Federated Serv. Ins. Co. v. Alliance Constr., LLC

282 Neb. 638

805 N.W.2d 468

FEDERATED SERVICE INSURANCE COMPANY, appellee,

v.ALLIANCE CONSTRUCTION, LLC, appellant, and Sadler Line Construction, Inc., and Danny O'Neall, appellees.

No. S–10–559.

Supreme Court of Nebraska.

Oct. 28, 2011.

Syllabus by the Court

1. Insurance: Contracts: Appeal and Error. The interpretation of an insurance policy presents a question of law that an appellate court decides independently of the trial court.

2. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an appellate court views the evidence in the light most favorable to the party against whom the court granted the judgment and gives such party the benefit of all reasonable inferences deducible from the evidence.

3. Summary Judgment: Final Orders: Appeal and Error. When adverse parties have each moved for summary judgment and the trial court has sustained one of the motions, the reviewing court obtains jurisdiction over both motions. The reviewing court may determine the controversy that is the subject of those motions or make an order specifying the facts that appear without substantial controversy and direct such further proceedings as the court deems just.

4. Insurance: Contracts. A court construes insurance contracts like other contracts, according to the meaning of the terms that the parties have used.

5. Insurance: Contracts. When the terms of an insurance contract are clear, a court gives them their plain and ordinary meaning as a reasonable person in the insured's position would understand them.

6. Insurance: Contracts: Liability. Whether an insurer has a duty to indemnify and defend an insured depends upon whether the insured's claimed occurrence falls within the terms of the insurer's coverage as expressed in the policy.

7. Insurance: Contracts: Liability: Damages. Under a policy providing liability coverage, the insurer has a duty to indemnify an insured who becomes legally liable to pay damages for a specified occurrence.

8. Insurance: Liability. An insurer's duty to defend is broader than the duty to indemnify.

9. Insurance: Pleadings. A court must initially measure an insurer's duty to defend an action against the insured by the allegations in the complaint against the insured.

10. Insurance: Liability. In determining its duty to defend, an insurer must look beyond the complaint and investigate and ascertain the relevant facts from all available sources.

11. Insurance: Liability. An insurer has a duty to defend if (1) the allegations of the complaint, if true, would obligate the insurer to indemnify, or (2) a reasonable investigation of the facts by the insurer would or does disclose facts that would obligate the insurer to indemnify.

12. Insurance: Liability. An insurer has a duty to defend its insured whenever it ascertains facts that give rise to the potential of liability under the policy.

13. Insurance: Liability. An insurer is not bound to defend a suit if the pleadings and facts ascertained by the insurer show the insurer has no potential liability.

14. Declaratory Judgments: Insurance: Pleadings: Evidence. In a declaratory judgment action to determine the insurer's duty to defend, a court must also consider any relevant evidence outside the pleadings.

15. Insurance: Contracts: Negligence: Intent. A party to a construction contract (the promisee) may require a subordinate party (which could be a general contractor or subcontractor) to insure losses caused by the promisee's own negligence in two circumstances: if the contract contains (1) express language to that effect or (2) clear and unequivocal language shows that that is the intention of the parties.

16. Insurance: Contracts. Subject to restrictions in the additional insured endorsement, an additional insured has the same coverage rights and obligations as the principal insured under the policy.

17. Insurance: Contracts: Liability: Damages. A commercial general liability policy is intended to cover an insured's tort liability for physical injuries or property damage.

18. Insurance: Contracts: Negligence: Intent. A requirement in the underlying contract that the subordinate party make the promisee an additional insured on the subordinate party's commercial general liability coverage unequivocally shows that the parties intended the subordinate party to insure against the promisee's negligence.

19. Insurance: Contracts: Negligence: Liability: Words and Phrases. The term “arising out of” in an insurance liability policy is very broad and comprehensive; ordinarily understood to mean originating from, growing out of, or flowing from; and requiring only a “but for” causal connection between the occurrence and the conduct or activity specified in the policy.

20. Insurance: Contracts: Negligence: Liability: Words and Phrases. The phrase “arising out of” the principal insured's operations in an additional insured endorsements to a commercial general liability policy requires only a “but for” causal connection to those operations.

21. Insurance: Contracts: Proof. An insurer has the burden to prove that an exclusion applies.

Thomas A. Grennan and Francie C. Riedmann, of Gross & Welch, P.C., L.L.O., Omaha, for appellant.

Kurt D. Maahs and James C. Morrow, of Morrow, Willnauer & Klosterman, L.L.C., for appellee Federated Service Insurance Company.

HEAVICAN, C.J., CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER–LERMAN, JJ.

CONNOLLY, J.

SUMMARY

In this declaratory judgment action, Federated Service Insurance Company (Federated) sought a determination that under its policy with Sadler Line Construction, Inc. (Sadler), it had no duty to defend or indemnify Alliance Construction, Inc. (Alliance). Sadler was a subcontractor of Alliance. The district court granted summary judgment to Federated. We reverse the judgment and remand the cause for further proceedings.

BACKGROUND

Sadler's Subcontract with Alliance

In June 2005, Sadler signed a subcontract agreement with Alliance to provide services on a construction project to widen an intersection in Omaha, Nebraska. An insurance procurement clause required Sadler to purchase specific insurance coverages and to make Alliance an additional insured on Sadler's coverages for commercial general liability (CGL) and umbrella/excess liability. The subcontract also provided that Sadler's insurance would be primary to any other applicable insurance maintained by Alliance or the project owner. A separate indemnity clause required Sadler to indemnify and hold Alliance harmless from any liability for personal injuries or property damages, even if Alliance's active or passive negligence caused the loss. The only exception was for liability arising from Alliance's sole negligence.

Sadler's Insurance Coverage With Federated

Sadler's CGL coverage with Federated contained a “Contractual Liability” provision. It provided coverage for liability that Sadler had assumed through a contract if the contract met Federated's definition of an “ ‘insured contract.’ ” The definition included Sadler's agreement to assume another party's tort liability in a business contract. But it specified that “[t]ort liability” meant liability that would be imposed by law absent the agreement. Also, the CGL coverage included an “Additional Insured by Contract Endorsement.” The endorsement is at issue here.

Underlying Personal Injury Action

In 2005, Danny O'Neall was injured while working for Sadler on the jobsite. In 2007, he filed a negligence action against Alliance, Sadler, the project owner, and the Department of Roads. Federated agreed to defend Alliance in the O'Neall suit subject to a reservation of rights. O'Neall's complaint named Sadler in the action, to comply with Neb.Rev.Stat. § 48–118.01 (Reissue 2010). That section of the Nebraska Workers' Compensation Act requires an employee or employer to give notice to other potential parties before bringing an action against a third person so that the other parties have an opportunity to join the action.

Declaratory Judgment Action

In its declaratory judgment action against Alliance, Federated alleged that it had no duty to defend or indemnify Alliance against O'Neall's personal injury action. Federated alleged that O'Neall had not sued Sadler for independent acts of negligence. It claimed that a limitation and exclusion in the additional insured endorsement precluded coverage. In addition, Federated alleged that under Neb.Rev.Stat. § 25–21,187(1) (Reissue 2008), it had no duty to defend or indemnify Alliance. Section 25–21,187(1) is Nebraska's anti-indemnity statute. It sets out the circumstances under which an agreement to indemnify another party for the promisee's own negligence is void as against public policy. But it contains an exception for insurance contracts.

District Court's Order

Alliance, Sadler, and Federated all moved for summary judgment. The court overruled Alliance's and Sadler's motions and granted Federated's motion.

Alliance argued that Federated was obligated to indemnify it under the contractual liability provision of Sadler's CGL coverage. Although § 25–21,187 rendered the indemnity clause void, Alliance argued that Sadler's agreement in the subcontract to procure insurance to cover Alliance's own liability was an insurance contract under § 25–21,187's exception. The court rejected that argument.

The court also ruled that Alliance was not entitled to additional insured coverage under the endorsement. It concluded that the limitation in the endorsement precluded that coverage. The limitation in paragraph B of the endorsement provided, “Coverage shall not exceed the terms and conditions that are required by the terms of the written agreement to add any insured, or to procure insurance.” The court concluded that under the limitation, the additional insured coverage was limited by the requirements of the subcontract's insurance procurement clause.

The court determined that under this court's case law, the subcontract could only validly require Sadler to...