E-Filed Document Nov 10 2016 11:22:31 2016-CA-00359 Pages: 28 IN THE SUPREME COURT OF MISSISSIPPI CONTINENTAL CASUALTY COMPANY APPELLANT v. No. 2016-CA-00359 ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY APPELLEE COMBINED REPLY BRIEF OF APPELLANT/CROSS-APPELLEE ORAL ARGUMENT NOT REQUESTED On Appeal from the Circuit Court of Harrison County, Mississippi No. A2401-15-127 MICHAEL R. MOORE (MSB 104505) JOHN A. BANAHAN (MSB 1731) BRYAN, NELSON, SCHROEDER, CASTIGLIOLA & BANAHAN, PLLC Post Office Drawer 1529 Pascagoula, Mississippi 39568-1529 Telephone: (228) 762-6631 Facsimile: (228) 769-6392 michael@bnscb.com john@bnscb.com Attorneys for Plaintiff Appellant, Continental Casualty Company
TABLE OF CONTENTS TABLE OF CONTENTS... i TABLE OF AUTHORITIES... ii STATEMENT OF ISSUES OF APPELLANT... 1 STATEMENT OF ISSUE OF CROSS-APPELLEE... 1 STATEMENT REGARDING ORAL ARGUMENT... 1 ARGUMENT AND CITATION OF AUTHORITY... 2 I. The trial court erred in finding that Continental was not an excess insurer.... 2 A. Priority of coverage is determined by comparing the policies other insurance clauses.... 2 B. A comparison of the policies other insurance clauses shows that Continental s coverage obligations are in excess to those of Allstate.... 10 II. The trial court erred in granting summary judgment on Continental s claim for defense costs.... 12 A. Allstate owed its insured, Mr. Peters, a duty to defend.... 13 B. Allstate failed to defend Mr. Peters, thus entitling Continental to recover reasonable defense costs... 17 III. The trial court properly exercised its discretion in denying Allstate s request for sanctions.... 19 CONCLUSION... 23 CERTIFICATE OF SERVICE... 25 i
TABLE OF AUTHORITIES Cases Allstate Ins. Co. v. Chicago Ins. Co., 676 So. 2d 271 (Miss. 1996)... passim American States Ins. Co. v. Natchez Steam Laundry, 131 F.3d 551 (5th Cir. 1998)... 20 Anderson v. B.H. Acquisition, Inc., 771 So. 2d 914 (Miss. 2000)... 27 Ashley Healthcare Plan v. Dillard, 177 So. 3d 175 (Miss. 2015)... 25, 26 Blue Cross & Blue Shield, Inc. v. Larson, 485 So. 2d 1071 (Miss. 1986)... 14 Board of Educ. of Maine Tp. High School Dist. No. 207 v. International Ins. Co., 799 N.E.2d 817 (Ill. Ct. App. 2003)... 10 Cont l Cas. Co. v. Coregis Ins. Co., 213 F. Supp. 2d 673 (S.D. Miss. 2002)... 5 EMJ Corp. v. Hudson Specialty Ins. Co., 833 F.3d 544 (5th Cir. 2016)... passim Famrers Ins. Exch. v. Hartford Cas. Ins. Co., 907 F. Supp. 234 (S.D. Miss. 1995)... 13 Farmland Mutual Ins. Co. v. Scruggs, 886 So. 2d 714 (Miss. 2004)... 19 Guidant Mut. Ins. Co. v. Indemnity Ins. Co. of N. Am., 13 So. 3d 1270 (Miss. 2009)... 6, 7, 22 Hill v. General Ins. Co. of Am., 456 F. Supp. 2d 757 (N.D. Miss. 2006)... 15 International Service Ins. Co. v. Ballard, 216 So. 2d 535 (Miss. 1968)... 11, 12 Mesa Underwriters Specialty Ins. Co. v. Daffy s on the River, Inc., 2014 WL 5025850 (S.D. Miss. Oct. 8, 2014)... 19, 24 Municipality of San Juan v. Great American Ins. Co., 813 F.2d 520 (1st Cir. 1987)... 25 Pennsylvania Millers Mut. Ins. Co. v. Commerce Ins. Co., 1998 WL 92495 (Mass. Super. Ct. Feb. 23, 1998)... 18 Philadelphia Indem. Ins. Co. v. Atlantic Risk Management, Inc., 2009 WL 2783073, *10 (Conn. Super. Ct. July 30, 2009)... 17 Progressive Gulf Ins. Co. v. We Care Day Care Center, Inc., 953 So. 2d 250 (Miss. Ct. App. 2006)... 10 QBE Ins. Corp. v. McFarland, 2011 WL 3625308 (S.D. Miss. Aug. 17, 2011)... 19 Regent Ins. Co. v. Strausser Enterprises, Inc., 902 F. Supp. 2d 628 (E.D. Pa.), appeal filed (3d Cir. Nov. 6, 2012)... 17 Robichaux v. Nationwide Mut. Fire Ins. Co., 81 So. 3d 1030 (Miss. 2011)... 10 Sarnafil, Inc. v. Peerless Ins. Co., 609 N.E.2d 1234 (Mass. Ct. App. 1993)... 23 Southern Healthcare Servs., Inc. v. Lloyd s of London, 110 So. 3d 735 (Miss. 2013)... 20, 24 Southern Ins. Co. v. Affiliated FM Ins. Co., et al., 830 F.3d 337 (5th Cir. 2016)... 2, 3, 4, 13 State Farm Mut. Auto. Ins. Co. v. Allstate Ins. Co., 255 So. 2d 667 (Miss. 1971)... 18 Titan Indem. Co. v. American Justice Ins. Reciprocal, 758 So. 2d 1037 (Miss. Ct. App. 2000)... 13 Titan Indem. Co. v. Pope, 876 So. 2d 1096 (Miss. Ct. App. 2004)... 18 Travelers Indem. Co. v. Chappell, 246 So. 2d 498 (Miss. 1971)... 4, 5, 7 Travelers Property Cas. Co. of America v. Federated Rural Elec. Ins. Exchange, 2009 WL 2900027, *5 (S.D. Miss. Sept. 3, 2009)... 22 United States Fidelity and Guar. Co. of Miss. v. Martin, 998 So. 2d 956, 963 (Miss. 2008)... 21 ii
STATEMENT OF ISSUES OF APPELLANT I. Whether the trial court erred in finding that Continental Casualty Company was not an excess insurer. II. Whether the trial court erred in finding that Continental Casualty Company was not entitled to recover post-tender defense costs. STATEMENT OF ISSUE OF CROSS-APPELLEE III. Whether denying Allstate s request for Rule 11 sanctions was a proper exercise of the trial court s discretion where Allstate has not presented any evidence or authority demonstrating that Continental s claim for defense costs is frivolous or otherwise sanctionable. STATEMENT REGARDING ORAL ARGUMENT Upon reviewing the Brief of Appellee, Continental Casualty Company maintains that this appeal presents straightforward questions of law which are adequately addressed in the briefs and record. As such, Continental Casualty Company does not believe that the decisional process would be significantly aided by oral argument. Should this Court require oral argument, however, Continental Casualty Company would like to be heard. 1
ARGUMENT AND CITATION OF AUTHORITY I. The trial court erred in finding that Continental was not an excess insurer. Priority of coverage is determined by comparing the other insurance clause in the Continental policy to the other insurance clause in the Allstate policy. Allstate attempts to avoid this analysis in variety of ways; however, Mississippi law is clear that priority of coverage is resolved in this manner. Furthermore, a comparison of Allstate s pro rata clause and Continental s excess clause shows that the two clauses are distinguishable and, therefore, not mutually repugnant. In such a situation, Continental s excess clause prevails over Allstate s pro rata clause. The Court should accordingly apply the policies other insurance clauses and find that Continental s coverage obligations are in excess to those of Allstate. A. Priority of coverage is determined by comparing the policies other insurance clauses. Mississippi state and federal courts have consistently held that priority of coverage is determined by comparing two insurers other insurance clauses. While Allstate has attempted to avoid this analysis because application of the other insurance clauses renders it the sole primary insurer in this case, the Court should reject such arguments. Not applying the other insurance clauses in this case would represent a departure from established precedent and undermine insurers efforts to contract to provide certain levels of coverage. In the time since Continental and Allstate initiated this appeal, the Fifth Circuit has rendered two opinions applying Mississippi law on determining priority of coverage. The first was Southern Insurance Company v. Affiliated FM Insurance Company, et al., 830 F.3d 337 (5th Cir. 2016). In that case, two insurers, Southern and Affiliated, provided coverage for the same building for two different insureds. Id. at 340. After the building was damaged by a tornado, a dispute arose between Southern and Affiliated as to which provided primary coverage. Id. at 2
341-42. Southern, citing the two policies other insurance clauses, argued that coverage should be shared on a pro rata basis. Id. at 342. Affiliated simply maintained that Southern was the primary insurer by virtue of the fact that Southern s insured was required to obtain insurance on the building pursuant to its lease agreement. Id. In resolving the dispute between the insurers, the district court found that the other insurance clauses in the two insurers policies were mutually repugnant and accordingly applied pro rata loss apportionment. Id. at 343. Affiliated appealed this ruling. Id. Affirming the district court s decision to apply pro rata loss apportionment, the Fifth Circuit observed that the policies covered the same risk. Id. at 348. The court added, [t]he other-insurance clauses are designed to dictate priority of coverage between multiple policies. Id. Because both policies contained excess clauses, the Fifth Circuit explained that a conflict exists. Id. Quoting well-established Mississippi law, the court added, the two policies are indistinguishable in meaning and intent and the clauses must be held to be mutually repugnant and must be disregarded. Id. at 348-49 (quoting Travelers Indem. Co. v. Chappell, 246 So. 2d 498, 504 (Miss. 1971)). Because both policies other insurance clauses purported to provide excess coverage, the Fifth Circuit concluded that the insurers would share the loss on a pro rata basis. Id. at 349 (citing Allstate Ins. Co. v. Chicago Ins. Co., 676 So. 2d 271, 275 (Miss. 1996)). The Fifth Circuit addressed this issue again in EMJ Corporation v. Hudson Specialty Insurance Company, 833 F.3d 544 (5th Cir. 2016). In EMJ Corporation, Westchester insured EMJ, a general contractor constructing a building in Mississippi, under a commercial umbrella policy. Id. at 546. Pursuant to the terms of a subcontract, Contract Steel, the subcontractor, purchased a commercial umbrella policy from Hudson Insurance. Id. During the course of the construction project, an inspector fell from a ladder, sustaining serious injuries. Id. The inspector 3
filed suit against a number of defendants, all of which were dismissed except for EMJ. Id. at 547. Ultimately, EMJ settled the claim for $5 million, with its primary insurer covering $1 million and Westchester covering the remaining $4 million. Id. EMJ and Westchester subsequently filed suit against Hudson seeking reimbursement for the $4 million paid by Westchester. Id. Regarding priority of coverage, the district court determined that the $4 million should be apportioned between Westchester and Hudson based upon their policy limits. Id. On appeal, the Fifth Circuit compared the two policies other insurance clauses. Id. at 552-53. The Court first considered Westchester s argument that it was a true excess policy, while the Hudson policy was a pro rata policy. Id. at 553. As explained by the Fifth Circuit, [i]f this is correct, the pro rata policy must be fully exhausted before the excess policy has to pay. Id. (citing Cont l Cas. Co. v. Coregis Ins. Co., 213 F. Supp. 2d 673, 678 (S.D. Miss. 2002)) (emphasis added). The Fifth Circuit, however, agreed with Hudson that both policies were in fact excess policies. Id. As such, the two policies are indistinguishable in meaning and intent. Id. (quoting Chappell, 246 So. 2d at 504). Under Mississippi law, they are mutually repugnant and cancel each other out. Id. at 554. As demonstrated in Southern Insurance and EMJ Corporation, under Mississippi law, priority of coverage is determined by comparing two policies other insurance clauses. Where, as in those cases, both clauses are excess clauses, the clauses are indistinguishable and cancel each other out. Where, however, one is excess and the other is pro rata, the pro rata policy must be fully exhausted before the excess policy has to pay. Such is the situation in the case at hand. Attempting to avoid application of the policies other insurance clauses, Allstate raises a number of creative, yet flawed, arguments in its Brief of Appellee. Citing Guidant Mutual 4
Insurance Company v. Indemnity Insurance Company of North America, 13 So. 3d 1270 (Miss. 2009), Allstate argues that Continental is necessarily a primary insurer (and that resort to the policies other insurance clauses is unnecessary) because Continental insured the vehicle involved in the accident. See Brief of Appellee at 10-14. In its analysis of Guidant, Allstate wholly fails to address Guidant s discussion of the other insurance clauses at issue in that case. Guidant, like the present case, presented a situation where two insurance policies insured against the same risk: liability arising from bodily injury. The Court quoted Guidant s policy s other insurance clause, which stated, [i]f there is other applicable liability insurance we will pay only our share of the loss. Guidant, 13 So. 3d at 1276. INA s other insurance clause stated, [f]or any covered auto you don t own, the insurance provided by this Coverage Form is excess over any other collectible insurance. Id. Resolving the priority of coverage issue, the Court stated, Guidant, as the insurer of the liability insurance policy to the owner of the vehicle involved in the accident, is the primary insurer. Id. at 1277. As argued by Allstate, the Guidant Court did apply the long-held rule that the owner s policy s is primary. Id. That rule, however, is a simply a shortcut for applying the nonownership clause in the INA policy. This is evidenced by the Chappell decision, which Allstate fails to address. Explaining the origins of the long-held rule, the Mississippi Supreme Court in Chappell, described how when a non-ownership clause applies, the policy containing that clause is not other collectible insurance so as to trigger the other insurance clause in policy on the vehicle. 246 So. 2d at 505. In the case at hand, no non-ownership clause is applicable, and application of the long-held rule makes little sense. Instead, the Court should apply the other insurance clauses to determine priority of coverage. 5
The Mississippi Supreme Court in Guidant also rejected an insurer s argument that priority of coverage could be ascertained by determining the relative proximity the risk bears to the loss. 13 So. 3d at 1276. In the instant case, Allstate has denied that it is making such argument, specifically explaining that it is not arguing that the trailer played a greater role in causing the accident. See Brief of Appellee at 11. Before the trial court, however, Allstate argued that the truck, which it insured, was just sitting there and that it was [j]ust attached to the trailer and [h]ad no involvement in the accident whatsoever. (Tr. Jan. 28, 2016 26). Allstate similarly argues that Continental must be a primary insurer because Mr. Peters [was] operating the very boat that Continental insurers and an accident occurs. See Brief of Appellee at 22. Allstate further argues, the obvious conclusion to Mr. Peters, and anyone else looking at the issue neutrally, was that the policy he purchased to cover his boat would provide primary coverage to him when the boat was involved in a loss. See Brief of Appellee at 24. These types of arguments are precisely what the Guidant Court rejected when it found that priority of coverage could not be ascertained by determining the relative proximity the risk bears to the loss. 13 So. 3d at 1276. Assuming arguendo that determining priority of coverage in such a manner was appropriate, the property insured by Allstate played a greater role in causing Mr. Williams injuries than the property insured by Continental. Continental only insured the trailer for property damage. (C.P.786). In contrast, the Allstate policy states that it protects an insured person from liability for damages arising out of the ownership, maintenance or use, loading or unloading of an insured auto. (C.P.823). The definition of insured auto includes a trailer while attached to an insured auto. (C.P.819). The winch handle mounted to the trailer, which is 6
part of the insured auto, is the object which actually struck Mr. Williams in the eye. (C.P.228). Under these facts, the Allstate policy bears a closer nexus to the loss than the Continental policy. Throughout this litigation, Allstate has propagated the fallacy that Continental s policy contains primary language. At the hearing on the cross-motions for summary judgment, after reciting some of the coverage language from the Continental policy, counsel for Allstate stated, that s classic primary language. (Tr. Jan. 28, 2016 27-28). Allstate repeats this misconception in its brief when it states, [t]he Continental policy was designed and in fact issued to provide primary coverage for the boat listed on the policy. See Brief of Appellee at 10. In arguing that Coverage B in the Continental policy is ambiguous, Allstate similarly states, [a] plain reading of Coverage B clearly indicates an intent, and a logical one at that, for Continental to provide primary liability coverage for any boat listed in the declarations page. See Brief of Appellee at 16. Allstate continues, a very plain reading of Coverage B clearly indicates an intent for Continental to provide primary coverage for any boat listed in the Declarations Page. See Brief of Appellee at 18. Allstate s assertions that the Continental policy contains primary language is simply an attempt to conflate language extending coverage with priority of coverage, the latter of which is determined by comparing the policies other insurance clauses. Continental s policy, like all other insurance policies, indeed contains language extending insurance coverage in certain instances. When the terms and conditions of Continental policy are met, coverage is present. One of the policy s terms, however, is an other insurance clause which is used to determine priority of coverage. And, where two insurance policies would provide primary coverage but for the presence of the other, priority of coverage is determined by comparing the two policies 7
other insurance clauses. Allstate Ins. Co., 676 So. 2d at 275 n. 2 ( It is central to our analysis that each policy, absent the other, would have provided primary coverage. ). Allstate also argues that Continental s policy is ambiguous as to whether the other insurance clause in the General Conditions applies to Coverage B. See Brief of Appellee at 15. Allstate s proposed reading of the policy, however, is contrary to Mississippi law governing contract interpretation. Under Mississippi law, courts should read an insurance policy as a whole and should give operable effect to every provision in order to reach a reasonable overall result. Progressive Gulf Ins. Co. v. We Care Day Care Center, Inc., 953 So. 2d 250, 253 (Miss. Ct. App. 2006). The General Conditions in the Continental policy, including the other insurance clause contained therein, are obviously meant to apply generally throughout the policy. See, e.g., Board of Educ. of Maine Tp. High School Dist. No. 207 v. International Ins. Co., 799 N.E.2d 817, 827-28 (Ill. Ct. App. 2003) ( [W]e conclude that the general conditions apply to the entire contract. ). The other insurance clause in the General Conditions is an excess clause. (C.P.788). Likewise, the other insurance language in the Operating Other Boats section under Coverage B states that the Continental policy will be excess under those conditions. (C.P.784). These clauses are not inconsistent: they both provide for excess coverage. In other words, the Continental policy s other insurance language is only susceptible to one meaning. See Robichaux v. Nationwide Mut. Fire Ins. Co., 81 So. 3d 1030, 1036 (Miss. 2011) ( Ambiguity exists in an insurance contract when the policy can be interpreted as having two or more reasonable meanings. ). The Court should accordingly find that the Operating Other Boats excess language in no way renders the other insurance clause in the policy s General Conditions inapplicable to Coverage B. 8
The Court should also reject Allstate s argument that the policies other insurance clauses need not be analyzed because the two policies do not insure the same property for the same risk. See Brief of Appellee at 24. If this were a property damage claim for Mr. Peters boat or truck, Allstate s argument might have some merit. This, however, is not the case, as this case involves a claim for bodily injury. And, both insurers provide coverage for bodily injury arising from the use of their respective vehicles. Because both insurers insure against the same risk (personal liability arising from bodily injury) and because each policy would provide primary coverage absent the other, priority of coverage is determined by comparing the policies other insurance clauses. Allstate Ins. Co., 676 So. 2d at 275 n. 2 ( It is central to our analysis that each policy, absent the other, would have provided primary coverage. ). As set out in Continental s Brief of Appellant, all three of the out-of-state cases cited by Allstate in support of this flawed argument actually support Continental s position that priority of coverage is determined by comparing the policies other insurance clauses. See Brief of Appellant at 25-29. Mississippi courts take the same approach. For example, in International Service Insurance Company v. Ballard, 216 So. 2d 535, 536-37 (Miss. 1968), Mr. Helms owned a Buick insured by International and, after a wreck, he was loaned an Oldsmobile insured by Home. Mr. Helms subsequently instructed his daughter to drive the Oldsmobile to pick up another daughter from work. Id. at 536. While on her way, the daughter rear-ended another driver. Id. at 537. After a jury verdict was rendered in favor of the injured driver, a dispute arose between International and Home as to priority of coverage wherein Home argued that International was primarily liable. Id. While much of the Court s discussion centered on whether the daughter had permission to operate the Oldsmobile, the Court determined that she did and that coverage was thus present under the Home policy. Id. at 541. Turning to the issue of 9
priority of coverage, the Court examined International s other insurance clause and determined that its coverage obligations were in excess to those of Home. Id. Like Ballard, the case at hand involves two policies issued by two insurers to cover two different vehicles. While Ballard is distinguishable on the basis that the insured did not own both vehicles, the important point for the purpose of this case is that the Court resolved the priority of coverage issue by looking to the other insurance clauses. In other words, the fact that the policies in Ballard insured two different vehicles did not obviate the need to consider the policies other insurance language. The Court should accordingly find in this case that priority of coverage between Allstate and Continental is determined by comparing the policies other insurance clauses. Priority of coverage must be determined by comparing the other insurance clauses contained in the Allstate and Continental policies, and the Court should reject Allstate s attempts to avoid this analysis. Disregarding the insurers other insurance clauses in the instant case would render such language superfluous, which is contrary to Mississippi rules regarding contract interpretation. Furthermore, as set forth below, a comparison of the two other insurance clauses shows that Continental s coverage obligations are in excess to those of Allstate. B. A comparison of the policies other insurance clauses shows that Continental s coverage obligations are in excess to those of Allstate. The instant case presents the Court with a prime opportunity to explain how priority of coverage is determined where one policy contains an excess clause and the other contains a pro rata clause. The seminal Mississippi case on this issue, Allstate Insurance Company, involved two competing excess clauses. 676 So. 2d at 275 ( Both parties are, in effect, arguing that your excess exceeds my excess. ); see also Titan Indem. Co. v. American Justice Ins. Reciprocal, 758 10
So. 2d 1037, 1041 (Miss. Ct. App. 2000) (explaining that the Court in Allstate was faced with policy provisions that the court determined to be competing excess clauses. ). Likewise, the two most recent decisions from the Fifth Circuit on this issue involved competing excess clauses. See Southern Ins. Co., 830 F.3d 337; EMJ Corp., 833 F.3d 544. In all three of those cases, the rule of repugnancy applied so as to cancel out the policies competing excess clauses. Here, however, Allstate s policy contains a pro rata clause and Continental s policy contains an excess clause. In such a situation, excess insurance prevails over pro rata. Famrers Ins. Exch. v. Hartford Cas. Ins. Co., 907 F. Supp. 234, 238 (S.D. Miss. 1995); Blue Cross & Blue Shield, Inc. v. Larson, 485 So. 2d 1071, 1073 (Miss. 1986). The Court should accordingly find that Continental s indemnity obligations were not implicated until Allstate exhausted its policy limits. Allstate s argument evidences a fundamental misunderstanding of the rule of repugnancy. Allstate argues: The Allstate policy does not say that it will be the only primary policy; instead it clearly indicates that it will share in the loss on a pro rata basis with any other coverage. That is in direct conflict with the Continental other insurance clause contained in the general conditions portion of the policy which states that it will provide excess coverage only. See Brief of Appellee at 19. Despite recognizing that one policy contains a pro rata clause and the other contains an excess clause, Allstate nonetheless concludes that the rule of repugnancy applies so as to cancel out the two clauses. The Mississippi Supreme Court has explained, however, that where two other insurance clauses are indistinguishable in meaning and intent, they are mutually repugnant and must be disregarded. Allstate Ins. Co., 676 So. 2d at 273 (emphasis added). By Allstate s own admission, the two clauses at issue in this case are distinguishable: Allstate s is pro rata and Continental s is excess. Because the clauses are not within similar categories, the Court may find that the two clauses are reconcilable and apply the predominant clause. Larson, 485 So. 2d at 1072-73; see also EMJ Corp., 833 F.3d at 552-53 11
(explaining that in a situation where one clause is pro rata and the other is excess, the pro rata policy must be fully exhausted before the excess policy has to pay ). Seeking to avoid a finding that it is the sole primary insurer in this case, Allstate directs the Court to Hill v. General Insurance Company of America, 456 F. Supp. 2d 757 (N.D. Miss. 2006). In that case, the district court properly applied Mississippi law and found that a pro rata clause and escape clause were not mutually repugnant and, accordingly, enforced the escape clause. Id. at 760. The district court offered no guidance or authority concerning the appropriate case where equity might dictate another outcome. Id. While Allstate argues that the case at hand is such an appropriate case because Continental has relied on its excess clause, the district court had no problem enforcing the insurer s escape clause in Hill in an analogous situation. In the case at hand, Continental would provide sole primary coverage absent the Allstate policy, and vice-versa. Determining priority of coverage between the two carriers therefore requires application of the policies other insurance clauses. Allstate s is pro rata, and Continental s is excess. In such a situation, Continental s excess clause is given full effect because it does not constitute other collectible liability insurance as contemplated by the Allstate policy s other insurance clause. (C.P.826). Because Continental s coverage obligations are in excess to those of Allstate, the Court should find that Continental is entitled to recover from Allstate $20,000 which it overpaid towards the settlement of Mr. Williams claim. II. The trial court erred in granting summary judgment on Continental s claim for defense costs. The Court should reverse the trial court s Judgment granting summary judgment for Allstate on Continental s claim for defense costs. (R.E. 8). First, contrary to Allstate s arguments and the trial court s findings, Allstate had a duty to defend notwithstanding the fact 12
that Mr. Williams did not formally file a lawsuit against Mr. Peters. Second, viewing the evidence most favorably to Continental, Allstate did not fulfill its duty to defend. Considering the evidence in the record, the Court should render an award for post-tender/pre-mediation defense costs in the amount of $20,245.51 in favor of Continental. Due to Allstate s words and actions, Continental was forced to incur these substantial defense costs which should have been borne by Allstate as the sole primary insurer. 1 A. Allstate owed its insured, Mr. Peters, a duty to defend. Notwithstanding the absence of a liability complaint filed by Mr. Williams against Mr. Peters, Allstate had a duty to defend Mr. Peters. While Allstate claims that no duty to defend can arise in the absence of a complaint, Mississippi cases have explained that a duty to defend may arise under other circumstances. The Court should find that under the facts of this case, such a duty was present. Through its conduct, Allstate has waived any argument that it did not have a duty to defend Mr. Peters. Allstate appears to argue in its Brief of Appellee that if it did have a duty to defend, it would have hired defense counsel. See Brief of Appellee at 28, 32. Significantly, Allstate did, in fact, hire defense counsel to represent Mr. Peters at the mediation. (C.P.367). Additionally, prior to hiring independent defense counsel, Allstate s coverage counsel was apparently acting in a dual role as both coverage and defense counsel. (C.P.319, 331, 345-46, 351, 355, 358). For example, Allstate s counsel continuously requested and obtained Continental s investigative materials. (C.P.330-32, 349, 351, 355, 360, 362, 365). Counsel for Allstate also apparently interviewed the insured. (C.P.435-36). Perhaps most significantly, Allstate has represented to Continental, Allstate does not dispute that they are a primary insurer 1 As noted in Continental s Brief of Appellant, Continental on appeal merges its arguments for contribution and equitable subrogation as both seek the same damages: reasonable defense costs incurred by Continental which should have been incurred by Allstate. See Brief of Appellant at 35, n. 4. 13
with a duty to defend but it is their position that Continental is also primary. (C.P.320). Through its representations and by participating in the defense of Mr. Peters (albeit to an inadequate extent), Allstate has waived any argument and/or is estopped from arguing that it did not have a duty to defend Mr. Peters. As further evidence that Allstate is estopped from arguing that it did not have a duty to defend, Allstate has conceded that it had a duty to indemnify. 2 Where an insurer, such as Allstate, has a duty to indemnify, that insurer necessarily has a duty to defend. Regent Ins. Co. v. Strausser Enterprises, Inc., 902 F. Supp. 2d 628, 636 (E.D. Pa.), appeal filed (3d Cir. Nov. 6, 2012) ( [A] duty to indemnify cannot exist without a duty to defend. ); Philadelphia Indem. Ins. Co. v. Atlantic Risk Management, Inc., 2009 WL 2783073, *10 (Conn. Super. Ct. July 30, 2009) ( [W]here there might be a duty to indemnify, there necessarily also might be a duty to defend. ); Pennsylvania Millers Mut. Ins. Co. v. Commerce Ins. Co., 1998 WL 92495, *3 (Mass. Super. Ct. Feb. 23, 1998) ( It would be logical to assume that since the duty to defend is broader than the duty to indemnify, a breach of the duty to indemnify would necessarily mean that the duty to defend has been breached concurrently. ); see also Titan Indem. Co. v. Pope, 876 So. 2d 1096, 1101 (Miss. Ct. App. 2004) (acknowledging that, under Mississippi law, the duty to defend is broader than the duty to indemnify). Because Allstate has acknowledged that it owed a duty to indemnify, the Court should find that Allstate is estopped from arguing that it did not owe a duty to defend. 2 Nowhere in the record or its Brief of Appellee has Allstate disputed that it was responsible for at least a pro rata share of the underlying settlement. Indeed, were Allstate to argue that it had no duty to indemnify, then it would effectively concede that it was a voluntary payor in the underlying settlement and thus not entitled to the $20,884.00 awarded by the trial court. See, e.g., Travelers Property Cas. Co. of America v. Federated Rural Elec. Ins. Exchange, 2009 WL 2900027, *5 (S.D. Miss. Sept. 3, 2009) (explaining that only an insurer that had a duty to pay some portion of the settlement could recover contribution). 14
Contrary to Allstate s assertions, the Mississippi Supreme Court has never expressed a per se rule that a complaint must be filed in order to give rise to a duty to defend. While the Court has stated that the filing of a complaint triggers the duty to defend, that does not mean that a duty to defend cannot arise under other circumstances. This is evidenced by the Mississippi Supreme Court s decision in State Farm Mutual Automobile Insurance Company v. Allstate Insurance Company, 255 So. 2d 667 (Miss. 1971). While that case involved a claim for contribution for a settlement payment, as opposed to defense costs, the Court indicated that a duty to defend may arise even where a complaint is not formally filed against the insured. That is the precise issue here, as Allstate claims that no duty to defend can arise in the absence of a complaint. Because a formally filed complaint is not a necessary prerequisite to an insurer having a duty to defend, the Court should reverse the trial court s decision granting summary judgment for Allstate on Continental s claim for defense costs. In support of the proposition that a duty to defend may exist even in the absence of a formally filed complaint, Continental cited two decisions from the U.S. District Court for the Southern District of Mississippi wherein the court explained that the existence of a duty to defend could be determined even where no liability lawsuit was filed. Mesa Underwriters Specialty Ins. Co. v. Daffy s on the River, Inc., 2014 WL 5025850 (S.D. Miss. Oct. 8, 2014); QBE Ins. Corp. v. McFarland, 2011 WL 3625308 (S.D. Miss. Aug. 17, 2011). As Allstate points out in its Brief of Appellee, these cases are distinguishable from the instant case in a number of ways. Notwithstanding those distinguishing features, however, those two cases show that a court may determine whether a duty to defend exists even where a liability compliant was never filed. If the existence of a duty to defend can be determined in the absence of an 15
underlying liability complaint, then the existence of such a complaint necessarily is not a prerequisite to an insurer having a duty to defend. Similarly, Continental cited Farmland Mutual Insurance Company v. Scruggs, 886 So. 2d 714 n. 2 (Miss. 2004) for the proposition that even though the allegations of a liability complaint are not covered by the policy, a duty to defend arises when an insurer learns of true facts creating potential liability for the insured. See also American States Ins. Co. v. Natchez Steam Laundry, 131 F.3d 551, 553 (5th Cir. 1998) ( Mississippi courts impose a duty to defend upon an insurer who has knowledge, or could obtain knowledge through a reasonable investigation, of the existence of facts that trigger coverage. ); Southern Healthcare Servs., Inc. v. Lloyd s of London, 110 So. 3d 735, 749 (Miss. 2013) ( With a deductible, on the other hand, the insurer usually has a duty to defend upon receipt of notice of the claim. ). Again, while Scruggs is distinguishable from the instant case in a number of ways, it supports Continental s position here. That case and others hold that the uncovering of true facts establishing coverage, as opposed to the mechanical filing of a complaint, may give rise to the duty to defend. In light of these authorities, the Court should reject Allstate s argument that only the filing of a liability complaint triggers the duty to defend. The language of Allstate s policy also indicates that Allstate had a duty to defend the claim asserted by Mr. Williams against Mr. Peters. The policy states, [a]n insured person must cooperate with us in the investigation, settlement and defense of any claim or lawsuit. (C.P.821). This language suggests that Allstate has agreed to provide a defense for any claim or lawsuit. At the very least, the policy is ambiguous as to whether Allstate owes such a duty. 3 3 Another provision of the policy contradictorily states, [w]e will defend an insured person sued as a result of a covered accident involving an insured auto. We will choose the counsel. We may settle any claim or suit if we believe it is proper. We will not defend an insured person sued for damages arising out of bodily injury or property damage which are not covered by this policy. (C.P.823). 16
And, such ambiguity should be construed against Allstate. United States Fidelity and Guar. Co. of Miss. v. Martin, 998 So. 2d 956, 963 (Miss. 2008) ( If a contract contains ambiguous or unclear language, then ambiguities must be resolved in favor of the non-drafting party. ). Once Continental tendered defense of the claim against Mr. Peters to Allstate, Allstate, as the sole primary insurer, owed a duty to defend Mr. Peters. As shown in the cases cited above, the fact that Mr. Williams did not formally file a complaint against Mr. Peters does not absolve Allstate of this duty. Mr. Williams was seriously injured, retained an attorney to represent him in his claim against Mr. Peters, made at least one settlement demand to the insurers, and ultimately pursued the claim to a mediation award. (C.P.238, 370). Under these circumstances, the Court should find that Allstate owed a duty to defend Mr. Peters. B. Allstate failed to defend Mr. Peters, thus entitling Continental to recover reasonable defense costs. The record shows that Allstate had a duty to defend Mr. Peters and failed to do so, thus entitling Continental to recover reasonable defense costs incurred in providing Mr. Peters a defense. Between the time Continental tendered the defense to Allstate and the conclusion of the mediation, Continental incurred $20,245.51 in defense costs. (C.P.14, 74-95). Prior to the mediation, Mr. Williams demanded $1,285,000.00 in damages from the insurers (C.P.325); however, the case settled for the much lower sum of $460,000 largely due to Continental s defense efforts (C.P.374). Because Continental was forced to incur substantial defense costs which should have been incurred by Allstate (as sole primary insurer), the Court should reverse the trial court s order dismissing Continental s claim for defense costs and render a judgment in favor of Continental in the amount of $20,245.51. Allstate claims that because it did not explicitly refuse to defend Mr. Peters, it is not liable to Continental for defense costs. See Brief of Appellee at 29. Allstate, however, has not 17
cited any Mississippi cases requiring such an explicit refusal, nor has Allstate identified any cases defining what conduct constitutes such a refusal. The case relied upon Allstate, Guidant Mutual, does not state that a refusal must be explicit, nor does it state that a refusal to defend cannot be inferred from a primary insurer s conduct. 13 So. 3d 1270. Indeed, a rule requiring such an explicit refusal would make little sense, as insurers would be incentivized to ignore tenders and thereby avoid liability for defense costs. Allstate appears to assert, incorrectly, that Continental voluntarily incurred defense costs in this case. Allstate argues, [i]f Continental, as the alleged excess carrier, was unhappy with the way that Allstate was handling the investigation and chose to do it a different way, that is fine but it creates no cause of action against Allstate for those costs and expenses. See Brief of Appellee at 29; see also Brief of Appellee at 38 ( [A]ny defense costs incurred by Continental were of their own choosing and for their own reasons, and not the responsibility of Allstate. ). To the extent Allstate contends that Continental voluntarily incurred defense costs, that contention is simply incorrect. See, e.g., Travelers Property Cas. Co. of America v. Federated Rural Elec. Ins. Exchange, 2009 WL 2900027, *5 (S.D. Miss. Sept. 3, 2009) (explaining that insurer which was contractually obligated to defend could recover defense costs and was not a volunteer ). Continental was under a duty to defend Mr. Peters when it first received the claim, and that duty continued when Allstate did not accept the defense tender. On or about August 26, 2013, Mr. Peters made a claim to Continental. (C.P.209). Continental immediately began defending Mr. Peters pursuant to its obligations under the policy. Sometime in November 2013, Mr. Peters also submitted a claim to Allstate. (C.P.287). Around that time, Continental obtained copies of both policies and determined that Continental s coverage obligations were in excess to those of Allstate. (C.P.288). Continental accordingly 18
tendered the defense of the claim to Allstate. (C.P.289). At that time, Allstate could have accepted the tender of defense. Instead, Allstate denied that it was the sole primary insurer (C.P.294-95) and, at one point, asserted that it was in fact an excess insurer 4 (C.P.308). Because Continental, as excess carrier, was wrongfully forced to incur substantial defense costs which should have been incurred by Allstate, Continental should be permitted to recover those costs. The cases cited by Continental in the Brief of Appellant illustrate the common sense approach that an insurer s refusal to defend can be inferred from its words and actions. See, e.g., Sarnafil, Inc. v. Peerless Ins. Co., 609 N.E.2d 1234 (Mass. Ct. App. 1993) (holding that insurer s delay in responding to coverage questions and changing positions created fact question as to whether insurer denied coverage). In the case at hand, Allstate took conflicting coverage positions, indicated that it would not defend Mr. Peters unless a lawsuit was filed, and conducted virtually no investigation. Viewing the facts most favorably to Continental, such conduct constitutes a failure, or refusal, to defend. Because Allstate, as sole primary insurer, failed to provide a defense, Continental, as excess insurer, should be permitted to recover $20,245.51 in post-tender/pre-mediation defense costs incurred defending Mr. Peters. III. The trial court properly exercised its discretion in denying Allstate s request for sanctions. As set forth herein and in Continental s Brief of Appellant, Continental s claim for defense costs is supported by both fact and law. Allstate has not cited a single Mississippi case where a court denied an excess insurer s claim for defense costs on the basis that an underlying liability complaint was not filed. Likewise, Allstate has not cited a single Mississippi case where a court denied an excess insurer s claim for defense costs on the basis that the primary insurer 4 Allstate claims that this representation was very quickly clarified. See Brief of Appellee at 30. Allstate made the representation that it provided excess coverage on February 11, 2014. (C.P.308). Although Allstate mentioned pro rata allocation on a few instances afterwards, it appears from the record that the next time Allstate clarified its position that the insurers were co-primary was on May 8, 2014. (C.P.320). 19
did not explicitly refuse to defend the insured. Because Continental s claim for defense costs is not a claim on which it has no hope of prevailing, the Court should affirm the trial court s decision denying Allstate s request for sanctions. Throughout the course of this litigation, Continental has cited a number of cases indicating that an underlying complaint and explicit refusal to defend are not absolute requirements for a claim for defense costs. For example, in Southern Healthcare, the Mississippi Supreme Court explained that with insurance policies with a deductible, the insurer usually has a duty to defend upon receipt of notice of the claim. 110 So. 3d at 749. While that is not the situation here, this is merely one example of how a duty to defend may arise in the absence of liability complaint. As another example, in Mesa Underwriters, the district court explained that the existence of a duty to defend could be determined notwithstanding the fact that a complaint had not been filed. 2014 WL 5025850 at *2. Again, while this case is distinguishable in a number of ways as pointed out by Allstate, the point here is that the existence of a duty to defend is not necessarily contingent on the presence of liability complaint. With respect to Allstate s refusal to defend, courts throughout the country have found that an insurer s refusal to defend can be inferred from its conduct. See, e.g., Municipality of San Juan v. Great American Ins. Co., 813 F.2d 520 (1st Cir. 1987) (determining that insurer s conduct in not notifying insured of insurer s willingness to defend amounted to a refusal to defend, thus entitling the insured to defense costs). Allstate has not provided any authority indicating that Mississippi courts would not take this approach, nor has Allstate explained why Mississippi courts should not take this approach. As explained previously, requiring such an explicit refusal from insurers would have negative consequences. 20
Allstate relies exclusively on Ashley Healthcare Plan v. Dillard, 177 So. 3d 175 (Miss. 2015) in support of its claim for sanctions. In Dillard, a minor child was injured in a car wreck. Id. at 178. The minor s parents negotiated settlements on behalf of the minor and sought approval thereof in chancery court. Id. Because the father s health insurer previously paid for the minor s medical treatment and was seeking subrogation, the minor s parents served a summons on the insurer. Id. The insurer removed the action, asserting that the claim against it falls within the scope of ERISA s civil enforcement statute and is completely preempted and is therefore removable. Id. at 179 (punctuation omitted). Nearly two years later, the district court remanded the case, holding that the administration of a minor s estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA. Id. Upon remand, the minor s parents sought attorneys fees, alleging that the insurer s removal of the case was frivolous and done for the purpose of delay. Id. at 179-80. The chancery court awarded the parents attorneys fees, and the Mississippi Supreme Court affirmed. Id. at 180. Discussing the merits of the insurer s decision to remove, the Mississippi Supreme Court considered whether ERISA preempted Mississippi Code Section 93-13-59. Id. If ERISA did preempt the Mississippi statute, then the insurer would have had substantial justification for its decision to remove. Id. The Mississippi Supreme Court agreed with the chancellor, however, that three Mississippi district court cases expressly found that ERISA does not preempt the Mississippi statute. Id. at 187. Because authorities directly on point supported the chancellor s decision to impose sanctions, the Mississippi Supreme Court concluded that the chancellor did not abuse its discretion in imposing such sanctions. Id. at 189. 21
In contrast to Dillion where there were three cases expressly rejecting the insurer s preemption argument, no Mississippi case identified by either party in this matter holds that a duty to defend cannot arise where a complaint has not been filed. Continental does not dispute that the filing of a complaint can trigger the duty to defend; rather, Continental submits that the duty to defend may arise in other circumstances as well (and that such circumstances are present in this case). Unlike Dillion where the insurer s preemption argument had been previously addressed and rejected, no Mississippi case located by either party here has rejected an argument that a duty to defend can arise in the absence of a complaint. Likewise, no Mississippi case identified by Allstate has held that an insurer s refusal to defend cannot be inferred from its conduct. In contrast, a number of cases in Dillion specifically rejected the insurer s argument there. If a Mississippi case existed which held that an insurer s refusal to defend cannot be inferred from its conduct, the Dillion decision may be applicable; however, that is not the case. Because no Mississippi cases cited by either party foreclose Continental s claim for defense costs, the instant case is less like Dillion and more like Anderson v. B.H. Acquisition, Inc., 771 So. 2d 914 (Miss. 2000). As set out more fully in Continental s Brief of Appellant, the plaintiff s arguments in Anderson were ultimately found to be unsupported by Mississippi law. Id. at 920. Nonetheless, [c]onsidering the absence of Mississippi law on point on the issue, the Court concluded that the plaintiff had substantial justification to assert her claim. Id. at 922. Similarly, no Mississippi case identified by either party holds that an insurer s duty to defend can only arise when a complaint is filed. And, no Mississippi case identified by either party holds that an insurer s refusal to defend cannot be inferred from the insurer s conduct. As in Anderson where no existing authorities precluded the plaintiff s arguments, the Court should 22
find that no existing authorities preclude Continental s arguments here. Furthermore, considering the arguments set forth herein and in Continental s Brief of Appellant, the Court should find that Continental s arguments are, in fact, meritorious. The Court should further find, therefore, that the trial court did not abuse its discretion in denying Allstate s request for sanctions. CONCLUSION Under Mississippi law, priority of coverage between two insurers is determined by comparing the other insurance clauses in the respective policies. Where, as here, one policy contains a pro rata clause and the other contains an excess clause, the clauses are distinguishable and not mutually repugnant. In such a situation, the excess clause should be given full effect because it does not constitute other collectible insurance within the meaning of the pro rata clause. This is precisely the situation in this case, as Allstate s policy contains a pro rata clause and Continental s contains an excess clause. Pursuant to Mississippi law, therefore, Continental s excess clause should be given full effect. Stated differently, the Court should find that Continental s coverage obligations are in excess to those of Allstate. And, because Continental s coverage obligations are in excess to those of Allstate, Continental is entitled to recover from Allstate $20,000 which Continental overpaid towards the settlement of Mr. Williams claim. Allstate, as the sole primary insurer, had a duty to defend Mr. Peters and failed to fulfill that duty. As a result, Continental, as the excess insurer, was forced to incur substantial defense costs which should have been incurred by Allstate. Mississippi law provides that in such a situation, Continental is entitled such reasonable defense costs from Allstate. The Court should 23