Toledo-Lucas Cnty v. Axa Marine

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 6, 2004
• Docket: 02-4120
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Toledo-Lucas County, et al. v. No. 02-4120 ELECTRONIC CITATION: 2004 FED App. 0128P (6th Cir.) Axa Marine, et al. File Name: 04a0128p.06 _________________ UNITED STATES COURT OF APPEALS COUNSEL FOR THE SIXTH CIRCUIT ARGUED: Steven R. Smith, CONNELLY, JACKSON & _________________ COLLIER, Toledo, Ohio, M. Charles Collins, EASTMAN & SMITH LTD., Toledo, Ohio, for Appellants. Jack C. Hsu, TOLEDO-LUCAS COUNTY X CHRISTENSEN & EHRET, Chicago, Illinois, Stephen D. PORT AUTHORITY ; COREGIS - Hartman, KERGER & KERGER, Toledo, Ohio, for INSURANCE CO ., - Appellees. ON BRIEF: Steven R. Smith, Janine Thompson - No. 02-4120 Avila, Tammy Geiger Lavalette, CONNELLY, JACKSON & Plaintiffs-Appellants, - COLLIER, Toledo, Ohio, M. Charles Collins, Robert J. > Gilmer, Jr., EASTMAN & SMITH LTD., Toledo, Ohio, for , v. - Appellants. Jack C. Hsu, Kirsten R. Waack, CHRISTENSEN - & EHRET, Chicago, Illinois, Stephen D. Hartman, Richard AXA MARINE & AVIATION - M. Kerger, KERGER & KERGER, Toledo, Ohio, Mark E. Christensen, CHRISTENSEN & EHRET, Chicago, Illinois, INSURANCE (UK), LTD ., et al., - for Appellees. Defendants-Appellees. - - _________________ N Appeal from the United States District Court OPINION for the Northern District of Ohio at Toledo. _________________ No. 99-07320—James G. Carr, District Judge. SUTTON, Circuit Judge. At issue in this insurance- Argued: March 11, 2004 coverage dispute is the scope of a “Ports Liability Policy” (the “Policy”) that the Toledo-Lucas County Port Authority Decided and Filed: May 6, 2004 purchased from a group of insurance companies in 1994. The Policy covers, among other things, “Public Officials Before: MOORE, SUTTON, and FRIEDMAN, Circuit Liability,” which is defined as “any actual or alleged act, Judges.* error, . . . omission and/or breach of duty by an officer and/or . . . employee [of the Port Authority] . . . in the discharge of his/her duties . . . and claimed against him/her solely by reason of his/her capacity as such with [the Port Authority].” This appeal presents two questions about the scope of the provision: (1) whether the Public Officials Liability portion * of the policy covers the Port Authority as well as Port Daniel M. Friedman, Circuit Judge of the United States Court of Authority officials and employees, and (2) if so, whether a Appeals for the Federal Circuit, sitting by designation.

1 No. 02-4120 Toledo-Lucas County, et al. v. 3 4 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

formal claim or demand must be made against an individual VOLUNTEERS WHILE WORKING FOR AND ON official or employee in order for the Port Authority to invoke BEHALF OF THE PORT. the coverage. The better reading of the Policy, in our view, is that it covers the Port Authority as well as Port Authority All other terms and conditions remain unchanged. officers and employees and that a formal demand or claim against an individual official is not a condition of coverage. JA 947. The Certificate of Insurance similarly says that the Because the district court held otherwise and granted Policy is “[i]n favor of [the] Toledo-Lucas County Port summary judgment in favor of the defendant insurance Authority and as per Endorsement No. 1.” JA 946. companies on this basis, we reverse the judgment below and remand the case for further proceedings consistent with this The Policy also includes a form definition of “Assured,” opinion. which provides that “[t]he unqualified word ‘Assured’” means: I. (a) The Named Assured and/or subsidiary, associated, A. affiliated companies or owned and controlled companies, their duly elected and appointed officials, The Toledo County Port Authority is a public entity commissioners, officers, employees and volunteers while organized under Ohio law. See Ohio Rev. Code Ann. working for and on behalf of the Port, as now or hereafter § 4582.01 et seq. In 1994, the Port Authority purchased a constituted . . . “Ports Liability Policy” from the London Companies—a group of 12 insurance companies located in several foreign (b) any officer, director, commissioner, stockholder, countries. The Policy identifies the following as the insured partner or employee of the Named Assured, while acting parties: in his capacity as such . . . .

ASSURED: Toledo-Lucas County Port Authority and as JA 951–52. per Endorsement No.1. Given an effective date of May 22, 1994 through May 22, JA 948. Endorsement No.1 in turn states: 1995, the Policy provides (1) occurrence-based coverage for bodily injury, personal injury, property damage, advertising It is hereby understood and agreed that the Named liability and additional expenses and (2) claims-made Assured shall read: coverage for public officials liability. Occurrence-based coverage applies when “a negligent or omitted act occurred TOLEDO-LUCAS COUNTY PORT AUTHORITY during the period of the policy, whatever the date of claim AND ANY SUBSIDIARY, ASSOCIATED, against the insured,” while claims-made coverage applies AFFILIATED COMPANIES OR OWNED AND when “a negligent or omitted act is discovered and brought to CONTROLLED COMPANIES, THEIR DULY the attention of the insurance company during the period of ELECTED AND APPOINTED OFFICIALS, the policy, no matter when the act occurred.” 1 Lee R. Russ COMMISSIONERS, OFFICERS, EMPLOYEES AND & Thomas F. Segalla, Couch on Insurance § 1:5 (3d ed. No. 02-4120 Toledo-Lucas County, et al. v. 5 6 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

2003); see St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. caused by or arising out of any occurrence at any of the 531, 535 n.3 (1978). Assured’s premises, and/or by operations and/or activities anywhere in the world. The core promise of the Policy states: JA 950 (emphasis added). I. INSURING AGREEMENTS: After stating the insurance companies’ promise to “pay on 1. COVERAGE behalf of the Assured . . . for damages on account of . . . Public Officials Liability,” the Policy specifically defines In the event of an occurrence happening during the “Public Officials Liability”: annual period of this policy but, in respect of Public Officials Liability in the event that notice of an 6. PUBLIC OFFICIALS LIABILITY occurrence is first made in writing by and/or against the Assured and received by Underwriters or Underwriters’ The words “Public Officials Liability”, wherever used representatives set forth in Item 4 of the Declarations herein, shall mean any actual or alleged act, error, mis- during the annual period of this policy, Underwriters will statement, neglect, omission and/or breach of duty pay on behalf of the Assured for that amount of Ultimate (including, but not limited to, misfeasance, malfeasance Net Loss which the Assured shall be obligated to pay by and/or non-feasance) by an officer and/or commissioner reason of the liability: and/or employee and/or committee member in the discharge of his/her duties as such and claimed against (a) Imposed upon the Assured by law, including all him/her solely by reason of his/her capacity as such with Protection and Indemnity risks of whatsoever a port or harbor commission named herein. nature . . . Notwithstanding when the actual or alleged event giving rise to a claim under this section of the policy may have for damages on account of: or be deemed to have occurred, Underwriters shall only be liable for a claim of which the/an Assured first (i) Bodily Injury receives, within the term specified in this policy, written notice from any party intending to hold the/an Assured (ii) Personal Injury responsible for any wrongful act as enumerated above. (iii) Property Damage JA 953. (iv) Advertising Liability In view of the Policy’s $3 million limit, the Port Authority (v) Public Officials Liability purchased additional insurance. The first excess policy was issued by a group of insurance companies (the “Navigators (vi) Additional Expenses Group”) composed of Navigators Insurance Company, The Reinsurance Company of New York, Christiana General Insurance Corporation of New York, Colonia Insurance No. 02-4120 Toledo-Lucas County, et al. v. 7 8 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

Company, Employers Mutual Casualty Company and liability arising from “airport activities.” All parties now Farmers Mutual Hail Insurance Company of Iowa. The agree that the stated reason for withholding coverage was second excess policy was issued by Coregis Insurance incorrect and that Public Officials Liability coverage under Company. the Policy does include airport activities. B. Numerous other lawsuits followed, all containing similar allegations against the Port Authority and many of its Between 1993 and 1998, several lawsuits were filed against individual employees. After McQuade, even the Kagy the Port Authority concerning the operation of the Toledo plaintiffs amended their complaint to include allegations and Express Airport—more specifically, concerning the noise claims against individual Port Authority employees as well as created by Burlington Air Express’s flights in and out of the the Port Authority itself. airport. The first of these lawsuits was filed in June 1993 by Joseph and Winifred Kagy and several other citizens of By February 8, 1996, however, all of the claims against the Fulton County, Ohio. The Kagy plaintiffs claimed nuisance, individual Port Authority employees had been dismissed for inverse condemnation and violations of equal protection by failure to state a claim, leaving only the claims against the the Port Authority, but did not allege any specific wrongful Port Authority. In September 1999, faced with an imminent acts by Port Authority employees and did not name any Port state-court jury trial on the issue of damages to the property Authority employees as defendants. owners, the Port Authority settled the remaining claims for $4.6 million. On July 20, 1994, Richard and Jane McQuade filed a second lawsuit, which did name individual Port Authority While this settlement ended the noise-related litigation employees as well as the Port Authority itself as defendants. against the Port Authority, it did not end the coverage dispute The complaint alleged that the named employees (and other between the Port Authority and its insurers. Without unnamed employees) of the Port Authority committed fraud admitting liability, the London Companies paid the Port and other wrongful acts in enticing Burlington Air Express to Authority’s attorney’s fees and defense costs for the period establish a hub at the Toledo Express Airport. The complaint during which claims were pending against individual further alleged that the Port Authority employees acted at all employees, but refused to pay for anything after the claims times as agents of the Port Authority, that the Port Authority against the individual employees had been dismissed in acted by and through its employees, and that the Port February 1996, including any of the $4.6 million settlement. Authority was liable for the intentional, reckless and/or The excess insurance providers, the Navigators Group and negligent acts of its employees. Coregis, followed suit, refusing to provide coverage under their policies. Within days of the filing of the McQuade lawsuit, the Port Authority notified the London Companies of the suit and asked the London Companies to determine whether the suit was covered by the Policy, including its provision for Public Officials Liability coverage. The London Companies withheld coverage, asserting that the Policy did not cover No. 02-4120 Toledo-Lucas County, et al. v. 9 10 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

C. of their capacity as a port or harbor officer, commissioner, employee, or committee member.” Id. “By specifying that an On May 21, 1999, the Port Authority filed this state-law act be carried out by an individual, and that a claimant make diversity lawsuit against the London Companies, Navigators a demand of that individual,” the court continued, the term and Coregis, claiming that the companies had reneged on “‘Assured’” under the Public Officials Liability coverage their insurance obligations. As this is a suit between citizens “refers to any of the enumerated assureds who are individuals of different States and countries—the Port Authority is an rather than entities.” Id. at 853. Ohio public entity, Coregis is an Indiana corporation with its principal place of business in Illinois, the London Companies Bolstering this interpretation, the district court explained, are organized and headquartered in foreign countries and the is the Policy’s form definition of the term “Assured,” which Navigators Group is composed of companies organized and includes “[t]he Named Assured and/or” a number of other having principal places of business in New York, California parties. Id. The court concluded that “the term ‘Assured’ and Iowa—diversity jurisdiction exists under 28 U.S.C. cannot always be properly substituted by ‘Port Authority’, as § 1332. After the filing of this lawsuit, Coregis agreed to the word ‘or’ conveys.” Id. Lastly, “[b]ecause . . . the provide coverage and paid $3.45 million of the cost of the London Companies’ public officials coverage is not invoked settlement. After providing this coverage, Coregis realigned in this case,” the court reasoned that “there can be no excess itself as a co-plaintiff in the case, then claimed that public officials liability under the Navigators’ policy.” Id. Navigators was responsible for the entire amount paid by Coregis. The Port Authority and Coregis eventually amended In a separate order, the district court granted summary their joint complaint to add a claim of bad faith denial of judgment to the London Companies and Navigators on the coverage. Both sides moved for summary judgment. bad-faith claims, reasoning that without the possibility of coverage in the first instance, Ohio law recognizes no claim On May 9, 2001, the district court granted summary for bad faith denial of coverage. The court entered a final judgment in favor of the London Companies and Navigators. judgment in favor of the defendants. In the district court’s view, the Public Officials Liability provision applies only to claims against individual Plaintiffs timely appealed the district court’s judgment, employees, not to claims against the Port Authority as an which we review de novo. See Henry v. Wausau Bus. Ins. entity. Toledo-Lucas County Port Authority v. Axa Marine & Co., 351 F.3d 710, 713 (6th Cir. 2003). Aviation Ins., 147 F. Supp. 2d 849, 852 (N.D. Ohio 2001) (“[O]f the enumerated ‘Assureds’, only individual persons II. receive coverage for acts under [the Public Officials Liability] portion of the policy.”). Acknowledging that under Ohio law The parties agree that Ohio law governs this dispute. When ambiguous provisions of an insurance policy drafted by the the “terms of an insurance policy are clear and unambiguous,” insurer must be construed in favor of the insured, the court Ohio law requires a court to “appl[y] [them] to the facts held that the terms of the Policy were clear and unambiguous. without engaging in any construction.” Ledyard v. Auto- “The language requires two things,” the district court Owners Mut. Ins. Co., 739 N.E.2d 1, 3 (Ohio Ct. App. 2000) reasoned: “first, a[] [wrongful] act by one or some individuals (citation and quotation omitted). Conversely, when the . . . , and second, a claim against those individuals by reason insurer has drafted the contract and the “provisions of a No. 02-4120 Toledo-Lucas County, et al. v. 11 12 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

contract of insurance are reasonably susceptible of more than parties listed in clause (a)—namely, the Port Authority’s one interpretation,” a court must “construe[] [the terms] “subsidiary, associated, affiliated companies or owned and strictly against the insurer and liberally in favor of the controlled companies, their duly elected and appointed insured.” King v. Nationwide Ins. Co., 519 N.E.2d 1380, officials, commissioners, officers, employees and volunteers 1383 (Ohio 1988). while working for and on behalf of the Port.” JA 947. When it comes to Public Officials Liability, they argue, the term With these canons of construction in mind we must address “Assured” refers only to Port Authority employees and two questions in this case: (1) whether the Public Officials officials. Liability portion of the Policy covers the Port Authority in addition to Port Authority officials; and (2) if so, whether a This argument, however, ignores several more telling clues formal claim or demand must have been made against an to the contract’s meaning. First and foremost, it ignores the individual official or employee in order for the Port Authority more specific language inserted in the Certificate of to obtain coverage. Insurance, in Policy Page 1 and in Endorsement No. 1, all of which identify the Port Authority as an “Assured” without A. limitation. Ohio law makes it clear that if two contract provisions are inconsistent, the specific, typed portion of a The first question lends itself to a relatively straightforward contract will prevail over the generic, form portion. See analysis. The Policy’s core promise is made by the insurer to Malcuit v. Equity Oil & Gas Funds, Inc., 610 N.E.2d 1044, “the Assured.” The insurer promises to “pay on behalf of the 1046 (Ohio Ct. App. 1992). Assured” for net losses “which the Assured shall be obligated to pay by reason of the liability [] imposed upon the Assured Second, the defendants’ position ignores clause (b) of the . . . for damages on account of . . . Public Officials Liability.” generic definition of “Assured,” which specifically identifies JA 950. “Public Officials Liability” coverage, then, covers “any officer, director, commissioner, stockholder, partner or not just “Public Officials,” but any “Assured” who has to pay employee of the Named Assured, while acting in his capacity damages on account of Public Officials Liability. as such,” as an “Assured.” JA 952. The identification of employees of the Port Authority in clause (b) indicates that One such “Assured” under the Policy is the Port Authority. the “employees” referred to in clause (a)—the clause to which The Certificate of Insurance says so; Policy Page 1 says so; the “and/or” language applies—are employees of “subsidiary, and the generic definition of “Assured” contained in the associated, affiliated companies.” So while the disjunctive Policy says so. As such, the Port Authority enjoys Public “or” (or, more precisely, “and/or”) is used within clause (a), Officials Liability coverage. the Policy does not say whether clauses (a), (b) and the others are disjunctive or conjunctive as they relate to each other. In Attempting to counter this analysis, the defendant insurance the absence of an “and” or an “or,” or even an “and/or” companies point out that the language “and/or” in clause (a) between any of the clauses, the use of the word of the generic definition of “Assured” indicates that the term “includes”—as in, “[t]he unqualified word ‘Assured’, has different meanings depending on the context in which it wherever used in [the] Policy, Includes” the parties identified is used. Sometimes the term refers to the “Named Insured” in clauses (a) through (d), JA 951–52—suggests that we (the Port Authority), and sometimes it refers to the other should read the clauses conjunctively. Doing so, the Port No. 02-4120 Toledo-Lucas County, et al. v. 13 14 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

Authority (identified in clause (a)) and its employees Policy to cover the Port Authority and its employees for (identified in clause (b)) are each an “Assured” for purposes Public Officials Liability. of Public Officials Liability coverage. B. This reading of the policy not only accords with its terms and the pertinent rules of construction but it also accords with The second question is whether the Port Authority may common sense. It is hard to imagine the Port Authority recover “for damages on account of . . . Public Officials deciding to purchase coverage for its employees but not for Liability” only if a claim has also been made against an itself in this setting, and indeed the defendant insurance individual official. In our view, the Policy in general and the companies have offered no reason why a governmental entity definition of “Public Officials Liability” in particular do not would purchase such a policy. Because state law generally provide a natural home for such a limitation, and at all events immunizes governmental employees acting within the scope the ambiguity of this interpretation precludes us from of their employment from liability for damages, the only construing the Policy in favor of its drafter, the London function of public officials liability coverage in most cases Companies. will be to insure the governmental entity itself. Compare Ohio Rev. Code Ann. § 2744.03(A)(6) (immunity for The Public Officials Liability provision requires an “actual employees of political subdivisions), with id. § 2744.02(B) or alleged” wrongdoing “by an officer [or] . . . employee” “in (liability of political subdivision for damages caused by the the discharge of his/her duties as such” and “claimed against wrongful acts of its employees). Cf. City of Sterling Heights him/her solely by reason of his/her capacity as such with a v. United Nat’l Ins. Co., No. 03-72773, 2004 WL 252091, at port or harbor commission named herein.” JA 953 (emphasis *6–8 (E.D. Mich. Feb. 11, 2004) (holding that insurance added). As an initial matter, the Policy nowhere defines the companies had a duty to defend and indemnify the City and term “claimed.” Nor do dictionary definitions resolve the a public official under public officials liability coverage); question. One frequently-used definition (“[t]o demand, ask Continental Cas. Co. v. County of Chester, 244 F. Supp. 2d for, or take as one’s own”) suggests that the Policy requires 403, 405–06 (E.D. Pa. 2003) (holding that the insurer had a a lawsuit to be filed or a demand for money to be made duty to defend and indemnify the County against civil rights against an employee, while the other frequently-used claims under its public officials liability coverage). definition (“[t]o state to be true . . . [or to] assert or maintain”) suggests that an allegation of wrongdoing by an employee In the final analysis, had the parties intended the Policy contained in a lawsuit against the Port Authority alone (oddly enough) to cover employees for Public Officials suffices to invoke coverage. The Am. Heritage Dictionary of Liability, but not the Port Authority itself—an intention the English Language 341 (4th ed. 2000). capable of being simply stated—one would expect more clarity on the point than this Policy provides. Having failed The context in which the words appear, however, to provide the requisite clarity, the author of the Policy, the undermines the defendant insurance companies’ argument. defendant London Companies, cannot now overcome the The phrase “claimed against” modifies “any actual or alleged ambiguity-default canon of construction, which requires us to act [or] error.” The only definition of “claimed” that makes give the Port Authority the benefit of the doubt and read the sense in this setting is the second one (“[t]o state to be true . . . [or to] assert or maintain”) because “act[s]” and “error[s]” No. 02-4120 Toledo-Lucas County, et al. v. 15 16 Toledo-Lucas County, et al. v. No. 02-4120 Axa Marine, et al. Axa Marine, et al.

are asserted against employees, not demanded of them. The London Companies also err in suggesting that this Indeed, in each of the five instances in which the verb interpretation creates a form of coverage that sweeps so “claimed” appears in the Policy, the words “alleged,” broadly that it would make the other forms of coverage under “asserted” or “maintained” can be substituted without the Policy (e.g., Bodily Injury and Personal Injury) noticeably altering the meaning. unnecessary because any allegation against an entity is inherently one based upon the conduct of its individual Nor, contrary to the defendant insurance companies’ employees. This argument misses the mark because the other position, does this interpretation render the “claimed against” provisions do not contain the limitation that the Public language “superfluous.” The provision requires wrongdoing Officials Liability provision has—namely, wrongdoing “claimed against [an employee] solely by reason of his/her alleged against an employee. capacity as such.” JA 953 (emphasis added). As the “solely” language suggests, this provision is designed to preclude In the end, while we believe this interpretation represents coverage when a plaintiff sues the Port Authority or an the better reading of the policy, the best that can be said of the employee for damages caused by an employee who is not defendant insurance companies’ contrary arguments is that acting solely in an official capacity, which is a perfectly they raise an ambiguity on the point. And under those understandable exclusion and one that gives content to the circumstances, as noted above, Ohio law requires us to apply “claimed against” language and to the “asserted” against the ambiguity-default canon of construction and to give the interpretation of it offered by the Port Authority. Were the Port Authority the benefit of the doubt. Public Officials point of this language to exclude coverage when a plaintiff Liability coverage, accordingly, does not necessarily require decides to sue the Port Authority for its employee’s a claim or demand to be made against an individual wrongdoing, one would not expect such a significant employee; a claim or demand against the Port Authority for limitation on coverage to be tucked away in a phrase damages on account of an individual employee’s wrongdoing addressing the capacity in which the employee acts. solely in his or her capacity as a Port Authority employee will suffice. Also unavailing is the argument that “of the over twenty- five times that the words ‘claim’ or ‘claims’ appear in the III. policy, never are they used as a substitute for ‘alleged’ or ‘assert.’” London Companies’ Br. at 29. In those instances, The parties have briefed several other issues that the district the words “claim” and “claims” are used as nouns (e.g., court did not have an opportunity to address in view of the requiring that a claim be made by the Port Authority), not as court’s ruling that the Port Authority is not an Assured under verbs (e.g., requiring an act or error claimed against an the Policy and that a lawsuit or demand made against an employee). Had the London Companies used the noun individual employee is a precondition of coverage. The “claim” instead of the verb “claimed” in this provision, we district court did not decide whether the statute of limitations quite agree that the definition of Public Officials Liability bars any of these claims; whether the Kagy lawsuits provided might mean what they suggest it means—liability resulting notice of a Public Officials Liability claim before the effective solely from claims made against an employee. But they did date of the Policy, thus precluding coverage under the Policy; not use that language. and whether the Navigators Group owes coverage to the Port Authority. And what the district court elsewhere did No. 02-4120 Toledo-Lucas County, et al. v. 17 Axa Marine, et al.

decide—that the defendants were entitled to summary judgment on the bad-faith claims and that Coregis lacked standing to bring a bad-faith claim against the London Companies—was premised on the court’s initial ruling that the Public Officials Liability portion of the Policy did not insure the Port Authority. Since we disagree with that premise and since the district court did not reach the other issues, we leave it to the district court to address these questions in the first instance. IV. For the foregoing reasons, we reverse the district court’s judgment and remand the case for further proceedings consistent with this opinion.