St. Paul Fire & Marine Insurance Company v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, No. 02-2360 

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 ST. PAUL FIRE & MARINE INSURANCE
COMPANY,
Plaintiff-Appellant,
v.
AMERICAN INTERNATIONAL SPECIALTY
LINES INSURANCE COMPANY, No. 02-2360 
Defendant-Appellee,
and
TIG INSURANCE COMPANY; CNA
CASUALTY COMPANY OF CALIFORNIA,
Defendants. 
 ST. PAUL FIRE & MARINE INSURANCE
COMPANY,
Plaintiff,
v.
TIG INSURANCE COMPANY,
Defendant-Appellant,
and No. 02-2361 
AMERICAN INTERNATIONAL SPECIALTY
LINES INSURANCE COMPANY,
Defendant-Appellee,
and
CNA CASUALTY COMPANY OF
CALIFORNIA,
Defendant. 

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Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, Chief District Judge.
(CA-02-29-A)
Argued: January 22, 2004
Decided: April 9, 2004
Before WILKINSON, LUTTIG, and TRAXLER, Circuit Judges.
Reversed and remanded by published opinion. Judge Luttig wrote the
opinion, in which Judge Wilkinson and Judge Traxler joined.
COUNSEL
ARGUED: Thomas Sykes Schaufelberger, WRIGHT, ROBINSON,
OSTHIMER & TATUM, Washington, D.C., for TIG Insurance Com-
pany. Elizabeth Stanulis Skilling, HARMAN, CLAYTOR, CORRI-
GAN & WELLMAN, Richmond, Virginia, for St. Paul Fire & Marine
Insurance Company. Robert N. Kelly, JACKSON & CAMPBELL,
P.C., Washington, D.C., for Appellee. ON BRIEF: Paul A. Fitzsim-
mons, WRIGHT, ROBINSON, OSTHIMER & TATUM, Washing-
ton, D.C., for TIG Insurance Company. John M. Claytor, HARMAN,
CLAYTOR, CORRIGAN & WELLMAN, Richmond, Virginia, for
St. Paul Fire & Marine Insurance Company. John R. Casciano,
JACKSON & CAMPBELL, P.C., Washington, D.C., for Appellee.
OPINION
LUTTIG, Circuit Judge:
The instant appeal arises from the settlement of a tort action
brought by Terrence Merritt against, inter alia, the owner and the
operator of a Virginia resort. Merritt’s lawsuit sought damages for an
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alleged food poisoning he suffered while at the resort. The defendants
agreed to settle the action for $4 million, $3 million of which was
funded through an interim agreement between three insurance compa-
nies: St. Paul Fire and Marine Insurance Company ("St. Paul"), CNA
Casualty Company of California, Inc. ("CNA") and American Inter-
national Specialty Lines Insurance Company, ("AISLIC"). The com-
panies agreed to resolve their coverage and allocation issues after the
lawsuit settled.
Subsequently, St. Paul filed suit against CNA, AISLIC, and a
fourth insurer, TIG Insurance Company ("TIG") (who did not contrib-
ute to the settlement), requesting a declaration of the four insurers’
respective liability respecting the settlement. St. Paul sought to
recover the $1 million it had already contributed, arguing that it had
no obligation to cover any portion of the settlement. Exercising diver-
sity jurisdiction, the district court granted AISLIC’s motion for sum-
mary judgment and denied St. Paul’s motion for summary judgment.
The court also ordered TIG to pay $1 million plus interest toward the
underlying settlement. For the reasons that follow, we reverse and
remand.
I.
A.
In 1989, VMS Lansdowne Limited Partnership ("VMS Lans-
downe") and BMC-The Benchmark Management Company
("Benchmark Management") entered into a Master Management
Agreement ("MMA") relative to the management and operation of
Lansdowne Resort (referred to in the MMA as "the Project"), a resort
and conference center in Leesburg, Virginia. According to the MMA,
Benchmark Management is the "Operator" of the resort — the "sole
and exclusive management company" under the MMA — and VMS
Lansdowne is the "Owner." The MMA specifies that all top-level
management have to be employees of the Operator, and that "all other
employees working in or about the Project shall be employees of a
subsidiary of Operator." Benchmark Conference Resorts of Virginia
("Benchmark Conference"), a subsidiary of Benchmark Management,
was incorporated for that very purpose.
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Among its numerous sections, the MMA includes indemnification
provisions that require, generally speaking, that VMS Lansdowne
indemnify Benchmark Management and its agents from liability aris-
ing from ordinary negligence or the like at the Resort, but that the
opposite occur as to liability arising from gross negligence, fraud, or
willful conduct.
The MMA also requires that comprehensive general liability insur-
ance in the amount of $1 million, and excess umbrella liability insur-
ance in the amount of $50 million, be maintained for the project in
the name of the Owner and the Operator. Accordingly, VMS Lans-
downe purchased insurance policies effective December 1998 from
CNA and AISLIC. The CNA general liability policy provides $1 mil-
lion in primary coverage, and the AISLIC umbrella liability policy
provides $50 million of coverage in excess of the CNA policy (collec-
tively, "the CNA/AISLIC line"). Both policies list VMS Lansdowne
as a named insured and extend coverage to VMS Lansdowne’s "real
estate manager." A "named insured endorsement" for the CNA policy
listed VMS Lansdowne Development Corp. ("VMS Development"),
VMS Lansdowne’s subsidiary, and "Lansdowne Resort."
Benchmark Management and Benchmark Conference also pro-
cured coverage for themselves from St. Paul and TIG. The St. Paul
policy provides $1 million in primary coverage, and the TIG policy
provides $10 million of umbrella coverage in excess of the St. Paul
policy (collectively, "the St. Paul/TIG line"). Notably, each of the
four policies includes some form of "other insurance" provision speci-
fying that the policy will serve as excess insurance over (i.e., will not
respond until the exhaustion of) any other valid and collectible insur-
ance for damage covered by that policy.
Pursuant to the above-mentioned settlement agreement, CNA, AIS-
LIC, and St. Paul agreed to resolve all claims against the remaining
named defendants: VMS Lansdowne, VMS Development, Bench-
mark Management, and Benchmark Conference, all of which were
alleged to be "jointly and severally liable" by the Merritt complaint.
The settlement agreement establishes the named defendants’ "collec-
tive liability" for the $4 million settlement amount, J.A. 352-53, but
explicitly does not resolve the controversy among the insurers as to
their ultimate liabilities.
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B.
In proceedings before the district court, St. Paul, TIG, and AISLIC
filed cross-motions for summary judgment;1 AISLIC’s motion was
granted, and St. Paul’s and TIG’s motions were denied. In its analy-
sis, the district court accepted appellants’ argument that the St.
Paul/TIG line was procured to provide (and should be accordingly
interpreted to provide) coverage only if the CNA/AISLIC coverage
lapsed or was exhausted. Because it was undisputed that Benchmark
Management was covered under the CNA/AISLIC line by virtue of
being VMS Lansdowne’s real estate manager, the court concluded
that St. Paul and TIG were shielded from any obligation to cover
Benchmark Management’s liability from the settlement.
The court concluded, however, that the same result did not follow
for Benchmark Conference. Benchmark Conference was not listed by
name in the CNA and AISLIC policies, was not covered simply by
virtue of being Benchmark Management’s subsidiary, and did not
qualify, in the court’s view, under any provision in the CNA and AIS-
LIC policies. Thus, the court concluded that St. Paul and TIG were
Benchmark Conference’s primary and excess insurers, and thus were
obligated to pay into the settlement.
The district court proceeded to allocate the payment of the settle-
ment between the settling parties’ insurers. The district court first
decided that it was unnecessary to allocate payment between CNA
and St. Paul because, as primary insurers of the settling parties, their
policy limits ($1 million apiece) would necessarily be exhausted.
Then, construing TIG and AISLIC as "concurrent excess insurers,"
the district court equally divided the remaining $2 million there
between. Since TIG had not yet contributed to the settlement, the
court ordered TIG to fulfill its assessed obligation, with interest to
account for its delay.
1CNA did not file a motion for summary judgment below and does not
participate in this appeal, apparently conceding that its policy obligations
will be exhausted in any event.
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II.
St. Paul appeals the district court’s order denying its motion for
summary judgment and granting AISLIC’s cross-motion for summary
judgment; TIG appeals the district court’s consequent order requiring
that it pay $1 million plus interest towards the underlying settlement.
We review the grant of summary judgment de novo, affirming "only
if there are no material facts in dispute and the moving party is enti-
tled to judgment as a matter of law." Hitachi Credit Am. Corp. v. Sig-
net Bank, 166 F.3d 614, 623 (4th Cir. 1999). Because we reverse the
district court’s grant of AISLIC’s motion for summary judgment (and
accompanying order of payment directed to TIG), as well as its denial
of St. Paul’s diametrically opposed motion for summary judgment, in
assessing the record evidence — which is undisputed in all material
respects — we grant AISLIC the benefit of all reasonable inferences.
See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.), cert. denied,
124 S. Ct. 135 (2003) (detailing method for treating cross-motions for
summary judgment).
Each side makes several arguments on appeal. In brief, St. Paul and
TIG ("appellants") argue that the district court erred in implicitly
rejecting their arguments that Benchmark Conference is insured under
the CNA/AISLIC lines as, e.g., VMS Lansdowne’s "real estate man-
ager" or because Benchmark Conference did business as "Lansdowne
Resort," which is listed as an insured under the CNA policy. For its
part, AISLIC defends the district court’s division of liability among
the four insurers, but on different grounds than that court expressed.
But appellants also contend, and we agree, that even if the district
court did not err in this regard, VMS Lansdowne is obligated under
the MMA to indemnify Benchmark Management and Benchmark
Conference for their share of the settlement, an obligation that should
be assessed before any conflicts between the policies are resolved. So
in the end, we largely disregard the parties’ free-standing arguments
about the various policies, for this case’s resolution is controlled by
the MMA’s indemnification provisions.
III.
A.
As might be expected from the above-described facts, the ultimate
determination for this court — i.e., the respective liability of each
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insurer on cross-motions for summary judgment — is not simple.
However, because the liability of an insurer is a question of contract
stemming from its contractual obligation to cover its insured’s liabili-
ties, see, e.g., Hudgins v. Jones, 138 S.E.2d 16, 21 (Va. 1964), the
logical first step is to determine the respective obligations of the
insureds in this case under the settlement. Once that is determined, we
must decide how much of the settlement amount to allocate to each
party; that is a question of contribution between joint tortfeasors gov-
erned by the law of Virginia, where the alleged tort occurred. See
Buchanan v. Doe, 431 S.E.2d 289, 291 (Va. 1993). Only after com-
pleting these initial steps do we determine the insurers’ respective
obligations to cover the settlement liability.
B.
As originally filed, the underlying action named five defendants:
VMS Lansdowne, VMS Development, Benchmark Management,
Benchmark Conference, and Benchmark Hospitality, Inc. But by set-
tlement time Benchmark Hospitality had dropped out, leaving the
other four as the named defendants to the suit. Appellants contend
that the natural division of the settlement liability is equally between
the four settling parties.
AISLIC, however, asserts that the settlement should be divided
three ways: between the VMS entities (i.e., VMS Lansdowne and
VMS Development), Benchmark Management, and Benchmark Con-
ference only. As support, AISLIC notes that the sole basis for the lia-
bility asserted in the complaint for each VMS entity is identical —
ownership of the resort. In contrast, the complaint named Benchmark
Conference and Benchmark Management for separate reasons (the
former employed the "culinary persons" and the latter "sold the
food"). From this distinction AISLIC reasons that the VMS entities,
the collective "owner," should only be assigned one share of the set-
tlement liability, with one going to Benchmark Conference, the "em-
ployer," and one going to Benchmark Management, the "operator."
Br. of Appellee at 33.
But AISLIC’s proposed division is contrary to the general rule in
Virginia, and without any identified basis in law. As joint tortfeasors,
the named defendants are each liable for the entire settlement amount,
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the allocation of which is a question of contribution. See Ohio Cas.
Ins. Co. v. State Farm Fire and Cas. Co., 546 S.E.2d 421, 423 (Va.
2001). Generally, such joint liability is allocated by equal division
between the liable parties. See Wiley N. Jackson Co. v. City of Nor-
folk, 87 S.E.2d 781, 784 (Va. 1955) ("The right to contribution . . .
is based on the broad principles of equity that where two or more per-
sons are subject to a common burden it shall be borne equally . . . .").
Moreover, the settlement agreement provides no support for treat-
ing the VMS entities differently than the Benchmark entities (Bench-
mark Management and Benchmark Conference) when apportioning
liability. In particular, the settlement agreement mentions both VMS
Lansdowne and VMS Development as defendants to the very suit that
the agreement settled and establishes the "collective liability of the
defendants," (emphasis added), which necessarily includes VMS
Development. Moreover, the record suggests that if VMS Develop-
ment was improperly sued, it could have been dismissed from the
case prior to settlement, as Benchmark Hospitality was. In sum, AIS-
LIC presents no recognized equitable argument for its proposed allo-
cation of liability, and we see none. Cf. Nationwide Mut. Ins. Co. v.
Jewel Tea Co., 118 S.E.2d 646, 648-49 (Va. 1961) (explaining ways
in which an alleged joint tortfeasor might challenge his obligation to
contribute to a compromise settlement). Accordingly, we assess each
of the four named defendants an equal share of the settlement.2
IV.
Since there are no genuine issues of material fact, in a simpler case
we would just proceed to construe the policies at issue and assess lia-
bility to each insurer in accordance with its policy obligations to each
insured. Here, however, our analysis is complicated by each side’s
conflicting assertions.
2While our analysis does not require us to address the point, we think
appellants are likely correct that, given these principles of Virginia law,
the district court erred by allocating liability between the excess insurers
without reference to, e.g., the relative liability of the insureds under each
policy.
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For its part, AISLIC concedes that Benchmark Management is
insured under both insurance lines. But AISLIC rejects the district
court’s conclusion below, and appellants’ argument in this court, that
with respect to Benchmark Management, the St. Paul/TIG line pro-
vides contingent excess coverage applicable only if the CNA/AISLIC
line is exhausted or fails to respond. AISLIC reasons that the policies
in each line contain "other insurance" clauses (also known as "excess
insurance" clauses) that, on their face, would make the coverage pro-
vided by those policies excess insurance relative to the insurance pro-
vided by the policies of the other line. Since there is, AISLIC
contends, no reason to consider either line’s other insurance provi-
sions superior to the other’s, the other insurance clauses are "mutually
repugnant,"3 requiring equal division of Benchmark Management’s
liability between the two lines. And if Benchmark Conference is also
considered to be insured by all four insurance polices, AISLIC con-
tends the same result must follow for its settlement share.
For appellants’ part, they first contend, and we agree, that in ana-
lyzing the insurance policies, the district court only construed the
indemnification provisions as an attempt by appellants to use extrinsic
evidence to modify the terms of the CNA and AISLIC policies. The
district court thus failed to address appellants’ argument that VMS
Lansdowne is obligated to indemnify Benchmark Conference, and the
CNA/AISLIC line to insure that liability, regardless of whether
Benchmark Conference was itself insured under that line. But if, as
appellants contend, the settlement liabilities of the Benchmark entities
must be indemnified by VMS Lansdowne, and if the CNA/AISLIC
line must cover VMS Lansdowne’s indemnification duty in full, then
St. Paul and TIG would have no obligation to pay into the settlement.
In proving up that contention, appellants argue that the CNA and
AISLIC policies must respond first to satisfy the settlement because
the MMA requires VMS Lansdowne to indemnify Benchmark Man-
agement, as the Operator, and Benchmark Conference, as Benchmark
3Home Ins. Co. v. Certain Underwriters at Lloyd’s, London, 729 F.2d
1132, 1136 (7th Cir. 1984) ("If two applicable policies contain excess
clauses, however, such provisions are to be disregarded as being mutu-
ally repugnant and each company is liable for a pro rata share of the lia-
bility.") (internal quotation marks omitted).
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Management’s agent, for their share of the settlement. In this regard,
appellants rely on cases that give priority to indemnification agree-
ments between the insured in assessing the respective obligations of
the insurers and hold that such agreements may prevent the indem-
nitee’s insurer from being liable for a settlement arising from a cov-
ered loss, notwithstanding the existence of an "other insurance" clause
in the indemnitor’s insurance policy. In response, AISLIC denies the
applicability of the indemnification provisions and suggests that, in
any event, such issues should be deferred for a separate proceeding.
We agree with appellants, and predict that under these circum-
stances Virginia would apply the indemnification provisions now
rather than wait for a subsequent action that would produce the same
result. Moreover, we conclude that the indemnification provisions
control the allocation of liability between the insurers in this case
because it results in VMS Lansdowne having responsibility for the
Benchmark entities’ shares of the settlement. Since that results in the
St. Paul/TIG line having no obligation to cover any of the settlement
liability, the alleged conflict between the two lines’ other insurance
provisions is irrelevant.
A.
Appellants’ claim respecting the MMA’s indemnification provi-
sions rests heavily on Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d
583 (8th Cir. 2002). In that case, the Eighth Circuit predicted that
Arkansas would follow the growing trend of jurisdictions that allowed
valid, enforceable indemnification agreements to "determine the allo-
cation of liability in an insurance dispute." Id. at 588. In particular,
the general rule, as stated by a "leading commentator," is that "an
indemnity agreement between the insureds or a contract with an
indemnification clause . . . may shift an entire loss to a particular
insurer notwithstanding the existence of an ‘other insurance’ clause
in its policy." Id. (quoting Lee R. Russ & Thomas F. Segalla, 15
Couch on Insurance, § 219:1, at 219-7 (3d ed. 1999)).
The dispute in Wal-Mart Stores arose out of a sales agreement
between Cheyenne, a distributor of halogen lamps, and Wal-Mart,
which sold those lamps at retail. The agreement required Cheyenne
to indemnify Wal-Mart for any liability arising from Wal-Mart’s sale
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of the lamps. After one of the lamps malfunctioned, the injured plain-
tiff sued Wal-Mart and Cheyenne in state court. Cheyenne had pro-
cured insurance covering itself and Wal-Mart from St. Paul, which
provided $1 million primary coverage, and from RLI, which provided
$10 million in excess coverage over the St. Paul policy, coverage
which extended to Cheyenne’s contractual indemnity obligation to
Wal-Mart. Wal-Mart, however, was also covered by its own $10 mil-
lion policy with another insurer, National Union, which did not cover
Cheyenne. The RLI policy was excess to any non-scheduled policy,
which included the National Union policy.
The underlying suit was settled for $11 million. St. Paul paid $1
million of that settlement, and the remaining $10 million was paid by
RLI, which reserved the right to seek recovery from Wal-Mart and
National Union. Subsequently, Wal-Mart and National Union brought
a declaratory judgment action to determine whether either was obli-
gated for any part of the settlement. RLI counterclaimed, contending
that its policy applied in excess of National Union’s, so that it was
entitled to contribution from National Union, Wal-Mart’s primary
insurer, for all or part of the $10 million it had paid.
In an extensively researched opinion, the Eighth Circuit predicted
that Arkansas would give priority to the indemnity agreement at issue
in that case in assessing the relative obligations of the insureds before
allocating payment of the settlement between the insurers, and
accordingly held that neither National Union nor Wal-Mart was obli-
gated to contribute anything to the underlying settlement. Thus,
despite RLI’s policy providing excess coverage over National
Union’s as to Wal-Mart, RLI, as Cheyenne’s insurer, was liable for
the entire $10 million remainder of the settlement.
The Wal-Mart Stores court justified its decision for several reasons
relevant to this case. First, the court stated that "examination of the
relationships between the parties has convinced us that Cheyenne
intended to and did make a valid promise to indemnify Wal-Mart for
claims arising from the halogen lamps." Id. at 587. Second, the court
determined that "RLI provided liability insurance to Cheyenne that
covers both the Boykin settlement and Cheyenne’s indemnification
obligation." Id. Third, the court explained that under the circum-
stances of that case, "consideration of the indemnity agreement
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reflects the intention of [and relationship between] the parties and
does not unfairly prejudice the insurers." Id. Finally, the court rea-
soned that consideration of Cheyenne’s indemnification obligation at
that stage in the litigation was proper because "mak[ing] Wal-Mart or
National Union liable to RLI" — the anticipated result of considering
the policies without consideration of the indemnification agreement
— "would simply be the first step in a circular chain of litigation that
ultimately would end with RLI still having to pay the $10 million."
Id.
B.
The opinion in Wal-Mart Stores demonstrates that several jurisdic-
tions have addressed the issue with which we are faced. Nevertheless,
the parties have identified no Virginia precedents that explicitly rec-
ognize the principles discussed in that case, and, except where Vir-
ginia cases are cited in our analysis below, our independent research
has revealed little of direct, or even indirect, import to the question
of whether the MMA’s indemnification provisions should be consid-
ered in assessing the coverage responsibilities of the insurers in this
case. Thus, we must predict how Virginia would address the issue.
As a federal court sitting in diversity, we are obliged to apply the
jurisprudence of the Supreme Court of Virginia on issues of Virginia
law.4 See Private Mortg. Inv. Servs., Inc. v. Hotel and Club Assocs.,
Inc., 296 F.3d 308, 312 (4th Cir. 2002). Where, as here, that court
"has spoken neither directly nor indirectly on the particular issue
before us, we are called upon to predict how that court would rule if
presented with the issue." Id. In so predicting how that court would
decide the issue, we may consider the teachings of treatises, id., as
4Admittedly, Virginia’s choice-of-law principles dictate that we apply
the law of Illinois when interpreting the CNA and AISLIC policies, the
law of Washington when interpreting the St. Paul and TIG policies, and
the law of Virginia when interpreting the MMA. See Hitachi Credit Am.,
166 F.3d at 623-24 (4th Cir. 1999). Once these agreements have been
construed, however, we believe the assessment of liability between the
insurers based on their policy obligations, which includes questions as to
the priority to be given an indemnification agreement between insureds,
is governed by Virginia law.
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well as "the practices of other states." Wade v. Danek Med., Inc., 182
F.3d 281, 286 (4th Cir. 1999).
Here, a prominent treatise has acknowledged the "well recognized"
principle applied in Wal-Mart Stores. Am. Indem. Lloyds v. Travelers
Prop. & Cas. Ins. Co., 335 F.3d 429, 436 (5th Cir. 2003) (citing 15
Couch on Insurance § 219:1). Further, all indications are that most,
if not all, jurisdictions to have faced the question of whether an
indemnification agreement could relieve particular insurers of an obli-
gation to pay, without resort to a separate action to enforce the indem-
nification agreement, have answered in the affirmative. See id. at 436-
41 (collecting and discussing cases); Wal-Mart Stores, 292 F.3d at
588-94 (same).5
While we do not belabor the issue as to every point for which Vir-
ginia law is unclear, we believe that the cases and principles relied on
in Wal-Mart Stores, and applied herein, represent general practices
and the majority position on the respective issues, see id. at 589 n.1
(reaching similar conclusion), and would be adopted by the Supreme
Court of Virginia in the appropriate case. As stated by the Fifth Cir-
cuit in predicting that Texas would apply the rules recognized in Wal-
Mart Stores to reach a similar result, "[t]he holding and reasoning of
the well considered Wal-Mart Stores opinion [are] applicable here."
Am. Indem. Lloyds, 335 F.3d at 436. In particular, we think Virginia
would give priority to the MMA’s indemnification provisions at least
where the record evidence demonstrates that all of the relevant con-
siderations relied on in Wal-Mart Stores favored considering the
indemnification provisions in this proceeding rather than a later one.
An examination of whether such is actually the case here follows.
5In particular, the Wal-Mart Stores court thoroughly canvassed the rel-
evant precedents in determining that the majority of jurisdictions having
addressed the subject apply an indemnification agreement between par-
ties in determining the factually-related obligations of insurers to cover
those parties’ liabilities, see id. at 588 In fact, the court identified only
one contrary case involving insureds bound by an indemnification agree-
ment, id. at 591 (citing Reliance Nat’l Indem. Co. v. General Star Indem.
Co., 85 Cal. Rptr. 2d 627 (1999)), and noted that the case was itself in
apparent conflict with an earlier decision of the Supreme Court of Cali-
fornia. See id. at 592 (citing Rossmoor Sanitation, Inc. v. Pylon, Inc., 532
P.2d 97 (Cal. 1975)).
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1.
The first issue is whether VMS Lansdowne is obligated to indem-
nify both Benchmark Management and Benchmark Conference for
their respective shares of the settlement. Section 6.6 of the MMA,
entitled "Mutual Indemnification," contains provisions specifying
when either the Owner, VMS Lansdowne, or the Operator, Bench-
mark Management, is obligated to indemnify the other (and possibly
other parties). Under these provisions, VMS Lansdowne is obligated
"to indemnify and hold harmless [Benchmark Management], its
agents, and employees from and against any . . . liability, loss, dam-
age, cost or expense" caused by
any act or omissions, negligent, tortious or otherwise, of any
agent or employee of [VMS Lansdowne] or [Benchmark
Management] in the performance of this Agreement, except
this provision will not apply to any such liability arising
from any fraud, willful misconduct or gross negligence of
[Benchmark Management], its employees or agents.
J.A. 153-54. Conversely, Benchmark Management is obligated to
indemnify and hold harmless [VMS Lansdowne], its agents
and employees from and against any liability, loss, damage,
cost or expense . . . arising from any fraud, willful miscon-
duct or gross negligence of [Benchmark Management], its
agents and employees.
J.A. 154. Thus, assuming the settlement liability otherwise falls under
the scope of the provisions, the classification of the settlement liabil-
ity as arising from ordinary negligence or the like on one hand, or as
gross negligence or the like on the other, will determine whether the
indemnification obligation rests on VMS Lansdowne or on Bench-
mark Management.
2.
On this point, however, AISLIC claims that because the underlying
litigation was settled prior to trial, the record does not demonstrate
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whether indemnification would run only from the Owner to the Oper-
ator. Indeed, given the reciprocality of the indemnification provisions,
obligations to indemnify could, AISLIC claims, run both ways. In
light of this uncertainty, AISLIC suggests that determination of
indemnification obligations under the MMA is best left for a subse-
quent action.
We reject AISLIC’s contention; the record evidence is more than
sufficient to conclude that the settled liability did not arise from
"fraud, gross negligence, or willful conduct," but instead arose from
acts or omissions on the order of ordinary negligence, for which VMS
Lansdowne is obligated under the MMA to provide indemnification.
For one, this settlement agreement here "memorialize[d] the final
compromise and settlement of [the action brought by the plaintiff
against the named defendants]." J.A. 352. Thus, we can only look to
the plaintiff’s lawsuit as it stood at the time of settlement.
And while the settlement agreement is silent on this point, the com-
plaint for the action that agreement settled is not. Neither the facts
Merritt pled nor the types of claims Merritt asserted, as represented
in his final amended complaint, give rise to any suggestion that his
food poisoning was caused by the type of action for which Bench-
mark Management would have to indemnify VMS Lansdowne. For
example, gross negligence requires "action which shows indifference
to others, disregarding prudence to the level that the safety of others
is completely neglected. . . . [It] is negligence which shocks fair-
minded people . . . ." Wilby v. Gostel, 578 S.E.2d 796, 801 (Va.
2003). The underlying action, though, arose from an alleged incident
of food poisoning that occurred while the plaintiff was attending the
resort. As might be expected, the actual claims against the named
defendants were based on theories of breach of warranty, negligence,
negligence per se, and res ipsa loquitor — all of which give rise to
an indemnification obligation solely on behalf of VMS Lansdowne.
The facts pled by Merritt in the complaint were of like dimension.
The simple fact is that no record evidence would allow a reasonable
jury to conclude that the settled claim for bodily injury arose from
gross negligence. The evidence similarly fails to give any indication
that Merritt’s injury arose from fraud or willful conduct.
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AISLIC, however, protests that it is improper to rely on the com-
plaint for this analysis because, had the case not settled, the plaintiff
could have added a claim for gross negligence. In essence, AISLIC
contends that the lack of any judicial determination that Merritt’s
injuries resulted only from ordinary negligence prevents any classifi-
cation of the settlement liability for indemnification purposes. But
AISLIC cites no authority for this proposition, and our independent
review indicates that the weight of authorities would allow an indem-
nification claim to rely on a settled liability. See, e.g., Keys v. Rehab.
Ctrs., Inc., 574 So.2d 579, 584-85 (Miss. 1990) ("indemnifying par-
ties . . . have no right to insist that their indemnitee endure the hazards
of trial by jury [to establish the indemnitee’s liability] as a condition
for enforcing the indemnity agreement."). Moreover, courts have
relied on the type of fault asserted in the claims against the indem-
nitee in order to determine whether the relevant acts or omissions fall
within the scope of restrictive language of fault contained in the
indemnification agreement. See, e.g., Priolo v. Compacker, Inc., 728
A.2d 239, 246 (N.J. Super. Ct. App. Div. 1999). We see no reason
why Virginia would hold to the contrary on this point. The fact
remains that the record evidence would allow for a conclusion that the
settled claim of bodily injury arose from ordinary evidence and the
like, but would not allow for the same conclusion as to gross negligence.6
3.
Having concluded that the record evidence is sufficient to deter-
mine that the settlement liability was of the type VMS Lansdowne is
6AISLIC also claims that the settlement agreement vitiates any claim
for indemnification because that agreement finalized the defendants’
responsibility for separate shares of the settlement. This contention is
baseless; the settlement only "establish[ed] the ultimate collective liabil-
ity of the defendants to the plaintiff"; it did not, by itself, apportion
shares of that liability in any respect. J.A. 352-53 (emphasis added).
Indeed, the settlement agreement explicitly provided that "[t]his agree-
ment specifically shall not be used to establish admissions, waiver, estop-
pel or any other theory of liability or defense in the anticipated coverage
dispute litigation," J.A. 353, a litigation which is now before this court,
and in which the separate liability of the settling parties is directly at
issue.
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obligated to indemnify, we next turn to whether the acts or omissions
which allegedly caused the food poisoning (i.e., those that gave rise
to the settled claim) are encompassed by the VMS Lansdowne’s
indemnification obligation under the MMA.
Certainly, a reasonable jury would have to conclude that the
alleged food poisoning was caused by a person or persons covered by
the indemnification provisions. Since those provisions cover liability
arising from "any act or omissions . . . of any agent or employee of
Owner [VMS Lansdowne] or Operator [Benchmark Management] in
the performance of this Agreement," there is no reasonable basis in
the evidence that it does not cover the activities which produced the
settled liability; that is, the activities of everyone at the resort who
served, prepared, or was otherwise involved with the meal that poi-
soned Merritt. (As shown below, Benchmark Conference and its
employees acted as agents of Benchmark Management under Virginia
law.) AISLIC’s contrary argument that "indemnification is only avail-
able for acts or omissions of the Operator," and not its agents or
employees (or even those of VMS Lansdowne) — that is, "only the
acts or omissions of Benchmark Management itself," Br. for Appellee
at 31 — does not withstand minimal scrutiny.
4.
Given the above analysis, Benchmark Management, as Operator of
the Resort, would be entitled to indemnification for its share of the
settlement from VMS Lansdowne. The question still remains, how-
ever, of whether VMS Lansdowne is obligated to indemnify Bench-
mark Conference for its share as well. The resolution of this question
turns on whether Benchmark Conference is an "agent" of Benchmark
Management as meant by the MMA. Appellants, looking to the MMA
and the role Benchmark Conference actually played, contend that
Benchmark Conference acted as Benchmark Management’s agent in
the management and operation of the resort. In contrast, AISLIC
asserts that Benchmark Conference did not act as an agent for Bench-
mark Management when employing workers, but was itself a princi-
pal, and thus is not entitled to indemnification under the MMA.
We think appellants have the stronger argument. Of particular rele-
vance in this regard is the Supreme Court of Virginia’s decision in
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Richmond, F. & P. R. Co. v. Hughes-Keegan, Inc., 152 S.E.2d 28
(Va. 1967). In Hughes-Keegan, a railroad contractor was contractu-
ally obligated to indemnify a railroad for liability resulting from acts
or omissions of the contractor’s agents. The court concluded that a
crane operator who was hired by the contractor and who allegedly
caused the death of a railroad worker was an agent as used in the
indemnity clause. The court reasoned that "[w]hen [the contractor]
called upon [the crane operator] to discharge an obligation of [the
contractor]" that "the parties contemplated that [the contractor] could
perform on its own or through others," "it made [the crane operator
and its] employees [the contractor’s] agents for the purposes of the
contract." Id. at 32.
Both general agency principles and the specific authority of
Hughes-Keegan militate in favor of Benchmark Conference (and, for
that matter, its employees) being an agent of Benchmark Management
under the MMA. Here, Benchmark Management, the "sole and exclu-
sive manager" of the Resort, is obliged by the explicit terms of the
MMA to have a subsidiary employ all non-executive employees at the
resort. Benchmark Conference was created for that very purpose and,
like the crane operator in Hughes-Keegan, satisfied that obligation of
the MMA. Moreover, the MMA grants Benchmark Management
broad control over Benchmark Conference and its employees in the
operation of the resort; while Benchmark Conference may have held
the actual employment contracts for Resort staff, Benchmark Man-
agement ultimately controlled who Benchmark Conference employed.
See Allen v. Lindstrom, 379 S.E.2d 450, 454 (Va. 1989) (observing
that "[t]he power of control is the determining factor in ascertaining
the alleged agent’s status").
C.
We next decide whether the CNA and AISLIC policies insured
VMS Lansdowne’s obligation to indemnify the Benchmark entities
for their portions of the settlement liability. Unlike was the case with
the basic applicability of the indemnification provisions, AISLIC does
not seriously dispute that the CNA/AISLIC line must cover such an
obligation. And for good reason: the CNA policy covers VMS Lans-
downe’s indemnification obligation because the indemnification pro-
visions constitute an "insured contract" under the policy, as they are
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contained in an agreement (the MMA) pertaining to VMS Lans-
downe’s business (the Resort) and obligate VMS Lansdowne to
assume the tort liability of another party (Benchmark Management
and Benchmark Conference) to pay for bodily injury (food poisoning)
to a third person (Merritt) occurring subsequent to the MMA’s execu-
tion. See J.A. 187, 196. The AISLIC policy similarly covers VMS
Lansdowne’s obligation in this regard. See J.A. 231, 234.
D.
Next, we examine whether considering the indemnification provi-
sions now would reflect the intentions and relationships of the parties,
while not unfairly prejudicing the insurers. See Wal-Mart Stores, 292
F.3d at 587. As to the first point, the Wal-Mart Stores court concluded
that there was "a close factual relationship between the indemnity
obligation [at issue] and the insurance contracts," reasoning that the
RLI policy, though perhaps not specifically bought for Wal-Mart,
"nevertheless satisfied the requirements of the vendor contract" that
Cheyenne carry relevant liability insurance. Id. at 589-90. Here, how-
ever, there is explicit evidence that VMS Lansdowne procured the
CNA/AISLIC line to serve as the insurance required by the agree-
ment. See J.A. 382-83. Thus, the "factual relationship between the
indemnity obligation [in the MMA] and the insurance contracts" at
issue — here, the CNA and AISLIC policies — is even closer than
was the case in Wal-Mart Stores.
As to the second point, AISLIC has not shown that it will be
unfairly prejudiced by our refusal to defer considering the indemnifi-
cation provisions until a separate case. For example, AISLIC does not
argue on appeal that the timing of appellants’ indemnification claim
prevented AISLIC from adducing relevant evidence or from other-
wise raising a sufficient defense. Rather, the thrust of AISLIC’s argu-
ment in support of deferring this issue for a later action is that the
evidence already before us would not support a definitive conclusion
either way. But that this court shows its disagreement with AISLIC’s
reading of the evidence by holding that the record supports, as a mat-
ter of law, VMS Lansdowne’s obligation to indemnify Benchmark
Management and its agent for the settlement liability, does not mean
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that AISLIC’s defense against appellants’ indemnification claim has
been unfairly prejudiced.
Finally, we conclude that judicial economy favors requiring
CNA/AISLIC to cover this liability. As was the case in Wal-Mart
Stores, it appears from the record that deferring consideration of the
MMA’s indemnification provisions for a later proceeding would pro-
duce "circular litigation," id. at 587, that would only delay the inevita-
ble — CNA and AISLIC assuming full liability for the settlement
amount.
E.
In light of the above analysis of the considerations identified in
Wal-Mart Stores, we predict that Virginia would conclude that the
indemnification obligations set forth in the MMA need not be set
aside for a separate proceeding but should be considered in this case
before allocating responsibility for the settlement liability according
to the terms of the relevant policies. Given the conclusions set forth
above, we hold that the CNA/AISLIC line is primarily responsible for
the Benchmark Entities’ share of the settlement. Since the
CNA/AISLIC line can pay the full settlement amount without being
exhausted, St. Paul and TIG have no obligation to contribute to the
settlement.
V.
As a final matter, we must address AISLIC’s contention that VMS
Development is not insured under the AISLIC policy, and thus AIS-
LIC is not obligated to contribute towards VMS Development’s share
of the settlement. It is undisputed that VMS Development is listed as
a "Named Insured" in the CNA policy, and thus its share of the settle-
ment is covered by that policy. While VMS Development is not listed
as a Named Insured in the AISLIC policy, one of the definitions in
that policy of an "Insured" is "[a]ny person or organization other than
the Named Insured included as an additional insured in the Schedule
of Underlying Insurance," which includes the CNA policy. J.A. 234.
But AISLIC contends, relying on "the distinction between ‘Additional
Insureds’ and ‘Named Insureds,’" Br. of Appellee at 35, that since
VMS Development is not specified as an "Additional Insured" in the
CNA policy, VMS Development is not covered under the alternate
definition of "Insured" in the AISLIC policy.
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Despite AISLIC’s borderline-duplicitous unremarked capitalization
of quoted materials in the argument section of its brief — which has
the effect of making "additional insured" appear to be a defined term
in the AISLIC policy7 — "additional insured" is not so defined. Noth-
ing in that policy states, e.g., that "additional insured" references the
definition of "Additional Insured" in any other policy. Since the pro-
vision at issue can be reasonably read to use "additional insured" to
refer as those persons "other than the ‘Named Insured’" of the AIS-
LIC Policy (VMS Lansdowne) that are insured under the CNA policy
(which would include VMS Development), "additional insured" is, at
minimum, ambiguous.
Given that Illinois law (which governs the AISLIC policy’s inter-
pretation) construes ambiguous terms in insurance policies in favor of
coverage, see West Bend Mut. Ins. Co. v. Mulligan Masonry Co., Inc.,
786 N.E.2d 1078, 1083 (Ill. App. Ct.), appeal denied, 803 N.E.2d 503
(Ill. 2003), we hold that VMS Development is an "Insured" under the
AISLIC policy, requiring AISLIC to cover the portion of its settle-
ment liability that remains after exhaustion of the CNA policy.
Because CNA and AISLIC have initial responsibility for all of the
parties to the settlement, CNA, as primary insurer, is responsible for
$1 million of the settlement (its policy limit), and AISLIC, as excess
insurer, is responsible for the remainder.
CONCLUSION
Because we conclude that CNA and AISLIC are obligated to cover
the entire settlement amount, the judgment of the district court is
reversed. The case is remanded with instructions to enter summary
judgment in favor of St. Paul and TIG and to order AISLIC to reim-
burse St. Paul for the $1 million St. Paul has already paid toward the
settlement and pay toward the settlement the $1 million plus interest
for which TIG was erroneously held to be responsible.
REVERSED AND REMANDED
7Compare J.A. 234 (stating that "[a]ny person . . . included as an addi-
tional insured" in the CNA policy is an "Insured") with Br. for Appellee
at 35 (stating that "[a]ny person . . . included as an ADDITIONAL
INSURED" in the CNA policy is an "Insured")(all capitals added without
comment).
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