault actions against Prainito, CBS Radio, and Bosch.
At the time of the accident, Volkswagen was insured under a primary policy issued by
XL Insurance America, Inc. (“XL”), and an excess policy issued by Ironshore. Bosch was
insured under a primary policy issued by Zurich American Insurance Company (“Zurich”) and
an excess policy issued by Allianz. Finally, CBS Radio was insured by a primary policy issued
by The Travelers Property Casualty Company of America (“Travelers”) and an excess policy
issued by ACE. On March 31, 2014, Travelers filed this declaratory judgment action naming as
defendants XL, Ironshore, Allianz, Zurich, Bosch, and Volkswagen. Thereafter, a plethora of
cross-claims and third-party complaints were filed.
On August 11, 2014, the parties in the underlying negligence actions and several of the
insurers in this declaratory action reached a settlement, the terms of which were sealed by the
trial court. The parties represent that as a result of the settlement agreement, Zurich, Travelers,
and XL, as primary insurers, tendered their policy limits. Allianz and ACE represent that as a
result of this settlement, Zurich, Travelers, XL, Volkswagen, Bosch, CBS Radio, and Prainito
were released and dismissed from the declaratory judgment action. There still remained,
however, an undisclosed settlement balance to be satisfied by some or all of the three excess
insurers, i.e., Allianz, ACE, and Ironshore. Apparently, as part of the settlement, the three excess
insurers agreed “to fund the settlement subject to the resolution of the priority of coverage
among them.”
On December 17, 2014, Allianz and ACE, jointly, and Ironshore filed cross-motions for
summary disposition. The parties all argued that the resolution of the priority issue turned on the
interpretation of each policy’s “other insurance” clause. The ACE policy contains the following
“other insurance” clause:
J. Other Insurance
If valid and collectible “other insurance” applies to damages that are also
covered by this policy, this policy will apply excess of the “other insurance” and
will not contribute with such “other insurance”. This provision will not apply if
the “other insurance” is written to the excess of this policy.
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Allianz’s “other insurance” clause is substantially similar to the ACE policy and provides:
L. Other Insurance
If valid and collectible insurance applies to damages that are also covered
by this policy, this policy will apply as excess of the “other insurance” and will
not contribute with the “other insurance”. However, this provision will not apply
if the “other insurance” is specifically written to be excess of this policy.
The “other insurance” clause relevant to Ironshore’s coverage is markedly different from the
ACE and Allianz policies. Indeed, an “other insurance” clause is not specifically written into the
Ironshore policy. Instead, the nature of the “other insurance” clause applicable to the Ironshore
coverage is discerned by reading the terms of both the Ironshore policy and the XL (primary)
policy. The Ironshore policy incorporates by reference the terms of the XL policy. The
Ironshore policy provides:
A. This Policy shall provide the Insured with Commercial Excess
Liability Insurance coverage in accordance with the same warranties, terms,
exclusions and limitations as are contained, on the Inception Date of this Policy,
in the applicable Controlling Underlying Policy(ies), subject to the premium,
limits of liability, retention, policy period, warranties, exclusions, limitations and
any other terms and conditions of this Policy, including any and all endorsements
attached hereto, inconsistent with or supplementary to the applicable Controlling
Underlying Policy(ies).
The Ironshore policy identifies the XL policy as a “Controlling Underlying Policy.” With
respect to “other insurance,” the XL policy provides, through Endorsement 15, the following:
5. Other Insurance
a. For any covered “auto” you own, this coverage form provides primary
insurance; however, if there is other collectible insurance the insurance provided
by this coverage form is excess over such other collectible insurance. . . .
The XL policy further states under the “other insurance” section:
d. When this Coverage Form and any other Coverage Form or policy
covers on the same basis either excess or primary, we will pay only our share.
Our share is the proportion that the Limit of Insurance of our Coverage Form
bears to the total of the limits of all the Coverage Forms and policies covering on
the same basis.
In their joint motion for summary disposition and in response to Ironshore’s motion,
Allianz and ACE argued that because Ironshore’s policy included a pro-rata “other insurance”
clause, and ACE’s and Allianz’s policies contained a “true excess” other insurance clause, the
excess policies issued by ACE and Allianz provided secondary coverage to that of the Ironshore
policy. Allianz and ACE asserted that Ironshore’s policy limits must be exhausted before ACE
and Allianz would be required to pay.
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By contrast, in its own motion for summary disposition and in response to ACE and
Allianz’s joint motion for summary disposition, Ironshore argued that its policy coverage was
specifically written to be excess whenever there was other collectible insurance. It further
argued that the ACE and Allianz policies both stated that their “other insurance” clauses would
not apply when the “other insurance” is written to be excess of their policies. Ironshore then
reasoned that by operation of this language, the ACE and Allianz policies ceased to be excess
under these circumstances and must be exhausted before Ironshore’s policy was exposed to
liability. Ironshore argued, in the alternative, that at most, liability for the “second layer” of
coverage would simply need to be apportioned among the three insurers on the basis of the
policy limits.
After considering the language of the policies, and attempting to reconcile them, the trial
court held that the ACE and Allianz policies were higher in priority than the Ironshore policy
and, therefore, the coverage provided by those policies must be exhausted before Ironshore’s
coverage was triggered. Accordingly, the court denied ACE and Allianz’s joint motion for
summary disposition and granted summary disposition in Ironshore’s favor. Thereafter, the trial
court considered and denied motions for reconsideration and these appeals ensued.
This Court reviews de novo a trial court’s decision regarding a motion for summary
disposition. Spiek v Dep’t of Transp, 456 Mich. 331, 337; 572 NW2d 201 (1998). The parties, in
their cross motions, all moved for summary disposition pursuant to MCR 2.116(C)(10).
“Summary disposition is appropriate under MCR 2.116(C)(10) if there is no genuine issue
regarding any material fact and the moving party is entitled to judgment as a matter of law.”
West v Gen Motors Corp, 469 Mich. 177, 183; 665 NW2d 468 (2003). When considering a
motion for summary disposition under MCR 2.116(C)(10), a court must view the evidence
submitted in the light most favorable to the nonmoving party. Id. The interpretation of an
insurance contract is a question of law that this Court reviews de novo. Corwin v
DaimlerChrysler Ins Co, 296 Mich. App. 242, 253; 819 NW2d 68 (2012).
An analysis of the issue presented on appeal must begin with reviewing principles
applicable to the interpretation of contracts. “[I]nsurance policies are subject to the same
contract construction principles that apply to any other species of contract.” Rory v Continental
Ins Co, 473 Mich. 457, 461; 703 NW2d 23 (2005). “The primary goal in the construction or
interpretation of any contract is to honor the intent of the parties[.]” Klapp v United Ins Group
Agency, Inc, 468 Mich. 459, 473; 663 NW2d 447 (2003) (quotation marks and citation omitted).
Insurance-contract language is given its ordinary and plain meaning, Royal Prop Group, LLC v
Prime Ins Syndicate, Inc, 267 Mich. App. 708, 715; 706 NW2d 426 (2005), and courts must “give
effect to every word, phrase, and clause in a contract and avoid an interpretation that would
render any part of the contract surplusage or nugatory,” Klapp, 468 Mich. at 468. “If the
contractual language is unambiguous, courts must interpret and enforce the contract as
written[.]” In re Smith Trust, 480 Mich. 19, 24; 745 NW2d 754 (2008).
Generally, there are three tiers, or layers, of insurance coverage that govern payment
priority: (1) primary coverage; (2) excess “other insurance” coverage; and (3) “true excess”
coverage. See Bosco v Bauermeister, 456 Mich. 279, 281-282, 304; 571 NW2d 509 (1997). In
Bosco, the Court explained that “true excess” coverage “occurs where a single insured has two
policies covering the same loss, but one policy is written with the expectation that the primary
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will conduct all of the investigation, negotiation and defense of claims until its limits are
exhausted. . . .” Id. at 295 (quotation marks and citation omitted). In this case, the trial court
concluded that all three policies provided “true excess” coverage. Consequently, it turned to the
“other insurance” clauses within the policies in an effort to discern the priority of three policies
occupying the same tier.
In St Paul Fire & Marine Ins Co v Am Home Assurance Co, 444 Mich. 560, 564; 514
NW2d 113 (1994), the Michigan Supreme Court explained that an “other insurance” clause is a
provision included in insurance contracts “to vary or limit the insurer’s liability when additional
insurance coverage can be established to cover the same loss.” In general, there are three types
of “other insurance” clauses: (1) pro-rata clauses, (2) escape or no-liability clauses, and (3)
excess clauses. Id. at 565. A pro-rata clause “purports to limit the insurer’s liability to a
proportionate percentage of all insurance covering the event[.]” Id. Usually, a pro-rata clause
includes language that “creates a formula for establishing the liability of an insurer when other,
collectible insurance exists on a proportionate basis.” See id. at 566-567. An escape or no-
liability “other insurance” clause provides that there shall be no liability if the risk is covered by
other insurance. Id. at 565. Lastly, an excess “other insurance” clause “limits the insurer’s
liability to the amount of loss in excess of the coverage provided by the other insurance.” Id.
When competing policies all contain “other insurance” clauses, coverage disputes
inevitably arise. In Pioneer State Mut Ins Co v TIG Ins Co, 229 Mich. App. 406, 411-412; 581
NW2d 802 (1998), this Court recognized that “[a] variety of combinations of the clauses may
occur (e.g., pro rata versus excess, pro rata versus escape, excess versus excess) and the courts
have developed different rules for resolving these conflicts.” For example, in St Paul Fire, 444
Mich. at 575-576, the Court held that a policy with a pro-rata “other insurance” clause will pay
before a policy with an excess “other insurance” clause. In St Paul Fire, id. at 577, the Court
also recognized that it may be necessary to declare “other insurance” clauses irreconcilable
“when the applicable portions of the two other insurance clauses are identical excess clauses.”
Under such circumstances, “there is no rational reason to give the language of one policy
preference over identical language in the other policy.” Id. at 578. In Pioneer, 229 Mich. App. at
414, this Court held that there was no rational way to reconcile competing excess clauses and
therefore concluded that coverage should be apportioned between the policies in a reasonably
equitable manner.
ACE and Allianz argue that their policies include excess “other insurance” clauses while
Ironshore’s is intended to be a pro-rata “other insurance” policy. They then rely on St Paul Fire,
444 Mich. at 575-576, for the proposition that a policy with a pro-rata “other insurance” clause
will provide coverage before a policy with an excess “other insurance” clause. However,
appellants’ analysis and interpretation does not comport with the plain language of the policies.
Both the ACE and Allianz policies contain language typical of an excess “other
insurance” clause. ACE’s policy provides: “If valid and collectible ‘other insurance’ applies to
damages that are also covered by this policy, this policy will apply excess of the ‘other
insurance’ and will not contribute with such ‘other insurance’.” Similarly, the Allianz policy
states: “If valid and collectible Insurance applies to damages that are also covered by this policy,
this policy will apply as excess of the ‘other insurance’ and will not contribute with the ‘other
insurance’.” Ironshore/XL’s Endorsement 15 provides that “[i]f there is other collectible
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insurance the insurance provided by this coverage form is excess over such other collectible
insurance,” and the policy further provides:
d. When this Coverage Form and any other Coverage Form or policy
covers on the same basis, either excess or primary, we will pay only our share.
Our Share is the proportion that the Limit of Insurance of our Coverage Form
bears to the total of the limits of all the Coverage Forms and policies covering on
the same basis.
ACE and Allianz argue that this additional language unambiguously established that the “other
insurance” clause incorporated into the Ironshore policy is a pro-rata clause. We disagree.
The language of the Ironshore policy, as provided in Endorsement 15, clearly and
unambiguously evidences an intent that the policy will be “excess” over all other collectible
insurance. That the Ironshore policy also contains some language generally indicative of a pro-
rata “other insurance” clause does not nullify that intent. Indeed, when carefully examined, the
policy language at issue does not even suggest the presence of conflicting provisions within the
Ironshore policy. We note that in subparagraph 5(d), the Ironshore policy merely provides for a
pro-rata obligation when the Ironshore policy and “any other” policy “covers on the same basis. .
.” (emphasis added). In the present case, the phrase “covers on the same basis” can only
reasonably refer to circumstances where the competing coverage is also “excess.” Thus, this
language merely reflects the law that when two competing policies are irreconcilable because
their “other insurance” clauses are identical, “the courts should attempt to apportion coverage
between the policies in a reasonably equitable manner.” See Pioneer, 229 Mich. App. at 414-415
(“Here, we are not confronted with two different ‘layers’ of coverage. Rather, the excess
provisions of both of the competing policies are, for all intents and purposes, essentially at the
same ‘layer.’ Under such circumstances, liability is to be apportioned on the basis of the policy
limits.”). Essentially, the Ironshore pro-rata language simply requires Ironshore to do by
contract what it would be required to do under prevailing legal authority.
Because it appears that all three policies contain excess “other insurance” clauses, it
would be natural to conclude that their obligations, therefore, would simply be proportionately
shared. However, the additional language found in the ACE and Allianz “other insurance”
clauses requires one to engage in further analysis. As indicated earlier, ACE’s “other insurance”
clause provides:
J. Other Insurance
If valid and collectible “other insurance” applies to damages that are also
covered by this policy, this policy will apply excess of the “other insurance” and
will not contribute with such “other insurance”. This provision will not apply if
the “other insurance is written to the excess of this policy. [Emphasis added.]
Similarly, the Allianz “other insurance” clause states:
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L. Other Insurance
If valid and collectible insurance applies to damages that are also covered
by this policy, this policy will apply as excess of the “other insurance” and will
not contribute with the “other insurance”. However, this provision will not apply
if the “other insurance” is specifically written to be excess of this policy.
[Emphasis added.]
Considering the structure of the paragraphs, “this provision” clearly refers to the “this policy will
apply excess of” clause. Consequently, based on the plain language of the contract, ACE’s and
Allianz’s policies evidence an intent that their coverage would be “excess” to other valid and
collectible insurance unless the “other insurance” is written to be excess of their policies.
Reconciling this additional language found in ACE’s and Allianz’s policies with the
Ironshore policy compels us to conclude that the trial court did not err when it held that ACE and
Allianz were first in priority. Because the Ironshore/XL policy was written to be excess of all
other insurance coverage, and the ACE and Allianz policies provide that their “other insurance”
clauses will not apply when the “other insurance” is written to be excess of their policies, it must
be concluded that only the Ironshore “other insurance” clause is truly excess. Put another way,
the ACE and Allianz policies cease to be excess under the circumstance present in this case, and
the Ironshore policy is excess over any other collectible insurance.
In response to this reasoning, ACE and Allianz argue that because the Ironshore policy
does not specifically, by name, reference the ACE and Allianz policies, the Ironshore policy is
not specifically written to be in excess of their policies. However, accepting this interpretation
of their policies would render nugatory the clear language of the Ironshore policy that its
coverage is excess of all other collectible insurance. Courts must give effect to every word,
clause, and phrase in a contract and must avoid rendering any part surplusage or nugatory.
Klapp, 468 Mich. at 468. Moreover, in St Paul Fire, 444 Mich. at 562, the Court held that courts
must attempt to reconcile the plain language of competing policies before imposing a proration
in accordance with the policy limits. The foregoing analysis furthers the Supreme Court’s
directives. Accordingly, the trial court did not err when it held that the ACE and Allianz policy
limits must be exhausted before any obligation is imposed on Ironshore.
Affirmed.
/s/ Michael J. Riordan
/s/ Patrick M. Meter
/s/ Karen M. Fort Hood
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