Medical Protective Co. v. National Union Fire Insurance

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

THE MEDICAL PROTECTIVE COMPANY; 
ST. PAUL FIRE & MARINE INSURANCE
COMPANY,
Plaintiffs-Appellees,
v.  No. 00-1173
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH,
PENNSYLVANIA,
Defendant-Appellant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Richard L. Williams, Senior District Judge.
(CA-99-589)

Argued: November 1, 2000

Decided: January 4, 2002

Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.

Reversed and remanded with instructions by unpublished per curiam
opinion.

COUNSEL

ARGUED: Christopher E. Hassell, GILBERG & KIERNAN, Wash-
ington, D.C., for Appellant. Rodney Kyle Adams, LECLAIR RYAN,
P.C., Richmond, Virginia, for Appellees. ON BRIEF: Kelvin L.
2 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS.
Newsome, LECLAIR RYAN, P.C., Richmond, Virginia, for Appel-
lees.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

OPINION

PER CURIAM:

This appeal arises from a dispute among three insurance companies
over the effect of competing "other insurance" clauses. Appellees,
St. Paul Fire & Marine Insurance Company (St. Paul) and The Medi-
cal Protective Company (Medical Protective), brought suit seeking to
recover a pro rata share of the cost of defending and settling a medical
malpractice action from Appellant National Union Fire Insurance
Company (National Union). The district court found that each of the
three insurance policies provided primary coverage of the insured and
entered summary judgment against National Union and in favor of
Medical Protective and St. Paul. Because we conclude that National
Union’s "other insurance" clause made its policy excess insurance in
this case, we reverse the grant of summary judgment to Appellees and
remand with instructions to enter judgment for National Union.

I.

This dispute arises from a medical malpractice action against Linda
Frey, a certified nurse practitioner. At the time of the alleged malprac-
tice, Frey had liability insurance coverage from all three companies:
she had personally purchased coverage from National Union and
St. Paul, and she was an additional insured under a policy issued to
her employer by Medical Protective. Frey notified all of her insurers
of the claim.

Each of the three insurance policies contains an "other insurance"
clause.1 The St. Paul policy contained a "pro rata" other insurance
clause:
1
An "other insurance" clause applies when two or more insurance poli-
cies cover the same risk for the benefit of the same person. See Barry R.
 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS. 3
A professional liability claim that’s covered under this
agreement may also be covered under other insurance. If it
is, we’ll pay that portion of the claim equal to our percent-
age of the total amount of insurance covering the claim. But
we won’t pay more than our limits of coverage.

J.A. 29. Both the Medical Protective and National Union policies con-
tained "excess" other insurance clauses. The Medical Protective
clause provided as follows:

The insurance afforded by this policy is primary insurance,
except when the insured has other valid and collectible
insurance applicable to a loss covered by this policy, in
which event this insurance shall be excess over such other
valid and collectible insurance.

Id. at 35. The National Union clause provided:

This insurance is excess over other valid and collectable
insurance except insurance written specifically to cover as
excess over the limits of liability that apply in this policy.

Id. at 15.

Consistent with its role as the primary insurer, St. Paul assumed the

Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Dis-
putes § 11.01 (10th ed. 2000). There are three basic types of "other insur-
ance" clauses: pro rata, excess, and escape. See id. § 11.02. A pro rata
clause typically provides that, in the event other insurance covers the
same loss, the insurer will pay its pro rata share of the loss, generally
determined by the ratio of the limit of its policy to the sum of the limits
of all the policies covering the same claim. See id. § 11.02[a]. An excess
clause generally provides that when there is other primary coverage, the
insurer’s liability is limited to the amount by which the loss exceeds the
coverage provided by the other primary insurance, up to the limit of the
excess policy. See id. § 11.02[b]. An escape clause generally provides
that, in the event other insurance covers the loss, the insurer is not liable
for any loss. See id. § 11.02[c].
4 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS.
defense of the malpractice action. Medical Protective also contributed
to the expenses of the defense.2 After trial, a jury awarded $850,000
to the plaintiff. Frey appealed, and the case was settled for $713,840
while the appeal was pending. In addition to the amount of the settle-
ment, St. Paul and Medical Protective spent over $340,000 in fees and
expenses. Appellees thereafter brought this action seeking contribu-
tion from National Union.

Following a hearing on the parties’ cross-motions for summary
judgment, the district court ruled in favor of Appellees. Without stat-
ing so explicitly, the district court apparently concluded that the
"other insurance" clauses at issue were mutually repugnant. Ruling
from the bench, the court stated that each of the three policies pro-
vided primary coverage and that liability should be prorated among
the three insurers based on the total amount of potential coverage pro-
vided by each policy. The district court thus denied National Union’s
motion for summary judgment, granted Appellees’ motion for sum-
mary judgment, and entered judgment against National Union in the
amount of $210,861.06.

II.

This case presents the question of whether National Union’s excess
"other insurance" clause can be reconciled with St. Paul’s pro rata
"other insurance" clause so that both clauses may be given effect, or
whether the clauses cannot be reconciled and are therefore mutually
repugnant.3 A minority of courts have adopted the position taken in
2
Appellees argue that Medical Protective was contractually obligated
to defend Frey. National Union argues that Medical Protective’s defense
of Frey was voluntary because Medical Protective’s "other insurance"
clause, like National Union’s, provided that in the event of other insur-
ance Medical Protective’s coverage would be excess. Because we need
not answer the question of whether Medical Protective was obligated to
defend Frey in order to resolve the matter on appeal, we do not address
it.
3
Although Medical Protective also seeks to recover some of the costs
of litigating and settling the suit against Frey, the terms of the "other
insurance" clause in its policy are not relevant to our resolution of the
appeal.
 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS. 5
Lamb-Weston, Inc. v. Oregon Automobile Insurance Co., 341 P.2d
110, 119 (Or. 1959), that dissimilar "other insurance" clauses are
irreconcilable and therefore mutually repugnant. See Jones v. Medox,
Inc., 430 A.2d 488, 492 (D.C. 1981) (en banc) (observing that "[t]he
Lamb-Weston rule presents an appealingly simple and no-nonsense
way to deal with the vagaries of insurance policies"). In such cases,
the courts have treated the insurers as each providing primary insur-
ance and have prorated their liability. See, e.g., Lamb-Weston, 341
P.2d at 119.

However, a majority of courts dealing with the question have con-
cluded that dissimilar "other insurance" clauses can indeed be recon-
ciled. See Jones, 430 A.2d at 491. When a pro rata clause conflicts
with an excess clause, courts applying the majority rule generally
conclude that the policy containing the excess clause provides sec-
ondary coverage and the policy containing the pro rata clause pro-
vides primary coverage. See id.

Because the district court sat in diversity, we must apply the law
of Virginia as articulated by the Supreme Court of Virginia or as we
predict the Supreme Court of Virginia would rule were the case
before it. See Nature Conservancy v. Machipongo Club, Inc., 579
F.2d 873, 875 (4th Cir. 1978) (per curiam). We are aware of no Vir-
ginia case deciding the precise question before us. However, in
GEICO v. Universal Underwriters Insurance Co., 350 S.E.2d 612
(Va. 1986), the Virginia Supreme Court provided us with sufficient
guidance to conclude how the court would decide the question before
us.

GEICO required the court to determine which of two competing
uninsured motorist policies provided primary coverage. See GEICO,
350 S.E.2d at 613. One policy contained an excess "other insurance"
clause, and the other contained an escape "other insurance" clause.

Because we decide this case by giving effect to the competing "other
insurance" clauses, we need not and do not address the argument that
there was no common obligation among the parties allowing a cause of
action for contribution against National Union.
6 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS.
See id. In its analysis, the Virginia Supreme Court declined to follow
cases concluding that dissimilar "other insurance" clauses are mutu-
ally repugnant and reconciled the two clauses. See id. at 615-16. In
light of GEICO, we conclude that the Virginia Supreme Court would
adopt the majority rule of reconciling competing "other insurance"
clauses when it is possible to do so.

Appellees make no attempt to distinguish GEICO. Rather, they
simply argue that we should be guided by a decision of the Fairfax
County Circuit Court. See American Bankers Ins. Co. of Fla. v. Jeffer-
son Pilot Fire & Cas. Co., 21 Va. Cir. 3 (1989) [hereinafter Jefferson
Pilot]. In Jefferson Pilot, the court construed conflicting excess and
pro rata "other insurance" clauses as mutually repugnant and ordered
the insurance companies to allocate the liability pro rata. See id. at 9.
However, in reaching its conclusion, the court in Jefferson Pilot
ignored GEICO and misapplied two other decisions of the Virginia
Supreme Court. The cases on which the state circuit court relied do
not stand for the proposition that dissimilar "other insurance" clauses
are mutually repugnant but stand instead for the unexceptional and
inapposite rule that "other insurance" clauses that are alike (other than
pro rata clauses) are mutually repugnant. See Aetna Cas. & Sur. Co.
v. Nat’l Union Fire Ins. Co., 353 S.E.2d 894, 897 (Va. 1987) (ruling
that two excess "other insurance" clauses were mutually repugnant);
State Capital Ins. Co. v. Mut. Assurance Soc’y Against Fire on Bldgs.,
241 S.E.2d 759, 762 (Va. 1978) (same). We therefore decline to fol-
low Jefferson Pilot, and St. Paul cites no other case that would under-
mine the teachings of GEICO.

Having concluded that GEICO requires us to reconcile the compet-
ing "other insurance" policies, we now turn to that task. As noted pre-
viously, National Union’s "other insurance" clause provided that its
coverage was "excess over other valid and collectable insurance," J.A.
15, while the St. Paul policy contained a pro rata "other insurance"
clause. Under the majority rule, a reference to other valid and collect-
ible insurance is construed as a reference to other primary insurance.
See Jones, 430 A.2d at 491.

It follows, then, that the policy containing the pro rata clause
is other valid and collectible primary insurance that triggers
application of the excess clause in the second policy. The
 MEDICAL PROTECTIVE CO. v. NATL UNION FIRE INS. 7
excess clause in the second policy therefore is given full
effect and that carrier is liable only for the loss after the pri-
mary insurer had paid up to its policy limits. The policy con-
taining the excess clause, however, is not considered to be
other valid and collectible primary insurance for the purpose
of triggering the operation of the pro rata clause, because
when a stated contingency occurs, that is, when there is
other valid and collectible primary insurance available to the
insured, the policy containing the excess clause becomes
secondary coverage only.

Id. We therefore conclude that St. Paul was the primary insurer.
Because the claim against Frey did not exhaust the $3,000,000 limit
of St. Paul’s coverage, National Union had no duty to pay a share of
the costs of the settlement.4

III.

For the reasons set forth above, we conclude that National Union’s
coverage in this case was excess and that St. Paul’s coverage was pri-
mary. It was therefore error for the district court to enter judgment
against National Union. Accordingly, we reverse and remand with
instructions for the district court to enter judgment in favor of
National Union and against St. Paul and Medical Protective.

REVERSED AND REMANDED WITH INSTRUCTIONS

4
Neither did National Union have a duty to pay for any of the costs of
Frey’s defense. Virginia law at the time of the alleged malpractice lim-
ited Frey’s exposure to liability at $1,000,000. See Va. Code Ann.
§ 8.01-581.15 & note regarding 1999 amendment (Michie 2000 & Supp.
2001). Thus, because St. Paul’s coverage limit was $3,000,000, National
Union had no duty to defend Frey. See Brenner v. Lawyers Title Ins.
Corp., 397 S.E.2d 100, 102 (Va. 1990) (recognizing that, though insur-
er’s duty to defend is broader than its duty to pay, insurer has no duty
to defend "if it appears clearly that the insurer would not be liable under
its contract for any judgment based upon the allegations").