This appeal concerns the extent and priority of insurance coverage for products liability claims under primary, umbrella and excess
Sterling Pharmaceuticals utilized pressure vessels designed by Rosenmund and manufactured by Gaston in its process of manufacturing Iohexol, a pharmaceutical contrast dye medium used in medical diagnostic tests. When Sterling increased its operating pressure on 21 June 1992, the pressure vessels ruptured and caused ethylene glycol, a chemical used in the manufacturing process, to leak through the filter plates and contaminate the Iohexol. By the time Sterling discovered the problem on 31 August 1992, over 60 tons of Iohexol had been compromised.
From July 1991 through July 1993, Gaston carried a comprehensive general liability insurance program consisting of the following policies:
Policy Period Insurer Policy Number Limits Attachment Level
7/1/91-7/1/92 Liberty primary TB1-151-462594-031 $1 million $0
Liberty umbrella TH1-151-462594-021 $1 million $1 million
Northfield excess XU-10019 $5 million $2 million
Int’l excess 531-204589-8 $9 million $7 million
7/1/92-7/1/93 Liberty primary TB1-151-462594-032 $1 million $0
Liberty umbrella TH1-151-462594-022 $1 million $1 million
Northfield excess XU-10058 $9 million $2 million
Int’l excess 531-205637-4 $5 million $11 million
The Liberty primary policies issued to Gaston are “occurrence-based” policies covering, inter alia, personal injury or property damage caused by an “occurrence.” Under the terms of the policies, an “occurrence” is defined as an “accident, including continuous or repeated exposure to the same general harmful conditions,” resulting in personal injury or property damage during the policy period. The Liberty umbrella, Northfield excess and International excess policies “follow the form” of the Liberty primary policies.
The Liberty primary policies for both policy years were endorsed with forms granting liability coverage to Rosenmund as an additional insured. In light of these endorsements, Rosenmund requested Liberty’s defense in the Sterling action, and by letter dated 8 July 1993, Liberty advised Rosenmund that it would provide coverage and a defense. However, upon further review by Liberty’s “in-house” counsel, Liberty determined that the additional insured endorsements only covered Rosemund for negligent supervision of Gaston’s work, not products liability. Therefore, on 23 August 1993, Liberty withdrew its defense of Rosenmund.
Following Liberty’s withdrawal, Rosenmund requested that UCI defend it under the terms of UCI’s commercial general liability policy, number GLCM 200-15-21, effective 4 October 1991 to 4 October 1992. UCI issued this policy to Rosenmund under a “claims-made” basis, and it applied to claims reported during the policy period for property damage occurring after the policy’s retroactive date, which, in this case, was 4 December 1986. UCI assumed Rosenmund’s defense concerning the Sterling claims until 26 January 1996, when Liberty resumed Rosenmund’s defense pursuant to a settlement agreement granting Rosenmund products liability coverage under the Liberty primary and umbrella policies. The excess carriers, Northfield and International, neither participated in nor approved of this agreement between Liberty and Rosenmund.
In June 1995, the various insurers agreed to fund a pool of settlement proceeds to settle Sterling’s action for $11 million. Liberty contributed $2 million, Northfield contributed $5 million, International contributed $2 million and UCI contributed $2 million. Likewise, the
By summary judgment motions, the insurers sought varying declarations as to the scope and order of insurance coverage for Gaston and Rosenmund. The relevant issues were (1) whether North Carolina or Puerto Rico law applied; (2) whether there were one or more occurrences involved in Sterling’s claims; (3) whether Gaston’s first policy year, second policy year or both years were triggered for payment; (4) whether Rosenmund was entitled to products liability coverage under Gaston’s policies; and, if so (5) whether Rosenmund’s own UCI policy was secondary to or concurrent with the Liberty, Northfield, and International policies. After argument on the summary judgment motions, the trial court entered an order declaring that North Carolina law applied to all of the issues in the present case; that there was a single “occurrence” on 21 June 1992 that triggered the coverage by Gaston’s insurers; that the applicable policy period for the Liberty, Northfield and International policies was 1 July 1991 to 1 July 1992; that Gaston’s primary and excess policies were “reformed” to afford Rosenmund full coverage with respect to the claims asserted in the Sterling action; and that Rosenmund’s UCI policy was excess to all other coverage afforded Rosenmund under Gaston’s primary and excess policies. From this order, International and Liberty appeal.
By its first assignment of error, International argues that the trial court incorrectly applied the “injury-in-fact” theory to determine the event triggering coverage as to Sterling’s claims. International contends that pursuant to our decision in West American Insurance Co. v. Tufco Flooring East, 104 N.C. App. 312, 409 S.E.2d 692 (1991), the “date-of-discovery” or “manifestation” rule is the law in North Carolina for determining when property damage occurs for insurance purposes. International’s contention is correct.
Tafeo involved the contamination of Purdue chicken products due to the leakage of floor resurfacing chemicals. Tufco performed floor resurfacing work in certain areas of the Purdue chicken processing facility. While the work was underway, chicken products were being stored in a cooler adjacent to one of the areas being resurfaced. The day after the resurfacing work was completed, Purdue shipped the chicken that had been stored in the cooler to various customers. Upon receipt of the shipment, Purdue’s customers notified
Tufco had in effect a commercial liability policy through West American Insurance Company providing coverage for “completed operations,” the scope of which included all property damage occurring away from premises owned by the insured and arising out of the insured’s work, provided that the work was completed before the property damage occurred. West American took the position that because the contamination of the chicken “occurred,” for insurance purposes, before Tufco’s work had been completed, the “completed operations” coverage did not extend to Purdue’s claim. This Court, however, rejected that argument and expressly adopted the “date of discovery” rule articulated in Mraz v. Canadian Universal Ins. Co., Ltd., 804 F.2d 1325 (4th Cir. 1986), which provides that “for insurance purposes property damage ‘occurs’ when it is first manifested or discovered.” Tufco, 104 N.C. App. at 318, 409 S.E.2d at 696. Applying this rule, the Tufco court affirmed the trial court’s determination that the damage suffered by Purdue “occurred” two days after the floor resurfacing work was done, when customers informed the company that the chicken had a peculiar smell and taste.
The “date of discovery rule” likewise applies to the facts of the present case, because “[i]n adopting the discovery rule, the Tufco decision did not limit its holding to its facts or otherwise restrict its application to situations in which the occurrence date is unknown.” Home Indemnity Co. v. Hoechst Celanese Corp., 128 N.C. App. 259, 264, 494 S.E.2d 764, 767, disc. review denied, 348 N.C. 71, - S.E.2d - (1998). In the complaint filed against Gaston and Rosenmund, Sterling alleged that it increased the operating pressure on 21 June 1992 as part of a change in the manufacturing process. The complaint further alleged that on 31 August 1992, Sterling discovered that ethylene glycol had leaked into one of the pressure vessels and contaminated the Iohexol diagnostic dye. According to Sterling, the contamination began on 21 June 1992, when one of the pressure vessels produced by Rosenmund and Gaston ruptured, and continued until it was discovered on 31 August 1992. As a result, more than 60 tons of Iohexol were damaged.
Under our holding in Tufco, 104 N.C. App. 312, 409 S.E.2d 692, property damage “occurs,” for insurance purposes, “when it is first
We proceed, then, to International’s next assignment of error, whereby it argues that the trial court improperly determined that Rosenmund was an additional insured under the International excess policy, because International did not engage in any conduct that would estop it from denying coverage to Rosenmund. We, however, uphold the trial court’s decision, because reformation of the Liberty policies was appropriate under the facts of this case.
“ ‘Reformation is a well-established equitable remedy used to reframe written instruments where, through mutual mistake or the unilateral mistake of one party induced by the fraud of the other, the written instrument fails to embody the parties’ actual, original agreement.’ ” Metropolitan Property and Cas. Ins. Co. v. Dillard, 126 N.C. App. 796, 798, 487 S.E.2d 157, 159 (1997) (quoting Dettor v. BHI Property Co., 91 N.C. App. 93, 95-96, 370 S.E.2d 435, 437 (1988), rev’d on other grounds, 324 N.C. 518, 379 S.E.2d 851 (1989)). A mutual mistake is one shared by both parties to the agreement, such that each party operates under a misunderstanding as to the terms of the contract or the provisions of the writing intended to embody the agreement. Id. Reformation is appropriate to effectuate the intended terms of the agreement, provided that “clear, cogent, and convincing” evidence was presented to show that the parties intended the terms as reformed. Id. (citing Dettor, 91 N.C. App. at 96, 370 S.E.2d at 437).
In this case, “clear, cogent, and convincing evidence” existed to support the trial court’s conclusion that the Liberty policies as written did not accurately reflect the true intent of the parties regarding the coverage to be afforded Rosenmund. For instance, Linda Mensching, the Claims Examiner who handled the Sterling action, testified that the phrase “additional insured on certificate without
Furthermore, since International’s excess policy follows the form of Liberty’s primary and umbrella policies, the trial court correctly concluded that Rosenmund is an additional insured under the International policy as well. Liberty’s umbrella excess policy pertinently provides as follows with regard to “Who is an Insured”:
Each of the following is also an insured:
...(e) any other insured included in or added in an underlying policy but not for broader coverage than is available to such insured under the underlying policy. However, if such other insured is so included or added pursuant to written agreement to provide insurance, then this policy applies to its scope coverage and limits of insurance required by such written agreement, (emphasis added).
By reformation, Rosenmund has been added as an insured under the Liberty policies. Because International’s policy adheres to the provisions of Liberty’s policies, the trial court did not err in concluding that Rosenmund is entitled to full coverage under the International excess policies. This assignment of error, therefore, fails.
Next, International and Liberty assign error to the trial court’s conclusion that the UCI policy is excess over all other coverage available to Rosenmund. Inasmuch as the terms of the UCI policy, as
“Under North Carolina law ‘the construction and application of the policy provisions to the undisputed facts is a question of law for the court,’ ” Cone Mills Corp. v. Allstate Ins. Co., 114 N.C. App. 684, 686, 443 S.E.2d 357, 359 (1994) (quoting Walsh v. National Indemnity Co., 80 N.C. App. 643, 647, 343 S.E.2d 430, 432 (1986)), and thus, is reviewable de novo on appeal, Al Smith Buick Co. v. Mazda Motor of America, 122 N.C. App. 429, 470 S.E.2d 552 (1996). Insurance policies are contracts between the insurer and the insured. Metropolitan Prop. and Casualty Ins. Co. v. Lindquist, 120 N.C. App. 847, 851, 463 S.E.2d 574, 576 (1995). As such, the intent of the parties, as expressed in the plain language of the policy, controls in determining the application and construction of its terms. Id. “Where the policy language is clear and unambiguous, the court’s only duty is to determine the legal effect of the language used and to enforce the agreement as written.” Cone, 114 N.C. App. at 687, 443 S.E.2d at 359.
United Capitol’s “Other Insurance” provision pertinently states the following:
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this insurance, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.
b. Excess Insurance
This insurance is excess over any other insurance, whether primary, excess, contingent or on any other basis:
(1) That is effective prior to the beginning of the policy period shown in the Declarations of this insurance and applies to “bodily injury” or “property damage” on other than a claims-made basis, if:
Page 447(b) The other insurance has a policy period which continues after the Retroactive Date shown in the Declarations of this insurance.
c. Method of Sharing
If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.
If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.
There is no dispute in this case that the relevant claims were made during the pendency of the UCI policy. Furthermore, under the express terms of the policy’s “Other Insurance” provision, the UCI policy is excess only to other insurance that was “effective prior to the beginning of the policy period shown in the Declarations.” As we previously held, the 1 July 1992 to 1 July 1993 Liberty, Northfield and International policies apply to the Sterling claims, and since this “other insurance” was not effective prior to 4 October 1991 (the beginning of United Capitol’s policy period), the “Excess Insurance” provision of United Capitol’s policy is inapplicable. The trial court, therefore, erred in concluding that the United Capitol policy is excess over all other coverage available to Rosenmund and in ordering Liberty and International, respectively, to reimburse United Capitol for the costs of defending Rosenmund in this action and for the amount of its settlement contribution. Because of our decision in favor of Liberty and International, we need not address their remaining assignments of error.
In sum, we affirm that portion of the trial court’s order reforming the primary and excess policies covering Gaston so as to afford Rosenmund full coverage regarding the Sterling claims. We, however, reverse that portion of the order (1) applying the “injury-in-fact” rule, rather than the “date-of-discovery” rule, in determining when the damage to Sterling’s property occurred; (2) determining that the applicable policy period for the Liberty, Northfield, and International policies was 1 July 1991 to 1 July 1992, rather than 1 July 1992 to 1
Reversed in part, affirmed in part, and remanded.