FILED
United States Court of Appeals
Tenth Circuit
April 21, 2008
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
In re: ARAMARK LEISURE
SERVICES, as owner of a certain
1997 19’ Mirage Runabout for
exoneration from or limitation of
liability,
Plaintiff,
v.
CHARLES F. KENDRICK,
Claimant/Third Party Plaintiff -
Appellee,
v. No. 07-4120
ALBANY INSURANCE COMPANY,
Third Party Defendant -
Appellant,
---------------------------------------------
TRACI A. SEVY,
Claimant - Amicus Curiae.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. No. 2:04-CV-0006-TC)
Patrick J. Corbett, Rubin, Fiorella & Friedman, LLP, New York, New York (C.
Richard Henriksen, Jr., Henriksen & Henriksen, Salt Lake City, Utah, with him
on the briefs), for Third Party Defendant-Appellant.
John W. Holt, (Linette B. Hutton with him on the brief), Winder & Haslam, PC,
Salt Lake City, Utah, for Claimant/Third Party Plaintiff-Appellee.
Mark T. Ethington, Larson, Turner, Dalby & Ethington, L.C., South Jordan, Utah,
for Claimant-Amicus Curiae.
Before BRISCOE, and GORSUCH, Circuit Judges, and PARKER, District
Judge. *
BRISCOE, Circuit Judge.
After renting a boat from Aramark Leisure Services (“Aramark”), Charles
Kendrick was involved in a boating accident. Faced with potential damage claims
from Kendrick and his co-passenger, Aramark brought a special proceeding in
federal district court under the Limitation of Vessel Owner’s Liability Act, 46
U.S.C. § 30501 et seq. 1 As part of that proceeding, Kendrick filed a claim against
Aramark, and Kendrick also brought a third-party claim against Aramark’s
insurer, Albany Insurance Company (“Albany”). Albany responded by arguing
*
The Honorable James A. Parker, United States District Judge for the
District of New Mexico, sitting by designation.
1
At the time of Aramark’s complaint, the Limitation of Vessel Owner’s
Liability Act was codified at 46 U.S.C. § 181 et seq. “The Act provides for the
enjoining of pending suits against shipowners and their consolidation in a single
federal court so that liability may be determined and limited to the value of the
shipowner’s vessel and freight pending.” Magnolia Marine Transp. Co. v.
Oklahoma, 366 F.3d 1153, 1155 (10th Cir. 2004) (citation and internal quotation
marks omitted).
2
that Kendrick’s personal liability insurance with Shelby Insurance Company
(“Shelby”) provided Kendrick with primary coverage, and that, pursuant to an
“escape clause” in the Albany policy, Albany was not required to extend coverage
to Kendrick. While the litigation was ongoing, Shelby became insolvent, and the
Utah Property and Casualty Insurance Guaranty Association (“UPCIGA”) became
potentially responsible for Shelby’s obligations. In a letter, the UPCIGA stated
that, under the exhaustion provision in Utah Code Ann. § 31A-28-213(1)(a),
Albany was required to provide primary coverage to Kendrick. The district court
agreed with the UPCIGA, and Albany has appealed. We have jurisdiction under
28 U.S.C. § 1291 and reverse and remand for further proceedings.
I.
On September 1, 2001, Traci Sevy and Charles Kendrick were vacationing
together at Lake Powell, in southern Utah. Kendrick rented a 1997 Mirage
Runabout boat from Aramark Leisure Services at the Bullfrog Marina. At the
time of the rental, Aramark had an insurance policy with Albany Insurance
Company. At some point during the rental period, and while Kendrick was
operating the boat, it collided with a canyon wall or cliff. 2 The boat was severely
damaged, and Sevy sustained serious personal injuries and lost various items of
personal property. A few months later, Sevy filed a lawsuit in Utah state court,
2
Sevy contends that Kendrick was intoxicated at the time.
3
alleging claims against Kendrick for negligence and conversion.
Aramark brought a special proceeding under the Limitation of Vessel
Owner’s Liability Act, 46 U.S.C. § 30501 et seq., in the United States District
Court for the District of Arizona, asking for exoneration from, or limitation of,
any liability resulting from the boating accident. Aramark named Sevy and
Kendrick as potential claimants. The case was then transferred to the United
States District Court for the District of Utah, where Sevy and Kendrick each filed
a notice of claim.
Kendrick also filed a third-party complaint against Albany, alleging that,
“[b]y virtue of his rental and use of the Runabout, Kendrick was also insured
under the Albany Policy with respect to Sevy’s allegation [in Utah state court
that] he was negligent.” Kendrick Compl., ROA, Vol. I, at 41. Kendrick
explained that he had liability coverage under a homeowner’s insurance policy
with Shelby Insurance Company, and that, “[a]s a result of the existence of
Kendrick’s homeowners policy with Shelby, Albany has denied coverage and has
refused to defend Kendrick in connection with the subject accident.” Id. at 42.
Kendrick asked the court for a declaratory judgment “that the Albany Policy
constitutes primary coverage in connection with the claims asserted by Sevy
against Kendrick.” Id. at 42.
Albany filed an answer, admitting that it had denied coverage and asserting
a host of affirmative defenses. Both Kendrick and Albany filed motions for
4
summary judgment. At issue was the effect of two contractual provisions. The
first provision, in Albany’s insurance contract with Aramark, provided:
15. Special Conditions
Where the Assured is, irrespective of the section, covered or
protected against any loss or claim which would otherwise
have been paid by this Company, under this section there shall
be no contribution or participation by this Company on the
basis of excess, contributing, deficiency, concurrent, or double
insurance or otherwise.
Insurance in excess of the limits of liability stipulated herein
permitted.
Albany Contract, ROA, Vol. I, at 104. Albany argued that, because Kendrick was
covered under his policy with Shelby, this “escape clause” applied, and the
Albany policy did not cover Kendrick. The second provision at issue, in Shelby’s
insurance contract with Kendrick, provided:
8. Other Insurance – Coverage E – Personal Liability. This
insurance is excess over other valid and collectible insurance
except insurance written specifically to cover as excess over
the limits of liability that apply in this policy.
Shelby Contract, ROA, Vol. I, at 135. Kendrick argued that, under this “excess
clause,” the escape clause in the Albany policy did not apply, and Albany was
Kendrick’s primary insurer. Both parties essentially conceded that, in the absence
of the Shelby policy, Albany would have provided primary coverage to Kendrick,
and in the absence of the Albany policy, Shelby would have provided primary
coverage to Kendrick.
5
After the parties filed their cross-motions for summary judgment, but
before the district court held a hearing, Shelby became insolvent. On August 1,
2006, a Texas state court issued an order placing Shelby into liquidation.
Kendrick filed a motion to dismiss or stay the action, arguing that the Texas state
court’s liquidation order prevented the case from going forward. Albany opposed
the motion, arguing, in part, that Shelby was not a party to the case. Kendrick
replied that, although Shelby was not named as a party, it had been prosecuting
the action on Kendrick’s behalf.
At a hearing on September 19, 2006, the district court indicated that, “if
there were no receivership issue, . . . I’m quite inclined to say that the Albany
clause is going to prevail probably, and that Shelby would be the primary
insurer.” Hearing, Supp. ROA, at 12 (citing Utah Power & Light Co v. Fed. Ins.
Co., 983 F.2d 1549 (10th Cir. 1993)). The district court explained, however, that
“everything change[d]” once Shelby entered liquidation proceedings. Id. at 12-
13. Ultimately, the district court declined to rule on the cross-motions for
summary judgment, and instead allowed the parties to submit supplemental
briefing on the effect of Shelby’s insolvency. 3
The main source of controversy resulting from Shelby’s insolvency was the
3
It is unclear whether the district court addressed Kendrick’s motion to
dismiss or stay the action.
6
role of the Utah Property and Casualty Insurance Guaranty Association. 4 In
particular, the parties disputed the effect of the following statutory provision:
Any person who has a claim against an insurer, whether or not the
insurer is a member insurer, under any provision in an insurance
policy, other than a policy of an insolvent insurer that is also a
covered claim, is required to first exhaust that person’s right under
that person’s policy.
Utah Code Ann. § 31A-28-213(1)(a). In a letter dated September 29, 2006, the
UPCIGA stated its position that, under § 31A-28-213(1)(a), the “UPCIGA is
secondary to any other insurance coverage,” and “Albany Insurance is primary.”
UPCIGA Letter, Doc. 78 attachment. Kendrick adopted the UPCIGA’s position
in his supplemental brief, arguing that “[t]he obvious purpose of this provision is
to assure that other sources of insurance are all exhausted before the Association
is asked to cover a claim.” Kendrick Supp. Br., Supp. ROA, at 28. Albany
countered by contending that “for the same reasons that Shelby is primarily liable
for coverage of Kendrick’s claim, [the UPCIGA] is also liable thereon.” Albany
Supp. Br., Supp. ROA, at 35.
At a subsequent hearing, the district court adopted the position of the
UPCIGA and Kendrick. The district court explained that the statute is “quite
clear” that “the [Albany] policy must be exhausted,” and that the UPCIGA “is a
4
The UPCIGA is a non-profit association, organized under Utah law, that
provides payments to policyholders in the event of an insurer’s insolvency. See
Utah Code Ann. § 31A-28-202 et seq.
7
fund of last resort, a guarantor of last resort.” Hearing, Supp. ROA, at 57.
Moreover, while the UPCIGA “to some degree steps into Shelby’s shoes, it does
not absolve the fact that Albany is the insured that must pay first.” Id. at 57-58.
The district court later entered a written order incorporating its ruling, which is
now appealed.
II.
A. Federal subject-matter jurisdiction
Although neither party contests subject-matter jurisdiction, neither party
provides any analysis of the issue—or even the correct citation to the statutory
provision granting federal subject-matter jurisdiction over admiralty disputes.
Before we address the merits of the case, therefore, we must first determine
whether the federal district court, and likewise this court, has subject-matter
jurisdiction over the dispute between Kendrick and Albany. Mt. Healthy City
Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278 (1977) (“[W]e are obliged to
inquire sua sponte whenever a doubt arises as to the existence of federal
jurisdiction.”).
Although the dispute between Kendrick and Albany might not, by itself,
fall within our subject-matter jurisdiction, 5 we have subject-matter jurisdiction
5
Perhaps the dispute would fall within our diversity jurisdiction under 28
U.S.C. § 1332, but neither party has explained how or whether the dispute would
satisfy the criteria of § 1332, and it is not apparent from the record. See Symes v.
(continued...)
8
over the claim pursuant to 28 U.S.C. § 1333(1) and 28 U.S.C. § 1367. Section
1333(1) provides the federal courts with subject-matter jurisdiction over
admiralty claims:
The district courts shall have original jurisdiction, exclusive of the
courts of the States, of:
(1) Any civil case of admiralty or maritime jurisdiction, saving
to suitors in all cases all other remedies to which they are
otherwise entitled.
28 U.S.C. § 1333(1). In addition, 46 U.S.C. § 30101 clarifies the extent of our
admiralty jurisdiction in cases of damage or injury:
(a) In general. -- The admiralty and maritime jurisdiction of the
United States extends to and includes cases of injury or damage, to
person or property, caused by a vessel on navigable waters, even
though the injury or damage is done or consummated on land.
46 U.S.C. § 30101(a). 6
Pursuant to 28 U.S.C. § 1333(1) and 46 U.S.C. § 30101, the district court
had federal subject-matter jurisdiction over Aramark’s original complaint under
the Limitation of Vessel Owner’s Liability Act, 46 U.S.C. § 30501 et seq. In
Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527 (1995),
the Supreme Court addressed the extent of federal admiralty jurisdiction under §
5
(...continued)
Harris, 472 F.3d 754, 758 (10th Cir. 2006) (“Under 28 U.S.C. § 1332, a party
must show that complete diversity of citizenship exists between the adverse
parties and that the amount in controversy exceeds $75,000.”).
6
Section 30101 was previously codified at 46 U.S.C. App. § 740.
9
1333(1), where a party had filed an action seeking protection under the Limitation
of Vessel Owner’s Liability Act. 7 The Court began by explaining:
A federal court’s authority to hear cases in admiralty flows initially
from the Constitution, which “extend[s]” federal judicial power “to
all Cases of admiralty and maritime Jurisdiction.” U.S. Const., Art.
III, § 2. Congress has embodied that power in a statute giving
federal district courts “original jurisdiction . . . of . . . [a]ny civil
case of admiralty or maritime jurisdiction . . . .” 28 U.S.C. §
1333(1).
Id. at 531 (alterations in original). The Court then provided the test for
determining whether a party may invoke federal admiralty jurisdiction:
[A] party seeking to invoke federal admiralty jurisdiction pursuant to
28 U.S.C. § 1333(1) over a tort claim must satisfy conditions both of
location and of connection with maritime activity. A court applying
the location test must determine whether the tort occurred on
navigable water or whether injury suffered on land was caused by a
vessel on navigable water. [46 U.S.C. § 30101.] The connection test
raises two issues. A court, first, must assess the general features of
the type of incident involved, to determine whether the incident has a
potentially disruptive impact on maritime commerce. Second, a
court must determine whether the general character of the activity
giving rise to the incident shows a substantial relationship to
traditional maritime activity.
Id. at 534 (some citations and internal quotation marks omitted).
In its complaint, Aramark alleged that Kendrick and Sevy were engaged in
“recreational boating” on “the navigable waters of Lake Powell, at Bullfrog Bay,”
when they collided with “a canyon wall or cliff.” Aramark Compl., ROA, Vol. I,
7
At the time of the Grubart decision, the Limitation of Vessel Owner’s
Liability Act was codified at 46 U.S.C. § 181 et seq. See also supra note 1.
10
at 20. Consequently, Aramark’s claim readily satisfied Grubart’s “location test.”
See Grubart, 513 U.S. at 534-38. Aramark’s claim also satisfied the first of the
“maritime connection enquiries,” because the boating collision was an “incident .
. . of a sort with the potential to disrupt maritime commerce.” Id. at 538; see also
id. at 538-39 (noting that “a fire on a vessel docked at a marina on navigable
waters” had satisfied this test in Sisson v. Ruby, 497 U.S. 358, 363 (1990), and
holding that the “damag[e] [to] a structure beneath the riverbed” in Grubart also
satisfied the test, because it could lead to a disruption in the water course itself . .
. and . . . could lead to restrictions on the navigational use of the waterway during
required repairs”). Finally, Aramark’s complaint satisfied the second of the
“maritime connection enquiries”—“whether the general character of the activity
giving rise to the incident shows a substantial relationship to traditional maritime
activity”—because it involved “[n]avigation of boats in navigable waters,” which
“clearly falls within the substantial relationship.” Id. at 539-40.
With subject-matter jurisdiction over Aramark’s original claim, the district
court appropriately exercised its supplemental jurisdiction, pursuant to 28 U.S.C.
§ 1367, over the third-party insurance dispute between Kendrick and Albany.
Section 1367 provides:
(a) Except as provided in subsections (b) and (c) or as expressly
provided otherwise by Federal statute, in any civil action of which
the district courts have original jurisdiction, the district courts shall
have supplemental jurisdiction over all other claims that are so
related to claims in the action within such original jurisdiction that
11
they form part of the same case or controversy under Article III of
the United States Constitution. Such supplemental jurisdiction shall
include claims that involve the joinder or intervention of additional
parties.
28 U.S.C. § 1367(a). Under this provision, a federal court may exercise
supplemental jurisdiction over related third-party claims when the court has
admiralty jurisdiction over the original claim. See Loeber v. Bay Tankers, Inc.,
924 F.2d 1340, 1347 (5th Cir. 1991); Roco Carriers, Ltd. v. M/V Nurnberg
Express, 899 F.2d 1292, 1297 (2d Cir. 1990); Moeller v. Mulvey, 959 F. Supp.
1102, 1111 (D. Minn. 1996); Ins. Co. of N. Am. v. S/S Cape Charles, 843 F.
Supp. 893, 894-95 (S.D.N.Y. 1994); cf. Grubart, 513 U.S. at 531 (“The parties do
not dispute the Seventh Circuit’s conclusion that jurisdiction as to Counts II and
III (indemnity and contribution) hinges on jurisdiction over the Count I claim.”
(citing 28 U.S.C. § 1367) (other citations omitted)). The third-party insurance
dispute between Kendrick and Albany falls squarely within the terms of 28 U.S.C.
§ 1367, which, when coupled with 28 U.S.C. § 1333(1) and 46 U.S.C. § 30101(a),
provided federal subject-matter jurisdiction here.
B. Kendrick’s coverage under the Albany insurance policy
It is a close question whether Albany must provide primary insurance
coverage to Kendrick now that Shelby is insolvent. As described above, Shelby’s
policy stated:
8. Other Insurance – Coverage E – Personal Liability. This
insurance is excess over other valid and collectible insurance
12
except insurance written specifically to cover as excess over
the limits of liability that apply in this policy.
Shelby Contract, ROA, Vol. I, at 135. Albany’s policy stated:
15. Special Conditions
Where the Assured is, irrespective of the section, covered or
protected against any loss or claim which would otherwise
have been paid by this Company, under this section there shall
be no contribution or participation by this Company on the
basis of excess, contributing, deficiency, concurrent, or double
insurance or otherwise.
Insurance in excess of the limits of liability stipulated herein
permitted.
Albany Contract, ROA, Vol. I, at 104. Under Utah law, 8
insurance policies are construed using general contract principles.
The interpretation of an unambiguous contract is a question of law to
be determined by the court and may be decided on summary
judgment. If the policy language is clear and unambiguous, the court
must construe it according to its plain and ordinary meaning.
Utah Power & Light Co. v. Fed. Ins. Co., 983 F.2d 1549, 1553 (10th Cir. 1993)
(citations omitted). “Utah courts follow this same course when construing
competing other insurance clauses.” Id. at 1559 (citations omitted). 9 Further,
8
All parties and the district court have agreed that Utah law applies, so we
need not address whether they are correct. See Flying J Inc. v. Comdata Network,
Inc., 405 F.3d 821, 831 & n.4 (10th Cir. 2005).
9
“In general, an ‘other insurance’ clause is an insurance contract provision
designed to avoid liability for an insurer ‘by declaring either that another insurer
provides primary coverage or that the insurance contract containing the clause
provides no coverage when another insurance coverage applies to the loss.’” Utah
Power & Light Co., 983 F.2d at 1558 n.2 (quoting Robert E. Keeton & Alan L.
(continued...)
13
[t]he Utah courts do not simply categorize other insurance clauses as
excess, pro-rata, escape, or excess-escape clauses and apply
presumptive rules that one type trumps another. Rather, . . . they
give effect to the plain meaning of the clauses’ language. Thus, the
Utah Supreme Court recognizes the general validity of excess-escape
clauses, because the plain language of these clauses generally
prevails over the language of other types of clauses. More
importantly, [Utah has] interpreted the plain language of an
excess-escape clause to prevail over the plain language of an excess
clause. Although courts in other jurisdictions may have found good
reason to disfavor escape and excess-escape clauses, the Utah
Supreme Court has not followed their lead.
Id. at 1560-61 (citations omitted).
If Shelby were not insolvent, then, under our decision in Utah Power &
Light Co., 983 F.2d at 1561, our only relevant inquiry would be “the plain
meaning of the [Shelby and Albany] clauses’ language.” For the Shelby clause to
trigger, and for the Shelby policy to become excess insurance, rather than primary
insurance, the Shelby excess clause requires that “other valid and collectible
insurance” be available to Kendrick. Shelby Contract, ROA, Vol. I, at 135. The
Albany policy, which contains an escape clause, would not qualify as “other valid
and collectible insurance.” See Utah Power & Light Co., 983 F.2d at 1561 n.5
(“[W]hen the loss could be covered in full by a policy with an excess clause,
other insurance provided by policies with either escape or excess-escape clauses
was not ‘collectible’ insurance that would trigger the competing excess insurance
9
(...continued)
Widiss, Insurance Law § 3.11, at 254 (1988)).
14
clause.”). As a result, the Albany policy would “not . . . trigger the competing
excess insurance clause [in the Shelby policy],” and Shelby, “with the untriggered
excess clause[, would be] liable for the whole loss.” Id. Also, the existence of
the Shelby policy would trigger the Albany policy’s escape clause, resulting in
“no contribution or participation by [Albany]” as an insurer of Kendrick. Albany
Contract, ROA, Vol. I, at 104. The district court’s initial inclination that, in the
absence of Shelby’s insolvency, “Shelby would be the primary insurer,” Hearing,
Supp. ROA, at 12, was therefore correct. See Utah Power & Light Co., 983 F.2d
at 1560-61.
As the district court recognized, however, the issue is no longer as
straightforward after Shelby’s insolvency. We are left to decide whether the
respective policy provisions of the Shelby and Albany policies continue to dictate
the outcome here, or whether Shelby’s insolvency and the insertion of the
UPCIGA into the picture alter the outcome. Under Utah law, when an insurance
company is insolvent, the UPCIGA “is obligated on the amount of the covered
claims,” up to $300,000. Utah Code Ann. § 31A-28-207(1)(a)-(b); see also id. §
31A-28-203(4) (defining a “covered claim”). The UPCIGA
(ii) has all the rights, duties, and obligations of the insolvent
insurer as if the insurer had not yet become insolvent,
including the right to pursue and retain salvage and
subrogation recoverable on paid covered claim obligations[.]
Id. § 31A-28-207(1)(f)(ii). In addition, the statutory provision that the district
15
court held was dispositive provides:
(a) Any person who has a claim against an insurer, whether or not the
insurer is a member insurer, under any provision in an insurance
policy, other than a policy of an insolvent insurer that is also a
covered claim, is required to first exhaust that person’s right under
that person’s policy.
Id. § 31A-28-213(1)(a).
The key issue here is whether, as Albany claims, § 31A-28-207(1)(f)(ii) is
dispositive, and the UPCIGA steps directly into the shoes of Shelby, or, as
Kendrick claims, the statutory exhaustion provision in § 31A-28-213(1)(a) now
alters Albany’s ability to escape coverage. Other jurisdictions facing similar
situations and applying similar statutes have reached widely varying results, but
there is very little precedent directly addressing the question we face today, and
we have found no case on point from Utah. The cases cited by the parties deal, in
large part, with the effect of a primary insurer’s insolvency upon a solvent excess
insurer, and do not address the scenario where the policy of the solvent insurer
contains an escape clause. In the end, we conclude that the district court erred in
holding Albany liable to Kendrick.
When addressing competing “other insurance” clauses, courts generally
determine the effect of the clauses on the date of the accident. See, e.g., Sifers v.
Gen. Marine Catering Co., 892 F.2d 386, 393 (5th Cir. 1990); cf. Pub. Serv. Co.
v. Wallis & Cos., 986 P.2d 924, 935 (Colo. 1999); Allstate Ins. Co. v. Liberty
Mut. Ins. Group, 868 P.2d 110, 112-15 (Utah Ct. App. 1994) (looking to the date
16
of the accident to determine the respective obligations of two insurers); City of
Greensboro v. Reserve Ins. Co., 321 S.E.2d 232, 238-39 (N.C. Ct. App. 1984). In
addition, several courts have held that, where a primary insurer has become
insolvent and excess insurance exists under an “umbrella policy,” the state
insurance guaranty association is responsible for all of the primary insurer’s
obligations, and the excess insurer is not required to “drop down” and provide
coverage. See, e.g., Wash. Ins. Guar. Ass’n v. Keeter, 847 F.2d 761, 764-65
(11th Cir. 1988); Wash. Ins. Guar. Ass’n v. Guar. Nat’l Ins. Co., 685 F. Supp.
1160, 1162 (W.D. Wash. 1988); Rapid City Reg’l Hosp., Inc. v. S.D. Ins. Guar.
Ass’n, 436 N.W.2d 565, 566-67 (S.D. 1989); cf. New Process Baking Co. v. Fed.
Ins. Co., 923 F.2d 62, 63-64 (7th Cir. 1991). Some courts have gone even one
step further, reaching the same result in cases where the insurance policy is an
otherwise primary policy with an excess clause. See, e.g., Pilling v. Va. Prop. &
Cas., 95 F. App’x 126, 129-32 (6th Cir. 2004); Wyo. Ins. Guar. Ass’n v. Allstate
Indem. Co., 844 P.2d 464, 467-68 (Wyo. 1992); Donegal Mut. Ins. Co. v. Long,
597 A.2d 1124, 1127-28 (Pa. 1991).
Here, Albany’s policy contained a valid escape clause. See Utah Power &
Light Co., 983 F.2d at 1560-61. The existence of the Shelby policy on the date of
the accident triggered Albany’s escape clause, and, at that point, Kendrick no
longer had a “claim” against Albany that he could exhaust under Utah Code Ann.
§ 31A-28-213(1)(a). Albany, therefore, is not required to provide primary
17
coverage to Kendrick, notwithstanding the exhaustion provision in § 31A-28-
213(1)(a). Rather, the UPCIGA, which “has all the rights, duties, and obligations
of [Shelby],” § 31A-28-207(1)(f)(ii), is primarily liable and, like Shelby, could
not as a primary insurer prevail against Albany’s valid and enforceable escape
clause. 10
Admittedly, there is also some support for Kendrick’s argument, although
nothing that directly addresses the interplay between a primary insurer’s
insolvency and another insurer’s escape clause. Some courts have required excess
insurers to “drop down” and provide coverage where a primary insurer becomes
insolvent and where, if the primary insurer had never existed, the excess insurer
would have been required to provide primary coverage. See, e.g., Gauze v. Reed,
633 S.E.2d 326, 332-34 (W. Va. 2006); Scordill v. Smith, 635 So. 2d 407, 408-09
(La. Ct. App. 1994). In addition, several courts have emphasized that, as
10
Our conclusion here finds some support in secondary sources, in addition
to the cases cited previously. See, e.g., 5 David L. Leitner, Reagan W. Simpson,
& John M. Bjorkman, Law and Practice of Insurance Coverage Litigation § 58:23
(2007) (“There has been broad agreement that claimants are not required to
exhaust secondary or excess solvent insurance coverage before proceeding against
a state guaranty fund that has stepped into the shoes of an insolvent primary
insurer.”); cf. Paul G. Roberts, Insurance Company Insolvencies and Insurance
Guaranty Funds: A Look at the Nonduplication of Recovery Clause, 74 Iowa L.
Rev. 927, 947-48 (1989) (“This approach is the most reasonable interpretation of
the nonduplication of recovery clause: all parties would be placed in the same
position in which they would have been absent the insolvency, while the Guaranty
Fund is subjected to only those obligations for which the insolvent insurer would
have been responsible had it not become insolvent.”).
18
evidenced by statutory exhaustion provisions like Utah Code Ann. § 31A-28-
213(1)(a), state insurance guaranty associations are only obligated as a last resort,
regardless of what the respective insurers’ obligations would have been in the
absence of insolvency. See, e.g., Reed, 633 S.E.2d at 334; Jackson Brook Inst.,
Inc. v. Me. Ins. Guar. Ass’n, 861 A.2d 652, 656-57 (Me. 2004); Me. Ins. Guar.
Ass’n v. Folsom, 769 A.2d 185, 189 (Me. 2001); Scordill, 635 So. 2d at 409; Ross
v. Can. Indem. Ins. Co., 142 Cal. App. 3d 396, 404 (Cal. Ct. App. 1983); cf.
Oglesby v. Liberty Mut. Ins. Co., 832 P.2d 834, 843 (Okla. 1992). 11
Nevertheless, under our decision in Utah Power & Light Co., 983 F.2d at 1560-
61, Albany has a valid escape clause, and Kendrick has no claim against Albany
that he is required to exhaust under Utah Code Ann. § 31A-28-213(1)(a). 12
11
Kendrick can also find some support for his argument in secondary
sources. See, e.g., Appleman on Insurance § 140.5[D] (2d ed. 2007) (“Upon
declaration of insolvency of a statutory covered claim, the state’s guaranty fund
or association assumes the role of the insolvent insurer, as well as all related
rights and obligations. However, various limitations have been placed on these
funds, including . . . the requirement that all applicable insurance policies be fully
exhausted prior to guaranty fund recovery. This latter point is true even when an
excess insurer seeks to invoke its other insurance clause against the state’s
guaranty insurance fund. Courts have held that to hold a state insurance fund
primary over an excess carrier would defeat legislative intent.”); Kent M. Forney,
Insurer Insolvencies and Guaranty Associations, 43 Drake L. Rev. 813, 825
(1995) (“A claimant or insured is required to exhaust the benefits of any other
insurance the claimant or insured has available for the claim against the guaranty
association. This rule is a direct outgrowth of the philosophy underlying the Act
that the guaranty association is to be the ‘payer of last resort,’ and other solvent
insurers are not entitled to reduce their liability because of the insolvency.”).
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We need not—and do not—decide today whether, if Albany’s policy had
(continued...)
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REVERSED and REMANDED for further proceedings.
12
(...continued)
contained an excess clause, Kendrick would have had a claim against Albany that
he would have been required to exhaust under Utah Code Ann. § 31A-28-
213(1)(a).
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