Nationwide Mut. Fire Ins. Co. v. Erie Ins. Exch.

PRESENT: All the Justices
NATIONWIDE MUTUAL FIRE
INSURANCE COMPANY, ET AL.
OPINION BY
v. Record No. 160805 JUSTICE CLEO E. POWELL
April 13, 2017
ERIE INSURANCE EXCHANGE, ET AL.
FROM THE CIRCUIT COURT OF PRINCE WILLIAM COUNTY
Carroll A. Weimer, Judge
In this declaratory judgment action, Nationwide Mutual Fire Insurance Company and
Nationwide Mutual Insurance Company (collectively “Nationwide”) requested that the Circuit
Court for Prince William County (“trial court”) determine the priority of five separate insurance
policies provided by Nationwide and Erie Insurance Exchange (“Erie”). The trial court
concluded that the order of priorities and coverages were: (1) Nationwide Business Auto Policy,
$1,000,000; (2) Nationwide Commercial General Liability Policy (“Nationwide CGL Policy”),
$1,000,000; (3) Nationwide Commercial Umbrella Liability Policy (“Nationwide Umbrella
Policy”), $1,000,000; (4) Erie Commercial Auto Policy (“Erie Auto Policy”), $1,000,000; (5)
Erie Business Catastrophe Liability Policy, $5,000,000. Nationwide appeals.
I. BACKGROUND
East Coast Insulators, Inc. (“East Coast”) and Rodriguez Construction (“Rodriguez”)
entered into a subcontract for construction related services. 1 East Coast lent a vehicle to
Rodriguez for the performance of work pursuant to their subcontract. Moises Rodriguez Manzur
(“Manzur”) drove East Coast’s vehicle in the course of his employment with Rodriguez. On
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East Coast and Rodriguez are not parties to this case.
October 4, 2013, he struck a vehicle operated by Martin Klaiber, who later died as a result of the
collision. Stephanie Klaiber, the Personal Representative of the Estate of Martin Klaiber (“the
Estate”), filed a wrongful death suit against Manzur and East Coast in the Circuit Court of
Loudoun County on December 10, 2013 (the “Tort Action”). East Coast was later nonsuited
from the Tort Action on July 24, 2014. 2
East Coast was insured under an Erie Commercial Auto Policy (“Erie Auto Policy”).
Erie also provided East Coast with a Business Catastrophe Liability Policy containing a
Commercial Liability Umbrella Coverage Form (collectively “Erie Umbrella Policy”). East
Coast’s subcontract with Rodriguez contained an insurance provision requiring Rodriguez to
obtain primary insurance to cover bodily injury caused by accident. Rodriguez purchased
insurance policies from Nationwide, including (1) Nationwide Business Auto Policy
(“Nationwide Auto Policy”); (2) Nationwide Commercial General Liability Policy (“Nationwide
CGL Policy”); and (3) Nationwide Commercial Umbrella Liability Policy (“Nationwide
Umbrella Policy”). The subcontract also contained an indemnification provision that obligated
Rodriguez to indemnify East Coast against any injuries that arose from work performed under
the subcontract.
On August 11, 2014, Erie and Manzur filed the present lawsuit against Nationwide and
the Estate seeking a declaration of the priority of liability coverage between the Erie and
Nationwide policies. Nationwide thereafter filed a counterclaim and cross-claim for declaratory
judgment against Erie, Manzur, and the Estate. Nationwide requested that the trial court find that
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Counsel for Erie conceded during oral argument before the Court that the trial court in
the declaratory judgment action was never made aware that East Coast was nonsuited from the
Tort Action.
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Erie’s policies provided primary liability coverage. Erie argued that the indemnification
agreement required Nationwide’s policies to provide primary liability coverage.
Following a bench trial, the trial court ruled in favor of Erie, holding that the
indemnification provision in the subcontract between East Coast and Rodriguez controlled and
“establishe[d] East Coast Insulators’ right to indemnification from Rodriguez Construction
through its insurer Nationwide.” The trial court went on to state that the indemnification
provision:
is nothing more than a contract between the parties to predetermine
the allocation of potential risk of loss and Virginia law favors such
contracts between competent parties for a valid purpose as set forth
in Farmers Insurance Exchange v[.] Enterprise Leasing Co[.], 281
Va. 612, [708 S.E.2d 852 (2011)] at page 619 . . . , which states,
the general rule is that an indemnity agreement between the
insurers or a contract with an indemnification clause may shift an
entire loss to a particular insurer, notwithstanding the existence of
another insurance clause in its policy.
Applying the indemnification provision in the subcontract, the trial court then determined the
priority of coverage as: (1) Nationwide Auto Policy, (2) Nationwide CGL Policy; (3)
Nationwide Umbrella Policy; (4) Erie Auto Policy; and (5) Erie Umbrella Policy.
This appeal followed.
II. ANALYSIS
A. Standard of Review
“Courts interpret insurance policies, like other contracts, in accordance with the parties’
intentions as determined from the words they have used in their contract. The interpretation of
policy provisions presents a question of law that we consider de novo.” Lower Chesapeake
Assoc. v. Valley Forge Ins. Co., 260 Va. 77, 87-88, 532 S.E.2d 325, 331 (2000) (citations
omitted).
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B. Nationwide’s CGL Policy
Nationwide argues on appeal that the trial court erred in determining that the Nationwide
CGL Policy provides liability coverage, notwithstanding the exclusion in that policy for claims
arising out of the use of automobiles. We agree.
“When an insurer drafts policy language setting forth exclusions that limit coverage
under a policy, the insurer is required to use language that clearly and unambiguously defines the
scope of the exclusions.” Id. at 88, 532 S.E.2d at 331. Here, Nationwide’s CGL Policy contains
a clear exclusion for bodily injury and property damage liability under subsection (2)(g):
2. Exclusions: This insurance does not apply to:
....
g. Aircraft, Auto or Watercraft
“Bodily injury” or “property damage” arising out of the ownership,
maintenance, use or entrustment to others of any aircraft, “auto” or
watercraft owned or operated by or rented or loaned to any insured.
Use includes operation and “loading or unloading.”
Thus, the Nationwide CGL Policy excludes coverage for injury and property damage liability
arising from Manzur’s use of an auto.
The policy goes on to describe several exceptions to the exclusions, none of which
concern autos. The most closely relevant exception concerns: “(4) Liability assumed under any
‘insured contract’ for the ownership, maintenance or use of aircraft or watercraft.” However,
this exception to the Aircraft, Auto or Watercraft exclusion does not mention any exception to
the exclusion regarding the use of an auto. Therefore, Nationwide’s CGL Policy would not
apply to provide coverage for bodily injuries arising out of Manzur’s auto accident.
Thus, by its plain language, the Nationwide CGL policy excludes from coverage any
bodily injury arising out of the use of an auto. See McQuirter v. Rotolo, 77 So. 3d 76, 82 (La.
App. 2011) (“The automobile exclusion is unambiguous and operates to broadly bar coverage for
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bodily injury or property damage ‘arising out of the use of an[] auto.’”) (alterations and some
internal quotation marks omitted). The trial court erred in its priority analysis by finding
Nationwide’s CGL Policy provided coverage immediately after Nationwide’s Auto Policy.
Indeed, the Nationwide CGL Policy did not apply at all to provide coverage. Accordingly, we
reverse the trial court’s determination that the Nationwide CGL Policy ranked second in the
priority list of insurance coverages.
C. Subcontract’s Indemnification Clause
Nationwide argues that the trial court erred in determining its three policies provided
primary coverage for the wrongful death of Martin Klaiber. According to Nationwide, because
the underlying tort action did not include a claim against East Coast, the indemnification
provision in the subcontract is irrelevant making Nationwide’s coverage secondary to Erie’s
Auto Policy and its Umbrella Policy. Relying on St. Paul Fire & Marine Insurance Co. v.
American International Specialty Lines Insurance Co., 365 F.3d 263 (4th Cir. 2004) (concluding
that an indemnification provision may shift an entire loss to a particular insurer), as did the trial
court, Erie argues that the indemnification provision in the subcontract shifted the entire loss to
Nationwide obligating it to be the primary insurer. While we agree with the rationale in St. Paul
Fire & Marine, that an indemnification agreement may shift the loss from one insurer to another,
under the facts of this case it simply is not applicable.
Here, the indemnification provision required Rodriguez to indemnify East Coast against
any injuries which arose from work performed under the subcontract. Section 10 of the
subcontract states:
INDEMNIFICATION. To the fullest extent permitted by law,
Subcontractor hereby agrees to indemnify, hold harmless, and
defend (at Subcontractor’s sole expense) Contractor, the Owner,
affiliated companies of Contractor, their partners, joint ventures,
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representatives, etc. . . . (“Indemnified parties”), from and against
any and all claims for bodily injury, death, damage to property,
losses, theft, damages, actions, causes of action, suits, losses,
judgments, obligations and any liabilities, costs and expenses
. . . (“Claims”) which arise or are in any way connected with the
Work performed, materials furnished, or services provided under
this Agreement by Subcontractor, and/or its employees, agents,
sub-subcontractors and/or suppliers.
The trial court found that “the indemnification provision in this case is enforceable and
establishes East Coast[’s] [] right to indemnification from Rodriguez [] through its insurer,
Nationwide.” If the facts presented here raised an issue as to providing coverage for East Coast,
the trial court might be correct. However, coverage for East Coast is not and never has been at
issue in this declaratory judgment action. East Coast was nonsuited as a party in the underlying
Tort Action. Rather, the issue is who is obligated to cover Manzur for his actions during the
course of his employment with Rodriguez. Manzur, not East Coast, was a party to the Tort
Action and is a party to the declaratory judgment action now before us. Thus, the
indemnification provision between East Coast and Rodriguez is irrelevant to this case.
In an opinion that we find persuasive, the United States Court of Appeals for the Fourth
Circuit found that an indemnification agreement was irrelevant where coverage for the party to
be indemnified was not at issue. Travelers Prop. Cas. Co. of Am. v. Liberty Mut. Ins. Co., 444
F.3d 217 (4th Cir. 2006). In Travelers, the Fourth Circuit found that
[t]he principles of St. Paul [Fire & Marine], however, are not
relevant to the case before us. The issue here is coverage for only
Ryland’s liability. . . . This is not a case where we are determining
State Street’s liability vis-à-vis Ryland’s. The fact that Ryland
agreed to indemnify State Street under the Pooling Agreement
does not absolve Liberty Mutual of its independent contractual
obligation to insure Ryland as State Street’s ‘real estate manager.’
If the issue in this case turned on the underlying liability as
between Ryland and State Street, we would likely conclude, as
Liberty Mutual urges, that Ryland bore full responsibility because
of its indemnification agreement.
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Id. at 224-25. Likewise, the issue here is coverage only for Manzur’s liability as an employee of
Rodriguez while driving a car owned by East Coast. The fact that Rodriguez agreed to
indemnify East Coast for claims arising from work performed under the subcontract does not
absolve Erie of its contractual obligation to insure any vehicles owned by East Coast. The Erie
Auto Policy issued to East Coast expressly provides coverage for any “auto” owned by East
Coast.
Erie relies on Clarendon National Insurance Co. v. United Fire & Casualty Co., 571 F.3d
749, 753 (8th Cir. 2009), for the proposition that if language in an indemnification clause is
broad, as they assert the indemnification agreement is here, “the priorities of the insurance would
be determined by the presence of the language even if the direct beneficiary of the duty to
indemnify was not a party to the tort lawsuit.” Clarendon, however, is inapposite. Notably, the
indemnity language in Clarendon required one party to assume “‘any and all liability for
injury . . . caused by the operation, use, control, handling, or transportation of the [truck].’” Id.
at 753. The Clarendon court construed that language broadly to apply regardless of whether the
claim was against the owner of the vehicle. In contrast, the indemnification agreement in the
present case only required Rodriguez to indemnify East Coast from any claims against East
Coast. As we previously stated, there are no claims against East Coast. Therefore, Rodriguez is
not required to indemnify East Coast.
Accordingly, the trial court erred in finding the indemnification agreement applied to
require all three of Nationwide’s policies to provide primary insurance coverage ahead of Erie’s
two policies.
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D. Order of Priorities
Having determined that the trial court erred in finding the Nationwide CGL Policy and
the indemnification agreement applied, we now turn to the issue of establishing the proper order
of priority of insurance coverage.
1. Erie Auto Policy
East Coast insured its company and vehicles with Erie. The Erie Auto Policy provides
coverage for “[a]nyone else while using with your permission a covered ‘auto’ you own, hire or
borrow.” “For any covered ‘auto’ you own, this Coverage Form provides primary insurance.”
The vehicle Manzur was driving was owned by East Coast and constituted a “covered auto,”
therefore, the Erie Auto Policy provides primary coverage up to its coverage limit of $1,000,000.
2. Nationwide Auto Policy
Rodriguez insured its company and employees with Nationwide. The Nationwide Auto
Policy provides coverage for “[a]nyone else while using with your permission a covered ‘auto’
you own, hire or borrow.” “For any covered ‘auto’ you don’t own, the insurance provided by
this Coverage Form is excess over any other collectible insurance.” Manzur, an employee of
Rodriguez, was driving a “covered auto” that Rodriguez did not own, therefore, the Nationwide
Auto Policy provides excess coverage, up to $1,000,000, after the Erie Auto Policy is exhausted.
3. Umbrella Insurance Policies
The remaining insurance policies are the Nationwide Umbrella Policy, providing
coverage up to $1,000,000, and the Erie Umbrella Policy, providing coverage up to $5,000,000.
In determining coverage priorities between two escape or excess policies, normal principles of
contract interpretation apply. GEICO v. Universal Underwriters Ins. Co., 232 Va. 326, 330, 350
S.E.2d 612, 615 (1986). When “‘other insurance’ clauses of two policies are of identical effect
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in that they operate mutually to reduce or eliminate the amount of collectible insurance available,
neither provides primary coverage and . . . ‘pro rata distribution [is] appropriate.’” Aetna Cas. &
Sur. Co. v. National Union Fire Ins. Co., 233 Va. 49, 54, 353 S.E.2d 894, 897 (1987) (quoting
State Capital Ins. v. Mutual Assurance Soc’y., 218 Va. 815, 820, 241 S.E.2d 759, 762 (1978)).
The Nationwide Umbrella Policy’s “other insurance” provision provides that:
[i]f ‘other insurance’ applies to claims covered by this policy, the
insurance under this policy is excess and we will not make any
payments until the ‘other insurance’ has been exhausted by
payment of claims.
“Other insurance” is defined in Nationwide’s Umbrella Policy as “a policy of insurance
affording coverage that this policy also affords. ‘Other insurance’ includes any type of self-
insurance or other mechanism by which an ‘insured’ arranges for funding of legal liabilities.”
The “other insurance” provision in Erie’s Umbrella Policy states:
[t]his insurance is excess over, and shall not contribute with any of
the other insurance, whether primary, excess, contingent or on any
other basis.
Each “excess insurance” clause either “expressly negates contribution with other carriers,
or otherwise manifests that it is intended to be excess over the other excess policies.” State Farm
Fire & Cas. Co. v. LiMauro, 482 N.E.2d 13, 18 (N.Y. 1985) (citations omitted). See AIG
Premier Ins. Co. v. RLI Ins. Co., 812 F. Supp. 2d 1315, 1323 (M.D. Fla. 2011) (same).
Specifically, Erie’s policy provides that it “is excess over, and shall not contribute with any of
the other insurance.” It then delineates various types of insurance, i.e., “primary, excess,
contingent or on any other basis.” Reduced to its essence, the endorsement negates contribution.
To the same extent, but in a more direct fashion, Nationwide’s excess policy provides
“the insurance under this policy is excess and we will not make any payments until the ‘other
insurance’ has been exhausted by payment of claims.” (Emphasis added). Under the terms of
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Nationwide’s policy, “other insurance” includes “any” type of self-insurance or “other
mechanism” by which an insured arranges for funding of liabilities. “‘The word ‘any,’ like other
unrestrictive modifiers[,] is generally considered to apply without limitation.’” Shevlin Smith v.
McLaughlin, 289 Va. 241, 264, 769 S.E.2d 7, 19 (2015) (quoting Sussex Cmty. Servs. Ass’n v.
Virginia Soc’y for Mentally Retarded Children, Inc., 251 Va. 240, 243, 467 S.E.2d 468, 469
(1996)). The words “other mechanism” can be construed to include primary, excess, contingent,
or any other insurance.
In this instance, we join the New York Court of Appeals in “reject[ing] as an exercise in
‘meaningless semantics’ the effort to determine which among policies covering the risk which
occurred is the more specific.” LiMauro, 482 N.E.2d at 16. We adopt the reasoning of AIG
Premier which found “[t]he phrase ‘whether primary, excess or contingent’ does not add
anything to the all[-]inclusive ‘other valid’ phrase” in the umbrella policies. 812 F. Supp. 2d at
1324 (quoting LiMauro, 482 N.E.2d at 19). We find that the use of “any” as found in Erie’s
provision referring to “any of the other insurance,” as well as Nationwide’s “other insurance”
definition of “any type of self-insurance or other mechanism,” function as all-inclusive terms.
“The super-escape phraseology may be more specific, but its listing of other coverage still falls
within the ambit of the very broad phrase[s]” “any of the other insurance” or “any type of self-
insurance.” Id. Accordingly, we conclude that the provisions are virtually identical in effect,
and that they are irreconcilable and mutually repugnant. In this situation, therefore, pro rata
distribution is appropriate. Aetna, 233 Va. at 54, 353 S.E.2d at 897. The order of priorities for
the applicable insurance policies in this case is: (1) Erie Auto Policy; (2) Nationwide Auto
Policy; (3) Nationwide Umbrella Policy and Erie Umbrella Policy, pro rata.
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III. CONCLUSION
For the foregoing reasons we find that the trial court erred in ruling that the
indemnification provision in the subcontract applied in this case; that the Nationwide CGL
Policy provided secondary coverage in this case; and hold that the order of priorities in this case
is: (1) Erie Auto Policy; (2) Nationwide Auto Policy; (3) Nationwide Umbrella Policy and Erie
Umbrella Policy, pro rata.
Reversed and final judgment.
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