Chandler v. Liberty Mutual Insurance Group

NOT RECOMMENDED FOR PUBLICATION
File Name: 07a0020n.06
Filed: January 8, 2007

No. 05-6869

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

KENNETH CHANDLER, JR.; GEO )
TRANSPORTATION OF INDIANA, INC.; )
AMERICAN INTERNATIONAL SPECIALTY )
LINES INSURANCE CO., ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
Plaintiffs-Appellants, ) COURT FOR THE
) EASTERN DISTRICT OF
v. ) KENTUCKY
)
LIBERTY MUTUAL INSURANCE GROUP, )
)
Defendant-Appellee.

__________________________________________

BEFORE: CLAY and ROGERS, Circuit Judges; and KATZ, District Judge.*

KATZ, District Judge. This case involves the appeal from a grant of summary judgment

by the district court in favor of Liberty Mutual, from which the plaintiff, American International

Specialty Lines Insurance Company (“AISLIC”) appeals. After the matter was fully briefed on

appeal, this Court heard oral argument and hereby AFFIRMS the decision of the district court.

BACKGROUND

On June 6, 2002, a tractor-trailer driven by Kenneth Chandler (“Chandler”) crossed the

*
The Honorable David A. Katz, United States District Judge for the Northern District of
Ohio, sitting by designation.

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median on I-75 in Grant County, Kentucky, colliding with a minivan, injuring Amber Young, and

killing Norma Young, Heather McNay, and Evan Embry. Chandler v. Liberty Mutual Insurance

Group, No. 2:05-cv-00071, (E.D. Ky. Nov. 3, 2005). The tractor-trailer was owned by Dairy

Farmers of America, Inc. (“DFA”). On July 1, 2001, DFA had leased the vehicle and driver to Geo

Transportation of Indiana (“Geo”) and Geo leased them back to DFA on the same date by a different

instrument, the Fleet Operator Lease Agreement (“FOLA” or “Indemnity Agreement”). In the

FOLA, Geo agreed to indemnify DFA and hold DFA harmless from all claims. Geo also agreed to

provide insurance of at least $11 million for DFA, and that “any and all insurance” provided by DFA

would be excess to Geo’s coverage.

Geo procured a Business Auto Policy (“LM Policy”) from Liberty Mutual, naming DFA as

an additional insured. Geo also obtained a commercial umbrella liability policy (“AISLIC Policy”)

from American International Specialty Lines Insurance Company (“AISLIC”). Chandler qualifies

as an insured under both policies, but DFA is not listed as an additional insured in the AISLIC

Policy. Pl.’s Br. at 7. On its own, DFA also procured a $2 million Liberty Mutual policy. Id.

In 2003 the victims of the car accident and Liberty Mutual began settling various wrongful

death, personal injury, and other claims. Liberty Mutual paid these settlement fees out of a $2

million policy provided for in the separate agreement between Liberty Mutual and Geo to which

DFA was an additional insured. When that limit was almost reached, Liberty Mutual sought defense

and indemnity from AISLIC, per the AISLIC Policy. AISLIC, Geo, and Chandler filed an action for

declaratory judgment seeking a declaration that the LM and AISLIC Policies require Liberty Mutual

to exhaust its $2 million policy with DFA before AISLIC becomes responsible for any

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indemnification. Liberty Mutual argued that the Policies make AISLIC the primary insurer and that

the LM Policy’s coverage is excess to the AISLIC policy. The district court agreed with Liberty

Mutual that the AISLIC Policy was required to exhaust its $9 million policy before Liberty Mutual

would be liable for the $2 million from the DFA Policy. Plaintiff appealed to this Court.

A. The Policies

There are three agreements that contain language relevant to this Court’s decision: the LM

Policy between Liberty Mutual and DFA, the AISLIC Policy between AISLIC and Geo, and the

Indemnity Agreement between DFA and Geo.

1. The LM Policy

The parties’ dispute, in large part, centers around the following clauses of the LM Policy.

Section V. - MOTOR CARRIER CONDITIONS
The following conditions apply in addition to the Common Policy Conditions:
***
B. General Conditions
***
5. Other Insurance - Primary And Excess Insurance Provisions
a. While any covered “auto” is hired or borrowed from you by another “motor
carrier,” this Coverage Form’s liability coverage is:
(1) Primary if a written agreement between you as the lessor and the
other “motor carrier” as the lessee requires you to hold the lessee
harmless.
(2) Excess over any other collectible insurance if a written agreement
between you as the lessor and the other “motor carrier” as the lessee
does not require you to hold the lessee harmless.
b. While any covered “auto” is hired or borrowed by you from another
“motor carrier” this Coverage Form’s liability coverage is:
(1) Primary if a written agreement between the other motor carrier as
lessor and you as the lessee does not require the lessor to hold you
harmless, and then only while the covered “auto” is used exclusively
in your business as a “motor carrier” for hire.
(2) Excess over any other collectible insurance if a written agreement
between the other “motor carrier” as the lessor and you as the lessee

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requires the lessor to hold you harmless.
***
e. Except as provided in Paragraphs a., b., c. and d. above, this Coverage
Form provides primary insurance for any covered “auto” you own and excess
insurance for any covered “auto” you don’t own.
***
g. Regardless of the provisions of Paragraphs a., b., c., d. and e. above, this
Coverage Form’s Liability Coverage is primary for any liability assumed
under an “insured contract.”
J.A. 109.

2. The AISLIC Policy

The policy between AISLIC and Geo contains the following provisions:

I. INSURING AGREEMENT – COVERAGE A: EXCESS FOLLOW FORM
INSURANCE
A. We will pay on behalf of the Insured those sums in excess of the total applicable
limits of Scheduled Underlying Insurance that the Insured becomes legally obligated
to pay as damages provided the damages would be covered by Scheduled Underlying
Insurance except for exhaustion of the total applicable limits of Scheduled
Underlying Insurance by the payment of Loss.

J.A. 24. The Excess Policy also provides, under Section V – Definitions:

P. Other Insurance under Coverages A and B means a policy of insurance providing
coverage for damages covered in whole or in part by this policy.
However, Other Insurance does not include Scheduled Underlying Insurance . . . or
any policy of insurance specifically purchased to be excess of this policy affording
coverage that this policy also affords.
***
V. Scheduled Underlying Insurance under Coverages A and B means:
1. the policy or policies of insurance listed in the Schedule of Underlying
Insurance forming a part of this policy; and
2. automatically any renewal or replacement of any policy in Paragraph 1
above . . . .
***
Scheduled Underlying Insurance does not include a policy of insurance specifically
purchased to be excess of this policy affording coverage that this policy also affords.

J.A. 30-31. Section VII – Conditions Applicable to Coverages A and B contains the following

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clause:

L. Other Insurance
If other valid and collectible insurance applies to damages that are also covered by
this policy, this policy will apply excess of the Other Insurance. However, this
provision will not apply if the Other Insurance is specifically written to be excess of
this policy.

J.A. 42.

There is also a provision under Endorsement No. 8 that lists specific entity exclusions and

includes DFA: “Under Coverages A and B, the persons or organizations specified below will not be

Insureds under this policy. . . . [DFA].” J.A. 63.

3. The Indemnity Agreement

The FOLA is an indemnity agreement that Geo, as Lessor, and DFA, as Lessee, entered into

upon the leasing of certain vehicles and personnel to one another. J.A. 504. The FOLA contains the

following provisions:

7. Liability Insurance. LESSOR agrees to provide public liability and property
damage insurance with respect to the leased equipment . . . . In no event shall the
coverage amount of said insurance be less than a combined single limit of . . . One
Million Dollars ($1,000,000). In addition, LESSOR will provide an umbrella policy
. . . in an amount not less than Ten Million Dollars ($10,000,000). LESSOR agrees
to cause said policy or policies of insurance to include LESSEE as an additional
named insured . . . . LESSOR agrees that any and all insurance provided by LESSEE
shall be excess coverage.

8. Indemnification. LESSOR hereby agrees to indemnify, defend and save harmless
LESSEE from any and all claims, fines or other expenses arising out of, based upon
or incurred because of injury to any person or persons, or damage to property
sustained or which may be alleged to have been sustained by reason of any act or
omission on the part of LESSOR, its agents, servants or employees.

J.A. 507-08.

STANDARD OF REVIEW

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This Court will review a district court’s order granting summary judgment de novo. Smith

v. Ameritech, 129 F.3d 857, 863 (6th Cir. 1997). Summary judgment is appropriate “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). “Although the Court will draw all reasonable

inferences in favor of the non-moving party, see, e.g., Terry Barr Sales Agency, Inc. v. All-Lock Co.,

96 F.3d 174, 178 (6th Cir. 1996) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 587-88 (1986)), ‘[t]he mere existence of a scintilla of evidence in support of plaintiff's position

will be insufficient; there must be evidence on which the jury could reasonably find for the

plaintiff.’” Smith, 129 F.3d at 863 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252

(1986)).

ISSUES AND CONCLUSIONS

This appeal involves three separate, but related, issues. Briefly stated, they are:

1) Should a court consider an indemnity agreement in assigning the priority of liability among

overlapping insurance policies? This Court answers that inquiry in the affirmative

2) Was the Liberty Mutual policy specifically purchased to be excess to the AISLIC policy?

This Court answers that inquiry in the affirmative.

3) Does the parol evidence rule bar extrinsic evidence of an indemnity agreement or a

separate policy in determining the priority of insurance policies issued to different parties? This

Court answers that inquiry in the negative.

Because the district court addressed these issues and others in a well-reasoned opinion

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dealing with the complex issues now before this panel, there is no need for this Court to further

elaborate on the reasons for affirming the grant of summary judgment to Liberty Mutual. Therefore,

this Court AFFIRMS the district court’s judgment on the basis of its well-reasoned opinion to be

found at Chandler v. Liberty Mutual Ins. Group, No. 2:05-cv-00071 (E.D. Ky. Nov. 3, 2005).

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