Hartford Acidnt v. Pro Ftbl Inc ( 1997 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 3, 1997 Decided October 28, 1997
No. 96-7215
Hartford Accident & Indemnity Company,
Appellant/Cross-Appellee
v.
Pro-Football, Inc., d/b/a Washington Redskins,
Appellee/Cross-Appellant
Consolidated with
No. 96-7222
Appeals from the United States District Court
for the District of Columbia
(No. 94cv02266)
Mark E. Solomons argued the cause for appellant/cross-
appellee. With him on the brief was Michael R. Goodstein.
Paul H. Friedman entered an appearance.
Barry W. Levine argued the cause for appellee/cross-
appellant. With him on the brief was Mark A. Packman.
Before: Wald, Williams and Ginsburg, Circuit Judges.
Opinion for the Court filed by Circuit Judge Williams.
Concurring opinion filed by Circuit Judge Wald.
Williams, Circuit Judge: This case deals with a so-called
"retrospective rating" insurance policy, evidently a type com-
mon for workers' compensation. The insured employer pays
an estimated premium, which is typically based on data about
the insured's payroll and the classifications of its employees
for risk purposes, and which is subject to later correction.
The classifications of course vary radically by activity; here,
for example, the initial rate per $100 of payroll for "athletic
team or park--contact sports"--the policy was issued to the
owner of the Washington Redskins--was nearly 40 times the
premium for "clerical office employees." The rates, fixed by
law, also vary markedly according to the jurisdiction where
employees may routinely seek compensation, depending on
benefit levels and likelihood of recovery in the jurisdiction.
They are, for example, far higher in the District of Columbia
than in Virginia--more than double in this case. Both juris-
dictions allow recovery by an employee who is injured within
their respective borders or whose employment is principally
located there.
The policy calls for initial payment of an estimated premi-
um, to be followed by adjustments to reflect actual circum-
stances. Here, during the third of three successive one-year
policies, the District of Columbia Court of Appeals affirmed
the decision of the D.C. Department of Employment Services
that the players performed "the principal services for which
they were hired" in the District, where they played their
home games (R.F.K. Stadium), rather than in Redskins Park
in Virginia, where they spend a majority of their time at
practice. Pro-Football, Inc. v. D.C. Department of Employ-
ment Services, 588 A.2d 275 (D.C. 1991) ("Anderson"--so-
called after one of the player claimants). The players were
thus entitled to invoke D.C. law as a basis for recovery for
injuries occurring anywhere (as the players had sought
throughout the period of the three policies).
The parties agree that the provisions on premium adjust-
ment allow the insurer to make a retrospective premium
change to reflect changes in the employer's payroll or in the
job classifications of particular employees. The question is
whether the terms of the policy also permit a premium
adjustment for a change in the jurisdiction whose law is
available to employees, such as resulted from the Anderson
decision. The district court read the policy as denying the
insurer such a power. We reverse.
* * *
Hartford Accident and Indemnity Company provided the
Washington Redskins' owner/operator, Pro-Football, Inc.
("PFI"), with a workers' compensation insurance policy for
three successive annual policy periods, from July 14, 1988 to
July 14, 1991. The policy was a standard form, assigned risk
policy administered by the National Council on Compensation
Insurance ("NCCI"), designed for employers like PFI who
cannot purchase coverage on the voluntary workers' compen-
sation market and who cannot or are not willing to self-
insure. See generally 9 Arthur Larson & Lex K. Larson,
Larson's Workers' Compensation Law ss 92.53-92.65 (1997)
(describing assigned risk, retrospective rating policies). Un-
der the policy, PFI's premiums were initially based on the
parties' use of Virginia as the expressly assumed principal
location of the players' services.
Under both the District of Columbia and the Virginia
workers' compensation insurance plans ("WCIPs"), the NCCI
directs insurers in the state pool to issue coverage to employ-
ers eligible for assigned risk insurance. When PFI submitted
an application for Virginia assigned risk coverage, NCCI
assigned the application to Hartford, which was obligated to
issue a policy. The policy issued by Hartford consisted of
manuals (by reference), standard forms, an Information Page
(actually several pages) of figures specific to PFI, and rates;
the forms and manuals were approved, and the rates set, by
NCCI. (The policy forms for the District and Virginia
WCIPs are identical in all material respects.) The terms and
rates for the policy were not negotiated; neither Hartford
nor PFI could legally have altered them.
Retrospective rating plans of the sort embodied in this
policy are used when the size of the insured's risks is difficult
to measure at the beginning of the policy period, see Lee R.
Russ & Thomas F. Segalla, 5 Couch on Insurance s 69.15 (3d
ed. 1996) ("Couch"). Courts routinely enforce the retrospec-
tive provisions in such plans. See, e.g., L.C. Worley v.
Travelers Indemnity Co., 183 S.E.2d 91 (Ga. Ct. App. 1971);
Great American Ins. Co. v. Nova-Frost, Inc., 362 N.W.2d 358 (Minn. Ct. App. 1985); Texas Soap Mfg. Co. v. American
Auto. Ins. Co., 227 S.W.2d 376 (Tex. Civ. App. 1950). Work-
ers' compensation in general, and professional football in
particular, present the kind of uncertainty that makes retro-
spective rating appropriate, because the insured's activities
and the size of its payroll are likely to vary considerably over
the course of the policy term.
Premiums under the policy are calculated as the product of
the work classification rate for a specific jurisdiction and the
amount of payroll allocated to employees in that classification
and jurisdiction (the "premium basis") up to a regulated
maximum amount. Initial premiums (at least for years other
than the first one) also incorporate an "experience modifica-
tion factor" (or "mod"), a prospective adjustment to take
account of prior years' claims experience for the particular
employer. All the factors other than actual payroll--the
rates, classifications, premium basis maxima, and mod--are
set by NCCI.
Following attempts by several injured Redskin players to
collect the higher District benefits for injuries received out-
side the District, the Director of the District of Columbia
Department of Employment Services ruled on or about July
10, 1989, just before the end of the first policy year, that the
players' place of principal employment was the District rather
than Virginia. The D.C. Court of Appeals issued its decision
in Anderson, affirming the Director, in March 1991.
Hartford, relying upon the policy provision that allowed
calculation of the "final premium" after the policy's expira-
tion, then wrote PFI that it had reclassified Redskin players
and coaches as District of Columbia employees for all three
policy years. For the then-current policy year, 1990-91,
Hartford issued an endorsement, or formal amendment, im-
plementing the reclassification. Hartford then billed PFI for
the difference in premium levels--a difference, after adjust-
ments, of $5,350,762. PFI refused to pay, and Hartford filed
suit under the federal courts' diversity jurisdiction. PFI
counterclaimed for breach of contract and fiduciary duty,
fraud, bad faith, and negligent misrepresentation.
On cross-motions for summary judgment the district court
granted summary judgment for PFI, ruling that the policy
did not permit Hartford to change the jurisdictional basis of
the premium calculation retroactively. Hartford Accident &
Indemnity Co. v. Pro-Football, Inc., d/b/a The Washington
Redskins, No. 94-2266 (D.D.C. Aug. 21, 1996) ("Mem. Op.").
The district court also suggested that any reclassification
might have to be by formal endorsement, which Hartford had
failed to issue except for the final policy year at issue.
Finally, the district court struck the affidavit of a Hartford
expert because it was submitted after the close of discovery,
and rejected PFI's counterclaims as time-barred under the
District's statute of limitations. All of these decisions are on
appeal.
I.
The district court noted, and the parties agree, that the
task in contract interpretation is to decide "what a reasonable
person in the position of the parties would believe the lan-
guage meant." Mem. Op. at 8 (citing 1010 Potomac Assoc. v.
Grocery Mfrs. of America, Inc., 485 A.2d 199, 205 (D.C.
1984)). In the particular context of insurance, under District
of Columbia law,
[s]ince insurance contracts are written exclusively by
insurers, courts generally interpret any ambiguous provi-
sions in a manner consistent with the reasonable expecta-
tions of the purchaser of the policy. However, when
such contracts are clear and unambiguous, they will be
enforced by the courts as written, so long as they do not
'violate a statute or public policy.'
Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35
(D.C. 1996) (citations omitted). See also GEICO v. Fetisoff,
958 F.2d 1137, 1141 (D.C. Cir. 1992) ("Under District of
Columbia law, '[c]lear and unambiguous language [in an in-
surance policy] should be construed according to its everyday
meaning.' ") (quoting Continental Casualty Co. v. Cole, 809
F.2d 891, 896 (D.C. Cir. 1987)). Thus, as we understand
District law, no preference for the insured's reading arises
unless the contract is ambiguous, and even then the prefer-
ence involves no more than accepting what the insured might
reasonably believe over an alternative reasonable interpreta-
tion offered by the insurer.
The parties also wrestle with the issue of whether the
special status of this insurance contract--imposed on the
parties as NCCI's standard form--calls for any modification
of the standard rule for interpreting insurance contracts.
Commentators have urged, and many (perhaps most) jurisdic-
tions have agreed, that since the basis for the standard rule--
the insurer drafted the contract without negotiating it with
the insured--is absent, the presumption in favor of the in-
sured's reasonable interpretation should be relaxed: "The
rule of construction against the insurer does not apply where
... the language was prescribed by statute and controlled by
Division of Insurance rather than the individual insurer." 2
Couch s 22:15. See also John A. Appleman & Jean Apple-
man, 13 Appleman, Ins. L. & P. s 7407 (1981) ("While North
Carolina and a few other states still apply the doctrine of
construing policies against the insurer to instances of stan-
dard policies, the better authority is to the effect that the
doctrine of liberal construction has no place under those
circumstances.").1 There appears to be no District of Colum-
__________
1 Accord, e.g., Kisting v. Westchester Fire Ins. Co., 290 F. Supp.
141, 147 (D.C. W.D. Wis. 1968), aff'd, 416 F.2d 967 (6th Cir. 1969)
(applying Wisconsin law); Hankins v. Public Service Mut. Ins. Co.,
63 A.2d 606 (Md. 1949); Charles Dowd Box Co. v. Firemen's Fund
bia precedent on the construction of state-mandated policy
language or forms. In any event, because we do not find the
language ambiguous, or as reasonably permitting PFI's pro-
posed interpretation, we need not resolve that contest.
We now turn to interpreting the policy itself. (The text of
the key printed provisions of the policy--the "boilerplate"--is
set forth in the Appendix.)
Did the Final Premium Clause entitle Hartford to adjust the
premium for jurisdictional change?
The Final Premium Clause explicitly describes the premi-
um shown on the Information Page as "an estimate" and
states that the "final premium will be determined after this
policy ends by using the actual, not the estimated, premium
basis and the proper classification and rates that lawfully
apply to the business and work covered by this policy."
Hartford's decision to charge District rates for the players
and coaches in 1991 in the wake of Anderson tracks these
terms. Thereafter, only the D.C. classifications and rates
would qualify as the "proper classification and rates that
lawfully apply" to the affected employees. The logic of any
insurance policy, prospective or retrospective, requires premi-
um levels to track expected benefits.2 A retrospective-rating
policy allows post-signature events to affect both sides of the
balance. Here Hartford accounted for a large, legally man-
dated, rise in benefit levels through an appropriate adjust-
ment to its premium calculation, as the policy contemplated.
The district court came to a contrary conclusion--here
urged on us by PFI--by treating the Final Premium Clause
__________
Ins. Co., 351 Mass. 113, 218 N.E.2d 64 (1966); Del Guidici v.
Importers' & Exporters' Ins. Co., 120 A. 5 (N.J. 1923).
2 As used here, "expected" refers to the average of possible
outcomes, each specific outcome discounted for its probability.
as limited by the Classifications Clause. It read the latter as
contemplating only changes to business and work classifica-
tions (and the rate and premium basis changes that follow a
classification change). It then read the Final Premium
Clause as permitting Hartford to make only two types of
independent changes to the policy factors: changes to premi-
um basis (payroll) determined under the Audit Clause, and
changes to work classifications determined under the Classifi-
cations Clause; rate adjustments would be restricted to the
consequences of changes in these two types of factors. Mem.
Op. at 9-11. This interpretation left no room in the Final
Premium Clause for a change in rates corresponding to a
change in the workers' jurisdictional basis, whether the
change arose from an exogenous legal event such as the
Anderson decision, or from changes in actual work location
(or new information about work location) such as might be
revealed during the audit process.
This reading sacrifices the fundamental principles of the
policy to symmetry--and a false symmetry at that. The
Final Premium Clause calls comprehensively for retrospective
adjustment of the premium to conform to "the actual ...
premium basis and the proper classification and rates that
lawfully apply." Here the D.C. Court of Appeals reached a
conclusive (and retroactive) determination that the jurisdic-
tional predicate of the players' benefit eligibility was not, in
fact, Virginia, but rather the District of Columbia. Hartford
correctly concluded that the change in the jurisdictional pred-
icate for benefits entailed a matching change in the "actual"
rates. PFI's reading, by contrast, rewrites the phrase "prop-
er classification and rates" to eliminate any independent
meaning for "rates."
We see no basis for the assumption that the Audit Clause--
authorizing inspection of the insured's books for up to three
years after the policy period for information to "be used to
determine final premium"--must refer solely to changes in
premium basis (i.e., payroll limited by the NCCI-imposed
maxima). Mem. Op. at 10. An audit might reveal, as Hart-
ford's apparently did, see Appendix for PFI on Cross-Appeal
at 106, that all claims by players are being filed in another
jurisdiction. Since it is the function of the Audit Clause to
gather data for the correct calculation of the premium, it
would be arbitrary to perform the final premium calculation
in disregard of a highly relevant fact so gathered, simply
because the scope of the Classifications Clause is limited to
changes in classifications.
In fact, the Information Page states, "All information re-
quired below is subject to verification and change by audit."
The information set forth "below" included rates calculated
for various job classifications on a jurisdiction-specific basis,
so that the natural, indeed inescapable, reading is that the
provision for change applies to the jurisdictional as well as
the other aspects of the premium calculation. By contrast, on
a narrow reading of the Audit Clause's scope, it remains
mysterious how information relevant to the Classifications
Clause will be gathered except through the insured's good-
faith disclosure. But under a harmonious reading of the
three clauses, the Audit Clause has potential to generate data
for all aspects of the Final Premium calculation, as well as for
reclassifications under the Classifications Clause.
Granted, our construction of these clauses makes partially
redundant the separate clause governing ordinary, non-
jurisdictional, changes to work classifications. Why should
such changes be addressed not only in the Audit and Final
Premium Clauses, but also in a special clause of their own,
the Classifications Clause? One plausible answer is that
changes sought by the insurer to work classifications may be
likely to engender the greatest resistance by the insured, and
may be the most disputable, so the function of the special
Classifications Clause is just to underscore the insurer's
power to make those changes. In any event, PFI's reading of
the clause to suggest that it puts jurisdictional changes
entirely off the map presents a far greater anomaly, for under
PFI's reading the insurer would be unable to adjust for a
change in one of the most significant elements in its expo-
sure.
PFI appears to believe that somewhere in the policy Hart-
ford promised that the rates for players would be calculated
on the assumption that Virginia was their principal place of
employment, regardless of whatever might prove the case. It
is not clear just where PFI finds any such promise. One
possibility is the page of the Information Page that covers the
players (as well as the clerical staff working at Herndon and
the athletic team operational staff), which says, as a heading:
"Named Insured and Location Address of Operations Cov-
ered by this Schedule," together with the address of the
Herndon facility. (A similar page covers those understood to
be working in the District.)
Far from representing any promise, however, the heading
appears to be no more than a device for organizing informa-
tion, framing the then-estimated classifications, rates and
payroll for the workers thought to be located at the places
shown on the particular pages. Furthermore, as Hartford
rightly points out, PFI's restrictive reading would illogically
bind the insurer to the insured's declaration of address
despite misrepresentation, a simple out-of-state move during
the policy year, or an honest error. PFI offers no construc-
tion of the policy that applies the retroactive adjustment
clause to any of those scenarios. Nor does it explain why the
parties would limit the insurer to such alternative remedies as
a fraud claim (which would encompass only some misrepre-
sentation cases) or a rise in the mod (which would be prospec-
tive only).
Courts in other jurisdictions, faced with similar or identical
policy language, have held that the retrospective rate-
changing power encompassed erroneous jurisdictional assign-
ments. In D.A.X., Inc. v. Employers Ins. of Wausau, 659
N.E.2d 1150 (Ind. Ct. App. 1996), the insurer discovered that
the policy's jurisdictional assumption was wrong. The in-
sured, an employee-leasing company, had declared that its
operations were entirely in Indiana, because of its office
location. Because the insurer found that claims were being
filed in Illinois, it launched an audit under the standard Audit
Clause, concluded that under rules promulgated by NCCI the
correct site was Illinois, and accordingly adjusted the premi-
um. The trial court enforced the insurer's claim to the higher
premium. On appeal the insured claimed that the trial court
judgment had wrought an unconstitutional "impairment" of
contract and an unjustified contract reformation. The appel-
late court rejected both theories, finding that the trial court
"simply enforced the contract the way it was written." Id. at
1156. The court read the Final Premium Clause (identical to
the clause at issue here) as permitting the insurer to use the
"rates and classifications from such other states as may
lawfully apply," which, given the NCCI rating rule, meant the
Illinois rates. Id. at 1157.
And in a New Hampshire case also involving a retrospec-
tive rating policy, with language similar though not identical
to ours, the insurer discovered during its post-policy audit
that many of the insured's employees, classified as working in
New Hampshire, had in fact been working in Massachusetts,
and accordingly recalculated the premium. Continental Ins.
Co. v. Seppala & Aho Constr. Co., Inc., 430 A.2d 157 (N.H.
1981). A clause--the counterpart of our Final Premium
Clause--stated that "the earned premium," as opposed to the
initial "estimated premium," "shall be computed in accordance
with the rule, rates, rating plans, premiums and minimum
premiums applicable to this insurance." Id. at 158. The
court held that this clause clearly and unambiguously gave
the insurer the power to re-rate the policy with a corrected
jurisdictional classification--indeed, to the point of making
clear that the insurer's agent had no authority to represent
that only New Hampshire rates would be charged. Id. at
159. We agree with these decisions.
Must Hartford's power to correct the premium be exercised
through an endorsement?
There are two provisions that might give rise to an obli-
gation by Hartford to exercise its premium-revising power by
means of an endorsement. First, PFI relies on Subsection A
of the "General Section," which provides that the "terms of
this policy may not be changed or waived except by endorse-
ment issued by us to be part of this policy."
But we do not see the insurer's exercise of the power
expressly granted by the Final Premium Clause as the
"change" of a term of the Policy: it is an exercise of a power
that a specific policy term--the Final Premium Clause--
expressly grants the insurer to use "the actual, not the
estimated, premium basis and the proper classification and
rates that lawfully apply to the business and work covered by
this policy" (emphasis added). That, of course, was the view
of the courts in D.A.X. and Continental Insurance. More-
over, the Final Premium Clause expressly says that the final
premium "will be determined after this policy ends." It
seems odd to say that an activity explicitly slated to occur
after the policy "ends" constitutes a "change" of the then-
expired policy's terms. (PFI's theory, incidentally, further
entails--implausibly, given the Audit Clause--that application
of the Final Premium Clause to correct premium basis would
also require an endorsement.) Because PFI's reading of
Subsection A fails to accord independent force to the Final
Premium Clause, it fails to give "a reasonable, lawful, and
effective meaning to all [the policy's] terms." 1010 Potomac
Assoc., 485 A.2d at 205.
Moreover, PFI offers no rationale whatsoever for applying
the General Section endorsement requirement to adjustments
under the Final Premium Clause. Hartford, by contrast,
suggests that endorsements are issued only during a policy's
term, and that the purpose of the requirement is to provide
notice to the insured to enable it to decide either to cancel or
at least not to renew the policy. We do not feel qualified to
embrace that view, but it is, at least, a plausible one.
We can imagine two ways that a post-expiration endorse-
ment requirement might possibly have some purpose beyond
that contributed by the final billing itself.3 First, an endorse-
ment requirement might make it easier for insurance regu-
lators to monitor assigned risk policies in their jurisdictions,
as is apparently the regulators' charge under the D.C. WCIP.
See D.C. WCIP at 9 ("The Plan Administrator shall monitor
and review servicing carrier performance by ... (3) conduct-
__________
3 Although these arguments were not advanced by either party,
we raise them ourselves in order to test whether our own reading of
the contract is indeed the only reasonable construction of its terms.
ing on-site audits; and (4) reviewing any other information
that relates to the servicing carrier."). Both D.C. and Virgi-
nia require that copies of the policy declarations "and all
endorsements" must be filed with the appropriate administra-
tor, see D.C. WCIP at 7, Virginia WCIP at 2.
But if regulators want information on ultimate premiums
paid, a requirement of endorsements for jurisdictional
changes under the Final Premium Clause is a strangely
incomplete solution. We know that the final bill will reflect
changes to estimated payroll, but even PFI does not contend
that a post-expiration, ordinary correction of the payroll
constitutes a "change" to the policy, such as to warrant
formal endorsement. Either the regulators do not depend on
a formal endorsement process for their information-gathering
needs, or they don't monitor the policies as closely as this
suggestion assumes.
A second possible justification for requiring post-policy
jurisdictional adjustments to take the form of endorsements
might look to the interests of employee-claimants. If the
jurisdictional possibilities open to claimants were governed by
the insurance contract, specification of jurisdictional change
in an endorsement might make it easier for claimants to
ascertain their appropriate jurisdictional bases. Of course,
the premise is faulty. Claimants' jurisdictional options de-
pend on state law, as Anderson shows, not on arrangements
between the employer and its insurer.
Thus an endorsement attached to a final premium billing,
issued after the expiration of a policy, would perform no
notice function beyond that of the billing itself. It would be a
purely formal gesture.
Unsurprisingly, PFI has shown no reason to think that it
was harmed by Hartford's non-issuance of an endorsement
when it made its final billing for the expired terms.4 By
__________
4 PFI does claim that it was injured by Hartford's not having
issued an endorsement immediately after the Director's initial
adverse Anderson decision and instead waiting until the D.C. Court
of Appeals ruling to change the policy rates. Whatever the merits
contrast, Hartford's behavior in issuing an endorsement only
to the current 1990-91 policy year is consistent with the
rationale for the requirement: it provided PFI with notice in
case it should wish to find other insurance or self-insure in
the future (as apparently it chose to do).
An alternative source of an endorsement requirement
would be the Classifications Clause's statement that if expo-
sures are different from those described by the estimated
classifications, "we will assign proper classifications, rates and
premium basis by endorsement to this policy" (emphasis
added). Since PFI's position rests heavily on a notion that
the Classifications Clause does not cover jurisdictional
change, and Hartford agrees on that point, it seems plain that
it cannot be a source of any endorsement obligation that
would be applicable here.
Accordingly, we reverse the grant of summary judgment in
favor of PFI and remand for the district court to enter
summary judgment for Hartford.
II.
The district court rejected PFI's counterclaims as time-
barred by the District of Columbia statute of limitations.
Since PFI's claims arise under District law, the applicable
statute of limitations is also that of the District. See Guar-
anty Trust Co. v. York, 326 U.S. 99 (1945); Kuwait Airways
Corp. v. American Security Bank, N.A., 890 F.2d 456, 460
(D.C. Cir. 1989). This is true even though Rule 12(a)(4) of
the Federal Rules of Civil Procedure extends the time for a
responsive pleading to ten days after the denial of a motion
under Rule 12, and PFI advanced its counterclaim in an
answer timely filed under that rule. See 6 Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
& Procedure 1419 (2d ed. 1990, Supp. 1997).
An agreement between the parties tolled the statute until
October 22, 1994; PFI's answer and counterclaim were filed a
__________
of this defense, it depends entirely on the timing, not the form, of
Hartford's action and was not the basis of the district court's ruling.
year later. But Hartford filed its complaint on October 20,
1994, and defendant argues that this further tolled the stat-
ute. While there is considerable law (and sensible policy) on
PFI's side, the controlling law--that of the District--is
against it.
In Sears, Roebuck and Co. v. Goudie, 290 A.2d 826 (D.C.
1972), the court considered whether a counterclaim filed too
late (assuming no tolling) could be saved by the doctrine of
relation back to a prior, timely counterclaim that had been
dismissed on substantive grounds. The court found no rela-
tion back because the new counterclaim was insufficiently
related to the dismissed one. Id. at 830. A necessary
premise of the entire discussion was that the filing of the
complaint did not toll the statute on the counterclaim. And
the court made this premise specific, saying that a genuine
counterclaim, i.e., one going "beyond matters of defense" such
as recoupment, "must be viewed as an affirmative cause of
action and should therefore be tested apart from the primary
claim in determining whether the statute of limitations
would bar the counterclaim." Id. (emphasis added). This
superseded the contrary, more lenient, rule of De Vito v.
Hoffman, 199 F.2d 468 (D.C. Cir. 1952). Because PFI's
counterclaims concededly go "beyond matters of defense,"
they must be assessed separately, and thus fail.
III.
In the course of its ruling on the cross motions for sum-
mary judgment, the court held that the parties' failure to
observe discovery rules--specifically failure to request exten-
sion of a discovery deadline--barred use of experts' affidavits
submitted to bear upon the construction of the policy. Mem.
Op. at 12 n.10. Hartford contests the exclusion of its expert's
affidavit.
Hartford's contention appears moot--at least in the sense
that, as we have construed the portions of the policy relevant
to this appeal without consideration of any extrinsic evidence,
such evidence can make no contribution to resolution of the
case. Hartford suggests, however, that we should address
the court's discovery ruling because, even if it wins on the
basic issue of its power to adjust the premium by reference to
jurisdictional mistake, as it has, "[d]amages would still need
to be addressed."
At the time the district court exercised its discretion in
ruling on this discovery issue it was simultaneously making
summary judgment rulings that brought the case to a com-
plete end (subject, of course, to appellate review). We do not
know if that circumstance colored the court's ruling on the
issue. Rather than entangle ourselves in what is surely a
messy issue, and perhaps a completely unnecessary one, we
simply note that if indeed there are remaining factual issues
to be resolved on remand, the court may wish to re-examine
its discovery ruling.
* * *
Accordingly, the judgment of the district court is reversed
in part and affirmed in part, as stated above.
So ordered.
APPENDIX
General Section
A. The Policy
This policy includes at its effective date the Information
Page and all endorsements and schedules listed there....
The only agreements relating to this insurance are stated in
this policy. The terms of this policy may not be changed or
waived except by endorsement issued by us to be part of this
policy.
Part Five--Premium
A. Our Manuals
All premium for this policy will be determined by our
manual of rules, rates, rating plans and classification. We
may change our manuals and apply the changes to this policy
if authorized by law or a governmental agency regulating this
insurance.
B. Classifications
Item 4 of the Information Page shows the rate and premi-
um basis for certain business or work classifications. These
classifications were assigned based on an estimate of the
exposures you would have during the policy period. If your
actual exposures are not properly described by those classifi-
cations, we will assign proper classifications, rates and premi-
um basis by endorsement to this policy.
C. Remuneration
Premium for each work classification is determined by
multiplying a rate times a premium basis....
E. Final Premium
The Premium shown on the Information Page, schedules,
and endorsements is an estimate. The final premium will be
determined after this policy ends by using the actual, not the
estimated, premium basis and the proper classification and
rates that lawfully apply to the business and work covered by
this policy. If the final premium is more than the premium
you paid to us, you must pay us the balance....
G. Audit
You will let us examine and audit all your records that
relate to this policy. These records include ledgers, journals,
registers, vouchers, contracts, tax reports, payroll and dis-
bursement records, and programs for storing and retrieving
data. We may conduct the audits during regular business
hours during the policy period and within three years after
the policy period ends. Information developed by audit will
be used to determine final premium....
Wald, Circuit Judge, concurring: I differ with the reason-
ing of the majority on only one aspect of this case, the issue
of whether the Final Premium Clause should be read to
permit Hartford to change the jurisdictional basis of closed
policies without issuing an endorsement.
I find the evidence on which the majority relies on this
issue--policy language, caselaw, and the purported lack of
any reason for requiring endorsements to closed policies--
unconvincing. The language of the Final Premium Clause
seems to me to be ambiguous. It could be read to provide
the insurer with only a substantive right to adjust the terms
of a closed policy, or it could also furnish a specific procedure
for doing so, and so excuse compliance with the General
Section's endorsement requirement. As for the cases cited
by the majority, D.A.X., Inc. v. Employers Ins. of Wausau,
659 N.E.2d 1150 (Ind. Ct. App. 1996) and Continental Ins. Co.
v. Seppala & Aho Constr. Co., 430 A.2d 157 (N.H. 1981), in
neither of them does it appear that any party raised the
question of whether an endorsement was required to effect a
change in policy terms. (Indeed, the policies involved may
not have even contained an endorsement requirement like the
one here.) Nor do I agree with the majority's conjecture that
requiring endorsements to closed policies would be a "purely
formal gesture." Majority opinion at 13. Formality can, at
times, be very useful. The record now before us contains
little evidence about the practices of the insurance industry or
the usual behavior of regulators, and the parties did not
argue this issue in any detail. We simply cannot be certain
that insurers, insureds, and third parties would have no use
for endorsements to closed policies.
Ultimately what I find dispositive in this case is that the
parties' course of performance under the policy indicates that
they appeared to have implicitly agreed that the Final Premi-
um Clause permitted changes in policy terms without an
endorsement. "[E]vidence of circumstances surrounding the
contract formation and the parties' conduct in performing it
is relevant to ascertaining their intent." Dano Resource
Recovery, Inc. v. District of Columbia, 620 A.2d 1346, 1653
(D.C. 1993) (emphasis added). In October 1989, after the
1988-89 policy had closed, Hartford audited that policy year
and issued a "Statement of Premium Adjustment," presum-
ably under the Final Premium Clause, which set forth revised
figures for PFI's payroll and associated adjustments to the
policy premium. No corresponding endorsement is appended
to the copy of the 1988-89 policy that appears in the record.
I find this to be strong enough evidence that the parties read
the Final Premium Clause as providing both a substantive
right to change policy terms and a procedure for effecting
such changes to concur with the result reached by the panel.1
__________
1 I agree with the panel majority that we need not decide whether
the doctrine that ambiguities in a contract are construed against its
drafter applies in this case. In discussing this issue in dicta,
however, the majority observes that it is unclear how District of
Columbia law would treat state-mandated policy language. In fact,
NCCI, the entity that drafted the policy language, appears to be
dominated by the insurance industry. See William Hager, Data
Value Depends on Accuracy, Not `Independence', Nat'l Underwrit-
er Prop. & Cas. Risk & Benefit Mgmt. Dec. 13, 1993 (stating that,
of twenty-one seats on NCCI's board of directors, all but four are
occupied by insurance industry representatives). The question,
therefore, might be better framed as how District of Columbia law
would treat a policy whose use is mandated by law, but which was
ultimately drafted by an entity with interests closely aligned with
those of the insurer.