Twin City Fire Insurance v. Ohio Casualty Insurance

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MARCH 16, 2007
No. 05-16456
THOMAS K. KAHN
________________________
CLERK

D. C. Docket No. 03-00264-CV-1-P-L

TWIN CITY FIRE INSURANCE COMPANY, INC.,
ALABAMA RIVER PULP COMPANY, INC.,
HARTFORD CASUALTY INSURANCE COMPANY,
Plaintiffs-Appellants,

versus

OHIO CASUALTY INSURANCE COMPANY, INC.,

Defendant-Appellee.

________________________

Appeal from the United States District Court
for the Southern District of Alabama
_________________________

(March 16, 2007)

Before ANDERSON and DUBINA, Circuit Judges, and VINSON,* District Judge.

ANDERSON, Circuit Judge:

*
The Honorable Roger Vinson, United States District Judge for the Northern District of
Florida, sitting by designation.
 This is a diversity insurance coverage dispute governed by Alabama law.

The district court granted summary judgment to the appellee, finding that a no-

action clause in the policy bars coverage. We reverse and remand to the district

court for further proceedings.

I. FACTS

The facts are undisputed. G.A. West & Co. (“West”) agreed to supply labor

to appellant Alabama River Pulp Co. (“ARP”). The contract between West and

ARP provided, in part:

To the fullest extent permitted by law, [West] shall indemnify and hold
harmless ARP. . . from and against any and all claims, costs, losses and
damages. . . arising out of or in any way related to the performance of
the Work by [West] or the agents, servants, employees or Subcontractors
[of West], in whatever manner the same may be caused, and whether or
not the same may be caused, occasioned or contributed to by the
negligence, sole or concurrent, of ARP. . . .

The contract also required West to obtain insurance to cover its indemnity

obligation and to add ARP to its policies as an additional insured.

Both West and ARP were insured at the time of the accident underlying this

action. ARP had a $1 million primary commercial general liability policy from

appellant Twin City Fire Insurance Company (“Twin City”), a $2 million excess

policy from Twin City, and a $10 million umbrella policy from appellant Hartford

2
Casualty Insurance Company (“Hartford Casualty”) that was excess to both Twin

City policies. West had a $1 million primary commercial general liability policy

from Amerisure Insurance Company (“Amerisure”) and, in excess of that policy, a

$9 million commercial umbrella policy from appellee Ohio Casualty Insurance

Company (“Ohio Casualty”). West named ARP as an additional insured on both

the Ohio Casualty and the Amerisure policies.

An accident at ARP led to the insurance claims at issue in this case. James

Dumas and Gerald Stabler, employees of West, suffered burn injuries from a

ruptured condensate storage tank during the course and scope of their employment

with West. They were not working on the tank or on anything related to the tank at

the time. Rather, their work for West on ARP’s premises brought them into the

tank’s vicinity. The parties agree that ARP’s actions were the cause of the rupture.

Dumas filed negligence and wantonness claims against ARP on November

14, 2002. On January 2, 2003, ARP asked West and its insurers to defend and

indemnify ARP in the Dumas litigation. Twin City and ARP filed the complaint in

the instant case on May 1, 2003, seeking a declaratory judgment to resolve the

respective insurance obligations. Stabler filed a similar tort action on August 28,

2003. ARP demanded a defense from West and its insurers in the Stabler action on

October 17, 2003. ARP wrote separately to Ohio Casualty on December 2, 2003,

3
included medical reports, and advised Ohio Casualty that the verdicts would likely

be in the multimillion dollar range, implicating its policy. In April 2004, ARP and

Twin City amended the complaint in the declaratory action, adding Ohio Casualty

and incorporating the Stabler litigation. Ohio Casualty answered on May 17, 2004

and denied coverage.

Ohio Casualty was also given the opportunity to participate in the settlement

negotiations for the Dumas and Stabler litigation. On June 11 and July 5, 2004,

ARP notified Ohio Casualty of an upcoming mediation of the Dumas and Stabler

actions, and again requested Ohio Casualty’s participation. Then ARP sent a letter

to Ohio Casualty on July 20, 2004, the day before the mediation began, again

inviting it to participate. Ohio Casualty did not attend the mediation or participate

in the settlement.

Under the terms of the settlement, Amerisure agreed to pay its policy limit

and fifty percent of the defense costs. Twin City agreed to contribute up to its

primary policy limit. It and Hartford Casualty contributed the rest of the funds

necessary to defend and settle the actions, pending resolution of this case.1

This declaratory action concerns who is responsible for the liability in excess

1
Hartford Casualty was added as a plaintiff in the declaratory coverage action on August
9, 2004. It had already participated in the mediation that led to the settlement of the underlying
tort actions.

4
of the Amerisure and Twin City primary policies. Twin City, Hartford Casualty,

and ARP (hereinafter referred to collectively as “Twin City”) seek reimbursement

from Ohio Casualty for the costs of the settlement and defense. Twin City first

claims that West owes ARP indemnity for all the settlement and defense costs, and

that the Ohio Casualty policy covers that indemnity obligation. Alternatively,

Twin City claims that ARP is an additional insured covered directly under the Ohio

Casualty policy, such that Ohio Casualty must share the excess liability at least pro

rata with Twin City and Hartford Casualty. Ohio Casualty denies coverage,

claiming that it owes no part of the settlement or defense costs.

The district court granted summary judgment to Ohio Casualty and

dismissed the action with prejudice against Twin City. The district court found that

the liability falls under the indemnity agreement between West and ARP. The

court, however, concluded that no coverage exists because a “no-action clause” in

the Ohio Casualty policy required either Ohio Casualty’s consent to a settlement, or

final judgment after trial. The Dumas and Stabler settlement did not satisfy either

condition. Twin City appealed.

II. DISCUSSION

We review a district court’s grant of summary judgment de novo. Hilburn v.

5
Murata Elecs. N. Am., Inc., 181 F.3d 1220, 1225 (11th Cir. 1999). Summary

judgment is appropriate when “there is no genuine issue as to any material fact”

and “the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P.

56(c). The issues in this appeal concern the interpretation of an indemnity contract

and an insurance policy. As a federal court sitting in diversity, we apply Alabama

law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79, 58 S. Ct. 817, 823 (1938). In

Alabama, the interpretation of a contract, including an insurance contract, is a

question of law reviewed de novo. Royal Ins. Co. of Am. v. Whitaker Contracting

Corp., 242 F.3d 1035, 1040 (11th Cir. 2001).

A. No-action clause.

Ohio Casualty’s argument rests primarily on the no-action clause contained

in the insurance policy it issued to West. The clause states: “There will be no right

of action against us under this insurance unless. . . the amount you [West] owe has

been determined by settlement with our consent or by actual trial and final

judgment.” Ohio Casualty argues that because there was neither a judgment

against West nor a settlement to which Ohio Casualty consented, the no-action

clause bars coverage.

We disagree. In Alabama, when an insurer has a right to defend its insured,

6
receives notice of settlement negotiations, and refuses to participate, the insurer

waives the right to assert the no-action clause in a later suit to determine coverage.

Liberty Mut. Ins. Co. v. Wheelwright Trucking Co., 851 So. 2d 466, 475 (Ala.

2002). The insurer becomes “bound to pay the amount of any settlement made in

good faith,” and for which coverage exists. Id.

The no-action clause must be deemed waived to avoid putting the insured in

a precarious situation. Enforcing the clause on these facts would allow the insurer

to refuse consent, force the insured to enter into an unconsented settlement, and

then avoid coverage by claiming that there was no judgment and no consented

settlement. That is a result the parties to the insurance contract could not possibly

have intended. See BellSouth Mobility, Inc. v. Cellulink, Inc., 814 So. 2d 203, 216

(Ala. 2001) (“[I]t is the duty of the court to construe the contract so as to express

the intent of the parties.”).

An insurer that wishes to deny coverage thus has two choices. It may

participate in the settlement pursuant to a reservation of rights, preserving the

opportunity to later dispute coverage. Or it may refuse to participate, and become

bound by any reasonable and good faith settlement of a claim that a court later

determines falls under the policy’s coverage.

In this case, Ohio Casualty clearly waived the protection of the no-action

7
clause. It concedes that it had a right to defend its insured West and a right to

participate in any settlement. Further, Ohio Casualty had notice of the settlement

and an opportunity to join the negotiations. ARP made formal demands for a

defense on West’s insurers, including Ohio Casualty, on January 2, 2003 and

October 17, 2003. On December 2, 2003, ARP followed up with a letter to Ohio

Casualty advising that the verdict would implicate its policy, and enclosed medical

reports to show the same. Finally, on June 11 and July 5, 2004, ARP notified Ohio

Casualty that the mediation was scheduled for July 21 and 22, 2004. Ohio Casualty

clearly knew about and could have chosen to participate in the settlement

negotiations.

Ohio Casualty does not deny any of this, but explains by saying that West’s

primary insurer, Amerisure, advised Ohio Casualty not to participate in order to

avoid tipping the plaintiffs that West’s insurers expected a multimillion dollar

verdict. This only shows that Ohio Casualty did have notice and an opportunity to

participate, but for strategic reasons declined to do so. Because Ohio Casualty had

a right to defend and notice of the settlement negotiations, it waived the protection

of the no-action clause in this declaratory coverage dispute.

Ohio Casualty makes several attempts to escape the reach of the Alabama

rule on no-action clauses. First, it argues that, as the excess insurer, it had only a

8
right to defend and not a duty, and thus did not waive the protection of the no-

action clause when it declined to participate in the settlement. But the waiver rule

does not require a duty to defend. It applies so long as the insurer had a right and

opportunity to defend. The Alabama Supreme Court made this clear in

Wheelwright, where it repeatedly phrased the rule in terms of a right to defend.

Wheelwright, 851 So. 2d at 478 (“[A]n insurer who has the right and opportunity to

offer a defense and who declines to offer that defense may not relitigate the amount

of a judgment its insured agreed to in good faith and within the limit of the

insurer’s coverage.”); id. at 490; id. at 491. Moreover, it would make little sense to

exempt from the waiver rule insurers with only a right to defend. That would allow

such insurers to achieve the same prohibited result of denying coverage, causing

the insured to enter into an unconsented settlement, and then setting up the no-

action clause as a bar to the coverage dispute.

Second, Ohio Casualty draws a factual distinction between Wheelwright and

the instant case. Ohio Casualty notes that in Wheelwright there was no indemnity

relationship separating the plaintiff and the insurer: the plaintiff proceeded against

the insurer after obtaining a settlement directly against the named insured. In this

case, Twin City is seeking recovery against Ohio Casualty as the insurer of its

9
insured’s indemnitor.2 Ohio Casualty suggests that, notwithstanding Wheelwright,

ARP or its insurers should have secured a judgment against West before

proceeding against Ohio Casualty, and that in the absence of such a judgment, the

no-action clause applies.3

2
This factual distinction between Wheelwright and the instant case does not exist with
respect to Twin City’s alternative argument that ARP was an additional insured directly covered
by the Ohio Casualty policy. Twin City principally relies on the indemnity argument, however,
because it likely will result in a greater recovery. If ARP qualifies only as an additional insured,
its insurers included Twin City and Hartford Casualty in addition to Amerisure and Ohio
Casualty, and Twin City and Hartford Casualty would likely share the liability with West’s
insurers. By contrast, if ARP is considered West’s indemnitee, West owes ARP indemnity for
the entire amount of the liability, and only Amerisure and Ohio Casualty are potentially liable.
Regardless, we conclude that ARP’s status as an indemnitee of West does not bar Twin City
from proceeding against Ohio Casualty, in spite of the no-action clause. See infra.
3
Ohio Casualty relies upon an unpublished panel decision that dealt with similar facts,
USF&G v. St. Paul Fire & Marine Ins. Co., No. 97-6218 (11th Cir. Feb. 25, 1998). We do not
find USF&G to be persuasive. First and foremost, it is an unpublished opinion, and therefore
does not constitute binding precedent. United States v. Rodriguez-Lopez, 363 F.3d 1134, 1138
n.4 (11th Cir. 2004). Although an unpublished opinion may be cited as persuasive authority,
11th Cir. R. 36-2, it is not binding authority. Moreover, an unpublished opinion would in any
event be persuasive only to the extent that a subsequent panel finds the rationale expressed in that
opinion to be persuasive after an independent consideration of the legal issue. With respect to
USF&G, we do not find its rationale persuasive. It does not even mention the waiver rationale
discussed above in this opinion and adopted by the Alabama Supreme Court in Wheelwright. It
cites only two old cases decided by Alabama courts, neither of which involved facts remotely
similar to the instant case. In one, the court held that a judgment obtained by a tort victim against
an insured is “final” within the meaning of a no-action clause even though an appeal of that
judgment is pending. Ohio Cas. Ins. Co. v. Gantt, 54 So.2d 595, 600 (Ala. 1951). In the other,
the court refused to allow a tort victim to proceed against an insurer where the tort victim had
obtained neither a settlement nor a judgment against the insured. Hughes v. Hartford Acc. &
Indem. Co., 134 So. 461, 463 (Ala. 1931). Neither case involved the waiver situation–an insurer
with the right to defend and notice of settlement negotiations, but who refused to attend or
participate, thus forcing the insured to enter into an unconsented settlement. USF&G also cited
two Eleventh Circuit cases, neither of which involved a waiver situation. Thus none of the cases
cited in USF&G addressed the waiver argument or the rationale and policies supporting our
decision in this case and that in the Wheelwright case. In any event, in the instant case, the
subsequent decision of the Alabama Supreme Court in Wheelwright established the relevant

10
 However, Ohio Casualty does not explain why the indemnitor-indemnitee

aspect of the instant case should make a difference and preclude application of the

Wheelwright rationale. Nor can we imagine any such reason. Indeed, although

Wheelwright did not involve an indemnitee suing an insurer, the Wheelwright

court relied on an Alabama case which held that an indemnitor who has notice of a

claim and refuses to defend is bound by a good faith, reasonable settlement entered

into by its indemnitee. Stone Bldg. Co. v. Star Elec. Contrs., Inc., 796 So. 2d 1076,

1090 (Ala. 2000). We are thus confident the Alabama Supreme Court would hold

that an insurer waives the protection of the no-action clause with respect to an

indemnitee of its insured when it refuses to participate in a settlement involving

that indemnitee.

In its final attempt to prevent reaching the merits of the coverage dispute,

Ohio Casualty argues that the structure of the settlement relieves it from liability.

In the settlement, Twin City agreed not to execute judgment against or recover

from West, and agreed to pursue recovery only against West’s insurers. The Ohio

Casualty policy only requires it to pay those sums that the insured “becomes legally

obligated to pay.” Ohio Casualty thus argues that because West never became

obligated to pay the indemnity obligation, Ohio Casualty never had a legal duty

legal principles as a matter of Alabama law.

11
that arose under the insurance policy and has no current obligation to reimburse

ARP or its insurers.

The Alabama Supreme Court, however, rejected this argument in

Wheelwright, finding that “legally obligated to pay” language does not block an

otherwise valid coverage obligation when an insurer refuses to defend the insured

and the injured party enters into a reasonable and good faith settlement that

precludes proceeding against the insured. Wheelwright, 851 So. 2d at 490. Ohio

Casualty argues that the holding was considerably narrower than this, noting that

the Wheelwright court may have attributed some importance to the fact that the

insured in that case was in bankruptcy. Id. at 489. But the Court’s holding was not

so narrow. First, the opinion ultimately based its holding on “the weight of

authority,” which consisted of numerous cases where the insured was not in

bankruptcy. See id. at 490 (citing Coblentz v. Am. Surety Co., 416 F.2d 1059,

1063 (5th Cir. 1969); Auto-Owners Ins. Co. v. St. Paul Fire & Marine Ins. Co., 547

So. 2d 148, 151 (Fla. Dist. Ct. App. 1989); Red Giant Oil Co. v. Lawlor, 528

N.W.2d 524, 529 (Iowa 1995); Metcalf v. Hartford Acc. & Indem. Co., 126

N.W.2d 471, 475 (Neb. 1964)).

In addition, the Wheelwright court acknowledged that the plaintiff’s

response to the legally-obligated-to-pay argument was “essentially the same” as the

12
response to the no-action clause argument. Id. at 490. By holding for the plaintiff,

then, the Wheelwright court implicitly recognized that an insurer who has a right to

defend, receives notice of settlement negotiations, and refuses to participate waives

the protection of the legally-obligated-to-pay condition, just as it waives the

protection of the no-action clause: so long as the settlement is covered, reasonable,

and made in good faith. The Wheelwright court’s legally-obligated-to-pay holding

was thus just as broad as its no-action clause holding.

Because of West’s indemnity obligation, West in this case is in the same

position as the insured in Wheelwright. For the same reason, in this case, the

legally-obligated-to-pay condition must be deemed waived, and the settlement’s

effective release of the named insured West does not bar recovery against Ohio

Casualty. Of course, the appellants still must prove that there was a valid

indemnity obligation in order to recover. But a covenant not to pursue recovery

against the indemnitor, West, does not prevent reaching that question on the merits.

Here, Ohio Casualty had a right to defend, was invited to participate in the

settlement negotiations, and refused to attend. It therefore may not assert the no-

action clause or the legally-obligated-to-pay condition in this coverage dispute with

13
the insurers of its insured’s indemnitee.4

B. Coverage of indemnity obligations under the Ohio Casualty policy.

Because the no-action clause and the legally-obligated-to-pay condition do

not bar coverage, we reach the merits of the coverage dispute. West agreed to

indemnify ARP for ARP’s tort liability arising out of West’s work, which included

tort liability to West employees. This indemnity obligation is clearly covered under

the Ohio Casualty policy, which covers “insured contracts” where the named

insured (West) assumes the tort liability of another party (here, ARP) to pay for

bodily injury to a third person.5

C. The cross-suit exclusion.

Ohio Casualty argues, however, that the indemnity obligation in this case

falls within the terms of an express exclusion in the policy: a cross-suit clause that

4
In light of our holding that the no-action clause does not bar this suit, we need not
address the argument that Ohio Casualty waived any reliance on the no-action clause by deficient
pleading in the district court.
5
Specifically, the Ohio Casualty policy provides insured contract coverage “to the extent
that such insurance is provided by” an underlying policy. The Amerisure policy then provides
insured contract coverage for a “contract or agreement pertaining to [West’s] business. . . under
which you [West] assume the tort liability of another party to pay for ‘bodily injury’ or ‘property
damage’ to a third person or organization.”

14
excludes “[a]ny liability of any ‘Insured’ covered under this policy to any other

‘Insured’ covered under this policy.” It notes that ARP was an “additional insured”

within the meaning of the policy, which covers any person “included as an

additional ‘Insured’ by virtue of an ‘insured contract,’ and to which coverage is

provided by the ‘underlying insurance,’ and for no broader coverage than is

provided by the ‘underlying insurance’ to such additional ‘Insured.’ ” ARP met all

of these conditions. It was added as an additional insured by virtue of an insured

contract (the indemnity agreement), and the underlying Amerisure policy provided

coverage.6 Ohio Casualty argues that because ARP was an additional insured, and

West was an insured, the cross-suit clause excludes the indemnity liability owed

from West to ARP.

We conclude, however, that the cross-suit exclusion is at best ambiguous

with respect to obligations owed from an insured to an additional insured because

the policy elsewhere expressly contemplates coverage of such obligations. In

Alabama, a provision in an insurance contract is ambiguous “when more than one

interpretation may fairly be given to a policy provision.” Twin City Fire Ins. Co. v.

Alfa Mut. Ins. Co., 817 So.2d 687, 695 (Ala. 2001). In deciding whether a

6
Specifically, the Amerisure policy covered persons “[w]hom you [West] are required to
add as an additional insured on this policy under a written contract or agreement relating to your
business. . . with respect to liability arising out of. . . ‘Your work’ for that additional insured.”

15
provision is ambiguous, the terms “should be given a rational and practical

construction.” State Farm Fire & Cas. Co. v. Slade, 747 So.2d 293, 309 (Ala.

1999). “[A] court cannot consider the language in the policy in isolation, but must

consider the policy as a whole.” Id. The cross-suit exclusion is ambiguous in this

instance because it does not specify whether an “insured” includes an “additional

insured,” for whom coverage is specifically provided elsewhere in the policy.

Here, considering the policy as a whole, it would make little sense to apply

the cross-suit exclusion to indemnity obligations owed by a named insured to an

additional insured. First, such a reading would nullify the core of the additional

insured coverage provision. That provision applies only so long as, inter alia, the

person is included as an additional insured “by virtue of” a particular kind of

indemnity contract. The party ordinarily named as an additional insured by virtue

of an indemnity contract is the indemnitee. But under Ohio Casualty’s reading of

the cross-suit exclusion, an indemnitee named as an additional insured would not

be covered, because the indemnity obligation would thereby be owed from one

insured to another and fall under the cross-suit exclusion. This would not only

remove the core of the additional insured provision. It would also conflict with its

terms, which apply broadly to “[a]ny person or organization. . . included as an

additional ‘Insured’ by virtue of an ‘insured contract.’ ”

16
 Ohio Casualty’s reading of the cross-suit exclusion would preserve coverage

under the additional insured provision in a single narrow situation: where the

additional insured named “by virtue of” the insured contract is not also an

indemnitee under the insured contract. There is nothing in the policy to indicate

that the parties intended the additional insured coverage to be so limited. And the

language in the additional insured provision, which extends to “[a]ny person or

organization,” conflicts with a purported intention to limit the coverage to persons

who are not indemnitees. By contrast, an interpretation of the cross-suit exclusion

that does not exclude liability owed from an insured to an additional insured

preserves the full force of both the additional insured provision and the cross-suit

exclusion (which continues to apply to suits between other sorts of “insured”

parties). See Celtic Life Ins. Co. v. McLendon, 814 So.2d 222, 224 (Ala. 2001)

(“[I]nsurance contracts, like other contracts, are construed so as to give effect to the

intention of the parties. . . [T]o determine this intent, a court must examine more

than an isolated sentence or term; it must read each phrase in the context of all

other provisions.”).

Ohio Casualty’s reading also conflicts with the insured contract provision,

which covers certain kinds of indemnity contracts. According to Ohio Casualty’s

interpretation, a named insured who adds an indemnitee as an additional insured in

17
such a contract also loses insured contract coverage. Nothing in the policy

contemplates such a result. To the contrary, the insured contract provision is

worded just as broadly as the additional insured provision. It applies to any

“contract or agreement pertaining to [West’s] business,” and does not say that a

contract that also happens to include the indemnitee as an additional insured is not

covered.7

Finally, in Alabama “exceptions to coverage are to be interpreted as

narrowly as possible in order to provide maximum coverage for the insured, and. . .

clauses setting out exceptions must be construed most strongly against the

company that issued the policy.” Wakefield v. State Farm Mut. Auto. Ins. Co., 572

So.2d 1220, 1223 (Ala. 1990). See also Am. States Ins. Co. v. Martin, 662 So.2d

245, 247 (Ala. 1995). Because the cross-suit exclusion is ambiguous with respect

to whether it excludes liability owed from a named insured to an additional insured,

the ambiguity must be resolved against Ohio Casualty, and in favor of coverage.

Accordingly, we reject Ohio Casualty’s argument based on the cross-suit

7
We also note that Ohio Casualty’s interpretation of the cross-suit exclusion would likely
result in illusory coverage. In Alabama, insurance contracts must be interpreted to avoid illusory
coverage, which occurs when a limitation or exclusion completely contradicts a coverage
provision. Shrader v. Emplrs. Mut. Cas. Co., 907 So.2d 1026, 1032-33 (Ala. 2005). As noted
above, Ohio Casualty’s interpretation would result in a very limited application for the additional
insured coverage. Ohio Casualty’s interpretation would therefore likely eliminate all meaningful
additional insured coverage, and would thus result in impermissible illusory coverage as well.

18
exclusion.8

D. Liability under the indemnity agreement.

Because the cross-suit exclusion does not apply, Ohio Casualty owes

coverage to the extent of West’s indemnity obligation. Ohio Casualty argues that

the indemnity obligation was not triggered because the accident did not “arise out

of” West’s work. Ohio Casualty notes that the West workers were injured only

because their work for West happened to put them in the path of an accident that

was caused solely by ARP’s negligence or wantonness. Ohio Casualty contends

that this kind of but-for causation was insufficient to trigger the indemnity

obligation: instead, there needed to be a kind of proximate causation for the

accident to fall under the agreement.

This argument is without merit. Courts have consistently held that but-for

causation is enough to constitute “arising out of.” In the course of interpreting

8
We note that our interpretation is supported not only by Alabama law, but also by an
express caveat to the cross-suit exclusion in the policy itself. Immediately following the
exclusion is this caveat: “This endorsement does not change any other provision of the policy.”
Ohio Casualty’s interpretation of the cross-suit exclusion would significantly alter both the
additional insured and insured contract provisions, and thus must be rejected for this reason as
well.
In light of our holding that the cross-suit exclusion does not preclude coverage, we
decline to address the argument that Ohio Casualty waived any reliance on the exclusion by
having raised it in the district court in an untimely manner.

19
Alabama law, the court in Davis Constructors & Eng’rs, Inc. v. Hartford Acc. &

Indem. Co., 308 F. Supp. 792 (M.D. Ala. 1968) construed similar language to

include an accident where the indemnitee’s negligence was the sole cause. Id. at

795. Courts generally interpret “arising out of” in this broad sense. See Mid-

Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 498 (5th Cir. 2000)

(collecting cases). There is no indication that Alabama would adopt a different

interpretation. To the contrary, Alabama law instructs that ambiguities in insurance

contracts are to be interpreted in favor of the insured. See Jordan v. Nat’l Acc. Ins.

Underwriters, Inc., 922 F.2d 732, 734 (11th Cir. 1991).

Finally, the indemnity clause at issue here includes much more than liability

that arises out of West’s work. It includes claims “in any way related to the

performance” of West’s work, “in whatever manner the same may be caused.” It

also explicitly includes accidents whose “sole” cause was ARP’s negligence. That

appears to contemplate the exact situation in this case, where ARP’s negligence

was the proximate cause of the accident. The indemnity agreement thus clearly

covered the accident underlying this declaratory judgment action.

III. CONCLUSION

We have held that the no-action clause, the legally-obligated-to-pay

20
condition, and the cross-suit exclusion do not preclude Ohio Casualty’s insurance

obligation in this case. We have also held that Ohio Casualty’s policy covers to the

extent of West’s obligation pursuant to its contract indemnifying ARP. With

respect to West’s indemnity obligation, we have rejected Ohio Casualty’s argument

that the indemnity agreement was not triggered because the accident did not arise

out of West’s work. We decline to address Ohio Casualty’s remaining challenge to

West’s indemnity obligation–i.e. Ohio Casualty’s argument that West did not

assume any obligation to indemnify ARP for wanton conduct and that part of the

settlement encompassed damages for wanton conduct. We prefer for issues related

to this Ohio Casualty argument to be addressed by the district court in the first

instance on remand.

These and other issues remain for the district court to decide on remand. The

other issues include whether the indemnity agreement covered liability resulting

from ARP’s alleged wantonness and, if it did not, whether Ohio Casualty has

waived the argument that part of the settlement is attributable to wantonness by

failing to participate in the settlement. If the district court determines that Twin

City cannot recover for wantonness under the indemnity agreement, and if Ohio

Casualty has not waived the argument that the settlement included wantonness,

then the court will have to decide who has the burden of proof on the proration of

21
the settlement amount between negligence and wantonness, as well as the

appropriate proration in this case. In addition, Ohio Casualty retains the right to

challenge the reasonableness of the settlement.

Finally, if the district court determines that Twin City’s recovery under the

indemnity agreement should be wholly or partially reduced due to amounts

attributable to ARP’s alleged wantonness, it will have to consider ARP’s status as

an additional insured. The issues under that head might include, first, whether the

insurance policy directly covers settlement costs attributable to ARP’s wantonness;

second, if the policy does not cover such costs, whether Ohio Casualty waived the

argument by failing to participate in the settlement; third, if some costs are covered,

whether there should be a pro rata distribution of those costs among the several

insurers; and fourth, if proration is warranted, what the appropriate proration

should be.9

For the foregoing reasons, we reverse the district court’s grant of summary

judgment and remand the case for further proceedings consistent with this opinion.

REVERSED and REMANDED.

9
Our mention of issues on remand is not intended to be all-inclusive. Nor do we express
any opinion with respect thereto.

22