Radil v. National Union Fire Insurance Co.

Justice EID,

concurring in part and dissenting in part.

I disagree with the majority's view that a follow-form endorsement subjects an excess insurer to all terms and conditions of the primary insurance policy, including an arbitration clause, except those that the excess insurer expressly disclaims. Even if the majority's position were correct, however, the excess insurer in this case did in fact expressly disclaim the terms and conditions of the underlying primary policy in favor of its own terms and conditions, which did not include an arbitration clause. For these reasons, I respectfully dissent in part.1

The majority holds that "absent express language defining the coverage endorsed or a disclaimer of particular terms or conditions, the excess insurer's follow-form endorsement at issue in this case tracks the underlying coverage in every respect." Maj. op. at 689. In other words, the majority in effect takes the position that merely by using the title "follow-form," an insurer is bound to all of the provisions of the underlying policy, including an arbitration clause, and must expressly exclude terms to which it is not bound. But under Colorado law, an excess insurer, like all parties to a contract, is bound only to the terms to which it agrees. See, eg., Thompson v. Maryland Cas. Co., 84 P.3d 496, 501 (Colo.2004) ("In interpreting a contract, we seek to give effect to the intent and reasonable expectations of the parties." (citation omitted)). In this case, I see no evidence in the language it used that National Union agreed to bind itself to the arbitration clause in the Great American policy.

The language of National Union's endorse ment states that the UM/UIM insurance its policy provides "will not be broader than the insurance coverage provided by [Great American's] policy." I would read that language to mean exactly-and only-what it says: National Union's insurance will not be broader than the insurance coverage provided by Great American. National Union's endorsement further states that "[all other terms and conditions of this policy remain|{ ] unchanged." The National Union policy thus provides that while the UM/UIM "coverage" is the same as (or at least no broader than) *696that contained in the Great American policy, all other "terms and conditions" of the policy "remain[ ] unchanged." Because the Great American policy's arbitration clause does not go to the policy's "coverage," it was not incorporated into the National Union agreement. Instead, the National Union policy (which did not include an arbitration clause) "remain[ed] unchanged." In sum, the "follow-form" endorsement does not change any aspects of National Union's policy other than the ones it incorporates-that is, the specified UM/UIM insurance coverage.

Contrary to the majority's position, maj. op. at 689-90, a follow-form policy does not incorporate all of the provisions of the policy to which it relates except those it expressly disclaims. "The typical [follow-form] excess insurance policy will use, or refer to, the same policy language as that in the underlying policy." 17 Erie Mills Holmes, Holmes' Appleman on Insurance 2d § 120.1 (2001). Follow-form policies also "generally provide coverage under the same terms as the primary policy for liability." Id. However, it does not follow that a follow-form endorsement must bind an insurer to all terms and conditions of the underlying policy except for the ones it expressly enumerates as exclusions. As with any other contract, parties contracting for excess insurance are free to rely on their own terms and conditions. See, eg., id. ("[Elxeess policies may contain their own self-contained policy language .... [TJhere is no standard coverage form."). I would not read the "follow-form" title alone to create obligations to which National Union did not agree. See, e.g., Scottsdale Ins. Co. v. Safeco Ins. Co. of Am., 111 F.Supp.2d 1273, 1278 (M.D.Ala.2000) ("[P Jroperly characterizing an insurance policy ... turns on the policy's terms, not its title ...." (citation omitted)).

The majority cites a number of cases from other jurisdictions for its position that by using a follow-form endorsement, parties generally incorporate the underlying policy in its entirety, absent an express disclaimer. See maj. op. at 692-98. Yet those cases simply do not stand for such a broad proposition. For example, in Lexington Insurance Co. v. Western Pennsylvania Hospital, 423 F.3d 318, 322 (3d Cir.2005), see maj. op. at 692-93, the follow-form endorsement at issue stated, "All of the terms and conditions of said underlying insurance shall apply to this insuring agreement except as otherwise expressly stated herein." Certainly, the particular language of the policy at issue in the case-notably, language that is not present here-adopted the position that the majority takes in this case. However, the court made no suggestion that the position adopted by the particular language at issue in that case would apply to other cases, such as this one, in which the language is not used.

Similarly, the majority cites Sphere Drake Insurance Ltd. v. All American Insurance Co., 256 F.3d 587, 588 (7th Cir.2001), maj. op. at 692-93, in which the reinsurance contract stated that the policy would "follow all terms clauses and conditions on the original contract" and specifically referenced the "Arbitration contract." Again, the court's holding was limited to the language at issue in that case-which is entirely absent in this case-for its conclusion, and the court made no broad statements applicable to other cases in which the parties used no such terminology. Likewise, in Boeing Co. v. Agricultural Insurance Co., 2005 WL 2276770, at *7 (W.D.Wash. Sept.19, 2005), see maj. op. at 692-93, the court noted that the follow-form policies at issue "expressly incorporated the arbitration provision" of the underlying policy, and it made no broad statements regarding follow-form policies. In fact, the Boeing court declined to foree the excess insurers to join arbitration precisely because the contracts at issue were silent on the topic of consolidated arbitrations. Boeing Co., 2005 WL 2276770, at *7 & n. 8.

Finally, in Safety National Casualty Co. v. Cinergy Corp., 829 N.E.2d 986, 990, 1010 (Ind.Ct.App.2005), see maj. op. at 698, the excess insurer contracts contained their own arbitration clauses, independent of the underlying contract. Under such cireum-stances, unlike in the present case, compelling excess insurers to arbitrate seems well in keeping with their contractual arrangements.

At most, these cases stand for the proposition that when the language of a follow-form *697contract incorporates the underlying policy in certain respects, the contract incorporates the underlying policy in those respects. But here, the language incorporates only the coverage of the Great American policy, not the arbitration provision. In this case, the "intent and reasonable expectations of the parties," Thompson, 84 P.3d at 501, was that of limited incorporation, and the majority presents no justification for upsetting those expectations.

But even if the majority were correct that a follow-form contract incorporates all of the provisions of the related policy absent an express disclaimer, the language of the endorsement in this case constitutes such an express statement. As noted above, the language only incorporates the Great American policy's "coverage," and states that "all other terms and conditions remain{] unchanged." The majority finds the "coverage" language inadequate because it "does not provide any definition of the coverage it endorses." Maj. op. at 691. And the majority dismisses the "remain[] unchanged" language as "ambiguous," "boilerplate," "nebulous," and "incapable of interpretation by reference to any provision of either insurance policy." Id. at 698. Contrary to the majority's descriptions, however, the language is actually quite straightforward: the endorsement incorporates coverage, but everything else in National Union's policy stays the same. Again, the majority labors to avoid this natural reading of the endorsement's language.

Finally, the majority invokes the canons of construction that ambiguous provisions should be interpreted in favor of the insured and in favor of arbitration. See id. Those canons, however, are rules of last resort that should be applied only after all other aids to construction have failed to resolve the ambiguity. See BP Am. Prod. Co. v. Patterson, 185 P.3d 811, 814 (Colo.2008) (citations omitted). The language in this case does not give rise to such a stubborn ambiguity; on the contrary, as noted above, it simply means what it says.

Moreover, in this case, it is significant that the two canons point in the same direction-that is, in favor of the insured who wants to arbitrate. But in many cases, it is the insured (not the insurer, as in this case) who wishes to avoid arbitration. The majority's approach in effect creates a default rule of contract interpretation that follow-form policies will always incorporate the provisions of the related policy, including arbitration clauses, absent precise language to the contrary. In my view, the majority's rule may have troubling implications for insureds like Radil. For these reasons, I respectfully dissent from the majority's conclusion that the National Union policy incorporated the arbitration provision from the Great American policy.

I am authorized. to state that Justice COATS joins in this opinion concurring in part and dissenting in part.

. I agree with the majority that a court, rather than an arbitrator, should determine whether a litigation-based waiver of arbitration has occurred. However, because I would hold that Great American's arbitration clause did not bind National Union to mandatory arbitration, I would not reach the merits of the waiver issue.