Old Republic Insurance Co. v. Stratford Insurance Company

United States Court of Appeals
For the First Circuit
Nos. 14-1179
14-1229
OLD REPUBLIC INSURANCE COMPANY,
Plaintiff, Appellant, Cross-Appellee,
v.
STRATFORD INSURANCE COMPANY,
Defendant, Appellee, Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Landya McCafferty, U.S. District Judge]
Before
Lynch, Chief Judge,
Howard and Barron, Circuit Judges.
Daniel W. Gerber, with whom Jonathan L. Schwartz, Goldberg
Segalla LLP, Naomi L. Getman, Andrew R. Schulman, and Getman,
Schulthess & Steere, P.A. were on brief, for appellant, cross-
appellee.
Laurence J. Rabinovich, with whom Hiscock & Barclay LLP,
Richard C. Nelson, and Nelson Kinder & Mosseau PC were on brief,
for appellee, cross-appellant.
January 26, 2015
LYNCH, Chief Judge. This appeal arises out of a dispute
between two insurers as to their respective duties to defend and
indemnify a tractor-trailer involved in an auto collision causing
serious injuries. The owner of the tractor, Ryder Truck Rentals
("Ryder"), obtained primary insurance for the tractor through Old
Republic Insurance Company ("Old Republic"). The operator of the
tractor, DAM Express ("DAM"), obtained separate insurance through
Stratford Insurance Company ("Stratford"). Old Republic brought
this suit to determine Stratford's insurance obligations.
The first question is whether the Stratford Policy is co-
primary with the coverage provided by Old Republic for the tractor
leased from Ryder. The answer hinges on the intent of the
contracting parties, and, more specifically, on which sources a
court may consult to determine that intent under New Hampshire law.
We conclude that the district court committed no legal error in
considering the Stratford Policy as a whole and turning to
objective extrinsic evidence to resolve inconsistencies found
therein. We affirm the district court's conclusion that DAM and
Stratford never intended the Stratford Policy to provide primary
coverage to the tractor otherwise covered by Old Republic.
We must then determine Stratford's corresponding duty to
defend as an excess insurer of the tractor. The answer is far from
clear under New Hampshire law. The district court interpreted a
New Hampshire case from 1991 as establishing a rule whereby an
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insurer's duty to defend is the same regardless of whether its
designation is as primary or excess. After a close analysis of New
Hampshire precedent, we conclude that the best course of action is
to certify this question of New Hampshire law to the New Hampshire
Supreme Court.
I. Factual Background
On April 7, 2010, a tractor-trailer crashed into Daniel
and Karla Bendor's vehicle in Connecticut, causing bodily injury.
The tractor was owned by Ryder, who had leased it to DAM in order
to transport a trailer owned by Coca-Cola. The driver, Antoine
Girginoff, was employed by DAM.
DAM is a for-hire motor company which operates out of
Manchester, New Hampshire. As described by the office manager,
DAM's work "falls into two categories." "One category is small
package delivery such as consumer goods which is conducted in vans
and small trucks owned by D.A.M." When business is particularly
busy, DAM rents an extra van of a similar type, for approximately
$5,000 per year. "The second category [is] transportation of
larger shipments in tractor-trailers." DAM leases these tractors
from Ryder for approximately $240,000 per year.
DAM and Ryder's lease agreement specified that Ryder was
responsible for obtaining liability insurance for the tractor. The
lease agreement reads:
A. Liability Insurance. The party designated
on Schedule A (the "Insuring Party") agrees to
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furnish and maintain, at its sole cost, a
policy of automobile liability insurance with
limits specified on each Schedule A for death,
bodily injury and property damage, covering
both you and Ryder as insureds for the
ownership, maintenance, use, and operation of
each Vehicle ("Liability Insurance"). . . .
The Liability Insurance must provide that its
coverage is primary and not additional or
excess coverage over insurance otherwise
available to either party . . . . The
Insuring Party agrees to designate the other
party as an additional insured on the
Liability Insurance . . . .
On the form titled "Schedule A," the Insuring Party is identified
as Ryder alone. DAM agreed that "Ryder shall have the sole right
to conduct accident investigations and administer claims handling
and settlements and [DAM] shall adhere to and accept Ryder's
conclusions and decisions."
Ryder obtained liability insurance from Old Republic,
under which Old Republic agreed to "pay all sums an 'insured'
legally must pay as damages because of 'bodily injury' or 'property
damage' to which this insurance applies, caused by an 'accident'
and resulting from the ownership, maintenance or use of a covered
'auto'" and to "defend any 'suit' asking for these damages."
"Insureds" included Ryder "for any covered 'auto'" and "[a]ny
person or organization for whom [Ryder] is obligated by written
agreement to provide liability insurance . . . ." Covered "autos"
included "any 'auto,'" the definition of which included
"'[t]railers' with a load capacity of 2000 pounds or less designed
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primarily for travel on public roads." For a coverage limit of
$1,000,000, Ryder paid a premium of $459,961.
In a section titled "Other Insurance," Old Republic
specified: "For any covered 'auto' you own, this Coverage Form
provides primary insurance." "However, while a covered 'auto'
which is a 'trailer' is connected to another vehicle, the Liability
Coverage this Coverage Form provides for the 'trailer' is: . . .
[p]rimary while it is connected to a covered 'auto' you own."
DAM separately obtained insurance from Stratford.
Stratford agreed to "pay all sums an 'insured' legally must pay as
damages because of 'bodily injury' or 'property damage' to which
this insurance applies, caused by an 'accident' and resulting from
the ownership, maintenance or use of a covered 'auto,'" and to
"defend any 'insured' against a 'suit' asking for such damages."
The Stratford Policy specified three categories of vehicles as
covered "autos:" (1) "specifically described 'autos,'" (2) "hired
'autos,'" and (3) "nonowned 'autos.'" For a maximum coverage of
$1,000,000, DAM paid a premium of $4,808.
"Specifically described 'autos'" are defined as "[o]nly
those 'autos' described in Item Three of the Declarations for which
a premium charge is shown (and for Liability Coverage any
'trailers' [DAM doesn't] own while attached to any power unit
described in Item Three)." Item Three lists two Chevy Express vans
and "any non-owned trailer while attached to a covered auto."
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"Hired 'autos'" are defined as "[o]nly those 'autos' [DAM]
lease[s], hire[s], rent[s] or borrow[s]." In Item Four, DAM
estimated the cost of hire of these autos to be $5,000 per year.
The $5,000 per year estimate yielded a liability premium of $400.
"Nonowned 'autos'" are defined as "[o]nly those 'autos' [DAM]
do[es] not own, lease, hire, rent or borrow that are used in
connection with [DAM's] business."
In the "Other Insurance" section, the Stratford Policy
specifies that it provides primary coverage for autos that fall
into one of these three categories of covered autos. It reads:
This Coverage Form's Liability Coverage is
primary for any covered "auto" while hired or
borrowed by [DAM] and used exclusively in
[DAM's] business as a "trucker" and pursuant
to operating rights granted to [DAM] by a
public authority. This Coverage Form's
Liability Coverage is excess over any other
collectible insurance for any covered "auto"
while hired or borrowed from [DAM] by another
"trucker." However, while a covered "auto"
which is a "trailer" is connected to a power
unit, this Coverage Form's Liability Coverage
is:
(1) On the same basis, primary or excess, as
for the power unit if the power unit is a
covered "auto".
(2) Excess if the power unit is not a covered
"auto".
The Bendors sued Ryder, DAM, and Girginoff in federal
court in Connecticut on December 3, 2010, for damages in connection
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with the April 7, 2010, accident.1 As required by its policy with
Ryder, Old Republic immediately began providing a defense. In
March 2011, Old Republic asked Stratford to participate in the
defense of its insureds.
In August 2011, after learning about the underlying
lawsuit, Stratford proposed a general change endorsement to its
policy with DAM that was retroactively "effective on the inception
date of the policy." That endorsement specified: "For a covered
'auto' leased or rented to [DAM] by [Ryder] or any related entity,
LIABILITY COVERAGE is excess over any other collectible insurance."
Stratford and DAM executed the agreement on November 29, 2011.
By letter dated December 1, 2011, Stratford informed Old
Republic that it had no obligation to share in the cost of
defending or indemnifying its insureds against the underlying
lawsuit. Stratford's Senior Litigation Specialist, Sandra
McFarlane, wrote that the "endorsement reflects [DAM]'s
understanding that [it] had opted to purchase primary insurance for
[its] Ryder vehicles through Ryder." McFarlane stated that "[a]ny
coverage provided to either DAM or Mr. Girginoff by Stratford is
excess to the coverage provided by Ryder and/or Old Republic." For
this reason, McFarlane took the position that "Stratford is
not . . . obligated to, and will not, share in the cost of
defending or indemnifying [their] mutual insureds at this time."
1
Coca-Cola was subsequently added as a defendant.
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II. Present Litigation
Old Republic filed suit against Stratford on June 1,
2012, in state court in New Hampshire. Old Republic sought a
declaratory judgment pursuant to New Hampshire Revised Statute
§ 491:22 et seq. that Old Republic and Stratford have co-primary
obligations to defend and indemnify DAM, Girginoff, and Coca-Cola,
with accompanying claims for equitable reformation, unjust
enrichment, and waiver and estoppel. Stratford removed the case to
the United States District Court for the District of New Hampshire,
and counterclaimed for a declaratory judgment that Old Republic
provides primary coverage, and Stratford provides excess coverage,
for the liability of DAM, Girginoff, and Coca-Cola.
The district court granted in part and denied in part
both parties' motions for summary judgment. Old Republic Ins. Co.
v. Stratford Ins. Co., No. 12-cv-256-LM, 2014 WL 309390, at *1
(D.N.H. Jan. 27, 2014). The district court concluded that, as to
the tractor, "the Stratford policy, as initially issued, did not
require Stratford to provide primary coverage for any losses that
may ensue in the underlying action." Id. at *5. Nevertheless,
"because Stratford concedes that its policy provides excess
coverage," the district court held that Stratford "is obligated to
share equally in the costs of defending its insureds in the
underlying action." Id. at *7. Old Republic's additional claims
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for equitable reformation, unjust enrichment, and waiver and
estoppel were dismissed. Id.
Both parties appealed. Old Republic argues that "the
district court erred in finding that coverage under the Stratford
Policy is excess over coverage under the [Old Republic] Policy."
According to Old Republic, the plain language of the original
policy made Stratford's coverage primary as to the tractor in
addition to its own, and the subsequent endorsement changing the
coverage to excess is invalid and unenforceable. Stratford defends
the district court's holding that it is an excess insurer, but
contends that the district court erred in requiring it to share
equally the costs of defense nonetheless.
We review the district court's grant of summary judgment
under Federal Rule of Civil Procedure 56 de novo, and affirm "only
if the record discloses no genuine issue as to any material fact
and the moving party is entitled to judgment as a matter of law."
Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of
London, 637 F.3d 53, 56 (1st Cir. 2011). In this analysis, we view
the facts in the light most favorable to the nonmoving party and
draw all reasonable inferences in that party's favor. Id. The
presence of cross-motions for summary judgment does not affect this
analysis. Scottsdale Ins. Co. v. Torres, 561 F.3d 74, 77 (1st Cir.
2009).
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III. Stratford's Coverage
In New Hampshire, "[t]he fundamental goal of interpreting
an insurance policy, as in all contracts, is to carry out the
intent of the contracting parties." Bates v. Phenix Mut. Fire Ins.
Co., 943 A.2d 750, 752-53 (N.H. 2008) (quoting Tech-Built 153, Inc.
v. Va. Sur. Co., 898 A.2d 1007, 1009 (N.H. 2006)); see also Hansen
v. Sentry Ins. Co., 756 F.3d 53, 61 (1st Cir. 2014). Analyzing the
language of the policy and an extrinsic agreement, the district
court concluded that DAM and Stratford never intended to provide
co-primary coverage to the tractor DAM leased from Ryder. Old
Republic, 2014 WL 309390, at *5-6.
The key question here under New Hampshire law is what
sources a court may consult -- and in what circumstances -- to
ascertain the parties' intent for coverage. "The interpretation of
a contract, including whether a contract term is ambiguous, is
ultimately a question of law . . . ." Birch Broad., Inc. v.
Capitol Broad. Corp., 13 A.3d 224, 228 (N.H. 2010). "[T]o
determine what the parties, as reasonable people, mutually
understood the ambiguous language to mean necessarily involves
factual findings . . . ." Id.Our search for the parties' intent as to the coverage of
the tractor begins with the words of the policy itself. Bates, 943
A.2d at 753. The New Hampshire Supreme Court recently summarized:
In interpreting policy language, we look to the
plain and ordinary meaning of the policy's
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words in context. We construe the terms of the
policy as would a reasonable person in the
position of the insured based upon more than a
casual reading of the policy as a whole.
Policy terms are construed objectively, and
where the terms of a policy are clear and
unambiguous, we accord the language its natural
and ordinary meaning. . . .
White v. Vt. Mut. Ins. Co., No. 2013-569, 2014 WL 6533298, at *3
(N.H. Nov. 21, 2014) (quoting Bates, 943 A.2d at 753). In this
inquiry, we are not constrained to the specific terms of the
provision involved; we must read the policy "as a whole." See
Great Am. Dining, Inc. v. Phila. Indem. Ins. Co., 62 A.3d 843, 848
(N.H. 2013).
To go beyond the four corners of the policy, however,
generally requires ambiguity. See White, 2014 WL 6533298, at *3;
Birch Broad., 13 A.3d at 228; Lawyers Title Ins. Corp. v. Groff,
808 A.2d 44, 48 (N.H. 2002). Clear and unambiguous policy language
is generally the best evidence of the parties' intent, and courts
do not lightly disregard it. See White, 2014 WL 6533298, at *3.
When faced with an internally inconsistent policy, the
New Hampshire Supreme Court has looked to "objective extrinsic
evidence," such as other agreements between relevant parties, to
"conclusively resolve[]" the intent of the contracting parties.
See Tech-Built, 898 A.2d at 1010. In Tech-Built, the New Hampshire
Supreme Court considered a contract between Surge, an employee
leasing company, and its insurer, Virginia Surety. Id. at 1008-09.
At issue was whether Surge's Virginia Surety policy extended
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coverage to Surge employees who were leased to Tech-Built, a
corporation involved in the construction industry, or to Tech-Built
itself. Id. at 1009. In the section titled, "Who Is Insured," the
policy stated: "You are insured if you are an employer named in
Item 1 of the Information Page." Id. The court "acknowledge[d]
that Item 1 of the information page itself reference[d] Surge 'etal
[sic]' and the '[o]ther workplaces' subsection reference[d] the
endorsement entitled 'Additional Named Insured and/or Locations.'"
Id. (third and fourth alterations in original). The endorsement in
turn listed over 150 companies, including Tech-Built. Id. The
court noted, however, that "[o]ther language within the policy
itself . . . reveal[ed] that the contracting parties anticipated
that a single employer was named as the insured, namely Surge, and
that coverage for that employer extended to all 'workplaces' of
that employer listed in the endorsement . . . ." Id. at 1009-10.
In examining the entire policy, the court found a lack of clarity
as to what the parties intended. See id.
The New Hampshire Supreme Court used Surge's leasing
agreement with Tech-Built to "inform[]" its understanding of the
Virginia Surety Policy. Id. at 1011. The court concluded that
Surge's leasing agreement with Tech-Built "memorialized" Surge's
"clear intent . . . to secure workers' compensation coverage only
for its leased employees." Id. at 1010. The court recognized
that, "in general, we do not look beyond the four corners of the
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insurance contract to discern the intent of the contracting parties
regarding the scope and extent of insurance coverage." Id. But,
the court explained, "we will not ignore that [objective extrinsic]
evidence in favor of dogmatic adherence to insurance maxims." Id.
In this case, the Stratford Policy provides primary
insurance coverage to three categories of "autos," including, as is
relevant here, "hired 'autos.'" "Hired 'autos'" are defined as
"those 'autos' [DAM] lease[s], hire[s], rent[s] or borrow[s]." The
Stratford Policy states that "[t]his Coverage Form's Liability
Coverage is primary for any covered 'auto' while hired or borrowed
by [DAM] and used exclusively in [DAM's] business as a
'trucker' . . . ."
To repeat, DAM leased or rented two types of vehicles in
the course of its business. First, DAM rented small vans, similar
to those it owned, for approximately $5,000 per year to deliver
small packages during busy periods. Second, DAM leased large
tractors from Ryder for approximately $240,000 per year to
transport palletized freight. There is no dispute that the parties
intended the Stratford Policy to provide primary coverage for the
small vans DAM owned and rented. We must determine whether the
parties intended the policy's primary coverage to also extend to
the large tractors leased from Ryder.
If we were to confine our consideration to only the
definition of "hired 'autos,'" primary coverage would apply to the
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large tractors in the same way as the small vans.2 Since DAM
leased the large tractors from Ryder, they would qualify as "hired
'autos,'" for which coverage would be primary. Indeed, Stratford's
Senior Litigation Specialist, Sandra McFarlane, conceded that the
definition of "hired 'autos'" would include the Ryder tractor, but
maintained that this was not the parties' intent. She explained,
"I think the problem was that there was an exposure out there that
wasn't intended to be covered by the policy."
The district court noted that, "read in isolation, the
policy's coverage provision and its definition of 'hired auto'
would appear to provide primary coverage for the tractor that
Girginoff was driving." Old Republic, 2014 WL 309390, at *5. But,
the district court found, "[t]he rest of the policy reveals" a
contrary intent. Id. We agree.
It is a cardinal principle of contract interpretation
that we must read the policy "as a whole." See Great Am. Dining,
62 A.3d at 848. For this reason, our analysis cannot begin and end
with the definition of "hired 'autos.'" Here, other provisions
2
We need not dwell on Stratford's argument that the trailer
would not be covered even if the tractor was. "Specifically
described 'autos'" are defined as "those 'autos' described in Item
Three of the Declarations for which a premium charge is shown (and
for Liability Coverage any 'trailers' you don't own while attached
to any power unit described in Item Three)." The definition of
"auto" includes trailers. Item Three includes "any non-owned
trailer while attached to a covered auto," with a liability premium
of $254. The trailer is therefore an "'auto' described in Item
Three of the Declarations for which a premium charge is shown" so
long as the tractor to which it is attached is a covered auto.
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within the policy itself reveal a more tailored intent to insure
only the smaller side of DAM's business, which conducted small
package delivery in small vans and trucks. Highlighting this side
of DAM's business, the Stratford Policy describes DAM's business as
the delivery of office supplies and small household appliances.
There is no mention in the policy of the additional portion of the
business concerned with the transportation of palletized freight.
DAM listed two of its small vans in the itemization of
"specifically described 'autos,'" and provided an estimate for the
cost of "hired 'autos'" that is consistent with similar small vans.
DAM did not describe the portion of the business concerning
palletized freight involving Ryder tractors.
We find the estimated cost of hire for "hired 'autos,'"
listed in the Stratford Policy, to be particularly instructive as
to the parties' intent. The estimated cost of hire is a term
within the four corners of the policy and cannot be ignored. For
"hired 'autos,'" DAM estimated the yearly cost of hire to be
$5,000. The parties agree that the cost of hire for small vans
similar to those DAM owned was $5,000 per year, and that the cost
of hire for the Ryder tractors was approximately $240,000 per year.
The $5,000 estimate is not binding on the parties, but it is
informative of their intent when the policy was created. Although
the concurrence posits that an insured might lowball his estimate
to reduce his premium, the dramatic $235,000 difference between the
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estimate listed in the contract and the yearly cost to hire the
Ryder tractors in this case belies any suggestion that Stratford
and DAM intended their policy to provide primary coverage for those
tractors.3 This incredibly low amount evidences that DAM attempted
to insure its own vans as "specifically described 'autos'" and
similar hired vans as "hired 'autos,'" and not the Ryder tractors.
Further, contract interpretation rules require consideration of the
cost estimate within the four corners of the policy as indicative
of the intent as to what was being covered.
As in Tech-Built, DAM's lease agreement with Ryder
provides objective extrinsic evidence of the intent animating the
Stratford Policy as to the scope of coverage. There, the New
Hampshire Supreme Court used an extrinsic lease agreement as a
means to obtain clarity as to whom coverage applied. See 898 A.2d
at 1010. Tech-Built made it clear that inconsistent policy
language must be viewed in terms of the background, circumstances,
and context in which the policy was negotiated. See id. Here, we
use a similar extrinsic lease agreement to obtain clarity as to
3
In addition, there is no indication that DAM "lowballed"
its estimate in the hopes of reducing its premium for an intended
coverage. As noted at oral argument, "[t]here has been no
suggestion whatsoever that DAM misrepresented its cost of hire.
The question rather was whether, when DAM represented its cost of
hire, it was referring to the vans, which is what they say they
were referring to, or whether they were referring to something
else." Indeed, when Stratford subsequently learned of the Ryder
tractors, it chose not to retroactively increase the premium, but
to simply include the tractors in the negotiations for renewal
going forward.
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which vehicles coverage applied given the potential inconsistency
within the Stratford Policy. DAM and Ryder's lease agreement
specified that Ryder was the "party responsible for liability
insurance" for the tractors. DAM agreed that "Ryder shall have the
sole right to conduct accident investigations and administer claims
handling and settlements and [DAM] shall adhere to and accept
Ryder's conclusions and decisions."
The district court found that this agreement between DAM
and Ryder was "entirely consistent" with the portions of the
Stratford Policy that suggest that DAM intended to insure only its
small vans through Stratford. See Old Republic, 2014 WL 309390, at
*5. "When providing information on the scope of the coverage it
needed for hired autos," the district court explained, "DAM knew
that Ryder was responsible for liability insurance on the tractors
it leased to DAM, and DAM said nothing to Stratford about those
tractors." Id. at *6. "In sum, it cannot have been the intent of
the parties for Stratford to provide primary coverage on a risk
that DAM never sought to insure and that . . . Stratford knew
nothing about when it issued DAM its policy and set the premium for
it." Id.
Considering the entirety of the Stratford Policy,
including the pricing estimate, background, and circumstances, as
informed by the lease agreement between DAM and Ryder, we agree
with the district court that the Stratford Policy was never
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intended to provide primary insurance for the Ryder tractors.
Neither Old Republic nor the concurrence suggests that the policy
or the extrinsic evidence supports the proposition that the parties
did intend to provide primary coverage for the tractors; rather,
they argue that the parties should be restricted to the one
provision in the policy defining "hired 'autos'" despite any
evidence of a contrary intent. The district court committed no
legal error in its analysis of the Stratford Policy and DAM's lease
with Ryder. Even viewing the facts in the light most favorable to
Old Republic, the record demonstrates that DAM and Stratford did
not intend the Stratford Policy to provide primary insurance for
the Ryder tractors, which Ryder was already insuring through Old
Republic as per its agreement with DAM. See Tech-Built, 898 A.2d
at 1010 (finding "no genuine dispute of material fact concerning
the clear intent memorialized in the lease agreement"). We repeat
what the unanimous court in Tech-Built stated: under New Hampshire
insurance law, "where the intent of the contracting parties can be
conclusively resolved by objective extrinsic evidence, . . . we
will not ignore that evidence in favor of dogmatic adherence to
insurance maxims." Id. So too, here.
Because we conclude that Stratford's policy with DAM
never provided co-primary coverage for the Ryder tractor, we,
unlike the concurrence, need not consider whether New Hampshire law
would conclude that Stratford and DAM's later post-loss General
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Change Endorsement is a valid contract modification, which Old
Republic disputes. We do note that Stratford has now committed
itself to provide excess coverage as to the Ryder tractor both in
its endorsement and independently in its representations to the
district court and this court.
IV. Stratford's Duty to Defend
The district court stated that, in New Hampshire, "'the
duty of an insurer to defend is the same whether its potential
liability is either as a primary or as an excess carrier.'" Old
Republic, 2014 WL 309390, at *7 (quoting Universal Underwriters
Ins. Co. v. Allstate Ins. Co., 592 A.2d 515, 517 (N.H. 1991)).
"[B]ecause Stratford concedes that its policy provides excess
coverage," the district court concluded, "it is obligated to share
equally in the costs of defending its insureds in the underlying
action." Id. Stratford appeals and argues that, as an excess
insurer, its duty to defend should be excess to that of the primary
insurer.
In 2011, the New Hampshire Supreme Court noted that it
"ha[s] never addressed the precise issue of allocation of defense
costs between a primary insurer and an excess insurer."
Progressive N. Ins. Co. v. Argonaut Ins. Co., 20 A.3d 977, 983
(N.H. 2011). In that case, the court declined to review a trial
court's requirement that an excess insurer pay its pro rata share
of defense costs since the issue was not properly raised in the
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notice of appeal. Id. at 980, 983. The court was also unwilling
to hold that the trial court had committed plain error given the
unsettled nature of the issue. Id. at 983.
A previous New Hampshire Supreme Court decision,
Universal Underwriters, had touched on the same issue briefly. In
Universal Underwriters, the New Hampshire Supreme Court analyzed
the coverage provided by two insurance companies, Universal and
Allstate, for a leased vehicle when both purported to be excess
carriers. Universal Underwriters, 592 A.2d at 516. The court held
that Universal provided primary coverage up to $25,000, and that
both Universal and Allstate provided co-primary coverage past that
amount. Id. at 517. On the duty to indemnify, the court held that
"the cost of settlement in this case in excess of $25,000 is to be
shared pro rata by Universal and Allstate." Id. On the duty to
defend, however, the court split the total defense costs equally
between the two carriers. Id. at 517-18. Rejecting the trial
court's pro rata division, the New Hampshire Supreme Court stated
that "the duty of an insurer to defend is the same whether its
potential liability is either as a primary or as an excess
carrier." Id. at 517.
The district court interpreted Universal Underwriters to
require primary and excess carriers to equally share the costs of
defense. See Old Republic, 2014 WL 309390, at *7. The majority
rule is that "the excess liability carrier is not obligated to
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participate in the defense until the primary policy limits are
exhausted." 14 Couch on Insurance § 200:41 (3d ed. 2014); see also
id. § 200:38; Schneider Nat'l Transp. v. Ford Motor Co., 280 F.3d
532, 538 (5th Cir. 2002). The district court's contrary conclusion
follows from the statement of the New Hampshire Supreme Court in
Universal Underwriters, and the court's holding that the two
insurers must split the defense costs equally despite the fact that
only Universal provided primary coverage for the first $25,000.
See Universal Underwriters, 592 A.2d at 517-18.
Stratford nevertheless argues that Universal Underwriters
cannot be taken at its word. Stratford stresses that it is not
asking this court to "overrule" the New Hampshire Supreme Court on
an issue of New Hampshire state law. Instead, Stratford claims
that "[i]t is . . . not at all clear that the Supreme Court of New
Hampshire actually held that excess insurers must share defense
costs equally with primary insurers" given the context within which
Universal Underwriters was decided and the citations on which it
relies.
First, Stratford argues that the New Hampshire Supreme
Court would have explained its dramatic shift away from the general
rule if this was actually its intent. Critically, a federal
district court decision interpreting New Hampshire law two years
before Universal Underwriters appears to follow the general rule.
See Town of Stoddard v. N. Sec. Ins. Co., 718 F. Supp. 1062, 1065-
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66 (D.N.H. 1989) (Devine, C.J.). In that case, the district court
differentiated between the primary and excess insurer, and held
that the primary insurer alone was obligated to reimburse the
insured for the costs of the defense. See id. at 1066. Stratford
concedes that "[i]t is certainly possible . . . that Universal
Underwriters reflects the announcement by the Supreme Court of New
Hampshire of a new position on the issue and a repudiation of the
approach reflected in Town of Stoddard." But, "[t]here is no
indication . . . in Universal Underwriters itself that the court
was introducing a new rule of law . . . ."
Second, Stratford argues that the two cases cited by the
New Hampshire Supreme Court in Universal Underwriters do not
support reading the decision as adopting a new rule. In Universal
Underwriters, the court cited a decision from the Georgia Court of
Appeals, Zurich Insurance Co. v. New Amsterdam Casualty Co., 160
S.E.2d 603, 605 (Ga. Ct. App. 1968); an earlier decision from the
New Hampshire Supreme Court, Liberty Mutual Insurance Co. v. Home
Insurance Indemnity Co., 351 A.2d 891, 895 (N.H. 1976); and a
treatise, 14 Couch on Insurance § 51:148 (2d ed. 1982). See 592
A.2d at 517.
In Zurich Insurance, the Georgia Court of Appeals stated
that one insurer, Zurich, "had a potential liability, either as
primary or excess carrier, in either of which cases its duty to
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defend was the same." 160 S.E.2d at 605.4 Zurich had defended the
insured and paid the judgment when the other carrier refused. Id.
at 604. Ultimately vindicated as the excess carrier, the Georgia
Court of Appeals held that Zurich had a duty to defend its insured
even though it was excess when the primary refused, but that it had
a right to recover from the primary insurer "in the same manner
that its insured would have had." Id. at 606. A later case in
Georgia cites Zurich Insurance for the uncontroversial position
that an excess insurer "ha[s] a duty to defend the claims against
its insured after the primary insurer denied coverage and refused
to defend." Motors Ins. Co. v. Auto-Owners Ins. Co., 555 S.E.2d
37, 39 (Ga. Ct. App. 2001).
In Liberty Mutual, the New Hampshire Supreme Court held
that two insurers provided primary coverage for an accident to
varying limits. 351 A.2d at 895. On a motion for rehearing, the
court clarified: "As both policies afford primary coverage, Liberty
Mutual and Home Insurance have a joint obligation to defend [the
insured] and to share equally the costs of defense." Id. The case
has no bearing on the respective duties to defend when one insurer
is primary and the other excess.
4
Other Georgia cases that held that, "whether an insurer is
'a primary or excess carrier, its obligation to defend is the same
under the contract,'" are limited to "cases involv[ing] policies
with excess clauses or coverage and defense agreements which are
not expressly made excess." Cont'l Cas. Co. v. Synalloy Corp., 667
F. Supp. 1523, 1540 n.9 (S.D. Ga. 1983) (citations omitted).
-23-
The district court's reading of the statement in
Universal Underwriters draws the most support from the second
edition of Couch's treatise, published in 1982. The cited
provision of the treatise explained:
The duty to defend is absolute, even if the
policy turns out to be excess insurance. For
example, where a truck driver's car insurer
and truck owner's insurer both covered the
accident and each policy contained the defense
provision, each had the duty to defend the
driver against [the] injured party's claim,
even if the car insurer's coverage was excess.
14 Couch on Insurance § 51:148 (2d ed. 1982) (collecting cases,
including Zurich Insurance). In Hawaii, for example, "[when] both
primary and excess insurer[s] shared a duty to defend the action,
each insurer was responsible for half of the costs and expenses of
defending regardless of the pro rata division of principal
liability." Id. (citing Indus. Indem. Co. v. Aetna Cas. & Sur.
Co., 465 F.2d 934 (9th Cir. 1972)). Elsewhere in the treatise,
however, the general rule is stated as follows: "[w]here the
insured maintains both primary and excess policies, . . . an excess
liability insurer is not obligated to participate in the defense
until the primary policy limits are exhausted." Id. § 51:36.
The modern version of Couch's treatise on insurance law
reaffirms that, "[a]s a general rule, a true-excess insurer is not
obligated to defend its insured until all primary insurance is
exhausted or the primary insurer has tendered its policy limits."
14 Couch on Insurance § 200:38 (3d ed. 2014). "However," the
-24-
treatise continues, "a minority of jurisdictions have held an
excess carrier's duty to defend may be triggered if there is a
possibility that excess coverage may be reached." Id. The
treatise cites Universal Underwriters for the proposition that
"[o]nce an excess carrier's obligation to defend arises, the duty
to defend is the same as the duty of a primary insurer." Id. This
reading of Universal Underwriters is plausible if we assume that
the low threshold of $25,000 triggered both carriers' duty to
defend and the New Hampshire Supreme Court then required them to
split defense costs equally. It is still unclear how this rule, if
New Hampshire has adopted this minority position, would apply to
the facts of our case when the primary carrier had a coverage limit
of $1,000,000 and the complaint does not estimate the damages
sought.
The New Hampshire Supreme Court has not provided clarity
on its holding in Universal Underwriters regarding an excess
insurer's duty to defend since that opinion was issued.5 When
5
The subsequent citations to Universal Underwriters by the
New Hampshire Supreme Court have not focused on this part of the
holding. See Peerless Ins. v. Vt. Mut. Ins. Co., 849 A.2d 100, 103
(N.H. 2004) (requiring two insurers to share defense costs equally
after finding both excess provisions mutually repugnant);
Progressive N. Ins. Co. v. Enter. Rent-A-Car Co. of Bos., Inc., 821
A.2d 991, 993-94 (N.H. 2003) (characterizing the decision as
"interpret[ing] [] conflicting provisions in the parties' insurance
policies"); Allstate Ins. Co. v. Armstrong, 738 A.2d 1280, 1282
(N.H. 1999) (quoting language concerning parties' attempts to limit
the coverage required by New Hampshire's Financial Responsibility
Law); Calabraro v. Metro. Prop. & Cas. Ins. Co., 702 A.2d 310, 313
(N.H. 1997) (characterizing the decision as one which "discuss[ed]
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denying Stratford's motion to alter or amend its decision, the
district court stated that, "if presented with the precise facts of
this case, the New Hampshire Supreme Court might be inclined to
revisit Universal Underwriters, and reassess that opinion's
reliance upon Zurich Insurance . . . ." The district court felt
"obligated" to stand by its prior ruling "given the law as
currently enunciated by the New Hampshire Supreme Court." On
appeal, Stratford invites certification to the New Hampshire
Supreme Court, which Old Republic does not oppose.
We are permitted to certify questions of law to the New
Hampshire Supreme Court when questions of New Hampshire law are
determinative of the case, and there is no controlling precedent
from the New Hampshire Supreme Court. N.H. Sup. Ct. R. 34. In
Progressive, the New Hampshire Supreme Court explicitly stated that
it had never addressed the issue that we now find before us and
that it could not say that the state law on the issue is settled.
See 20 A.3d at 983. We conclude that certification is the
appropriate route in this case given the important, and unsettled,
question of New Hampshire law.
We certify the following questions to the New Hampshire
Supreme Court:
two policies that contained conflicting excess coverage
provisions").
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1) Under New Hampshire law, when is an excess
insurer's duty to defend triggered? Does New
Hampshire follow the general rule that the
excess insurer's duty to defend is triggered
only when the primary insurer's coverage is
exhausted? If not, what rule as to allocation
of defense costs and timing of payment does
New Hampshire follow?
V. Conclusion
We conclude that DAM and Stratford never intended
Stratford to provide co-primary coverage to the tractor-trailer
involved in the automobile accident. This leaves Old Republic as
the primary insurer, and Stratford as the excess insurer. We
certify to the New Hampshire Supreme Court the attendant question
of Stratford's duty to defend under New Hampshire law in light of
Universal Underwriters.
The clerk of this court is instructed to transmit to the
New Hampshire Supreme Court, under the official seal of this court,
a copy of the certified questions and our opinion in this case,
along with copies of the parties' briefs, appendix, and
supplemental filings under Rule 28(j) of the Federal Rules of
Appellate Procedure. We retain jurisdiction over this appeal.
So ordered.
- Concurring Opinion Follows -
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BARRON, Circuit Judge, concurring in part and concurring
in the judgment. I fully join the decision to certify the duty-to-
defend question to the New Hampshire Supreme Court. I do not
agree, however, that the Stratford policy, as originally issued,
provided no coverage for the Ryder tractor. In my view, the
original policy did provide such coverage, but the retroactive
endorsement then made such coverage excess instead of primary. And
thus I end up where the majority does, but by a different route.
As the majority notes, Stratford's Senior Litigation
Specialist, on reviewing the language of Stratford's policy,
concluded "there was an exposure out there that wasn't intended to
be covered by the policy." Maj. Op. at 14. But Stratford's
response was not to argue the parties' intent trumped the policy's
text nor to suggest the text was less than clear. Instead,
Stratford reached an agreement with its insured to change the
policy's text via a retroactive endorsement that expressly limited
that otherwise concerning exposure.
Thus, it is not surprising that in the District Court,
even Stratford -- following its Senior Litigation Specialist's lead
-- did not dispute that the original policy covered the Ryder
tractor. Of course, now that the District Court has bypassed the
parties' arguments about how best to deal with the exposure and, of
its own accord, ruled such exposure never existed, Stratford
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agrees. But I believe Stratford had it right the first time. It
did provide such coverage, even if it did so due to poor drafting.
No matter, though. Stratford worked out a deal. That
deal limited the exposure by making coverage of tractors hired from
Ryder excess rather than primary. And thus, the parties to the
Stratford policy reached a sensible and practicable result. I
think we should bless it rather than read the policy in a way that,
I worry, may suggest to some that insureds should have less
confidence in the text of their policies than I read precedent to
show they should.
I.
The majority accepts, as it must, that the most directly
pertinent portion of the policy -- the definition of "hired 'auto'"
-- indisputably includes the Ryder tractors. Maj. Op. at 13-14.
That definition includes any "land motor vehicle, 'trailer,' or
semitrailer designed for travel on public roads" that DAM
"lease[s], hire[s], rent[s], or borrow[s]" from third parties. And
the policy then states that it broadly covers "all sums an
'insured' legally must pay as damages because of 'bodily injury' or
'property damage' to which this insurance applies, caused by an
'accident' and resulting from the ownership, maintenance or use of
a covered 'auto'" -- including, for this policy, a "hired 'auto.'"
The language could not be clearer.
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Nonetheless, I can understand the temptation to look
beyond the policy's plain text. It does seem, from what the law
calls extrinsic evidence (which is to say, evidence not found
within the language of the policy itself), that neither party
thought, at the time of drafting, about the kind of tractor at
issue in this case. Stratford apparently did not know about this
part of the insured's business, and the insured apparently did not
think Stratford was the source of coverage for these tractors.
But the majority acknowledges -- as it must -- that
extrinsic evidence becomes relevant to limit exposure only if the
text is actually ambiguous. White v. Vt. Mut. Ins. Co., -- A.3d --
, 2014 WL 6533298, at *3 (N.H. 2014) ("[A]bsent ambiguity, our
search for the parties' intent is limited to the words of the
policy." (quoting Bates v. Phoenix Mut. Fire Ins. Co., 943 A.2d
750, 753 (N.H. 2008))). And that rule reflects the fact that while
the intent of the parties controls, that intent is found first and
foremost in the words of the policy -- words that, when clear, are
determinative. See id. I do not read the majority's key case,
Tech-Built, to say otherwise. See Tech-Built 153, Inc. v. Va. Sur.
Co., 898 A.2d 1007 (N.H. 2006). There, the court first found the
text of the policy at issue ambiguous and only then turned to
extrinsic evidence to limit the reach of the coverage. Id. at
1009-10.
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Nor does Tech-Built, as I read it, support finding
ambiguity here. In that case, Tech-Built, a construction company,
was a client of an employee leasing company called Surge. Id. at
1008. Tech-Built claimed the insurance policy that covered Surge
actually also covered Surge's clients. Id. at 1009. Tech-Built
based that surprising contention on the following policy language:
Surge's policy listed the "insured" as Surge "etal [sic]." Id.
(alteration in original). The policy then listed both Surge's
address and its "other workplaces," which Surge described by
listing the various companies (Tech-Built included among them) to
which it had leased employees. Id. From this thin textual basis
-- an "interplay," the court charitably called it -- Tech-Built
claimed Surge's carrier had plainly agreed to supply insurance
coverage to 150 or so of Surge's clients, id., a most implausible
claim. The New Hampshire Supreme Court had no trouble rejecting
it. It simply noted that "[o]ther language" in the policy would be
rendered "nonsensical" if Tech-Built's interpretation was right.
Id. at 1009-10.
That case is thus very far from this one. The definition
of "hired 'auto,'" unlike the definition of "insured" in Tech-
Built, is crystal clear. And while the majority is quite right
that the policy text must be considered as a whole, giving this
"hired 'auto'" language its plain meaning does not make nonsense of
other parts of the policy. In fact, a plain reading of "hired
-31-
'autos'" does not even lead to an "internally inconsistent policy."
Maj. Op. at 11 (citing Tech-Built, 898 A.2d at 1010). A review of
the three other aspects of the policy the majority relies on in
finding ambiguity reveals why.
First, the majority notes the policy describes DAM's
business as consisting of the delivery of office supplies and
appliances, and makes no reference to any business involving the
transport of "palletized freight." Maj. Op. at 15. If the
majority's point is that the description of DAM's business is not
consistent with a policy term that plainly covers leased tractors,
I cannot agree. After all, such tractors could readily be used to
deliver office supplies and appliances.
More fundamentally, Stratford's policy does not contain
explicit language tying coverage to the description of DAM's
business. And the general rule (which, so far as I can tell, New
Hampshire does not reject) is that "business descriptions" do not
limit coverage to the precise type of business described. See,
e.g., Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277 F.3d 232,
239 (2d Cir. 2002) (rejecting the argument that a policy's
description of the insured's business as "Carpentry" served to
limit the coverage "to carpentry operations," because "[t]he Policy
simply fails to provide that the classifications define the covered
risks"); GRE Ins. Grp. v. Metro. Bos. Hous. P'ship, 61 F.3d 79, 82
(1st Cir. 1995) (rejecting the argument that a "business
-32-
description" of "office" meant "only liability arising from [the
insured]'s office operations was covered" because while the fact
that the type of business was "office" rather than "skating rink"
was "obviously relevant to coverage," the description "d[id] not
show a clear understanding to restrict coverage to liability
arising out of [insured]'s office only").
That rule makes sense. An insurer may require the
description to inform the premium the insurer sets. But if the
insurer wants to strictly limit coverage to activities within that
description, it should explicitly say so. Mount Vernon Fire Ins.,
277 F.3d at 239; see also, e.g., Wickramasekra v. Associated Int'l
Ins. Co., 890 So.2d 569, 574 (La. Ct. App. 2003) (construing a
policy with an endorsement that explicitly restricted coverage to
the type of business shown on the declaration); Sun Indem. Co. v.
Lovell, 6 Conn. Supp. 337 (Conn. C.P. 1938) (same).
Second, the majority notes the policy covers
"specifically described 'autos'" and that the two "specifically
described 'autos'" listed in the policy are smaller vans and not
Ryder tractors. Maj. Op. at 15. But the policy provided coverage
for two separate categories of "autos": "hired 'autos'" that, by
terms, DAM does not own, and "specifically described 'autos'" that,
by terms, must be described on a separate schedule. That schedule
in turn refers to the listed vehicles as "covered autos you own."
The leased Ryder tractors, therefore, were not listed as
-33-
"specifically described 'autos'" for the simple reason that DAM did
not own them. As vehicles DAM only leased, these tractors would be
covered as "hired 'autos.'" If the majority's point is that an
objective reader would have to assume that the rented vehicles
necessarily would be similar in type to the owned vehicles
specially listed on the schedule, I do not see why. Companies
might rent vehicles of a different type precisely because the ones
they own are not adequate to every task.
Finally, the majority notes the policy lists an
"estimated cost of hire" for all hired autos at $5,000 per year.
Maj. Op. at 15. That number is small. It does seem fit for a
modest business using vans rather than for a large one using
tractors. But the text of the policy contemplates insureds may
lowball their estimates -- presumably to reduce their premiums.
That is why -- as the majority acknowledges, Maj. Op. at 15 -- the
policy expressly provides that estimates supplied by the insured on
this portion of the policy are not binding. In fact, the policy
further provides that Stratford may audit the insured's actual
hired-auto expenditures and retroactively increase the premium
should the estimate prove too low. In other words, even though no
intentional low-balling occurred here, Stratford's policy made
clear that an insured's low estimate is not binding in the
insured's favor. I thus do not believe we should rely on the
-34-
estimate to create an ambiguity in what is otherwise clear and
plainly binding policy language -- the "hired 'auto'" definition.
For these reasons, I would hold the policy language is
clear. That being the case, it seems to me that New Hampshire law
requires us to give effect to the plain meaning of the "hired
'autos'" definition. White, 2014 WL 6533298, at *3; Bates, 943
A.2d at 753. And thus we may not limit the coverage by looking
about for outside evidence of the parties' understandings (here,
the contract between DAM and Ryder). But that does not mean
Stratford is without recourse, as I will now explain.
II.
Faced with an exposure it wished to limit, Stratford
reached out to DAM to provide excess coverage, rather than primary
coverage, for the leased Ryder tractors. I would give the deal
Stratford and DAM struck full effect.
True, as Old Republic points out, a party's affirmation
of a preexisting duty is not generally adequate consideration for
a new contract. Melotte v. Tucci, 66 N.E.2d 357, 358 (Mass. 1946).
But relinquishing a contestable claim is. Pitkin v. Noyes, 48 N.H.
294, 304 (1869); see also Mathewson Corp. v. Allied Marine Indus.,
Inc., 827 F.2d 850, 856 (1st Cir. 1987) (Massachusetts law). I
conclude Stratford's pre-existing duty to provide coverage was
clear. But I do not believe a contrary claim would be frivolous.
And, of course, neither would the majority. Thus, Stratford gave
-35-
up something real. It foreclosed its right to argue it could deny
coverage altogether. See Chisholm v. Ultima Nashua Indus. Corp.,
834 A.2d 221, 225 (N.H. 2003) ("Consideration is present if there
is either a benefit to the promisor or a detriment to the
promisee."); see also Pitkin, 48 N.H. at 304 ("[C]ompromise of
doubtful claims" is consideration unless the claims are "utterly
without foundation and known to be so"); Mathewson Corp., 827 F.2d
at 856 (finding consideration if the surrendered claim is not
"'vexatious or frivolous'" (quoting Blount v. Dillaway, 85 N.E.
477, 479 (Mass. 1908)).
Old Republic also argues the endorsement prejudiced Old
Republic without Old Republic's consent. But no term in the
Stratford policy protected Old Republic from such modification.
See Restatement (Second) of Contracts § 311(2) (absent a term in
the contract forbidding modification of a duty to a third party
"the promisor and promisee retain power to discharge or modify the
duty by subsequent agreement"); see also Brooks v. Trs. of
Dartmouth Coll., 20 A.3d 890, 900 (N.H. 2011) (following the Second
Restatement's description of third-party beneficiary rules --
though not mentioning this particular one -- as a matter of New
Hampshire law).
Nor does New Hampshire law make Old Republic a vested
third-party beneficiary entitled to such protection in the absence
of such a policy term. The original Stratford policy did not
-36-
"satisfy some obligation owed by the promisee [DAM] to the third
party [Old Republic]," nor was that policy "so expressed as to give
the promisor [Stratford] reason to know that a benefit to a third
party [Old Republic] is contemplated by the promisee [DAM] as one
of the motivating causes of his making the contract." Brooks, 20
A.3d at 900. In fact, Stratford did not have reason to know about
the Old Republic policy, much less to know DAM contemplated Old
Republic would benefit from the Stratford policy.
That leaves only Old Republic's argument that the
endorsement violates a public policy against "post-claim
underwriting." The out-of-New Hampshire cases on which Old
Republic exclusively relies (from Louisiana and Mississippi,
respectively) are readily distinguished. They involved retroactive
policy alterations that limited the coverage for an injured party
(in two instances, for an injured party who was also a party to the
policy). See Mattox v. W. Fid. Ins. Co., 694 F. Supp. 210, 216
(N.D. Miss. 1988); Washington v. Savoie, 634 So. 2d 1176, 1180 (La.
1994); Lewis v. Equity Nat'l Life Ins. Co., 637 So. 2d 183, 188-89
(Miss. 1994). And those alterations were made without the insurer
first obtaining the injured party's consent. See Mattox, 694 F.
Supp. at 216; Washington, 634 So. 2d at 1180; Lewis, 637 So. 2d at
188-89.
Nothing like that happened in this case. Here, the
insured consented to the change at the time it was made. And,
-37-
further, the party injured by the insured will not suffer any
reduction in total coverage in consequence of the change. Thus,
the only party "harmed" by this change is an insurer, Old Republic,
who is not a party to the policy changed and whose harm is hard to
divine. Old Republic simply must provide coverage it thought it
was on the hook for all along -- coverage Old Republic also must
provide under the majority's approach.
III.
An insured should be able to rely on what the policy
says. New Hampshire agrees. Like other states, it provides that
even ambiguous policies "will be construed against the insurer,"
Catholic Med. Ctr. v. Exec. Risk Indemn., Inc., 867 A.2d 453, 456
(N.H. 2005), at least absent sufficient extrinsic evidence to show
the parties intended otherwise. All the more reason, therefore, to
be wary of resorting to extrinsic evidence too easily and then
relying on it to defeat coverage for the insured. As this case and
others I refer to show, the non-binding aspects of a policy may not
reflect the full extent of the coverage contained in a policy's
binding passages. But it is those binding passages that should
control when clear. And as I find them clear here, I also find
them controlling.
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