Home Ins. Co. v. Aetna Ins. Co. ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-1710
___________
Home Insurance Company, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
Aetna Insurance Company, *
*
Appellee. *
___________
Submitted: October 20, 2000
Filed: January 8, 2001
___________
Before McMILLIAN, BOWMAN, and LOKEN, Circuit Judges.
___________
BOWMAN, Circuit Judge.
This appeal originates from a dispute between two insurance companies over the
amount that each must pay in the joint settlement of a claim. Home Insurance
Company argues that Aetna Insurance Company's policy provides two separate insuring
agreements applicable to the settlement—each containing a $250,000 limit—that
require Aetna to pay a total of $500,000. Aetna maintains that only one insuring
agreement exists relevant to the settlement and that it limits Aetna's liability to
$250,000. The District Court,1 after carefully reviewing relevant Nebraska insurance
law and the disputed policy, determined that Aetna's policy unambiguously contains a
single insuring agreement relevant to the settlement claim and that the policy's terms
limit Aetna's liability to $250,000. We affirm.
I.
In June 1998, insurance companies representing the University of Nebraska
Board of Regents settled a medical malpractice claim.2 At the time that the alleged
malpractice took place, Aetna provided primary insurance coverage and Home
provided excess umbrella liability coverage3 for the University. Aetna contributed
$250,000 and Home contributed $650,000 in the payment of the settlement.4 Home
maintained, both prior and subsequent to the settlement, that Aetna remained
responsible for an additional $250,000 toward the settlement under its policy with the
University. Home therefore argued that it should have contributed only $400,000.
Despite the disagreement, Home paid the disputed amount in order to avoid delay of
1
The Honorable Thomas M. Shanahan, United States District Court for the
District of Nebraska.
2
The details of the settled claim are unnecessary for this decision, except to note
that it involved a single malpractice claim brought by a single individual.
3
This type of insurance provides coverage for occasions when the underlying
primary liability insurance limits are exhausted, as occurred in the underlying
settlement.
4
A third insurance company, not a party to this suit, contributed an additional
$1.1 million toward the settlement.
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the settlement and to protect itself from possible tort liability.5 It then initiated suit
asserting subrogation rights to the disputed amount.
Both parties agree that Aetna's policy requires it to pay at least $250,000 toward
the settlement of the malpractice claim. The dispute centers on whether different
provisions under the policy represent independent insurance coverage agreements
requiring Aetna to pay an additional $250,000 toward the settlement.
The Aetna policy contains two relevant provisions regarding medical liability
coverage. Coverage A provides comprehensive general liability insurance for bodily
injury and is extended to cover malpractice claims by Endorsement #1. Coverage O,
entitled "Hospital Professional Liability," also outlines medical malpractice liability
terms. Both Home and Aetna agree that these provisions of Aetna's policy provide
insurance coverage for the medical malpractice events leading to the settlement. There
is also no dispute that both Coverage A6 and Coverage O contain language limiting
liability for the settlement to $250,000. However, while Aetna reads these attachments
as demonstrating a consistent agreement limiting its total liability to $250,000, Home
interprets them as separate insurance agreements each providing $250,000 of coverage.
5
Under Nebraska law, bad faith failure to settle a claim by an insurance company
can serve as the basis for a tort claim. Lincoln Benefit Life Co. v. Edwards, 45 F.
Supp. 2d 722, 754 (D. Neb. 1999); Braesch v. Union Ins. Co., 464 N.W.2d 769, 772
(Neb. 1991), overruled on other grounds by Wortman ex rel. Wortman v. Unger, 578
N.W.2d 413, 417 (Neb. 1998); Hadenfeldt v. State Farm Mut. Auto. Ins. Co., 239
N.W.2d 499, 502-03 (Neb. 1976).
6
The term Coverage A will be used to refer to both the general terms of
Coverage A, as well as to its extension by Endorsement #1.
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The District Court held that no ambiguity exists in the insurance contract and that
the policy could only be construed to provide a single agreement that limits Aetna's
liability to $250,000. Home appeals.
II.
Nebraska law controls our analysis of the insurance policy in this diversity
action. See Langley v. Allstate Ins. Co., 995 F.2d 841, 844 (8th Cir. 1993) ("[W]hen
federal courts are exercising diversity jurisdiction, the rules for construing insurance
policies are controlled by state law."). We review the District Court's interpretation of
Nebraska law and its interpretation of the insurance contract de novo. St. Paul Fire &
Marine Ins. Co. v. Mo. United Sch. Ins. Council, 98 F.3d 343, 345 (8th Cir. 1996).
Under Nebraska law, courts must construe insurance policies as contracts and
"give effect to the parties' intentions at the time the contract was made." Katskee v.
Blue Cross/Blue Shield of Neb., 515 N.W.2d 645, 649 (Neb. 1994). In discerning
intent, courts should determine as a matter of law whether a policy is ambiguous. Id.If "a word, phrase, or provision in the contract has, or is susceptible of, at least two
reasonable but conflicting interpretations or meanings" it is ambiguous. Callahan v.
Washington Nat'l Ins. Co., 608 N.W.2d 592, 598 (Neb. 2000). Courts should
determine whether a contract is ambiguous "on an objective basis, not by the subjective
contentions of the parties" and are therefore not compelled to find ambiguity simply
because the parties suggest opposing interpretations. Fraternal Order of Police, Lodge
No. 2 v. County of Douglas, 612 N.W.2d 483, 487 (Neb. 2000); see also Callahan, 608
N.W.2d at 598.
If a court concludes that a policy is ambiguous it "may employ rules of
construction and look beyond the language of the policy to ascertain the intention of the
parties." Katskee, 515 N.W.2d at 649. However, if a court determines that a policy
is not ambiguous then it "may not resort to rules of construction, and the terms are to
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be accorded their plain and ordinary meaning as the ordinary or reasonable person
would understand them." Id.
III.
Home first asserts that Aetna's policy is ambiguous because it contains similar
terms covering malpractice under the provisions of Coverage A and Coverage O. It
then argues that differences in the exact terms used to limit liability for the two
provisions7 provide further evidence of ambiguity and the parties' intent that they stand
as separate and independent insuring agreements. We first note the difficulty in
reconciling how Home can argue that a policy is ambiguous based on provisions
containing both similar and different terms, because such an argument seems applicable
to all but identical provisions. Taking this argument as given, however, we find that
by merely pointing out differences in the terms, Home only demonstrates the relevance
of why the contracting parties included both provisions in the agreement, and not an
ambiguity or intent to establish separate and independent insuring agreements.
Additionally, focusing on similarities in the terms under the provisions alone only
proves a consistent intent. This consistent intent is demonstrated by the policy's
repeated language declaring that any malpractice insurance provided under the policy
is limited to $250,000 for a claim such as the one that was settled.
On the first page of Aetna's policy, the declaration for the comprehensive general
liability insurance section—applicable to Coverage A—limits liability to $250,000 for
each person injured. Then the terms limiting liability for Coverage A state that "[t]he
limit of bodily injury liability stated in the declarations as applicable to 'each person' is
7
Home points out that where Coverage A's limit for "each person" limits liability
for "injury sustained by one person as the result of any one occurrence," while
Coverage O's limit for "each claim" limits liability "for all damages because of each
claim or suit covered hereby." (emphasis added).
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the limit of the company's liability for all damages because of bodily injury sustained
by one person as the result of any one occurrence." Endorsement #1, extending
Coverage A to malpractice events, reiterates that the liability coverage is limited to
$250,000 for each person. Further, the schedule for Coverage O similarly limits
hospital professional liability under the policy to $250,000 for each claim. Coverage
O also states under its "Limits of Liability" heading that "[t]he limit of liability stated
in the schedule as applicable to 'each claim' is the limit of the company's liability for all
damages because of each claim or suit covered hereby."8 While these provisions use
slightly different terms, they demonstrate a consistent and unambiguous intent to limit
liability to $250,000 for a single claim, brought by a single individual, as in the disputed
settlement.
Reading the policy as a whole, we find no merit in Home's argument that Aetna's
policy is ambiguous. Therefore we accord the terms of the policy "their plain and
ordinary meaning as the ordinary or reasonable person would understand them."
Katskee, 515 N.W.2d at 649. Applying this standard, we conclude that Coverage A
and Coverage O are not separate and independent insuring agreements, but rather part
of a single insuring agreement that limits Aetna's liability for the underlying settlement
8
Both Coverage A and Coverage O also specifically provide that their limits of
liability apply regardless of the number of insureds under the policy. Coverage A states
that its limits of liability apply "[r]egardless of the number of (1) insureds under this
policy, (2) persons or organizations who sustain bodily injury or property damage, or
(3) claims made or suits brought on account of bodily injury or property damage."
Similarly, Coverage O also explicitly states that the limits of liability apply
"[r]egardless of the number of insureds under this insurance." Therefore, although the
point is not raised by either party, Aetna's policy appears to limit its liability for the
claim in this case to $250,000 regardless of the number of insureds involved in the
settlement.
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to the $250,000 that it has already contributed.9 For the reasons stated above, the
decision of the District Court is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
9
Holding for Aetna on this basis, we find it unnecessary to address the sundry
alternative grounds for affirmance that Aetna argued in its brief.
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