Petition for Writ of Certiorari — United States Fire Insurance v. Federal Insurance

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Text

Supreme Court, U.S. |

FILED

(1)

88-1360 4 | cee i3 ms

Supreme Court of the ds States

Ocroser TERM, 1988

UNITED STATES FIRE INSURANCE COMPANY,

Petitioner,

VS.

FEDERAL INSURANCE COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Barry, MCTIERNAN & MOORE

Attorneys for Petitioner

United States Fire

Insurance Company

22 Cortlandt Street

New York, New York 10007-3107

(212) 964-4270

Of Counsel:

MICHAEL F. CLOSE

Keene Valley, New York 12943

(518) 576-2037

QUESTIONS PRESENTED

1. In a declaratory action between two

excess insurers to determine their relative re-

sponsibilities under preprinted form contracts

in light of stipulated facts, did the Second

Circuit err in relying upon Anderson v. City of

Bessemer City, 470 U.S. 564, 574-75 (1985), to

hold that the district court's construction of

the policies, as to whose making no extrinsic

evidence was offered, presented a question of

fact subject only to the "clearly erroneous"

review of Federal Rule of Civil Procedure 52(a)

2. Did Anderson v. City of Bessemer City,

470 U.S. 564 (1985), overrule Hamilton v. Liver-

pool & London & Globe Ins. Co., 136 U.S. 242,

255 (1890), which held that interpretation of

written contracts, unaided by extrinsic evidence

or oral testimony about their making, presents a

"question of law" ol

lThe caption in this court contains the

names of all the parties in the Second Circuit.

STATEMENT OF INTERESTED PARTIES

United States Fire Insurance Company

is a wholly-owned subsidiary of Crum &

Forster, Inc. It has no subsidiaries.

Crum & Forster, Inc. is a subsidiary of -

Xerox Financial Services, Inc., which in

turn is a wholly-owned subsidiary of Xerox

Corporation.

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED i

PARTIES BELOW ii

TABLE OF AUTHORITIES iv

OPINIONS BELOW ~~ 1

JURISDICTION OF THIS COURT 1

RULE INVOLVED ~ 2

STATEMENT OF THE CASE 3

ARGUMENT 7

SUMMARY 7

THE QUESTIONS PRESENTED ARE IMPORTANT 9

THE DECISION BELOW CONFLICTS WITH

DECISIONS OF THIS COURT 13

THE CIRCUITS ARE DIVIDED, POST-

ANDERSON, ON WHETHER THE CONSTRUC-

TION OF WRITTEN CONTRACTS WITHOUT

EXTRINSIC EVIDENCE IS A QUESTION

OF LAW OR OF FACT 15

CONCLUSION 26

APPENDIX

ORDER OF THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

858 F. 2D 882 (1988) Al

ORDER OF THE SOUTHERN DISTRICT

OF NEW YORK 670 F. SUPP. 1191 (1987) Al6

ORDER DENYING REHEARING

AND HEARING EN BANC A32

TABLE OF AUTHORITIES

Aetna Ins. Co. v. State Automobile

Mut.Ins. Co., 368 F. Supp. 1278

(W.D. Ky. 1973) 11

Allstate Ins. Co. v. Farmers

Ins. Group, 108 A.D. 2d 284,

488 N.Y.S. 2d 703 (1st Dep't 1985),

modified, 67 N.Y. 2d 924, 502 N.Y.S.

29d 135, 493 N.E. 2d 238 (1986) 10

Allstate Ins. Co. v. Farmers

Ins. Group, 67 N.Y. 2d 924,

502 N.Y.S. 2d 135, 493 N.E.

2d 238 (1986) 6

Anderson v. City of Bessemer

City, 470 U.S. 564,

105 S. Ct. 1504, 84 L. Ed. 2d

518 (1985) i, 7-8, 13, 15-16

Antilles Steamship Co., Ltd., v.

American Hull Ins. Syndicate,

733 F. 2d 195 (2d Cir. 1984) 9-10

Apex Oil Co. v. Vanguard Oil &

Service Co., Inc., 760 F. 2d 417

(2d Cir. 1985) 7

Arkansas Rice Growers Coop.

Assoc. v. Alchemy Indus., Inc.,

797 F. 2d 565 (8th Cir. 1986) 23

Atkinson v. Atkinson,

254 Ga. 70, 326 S.E. 2d 206 (1985) 11

Byrd v. Blue Ridge Rural Elec.

Coop., 356 U.S. 525, 78 is: Gas

893, 2 L. Ed. 2d 953 (1958) 23

Capital Blue Cross v. Paid

Prescriptions, Inc., 496 F.

Supp. 223 (M.D. Pa. 1980) 12

Capitol Ford Truck Sales, Inc.

v. United States Fire Ins. Co.,

Inc., 180 Ga. App. 413, 349 S.E.

2d 201 (1986), reversed, 257 Ga. 77,

355 S.E. 2d 428 (1987) 10

Carpenter's Amended & Restated

Health Ben. Fund v. Holleman

Constr. Co., Inc. 751 F. 2d 763

(Sth Cir. 1985) 20

Dobson v. Masonite Corp., 359 F.

2d 921 (5th Cir. 1966) 16

Dow Chemical Co. v. M/V Roberta

Tabor, 815 F. 2d 1037

(Sth Cir. 1987) 20

Eatmon v. Bristol Steel & Iron

Works, Inc., 769 F. 2d 1503

(llth Cir. 1985) 24

Farlow v. Vigilant Ins. Co.,

165 Ga. App. 696, 302 S. E.

2d 578 (1983) 11

Farm Stores, Inc. v. Texaco, Inc.,

763 F. 2d 1335 (11th Cir.), cert.

dism'd, 474 U.S. 1039 (1985) 24

Federal Ins. Co. v. Allstate Ins.

Co., 111 A.D. 2d 146, 488 N.Y.S.

2d 780 (2d Dep't 1985) 11

Federal Ins. Co. v. Applestein,

377 So. 2d 229 (Fl. App. 1979) 11

Ford v. First Municipal Leasing

Corp., 838 F. 2d 994 (8th Cir. 1988) 22

citi

vil

Frankenmuth Mut. Ins. Co. v. Kompus,

135 Mich. App. 667, 354 N.W. 2d

303 (1984)

Godchaux v. Conveying Techniques,

Inc., 846 F. 2d 306

(5th Cir. 1988)

Hanna v. Plumer, 380 U.S. 460,

85 S. Ct. 1136, 14 L. Ed. 2d 8 (1965)

Hamilton v. Liverpool & London

& Globe Ins. Co., 136 U.S. 242,

10 S. Ct. 945, 34 L. Ed. 419

(1890)

Hartford Acc. & Ind. Co. v. Kellman,

375 So. 2d 26 (Fl. App. 1979)

Hawaiian Telephone Co. v. Microform

Data Systems, Inc., 829 F. 2d 919

(9th Cir. 1987)

Herron v. Southern Pac. Co.,

283 U.S. $1, 51 S. Ct. 383,

75 L. Ed. 857 (1931)

Hershon v. Gibraltar Building

& Loan Ass'n, Inc., Se a

1989 WL 476

(DC Cir. 6 Jan. 1989)

Johnson v. Milgo Industrial, Inc.,

458 F. Supp. 297 (D. Minn. 1978),

aff'd sub nom. Johnson v. United

States Fire Ins. _Co.,

586 F. 2d 1291 (8th Cir. 1978)

Kenyon v. Newton, 115 A.D. 2d 291,

496 N.Y.S. 2d 136 (4th Dep't 1985)

19,

i, 123, 16,

17,

Vii

Ladas v. Aetna Ins. Co.

416 So. 2d 21 (Fl. App. 1982),

rev. den., 429 So. 2d 6 (1983)

Lancaster Giass Corp. v. Phillips

ECG, Inc., 835 F. 2d 652

(6th Cir. 1987)

Leek v. Reliance Ins. Co.,

486 So. 2d 701 (Fl. App. 1986)

Mackin v. Applestein,

404 So. 2d 789 (Fl. App. 1981)

Meyers v. Selznick Co.,

373 F. 2d 218 (2d Cir. 1966)

Mission Ins. Co. v. United States

Fire Ins. Co., 401 Mass. 492,

917 N.E. 2d 463 (1988)

North River Ins. Co. v. Cy Thompson

Transportation Agency, Inc.,

840 F. 2d 139 (lst Cir. 1988)

Northbrook Excess & Surplus Ins.

Co. v. Chubb Group, 67 N.Y. 2D

1015, 503 N.Y.S. 2d 317,

494 N.E. 2d 448 (1986)

Pacific Ind. Co. v. Linn,

766 F. 2d 754 (3rd Cir. 1985)

Paradise v. Prescott, 767 F. 2d 1514

(llth Cir. 1985), aff'd sub nom.

United States v. Paradise, 480 U.S.

149, 107 S. Ct. 1053, 94 L.

Ed. 203 (1987)

Prince Carpentry, Inc. v. Cosmopolitan

Mut. Ins. Co., 124 Misc. 2d 919,

479 N.Y.S. 2d 284 (Sup. Ct.

N.Y. Cty. 1984)

viii

Rankin v. Fidelity Ins. & Safe Deposit

Co., 189 U.S. 242, 23 S. Ct. 593,

47 L. Ed. 792 (1903)

Republic Resources Corp. v. ISI

Petroleum West Caddo Drilling

Program 1981, 836 F. 2d 462

(10th Cir. 1987)

RCI Northeast Services Div. v.

Boston Edison Co., 822 F. 2d 199

(ist Cir. 1987)

Shapiro v. Glens Falls Ins. Co.,

39 N.Y. 2d 204, 383 N.Y.S. 2d 263,

347 N.E. 2d 624 (1976)

Sharon Steel Corp. v. Chase Manhattan

Bank, N.A., 691 F. 2d 1039

(2d Cir. 1982), cert. den., 460 U.S.

1012, 103 S. Ct. 1253, 75 L. Ed. 2d

482 (1983)

Southern Natural Gas Co. v.

Pursue Energy, 781 F. 2d 1079

(5th Cir. 1986)

Stevenson v. Stevenson Assoc.,

777 F. 2d 415 (8th Cir. 1985)

STV Engineers, Inc. v. Greiner

Engineering, Inc., 861 F. 2d 784

(3d Cir. 1988)

Tejas Drilling Co. v. Del

International, Inc., 849 F. 2d

176 (5th Cir. 1988)

United States Fire Ins. Co. v.

Capital Ford Truck Sales, Inc.,

257 Ga. 77, 355 S.E. 2d 428 (1987)

United States Fire Ins. Co. v.

Charter Financial Group,

851 F. 2d 957 (7th Cir. 1988)

United States Fire. Ins. Co. v.

Maryland Cas. Co., 52 Md. App. 269,

447 A. 2d 896 (1982)

United States Fire Ins. Co. v.

National Union Fire Ins. Co.,

107 Cal. App. 3d 456, 165 Cal.

Rptr. 726 (1980)

Walker v. Fireman's Fund Ins. Co.,

66 Md. App. 687, 505 A. 2d 884,

cert. den., 306-Md. 514,

910 A. 2d 250 (1986)

Weimer v. Kurz-Kasch, Inc.,

773 F. 2d 669 (6th Cir. 1985)

William & James Brown Co. v. M'Gran,

14 Pet. [39 U.S.] 479,

10 L. Ed. 550 (1840)

Other Authorities

28 U.S.C. § 1254(1)

Federal Rule of Civil

Procedure 52(a) i, 2, 8, 16, 20-25

9 Wigmore, Evidence,

2556 (3d ed. 1940)

4 Williston, Contracts

616 (3d ed. 1961)

OPINIONS BELOW

The order and opinion of the United States

Court of Appeals for the Second Circuit is offi-

cially reported at 858 F. 2d 882 (2d Cir.

1988). The order and opinion of the United

States District Court for the Southern District

of New York is officially reported at 670 F.

Supp. 1191 (S.D.N.Y. 1987). A supplemental

order and opinion of the Southern District, 24

November 1987, dealing with a question of pre-

judgment interest not involved in this petition,

is not officially reported and is not reproduced

here. The order of 14 November 1988 by the

Second Circuit, denying petitioner's prayer for

rehearing or hearing en banc (A32), is not offi-

cially reported.

JURISDICTION OF THIS COURT

The order of the United States Court of

Appeals for the Second Circuit sought to be

sacar

reviewed here was entered 30 September 1988.

Petitioner timely filed a petition for rehearing

or hearing en banc on 14 October 1988. That was

denied by order entered on 14 November 1988

(A32). No extension of time to file this peti-

_tion for writ of certiorari was sought. Peti-

tioner seeks a writ of certiorari from this

Court pursuant to 28 U.S.C. §1254(1).

RULE INVOLVED

Federal Rule of Civil Procedure 52(a) pro-

vides:

Rule 52. Findings by the Court

(a) Effect. In all actions tried upon

the facts without a jury or with an

advisory jury, the court shall find the

facts specially and state separately its

conclusions of law thereon, and judgment

shall be entered pursuant to Rule 58;

and in granting or refusing interlocuto-

ry injunctions the court shall similarly

set forth the findings of fact and con-

clusions of law which constitute the

grounds of its action. Requests for

findings are not necessary for purposes

of review. Findings of fact, whether

based on oral or documentary evidence,

shall not be set aside unless clearly

erroneous, and due regard shall be given

to the opportunity of the trial court to

judge of the credibility of the witness-

es. The findings of a master, to the

extent that the court adopts them, shall

be considered as the findings of the

court. It will be sufficient if the

findings of fact and conclusions of law

are stated orally and recorded in open

court following the close of the evi-

dence or appear in an opinion or memoran-

dum of decision filed by the court.

Findings of fact and conclusions of law

are unnecessary on decisions of motions

under Rule 12 or 56 or any other motion

except as provided in Rule 41(b).

STATEMENT OF THE CASE

This action was instituted by petitioner,

United States Fire Insurance Company ["US Fire"]

against respondent, Federal Insurance Company

{"Federal"], Aetna Casualty & Surety Company

["Aetna"], and their mutual insureds, Michael F.

Bell and John Boyle Bell, to recover $866,345

which US Fire had paid on behalf of Michael Bell

for a 1981 auto accident under its "Commercial

Comprehensive Catastrophe Liability Policy"

["the Catastrophe Policy"]. In brief, US Fire

es |

claimed that Aetna's "Personal Auto Policy" and

Federal's "Personal Excess Liability Policy"

["the Excess Policy"] applied before its Catas-

trophe Policy and it should therefore be indemni-

fied; alternatively, it claimed that the poli-

cies were concurrent, and the other insurers

should therefore contribute to the settlement.

The action was removed to the Southern District

of New York on the basis of diversity of citizen-

ship and amount in controversy. After a bench .

trial in the district court on the issue of the

reasonableness of the settlement, on which US

Fire prevailed, Aetna paid its policy limits to

US Fire ($500,000), and was released by both US

Fire and Federal. The district court then ruled

that the Excess Policy and the Catastrophe Poli-

cy insured at the same level, and ordered rat-

able contribution by Federal to US Fire. Ina

subsequent unreported order it denied US Fire

prejudgment interest.

Both sides appealed to the Second Circuit,

US Fire contending that the Catastrophe Policy

applied only after exhaustion of the Excess

Policy, hence it should be granted full, not

partial, indemnity, and that the court erred in

denying it prejudgment interest. Federal urged

that the Excess Policy applied after the Catas-

trophe Policy, hence it owed nothing?.

Petitioner notes briefly here the argument

in the Second Circuit to the extent necessary to

clarify the Rule 52(a) issue, since the construc-

tion of the insurance policies, whether fact or

law, is not reviewable here. US Fire urged

principally that the district court erred in

failing to give effect to precise words in the

Excess Policy that "it comes into play after all

your primary liability insurance has been used

up" (A27-28; 670 F. Supp. 1197), because the

2Federal relied chiefly on the disparity in

premium between the policies in both the district

court (A30; 670 F. Supp. at 1198) and the Second

Circuit (A9; 858 F. 2d at 886-87), to urge that

the Excess Policy was final-tier coverage. Since

the premium amount is stated on the declaration

sheets of the policies showing their coverage, it

is not evidence "extrinsic" to the policies to

which it is attached.

initiate alee

es |

policy's provision should be construed against

the insurer, e.g., Northbrook Excess & Surplus

Ins. Co. v. Chubb Group, 67 N.Y. 2D 1015, 503

N.Y.S. 2d 317, 494 N.E. 2d 448 (1986), and it

referred to the Excess Policy's Appeals clause,

Ultimate Net Loss clause, Payment of Loss

clause, and Insolvency clause, which referred

only to "primary" insurance as coming before it,

to urge that the Excess Policy applied after all

primary, but not excess, coverages. In con-

trast, US Fire noted that its own "Underlying

Insurance" clause referred to "excess insurance

of another carrier" as coming before it. As to

the admitted identity of the two policies’ "oth-

er insurance" clauses, it urged that under New

York law the “other insurance" clauses did not

change the ranking between two excess covers,

but only applied to excess covers of the same

rank, citing e.g., Allstate Ins. Co. v. Farmers

Ins. Group, 67 N.Y. 2d 924, 502 N.Y.S. 2d 135,

493 N.E. 2d 238 (1986), modifying 108 A.D. 2d

284, 488 N.Y.S. 2d 703 (lst Dep't 1985).

The Second Circuit found~it unnecessary to

precisely address these arguments, holding that:

We note that although the events and the

language of the pertinent insurance

policies were stipulated in the district

court, the proper inferences to be drawn

from the language remained in dispute.

Accordingly, the trial court's factual

findings may not be overturned unless

they are clearly erroneous. Anderson v.

City of Bessemer City, 470 U.S. 564,

574-75, 105 S. Ct. 1504, 1511-12, 84 L.

Ed. 2d 518 (1985); Apex Oil Co. v. Van-

guard Oil & Service Co., Inc., 760 F. 2d

417 (2d Cir. 1985). Under that standard

of review we conclude that the district

court's findings that (1) both policies

purported to be available only after

other insurance was exhausted, and (2)

neither policy expressly limited its

liability to amounts in excess of

amounts collectible under other excess

policies, were not clearly erroneous,

and we affirm the ruling that U.S. Fire

and Federal must contribute ratably to

so much of the settlement as was not

paid by the primary insurers.

858 F. 2d at 884; AS.

ARGUMENT

SUMMARY

Whether the interpretation of fully integrat-

ed contracts in light of stipulated facts and

unaided by extrinsic evidence of their making is

a question of fact or a question of law has

ramifications in three areas of civil procedure:

First, whether a given matter should be decided

by a judge or sent to a jury; second, whether

the scope of appellate review is plenary, or

limited to the "clearly erroneous" review of

Rule 52(a), and third, whether a given decision

has stare decisis effect. The holding below,

that the disagreement between the insurers over

the interpretation of two printed

industry-standard form contracts presented a

question of fact was assuredly not the holding

of Anderson v. City of Bessemer City, 470 U.S.

964, 574-75 (1985), and although the holding

below is supported by post-Anderson opinions

from the First Circuit and arguably from the

Tenth, it is squarely contradicted by

post-Anderson holdings from the District of

Columbia, Third, Fifth, Sixth, Eighth and 11th

Circuits, and pre-Anderson opinions of this

Court which it has not overruled.

THE QUESTIONS PRESENTED ARE IMPORTANT

As Judge Newman noted in his extensive con-

curring opinion in Antilles Steamship Co., Ltd.,_

v. American Hull Ins. Syndicate, 733 F. 2d 195,

202-07 (2d Cir. 1984), "(the fact/law distinc-

tion in contract interpretation] has relevance

for determining whether the issue is to be decid-

ed by the trial judge or, when available, the

jury, whether the determination, if made by the

trial judge, is subject upon appellate review to

the "clearly erroneous" standard of Rule 52(a)

of the Federal Rules of Civil Procedure, and

whether the construction is to have stare deci-

sis effect" (footnote omitted).

Stare decisis, or lack thereof, is important

here because "we should deem it in the public

interest in contract cases to have as much cer-

tainty as possible as to the meaning of con-

tracts, especially those involving terms used by

others beyond the contracting parties. * * * It

is of special importance to do so in the instant

case involving a standard form of contract for

marine insurance, the uniform interpretation of

which is significant for the entire shipping

industry." Antilles Steamship Co., supra, 735

F.2d at 207. This case is a paradigm of a "stan-

dard form of contract" "the uniform interpreta-

tion of which is significant" for an entire

industry. The Catastrophe Policy sub judice has

been the subject of at least 11 reported opin-

ions® and the Excess Policy has been the

3United States Fire Ins. Co. v. Charter

Financial Group, 851 F. 2d 957 (7th Cir. 1988);

Mission Ins. Co. v. United States Fire Ins. Co.,

401 Mass. 492, 517 N.E. 2d 463 (1988); United

States Fire Ins. Co. v. Capital Ford Truck

Sales, Inc., 257 Ga. 77, 355 S.E. 2d 428 (1987),

reversing Capitol Ford Truck Sales, Inc. v.

United States Fire Ins. Co., 180 Ga. App. 413,

349 S.E. 2d 201 (1986); Allstate Ins. Co. v.

Farmers Ins. Group, 108 A.D. 2d 284, 488 N.Y.S.

2d 703 (1st Dep't 1985), modified, 67 N.Y. 2d

924, 502 N.Y.S. 2d 135,493 N.E. 2d 238 (1986);

Prince Carpentry, Inc. v. Cosmopolitan Mut. Ins.

Co., 124 Misc. 2d 919, 479 N.Y.S. 2d 284 (Sup.

Ct. N.Y. Cty. 1984); United States Fire. Ins.

Co. v. Maryland Cas. Co., 52 Md. App. 269, 447

A. 2d 896 (1982); United States Fire Ins. Co.

v. National Union Fire Ins. Co., 107 Cal. App.

3d 456, 165 Cal. Rptr. 726 (1980); Johnson v.

Milgo Industrial, Inc., 458 F. Supp. 297 (D.

Minn. 1978), aff'd, Johnson v. United States

Fire Ins.

enemies

subject of at least 14 others*. The insurers

need to know how a court will construe their

policies, not how a fact-finder could construe

them. "Boilerplate provisions are * * * not the

consequence of the relationship of particular

[contracting parties] and do not depend upon

Co., 586 F. 2d 1291 (8th Cir. 1978)

4teek v. Reliance Ins. Co., 486 So. 2d 701

(Fl. App. 1986); Walker v. Fireman's Fund Ins.

Co., 66 Md. App. 687, 505 A. 2d 884, cert. den.,

306 Md. 514, 510 A. 2d 260 (1986); Kenyon v.

Newton, 115 A.D. 2d 291, 496 N.Y.S. 2d 136 (4th

Dep't 1985); Federal Ins. Co. v. Allstate Ins.

Co., 111 A.D. 2d 146, 488 N.Y.S. 2d 780 (2d

Dep't 1985); Atkinson v. Atkinson, 254 Ga. 70,

326 S.E. 2d 206 (1985); Frankenmuth Mut. Ins.

Co. v. Kompus, 135 Mich. App. 667, 354 N.W. 2d

303 (1984); Farlow v. Vigilant Ins. Co., 165 Ga.

App. 696, 302 S. E. 2d 578 (1983); Ladas v.

Aetna Ins. Co. 416 So. 2d 21 (Fl. App. 1982),

rev. den., 429 So. 2d 6 (1983); Mackin v.

Applestein, 404 So. 2d 789 (Fl. App. 1981);

Federal Ins. Co. v. Applestein, 377 So. 2d 229

(Fl. App. 1979); Hartford Acc. & Ind. Co. v.

Kellman, 375 So. 2d 26 (Fl. App. 1979); Shapiro

v. Glens Falls Ins. Co., 39 N.Y. 2d 204, 383

N.Y.S. 2d 263, 347 N.E. 2d 624 (1976),

affirming, 47 A.D. 2d 856, 365 N.Y.S. 2d 892 (2d

Dep't 1975); Aetna Ins. Co. v. State Automobile

Mut. Ins. Co., 368 F. Supp. 1278 (W.D. Ky. 1973)

particularized intentions of the parties to an

indenture. There are no adjudicative facts

relating to the parties to the litigation for a

jury to find and the meaning of boilerplate

provisions is, therefore, a matter of law rather

than fact." Sharon Steel Corp. v. Chase Manhat-

tan Bank, 691 F. 2d 1039, 1048 (2d Cir. 1982),

cert. den., 460 U.S. 1012 (1983). The questions

presented are further important because the

division between law and fact is also the

division between judge and jury. E.g., Capital

Blue Cross v. Paid Prescriptions, Inc., 496 F.

Supp. 223, 227 (M.D. Pa. 1980)(relying on Hamil-

ton v. Liverpool & London & Globe Ins. Co.,

supra, 136 U.S. 242, 255 (1890), to take case

from the jury). If the Second Circuit is cor-

rect that the contest between the parties here

over the correct construction of the two poli-

cies was a question of fact, it necessarily

follows that a (properly instructed) jury should

(or could, if a timely jury demand had been

made) resolve whether the Excess's Policy's

statement that it applied "after all your prima-

ry liability insurance has been used up" (670 F.

Supp. at 1197; A27-28) was a binding admission

of coverage level under the rule of contra prof-

erentem, or whether it should be disregarded

because the "precise coverage responsibilities

are more elaborately and technically set forth

in the Policy' section". Id. Whether that

argument is resolved in favor of or against US

Fire, it should be resolved the same way in all

cases, and thus is a question of law and nota

"fact" capable of relitigation every time it

arises.

THE DECISION BELOW CONFLICTS WITH

DECISIONS OF THIS COURT.

The relevant precedent was not Anderson v.

City of Bessemer City, 470 U.S. 564 (1985),

which held that a trial court's finding of "in-

tent" to discriminate was a finding of fact

subject only to clearly erroneous review, even

when founded upon a record which was largely

documentary, but Hamilton v. Liverpool & London

& Globe Ins. Co., 136 U.S. 242, 255 (1890),

where this Court heldthat "[u]pon the evidence

in this case, the question whether the defendant

had duly requested, and the plaintiff had unrea-

sonably refused, to submit to such an appraisal

and award as the policy called for, did not

depend in any degree * * * on oral testimony or

extrinsic facts, but wholly upon the construc-

tion of the correspondence in writing between

the parties, presenting a pure question of law

to be decided by the court." See generally,

Rankin v. Fidelity Ins. & Safe Deposit Co., 189

U.S. 242, 252-53 (1903)("Although the construc-

tion of written instruments is one for the

court[,] where the case turns upon the proper

conclusions to be drawn from a series of let-

ters, particularly of a commercial character,

taken in connection with other facts and circum-

stances, it is one which is properly referred to

a jury"), citing, William & James Brown Co. v.

M'Gran, 14 Pet. [39 U.S.] 479, 493 (1840)(Story,

J.)("It is certainly true, as a general rule,

that the interpretation of written instruments

properly belongs to the Court, and not to the

jury. But there certainly are cases, in which,

from the different senses of the words used, or

their obscure and indeterminate reference to

unexplained circumstances, the true interpreta-

tion of the language may be left to the consider-

ation of the jury for the purpose of carrying

into effect the real intention of the par-

ties"). Hamilton, supra, 136 U.S. 242, 255,

which has not been overruled, remains binding

authority on the federal courts.

THE CIRCUITS ARE DIVIDED

Following Anderson v. City of Bessemer City, "a

470 U.S. 564 (1985), the circuits are in dis-

agreement about whether a dispute about the

effect to be given to the words of wholly

written contracts is a question of fact or of

law®. The First Circuit appears to agree with

the Second that the disagreement about the

effect of the language in written contracts is a

question of fact. RCI Northeast Services Divi-

sion v. Boston Edison Co., 822 F. 2d 199, 202,

203 (1st Cir. 1987):

"(W]here the plain meaning of a contract

phrase does not spring unambiguously

from the page or from the context, its

proper direction becomes one for the

factfinder, who must ferret out the

intent of the parties" [citation omit-

tedi}. * °°

"An argument between parties about the

meaning of a contract is typically an

argument about a material fact, namely

the factual meaning of the contract"

[citation]. * * * Accordingly Rule

52(a) applies with undiminished energy

to this matter" [quotation omitted].

Pa SUS Fire does not suggest that this was

clearly settled before Anderson v. City of

Bessemer City, supra. Compare, e.g., Meyers v.

Selznick Co., 373 F. 2d 218, 225, (2d Cir.

1966) (Friendly, J.)("[t]he books are indeed

studded with statements that [t]he construction

of all written instruments belongs to the

court.' 9 Wigmore, Evidence, 2556 at 522 (3d ed.

1940); 4 Williston, Contracts 616 at 649 (3d ed.

1961)"), with Dobson v. Masonite Corp., 359 F.

2d 921, 923 (Sth Cir. 1966)("[i]nterpretation is

always a question of fact").

Cf. North River Ins. Co. v. Cy Thompson Transpor-

tation Agency, Inc., 840 F. 2d 139, 141 (lst

Cir. 1988)(where extrinsic evidence relied upon,

a question of fact is presented).

The position of the 10th Circuit at least

appears to be consistent with the First and

Second Circuits. Republic Resources Corporation

v. ISI Petroleum West Caddo Drilling Program

1981, 836 F. 2d 462, 465 (10th Cir. 1987)("the

contract is ambiguous as to whether paragraphs

one and three were intended to be independent of

paragraphs two and four. This is a question of

law [citation omitted]. But the interpretation

of the ambiguous contract is a question of fact,

id., which an appellate court may not make").

In contrast, the DC Circuit takes the posi-

tion that the (disputed) construction of a pure-

ly written instrument (a release) is a matter of

law, not fact. Hershon v. Gibraltar Building &

Loan Ass'n, Inc., ___ F. 2d __, 1989 WL 476, 5

(D.C. Cir. 6 Jan. 1989)("the question of inter-

preting the plain language of a contract is a

question of law . . . and appellate courts are

not limited to the clearly erroneous standard of

review unless extrinsic evidence was [properly]

utilized" [quotation omitted; brackets in origi-

nal]); the Third Circuit, post Anderson, square-

ly disagrees with the holding below in the Sec-

ond Circuit. Pacific Indemnity Co. v. Linn, 766

F. 2d 754, 760 (3rd Cir. 1985):

"Most of the issues raised in these

appeals involve the interpretation of

insurance contracts. Determination of

the proper coverage of an insurance

contract when the facts are not in dis-

pute is a question of law [citation

omitted]. Therefore, our review is

plenary [citation omitted]. Similarly,

whether an insurance policy is ambiguous

“is a legal question over which our re-

view is plenary [citations omitted].

Our review of factual disputes is gov-

erned by the clearly erroneous stan-~

dard".

See STV Engineers, Inc. v. Greiner Engineering,

Inc., 861 F. 2d 784, 787 (3d Cir. 1988)("[t]o

the extent * * * that the district judge's deci-

sion involves the construction of a clear con-

tractual term, or the application of that

construction to the facts of the case, our re-

view is plenary"). The Fifth Circuit, in one of

the most complete post-Anderson analysis of the

fact/law dichotomy in contract interpretation,

squarely rejects the position below that a dis-

agreement about the effect the language of writ-

ten documents is a fact question. Godchaux v.

Conveying Techniques, Inc., 846 F. 2d 306, 314

n. 17 (Sth Cir. 1988):

Ordinarily courts attempt to resolve

ambiguities in a contract by looking to

the contract itself, on the theory that

the parties' words best represent their

intentions. Ambiguous terms are inter-

preted in light of other terms in the

contract, and the inconsistencies are

resolved through standard rules of inter-

pretation - - for example, that specific

terms control over general terms, or

that separately negotiated terms control

over standardized terms. As long as the

contract as a whole is coherent, ambigu-

ities can be resolved as a matter of

law, without looking beyond the four

corners of the document. In such cases,

a reviewing court is not bound by the

clearly erroneous standard of review.

Since no issues of fact are involved,

the reviewing court is as competent as

the trial court to interpret the con-

tract.

In some cases, however, even by looking

at the entire document, ambiguities

cannot be resolved -- the document as a

whole is ambiguous. To resolve these

ambiguities, a court cannot rely solely

on the language of the contract to inter-

pret the parties' intent, and must look

to extrinsic or parol evidence. Conse-

quently, in these cases, questions of

contract interpretation are questions of

fact, . . . and the clearly erroneous

standard of review applies. Fed. R.

Civ. FP. Sates.

quoting, Carpenter's Amended & Restated Health

Ben. Fund v. Holleman Constr. Co., Inc., 751 F.

2d 763, 766-67 (5th Cir. 1985); see Tejas Drill-

ing Co. v. Del International, Inc., 849 F. 2d

176, 179 (5th Cir. 1988)("[t]hese conclusions,

which construe the legal effect of the contractu-

al language, are legal conclusions subject to de

novo review" [citation omitted]); Dow Chemical

Co. v. M/V Roberta Tabor, 815 F. 2d 1037, 1041

(Sth Cir. 1987)("[q]uestions of contract inter-

pretation are questions of law subject to de

novo review"); Southern Natural Gas Co. v. Pur-

sue Energy, 781 F. 2d 1079, 1081- (5th Cir.

1986)("the district court's determination of

non-ambiguity is a question of law which we

review de novo").

The Sixth Circuit in two different opinions,

substantially agrees with the Fifth Circuit's

approach in Godchaux v. Conveying Techniques,

Inc., 846 F. 2d 306, 314 n. 17 (Sth Cir. 1988),

supra, that Fed. R. Civ. P. 52(a) does not apply

to a trial court's conclusions about the meaning

of written instruments. Lancaster Glass Corp.

v. Phillips ECG, Inc., 835 F. 2d 652, 658 (6th

Cir. 1987):

"Fed. R. Civ. P. 52(a) provides that

findings of fact by the district court

shall not be set aside unless they are

clearly erroneous. When reviewing the

district court's interpretation of a

contract, however, an appellate court is

not limited by the "clearly erroneous"

rule [citation omitted]. The interpreta-

tion and construction of a written con-

tract, as required here, are matters of

law, thus allowing de novo review [cita-

tion omitted]. Such de novo review

permits us to draw our own inferences

and legal conclusions from the record in

the present case... ."

Similarly, Weimer v. Kurz-Kasch, Inc., 773 F. 2d

669, 671 (6th Cir. 1985), clearly supported US

Fire's prayer for de novo review:

We agree with the district court's con-

clusion that the only issue presented is

one of contract interpretation, but we

are unable to concur in the district

court's conclusion, based on its inter-

pretation of the collective bargaining

agreements, that Kurz-Kasch is entitled

to judgment. Contract interpretation,

such as is involved here, is a question

of law not subject to the clearly errone-

ous standard; thus in reviewing the

district court's interpretation of the

pertinent contracts, we are not bound by

Fed. R. Civ. P. 52(a) [citation omit-

ted]. The trial court's conclusions of

law are freely reviewable by the court

of appeals [citation omitted]. In inter-

preting these collective bargaining

agreements, we reach a contrary conclu-

sion .

The 8th and 1lith Circuits in post-Anderson

decisions have taken positions contrary to the

First and Second, holding that a trial court's

resolution of the meaning of a written contract

without relying on extrinsic evidence of intent

presents a question of law subject to de novo

review. Ford v. First Municipal Leasing Corp.,

838 F. 2d 994, 996 (8th Cir. 1988)(Nebraska

law)®; Arkansas Rice Growers Coop. Assoc. v.

Alchemy Indus., Inc., 797 F. 2d 565, 567 (8th

Cir. 1986)("[i]t is well settled that the con-

struction and legal effect of a contract are

questions of law subject to de novo review [cita-

tion]. To the effect that the meaning of the

contract depends on disputed extrinsic evidence,

however, it constitutes a finding of fact [cita-

tion], subject to review on appeal under the

clearly erroneous rule, Fed. R. Civ. P. 52(a)");

Stevenson v. Stevenson Assoc., 777 F. 2d 415,

418 (8th Cir. 1985)("where an adjudication of

parties' rights and obligations under a contract

6US Fire agrees with the Second Circuit,

however, that even in a diversity case, the line

between fact and law is a matter of federal law.

Hershon v. Gibraltar Building & Loan Ass'n,

Inc., F. 2d __, 1989 WL 476, 5 (DC Cir. 6

Jan. 1989), so holds, and it follows from this

Court's decisions in Byrd v. Blue Ridge Rural

Elec. Coop., 356 U.S. 525 (1958), and Herron v.

Southern Pac. Co., 283 U.S. 91 (1931), that the

line between judge and jury is a matter of

federal law in all instances. The same result

obtains if one views the issue as the application

vel non of Rule 52(a). Hanna v. Plumer, 380 U.S.

460 (1965).

- i,

rests solely upon a reading of the contract

itself, and involves no findings of fact or

questions of credibility, we review the district

court's conclusions of law free of the clearly ~

erroneous standard of Fed. R. Civ. P. 52(a));

Eatmon v. Bristol Steel & Iron Works, Inc., 769

F. 2d 1503, 1518 (11th Cir. 1985)("[o]ur review

of the district court's interpretation of the

executive order conciliation agreement is not

restricted by the clearly erroneous rule of Fed.

R. Civ. P. 52(a)"); Paradise v. Prescott, 767 F.

2d 1514, 1525 (11th Cir. 1985)("[a]ppellate

review of a district court's construction of a

consent decree is akin to review of a district

court's contract interpretation; in this aspect

of the case, we thus are not bound by either the

clearly erroneous rule or the abuse of discre-

tion standard" [citation omitted]), aff'd on

other grounds sub nom. United States v. Para-

dise, 480 U.S. 149 (1987); Farm Stores, Inc. v.

Texaco, Inc., 763 F. 2d 1335, 1340 (11th Cir.)

("the clearly erroneous standard does not apply

cee eee

to legal conclusions or mixed questions of law

and fact" [citations omitted]), cert. dism'd,

474 U.S. 1039 (1985). This is also apparently

the position of the Ninth Circuit as well.

Hawaiian Telephone Co. v. Microform Data Sys-

tems, Inc., 829 F. 2d 919, 921 (9th Cir.

1987)("[w]le review de novo the district court's

interpretation of contractual provisions [cita-

tion omitted]. We review the district court's

factual findings for clear error. Fed. R. Civ.

P. 52(a)").

The issue therefore arises frequently, has

wide ramifications for civil procedure, has

divided the circuits, and the holding below

conflicts with a square precedent of this Court.

CONCLUSION

A Writ of Certiorari should issue to review

the judgment of the United States Court of Ap-

peals for the Second Circuit.

Respectfully submitted,

Barry, McTiernan & Moore

Attorneys for

UNITED STATES FIRE INSURANCE COMPANY

22 Cortlandt Street

New York, New York 10007-3107

(212) 964-4270 (Phone)

(212) 964-2845 (FAX)

of counsel

Michael F. Close

Keene Valley, N.Y. 12943

(518) 576-2037 (Phone/Fax)

Keene Valley, N.Y. 12943

11 February 1989

02/11/1989

14:26:19

APPENDIX

A-]

UNITED STATES FIRE INSURANCE COMPANY,

Plaintiff-Appellant, Cross-Appellee,

FEDERAL INSURANCE COMPANY, Aetna Insurance Company,

John Boyle Bell and Michael Bell,

Defendants

Appeal of FEDERAL INSURANCE COMPANY,

Defendant-Appellee, Cross-Appellant.

Nos. 1140, 1224, Dockets 88-7087, 88-7131.

United States Court of Appeals,

Second Circuit.

Argued May 6, 1988.

Decided Sept. 30, 1988.

Catastrophe insurer brought action against excess insurer to

recover money contributed to settlement of underlying personal

injury action brought against insured of both companies. The

United States District Court for the Southern District of New

York, Bernard Newman, Senior Judge, sitting by designation,

670 F.Supp. 1191, entered judgment in favor of catastrophe in-

surer. Appeal and cross appeal were taken. The Court of Ap-

peals, Kearse, Circuit Judge, held that: (1) District Court fin-

dings that exhaustion provisions of catastrophe policy and ex-

cess policy cancelled each other out and each insurer thus had

to contribute to settlement in proportion to respective policiy

limits were not clearly erroneous, and (2) catastrophe insurer

was entitled to recover prejudgment interest

Affirmed in part, reversed in part and rernanded.

} v

A-2

Michael F. Close, Keene Valley, N.Y. (Barry, McTiernan &

Moore, New York City, on the _ brief), for

plaintiff-appellant-cross-appellee.

Brian F. McDonough, New York City (William G. Becker,

Jr., Shanley & Fisher, P.C., New York City, on the brief), for

defendant-appellee-cross-appellant.

Before LUMBARD, OAKES, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiff United States Fire Insurance Co. (“U.S. Fire”) ap-

peals from a final judgment entered in the United States District

Court for the Southern District of New York following a bench

trial before Bernard Newman, Judge,* awarding U.S. Fire

$61,057.50 as reimbursement from defendant Federal Insurance

Co. (“Federal”) for one-sixth of an amount paid by U.S. Fire

in settlement of a personal injury suit against their common in-

sured, 670 F.Supp. 1191 (S.D.N.Y.1987). On appeal U.S. Fire con-

tends (1) that Federal should have been required to reimburse

it for the entire amount of its settlement payments, and (2) that

U.S. Fire was entitled to prejudgment interest. Federal cross-

appeals, contending that it is not liable to U.S. Fire for any por-

tion of the settlement. We affirm so much of the judgment as

awarded U.S. Fire $61,057.50 and reverse so much of the judg-

ment as denied it prejudgment interest on that amount.

I. BACKGROUND

The following facts are not in dispute. In 1981, Michael Bell

(“Bell”), the parties’ common insured, was involved in an

automobile accident. Bell was driving a car owned by John Boyle

& Co. (“Boyle”), of which his father was president. A passenger

in the car suffered personal injuries in the accident and brought

an action for damages against Bell and Boyle. That action trig-

gered disputes over the proper allocation of liability among the

* The Honorable Bernard Newman, Senior Judge of the United States Court

of International Trade, sitting by designation.

A-3

insurers who had issued four insurance policies, each of which

covered Bell at the time of the accident: (1) a primary insurance

policy issued by Federal to Boyle (the “business auto policy”)

in the amount of $500,000; (2) a primary insurance policy issued

by Aetna Casualty & Surety Co. (“Aetna”) to Bell’s mother (the

“personal auto policy”), also in the amount of $500,000; (3) a

“Personal Excess Liability Policy” issued by Federal to Bell’s

father (the “excess policy”) in the amount of $2,000,000; and

(4) a “Commercial Comprehensive Catastrophe Liability Policy”

issued by U.S. Fire to Boyle (the “catastrophe policy”) in the

amount of $10,000,000. As discussed in greater detail in part

II.A. below, both Federal’s excess policy and U.S. Fire's

catastrophe policy contained provisions stating that the policy’s

coverage did not come into play until the insured had exhausted

other available sources of insurance (the “exhaustion provisions”).

The personal injury suit was settled for $1,366,345. Of this

amount, Federal paid $500,000 under its business auto pclicy

but nothing under its excess policy, and Aetna eventually con-

tributed $500,000 under the personal auto policy. At issue on

this appeal is the remaining $366,345, paid by U.S. Fire under

its catastrophe policy. U.S. Fire commenced the present action

against Federal in state court, from which it was removed to

the district court.

To the extent pertinent here, U.S. Fire contended that its

catastrophe policy was excess to both (a) the primary insurance

policies and (b) Federal’s excess policy, and that U.S. Fire was

entitled to recover the entire $366,345 from Federal. Federal,

on the other hand, contended that its excess policy was excess

to both (a) the primary policies and (b) U.S. Fire’s catastrophe

policy, and that Federal was not liable for any part of the

$366,345.

After a bench trial on stipulated facts, the district court held

that U.S. Fire was entitled to recover one-sixth of the $366,345

from Federal. In an Opinion, Findings of Fact and Conclusions

of Law dated October 7, 1987, the court found that since both

U.S. Fire’s catastrophe policy and Federal’s excess policy pur-

ported to provide coverage only after all other available

A-4

insurance had been exhausted, the two exhaustion provisions

canceled each other out, and both U.S. Fire and Federal must

contribute to the $366,345 portion of the settlement in propor-

tion to their respective policy limits. Since the limits of the per-

tinent U.S. Fire and Federal policies were, respectively,

$10,000,000 and $2,000,000, the court concluded that the ratio

of their liability was 5 to 1 and ordered Federal to reimburse

U.S. Fire for one-sixth of the $366,345 paid by U.S. Fire, or

$61,057.50.

In a Memorandum dated November 24, 1987 (“Memoran-

dum”) the court rejected U.S. Fire’s request for prejudgment in-

terest on the ground that N.Y.Civ.Prac.L. & R. (“CPLR”)

§ 5001(a) (McKinney 1963) allows an award of such interest only

when the court has found a breach of contract. The court’s ra-

tionale for concluding that U.S. Fire’s action was not grounded

in contract was as follows:

The New York Court of Appeals has often noted

that there is a fundamental distinction between con-

tribution and indemnity. See, e.g., McDermott v. City

of New York, 50 N.Y.2d 211, 428 N.Y.S.2d 643, 406

N.E.2d 460 (1980); .... The right to contribution is

not founded on, nor does it arise from, contract. It

exists where ratable or proportional reimbursement

is sought. Conversely, the right to indemnity springs

from an express or implied contract in situations where

full, not partial, reimbursement is sought... .

In the underlying matter, a ratable distribution of

insurance proceeds was ordered. Consequently, the

parties’ insurance action was founded upon the right

of contribution and not indemnification.

Memorandum at 3-4 (other citations omitted).

These appeals followed.

sin ce rie ‘

A-5

II. DISCUSSION

On its appeal, U.S. Fire urges principally that we review the

insurance policies de novo and find that its catastrophe policy

applied only after exhaustion of Federal’s excess policy. Federal

argues that the “clearly erroneous” standard of review set forth

in Fed.R.Civ.P. 52(a) applies and that the district court erred

in not inferring, from a disparity in the premiums charged for

the two policies, that Federal’s excess policy applied only after

exhaustion of U.S. Fire’s policy.

We note that though the events and the language of the per-

tinent insurance policies were stipulated in the district court,

the proper inferences to be drawn from the language remained

in dispute. Accordingly, the trial court’s factual findings may

not be overturned unless they are clearly erroneous. Anderson

v. City of Bessemer City, 470 U.S. 564, 574-75, 105 S.Ct. 1504,

1511-12, 84 L.Ed.2d 518 (1985); Apex Oil Co. v. Vanguard Oil

d Service Co., 760 F.2d 417 (2d Cir.1985). Under that standard

of review, we conclude that the district court’s findings that (1)

both policies purported to be available only after other insurance

was exhausted, and (2) neither policy expressly limited its liability

to amounts in excess of amounts collectible under other excess

policies, were not clearly erroneous, and we affirm the ruling

that U.S. Fire and Federal must contribute ratably to so much

of the settlement as was not paid by the primary insurers.

U.S. Fire also contends that it is entitled to prejudgment in-

terest and that it should be awarded such interest on the entire

amount that it paid in the settlement. To the extent that U.S.

Fire seeks to recover from Federal interest on any sum greater

than the sum awarded to it from Federal, its claim is frivolous.

To the extent that U.S. Fire seeks prejudgment interest on the

amount Federal is required to contribute, however, its argument

has merit and we therefore reverse so much of the judgment

~ as denied such interest.

A. Liability

The general rule under New York law is that “[t]here is [a]

well-settled equitable right to contribution, where there is

A-6

concurrent insurance even in the absence of a policy provision

for apportionment,” Travelers Insurance Co. v. General Acci-

dent, Fire & Life Assurance Corp., 28 N.Y.2d 458, 463, 322

N.Y.S.2d 704, 706-07, 271 N.E.2d 542, 544-45 (1971), and that

where each of the policies covering the risk “generally purports

to be excess to the other, the excess coverage clauses are held

to cancel out each other and each insurer contributes in pro-

portion to its limit amount of insurance... .” Lumbermens

Mutual Casualty Co. v. Allstate Insurance Co., 51 N.Y.2d 651,

655, 435 N.Y.S.2d 953, 955, 417 N.E.2d 66, 68 (1980)

(“Lumbermens”); accord State Farm Fire & Casualty Co. v.

LiMauro, 65 N.Y.2d 369, 373-74, 492 N.Y.S.2d 534, 538, 482

N.E.2d 13, 17 (1985) (“State Farm”). Thus, though it is possible

for an insurer to provide “that it would, in effect, supply only

the final tier of coverage,” if other policies similarly purported

to provide final-tier coverage, all such insurers would be required

“to contribute ratably” toward any settlement. Lumbermens,

51 N.Y.2d at 656 n. *, 435 N.Y.S.2d at 956 n. *, 417 N.E.2d at

68 n. *. The general rule of ratable contributions is inapplicable,

however, if it “would effectively deny and clearly distort the plain

meaning of the terms of the policies.” Id. at 655, 435 N.Y.S.2d

at 955, 417 N.E.2d at 68.

The Lumbermens court determined that the general rule did

not apply to three policies at issue before it because the plain

language of each demonstrated that the respective parties to each

insurance “contract did not bargain for a ratable contribution

with any of the [other] policies.” Id. at 656, 435 N.Y.S.2d at 955,

417 N.E.2d at 68; see id. at 655, 435 N.Y.S.2d at 955, 417 N.E.2d

at 68. Rather, the court concluded that three tiers of coverage

had been agreed to on the basis that (1) the first policy merely

stated generally that it was excess to other available sources of

insurance; (2) the second “was designed specifically to provide

coverage in excess of that provided by [the first],” id.; (3) a clause

in the second policy stating that the issuer “would not contribute

with other collectible insurance ‘other than insurance applying

as excess to [its] limit of liability, ” id. at 656 n. *, 435 N.Y.S.2d

at 955 n. *, 417 N.E.2d at 68 n. * (quoting policy), essentially

“conceded the possibility that another policy could provide

coverage in excess of its coverage,” id. at 656, 435 N.Y.S.2d at

A-7

955, 417 N.E.2d at 68 (footnote omitted); and (4) the third

policy “specifically provided coverage in excess of all other

coverage available, including excess coverage,” and the premiums

for this policy “[p]resumably” reflected the agreement that it

represented the final tier of coverage and would seldom be

reached, id.

As to the last factor mentioned in Lumbermens, premium

size may be an important factor in determining priority of

coverage, see State Farm, 65 N.Y.2d at 378, 492 N.Y.S.2d at 541,

482 N.E.2d at 20 (declining to order ratable contribution in part

because one policy provided $1,000,000 of coverage for a

premium of $144 while the other provided only $100,000 to

$300,000 of coverage for a premium of $119); but the analysis

must consider whether premium disparity instead reflects

disparities in the degree of risk covered, see Northbrook Excess

and Surplus Insurance Co. v. Chubb Group, 113 A.D.2d 319,

325, 496 N.Y.S.2d 430, 433 (1st Dep’t 1985) (“In evaluating the

significance of the amount of the premium, it is clearly impor-

tant to measure that premium against the [comprehensiveness

of the] coverage provided by that policy.”), affd mem., 67 N.Y.2d

1015, 503 N.Y.S.2d 317, 494 N.E.2d 448 (1986).

(1] In the present case, the district court concluded that the

general rule of ratable contribution applied, finding that neither

the U.S. Fire catastrophe policy nor the Federal excess policy

manifested a sufficiently clear intent that it would provide a

higher tier of coverage than the other. Given the language of

each policy’s exhaustion provisions, this finding can hardly be

termed clearly erroneous. First, each policy uses substantively

indistinguishable terms to define its “retained limit,” i.e., the

amount of other insurance that must be exhausted before the

policy comes into play. The U.S. Fire policy defines this amount,

in pertinent part, as:

the total of the applicable limits of the underlying

policies listed in Schedule A hereof, and the applicable

limits of any other insurance collectible by the insured

A-8

The Federal excess policy defines its retained limit as:

the limit of liability of the primary insurance as it is

shown in the Schedule hereof, or the actual limits of

liability of any applicable primary or other insurance,

whichever is greater ....

Each policy thus evinces the same broad general intent that its

coverage is to be excess to all other coverage, as U.S. Fire refers

to exhaustion of “underlying” policies and “any other insurance,”

while Federal refers to exhaustion of “primary” insurance and

“other insurance”; but neither policy defines these terms in a

way that plainly renders one broader than the other.

Further, the policies’ “Other Insurance” clauses suggest that

the two policies should be regarded as providing the same tier

of coverage. The “Other Insurance” clause in U.S. Fire's policy

states:

If other collectible insurance including other insurance

with this company is available to the insured cover-

ing a loss also covered hereunder (except insurance

purchased to apply in excess of the sum of the retain-

ed limit and the limit of liability hereunder) the in-

surance hereunder shall be in excess of and not con-

tribute with, such other insurance.

The parallel clause in Federal’s policy states:

The insurance provided by this policy shall be in ex-

cess of, and shall not contribute with, any other in-

surance (except insurance purchased to apply in ex-

cess of the sum of the retained limit and the limit of

liability hereunder) available to the named insured

.., not only under any policy enumerated in the

Schedule, but also under any other insurance available

to the insured, and this insurance shall not apply un-

til all such insurance is exhausted.

Both of these clauses refer broadly to exhaustion of “other .. .

available” insurance. Neither policy explicitly states, as did the

third policy in Lumbermens, that it is excess to other “excess”

A-9

insurance. Rather each is similar to the second policy at issue

in Lumbermens, in that the two clauses contain an identically

worded exception to the insurer’s nonobligation to “contribute

with” other insurance, that exception being for “insurance pur-

chased to apply in excess of the sum of the retained limit and

the limit of liability hereunder.” The Lumbermens court

characterized such a provision as one that “conceded the

possibility that another policy could provide coverage in excess

of its coverage.” 51 N.Y.2d at 656, 435 N.Y.S.2d at 955; 417 N.E.2d

at 68. Since each policy at issue here contains the same conces-

sion, and excepts other-excess insurance from the category of

insurance with which it is not obligated to contribute, the

language of the two policies reveals no discernible difference

with respect to their intended rank in the hierarchy of applicable

insurance.

In sum, each of the two policies states generally that it is to

be excess to “other” insurance, yet neither states specifically that

it is to be excess to excess insurance, and each in effect concedes

that a tier more remote may be provided. The district court’s

finding that the exhaustion provisions of the two policies offset

each other is not clearly erroneous.

Federal argues that the disparate costs of the two policies

should have led the district court to find that its policy, costing

$144 annually for $2,000,000 of coverage, was intended to pro-

vide more remote coverage than that of U.S. Fire, which cost

$7,500 for $10,000,000 of coverage. The court noted, however,

that

U.S. Fire insured three corporations and provided for

a variety of coverage including, inter alia, workmen’s

compensation, comprehensive general liability, adver-

tising liability and products liability. The Federal ex-

cess policy covered two residential properties, one

automobile and three licensed drivers.

The court found that the premium disparity reflected not dif-

ferent layers of coverage but rather significant differences in the

number and types of risks covered. This finding is not clearly

erroneous.

A-10

We conclude that the district court’s findings that the two

policies provided coverage at the same level may not be over-

turned, and we affirm the ruling that the two insurers are

therefore required to contribute in proportion to their respec-

tive limit amounts of insurance.

B. Prejudgment Interest

[2] The availability of prejudgment interest is governed by

CPLR §§ 5001 and 5002 (McKinney 1963). The former deals

with interest for the period prior to a jury verdict or the court’s

decision of the case; the latter deals with interest from the date

of the verdict or decision to the date of judgment.

Section 5002 provides, in pertinent part, that “[i]nterest shall

be recovered upon the total sum awarded, including interest to

... decision, in any action, from the date the . . . decision was

made to the date of entry of final judgment.” There seems to

be little question that the district court in the present case should

have ordered Federal to pay U.S. Fire interest on the $61,057.50

for the postdecision-prejudgment period. -

With respect to the predecision period, CPLR § 5001(a) pro-

vides for interest, in pertinent part, as follows:

Interest shall be covered upon a sum awarded because

of a breach of performance of a contract, .. . except

that in an action of an equitable nature, interest and

the rate and date from which it shall be computed

shall be in the court’s discretion.

The district court’s denial of U.S. Fire’s request for prejudgment

interest under this section was apparently premised on its view

that because there was no actual contract to which both U.S.

Fire and Federal were parties, and because the court awarded

U.S. Fire only partial reimbursement, U.S. Fire's claim against

Federal should be treated as one for contribution among tort-

feasors rather than one grounded in contract. We reject this

analysis.

A-11

In the context of “apportionment of liability among joint tort-

feasors,” McDermott v. City of New York, 50 N.Y.2d 211, 216,

428 N.Y.S.2d 643, 645, 406 N.E.2d 460, 461 (1980) (“McDer-

mott”), it is indeed established (a) that “[t]he right to contribu-

tion is not founded on nor does it arise from contract,” and (b)

that the term “indemnity,” which is based on contract, express

or implied, is used to describe only “full, not partial, reimburse-

ment,” id., 428 N.Y.S.2d at 646, 406 N.E.2d at 462.

Nonetheless, in the context of apportionment of liability

among coinsurers, the term “contribution” is used as the

equivalent of partial indemnification, and the existence vel non

of that right depends on the rights reflected in the insurnace

contracts. Thus, a right of partial indemnification is implied

by the court in order to avoid allowing one insurer a windfall

in light of the existing insurance contracts. In Aetna Casualtay

& Surety Co. v. Merchants Mutual Insurance Co., 78 A.D.2d

176, 435 N.Y.S.2d 125 (3d Dep’t 1980) (“Aetna Casualty”), for

example, the appellate court reversed the dismissal of a suit

brought to compel the defendant insurer to contribute to the

cost of a settlement, ruling that the terms of the policy issued

by the defendant gave the plaintiff insurer a cause of action based

on a theory of “implied indemnification”:

We hold that a cause of action based on a theory of

implied indemnification exists in favor of the plain-

tiff against the defendant by virtue of the specific pro-

visions of the policy of insurance issued by the defen-

dant on the trailer... . [Both policies] insure the driver

and both insurers must contribute to a judgment based

on the negligence of the driver.

Id. at 178, 435 N.Y.S.2d at 127. Similarly, the analysis in

Lumbermens, discussed in part II.A. above, and other court of

appeals cases makes plain that an insurer’s right to contribu-

tion does have its origin in contract, to wit, the contracts be-

tween the insured and the various insurers. See 51 N.Y.2d at 655,

435 N.Y.S.2d at 955, 417 N.E.2d at 68 (“The parties to this con-

tract [i.e., the second-tier policy] did not bargain for ratable

contributions”); id. at 656, 435 N.Y.S.2d at 955, 417 N.E.2d at

A-12

68 (‘the parties to the Lumbermens contract [i.e., the third-

tier policy] did not bargain for a ratable contribution with any

of the [other] policies”); see also Federal Insurance Co. v. Atlantic

National Insurance Co., 25 N.Y.2d 71, 77 302 N.Y.S.2d 769, 773,

250 N.E.2d 193, 195 (1969) (the court “must give effect to the

parties’ private law as reflected in their binding contractual ar-

rangement”); id. at 78-79, 302 N.Y.S.2d at 774, 250 N.E.2d at

196 (“[a]s both policies assumed the same risk, both were

obligated to defend [the insured] in a suit brought against him

and both must contribute, pro rata, toward payment of the cost

of the settlement and legal fees and other expenses of the litiga-

tion”); Continental Casualty Co. v. Equitable Life Assurance

Society of the United States, 52 N.Y.2d 228, 233-35, 437 N.Y.S.2d

279, 282, 418 N.E.2d 1298, 1301 (1981) (ratio of required con-

tributions is measured by coinsurers’ respective insurance

contracts).

[3] In the insurance context, therefore, where the insurance

contracts reveal multiple coverage, the court exercises its equi-

ty powers to imply a contract between the coinsurers to con-

tribute, and the proportion of their required contribution is

grounded in the policy limits set forth in the contract of each

insurer_with the insured. Accordingly, we reject the district

court’s premise that U.S. Fire’s claim against Federal was

analogous to a claim for contribution between tortfeasors as to

which predecision interest was barred.

[4] Our conclusion that predecision interest was not barred,

however, does not necessarily mean that U.S. Fire was entitled

to it as a matter of law. Although § 5001(a) requires an award

of such interest as of right if a plaintiff receives his award

“because of a breach of performance of a contract,” it commits

the matter of such interest to the discretion of the court when

the “action [is] of an equitable nature.” Although we have found

no state cases directly in point, and although the implication

of an insurer’s right to contribution is an exercise of the court’s

equity powers, several factors persuade us that an insurer’s con-

tribution action should be viewed as a type of contract action

in which the successful plaintiff is entitled to predecision in-

terest as a matter of right.

A-13

First, though the recognition of a coinsurer’s right of contribu-

tion, or partial indemnification, is an exercise of the court’s equi-

ty powers, the contribution suit is nonetheless a quasi-contract

action, which is an action at law. Thus, the Aetna Casualty

court, in recognizing a right of contribution, stated,

“({c]onceptually, implied indemnification finds its roots

in the principles of equity. It is nothing short of sim-

ple fairness to recognize that ‘[a] person who, in whole

or in part, has discharged a duty which is owed by

him but which as between himseif and another should

have been discharged by the other, is entitled to in-

demnity’ (Restatement, Restitution, § 76). To prevent

unjust enrickment, courts have assumed the duty of

placing the obligation where in equity it belongs,”

78 A.D.2d at 178, 435 N.Y.S.2d at 127 (quoting McDermott, 50

N.Y.2d at 216-17, 428 N.Y.S.2d at 646, 406 N.E.2d at 462); and

the McDermott court noted that the vehicle through which the

court remedies unjust enrichment is quasi contract. McDermott

went on to observe that “quasi contract was a form adopted by

common-law courts to incorporate the equitable principles of

unjust enrichment. Thus, although remedies such as indemni-

ty are derived from equitable notions, the action is and has been

an action at law.” 50 N.Y.2d at 217 n. 2, 428 N.Y.S.2d at 646 n.

2, 406 N.E.2d at 462 n. 2 (emphasis added).

Second, § 5001(a)’s phrase “because of a breach of ‘perfor-

mance of a contract” appears to be sufficiently broad to encom-

pass an insurer’s recovery of contribution for two reasons. To

begin with, such a recovery requires (a) the existence of a con-

tract between the defendant and the insured and (b) nonpay-

ment by the defendant to the insured of a sum called for by that

contract. The defendant’s nonpayment may easily be construed

as a breach of performance of that contract, “because of” which

the coinsurer is entitled to contribution. In addition, since the

court implies the existence of a partial indemnification

A-14

agreement between the coinsurers, the recovering insurer may

be said to have recovered because of a breach of the implied

contract. At least one New York court has recognized that a

plaintiff who recovers for breach of a contract implied by the

court is entitled to interest as of right under § 500(a). See Isaacs

v. Incentive Systems, Inc., 52 A.D.2d 550, 551, 382 N.Y.S. 2d

69, 70-71 (lst Dep’t 1976)(“The sum awarded below being

‘because of a breach of performance of a contract; albeit a con-

tract implied in law, plaintiff was properly awarded interest on

the recovery. (CPLR 5001.)”).

Third, the history of § 5001(a) supports the conclusion that

a plaintiff who recovers under an implied contract was meant

to recover predecision interest as a matter of law. Section

5001(a)’s predecessor, § 480 of the New York Civil Practice Act

(“CPA”), provided in pertinent part as follows:

In every action wherein any sum of money shall be

awarded by ... decision upon a cause of action for

the enforcement of or based upon breach of perfor-

mance of a contract, express or implied, interest shall

be recovered upon the principal sum.

(Emphasis added.) Cases construing this provision tended “to

include contracts implied in law and quasi-contracts under the

general heading of implied contracts.” 5 J. Weinstein, H. Korn

& A. Miller, New York Civil Practice, ¢ 5001.04, at 50-13 (1987);

see, e.g., Employers’ Liability Assurance Corp. v. Empire City

Iron Works, Inc., 19 Misc.2d 963, 965, 187 N.Y.S.2d 425, 429

(Sup.Ct. Queens Co. 1959)(“Under [CPA § 480], it matters not

whether the contract arises by operation of law or by express

agreement between the parties. Interest follows as a matter of

course in either situation.”) The Advisory Committee's note to

the original draft of § 5001(a) stated that the new language of

§ 5001(a) was intended only as a simplification, not as a change.

See 5 J. Weinstein, H. Korn & A. Miller, New York Civil Prac-

tice € 5001.04, at 50-12.

A-15

For all of these reasons, we conclude that U.S. Fire was en-

titled as a matter of law to predecision interest from Federal

on the $61,057.50 awarded. Such interest should be computed

from the date on which U.S. Fire made the settlement payment.

As noted above, U.S. Fire was also entitled to interest from the

date of decision to the date of entry of the judgment “upon the

total sum awarded, including interest to ... decision.” CPLR

§ 5002.

We reverse so much of the judgment below as denied U.S. Fire

prejudgment interest, and we remand for the calculation of such

interest in accordance with the foregoing and for the entry of

a new judgment that includes the award of such interest.

CONCLUSION

The judgment of the district court is affirmed in part and

reversed in part, and the matter is remanded for further pro-

ceedings in accordance with this opinion. Each party shall bear

its own costs on these appeals.

A-16

UNITED STATES FIRE INSURANCE COMPANY,

Plaintiff,

FEDERAL INSURANCE COMPANY, Aetna Casualty & Surety

Company, John S. Bell, Jr. and Michael Bell,

Defendants.

No. 85 Civ. 2014 (BN).

United States District Court,

S.D. New York.

Oct. 7, 1987.

Excess insurer brought action against other insurers to recover

money contributed to settlement of underlying personal injury

action brought against insured of both companies. The District

Court, Newman, Senior Judge, sitting by designation, held that:

(1) there was no difference in specificity between two insuring

agreements and neither were in excess to the other, and thus,

each insurer was required to contribute pro rata in ratio of policy

limits, and (2) prevailing insurer was entitled to interest accru-

ing subsequent to date of entry of final judgment.

Ordered accordingly.

A-17

Barry, McTiernan & Moore, New York City by Michael F.

Close, for plaintiff U.S. Fire Ins. Co.

Shanley & Fisher, P.C., New York City by Robert M. Leonard,

for defendants Federal Ins. Co., John S. Bell, Jr. and Michael

Bell.

Leahey & Johnson, New York City by Edward Bosek, for

defendant Aetna Cas. & Sur. Co.

OPINION, FINDINGS OF FACT

AND CONCLUSIONS OF LAW

NEWMAN, Senior Judge, United States Court of Interna-

tional Trade, sitting as a District Court Judge, by designation:

United States Fire Insurance Company (“U.S. Fire”) com-

menced this action against two other insurers to recover the sum

of $866,345 U.S. Fire contributed to the settlement of an underly-

ing personal injury action brought against an insured of all three -

companies, resulting from an automobile accident more fully

described infra.

Initially, plaintiff named as defendants Federal Insurance

Company (“Federal”), John Bell; and his son Michael.

Thereafter, an amended summons and complaint were served

to include Aetna Casualty & Surety Company (“Aetna”) as a

defendant.? In due course, trial was had to the court. Diversity

jurisdiction is predicated on Title 28 U.S.C. § 1332.

' This defendant, alternately titled “John S. Bell, Jr.” (summons and complaint),

“John B. Bell, Jr.” (joint pre-trial order), and “John Fitzhugh Bell” (tr. at 9),

will hereinafter be referred to as “John Bell”.

? U.S. Fire is a New York corporation; Federal is a Connecticut corporation;

John and Michael Bell, at the relevant time, were residents of Connecticut:

and Aetna is a Connecticut corporation. Although named in this action, the

Bells have been effectively removed from this litigation, which in essence, has

proceeded against Federal and Aetna only.

eas ie

A-18

Subsequent to trial and after negotiations, defendant Aetna

agreed to contribute its primary policy limit amount |

— $500,000 — in full settlement of all claims against it by Federal

and U.S. Fire. Accordingly, this action is dismissed as to Aetna

and the opinion herein discusses plaintiffs claims solely against

Federal.

BACKGROUND

It has been stipuated that on August 24, 1981 Michael Bell,

residing at 548 North Street, Greenwich, Connecticut, his

lifelong domicile, was driving a 1979 Buick station wagon ac-

companied by a friend, David Spencer — a grandson of John D.

Rockefeller, III. Spencer (the front seat passenger) and Bell (the

driver) were the only two occupants of the vehicle which was

owned by John Boyle & Company, Inc. (“the Boyle Company”)®

and which was regularly furnished to Michael Bell for his use.

Bell and Spencer had just departed the Rockefeller Estate in

Pocantico Hills, Westchester County, New York and were driv-

ing approximately one-half mile away when their auto left the

roadway and collided with a tree, in a single vehicle accident.

Spencer, then 19, suffered severe injuries including, inter alia,

a comminuted, compound fracture of the right leg with disloca-

tion and complete disruption of the knee joint, and a com-

minuted fracture of the right wrist and hand. Spencer’s leg in-

jury eventuated in an amputation above the knee.

Thereafter, Spencer commenced a personal injury action in

New York Supreme Court against Michael Bell and the Boyle

Company —the operator and owner of the accident vehicle,

respectively. The defense for both defendants was provided by

Federal, the primary insurer of the Boyle Company vehicle.

Ultimately, the lawsuit was settled in November 1984 for

$1,366,345. Of that amount, Federal paid $500,000 under its

Boyle Copany primary policy and U.S. Fire paid the remaining

$866,345 pursuant to its catastrophe policy, also issued to the

Boyle Company. See infra at 1193-94.

* The record indicates that John Bell was president of the Boyle Company.

eve —————

A-19

In the instant litigation, whereas Aetna contended that the

amount of the Spencer settlement was unreasonably high, both

U.S. Fire and Federal argued the converse, viz., that it was

justifiably proper, particularly in view of David Spencer’s youth

(19); his projected additional life expectancy (approximately 52

years); the severity of his injuries (briefly described supra); and

his socioeconomic standing (a Rockefeller family member).

At the close of trial, plaintiff moved for partial judgment on

such issue of reasonableness and upon due consideration, its ap-

plication was granted from the bench wherein the court deter-

mined that the Spencer personal injury settlement was

reasonable.* Consequently and subsequent to trial, Aetna agreed

to contribute its policy limit of $500,000 in full settlement of

the respective claims against it.‘

At the time of the Bell/Spencer automobile accident, the

following relevant insurance policies were in effect:

1. A $500,000 business automobile policy issued by

Federal to the Boyle Company.

2. A $500,000 personal underlying automobile policy

issued by Aetna to Mary Bell (Michael’s mother)

insuring a 1979 BMW, which vehicle was not in-

volved in the accident.

* It should be noted that Aetna, like Federal, called no witnesses during the

entire trial and chose instead to rely solely on its cross-examination of plain-

tiff's witness on this issue. In point of fact, Daniel R. Miller, a senior claims

specialist at Crum & Forster (an insurance group of which plaintiff was part)

was the only witness called to testify at trial. After observing his demeanor

and evaluating his testimony, the court finds Miller to be highly credible.

* The court also notes that a second issue concerning Aetna was raised at trial,

viz., whether Aetna’s disclaimer of coverage under its primary personal

automobile policy based on an exclusion therein was timely and effective. Aetna

argued that Connecticut law should be applied, and that thereunder, its

disclaimer was valid. U.S. Fire and Federal countered that New York law should

govern, and accordingly, Aetna’s disclaimer would then be rendered untime-

ly. Since Aetna tendered the full amount of its policy, the court does not reach

this issue. However, it is uncontested that New York law applies to resolve the

instant excess liability dispute between U.S. Fire and Federal.

ian

A-20

3. A $10,060,000 commercial comprehensive

catastrophe liability policy issued to the Boyle

Company and two other companies by U.S. Fire.®

4. A $2,000,000 personal excess liability policy issued

by Federal to John Bell.’

Federal assumed the defense of the Spencer lawsuit under its

primary business auto policy, which covered the Boyle Com-

pany vehicle involved in the accident. As indicated, of the

$1,366,345 settlement, Federal paid $500,000 under its primary

policy and U.S. Fire contributed the balance of $866,345; after

trial, Aetna contributed its primary policy limit of $500,000.

Thus, U.S. Fire claims an outstanding amount of $366,345, con-

tending that Federal’s $2,000,000 excess liability policy should

provide an initial level of excess coverage and should contribute

before U.S. Fire’s $10,000,000 catastrophe policy. In plaintiff's

view, its policy provides coverage only after available excess (such

as Federal’s) and primary insurance has been exhausted. The

short of the matter is: plaintiff insists that Federal’s excess liability

policy is “more specific to the accident, and therefore applies

first.”

In the alternative, U.S. Fire argues that both its and Federal’s

excess policies should be applied ratably in the ratio of their

respective limit amounts, viz., $10,000,000: $2,000,000, i.e., 10:2.

Conversely, “Federal admits its ‘Personal Excess Policy’ covers

the accident, but contends U.S. Fire’s ‘Comprehensive Commer-

cial Catastrophe Policy’ applies first. Since the latter policy is

not exhauted, Federal has no liability.” Joint pre-trial order at 7.

* The U.S. Fire catastrophe policy named the Boyle Company and Summit

Filter Company, both of Summit, New Jersey, as insured. Two amendments

to its declarations page listed an additional address in Manhattan for the Boyle |

Company and included another insured: Fibre Taxis, Inc. Further, $5,000,000

of this $10,000,000 coverage was provided by the Home Insurance Company,

but for purposes of this case, U.S. Fire and Home have been treated ass a single

entity.

All references herein to “the Federal policy” concern this excess liability policy

and not the underlying Federal primary policy, unless otherwise indicated.

i a i eS ¥ Se

A-21

For the reasons set forth infra, the court finds the U.S. Fire

and Federal excess insurance policies to be indistinguishable for

purposes of determining which should be deemed “more excess”.

Critical provisions and certain phraseology of plaintiff's

catastrophe and defendant's excess liability policies are highly

comparable and the subject insurance contracts operate to cancel

each other out. Hence, the court applies the general rule and

holds that the parties must contribute pro rata based on their

respective limit amounts. Since U.S. Fire has paid the outstan-

ding $366,345 to Spencer, Federal shall pay to plaintiff one-sixth

(1/6) thereof, viz., $61,057.50 (representing Federal’s propor-

tionate share), plus costs.

DISCUSSION

A discussion of the instant controversy necessarily commences

with a review and comparison of pertinent provisions of both

insurance contracts in question.

THE U.S. FIRE POLICY

Plaintiffs policy is entitled “Commercial Comprehensive

Catastrophe Liability Policy” and its general coverage provision

states:

The Company agrees to pay on behalf of the insured

the ultimate net loss in excess of the retained limit

hereinafter stated, which the insured may sustain .. .

for:

(a) Personal Injury Liability

Exh. 1 at 1.

More specifically, the policy expressly applies

with respect to an automobile owned by . . . the named

insured, [to] any person using the automobile with

the named insured’s permission, and any person or

organization legally responsible for the use thereof.

Id. at 2.

A-22

Clealry, the accident is a covered event, i.e., plaintiffs policy

applies as Michael Bell was furnished with the regular use of

the Boyle Company vehicle, in which David Spencer was injured.

“Ultimate net loss” is defined as:

All sums which the insured, or any company as

his insurer, or both, is legally obligated to pay

as damages, whether by reason of adjudication

or settlement, because of personal injury ...

liability to which this policy applies. ...

This policy shall not apply to defense, investigation,

settlement or legal expenses covered by underlying

insurance

Id. (boldface in original omitted).

“Underlying Insurance” is defined as follows:

If underlying insurance is exhausted by any occur-

rence, the company shall be obligated to assume

charge of the settlement or defense of any claim or

proceeding against the insured resulting from the same

occurrence, but only where this policy applies im-

mediately in excess of such underlying insurance,

without the intervention of excess insurance of another

Carrier.

Id. at 4.

With respect to the “retained limit” of $10,000 above which

U.S. Fire will pay the amount of ultimate net loss:

[T]he company’s liability shall be only for the

ultimate net loss in excess of ... the greater of:

(a) the total of the applicable limits of the

underlying policies listed in Schedule A hereof,

and the applicable limits of any other insurance

collectible by the insured; or

+ eee

A-23

(b) an amount as stated in Item 4(C) of the

declarations as the result of any one occurrence

not covered by the said policies or insurance;

and then up to an amount not exceeding the amount

as stated in Item 4(A) of the declarations as the result

of any one occurrence.

Id. at 3.

Schedule A, appended to the U.S. Fire policy, lists various

underlying coverage including $500,000 comprehensive

automobile liability coverage. The declarations page dated

“12/19/80” under section 4({A) “Limit of Liability” states a

coverage amount of $5,000,000 for each occurrence and ar: ad-

ditional $5,000,000 aggregate per annum limit “with respect to

the products hazard”, thereby comprising the subject $10,000,000

policy.

Finally, as to “other insurance”:

If other collectible insurance including other in-

surance with this company is available to the insured

voering a loss also covered hereunder (except insurance

purchased to apply in excess of the sum of the retain-

ed limit and the limit of liability hereunder) the in-

surance hereunder shall be in excess of and not con-

tribute with such other insurance.

Id. at 4.

THE FEDERAL POLICY

Federal issued to John Bell a $2,000,000 “Personal Excess

Liability Policy” covering two residential properties, one vehi-

cle and three licensed drivers, and by its terms was stated to

be in excess of a combined single limit primary automobile —

liability policy of $500,000 and an underlying homeowner’s in-

surance policy.

A-24

Federal’s basic coverage responsibilities comprise:

A. Personal Liability: The company agrees to pay on

behalf of the insured ultimate net loss, in excess of the

retained limit, which the insured shall become legal-

ly obligated to pay as damages because of personal

injury... .

Exh. 3 at 6 (boldface in original omitted).

It is undisputed that the Federal policy defines an “insured”

to include any relative who resides in the named insured’s

household. Coverage is applicable because Michael Bell resid-

ed in his father’s household at the time of the accident and was

operating an “owned automobile”, viz., the station wagon owned

by the Boyle company, which vehicle was furnished for Michael’s

regular use. See Id. at 8-10.

“Ultimate net loss” is

the sum actually paid or payable in cash in the set-

tlement or satisfaction of loss for which the insured

is liable .. . but excludes all loss expenses ... of the

insured, the company or any primary insurer so

incurred

Id. at 11 (boldface in original omitted).

Further, the Federal “retained limit” is the limit of

liabilitiy of the primary insurance as it is shown in

the Schedule hereof, or the actual limits of liability

of any applicable primary or other insurance,

whichever is greater... .

(Id. at 10) and its “other insurance” clause states

[t]he insurance provided by this policy shall be in ex-

cess of, and shall not contribute with, any other in-

surance (except insurance purchased to apply in ex-

cess of the sum of the retained limit and the limit of

liability hereunder) available to the named insured

———————————————

‘i

A-25

or any other person or organization falling within the

definition of insured in this policy, not only under any

policy enumerated in the Schedule, but also under any

other insurance available to the insured, and this in-

surance shall not apply until all such insurance is

exhausted.

Id. at 15 (boldface in original omitted).

Establishing a “pecking order”* among multiple insurers cover-

ing the same risk is an

anomaly ... [which] arises from the fact that

although the insurers contract not with each other but

separately with one or more persons insured, each at-

tempts by specific limitation upon the rights of its in-

sured to distance itself further from the obligation to

pay than have the others.

State Farm Fire & Casualty Co. v. LiMauro, 65 N.Y.2d 369, 372,

492 N.Y.S.2d 534, 537, 482 N.E.2d 13, 16 (1985).

(1] Despite a variety of resolutions to the problem, in New

York, a general rule has emerged that mutual excess policies

covering the same risk cancel each other out (Kansas City Fire

and Marine Ins. Co. v. Hartford Ins. Group, 57 N.Y.2d 920, 456

N.Y.S.2d 760, 442 N.E.2d 1271 (1982); Federal Ins. Co. v. Atlantic

Nat7 Ins. Co., 25 N.Y.2d 71, 302 N.Y.S.3d 769, 250 N.E.2d 193

(1969)); and further, each insurer is required to contribute

ratably in such proportion as its policy limit bears to the total

of all policy limits (Lumbermens Mut. Casualty Co. v. Allstate

Ins. Co., 51 N.Y.2d 651, 435 N.Y.S.2d 953, 417 N.E.2d 66 (1980);

State Farm, supra.)

* “Pecking order” refers to the establishment of a hierarchy or priority of

payment.

A-26

This so-called cancelling out rule is

inapplicable when its use would distort the meaning

of the terms of the policies involved... . Whether there

will be such a distortion turns on consideration of the

purpose each policy was intended to serve as evidenced

by both its stated coverage and the premium paid for

it ... as well as upon the wording of its provision

cocerning excess insurance.

State Farm, 65 N.Y.2d at 374, 492 N.Y.S.2d at 538, 482 N.E.2d

at 17 (citation omitted).

After noting that various courts had adjudicated the issue dif-

ferently, the New York Court of Appeals in State Farm

concluded:

The rule to be distilled from these cases is that an in-

surance policy which purports to be excess coverage

but contemplates contribution with other excess

policies or does not by the language used negate that

possibility must-eentribute ratably with a similar

policy, but must be exhausted before a policy which

expressly negates contribution with other carriers, or

otherwise manifests that it is intended to be excess over

other excess policies.

Id. at 375-76, 492 N.Y.S.2d at 539, 482 N.E.2d at 18 (citation

omitted).

The court in State Farm primarily considered, inter alia, two

policies providing excess coverage: (1) an umbrella policy which

insured multiple risks on an excess level but assumed no primary

liability as to any of them, and further, explicitly provided that

it “shall be in excess of, and shall not contribute with” other

collectible insurance available to the insured covering a loss

“covered hereunder”; and (2) a primary automobile liability

policy which stated that coverage would be rendered “excess”

if the injury-causing vehicle was not owned by the insured. The

non-owned vehicle clause converted such policy from primary

to excess in this instance. Id. at 376-77, 492 N.Y.S.2d at 539-40,

482 N.E.2d at 18-19.

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The court departed from the general rule of proration and

held that the umbrella policy, being a true excess policy, was

not required to contribute until the limits of the automobile had

been exhausted. Although both policies were found to insure

the same risk, “they covered it at different levels”, especially in

view of the purposes for which the policies were issued: “[one}

being essentially primary coverage for a specific automobile with

incidental excess coverage for a non-owned automobile, [and

the other] providing only excess coverage for a number of dif-

ferent liability-causing situations.” Jd. at 378, 492 N.Y.S.2d at

541, 482 N.E.2d at 20 (emphasis added).

The present case is patently distinguishable. Here, with respect

to basic coverage for personal injury liability, each policy states

that payment is forthcoming on behalf of an insured for the

ultimate net loss in excess of the retained limit. See exh. 1 at

1, exh. 3 at 6. “Ultimate net loss” is, in both instances, defined

as the amount paid or payable by the insured pursuant to legal

obligation.

[2] Moreover, both insurers contract to pay the amount of

ultimate net loss in excess of the “retained limit”, which as noted,

U.S. Fire defines as the total of the applicable limits of underlying

policies listed in Schedule A and the applicable limits of any

other insurance collectible by the insured. Exh. 1 at 3. In com-

parison, Federal is responsible for the limit of primary insurance

listed in the policy’s appended schedule or the actual limits of

any applicable primary or other insurance, whichever is greater.

Exh. 3 at 10. Neither company’s “schedule” lists the other’s ex-

cess policy as underlying coverage and the respective wording

utilized in the two insurance contracts is essentially duplicative

and subject to identical interpretation. Plainly, both companies

are attempting to insure at an excess level only, i.e., above

primary and other coverage. In summary, upon thorough review

of the policies, the court holds that neither is to be given

precedence over the other.

Plaintiff highlights a portion of defendant’s policy which states

that Federal’s excess liability responsibilities commence “after all

your primary liability insurance ... has been used up” to indicate

A-28

that Federal intended to provide a mere initial layer of excess

coverage. Manifestly, this language is contained in a general,

introductory provision of the Federal insurance contract, within

a subsection entitled “Your Policy and You”. Exh. 3 at 3-4.

Significantly, defendant’s precise coverage responsibilities are

more elaborately and technically set forth in the “Policy” sec-

tion (Id. at 5-15) which disclose a consistent intention on the

part of Federal to contribute policy proceeds only after primary

and other insurance has been exhausted. Similarly, the U.S. Fire

policy contemplates that both primary and excess coverage must

be exhausted before its policy is called-upon to contribute.

Defendant cites Lumbermens (51 N.Y.2d 651, 435 N.Y.S.2d 953,

417 N.E.2d 66) in arguing that under appropriate circumstances,

such as here, the general rule of proration should be rejected

because it would distort the plain meaning of the policies in-

volved. Federal maintains that its policy is obviously more ex-

cess than plaintiff's because it was purchased by John Bell “to

provide him with a measure of comfort against largé liabilities

over and above his several underlying coverages” and as “the

final tier in Mr. Bell’s insurance plan ... [since] Mr. Bell did

not bargain for coverage that would contribute with other

policies, but rather for coverage above and beyond any other

available insurance.” Deft’s brief at 9-10.

In Lumbermens, the New York Court of Appeals established

a pecking order among four conflicting policies in this manner:

(1) a primary automobile policy;

(2) a primary policy converted into an excess policy

under a non-owned vehicle contingency clause;

(3) an executive (excess) policy; and

(4) a catastrophe (umbrella) policy.

Continuing, Lumbermens held the general rule to be inap-

plicable “because its use would effectively deny and clearly

distort the plain meaning of the terms of the policies of

A-29

insurance here involved.” Id. at 655, 435 N.Y.S.2d at 955, 417

N.E.2d at 68. The court determined that the executive policy

should contribute before the catastrophe policy, finding that the

latter specifically provided coverage in excess of all other

coverage available, including excess coverage. Conversely, the

court ruled that executive policy was “not just a simple excess

policy, but was designed specifically to provide coverage in ex-

cess of that provided by [the primary-turned-excess] policy” and

would contribute once that underlying policy had been ex-

hausted. Jd. Although arguably, the Lumbermens’ executive and

catastrophe policies parallel the Federal and U.S. Fire policies,

respectively, the current situation is readily distinguishable.

As plaintiff correctly points up, “the two policies contain vir-

tually identical ‘other insurance’ clauses.” Pltf’s brief at 5. The

U.S. Fire policy expressly states that if other collectible insurance

is available to the insured, the U.S. Fire coverage shall be in ex-

cess of and not contribute with such other insurance. Exh. 1

at 4. Comparing the analogous Federal provision, it is evident

that defendant’s insurance is deemed excess to and shall not con-

tribute with any other insurance available to the insured until

all such insurance is exhausted. Exh. 3 at 15. Undeniably, both

carriers contemplate a disbursement only at the highest (i.e. last)

level of coverage and have attempted, by way of their similar

phraseology, to render their coverage excess to all others. Here

too, as to “other insurance”, the court finds no significant distinc-

tions between the U.S. Fire and Federal policies.

Importantly, too, the evidence is uncontroverted that neither

“other insurance” clause contains language specifically making

its carrier, i.e. plaintiff or defendant, excess over all other ex-

cess insurers covering the same risk. In addition, neither U.S.

Fire’s nor Federal’s insurance contract contains language whose

plain meaning would be distorted by the application of the

general rule requiring proration. As the U.S. Fire and Federal

insuring agreements mirror one another in many critical in-

stances, the court cannot deem one “more excess” than the other;

rather, the policies operate to cancel each other out. Both,

therefore, must contribute toward the Spencer settlement at the

same level of excess coverage, i.e. ratably. Kansas City Fire and

A-30

Marine Ins. Co. v. Hartford Ins. Group, 57 N.Y.2d 920, 922-23,

456 N.Y.S.2d 760, 761, 442 N.E.2d 1271, 1272 (1982).

[3, 4] An additional consideration often taken into account

by the courts has been the premium paid for each policy in that

an insurer charging a significantly lower premium for its ex-

cess coverage does so to contract for a correspondingly low level

of risk, i.e., the lower the premium, the lower the risk to the

insurance company, and the higher in the ultimate hierarchy

of payment. See State Farm, 65 N.Y.2d at 374, 492 N.Y.S.2d at

538, 482 N.E.2d at 17; Lumbermens, 51 N.Y.2d at 656-57, 435

N.Y.S.2d at 955-56, 417 N.E.2d at 68-69. In our situation, the

U.S. Fire premium for $10,000,000 coverage was $7,500 annually.

In contrast, the Federal premium for $2,000,000 coverage was

$144 per annum. It was quite correctly pointed out, however,

that U.S. Fire insured three corporations and provided for a

variety of coverage including, inter alia, workmen’s compensa-

tion, comprehensive general liability, advertising liability and

products liability. The Federal excess policy covered two residen-

tial properties, one automobile and three licensed drivers. Such

different coverage makes premium comparisons irrelevant, and

in our case, the wide disparity does not reflect an intention to

contract at a different rate of risk, but rather, is the result of

the substantial differences in coverage. Northbrook Excess &

Surplus Ins. Co. v. Chubb Group of Ins. Cos., 67 N.Y.2d 1015,

503 N.Y.S.2d 317, 494 N.E.2d 448, (1986), aff’g, 113 A.D.2d 319,

496 N.Y.S.2d 430 (1st Dep’t 1985) (final tier of coverage carried

an unusually substantial premium of $1,062,500 for $10,000,000

of insurance).

Finally, even if the U.S. Fire contract could be interpreted

as providing somewhat narrower coverage, both insurers are

liable because they each provided excess coverage for the loss

at issue. Any difference in specificity is insufficient to warrant

a finding that one policy should be deemed excess to the other.

See Atlantic Mut. Ins. Co. v. Truck Ins. Exchange, 797 F.2d 1288

(5th Cir.1986).

A-31

CONCLUSION

After a thorough review of the record, including forty-one

exhibits, and particularly of course, the two insurance policies

at issue, the court finds no substantial differences between these

policies concerning critical coverage provisions. There is no dif-

ference in specificity between the two insuring agreements. In-

deed, their wording is similar in many instances, and in some,

virtually identical. Hence, neither can be deemed excess to the

other.

Accordingly, the court applies the general rule and orders U.S.

Fire and Federal to contribute pro rata in the ratio of their policy

limits, i.e. $10,000,000 (U.S. Fire): $2,000,000 (Federal) or 10:2.

U.S. Fire is therefore liable for five-sixths (5/6) of the $366,345

portion of the Spencer settlement while Federal is responsible

for one-sixth (1/6), $61,057.50. Defendant Federal is directed

to pay to plaintiff the sum of $61,057.50, representing one-sixth

of the amount plaintiff seeks, plus costs.

[5] Plaintiff has not sufficiently demonstrated to the court its

entitlement to prejudgment interest (see N.Y.Civ.Prac.L. & R.

§ 5001 et seg. (McKinney 1963 and Supplementary Pamphlet

1987); see also, e.g., LaBuda v. New York, 86 App.Div.2d 692,

446 N.Y.S.2d 534 (3rd Dep’t 1982)) nor the proper date from

which to begin calculating such amount. Consequently, the par-

ties are to exchange legal memoranda concerning this issue and

shall furnish the court with copies within ten (10) days of the

date hereof. In any event, the sum due plaintiff shall bear in-

terest subsequent to the date of entry of final judgment at the

rate prescribed by 28 U.S.C. § 1961. See G.M. Brod & Co., Inc.

v. U.S. Home Corp., 759 F.2d 1526, 1542 (11th Cir.1985); Weitz

Co., Inc. v. Mo-Kan Carpet, Inc., 723 F.2d 1382, 1385-87 (8th

Cir.1983).

The foregoing constitutes the court’s findings of fact and con-

clusions of law in conformance with Rule 52(a), Fed.R.Civ.P.

So ordered.

A-32

UNITED STATES COURT OF APPEALS

FOR THE

SECOND CIRCUIT

At a stated term of the United States Court of Appeals for

the Second Circuit, held at the United States Courthouse, in

the City of New York, on the Fourteenth day of November, one

thousand nine hundred and Eighty-Eight

DOCKET NUMBER 88-7087

88-7137

UNITED STATES FIRE INSURANCE COMPANY,

Plaintiff-Appellant-Cross-Appellee,

FEDERAL INSURANCE COMPANY, AETNA INSURANCE

COMPANY, JOHN BOYLE BELL and MICHAEL BELL,

Defendants,

FEDERAL INSURANCE COMPANY

Defendant-Appellee

A petition for rehearing containing a suggestion that the ac-

tion be reheard in banc having been filed herein by appellant

United States Fire Insurance Company.

Upon condieration by the panel that heard the appeal, it is

Ordered that said petition for rehearing is DENIED.

It is further noted that the suggestion for rehearing in banc

has been transmitted to the judges of the court in regular ac-

tive service and to any other judge that heard the appeal and

that no such judge has requested that a vote be taken thereon.

ELAINE B. GOLDSMITH

Clerk

By: Fred M. Cassidy,

Chief Deputy Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.