Perini/Tompkins Joint Venture v. ACE American Insurance Company

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2415
PERINI/TOMPKINS JOINT VENTURE,
Plaintiff – Appellant,
v.
ACE AMERICAN INSURANCE COMPANY,
Defendant – Appellee.
-------------------------------
ASSOCIATED GENERAL CONTRACTORS OF AMERICA; MARYLAND CHAPTER
OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA,
Amici Supporting Appellant.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Peter J. Messitte, Senior District
Judge. (8:10-cv-03494-PJM)
Argued: October 30, 2013 Decided: December 16, 2013
Before SHEDD and THACKER, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by published opinion. Judge Thacker wrote the opinion,
in which Judge Shedd and Senior Judge Hamilton joined.
ARGUED: Gregory David Podolak, SAXE DOERNBERGER & VITA, P.C.,
Hamden, Connecticut, for Appellant. Joseph K. Powers, SEDGWICK
LLP, New York, New York, for Appellee. ON BRIEF: Tracy A. Saxe,
SAXE DOERNBERGER & VITA, P.C., Hamden, Connecticut, for
Appellant. Timothy D. Kevane, SEDGWICK LLP, New York, New York,
for Appellee. Joseph C. Kovars, OBER, KALER, GRIMES & SHRIVER,
Baltimore, Maryland; Patrick J. Wielinski, COKINOS, BOSIEN &
YOUNG, Irving, Texas, for Amici Supporting Appellant.
2
THACKER, Circuit Judge:
Perini/Tompkins Joint Venture (“PTJV” or “Appellant”)
appeals the district court’s grant of summary judgment in favor
of ACE American Insurance Co. (“ACE” or “Appellee”). PTJV filed
suit, claiming coverage under primary and excess insurance
policies with regard to a large-scale construction project in
Oxon Hill, Maryland. The district court determined ACE was
entitled to summary judgment because PTJV did not obtain ACE’s
consent before settling the underlying dispute regarding
property damage at the construction site and, pursuant to the
insurance contract, PTJV was required to do so at the risk of
relinquishing coverage. We hold that under Maryland and
Tennessee law, PTJV violated the terms of both the primary and
excess policies by not obtaining ACE’s consent before
settlement, and as such, cannot now claim reimbursement under
those policies. We thus affirm the district court.
I.
A.
The Project
In 2005, Gaylord National LLC (“Gaylord”) hired PTJV,
a joint venture between the Perini Building Company and Turner
Construction Company, to serve as manager in connection with the
construction of a $900 million hotel and convention center in
Oxon Hill, Maryland (the “Project”). As part of the
3
construction contract between PTJV and Gaylord (the “Contract”),
Gaylord agreed to purchase and maintain an Owner Controlled
Insurance Program (“OCIP”), which was a program crafted and sold
by ACE to insure only the Project and its participants.
Gaylord then purchased from ACE an OCIP Commercial
General Liability Insurance Policy (the “Primary Policy”),
providing a limit of $2 million per occurrence, and an OCIP
Excess Liability Policy (the “Excess Policy”), providing a limit
of $25 million per occurrence (collectively, the “Policies”).
The Policies provided coverage for the period from May 23, 2005,
to August 30, 2008. By endorsement, PTJV was added as a named
insured on the Policies. The Project was also insured by a
Builders Risk Policy through Factory Mutual Insurance Company
(“FM Global”).
During construction of the signature feature of the
building -- an 18-story, 2,400 ton glass atrium
-- serious property damage occurred. The damage is described in
the Complaint as follows:
10. A significant portion of the Project involved the
construction of a glass roof atrium. The atrium was
composed of numerous subsections, called trusses, that
were preassembled on the ground and lifted via crane
into place. Each truss contained several components,
including supportive tension rods that were connected
by rod/clevis junctures.
11. The atrium was under construction on or about
August 28, 2007 while Truss H4 was lifted into
position and, on or about August 31, 2007, certain
4
components were added to the atrium that placed
additional pressure and tension on Truss H4, causing,
unbeknownst to either Gaylord or PTJV, one of the
rod/clevis junctures on Truss H4 to slowly erode.
12. On September 5, 2007, the rod/clevis juncture on
Truss H4, which began eroding no later than August 31,
2007, failed. That failure caused a loss of tension
that substantially impaired the structural integrity
of the atrium (the “Collapse”).
13. The Collapse caused damage to various components
of the Project and required a temporary suspension of
the Project and such damages were neither expected nor
intended from the standpoint of PTJV.
J.A. 21. 1 A representative from ACE was on site at the Project
at the time of the Collapse and thereafter. The Project was
scheduled to be completed in December 2007, but due to various
delays (including the Collapse), the completion date was pushed
to March 2008.
B.
The Underlying Litigation
After the Project was completed, litigation ensued.
On September 18, 2008, PTJV filed a complaint against Gaylord
for establishment and enforcement of a mechanic’s lien, breach
of contract, quantum meruit, and violation of the Maryland
Prompt Payment Act. See Perini/Tompkins Joint Venture, et al.
v. Gaylord Nat’l, LLC, No. CAE08-24316 (Cir. Ct. Md. Sept. 18,
1
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
5
2008) (the “PTJV action”). PTJV alleged Gaylord still owed
$79,656,098 under the Contract and asked for damages plus
interest, costs, and fees. The claims were based on the costs
allegedly incurred due to Gaylord’s late delivery of the Project
designs and its alleged changes to the original scope of the
work.
Subsequently, on October 10, 2008, Gaylord
countersued, filing a complaint against PTJV for breach of
contract and breach of fiduciary duty. See Gaylord Nat’l, LLC
v. Perini/Tompkins Joint Venture, No. CAE08-27201 (Cir. Ct. Md.
Oct. 10, 2008) (the “Gaylord action”). Gaylord claimed PTJV
failed to properly manage scheduling, costs, and budgets, and
failed to build a high-quality project at the agreed-upon price.
Specifically, Gaylord alleged it paid PTJV $802,085,712, when it
should have only paid $737,091,338. Thus, Gaylord sought
reimbursement of approximately $65 million in damages resulting
from the alleged overpayment. Notably, PTJV did not notify ACE
of the Gaylord action.
Gaylord and PTJV settled the Gaylord action on
November 26, 2008. 2 Gaylord paid an additional $42,301,875 (for
2
Gaylord filed a motion to consolidate the PTJV action and
the Gaylord action in circuit court on November 6, 2008, but it
does not appear the motion was ever ruled upon. The PTJV action
was dismissed by stipulation on January 23, 2009.
6
a total of almost $845 million) and PTJV credited $26,157,912
back to Gaylord. Crucial to this appeal, PTJV never sought to
obtain ACE’s consent prior to entering into this settlement.
C.
The Coverage Litigation
On May 6, 2009, almost six months after the settlement
and nearly two years after the Collapse, PTJV sent a letter to
ACE advising that, to the extent FM Global did not pay the claim
related to the Collapse, PTJV intended to seek reimbursement
from ACE. This letter was the first formal, written notice of a
claim to ACE, although ACE concedes its representative was
present on the site when the Collapse occurred. However, this
letter did not mention the settlement or the Gaylord action at
all. Over ten months later, on February 23, 2010, ACE issued a
reservation of rights letter, citing “[b]usiness [r]isk”
exclusions, late notice, and voluntary payments made without
ACE’s consent as potential grounds for denial of coverage. On
April 29, 2010, FM Global denied PTJV’s claims.
After several additional months of back-and-forth
between PTJV and ACE, on December 13, 2010, PTJV filed suit
against ACE in the United States District Court for the District
of Maryland, alleging
(1) Count One: breach of contract/bad
faith/implied covenant of good faith and fair
dealing (ACE “refused and/or neglected to pay any
7
portion of the [c]laims [regarding the Collapse]
pursuant to the Primary Policy or the Excess
Policy and is in breach of its contractual
obligations to PTJV.”);
(2) Count Two: a declaratory judgment “to
determine the rights and duties of PTJV and ACE
pursuant to the Primary Policy and the Excess
Policy”; and
(3) Count Three: bad faith under Tennessee law
based on, inter alia, ACE “intentionally and/or
recklessly t[aking] direction from another named
insured to deny PTJV’s claim,” and “engag[ing] in
unwarranted delay tactics.”
J.A. 13-15.
ACE filed a motion to dismiss on February 15, 2011,
and the district court denied the motion in part on September 1,
2011, but ordered that limited discovery be conducted on issues
regarding late notice to ACE, including any corresponding
prejudice. After discovery, ACE filed a summary judgment motion
on August 17, 2012. The district court held oral argument on
October 22, 2012, and orally granted summary judgment in favor
of ACE. The district court explained,
[It] really is not disputed that
. . . the settlement occurred without consent.
. . .
What’s clear is that the defendant was not given
an opportunity to enter into settlement
negotiations in any way to determine whether the
concessions that were being made by the . . .
plaintiff in this case were in any way
reasonable, whether there was any collusion
because there were other claims going back and
8
forth, and this carrier clearly did not involve
itself.
. . .
[T]he Court is prepared to find that there is a
reasonable dispute as to notice of the occurrence
and even arguably as to notice of claim. The
problem here is with the notice of settlement.
Now, the Court feels as a matter of law, the
defendant . . . w[as] entitled to notice of the
settlement negotiations to intervene, to
investigate, to challenge[.]”
J.A. 88-89, 92. A formal order issued the next day, October 23,
2012, granting summary judgment for the reasons stated on the
record at the hearing. This timely appeal followed.
II.
Before we proceed to the merits of this appeal, we
first decide the proper law to apply. A federal court
exercising diversity jurisdiction must apply the choice of law
rules of the state in which it sits. See Seabulk Offshore, Ltd.
v. Am. Home Assurance Co., 377 F.3d 408, 418–19 (4th Cir. 2004).
In this diversity action, the district court was correct in
applying Maryland’s choice of law rules. See CACI Int’l, Inc.
v. St. Paul Fire and Marine Ins. Co., 566 F.3d 150, 154 (4th
Cir. 2009) (“Because we have diversity jurisdiction in this
case, we apply the choice of law rules of the forum state
. . . .”).
In insurance contract disputes, Maryland follows the
principle of lex loci contractus, which applies the law of the
9
jurisdiction where the contract was made. Allstate Ins. Co. v.
Hart, 611 A.2d 100, 101 (Md. 1992). For choice of law purposes,
a contract is made where “the last act is performed which makes
the agreement a binding contract. Typically, this is where the
policy is delivered and the premiums are paid.” Sting Sec.,
Inc. v. First Mercury Syndicate, Inc., 791 F. Supp. 555, 558 (D.
Md. 1992) (internal quotation marks, citations, and alteration
omitted). In this case, that state is Tennessee. 3
Under certain circumstances, however, Maryland choice
of law rules follow the renvoi doctrine, an exception to the lex
loci contractus rule. Under this exception, a Maryland court
may disregard the rule of lex loci contractus and apply Maryland
law, if
1) Maryland has the most significant relationship, or,
at least, a substantial relationship with respect to
the contract issue presented; and
2) The state where the contract was entered into would
not apply its own substantive law, but instead would
3
Gaylord, the sponsor of the Policies, has its principal
place of business in Nashville, Tennessee. The Policies were
issued to Gaylord, whose address is listed on the Policies as
being in Nashville, Tennessee. The broker who procured the
Policies is Willis of Tennessee, Inc., with an address in
Nashville, Tennessee. All of the “services offered by Willis of
Tennessee in connection with the procurement of the Policies
were performed out of [the] Nashville, Tennessee office.” J.A.
51. Additionally, the policies were delivered to and were
received by both Gaylord and Willis in Tennessee and Gaylord
forwarded payment for the Policies’ premiums from its offices in
Tennessee.
10
apply Maryland substantive law to the issue before the
court.
See Am. Motorists Ins. Co. v. ARTRA Group, Inc., 659 A.2d 1295,
1304 (Md. 1995).
We recognize, however, “[c]hoice of law analysis
becomes necessary . . . only if the relevant laws of the
different states lead to different outcomes” and where the laws
“do not so conflict, the choice is immaterial, and the law of
the forum -- Maryland -- governs.” Lowry’s Reports, Inc. v.
Legg Mason, Inc., 271 F. Supp. 2d 737, 750 (D. Md. 2003)); see
also Int’l Adm’rs, Inc. v. Life Ins. Co. of N. Am., 753 F.2d
1373, 1376 n.4 (7th Cir. 1985) (“Conflicts rules are appealed to
only when a difference in law will make a difference to the
outcome.”). As explained below, under either Tennessee or
Maryland law, the outcome is the same.
III.
We review a district court’s grant of summary judgment
de novo. See Francis v. Allstate Ins. Co., 709 F.3d 362, 366
(4th Cir. 2013). We also review de novo a district court’s
decision on an issue of contract interpretation. See Seabulk
Offshore Ltd. v. Am. Home Assurance Co., 377 F.3d 408, 418 (4th
Cir. 2004). Summary judgment is appropriate “only if . . .
‘there is no genuine issue of material fact and that the moving
11
party is entitled to a judgment as a matter of law.’” Id.
(quoting Fed. R. Civ. P. 56(c)).
A.
The Policies
In essence, this is a simple contract interpretation
case. See Rouse v. Fed. Ins. Co., 991 F. Supp. 460, 465 (D. Md.
1998) (“It is axiomatic that an insurance contract is
interpreted like any other contract. If the policy’s language
is clear and unambiguous, the Court will assume the parties
meant what they said . . . .” (citations omitted)). As with any
contractual dispute, we start with the relevant policy
provisions. See Prince George’s Cnty. v. Local Gov’t Ins.
Trust, 879 A.2d 81, 88 (Md. 2005) (“In interpreting an insurance
policy, as with any contract, the primary task of the circuit
court is to apply the terms of the policy itself.”).
The Primary Policy contains the following provisions:
(1) Right and duty to defend clause: “We will have the
right and duty to defend the insured against any
‘suit’ seeking [property] damages. . . . We may, at
our discretion, investigate any ‘occurrence’ and
settle any claim or ‘suit’ that may result[.] . . .
Our right and duty to defend end when we have used up
the applicable limit of insurance in the payment of
judgment or settlements . . . .” J.A. 305, 310.
(2) Voluntary payment clause: “No insured will, except
at that insured’s own cost, voluntarily make a
payment, assume any obligation, or incur any expense,
other than for first aid, without our consent.” J.A.
314.
12
(3) No-action clause: “No person or organization has a
right under this Coverage Part: . . . [t]o sue us on
this Coverage Part unless all of its terms have been
fully complied with. A person or organization may sue
us to recover on an agreed settlement . . . . An
agreed settlement means a settlement and release of
liability signed by us, the insured and the claimant or
the claimant’s legal representative.” J.A. 314.
The Excess Policy likewise contains similar duty to defend,
voluntary payment, and no-action clauses. See J.A. 377-378.
B.
Maryland Law
1.
Statutory Law
Section 19-110 of the Maryland Code provides,
An insurer may disclaim coverage on a liability
insurance policy on the ground that the insured or a
person claiming the benefits of the policy through the
insured has breached the policy by failing to
cooperate with the insurer or by not giving the
insurer required notice only if the insurer
establishes by a preponderance of the evidence that
the lack of cooperation or notice has resulted in
actual prejudice to the insurer.
Md. Code Ann. § 19-110 (emphasis added). PTJV relies heavily on
this statute and argues that ACE’s denial of coverage centers on
PTJV’s alleged “lack of notice” of the claim regarding the
Collapse and “lack of cooperation” in PTJV’s failure to notify
ACE of the Gaylord claim and settlement. As such, it contends,
ACE must show actual prejudice before denying coverage, which is
an issue of fact that should survive summary judgment.
13
ACE, in contrast, maintains that regardless of whether
PTJV provided them with timely notice of the claim (or whether
they had constructive knowledge through their on-site
representative), there is no dispute that PTJV did not obtain
ACE’s consent before settlement, in violation of the voluntary
payment and no-action clauses. ACE argues prejudice is
irrelevant in this instance, but even if ACE were required to
show prejudice, we should infer prejudice as a matter of law
because “ACE was left in the dark during the pendency of the
underlying litigation and the negotiations leading to the
finalization of the settlement,” and otherwise, ACE will be
“placed in the impossible position of having to prove a negative
. . . .” Appellee’s Br. 19.
We agree with ACE that “[t]he central issue in this
appeal is whether the insured . . . can unilaterally settle a
construction defect case . . . , present the settlement to its
liability insurer as a fait accompli, and obtain indemnification
despite its blatant breach of clear and unambiguous policy
provisions.” Appellee’s Br. 1.
We find Phillips Way, Inc. v. American Equity
Insurance Co. to be particularly instructive in dissecting this
case. See 795 A.2d 216 (Md. Ct. Spec. App. 2002). There,
Phillips Way, a construction company, contracted to design and
construct a clubhouse for the University of Maryland. See id.
14
at 217. During the course of the construction, several
architectural and design defects arose, and Phillips Way decided
to settle complaints about these problems to the tune of
$260,000, without notifying its insurance carrier, American
Equity. Once the project had been accepted by the University,
Phillips Way made a claim against American Equity for $260,000.
See id. at 217-18. The contract between American Equity and
Phillips Way contained a no-action clause which stated, in
relevant part,
No action shall be maintained against the Company by
the Insured to recover for any loss under this
Insurance Policy unless, as a condition precedent
thereto, the Insured shall have fully complied with
all the terms and conditions of this Insurance Policy,
nor until the amount of such loss has been fixed or
rendered certain by . . . agreement between the
parties with the written consent of the Company.
Id. at 216-17.
Just like PTJV in this case, Phillips Way argued that
Md. Code. Ann. § 19-110 applied, and as such, American Equity
was required to show they were prejudiced by its failure to
obtain consent before settlement. But the Court of Special
Appeals held that section 19-110 should not be read to be
“applicable to any defense raised by the insurer.” 795 A.2d at
219. Specifically, it explained section 19-110 was
“inapplicable when an insurer defends on the basis that its
15
insured failed to meet the condition precedent set forth in a
no-action clause . . . .” Id. at 221. It continued,
From the perspective of the insurer, one of the main
purposes of a no action clause is to protect it from
collusive or overly generous or unnecessary
settlements by the insured at the expense of the
insurer. That last-mentioned purpose would be
difficult to accomplish if an insured could disregard
the no-action clause, sue its insurer, and put the
nearly impossible burden on the latter of showing
collusion or demonstrating, after the fact, the true
worth of the settled claim.
Id. at 220-21 (internal quotation marks omitted).
Phillips Way is directly applicable to the case at
hand. The no-action clause in this case states that the insured
cannot sue under the Policies “unless all of its terms have been
fully complied with.” J.A. 314 (emphasis added). It also
states that PTJV can sue to recover on a settlement only if the
“settlement and release of liability” is “signed by [ACE].” Id.
The voluntary payment clause requires ACE’s consent before
“voluntarily mak[ing] a payment, assum[ing] any obligation, or
incur[ring] any expense,” at the risk of relinquishing coverage.
J.A. 314. These are conditions precedent to PTJV’s ability to
obtain coverage, that is, “fact[s], other than mere lapse of
time, which, unless executed, must exist or occur before a duty
of immediate performance of a promise arises.” Chirichella v.
Erwin, 310 A.2d 555, 557 (Md. 1973) (internal quotation marks
omitted). “[W]here a contractual duty is subject to a condition
16
precedent, whether express or implied, there is no duty of
performance and there can be no breach by nonperformance until
the condition precedent is either performed or excused.” Laurel
Race Course, Inc. v. Regal Constr. Co., 333 A.2d 319, 327 (Md.
1975).
ACE advances the same argument as the one in play in
Phillips Way: because PTJV did not meet the condition precedent
in the no-action clause (that is, it did not obtain consent
before settlement), it cannot now sue ACE. Phillips Way
directly vindicates this argument. Indeed, it is undisputed
that PTJV did not obtain ACE’s consent to settlement before
settling with Gaylord. Thus, PTJV cannot satisfy the conditions
precedent of the voluntary payment and no-action clauses, as
they “attempt[ed] to settle” and “voluntarily ma[d]e a payment”
“without [ACE’s] consent,” (voluntary payment clause) and did
not ensure the “settlement and release of liability [was] signed
by [ACE]” (no-action clause). J.A. 314, 378. The no-action
clause also states PTJV has no right to sue “unless all of [the
Policies’] terms have been fully complied with,” and as
explained above, PTJV did not comply with all of the Policies’
terms.
We also note that, to the extent PTJV argues the
voluntary payment and no-contest clauses are implicated by
section 19-110’s “lack of cooperation and notice” provisions,
17
Phillips Way rightly rejected that argument. See Phillips Way,
795 A.2d at 218 (Even “if [the insured] had notified [the
insurer] of the intended settlement and gave the latter its full
cooperation, the condition precedent would still have been
breached if [the insurer] failed to give its written consent to
that settlement.”); id. at 220 (stating, “an insurer must show
prejudice only if it raises a failure to cooperate defense or a
defense based on lack of notice,” and distinguishing cooperation
and notice clauses from no-action clauses because cooperation
and notice clauses “are contained in separate paragraphs from
the ‘no-action’ clause,” and in no-action clauses, usually “the
amount of liability, as well as the issue of liability, must
both have been determined” (internal quotation marks omitted));
see also J.A. 314 (Primary Policy, no-contest and voluntary
payment clauses separate from notice and cooperation clauses),
378 (Excess Policy, same).
Therefore, because section 19-110 does not apply here,
there is no statutory ground requiring ACE to show prejudice.
Nonetheless, PTJV urges us to find that ACE must yet show
prejudice under Maryland common law. As explained next,
however, even if this were a correct statement of the law,
prejudice can be inferred as a matter of law.
18
2.
Common Law
PTJV and amici in this case argue that even if there
is no statutory mandate that ACE show prejudice, ACE is still
required to do so under common law. We disagree and read
Phillips Way broadly as holding that an insured’s failure to
obtain the insurer’s prior consent to a settlement does not ever
require prejudice, primarily because -- whether statutory-based
or common law-based -- an insurer would always have “the
impossible burden . . . of showing collusion or demonstrating,
after the fact, the true worth of the settled claim.” 795 A.2d
at 221.
But even assuming ACE were required to show prejudice
outside the ambit of section 19-110, we would be obliged to
conclude ACE was prejudiced as a matter of law. In Prince
George’s County v. Local Gov’t Ins. Trust, the Maryland Court of
Appeals held that a trust, acting as an excess liability
insurer, was prejudiced as a matter of law when it was not
notified of a claim until after its resolution. See 879 A.2d 81
(Md. 2005). The court explained,
[T]he insured has presented the insurer with a fait
accompli by delaying notice until after the judgment.
The delay vitiates the purpose of the contractual
notice requirement, as the insurer cannot exercise any
of its rights to investigate, defend, control, or
settle the suit. Accordingly, courts have held that
the insurer is prejudiced as a matter of law. . . .
19
By failing to notify the [insurer] of the incident,
claim, and lawsuit until after the judgment, the
[insured] nullified unilaterally all of the
[insurer]’s rights and presented the [insurer] with a
fait accompli. . . .
[The insured] put the [insurer] in a position of
proving a negative and speculating about what could
have been. The [insurer] need not speculate. By
itself, the abrogation of all of the [insurer’s]
contractual rights constituted prejudice. We hold
that the [insurer] was prejudiced as a matter of law
when the [insured] failed to notify the [insurer] of
the incident, claim, and lawsuit until after an
adverse judgment was entered.
Id. at 98, 100. 4 We see no reason why this case -- wherein the
insured actually paid a settlement, thereby cutting off the
insurer’s right to “investigate, defend, control, or settle” a
suit -- commands a result different from Prince George’s County.
879 A.2d at 98.
We would therefore affirm the district court’s
decision under Maryland law, regardless of whether prejudice is
required.
4
We have also had occasion to address this issue in the
recent past. In Minn. Lawyers Mut. v. Baylor & Jackson PPLC
(“MLM”), --- F. App’x ----, No. 12-1581, 2013 WL 3215246 (4th
Cir. June 27, 2013), we concluded that under Maryland law, a
professional liability insurer was prejudiced when a law firm
failed to provide timely notice of a claim and MLM had “the
exclusive right to investigate, negotiate and defend CLAIMS
seeking DAMAGES against the INSURED.” 2013 WL 3215246 at *7.
We explained, “[b]y the time MLM received notice of a possible
claim, the harm supporting the malpractice judgment was
irreversible.” Id.
20
C.
Tennessee Law
We would also affirm the district court’s judgment
under Tennessee law. First and foremost, the Court of Appeals
of Tennessee has stated, “Contracts of insurance, like other
contracts, are to be construed according to the sense and
meaning of the terms which the parties have used, and if they
are clear and unambiguous, their terms are to be taken and
understood in their plain, ordinary, and popular sense.” Jones
Masonry, Inc. v. W. Am. Ins. Co., 768 S.W.2d 686, 687 (Tenn. Ct.
App. 1988).
In Anderson v. Dudley Moore Insurance Co., the
Tennessee Court of Appeals held that when an insurance agency
failed to process paperwork for a potential insured and then
paid a settlement to the insured without notifying their errors
and omissions (“e&o”) carrier, the agency could not recover from
the e&o carrier because it violated the voluntary payment
clause. See 640 S.W.2d 556 (Tenn. Ct. App. 1982). The court
explained, “Although [the e&o carrier] had notice of a potential
demand, plaintiff never made any formal request that the carrier
investigate, defend, or pay the claim until long after it had
made the ex parte payment to [the insured],” and this “was in
express violation of the [voluntary payment] provision[].” Id.
at 560. The court also rejected the notion that the voluntary
21
payment clause “relate[d] only to disbursements involving
expenses of litigation and investigation,” explaining that if
this were true, “an insured with ‘e&o’ coverage could determine
what sums to pay when a claim is made and thereafter make demand
upon the carrier for reimbursement without the carrier having
any input in the process. Such a construction would be
extremely illogical and unreasonably restrictive.” Id.
Furthermore, “it would require that the express words contained
in the agreement be ignored.” Id.
Similarly, in State Auto. Ins. Co. v. Lashlee-Rich,
the Court of Appeals of Tennessee held an insured that violated
a voluntary payment clause in an insurance policy was precluded
from claiming coverage under that policy. See No. 02A01-9703-
CH-71, 1997 WL 781896 (Tenn. Ct. App. 1997). In that case, a
construction company (Lashlee-Rich) accidentally hit an
electrical wire while doing construction work, putting a nearby
ice cream toppings business in peril of losing its inventory.
Lashlee-Rich quickly contracted with an electric company to
perform the necessary repairs and then sought to collect
reimbursement from State Auto, its insurer. Although Lashlee-
Rich notified State Auto of the occurrence the following day, it
did not mention that it had assumed an obligation to pay the
electric company. The insurance contract in that case, like in
22
the case at hand, contained a voluntary payment clause and a no-
action clause. See id. at *2-3.
The court held, “Lashlee attempted to bypass the
plain, unambiguous language in the insurance contracts and
thereby divest State Auto of its rights to oversee the handling
of any claim.” Lashlee-Rich, 1997 WL 781896 at *4. In so
doing, “undoubtedly, Lashlee-Rich violated the clear language of
the policies by assuming an obligation, voluntarily making a
payment and incurring an expense without State Auto’s consent.
Lashlee-Rich did all of the foregoing to their own peril.” Id.
at *5.
This case is similar to both Anderson and Lashlee-
Rich. Here, PTJV took matters into its own hands, admittedly
without obtaining consent from ACE, which divested ACE of its
rights under the Policies, and violated the terms of such
Policies.
As for prejudice, PTJV points to Alcazar v. Hayes, a
landmark case in which Tennessee adopted the following policy:
[O]nce it is determined that the insured has failed to
provide timely notice in accordance with the insurance
policy, it is presumed that the insurer has been
prejudiced by the breach. The insured, however, may
rebut this presumption by proffering competent
evidence that the insurer was not prejudiced by the
insured’s delay.
982 S.W.2d 845, 856 (Tenn. 1998). However, Alcazar did not
address situations of fait accompli, which we have here and
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which were present in Anderson and Lashlee-Rich. Thus, those
holdings -- which did not even factor prejudice into the
equation -- still remain good law. Therefore, we predict the
highest court in Tennessee would likewise resolve the case at
hand under Anderson and Lashlee-Rich, without requiring ACE to
demonstrate prejudice. 5
We would therefore affirm summary judgment under
Tennessee law as well.
5
In its reply brief, PTJV cites a 2005 Tennessee case for
the proposition that Alcazar extends to cases such as the one at
hand, but that case does not deal with a fait accompli
situation. See Appellant's Rep. Br. 20 (citing Smith & Nephew
v. Fed. Ins. Co., No. 02-2455, 2005 WL 3434819, at *3 (W. D.
Tenn. Dec. 12, 2005)). First of all, the Smith & Nephew case
PTJV cites (a clarification order regarding fees) explicitly
states that Alcazar deals with a breach of a “notice provision.”
Smith & Nephew, 2005 WL 3434819, at *3. As explained above,
this case is about consent to settlement, not notice. In
addition, a closer examination of facts set forth in the earlier
Smith & Nephew opinion reveals that the insured provided notice
of litigation early on, but the insurer declined to get
involved. After this notice was given, the insured settled the
case, and the insurer did not consent to “fees and expenses”
incurred by the insured. Smith & Nephew v. Fed. Ins. Co., No.
02-2455, 2005 WL 3134053, at *3 (W.D. Tenn. Nov. 23, 2005).
Thus, in Tennessee, there is a distinct difference between an
insurer being provided late notice while litigation is ongoing
or has not yet begun, and being surprised with a claim for
settlement reimbursement after the matter has already been
resolved.
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D.
Waiver
PTJV argues ACE “waived [its] late notice/voluntary
payment defense,” or at least, this is an issue of fact that
should survive summary judgment. Appellant’s Br. 56. It
contends “ACE consistently turned a blind eye to the Atrium
Failure, ignored PTJV’s claim for unreasonably long periods of
time and even went so far as to tell PTJV it would pay the
claim.” Id. at 57.
Under Maryland and Tennessee law, a waiver requires
the “intentional relinquishment of a known right existing for
the benefit of the insurer.” Gov’t Emps. Ins. Co. v. Group
Hosp. Med. Servs., Inc., 589 A.2d 464, 466 (Md. 1991) (internal
quotation marks omitted); see also Kentucky Nat. Ins. Co. v.
Gardner, 6 S.W.3d 493, 498-99 (Tenn. Ct. App. 1999) (“A waiver
is an intentional relinquishment of a known right.”). PTJV
bears the burden of showing that ACE’s conduct is “so clearly
inconsistent” with any intention to enforce the provision at
issue “that the conduct constitutes an implied waiver.”
Kentucky Nat., 6 S.W.3d at 499; see also Springfield Tobacco
Redryers Corp. v. City of Springfield, 293 S.W.2d 189, 199
(Tenn. Ct. App. 1956) (waiver must be proven by a “clear,
unequivocal and decisive act . . . showing such a purpose, or
25
acts amounting to an estoppel” (internal quotation marks
omitted)).
PTJV submits that ACE did the following things, which
should constitute waiver or at least raise a genuine issue of
material fact: (1) ACE “ignored” the atrium failure (i.e., did
not “take any action” after the Collapse); (2) ACE “failed to
acknowledge PTJV’s claim for 10 months”; (3) ACE “represented to
PTJV that it would pay the claim,” without reserving rights; and
(4) ACE “refused to pay, but not on the basis of late notice.”
Appellant’s Br. 55-59.
However, none of these facts shows ACE’s “intentional
relinquishment” of its right to invoke the provisions of the no-
action and voluntary payment clauses, which as explained above,
are the relevant provisions to this appeal. In fact, in the
September 8, 2010 letter from ACE offering to pay a certain part
of the claim, it stated it “is not waiving, nor will it be
estopped from asserting any other terms, conditions, exclusions
or provisions of this policy.” J.A. 2802. For these reasons,
PTJV’s waiver argument fails.
IV.
For these reasons, the judgment of the district court
is
AFFIRMED.
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