WRIGHT-RYAN CONSTRUCTION, INC. and ACADIA INSURANCE COMPANY v. Aig Insurance Company of Canada

United States Court of Appeals
For the First Circuit
No. 10-1096
WRIGHT-RYAN CONSTRUCTION, INC. and ACADIA INSURANCE COMPANY,
Plaintiffs, Appellants,
v.
AIG INSURANCE COMPANY OF CANADA,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge,
and Hon. John H. Rich III, U.S. Magistrate Judge]
Before
Torruella, Ripple, and Lipez, Circuit Judges. *
John S. Whitman, with whom Richardson, Whitman, Large & Badger
was on brief, for appellants.
Jeffrey T. Edwards, with whom Preti, Flaherty, Beliveau &
Pachios, LLP was on brief, for appellee.
July 27, 2011
Of the Seventh Circuit, sitting by designation. *

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LIPEZ, Circuit Judge. This appeal requires us to
determine which of two commercial general liability (CGL) insurance
policies should be considered "primary" for coverage of a claim
arising from an accident at a construction site in Portland, Maine.
At the time of the subject claim, Wright-Ryan Construction, Inc.
(Wright-Ryan) was insured under its own CGL insurance policy,
issued by Acadia Insurance Company (Acadia), and appeared as an
"Additional Insured" on a subcontractor's CGL policy, issued by AIG
Commercial Insurance of Canada (AIG). Wright-Ryan and Acadia filed
a complaint for a declaratory judgment that AIG was obligated to
defend Wright-Ryan and for compensation of costs incurred by Acadia
in Wright-Ryan's defense. On cross-motions for summary judgment,
the district court granted judgment in AIG's favor, holding that
Acadia's CGL policy provided primary coverage for the accident
claim, with the AIG policy affording solely excess coverage.
Appealing from this grant of summary judgment, Wright-
Ryan and Acadia contend that the district court erred as a matter
of law in its interpretation of the "Other Insurance" clauses of
the two CGL policies, which govern priority of coverage between
overlapping insurance policies. According to plaintiffs, a proper
reading of these "Other Insurance" clauses dictates that the AIG
policy be deemed primary. We agree and therefore reverse.
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I.
The salient details of this insurance dispute are
uncontested. Wright-Ryan, a Maine construction company, was hired
by the University of Southern Maine as the general contractor for
the construction of a building known as University Commons.
Wright-Ryan in turn subcontracted with the Canadian company Norgate
Metal, Inc. (Norgate) for the fabrication and erection of
structural steel for the project. Although Wright-Ryan had its own
CGL insurance policy, Wright-Ryan required Norgate, as a condition
of the subcontract, to obtain CGL insurance for the University
Commons project in the amount of $2 million and name Wright-Ryan as
an additional insured on the policy. Norgate procured the
requisite coverage through AIG, which issued a certificate of 1
liability insurance to Wright-Ryan and the University of Southern
Maine naming them "Additional Insureds" to Norgate's policy,
providing insurance coverage on a primary and non-contributory
basis for all liability "arising out of [Norgate's] premises or
operations."
In August 2007, Thomas Behrens, an employee of a company
hired by Norgate to assist with the erection of structural steel,
tripped while dismounting from a ladder at the construction site
To avoid confusion and as a matter of convenience, we refer 1
to Norgate's insurer as AIG throughout the opinion. This shorthand
obscures the fact that the CGL policy at issue was initially
purchased from Commerce & Industry Insurance Company of Canada,
whom AIG subsequently succeeded in interest.
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and fell through an unguarded stair opening. Behrens fell four
stories and landed on wet pavement at ground level, suffering
serious injuries. A little over six months later, Behrens filed
suit against Wright-Ryan in Maine's Superior Court for negligence
in connection with the accident. Norgate and Behrens's employer
were joined as defendants in a later amended complaint.
Upon receipt of the complaint, Wright-Ryan sent a letter
to Norgate and AIG tendering to them the defense of the Behrens
suit under Norgate's CGL policy. With no response forthcoming from
either AIG or Norgate, Wright-Ryan's CGL carrier, Acadia, assumed
responsibility for the company's defense. Acadia succeeded in
settling the suit against all three defendants for $150,000 in
2009.
Wright-Ryan and Acadia filed a complaint for declaratory
judgment against AIG in late 2008 in the federal court for the
District of Maine, seeking a declaration that AIG was obligated to
defend Wright-Ryan in the Behrens lawsuit. Following settlement of
the Behrens lawsuit, Wright-Ryan and Acadia amended their complaint
to seek reimbursement for the $150,000 settlement payment and over
$40,000 of attorney's fees incurred in Wright-Ryan's defense.
The parties each moved for summary judgment, and the
matter was submitted to a magistrate judge for review. The
magistrate judge's recommended decision reached two key
conclusions. First, it concluded that Behrens's accident arose out
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of Norgate's "premises or operations," and thus Wright-Ryan was
entitled to coverage under Norgate's AIG policy. Second, it
concluded that the AIG policy was excess to Wright-Ryan's Acadia
policy for purposes of the Behrens claim. Because the amount
expended to defend and settle the Behrens suit was well within the
limits of the Acadia policy -- which the magistrate judge concluded
to be primary coverage for the Behrens claim -- the magistrate
judge recommended that AIG's motion for summary judgment be
granted. Adopting the magistrate judge's recommended decision in
its entirety, the district court judge entered judgment against
Acadia and Wright-Ryan.
This timely appeal followed.
II.
The issue in this appeal is straightforward. AIG has not
challenged the district court's holding that Wright-Ryan is
entitled to coverage for the Behrens claim under its policy. The
sole and determinative question is whether the district court
correctly held Wright-Ryan's Acadia CGL policy to be primary and
the AIG policy excess. Reviewing the court's legal construction of
the insurance contracts de novo, see Penn-Am. Ins. Co. v. Lavigne,
617 F.3d 82, 84 (1st Cir. 2010), we arrive at the opposite
conclusion.
Under Maine law, which the parties agree governs the
interpretation of the insurance policies here, the "paramount
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principle in the construction of contracts is to give effect to the
intention of the parties as gathered from the language of the
agreement viewed in the light of all the circumstances under which
it was made." Greenly v. Mariner Mgmt. Group, Inc., 192 F.3d 22,
26 (1st Cir. 1999) (quoting Whit Shaw Assocs. v. Wardwell, 494 A.2d
1385, 1387 (Me. 1985)) (internal quotation marks omitted).
Unambiguous provisions in insurance contracts, as with any other
contract, must be interpreted as written, "giving force to their
plain meaning." Id. (citing Jack v. Tracy, 722 A.2d 869, 871 (Me.
1999)). The mere fact of a dispute over the meaning of a
particular provision does not render that provision ambiguous; it
will be so deemed only when an ordinary person would not understand
that the provision has a single accepted meaning. Id.
To untangle the priority of the Acadia and AIG policies,
we focus on a provision entitled "Other Insurance," present in near
identical form in both contracts. These provisions are not unique
to the insurance contracts at issue here. "Other Insurance"
provisions are a standard element of liability insurance policies,
intended to govern the relationship between and obligations of
insurers whose policies provide overlapping coverage for the same
claim or loss. See 15 Lee R. Russ & Thomas F. Segalla, Couch on
Insurance § 219:1 (3d ed. 2011). There is just such an overlap
here. Wright-Ryan has coverage for the Behrens claim under both
the Acadia policy and the AIG policy. Wright-Ryan is a party to
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and appears as the Named Insured on the Acadia policy, and, while
not a party to the AIG policy, Wright-Ryan has been added as an
"Additional Insured" to that policy for all liability "arising out
of [Norgate's] premises or operations." Thus, we look to the
policies' "Other Insurance" provisions to determine which of these
coverages is primary.
"Other Insurance" provisions typically take one of three
forms: an "escape" clause, which completely denies coverage when
other insurance is available; a "pro rata" clause, which operates
to share coverage of a claimed loss with other available insurance
policies; or an "excess" clause, which extends coverage for a claim
only when other insurance available for the claim has been
exhausted. See Home Ins. Co. v. St. Paul Fire & Marine Ins. Co.,
229 F.3d 56, 61 (1st Cir. 2000). The provisions at issue here are
of the third, "excess" variety. The relevant portions of the two
provisions read as follows:
a. Primary Insurance
This insurance is primary except when b.,
below, applies. . . .
b. Excess Insurance
This insurance is excess over:
(1) Any of the other insurance, whether
primary, excess, contingent, or on any other
basis . . . (a) That is . . . coverage for
"your work"; . . .
(2) Any other primary insurance
available to you covering liability for
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damages arising out of the premises or
operations for which you have been added as an
additional insured by attachment of an
endorsement.
When this insurance is excess, we will have no
duty . . . to defend the insured against any
"suit" if any other insurer has a duty to
defend the insured against that "suit".
The above language renders the policies excess in two situations:
(1) where there exists another insurance policy covering "your
work," a term defined in both the AIG and Acadia policies as
"[w]ork or operations performed by you or on your behalf"; and (2)
where there exists another liability insurance policy for the
premises or operations that is "available to you" and on which "you
have been added as an additional insured." Inescapably, the key to
interpreting and applying these provisions is the definition of
"you."
The parties have given us two choices of definition, each
of which produces a different answer to the priority inquiry.
Appellants Wright-Ryan and Acadia argue that "you" means only the
"Named Insured" identified in each policy. Read in this manner,
the terms of the policies produce complementary results: the Acadia
policy indicates that its coverage must be excess to AIG's, and the
AIG policy that its coverage is primary.
Not surprisingly, appellee AIG rejects this reading. It
champions instead a broader definition of "you" adopted by the
district court, which equates "you" with the Named Insured as well
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as any Additional Insureds added to the respective policies. AIG
appears to argue, as it did before the district court, that this
coverage dispute can be resolved merely by plugging the definition
of "you" it advocates into the AIG policy, which, thus interpreted,
provides that its coverage must be excess to the Acadia policy.2
To resolve this definitional dispute, we begin with the
plain language of the policies. See Bristol W. Ins. Co. v.
Wawanesa Mut. Ins. Co., 570 F.3d 461, 463 (1st Cir. 2009). The
very first page of each policy states, "Throughout this policy the
words 'you' and 'your' refer to the Named Insured shown in the
Declarations, and any other person or organization qualifying as a
Named Insured under this policy." Turning to the Declarations page
of the AIG policy, we find the Named Insured prominently
identified, under the header "Item 1. Named Insured and Address,"
as Norgate Metal Inc. No other individual or entity is listed.
In reality, this is an incomplete argument. Under AIG's 2
proposed interpretation of "you," the Acadia policy would also
indicate that its coverage must be construed as excess to AIG's.
AIG's reading therefore results in direct conflict between the
terms of the two policies, as each policy's "Other Insurance"
clause is triggered and requires that its policy be treated as
excess over the other. To avoid this sort of "logical logjam,"
well-established Maine law instructs that the conflicting "Other
Insurance" clauses be disregarded as mutually repugnant. See
Carriers Ins. Co. v. Am. Policyholders' Ins. Co., 404 A.2d 216, 220
(Me. 1979). A finding of mutual repugnancy would typically result
in the two insurers sharing coverage of the claimed loss pro-rata.
See Carriers, 404 A.2d at 220. However, the appellant did not
argue for mutual repugnancy and request proration below, and thus
the district court's grant of summary judgment left AIG with no
obligation to contribute to the Behrens settlement and costs of
Wright-Ryan's defense.
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Likewise, the Acadia policy's Declarations identify only Wright-
Ryan Construction, Inc. and Wright-Ryan Real Estate LLC (an
associated entity with no relation to this lawsuit) as the Named
Insureds.
The Declarations pages do not themselves define the class
of other "person[s] or organization[s] qualifying as a Named
Insured" who are not specifically listed in the policies'
Declarations. That task is left to Section II of each policy,
descriptively titled "WHO IS AN INSURED." Appearing in near
identical form in the two policies, Section II provides a roadmap
to the insurance coverage extended automatically to various
individuals and entities not expressly listed in the respective
policies' Declarations and Endorsements. For example, both
policies provide that the executive officers, directors, and
employees of a Named Insured company automatically qualify as
"insureds," though with certain limitations on the scope of their
coverage. Relevant to the question here, both policies also
specify that "[a]ny organization you newly acquire or form, . . .
and over which you maintain ownership or majority interest, will
qualify as a Named Insured if there is no other similar insurance
available to that organization." Section II identifies no other
persons or entities who may qualify as a Named Insured, nor is
there mention of others so qualifying anywhere else throughout the
policies.
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Reading these provisions together, we find the definition
of "you" to be unambiguous: it refers solely to a person or
organization listed as a Named Insured in the policy Declarations
or "qualifying as Named Insured" by virtue of being newly formed or
acquired by a Named Insured. Where, as here, "a term is expressly
defined within the four corners of an insurance policy, an
inquiring court must defer to that definition and thereby give
effect to the intent of the parties." Med. Mut. Ins. Co. of Me. v.
Indian Harbor Ins. Co., 583 F.3d 57, 60 (1st Cir. 2009).
The parties have not disclosed the existence of any newly
formed or acquired organizations that might qualify as Named
Insured under the above provision; we must therefore conclude that
the term "you" means solely Norgate in the AIG policy and Wright-
Ryan in the Acadia policy. A substitution of Wright-Ryan and
Norgate for "you" in their respective policies readily establishes
the priority of coverage between the two. With the substitution,
the pertinent section of the Acadia policy reads as follows:
This insurance is excess over:
(2) Any other primary insurance
available to [Wright-Ryan] covering liability
for damages arising out of the premises or
operations for which [Wright-Ryan has] been
added as an additional insured by attachment
of an endorsement.
As Wright-Ryan has primary insurance under the AIG policy for
liability arising out of Norgate's work at the University Commons
site, having been added as an Additional Insured on the AIG policy
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by means of an endorsement, the above provision clearly applies.
The Acadia policy thus requires that it be treated as excess over
the AIG policy.
Making the corresponding substitution of Norgate for
"you" in the AIG policy, a different result obtains:
This insurance is excess over:
(2) Any other primary insurance
available to [Norgate] covering liability for
damages arising out of the premises or
operations for which [Norgate has] been added
as an additional insured by attachment of an
endorsement.
On the record before us, this provision has no application: Norgate
is not an additional insured on the Acadia policy. Moreover, the
AIG policy unambiguously states that "[t]his insurance is primary
except when" the excess coverage provisions, including the above,
apply. Reading the two policies together, then, the AIG policy
must be treated as primary and the Acadia policy as excess.
Because we consider the operative language of the
insurance contracts here to be unambiguous, resort to extrinsic
evidence of the parties' intentions is wholly unnecessary. Cf.
Pine Ridge Realty, Inc. v. Mass. Bay Ins. Co., 752 A.2d 595, 601
n.11 (Me. 2000) (noting that extrinsic evidence may considered
where language of insurance contract is ambiguous). Nonetheless,
we note that our interpretation is consistent with the design
manifest in the parties' course of dealing. Wright-Ryan required
as a condition of its subcontract with Norgate that Norgate procure
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CGL insurance and name Wright-Ryan an additional insured on the
policy. Wright-Ryan, of course, already had its own CGL insurance
policy through Acadia; the only plausible explanation for the
subcontract's insurance requirement would be the desire to shift
the risk to Norgate for liability arising out of Norgate's
subcontract work for Wright-Ryan, ensuring that claims related to
that work were paid out of Norgate's CGL insurance before Wright-
Ryan's was reached. This arrangement and the risk-shifting
motivation underlying it appear to be typical of subcontracting
relationships:
Contracting parties that have required insured
status [under an additional insured
endorsement] will want the endorsed policy to
respond to their losses on a primary basis,
leaving their own general liability insurance
limits untouched (or called upon only as
excess coverage).
. . . .
[T]he CGL policy makes special provisions for
coordinating coverages available to these
"endorsed" additional insureds, reflecting the
risk transfer intentions that the named and
additional insureds will have -- that is, that
additional insured coverage will pay first,
before the additional insured['s] . . . own
CGL policy is called upon to pay.
W. Jeffrey Woodward et al., Commercial Liability Insurance §
VI.H.1, 14 (2009). By giving effect to the Acadia "Other
Insurance" clause and finding the AIG policy primary, we have no
doubt that we are properly effectuating the intent of the parties.
See Greenly, 192 F.3d at 26.
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III.
Because the district court's construction of the
insurance contracts here differs so sharply from our own, we
briefly address the basis for its decision. The district court
relied for its rationale almost exclusively on our decision in
Wyner v. North American Specialty Insurance Co., 78 F.3d 752 (1st
Cir. 1996), another case in which we had occasion to construe the
term "you" in the context of an insurance policy. There, applying
Massachusetts law to interpret a provision excluding coverage for
property "you own, rent or occupy," we held "you" to include not
just the "Named Insured" but also anyone constituting an
"Additional Insured." Id. at 755-56. Because the language
defining "you" in the Acadia and AIG policies is apparently
identical to the policy language in Wyner, the district court felt,
not surprisingly, that our reading in Wyner controlled the
interpretation here.
The relative ease of the interpretive question before us,
along with corroborative, extrinsic evidence of the parties'
intent, presents us with no pressing need to look to authority
interpreting other contracts. If we were to seek such guidance,
though, Wyner is neither the sole nor most relevant authority on
the point. Decisions interpreting the use of "you" and
distinguishing between the "Named Insured" and "Additional Insured"
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are common, due to the ubiquitous use of those terms in insurance
policies:
Insurance carriers often employ the terms
"you" and "your" throughout the language of a
policy. These terms are typically defined as
referring to the named insured shown in the
declarations of the policy, and any other
person or organization qualifying as a named
insured under the policy. Accordingly, "you"
and "your" do[] not encompass individuals or
entities added as an additional insured to the
policy.
3 Russ & Segalla, supra, § 40:26 (footnote omitted). The
mainstream of opinions interpreting this or similar definitions has
held "you" to be unambiguous and to refer solely to the individual
or organization identified as the "Named Insured" in the policy
Declarations. See, e.g., Nat'l Union Fire Ins. Co. v. Liberty Mut.
Ins. Co., 234 F. App'x 190, 193 (5th Cir. 2007) (taking "as a
given" that, under definition of "you" identical to the definition
here, "you" was limited to the named insured and did not encompass
an additional insured); Alexander v. Nat'l Fire Ins., 454 F.3d 214,
226-27 (3d Cir. 2006) (same); Seaco Ins. Co. v. Davis-Irish, 300
F.3d 84, 86 (1st Cir. 2002) (holding that definition of "you" was
unambiguous and referred only to named insured).
Numerous factors counsel against looking to Wyner for aid
in interpreting the language here, among them its focus on a
different type of insurance provision (an exclusionary provision),3
Specifically, the provision at issue in Wyner excluded 3
coverage for property "you own, rent or occupy." 78 F.3d at 755.
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the dissimilarity of the parties and their contracting intentions
(there, the policy was formed to provide coverage for a tenant and
its landlord), and the rather idiosyncratic posture of the case.4
Indeed, a closer fit can be found in at least two other cases from
this circuit that have interpreted "you" and "your" in the precise
factual setting here: CGL policies obtained by a subcontractor as
a condition of work for a general contractor on a construction
project. See Nat'l Union Fire Ins. Co. v. Lumbermens Mut. Cas.
Co., 385 F.3d 47, 50 (1st Cir. 2004) (interpreting "your work" to
refer to Named Insured subcontractor's work for Additional Insured
general contractor); Merchants Ins. Co. v. U.S. Fid. & Guar. Co.,
143 F.3d 5, 7 (1st Cir. 1998) (stating that it was "clear indeed"
that "you" referred to Named Insured subcontractor). If we had any
doubt about the proper interpretation of the language here, we
might also find more helpful guidance in cases from other
jurisdictions interpreting "you" in the context of an "Other
Insurance" provision, as here. See, e.g., Alexander, 454 F.3d at
226-27 (holding, in interpreting "Other Insurance" provision, that
"you" means only "Named Insured," and noting that the fact "[t]hat
The typical CGL case involves a third party suing an insured 4
for injury or property damage; this is precisely what CGL insurance
policies are meant to cover. Wyner did not fit the typical mold,
but involved instead a suit by an insured against its own CGL
policy for damage to property it owned, requiring that we consider
whether the CGL policy at issue could be read to cover damage
suffered by the insured.
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someone may be an additional insured does not mean they are a Named
Insured -- the two terms are not interchangeable").
Given the weight of the authority interpreting a CGL
policy's use of the defined term "you" in circumstances similar to
ours to mean solely the Named Insured, we see no reason to apply
the interpretation adopted -- on very different facts -- in Wyner.
IV.
Upon careful review, we conclude that the plain language
of the policies at issue here requires the Acadia policy to be
treated as excess over the AIG policy. We therefore reverse the
judgment of the district court.
So ordered.
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