White v. Continental Ins Co

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit

4-17-2007

White v. Continental Ins Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-1729

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 NOT PRECEDENTIAL

IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Case No: 06-1729

CASEY D. WHITE

v.

CONTINENTAL INS CO; ENCOMPASS INDEMNITY;
GREAT NORTHERN INSURANCE COMPANY;
CHUBB GROUP OF INSURANCE COMPANIES

Great Northern Insurance Company,
Appellant

________________________

On Appeal from the United States District Court
for the Middle District of Pennsylvania
District Court No.: 04-cv-1523
District Judge: The Honorable A. Richard Caputo
_______________________

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
April 12, 2007

Before: SMITH and COWEN, Circuit Judges,
and YOHN, District Judge*

(Filed: April 17, 2007 )

_______________________

*
The Honorable William H. Yohn, Senior District Judge for the Eastern District of
Pennsylvania, sitting by designation.
 OPINION
_______________________

SMITH, Circuit Judge.

This case is a dispute between two insurers over who should pay the first tier of

excess coverage for injuries sustained by a third party in a vehicle accident. Appellant

Great Northern Insurance Company (Great Northern) argues that the District Court

erroneously granted Continental Insurance Company’s (Continental) Motion for

Summary Judgment. Because we conclude that the District Court was correct in holding

that Great Northern solely occupied the first tier of excess coverage, we will affirm.

I.

On August 17, 2001, Casey White was injured in an automobile accident while a

passenger in a 1996 Jeep Cherokee. David Euler, a family member of the vehicle’s

owners, Robert and Regina Euler, had given permission to Michael Ahearn to operate the

vehicle. The Eulers were New York residents. Ahearn resided with his parents in

Pennsylvania at the time of the accident, and was at the wheel when the accident

occurred.

On May 17, 2004, White sued David, Robert, and Regina Euler, as well as

Michael Ahearn. The Eulers were insured under Continental’s USP Deluxe Package.

This policy provided: 1) primary automobile insurance with $250,000 of liability

coverage; and 2) Optional Excess Liability Coverage up to $2.5 million. Ahearn was

insured by Great Northern under a primary automobile insurance policy that provided

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$500,000 of initial liability coverage.

Continental tendered the entire $250,000 in primary coverage to the plaintiff, but

the parties have stipulated that White’s civil action had a value in excess of $250,000.

Because of this stipulation, on June 15, 2004, White filed a Declaratory Judgment Action

in the Court of Common Pleas of Lackawanna County, seeking a determination as to

which carrier must provide the next layer of coverage. On July 14, 2004, Great Northern

removed the action to federal court in the Middle District of Pennsylvania. On September

10, 2004, Continental and Great Northern filed Cross Summary Judgment Motions. The

District Court granted Continental’s motion for summary judgment and denied Great

Northern’s motion for summary judgment. The District Court held that Great Northern

occupied the first tier of excess coverage alone, because Continental’s Optional Excess

Liability Coverage was umbrella coverage.

II

We exercise plenary review over an order granting summary judgment and an

interpretation of an insurance contract.1 See Alexander v. Nat’l Fire Ins. of Hartford, 454

F.3d 214, 219 n.4 (3d Cir. 2006) (citations omitted); Med. Protective Co. v. Watkins, 198

F.3d 100, 103 (3d Cir. 1999) (stating that “the interpretation of the scope of coverage of

an insurance contract is a question of law properly decided by the court, a question over

1
The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1441(a). We
exercise jurisdiction pursuant to 28 U.S.C. § 1291. Both parties agree that Pennsylvania
law applies.
3
which we exercise plenary review”).

For our review of an order granting summary judgment, we “apply the same

standard that the District Court should have applied.” Shuman ex rel. Shertzer v. Penn

Manor Sch. Dist., 441 F.3d 141, 146 (3d Cir. 2005) (internal citations omitted). A court

should grant summary judgment “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). This Court will, in applying this standard, “view the facts

in the light most favorable to the nonmoving party and draw all inferences in that party’s

favor.” Shuman, 441 F.3d at 146.

III.

1. The Insurance Contracts

For purposes of clarification, we will list some of the relevant provisions of the

Great Northern and Continental insurance policies.

A. Great Northern’s Other Insurance clause (the driver’s insurer)

Vehicles: When other liability insurance applies to covered damages, we will pay our
share. Our share is the proportion that the amount of coverage under this policy bears to
the total of all applicable amounts of coverage. However, for non-owned motorized land
vehicles, this insurance is excess over any other insurance, except that written specifically
to cover excess over the amount of coverage in this policy.

Personal and Excess: This insurance is excess over any other insurance except that
written specifically to cover excess over the amount of coverage that applies in this
policy.

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 B. Various Clauses from Continental’s Optional Excess Liability Coverage
Policy (the vehicle owner’s insurer)

Insuring Agreement

We will pay damages ... up to the limit of liability shown in the Coverage Summary for
“Optional Excess Liability”. Any payment is subject to the minimum retained limit ... and
the other provisions of this endorsement.

Limit of Liability

You must maintain underlying insurance for each exposure shown in the Coverage
Summary for “Optional Excess Liability”, with not less than the liability limits shown in
the Minimum Retained Limit definition. Except as provided in Provision 3, Self Insured
Retention, under the General Provisions Optional Excess Liability Coverage
Endorsement, we will pay only the difference between:

1. The Minimum Retained Limit amount shown in the Coverage Summary; and

2. The total of what you legally have to pay;

and in no case more than the limit shown in the Coverage Summary for “Optional Excess
Liability”.

NOTE: The Minimum Retained Limit will be satisfied in regard to any exposure(s) for
which you maintain the underlying insurance as part of [the Continental Policy] with
which this endorsement is issued.

Minimum Retained Limit means the greater of:

a. The total limits of any other insurance that applies to the occurrence which:

(1) Are available to a covered person; or

(2) Would have been available except for the bankruptcy or insolvency of the insurer
providing the underlying insurance; or

b. The “Minimum Retained Limit” amount shown in the Coverage Summary.

Other Insurance

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Only in regard to the coverage provided by this endorsement, the Other Insurance
provision of the policy’s “GENERAL PROVISIONS” is deleted and replaced by the following:

When there is other applicable insurance, we will provide coverage as follows:

***
b. During the first and subsequent years of this policy, when an amount of “Optional
Excess Liability” is shown effective in the Coverage Summary, the coverage provided by
this endorsement is excess over any other valid and collectible insurance except:

(1) When other insurance is written specifically as excess coverage over the minimum
retained limit, we will pay only our share of the loss. Our share is the proportion that our
limit of “Optional Excess Liability” bears to the total of all applicable limits.

(2) When other insurance is written specifically as excess coverage over the amount
shown in the Coverage Summary for “Optional Excess Liability”, we will pay amounts
due above:

(a) The minimum retained limit;
(b) The Self Insured Retention; or
(c) The Excess Loss Assessment threshold;

up to our “Optional Excess Liability” limit.

2. The Parties’ Positions

A. Great Northern

Great Northern argues that, with respect to non-owned vehicles, Continental must

occupy the first tier of excess coverage because the Great Northern policy explicitly states

that it is “excess over any other insurance.” Because Ahearn drove a car he did not own,

Continental alone is responsible for the first tier of excess coverage as “other insurance.”

According to Great Northern, this clear and unambiguous statement renders improper the

District Court’s decision to look to the nature and design of the Continental policy rather

6
than the plain language in both the Great Northern and Continental policies. Great

Northern then proceeds to argue that Continental’s excess coverage is not a separate

policy or an umbrella policy, so that “[t]he coverage provided under the Continental

Policy clearly contemplated seamless coverage for auto liability claims between the

policy’s primary and excess coverages.” To draw this conclusion, Great Northern points

to the statement in the Continental policy that “[w]e will pay damages ... up to the limit of

liability shown in the Coverage Summary for ‘Optional Excess Liability’. Any payment

is subject to the minimum retained limit ... and the other provisions of this endorsement.”

Because Great Northern defines the minimum retained limit as the primary coverage, it

concludes that the excess coverage is triggered immediately after the primary coverage is

exhausted. Further, the “Other Insurance” clause of the Continental policy does not

change this analysis because the Great Northern policy did not come within the purview

of “other insurance.” The “Other Insurance” clause states that the Great Northern

coverage must be applicable, valid, and collectible in order for it to displace the

Continental policy as the first tier of excess coverage.

B. Continental

Continental argues that Great Northern’s coverage must be exhausted before

Continental’s coverage is triggered. Continental notes that the Great Northern policy

states that its policy “is excess over any other insurance, except that written specifically to

cover excess over the amount of coverage in this policy.” Continental then argues that its

7
excess policy was “written specifically to cover excess over the amount of coverage in

this policy.” As evidence, Continental points to its policy, which states that the policy is

“subject to the minimum retained limit.” “Minimum retained limit” is defined in relevant

part as “[t]he total limits of any other insurance that applies to the occurrence which: (1)

Are available to a covered person; or (2) Would have been available except for the

bankruptcy or insolvency of the insurer providing the underlying insurance.” Because

Ahearn was a “covered person” under the Great Northern policy–which qualifies as “any

other insurance”–Continental argues that Great Northern constitutes “Other Insurance”

under the Continental policy.

3. The Major Relevant Cases

A. Harleysville v. Aetna

In Harleysville Ins. Cos. v. Aetna Cas. & Sur. Ins. Co., 795 A.2d 383 (Pa. 2002),

Owner X gave permission to Grandson Y to use a truck. Grandson Y subsequently

allowed Driver A to drive the truck with Passenger B. The truck crashed, and Passenger

B sued Driver A. Three insurance policies were at issue: 1) Owner X had a primary

policy (Pennland policy) with liability limits of $300,000, a blanket excess liability policy

of up to $1,000,000 (Harleysville policy), and the mother of Driver A had a policy with

liability limits of $250,000 (Aetna policy). Following a settlement agreement and

arbitration, Passenger B was awarded $550,000. Pennland paid its $300,000, and

Harleysville tendered the other $250,000, reserving its rights against Aetna. The major

8
disagreement in the case centered on the interpretation of “other insurance” clauses in the

Harleysville and Aetna policies. The Aetna policy’s other insurance clause stated that

“any insurance we provide for a vehicle you do not own shall be excess over any other

collectible insurance.” The Harleysville policy’s other insurance clause stated that its

insurance “shall be excess insurance over any valid and collectible primary insurance.”

While the Supreme Court of Pennsylvania “agree[d] that the Harleysville policy does

contain some of the indicia of a traditional excess liability policy,” so that it should not

operate solely as insurer of the first tier of excess coverage, the Court stated that “the

standard for interpreting insurance policies does not allow us to focus solely on the nature

of the policy and ignore the plain meaning of the policy terms.” 795 A.2d at 386-87.

Because the Aetna policy was not primary insurance, the Court concluded that the

Harleysville policy occupied the first tier of excess coverage by itself after the Pennland

policy. This case stands for the proposition that, when the plain language of an insurance

policy is unambiguous, a court may not look to the design or nature of the policy as a

matter of insurance contract interpretation.

B. Occidental v. Brocious; Chester Carriers, Inc. v. Nat’l Union; Aetna v.
United Services Auto. Ass’n

These three cases all stand for the proposition that umbrella policies are insurance

policies of a last resort, with their coverages to be applied after any primary and excess

policies’ coverages have been exhausted. See Occidental Fire & Cas. Co. of N.C. v.

Brocious, 772 F.2d 47 (3d Cir. 1985); Chester Carriers, Inc. v. Nat’l Union Fire Ins. Co.

9
of Pittsburgh, 767 A.2d 555 (Pa. Super. 2001); Aetna Cas. and Sur. Co. v. United

Services Auto. Ass’n, 676 F.Supp. 79 (E.D.Pa. 1987). These cases all looked to the

language of the policies to determine whether or not they were umbrella policies. In

Brocious, for example, this Court noted that umbrella policies are sold for comparatively

low premiums, usually require a policyholder to maintain underlying coverage, and often

have language indicating that it is an excess policy of last resort (i.e., an umbrella policy).

772 F.2d at 53-54; Chester Carriers, 767 A.2d at 562; Aetna, 676 F.Supp. at 80-81. The

courts in these three cases predicted what Pennsylvania law would be on this issue,

because they were pre-Harleysville and the Supreme Court of Pennsylvania had not yet

spoken on the precise issue of when a court may look to the design and nature of an

insurance policy.

C. How the parties view the cases

Great Northern argues that Harleysville overruled Brocious, Chester Carriers, and

Aetna. Continental argues that Harleysville did not affect the rulings in those cases at all,

because the excess policies in those cases did “not specify that its coverage is excess only

over primary insurance, as did the Harleysville policy.” For reasons stated below, we

agree with Continental.

4. The District Court decision

The District Court concluded that Great Northern exclusively occupied the first

tier of excess coverage and granted Continental’s motion for summary judgment while

denying Great Northern’s motion for summary judgment. The District Court concluded

10
that, based on the nature and design of the Continental policy, it was an umbrella policy

only to be used as a last resort.

5. Analysis

We conclude that the District Court properly looked to the nature and design of the

Continental policy to determine that it was an umbrella policy. The first question we

must look at is the proper scope of the Harleysville decision. Harleysville states that “the

standard for interpreting insurance policies does not allow us to focus solely on the nature

of the policy and ignore the plain meaning of the policy terms.” 795 A.2d at 386-87

(emphasis added). “To the contrary, the polestar of our inquiry is the language of the

insurance policy.” Id. at 387 (quotation and punctuation omitted). Accordingly, under

Harleysville, a court is permitted to look to the nature of an insurance policy unless, in

doing so, it would be ignoring the plain meaning of the policy terms. Further support for

this conclusion arises from the fact that the Harleysville Court distinguished rather than

rejected the reasoning in Brocious, Chester Carriers, and Aetna. The Supreme Court of

Pennsylvania in Harleysville stated that:

In each of those cases, the courts considered both the language and the
nature of the policy. However, we do not reach the same result as in those
cases for the simple reason that the ‘other insurance’ provisions in those
policies did not specify that coverage was excess only over ‘primary
insurance’, as does the Harleysville policy. Given the plain terms of the
policies in the case sub judice, we conclude that the limits of the
Harleysville policy must be exhausted before the Aetna policy is
implicated.

795 A.2d at 262. Put differently, the Supreme Court of Pennsylvania did not hold that

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Brocious, Chester Carriers, and Aetna were wrongly decided. Rather, the Court

distinguished these cases because the policy language in the excess policies was not as

clearly stated as the policies at issue in Harleysville. The difference between the excess

policy at issue in Harleysville was that it, unlike the policies in Brocious, Chester

Carriers, and Aetna, explicitly stated that the insurance “shall be excess insurance over

any valid and collectible primary insurance.” As a result, the plain language of the policy

mandated that the Harleysville policy occupy the first tier of excess coverage

alone–immediately after the primary policy.

The second question we must look at is how the Continental policy meshes with

this interpretation of Harleysville. To begin, the Continental policy may be distinguished

from the Harleysville policy because it contains no language that triggers coverage

immediately upon the exhaustion of primary coverage. Continental’s Optional Excess

Liability Coverage policy states that it is triggered only upon exhaustion of the minimum

retained limit. This phrase is defined in relevant part as the “total limits of any other

insurance that applies to the occurrence which are available to a covered person.” The

Great Northern policy qualifies as “other insurance” as the phrase is used in the

Continental policy. The Great Northern policy states that “for non-owned motorized land

vehicles, this insurance is excess over any other insurance, except that written specifically

to cover excess over the amount of coverage in this policy.” Read together, the

Continental policy qualifies as insurance “written specifically to cover excess over the

amount of coverage in this policy,” so that the Great Northern policy falls under the

12
Continental policy’s minimum retained limit. In this sense, the two policies are not

irreconcilable. Cf. Am. Cas. Co. of Reading, Pa. v. PHICO Ins. Co., 702 A.2d 1050,

1053-54 (Pa. 1997) (“We find that the insurance contracts are unhelpful in determining

this matter since the ‘other insurance’ clauses of each of the subject policies are

irreconcilable and mutually exclusive. Each insurance company declares in its policy that

where other insurance covers the loss, that other insurance must pay first.”).

Because the language in the policies is not as clear as, for example, the policy at

issue in Harleysville, we are permitted to look at the nature and design of the Continental

policy. It is an umbrella policy. As the District Court noted, the Excess Coverage

provides $2.5 million in extended coverage for a low premium, the policy required the

insured to carry underlying insurance, and the policy was labeled as “Optional Excess

Protection.” Having concluded that the Continental policy is an umbrella policy, it is clear

that the District Court made the proper decision to presume that Great Northern occupied

the first tier of excess coverage unless the policies said otherwise.

IV.

We will affirm the District Court’s opinion because it properly interpreted the

scope of the Supreme Court of Pennsylvania’s decision in Harleysville.

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