Natl. Surety Corp. v. Ranger Ins. Co.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-2978
___________
National Surety Corporation, *
*
Plaintiff - Appellee, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
Ranger Insurance Company, *
*
Defendant - Appellant. *
___________
Submitted: April 9, 2001
Filed: August 13, 2001
___________
Before McMILLIAN and LOKEN, Circuit Judges, and GOLDBERG, Judge of the
United States Court of International Trade, sitting by designation.
___________
LOKEN, Circuit Judge.
United Suppliers, Inc. (“United”) suffered a loss of $1,806,738.09 when an
above-ground storage tank collapsed at its Pacific Junction, Iowa facility, spilling liquid
fertilizer. Responding to insurance claims, National Surety Corporation (“National”)
paid United $1,000,000, the policy limit under National’s inland marine policy, which
covered loss to liquid fertilizer from tank leakage or collapse. Ranger Insurance
Company (“Ranger”) paid United the remaining $806,738.09 of its total loss under
Ranger’s blanket property policy, which covered personal property including the liquid
fertilizer. The spilled fertilizer had salvage value, and each insurer received its pro rata
share of the salvage recovery -- $163,509.17 to National and $131,905.35 to Ranger.
National then filed this action, seeking $787,737.33 in contribution from Ranger
on the theory that Ranger owed 29/30 of the total loss when prorated between the two
insurers on the basis of their respective policy limits. Ranger denied that claim and
counterclaimed to recover the $163,509.17 salvage paid to National. Applying Iowa
law, and deciding the case on the parties’ joint fact stipulation, the district court1
concluded that United’s loss must be prorated between the two insurers because the
policies contained mutually repugnant other-insurance clauses. The court then prorated
the loss using the ratio of Ranger’s overall policy limit of $30,000,000 to National’s
policy limit of $1,000,000. The result was a judgment in National’s favor of
$787,737.33 and dismissal of Ranger’s counterclaim. Ranger appeals, arguing (1) the
district court erred in prorating because Ranger’s policy was excess to National’s
primary coverage, and (2) if proration is proper, the ratio should be based on Ranger’s
$1,000 sublimit for loss of liquid product resulting from “sudden breaking, failure or
malfunction” of tanks, rather than the $30,000,000 overall policy limit. Construing the
insurance policies and Iowa law de novo, we affirm. See St. Paul Fire & Marine Ins.
Co. v. Missouri United Sch. Ins. Council, 98 F.3d 343, 345 (8th Cir. 1996) (standard
of review).
1. The primary issue on appeal is whether the district court erred in prorating
United’s total loss between the two insurance carriers. Each policy covered at least
part of the loss in question. But each policy contained an other-insurance clause
limiting its coverage if the loss was also covered by another policy:
1
The HONORABLE CHARLES R. WOLLE, United States District Judge for
the Southern District of Iowa.
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Commercial Property Condition G in Ranger’s policy provided: “If
there is other insurance covering the same loss or damage . . . we will pay
only for the amount of covered loss or damage in excess of the amount
due from that other insurance . . . .”
Loss Adjustment Provision 11 in National’s policy provided: “The
coverage provided by this policy shall apply only as excess insurance over
any other valid and collectible insurance or coverage that applies to the
covered property.”
If these conflicting clauses were construed literally, the insured might have no
coverage, an obviously unacceptable answer. See Union Ins. Co. v. Iowa Hardware
Mut. Ins. Co., 175 N.W.2d 413, 417 (Iowa 1970). Instead, United as insured has been
reimbursed for its total covered loss, as Iowa law requires. The issue remaining is how
the conflicting other-insurance clauses affect the insurers’ rights to contribution from
each other. Ranger contends that its policy provided only excess coverage to
National’s primary coverage of losses from leaking storage tanks. National argues the
district court properly prorated United’s loss between the two insurers.
When faced with conflicting other-insurance clauses, some States apply a closer-
to-the-risk doctrine, under which the insurer whose policy was issued “for the primary
purpose of insuring the particular risk” is primarily liable for payment. 15 RUSS &
SEGALLA, COUCH ON INSURANCE § 219:49, at 219-63 (3d ed. 1999). Under this
standard, National’s inland marine policy, with its specific coverage for tank leakage
and collapse, might be closer to the risk of United’s loss than Ranger’s blanket
property policy. But the Supreme Court of Iowa has rejected this doctrine. The
general rule in Iowa is that, if two policies contain mutually repugnant other-insurance
clauses, the clauses are set aside and the loss prorated between the two policies based
on their available coverages. Illinois Nat. Ins. Co. v. Farm Bureau Mut. Ins. Co., 578
N.W.2d 670, 672 (Iowa 1998). The Supreme Court of Iowa, however, will not apply
this rule if it is clear that one insurer provided primary insurance and the other provided
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excess insurance. For example, an insurer that issued a “true excess” or “umbrella”
policy is not liable for any portion of the loss until the primary insurer’s policy limit has
been exhausted, even if the primary policy contains an other-insurance clause. See
Vigilant Ins. Co. v. Allied Prop. & Cas. Ins. Co., 609 N.W.2d 538, 541 (Iowa 2000);
LeMars Mut. Ins. Co. v. Farm & City Ins. Co., 494 N.W.2d 216, 219 (Iowa 1992).
But a closer-to-the-risk analysis may not be used in determining whether an insurer’s
coverage is primary or excess. See Westfield Ins. Cos. v. Economy Fire & Cas. Co.,
623 N.W.2d 871, 876-78 (Iowa 2001) (en banc). Ranger seeks to fit within this
primary/excess coverage exception to the proration rule.
Ranger first argues that its blanket property policy should be treated as a true
excess policy, like the umbrella policies in Vigilant and LeMars. We disagree. True
excess and umbrella policies require the existence of a primary policy as a condition
of coverage. Their express purpose “is to protect the insured in the event of a
catastrophic loss in which liability exceeds the available primary coverage.” 15 COUCH
§ 220:32, at 220-37. By contrast, a blanket policy fully covers each item of property
described in the policy. See 12 COUCH § 177.72, at 177-72. Thus, unlike a true excess
policy, which only provides coverage above a predetermined level of primary coverage,
a blanket policy provides primary coverage for each item of property covered. A
blanket policy’s coverage may become excess if the policy contains a valid other-
insurance clause like Ranger’s Condition G and there is other primary coverage. See
15 COUCH § 219.33, at 219-36. But when both the blanket policy and the other
primary policy contain such other-insurance clauses, as in this case, Iowa law applies
the mutually repugnant rule and prorates the loss between those insurers.
Ranger attempts to avoid the mutually repugnant rule by arguing that a “policy
insuring intent” to layer its coverage as excess to National’s may be inferred by
comparing Ranger’s blanket property coverage with National’s specific coverage of
losses from tank leakage. But in Westfield, the Supreme Court of Iowa reversed a
decision based upon this type of analysis because it reflected the rejected closer-to-the-
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risk doctrine. 623 N.W.2d at 877-78. After Westfield, we believe the Supreme Court
of Iowa will limit its exceptions to the mutually repugnant rule to true excess policies,
umbrella policies, and other situations where specific language in one policy or the
other makes it clear that one coverage was excess to the other.
Ranger next argues there is this kind of specific language in another portion of
its blanket policy. Paragraph 2(k) of the Building and Personal Property Coverage
Form in United’s Ranger policy provided:
Covered Property does not include . . . [p]roperty that is covered under
. . . any other policy in which it is more specifically described, except for
the excess of the amount due . . . from that other insurance.
We agree that this provision seems to make Ranger’s blanket coverage excess as to a
specific type of property, unlike the above-quoted general other-insurance clauses.
Because the Supreme Court of Iowa acknowledged that primary insurance “may be
excess in certain, specified situations” in LeMars, 494 N.W.2d at 218 (quotation
omitted), this may well be the kind of provision that, when applicable, would fall within
the exception to the mutually repugnant rule as delineated in Westfield. But the
question remains whether paragraph 2(k) is applicable because United’s damaged
property was “more specifically described” in National’s policy. Ranger’s policy
covered “stock,” which it defined to include “merchandise held for storage or for sale.”
National’s policy covered “liquid fertilizer . . . and similar liquid property you own.”
Which is more specific? This fact-laden question was not addressed in the joint fact
stipulation, it was not considered by the district court, and Ranger has not established
that it was even raised in that court. In these circumstances, we conclude the Paragraph
2(k) issue was not preserved for appeal. Therefore, the district court properly applied
the mutually repugnant rule and prorated United’s loss between National and Ranger.
2. The district court prorated United’s total loss on a 30:1 ratio based upon
Ranger’s $30,000,000 blanket policy limit and National’s $1,000,000 policy limit.
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Ranger argues that, for proration purposes, its applicable coverage must be based upon
the following sublimit, which appears in the Additional Coverage section of the Causes
of Loss - Special Form part of the Ranger policy:
Tank Leakage - $1,000 Limit. When loss of liquid product from within
an aboveground tank occurs and the loss is the result of a sudden
breaking, failure or malfunction of the tank or any of its apparatus, we
will pay up to $1,000 for loss of the liquid product.
This is a perplexing issue. We assume that the legal premise underlying Ranger’s
contention is correct -- the Supreme Court of Iowa would prorate based upon an
applicable policy sublimit, rather than the overall policy limit. See 15 COUCH § 217:9,
at 217-21; Westhoff v. American Interins. Exch., 250 N.W.2d 404, 411-12 (Iowa
1977). The question, then, is whether every part of United’s loss that was covered by
the Ranger policy fell within the $1,000 sublimit. As to that question, the parties
stipulated that United’s loss was “lost stock from Tank 3 and Tank 5 at the United
facility.” They further stipulated that National paid its policy limit “for loss of stock,”
and that Ranger “paid $806,738.09 toward the total loss suffered to stock.” Thus, the
plain language of Ranger’s tank leakage sublimit seems to apply to the entire loss.
However, Ranger paid United over $800,000. More significantly, Ranger’s Answer
and Counterclaim specifically alleged that it was “required to pay” that amount “for
its covered portion of this loss.” (Emphasis added.)
After the district court’s initial adverse ruling, Ranger moved to modify the
judgment, urging the court to more specifically consider this sublimit issue. The parties
submitted additional memoranda and argument, and the court then denied the motion,
noting “that the arguments now presented in the motion to amend are inconsistent with
the positions [Ranger] maintained in its pleadings.” We agree. Ranger pleaded that
it paid over $800,000 for a covered loss. It now argues that the loss was subject to a
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$1,000 sublimit, in effect, that the payment to United was gratuitous.2 “[F]actual
statements in a party’s pleadings are generally binding on that party unless the pleading
is amended.” Knudsen v. United States, 2001 WL 704420, at *5 (8th Cir. June 25,
2001); see Missouri Hous. Dev. Comm’n v. Brice, 919 F.2d 1306, 1314-15 (8th Cir.
1990). Here, that general rule should apply. By pleading that it paid over $800,000
“for its covered portion of this loss,” Ranger admitted an issue that was obviously
relevant to National’s claim for contribution, thereby lulling National into not pursuing
discovery on the question of why Ranger paid its insured over eight hundred times what
it appeared to owe under its Tank Leakage sublimit. “[J]udicial efficiency demands
that a party not be allowed to controvert what it has already unequivocally told a court
by the most formal and considered means possible.” Soo Line R.R. v. St. Louis S.W.
Ry., 125 F.3d 481, 483 (7th Cir. 1997). Therefore, the district court did not err in
prorating United’s loss based upon the 30:1 ratio.
Ranger also appealed the dismissal of its counterclaim to recover $163,509.17
paid to National as its pro rata share of the liquid fertilizer salvage. But Ranger
concedes that its counterclaim was properly dismissed if, as we have concluded, the
district court was correct in prorating United’s loss between the two insurers using a
30:1 ratio. Accordingly, the judgment of the district court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
2
At oral argument, counsel asserted that Ranger paid United as an
“accommodation” to Ranger’s broker. Nothing in the record supports that assertion.
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