Opinion
CIVIL ACTION NO. 98-3326 SECTION "K"(5).
December 11, 2000.
ORDER AND REASONS
Before the Court are Motions for Summary Judgment filed by General Electric ("GE") (rec. doc.548), Connex-Metalna (rec. doc. 466), Plant Mechanical ("Plant") (rec. doc. 623) and Gottlieb Barnett and Bridges ("GBB") (rec. doc. 612). The Court has considered the pleadings, memoranda and case law and finds for the reasons that follow.
I. Background
Reliance National Insurance Company ("Reliance") issued builders risk policy number NZB0136162 to insure construction and installation of the conveyor system at the IC RailMarine Terminal in Convent, Louisiana. Through certain broad form endorsements to the policy, Reliance added named and unnamed additional insureds to the policy.
The motions filed by GE, Connex-Metalna, Plant and GBB are inextricably bound in that they request relief based on identical provisions of the aforementioned builders risk policy, and it is for this reason that the Court takes the motions together. The parties, all participants in the construction and/or testing at the IC Terminal facility in Convent, Louisiana, all pray that this Court declare them to be "additional insureds" under the broadly worded endorsements to the policy. The parties contend that, in the event that the Court does indeed find them to be additional insureds, that all suits instigated against them by Reliance be dismissed based on the premise that an insurer cannot sue an insured under Louisiana law. Thus, the Court's task is to (1) decide whether the endorsements do in fact provide coverage to any or all of the movants, and (2) determine, if indeed the movants are indeed additional insureds under the policy, whether Reliance can subrogate against its own insureds. With this background in mind, the Court turns to the relevant legal standards.
II. Standard for Motion for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." Stults v. Conoco, 76 F.3d 651, 656, (5th Cir. 1996), (citing Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912-13 (5th Cir. 1992) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986); Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). Thus, where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). The court notes that the substantive law determines materiality of facts and only "facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Where the opposing party bears the burden of proof at trial, the moving party need not submit evidentiary documents to properly support its motion, but need only point out the absence of evidence supporting the essential elements of the opposing party's case. See Saunders v. Michelin Tire Corp., 942 F.2d 299, 301 (5th Cir. 1991).
III. Policy Interpretation
As the Court is bound by Louisiana's substantive law in interpreting the relevant policy provisions, a brief overview of the relevant canons is required. In Peterson v. Schimek, 729 So.2d 1024, 1028-29 (La. 1999) the Louisiana Supreme Court has set forth a comprehensive review of insurance policy interpretation. The court stated:
An insurance policy is a conventional obligation that constitutes the law between the insured and insurer, and the agreement governs the nature of their relationship. La.Civ. Code art. 1983. As such, courts are guided by certain principles of construction and should interpret insurance policies the same way they do other contracts by using the general rules of contract interpretation as set forth in our Civil Code. Ledbetter v. Concord Gen. Corp., 95-0809 (La. 1/6/96); 665 So.2d 1166, 1169; Crabtree v. State Farm Ins. Co., 93-0509 (La. 2/28194), 632 So.2d 736 . . . . The extent of coverage is determined from the intent of the parties as reflected by the words of the insurance policy. Ledbetter, 665 So.2d at 1169.
The role of the judiciary in interpreting insurance contracts is to ascertain the common intent of the insured and insurer as reflected by the words in the policy. La.Civ. Code art. 2045; Ledbetter, 665 So.2d at 1169. When the words of an insurance contract are clear and explicit and lead to no absurd consequences, courts must enforce the contract as written and may make no further interpretation in search of the parties' intent. La.Civ. Code art. 2046; Central La. Elec. Co. v. Westinghouse Elec. Corp., 579 So.2d 981, 985 (La. 1991).
Words in an insurance contract are to be given their generally prevailing and ordinary meaning, unless they have acquired a technical meaning. La.Civ. Code art. 2047; Schroeder v. Board of Supervisors of La. State Univ., 591 So.2d 342, 345 (La. 1991). Courts lack the authority to alter the terms of insurance contracts under the guise of contractual interpretation when the policy's provisions are couched in unambiguous terms. Louisiana Ins. Guar. Ass'n v. Interstate Fire Cas. Co., 93-0911 (La. 1/14/94), 630 So.2d at 764. An insurance contract is construed as a whole and each provision in the policy must be interpreted in light of the other provisions so that each is given meaning. One portion of the policy should not be construed separately at the expense of disregarding other provisions. La, Civ. Code art. 2050; Central La. Elec. Co., 579 So.2d at 985. An insurance contract, however, should not be interpreted in an unreasonable or strained manner under the guise of contractual interpretation to enlarge or to restrict its provisions beyond what is reasonably contemplated by unambiguous terms or achieve an absurd conclusion. Valentine v. Bonneville Ins. Co., 96-1382 (La. 3/17/97), 691 So.2d 665; Reynolds v. Select Properties, Ltd., 93-1480 (La. 4/11/94), 634 So.2d 1180, 1183. That is, the rules of construction do not authorize a perversion of the words or the exercise of inventive powers to create an ambiguity where none exists or the making of a new contract when the terms express with sufficient clearness the parties' intent. Ledbetter, 665 So.2d at 1169; Reynolds, 634 So.2d at 1183. If, after applying the other general rules of construction, an ambiguity remains, the ambiguous contractual provision is to be construed against the insurer who furnished the policies text and in favor of the insured finding coverage. La.Civ. Code art. 2056 Crabtree, 632 So.2d at 741. When a contract can be construed from the four corners of the instrument without looking to extrinsic evidence, the question of contractrual interpretation is answered as a matter of law and summary judgment is appropriate. Brown v. Drillers Inc, 93-1019 (La. 1/14/94), 630 So.2d 741.Peterson v. Schimek, 729 So.2d 1024, 1028-29 (La. 1999).
IV. The Policy Provisions
The movants each request a declaration that it is an insured under the Reliance policy pursuant to the following endorsements.
Endorsement #2
It is hereby understood that Section 1, 2, Additional Insured(s) is amended to include the following:
Sub Contractors, Sub Sub Contractors of every tier, and all parties required by contract.Endorsement # 3
In consideration of the premium charged the following revisions are made to this policy:
IC RailMarine Terminal Co., owners, subs and subs' subs and Illinois Central Corporation are hereby added as named insureds.
Al Johnson construction is hereby deleted as an additional insured.
The movants contend that the broad language used in both endorsements, and the interpretation of those endorsements provided by Reliance personnel during discovery, mandates their inclusion as additional insureds under the policy. Reliance contends that the language and intent of the endorsements are clear, and that they do not insure movants.
V. Analysis
A. Endorsement #2
Endorsement 2 amends section 1, 2 of the policy to include as additional insureds, "Sub Contractors, Sub Sub Contractors of every tier, and all parties required by contract." The movants argue that this provision should be interpreted as testified by Reliance's 30(b)(6) corporate representatives to include any party providing services to the project under construction. Reliance claims that the provision is limited to subcontractors of approved general contractors; as to the current policy, Reliance argues that Johnson Brothers and CCC Inc. were the only approved general contractors and that no movant contracted with Johnson Brothers or CCC, and thus were not covered under the policy. As to the phrase "all parties required by contract", Reliance explains that a prerequisite to inclusion under this provision is that a named insured, who is an approved general contractor must have agreed to procure insurance to the additional insured under a separate subcontract with the prospective additional insured.
The broad form endorsement if not precise, is certainly unique. Neither the movants or Reliance presented the Court with any jurisprudence interpreting an identical clause. Likewise, the Court has been unable to unearth an identical provision in the case law.
In In re Midwest Equipment Leasing Corp., 703 F. Supp. 727 (N.D. Ill. 1988), the issue was whether a subcontractor could claim coverage under a builders risk policy issued to a sub subcontractor with whom it had no contractual relation. The sub subcontractor was covered under a builders risk policy insuring itself and "all subcontractors as their interests may appear."Id. at 729. The court found the provision ambiguous in that it "who was intended to be covered under the umbrella term subcontractor is not clear." Id. In that case, the Court turned to the parol evidence and found that only the sub subcontractor's subcontractors were intended to be covered under the policy. Thus, it did not find the unrelated subcontractor an insured under the policy. Id. at 729-30.
With respect to the instant clause adding "subcontractors, sub sub contractors of every tier" this Court finds an ambiguity. The endorsement doesn't specify the subcontractors that are intended to be covered. It makes no reference to those named insureds or those approved as general contractors by Reliance. The language "and all parties required by contract", will be discussed below. Referring back to the policy, section 1, 2 names as additional insureds, "Al Johnson Construction and subcontractors ATIMA [as their interests may appear]." The only other additional insured under the policy is general contractor CCC Group, as added through the first endorsement. Reading the endorsements in pan materia with the policy, there is no merit to the argument that the subcontractors named as additional insureds under the endorsement are restricted to those under contract with named general contractors. Section 1, 2 of the policy clearly insured Al Johnson Construction and its subcontractors. Endorsement 2, issued with the policy, deleted Al Johnson Construction as an additional insured. To construe the endorsement as insuring only Al Johnson Construction's subcontractors would not be logical. Moreover, it is far from clear that endorsement two was inserted to modify endorsement one's listing of CCC Group. If Reliance intended to limit the insured subcontractors to those working under CCC it would more likely than not have added those subcontractors pursuant to endorsement one. Certainly Reliance was aware that the insured subcontractors could be limited in such a fashion, as it did under the policy when it initially listed "Al Johnson Construction and subcontractors ATIMA" as additional insureds. As it now reads, the second endorsement makes no reference to the first endorsement, although it does reference the policy, and lacks any language otherwise limiting coverage to CCC Group's subcontractors. Absent any limiting language, the Court can only construe the first phrase to include all subcontractors working on the project. The Court's interpretation is a reasonable construction of the contract which substantially deviates from Reliance's interpretation. Since the wording appears susceptible to more than one interpretation, the Court considers parol testimony to clarify the intent of the parties. Sanders v. Ashland Oil, 696 So.2d 1031 (La.App. 1 Cir. 1997). The pertinent parol in this case arises in connection with the second phrase in endorsement two
The second endorsement, to be read as a whole, insures, "Sub Contractors, Sub Sub Contractors of every tier, and all parties required by contract." (Emphasis added). At this time, the Court will focus on the second clause of the provision, namely, "all parties required by contract." Reliance contends that the clause modifies the first clause in that a subcontractor is only insured to the extent that the terms of the subcontract require the general contractor to provide insurance to the subcontractor. If the intent of the parties was to insure subcontractors only to the extent that they were contractually vested with such rights through their general contractors, it would once again mean that at the time endorsement 2 was written only those subcontractors working for CCC Group would have such rights, which would be in conflict with the reasonable interpretation of the first phrase of the endorsement. Regardless, the endorsement as written does not clearly indicate the extent of coverage. There was a minimal amount of case law in the briefs and the Court has examined the jurisprudence to find similar language.
Several cases discuss the effect of an additional insured "required by contract." Those cases have interpreted the provisions to apply only when a party has agreed in writing to provide insurance to another. As such, most have found the clause to provide limited coverage and have been most concerned with deciding the scope of an additional insured's protection under a policy. However, the cases that find an additional insured via a "required by contract" clause all interpret policies far more detailed than the one before this Court. See, e.g., BP Chemicals, Inc. v. First State Ins. Co., 226 F.3d 420 (6th Cir. 2000) ("additional insureds are covered under this policy as required by written contract, but only with respect to liabilities arising out of their operations performed by or for the named insured . . ."); In re Torch, 2000 WL 798457 (E.D. La. 2000) ("Privilege to add additional assureds . . . where required by contract or agreement . . . The Assured shall report all additional assured . . . to the company within 5 working days.");OPI International v. GAN Minister Insurance Company, Ltd., 1996 WL 650130 (S.D. Tex. 1996) ("Other assureds: any other company, firm or person, including but not limited to Contractors and/or subcontractors with whom the assureds [already named in the policy] . . . have entered into agreements and/or contracts in connection with the subject matters of insurance, as their interests may appear."); Saavedra v. Murphy Oil, USA, 930 F.2d 1104 (5th Cir. 1991) ("additional insureds are covered under this policy as required by written contract, but only with respect to operations performed by or for general contractor."). The aforementioned policies have a major feature not found in the Reliance policy at issue in the case at bar. Those policies referred to above all directly limit the additional insured to parties contracting with a named insured or general contractor. The Reliance policy has no such limitation. With the abundance of case law on the matter, it would have been simple for Reliance to have included as additional insureds "all parties required by contract with an approved general contractor." Such limiting language would have described the "all parties" more clearly and would have served to restrict the endorsement in the manner argued by Reliance.
Unfortunately, the Reliance policy is not as precise as those discussed above. Aside from the failure to indicate the precise nature of the parties and the exact type of contract, the grammatical construction of the endorsement does not support Reliance's position. If the endorsement were designed to insure only those subcontractors who contractually acquire such nghts, a more plausible construction would have been "Sub Contractors [and] Sub Sub Contractors of every tier [as] required by contract." The present endorsement provides an exclusive listing of those covered under the policy. The first two classes are sub contractors and sub sub contractors of every tier. The third category, separated from first two by the conjunction "and" is "all parties" "required by contract." The phrase expressly designates a third class of people, namely "all parties" and limits that class of "all parties" to those "required by contract." As stated earlier, the endorsement lacks the modifying or identifying words of other policies that the Court has examined, and might not act as a limitation on the first two classes of insureds on account of the grammatical separation through the use of "and" and the designation of those other than subcontractors. Thus, through a grammatical analysis and comparison with similar clauses, the Court cannot determine the exact intent of the parties from the plain language. To determine the extent of the coverage provided pursuant to the final clause of endorsement two, then, the Court looks to the intent of Reliance as evidenced by the deposition testimony of its employees.
Reliance underwriter Mike Gigante, testifying on the interpretation of the policy stated that the phrase "all parties as required by contract" covers "anybody that contracts with the named insured." Gigante depo., p. 64. When asked if the addition of ICRMT as a named insured under endorsement 3 affected endorsement 2, Gigante testified that anyone contracting with ICRMT would be considered an additional insured pursuant to endorsement 2. Gigante depo., p. 66. Although he stated that Reliance would need to be apprised of such an addition, he acknowledged that the policy itself contains no such restriction.
Robert Smith, Gigante's advisor, testified that the term "all parties by contract", although geared towards general contractors, could also apply to contracts entered into directly between ICRMT and subcontractors. Smith depo., p. 124-127. When asked what specific contracts were contemplated at the time of the endorsement, he testified that "the contracts that would be included to achieve the scope of the project that we understood the completed project to be." Id. Later he asserted that "our intentions are, "as required by contract", all the parties that may be involved to bring that project to a conclusion . . . There would be a variety of different parties that would be involved to get that project started and completed, and as required by contract, its focused towards that specific project." Smith depo., p. 470-71. Reliance representative Jerry May also testified to the effect that any party working on the Convent facility was encompassed under the term "all parties required by contract" See May depo., p. 599.
Thus, as the language of endorsement number 2 is anything but clear, the Court finds that the intent of the parties is evidenced from the Reliance testimony. That testimony persuades the Court that the purpose of the second endorsement was to provide insurance to all subcontractors working on the project, regardless of their affiliation. The broad reading of the phrase "sub contractors, sub sub contractors of every tier" is further reinforced through the broad scope attributed to the phrase "all parties required by contract."
B. Endorsement #3
The third policy endorsement states as follows, "IC RailMarine Terminal Co., owners, subs and subs' subs and Illinois Central Corporation are hereby added as named insureds." The clear language of the policy adds ICRMT, the owner of the site, and Illinois Central Corporation as named insureds under the policy. "Subs and subs' subs" were also listed as named insureds. One logical reading is that the terminology appears to refer to subcontractors of ICRMT, a distinct named insured, who acted as its own general contractor for certain phases of the project.
However, Reliance contends that the term "subs and subs' subs" is a reference to subsidiary corporations, although it makes no contention that ICRMT is a parent to any other corporation. Its argument is based upon the testimony of Reliance underwriter Mike Gigante who stated that the intent of the language was to cover subsidiary corporations. Gigante depo., pp. 598-99. Other Reliance representatives testified differently. Robert Smith testified that the phrase refers to subcontractors and further interpreted the phrase as follows: "[t]ypically the way that the process would work, it would be the subs and the subs' subs of the general contractor, but it could be the subs and the subs' subs of the owner as well." Smith depo., p. 544-545. Likewise, Jerry May testified that ICRMT could engage subcontractors directly to work on the project. May depo., p. 681. He also stated that even those architects, engineers, designers and project consultants could be additional insureds under the policy. Id. at 601-602. Thus, according to at least two Reliance representatives, the use of subs and subs' subs in endorsement three contemplates ICRMT as an owner/general contractor making contracts with subcontractors.
Overall, endorsement three is anything but clear, as reflected by the fact that Reliance's own employees had different opinions as to its meaning. Simply put, the Court finds the "subsidiary" interpretation to be unconvincing. Reliance has not provided, nor has this Court found cases where the term "subs" has been used to identify a subsidiary as an additional insured. The more reasonable interpretation of the provision is that when ICRMT became an insured under the project, all those with whom it contracted with in its capacity as general contractor on the project, in addition to the broad group already covered under endorsement two were intended to be covered. Such a description would be necessary to reflect ICRMT's role as general contractor letting out work to subcontractors on the project it owned. In other words, endorsement 3 defined the relationship of ICRMT the general contractor, and parties that it contracted with as the subcontractors. Although the definitions used may vary from those used in other statutes, for example the Private Works Act, the Court finds those statutes to be inapposite here and cannot alter the legal relationship as defined in the contract.
As a whole, the intent of Reliance with respect to endorsements two and three are ambiguous. As such, the endorsements must be construed to provide coverage. Louisiana Insurance Guarantee Ass'n v. Interstate Fire Casualty Co., 630 So.2d (La. 1994). On its face, each endorsement purports to provide broad coverage with no limiting language. Reliance's representative's testified that the insurance was available to a broad range of actors working on the Convent site. Therefore, the Court shall interpret the policy in a like manner.
VI. The Movants
General Electric's involvement in this suit is through its performance of a contract entered into with Connex-Metalna. Thus, General Electric is classified as a traditional "subcontractor." Therefore, GE is an "additional insured" through the broad language of endorsement two.
Connex-Metalna, Gottlieb Barnett Bridges, and Plant Mechanical each contracted directly with the owner of the project, ICRMT, and accordingly would be classified under endorsement three, which defines ICRMT as an owner and general contractor letting out contracts directly to subcontractors. As the policy is the law between the parties, the definitions and classifications provided in endorsement three govern the parties rights even though it employs different terminology than certain inapposite Louisiana statutes. Thus, Connex-Metalna, Gottlieb Barnett Bridges and Plant Mechanical are covered as named insureds under the provisions of endorsement 3. Reading the policy provisions together as required under Civil Code article 2050, such a classification would comport with Reliance's contractual intent as evidenced by its omnibus interpretation of endorsement 2's addition of "all parties required by contract." According to the Reliance representatives, that provision includes all those required to perform work at the Convent facility, regardless whether the contracts were made with a general contractor or ICRMT directly.
Accordingly, this Court finds GE, Connex-Metalna, GBB and Plant to be additional or named insureds under the Reliance policy. Then next question, then, is whether Reliance can bring suit against its own insureds under Louisiana law.
VII. Anti-Subrogation Rule
Reliance argues that even if the movants are additional insureds, it can still sue its own insureds under policy section "20.B", which preserves Reliance's subrogation rights against "any manufacturer or supplier of machinery, equipment or other property, whether a named insured or not for the cost of making good any loss or damage which said party has agreed to make good under a guarantee or warranty, whether express or implied." A similar provision attempts to preserve subrogation rights against engineers working on the project.
Before exploring whether or not the movants are subsumed under 20.B, the Court must be satisfied that the provision is valid as a matter of law. To put it another way, the Court must determine whether the anti-subrogation rule, which forbids an insurer from suing its insured is a matter of law or public policy that cannot be deviated from by contract. The Civil Code requires that "parties are free to contract for any object that is lawful, possible, determined or determinable." La. Civ. Code art. 1971. Thus, section 20.B of the builders risk policy, permitting the insurer to sue its insured must be enforced unless it is found to be unlawful or against public policy.
The United States Court of Appeals for the Fifth Circuit "has overwhelmingly upheld the fundamental principle of insurance law which states that an insurer may not sue its own insured to recover under the insurance policy." Peavey Comnany v. M/V ANPA et al., 971 F.2d 1168, 1177 (5th Cir. 1992) (citing cases); See also West of England Shipowners Mutual PI Assoc. v. Shell Offshore, Inc., 1994 WL 500952 (E.D. La. 1994); State Farm Fire Casualty Comp. v. Sentry Indemnity Comp., 316 So.2d 185 (La.App. 3 Cir. 1975); Olikraft, Inc. v. ANCO Insulation, Inc., 376 So.2d 1301 (La.App. 2 Cir. 1979); Boston Insurance Company v. Pendarvis, 195 So.2d 692 (La.App. 1 Cir. 1967). Moreover, the Fifth Circuit has declared that "public policy does not allow an insurer to sue its own assured on the policy." Peavey Comnany v. M/V ANPA et al., 971 F.2d 1168, 1177 (5th Cir. 1992).
Thus, as a matter of law and public policy, Reliance cannot sue its own insureds, General Electric, Connex-Metalna, Gottlieb Barnett Bridges or Plant Mechanical, on the policy. Accordingly,
IT IS ORDERED the motions of General Electric (case ref. 99-2602), Connex-Metalna (case ref. 99-1800), Gottlieb Barnett Bridges (case ref. 00-2600), and Plant Mechanical (case ref. 00-2909) are GRANTED.