Axis Specialty Ins Co v. The Brickman Grp Ltd LLC

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

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Nos. 10-4688/4771

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AXIS SPECIALTY INSURANCE COMPANY,

Appellant in No. 10-4688,

v.

THE BRICKMAN GROUP LTD., LLC,

Appellant in No. 10-4771.

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On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 09-cv-3499)

District Judge: Hon. John R. Padova

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Submitted Under Third Circuit LAR 34.1(a)

January 10, 2012

Before: FUENTES, JORDAN, and NYGAARD, Circuit Judges.

(Filed January 23, 2012)

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OPINION OF THE COURT

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JORDAN, Circuit Judge.

Axis Specialty Insurance Company (“Axis”) sued The Brickman Group

Ltd., LLC (“Brickman”), alleging, among other claims, breach of contract for

Brickman‟s failure to repay funds Axis expended in settling a dispute covered by a

liability insurance policy. Brickman counterclaimed, alleging that Axis breached

its duties under the policy by failing to contribute to Brickman‟s defense in its

litigation of the same dispute. Following cross motions for summary judgment,

the United States District Court for the Eastern District of Pennsylvania entered

judgment in Brickman‟s favor as to Axis‟s claim, entered judgment in Axis‟s

favor as to Brickman‟s counterclaim, and denied the parties‟ motions in all other

respects. Axis and Brickman each appeal that order, urging that the District Court

erred in granting the other party‟s summary judgment motion and in failing to

otherwise grant their respective motions. For the reasons that follow, we will

affirm the judgment of the District Court.

I. Background

A. Facts

In 2006, Deborah Peisel sued Brickman and Home Depot, seeking redress

for injuries sustained when she fell in a Home Depot parking lot. Piesel claimed

in her suit that Brickman, which had plowed the snow in Home Depot‟s parking

lot, caused her injury by inadequately removing the snow.

At the time of Peisel‟s accident, Brickman owned two liability insurance

policies. The first policy, purchased from ACE American Insurance Company

(“ACE”), provided coverage in the amount of $750,000 over a self-insured

retention (an “SIR”)1 of $250,000. The policy did not require ACE to defend

1

Although the parties‟ briefing at times equivocates between the terms

“SIR” and “deductible,” the two are different. An “SIR is an amount that an

2

Brickman in litigation against it, but did state that ACE had “the right and

opportunity to assume from the insured the defense and control of any claim or

„suit.‟” (Joint App. at 152.)

The second policy, purchased from Axis, provided coverage in the amount

of $5 million in excess of what it listed as the $1 million of total coverage

provided by the ACE policy.2 It required Brickman to maintain the ACE policy,

but stated that failure to do so would “not invalidate t[he] insurance” Axis

provided, which would instead “apply as if the underlying [ACE] insurance were

in full effect.” (Joint App. at 98 (internal quotation marks omitted).) The Axis

policy further stated that Axis had a duty to defend Brickman in two

circumstances:

We will have the right and duty to defend the insured against “suits”

seeking damages for “bodily injury”, “property damage” or

“personal and advertising injury” covered by this policy when the

“underlying insurance” does not provide such coverage.

insured retains and covers before insurance coverage begins to apply. Once [an]

SIR is satisfied, the insurer is then liable for amounts exceeding the retention[,]

less any agreed deductible.” In re Sept. 11th Liab. Ins. Coverage Cases, 333 F.

Supp. 2d 111, 124 n.7 (S.D.N.Y. 2004) (citing Barry R. Ostrager & Thomas R.

Newman, Handbook on Insurance Coverage Disputes § 13.13[a] (12th ed. 2004)).

A deductible, by comparison, leaves the insurer with “the liability and defense risk

from the beginning and then deducts the deductible amount from the insured

coverage.” Id.

2

The specific policy language provided, in pertinent part, that Axis would

“pay on behalf of … [Brickman] those sums in excess of the „retained limit‟ which

… [Brickman became] legally obligated to pay as damages … because of „bodily

injury… .‟” (Joint App. at 80.) The policy defined “retained limit” as the “limits

of „underlying insurance‟ scheduled in the Declarations,” (Joint App. at 103)

which, in turn, listed the ACE policy and stated that the ACE policy had a $1

million per occurrence limit.

3

We will also have the right and duty to defend the insured against

“suits” seeking damages for “bodily injury”, “property damage”,

“personal and advertising injury” or damages resulting from

wrongful acts, errors or omissions arising out of the conduct of your

business and covered by this policy, when the limits of insurance of

the “underlying insurance” have been exhausted by payment of

damages.

(Joint App. at 80.)

On January 23, 2008, after the parties in the Peisel action had just

completed non-binding arbitration, Axis was informed by letter from an insurance

broker that Axis‟s coverage could be implicated in resolving Peisel‟s claim. The

letter stated that the arbitrator had concluded that Peisel sustained $2 million in

pain and suffering damages and lost $172,748 in wages as a result of the accident,

for which Brickman was cumulatively apportioned 65% of the liability. It

advised, however, that the parties had 30 days to file an appeal, and that Peisel

intended to do so inasmuch as she sought a $5 million settlement.

Axis stepped in and negotiated on behalf of Brickman, and ultimately

reached a settlement with Peisel for $1.15 million.3 The settlement was funded by

both Axis and ACE, which paid $400,000 and $750,000, respectively. Brickman

never paid its $250,000 SIR under the ACE policy and did not contribute any

funds to the settlement. Recognizing that Brickman had failed to pay that sum,

3

Despite Brickman‟s desire for a resolution of Peisel‟s case as to both

Brickman and Home Depot, the settlement only settled Peisel‟s claims against

Brickman.

4

Axis‟s counsel stated at the time the settlement was placed on the record in the

Peisel action:

[M]y understanding is that the $750,000 policy limits of [ACE] are

available for the settlement, that a $400,000 offer on top of that

$750,000 is made upon behalf of Brickman by [Axis] pursuant to its

policy of insurance, that there will not be a concern addressed at this

time and in this matter regarding the self-insured retention of …

Brickman, which is represented to be $250,000, that we will work

within our … own group here, not as part of this case, and the

plaintiff has not to be concerned about it, that the money will be

given as set forth, [$]750,000 from [ACE], [$]400,000 from [Axis]

on behalf of Brickman.

(Joint App. at 183-84.) Counsel for Brickman did not object.

On March 5, 2009, Axis‟s lawyer wrote Brickman to “seek the payment …

of the $250,000.00 „retained limit‟ which is applicable to the Peisel claim – as set

forth in the underlying ACE policy.” (Joint App. at 305.)

B. Proceedings in the District Court

Brickman never paid Axis that sum, however, and this lawsuit against

Brickman followed.4 Brickman interposed a counterclaim, alleging that Axis

breached its duty to defend Brickman by failing to contribute to its legal expenses

in the Peisel action. Upon the parties‟ cross motions for summary judgment, the

District Court entered judgment in Brickman‟s favor as to Axis‟s claim against

Brickman, and judgment in Axis‟s favor as to Brickman‟s counterclaim against

Axis.

4

Axis‟s complaint initially pled that Axis was an intended third-party

beneficiary of Brickman‟s insurance policy with ACE, but an amended complaint

abandoned that theory. Among other claims, the amended complaint pled claims

against Brickman for breach of contract and unjust enrichment.

5

Axis timely appealed, and Brickman timely cross-appealed.

II. Discussion5

A. Axis’s Appeal

Axis argues that the District Court erred in granting summary judgment in

Brickman‟s favor on its breach of contract claim.

Under Pennsylvania law,6 “a plaintiff seeking to proceed with a breach of

contract action must establish „(1) the existence of a contract, including its

essential terms, (2) a breach of a duty imposed by the contract[,] and (3) resultant

damages.‟” Ware v. Rodale Press, Inc., 322 F.3d 218, 225 (3d Cir. 2003)

(alteration in original) (quoting CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053,

1058 (Pa. Super. Ct. 1999)); see McShea v. City of Phila., 995 A.2d 334, 340 (Pa.

2010) (same). According to Axis, Brickman breached its contractual duty to pay

5

The District Court had diversity jurisdiction pursuant to 28 U.S.C. § 1332.

We have jurisdiction over this appeal under 28 U.S.C. § 1291, and exercise

plenary review of the District Court‟s order resolving the parties‟ cross motions

for summary judgment. Tristani ex rel. Karnes v. Richman, 652 F.3d 360, 366 (3d

Cir. 2011). Accordingly, we view the facts in the respective non-moving parties‟

favor to determine whether the District Court correctly found that “there [was] no

genuine dispute as to any material fact and [that the respective moving parties

were] entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Funk v.

CIGNA Grp. Life Ins., 648 F.3d 182, 190 (3d Cir. 2011) (“Summary judgment is

proper if there is no genuine issue of material fact and if, viewing the facts in the

light most favorable to the non-moving party, the moving party is entitled to

judgment as a matter of law.” (citation omitted)).

6

Both parties assume that their claims should be resolved under

Pennsylvania‟s substantive law, and we accept that choice of law for purposes of

our analysis.

6

Axis the $250,000 expended in settling the Peisel suit so as to satisfy its SIR under

the ACE policy.

That position is fatally flawed. There is, as Axis tacitly acknowledges by

urging us to read the Axis policy and the ACE policy as “part of a unitary liability

insurance program maintained by Brickman” (Axis Reply Br. at 2), no provision

in Axis‟s policy with Brickman that requires Brickman to pay the first $250,000 of

any settlement or otherwise reimburse Axis for the payment it made. Although the

ACE policy does contain an SIR that Brickman was required to pay under that

policy, Axis cannot use a duty created by a separate contract, to which it is neither

a party nor a third-party beneficiary,7 to recover in contract against Brickman.

Nor can Axis create the missing contractual duty by relying on the

provision that its coverage would “apply as if the „underlying [ACE] insurance‟

were in full effect” even if Brickman failed to maintain the ACE coverage. (Joint

App. at 98.) That Axis promised to provide coverage in excess of $1 million

regardless of the existence of an underlying policy purportedly insuring Brickman

up to that amount does not, and cannot, imply a corresponding, unwritten promise

by Brickman to pay Axis back any sum expended above and beyond that which

Axis was contractually required to pay. Cf. Melton v. Melton, 831 A.2d 646, 654

(Pa. Super. Ct. 2003) (“When an essential term is missing from the contract, the

7

Because Axis abandoned its third-party-beneficiary theory in the District

Court, see supra note 4, we accept it as given, for purposes of our analysis, that

Axis was not an intended third party beneficiary of the ACE policy.

7

court may imply such a term only when it is necessary to prevent injustice and it is

abundantly clear that the parties intended to be bound by such term.” (internal

quotation marks and citation omitted)).

Thus, because there is no contractual duty in the insurance policy that

requires Brickman to pay Axis the $250,000 that Axis expended in settling the

Peisel suit, we will affirm the District Court‟s judgment in Brickman‟s favor on

Axis‟s contract claim.

B. Brickman’s Appeal

Brickman argues that the District Court erred in granting summary

judgment in Axis‟s favor as to its counterclaim for breach of contract because it

expended $391,740.66 in defense costs for the Peisel suit, for which Axis owed

Brickman a duty to defend.

Brickman first contends that Axis owed Brickman that duty because its

policy stated that Axis would have “a duty to defend … [Brickman] against suits

seeking damages for bodily injury, property damage or personal and advertising

injury covered by th[e] policy when the underlying insurance does not provide

such coverage.” (Joint App. at 80 (internal quotation marks omitted).) According

to Brickman, that provision‟s use of the term “such coverage” refers to the duty to

defend, not to “damages … covered by th[e] policy” (id.), and Axis‟s duty was

thus triggered in the Peisel litigation because the underlying ACE policy did not

include a duty to defend that action.

8

The District Court rejected Brickman‟s proffered contractual construction,

and we have little to add. Although we must, like the District Court, construe any

ambiguity in the insurance policy in Brickman‟s favor, we conclude that the term

“such coverage” unambiguously refers back to the damages covered by the policy

and not the duty to defend. See Standard Venetian Blind Co. v. Am. Empire Ins.

Co., 469 A.2d 563, 566 (Pa. 1983) (“Where a provision of a policy is ambiguous,

the policy provision is to be construed in favor of the insured and against the

insurer … . Where, however, the language of the contract is clear and

unambiguous, a court is required to give effect to that language.” (internal citation

omitted)). Like the District Court, we find it telling that the policy‟s reference to

“damages … covered by th[e] policy” and to “such coverage” (Joint App. at 80

(emphasis added)), both use the root word “cover.”

Although that choice of language is clear enough on its own to indicate that

“such coverage” refers to damages covered by the policy, we are further persuaded

by the use of the term “coverage” in the insurance context. As the District Court

observed, the duty to defend is sometimes described to be an altogether separate

concept from “coverage.” See, e.g., Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr.,

Inc., 2 A.3d 526, 540-41 (Pa. 2010) (“An insurer‟s duty to defend … is a distinct

obligation, separate and apart from the insurer‟s duty to provide coverage.”

(internal citations omitted)). Coupled with the clear meaning of the term “such

coverage” in the context in which it is used in the Axis policy, that understanding

9

demonstrates that Brickman‟s reading of the policy language is untenable. Thus,

we agree with the District Court that Axis‟s duty to defend was not implicated.8

Brickman next argues that Axis owed a duty to defend under the policy

provision requiring Axis to defend Brickman “when the limits of insurance of the

underlying insurance have been exhausted by payment of damages.” (Joint App.

at 80 (internal quotation marks omitted).) However, as that policy language

clearly states,9 Axis‟s duty to defend under that provision did not arise until the

underlying insurance‟s limits were “exhausted by payment of damages.” (Id.

(emphasis added).) That, as the parties agree, did not occur in this case until ACE

paid the $750,000 contribution towards settling the Peisel dispute, and Axis‟s duty

8

Brickman contends that the construction we adopt does not accord with

the parties‟ expectations because it fails to fill a gap in coverage created by the

ACE policy, which contained no duty to defend. While the argument is beside the

point, given the unambiguous language in the policy itself, see Steuart v.

McChesney, 444 A.2d 659, 661 (Pa. 1982) (“[W]hen the words [in a written

contract] are clear and unambiguous the intent is to be discovered only from the

express language of the agreement.”), we disagree with its substance. As the

District Court noted, reading “such coverage” to refer to damages covered by the

policy most readily accords with the separate provision of the Axis policy that

extends a duty to defend when “the limits of insurance of the … [ACE policy]

have been exhausted by payment of damages.” (Joint App. at 80 (internal

quotation marks omitted).)

9

Brickman‟s reliance on Cooper Laboratories, Inc. v. International Surplus

Lines Insurance Company, 802 F.2d 667 (3d Cir. 1986) is unavailing. The policy

language in that case stated that if “the bodily injury … is included within the

products hazard, the [carrier] shall have the right and duty to defend any suit

against the Insured.” Id. at 675 (alterations in original) (internal quotation marks

omitted). Our determination that the insurer‟s duty to defend was triggered in that

case following a demand in excess of an insured‟s SIR was based on that policy‟s

contractual language which – unlike the policy language at issue here – did not

limit the duty to cases in which the underlying insurance (or, as the case may be,

SIR) was “exhausted by payment of damages.” (Joint App. at 80.)

10

to defend did not arise until that point. Cf. Schneider Nat’l Transp. v. Ford Motor

Co., 280 F.3d 532, 538 (5th Cir. 2002) (stating that “the majority of …

jurisdictions” interpret similar policy language to mean that “[t]he excess carrier‟s

duty to defend does not arise until the underlying … insurance coverage has been

paid out”). As the District Court correctly observed, there is no evidence in the

record that Brickman thereafter incurred any defense costs for which Axis would

be responsible.10

Accordingly, because the policy language does not support Brickman‟s

contention that Axis breached its contractual duty to defend, we will affirm the

District Court‟s judgment in favor of Axis on Brickman‟s counterclaim.

III. Conclusion

For the foregoing reasons, we will affirm the District Court‟s judgment.

10

Brickman argues that even if Axis‟s duty to defend was not triggered

until the ACE policy was exhausted in settling the Peisel action, “the contingency

in th[e Axis policy] [was] satisfied,” once that happened and Axis was therefore

required to contribute towards defense expenses that were already incurred.

(Brickman‟s Opening Br. at 34.) That argument, however, was not properly

presented to the District Court, and we therefore decline to consider it. See Tri-M

Grp., LLC v. Sharp, 638 F.3d 406, 416 (3d Cir. 2011) (“It is axiomatic that

arguments asserted for the first time on appeal are deemed to be waived and

consequently are not susceptible to review in this Court absent exceptional

circumstances.” (internal quotation marks and citation omitted)).

11