World Trade Ctr. Props. LLC v. Qbe Int'l Ins. Ltd.

WORLD TRADE CENTER PROPERTIES LLC, 1 WORLD TRADE CENTER LLC,2 WORLD TRADE CENTER LLC, 3 WORLD TRADE CENTER LLC,4 WORLD TRADE CENTER LLC, Plaintiffs-Appellants, v. QBE INTERNATIONAL INSURANCE LTD., INDUSTRIAL RISK INSURERS,QBE INSURANCE (EUROPE) LTD. F/K/A QBE INTERNATIONAL INSURANCE LTD.,LONDON SYNDICATES NUMBERED 1212, LONDON SYNDICATES NUMBERED 79,LONDON SYNDICATES NUMBERED 2791, Defendants-Appellees,GREAT LAKES REINSURANCE (UK) PLC, CERTAIN UNDERWRITERS AT LLOYD'S,LONDON SYNDICATES NUMBERED 33, 1003, 2003, 1208, 1243, 0376, 1225, 1212,79, 506, 2791, CERTAIN UNDERWRITERS AT LLOYD'S,LONDON SYNDICATES NUMBERED 33, 1003, 2003, 1208, 1243, 0376AND 1225, ALLIANZ GLOBAL RISKS US INSURANCE COMPANY F/K/AALLIANZ INSURANCE COMPANY, Defendants.

No. 13-3972-cv

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

September 17, 2015

SUMMARY ORDER

Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court's Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 17^th day of September, two thousand fifteen.

PRESENT: JOSÉ A. CABRANES, CHESTER J. STRAUB, DEBRA ANN LIVINGSTON, Circuit Judges.

TYRONE R. CHILDRESS (Donald R. Erlandson, on the brief), Jones Day, Los Angeles, CA; Meir Feder, Jones Day, New York, NY; Richard A. Williamson, Jason T. Cohen, Flemming Zulack Williamson Zauderer LLP, New York, NY, for Plaintiffs-Appellants.

BARRY R. OSTRAGER (Mary Kay Vyskocil, Jeffrey E. Baldwin, on the brief), Simpson Thacher & Bartlett LLP, New York, NY, for Defendant-Appellee Industrial Risk Insurers.

SCOTT S. KATZ (Carol M. Rooney, Jessica M. Skarin, on the brief), Butler Pappas Weihmuller Katz Craig LLP, Tampa, FL, for Defendants-Appellees QBE Insurance (Europe) Ltd., London Syndicate Numbered 1212, London Syndicate Numbered 79, London Syndicate Numbered 2791.

UPON DUE CONSIDERATION, it is hereby ORDERED, ADJUDGED, and DECREED that the judgment of the district court is AFFIRMED in part, VACATED in part, and REMANDED.

Plaintiffs World Trade Center Properties LLC, 1 World Trade Center LLC, 2 World Trade Center LLC, 3 World Trade Center LLC, and 4 World Trade Center LLC (collectively, "WTCP") appeal from a September 20, 2013 judgment of the United States District Court for the Southern District of New York (Hellerstein, J.) in favor of defendants Industrial Risk Insurers ("IRI") andQBE Insurance (Europe) Ltd., London Syndicate Numbered 1212, London Syndicate Numbered 79, and London Syndicate Numbered 2791 (collectively, "QBE," and together with IRI, "Defendants"). Defendants are property insurers that insured WTCP against damage to certain buildings at the World Trade Center leased by WTCP and destroyed in the terrorist attacks of September 11, 2001. Following the attacks, litigation between WTCP and its insurers, including Defendants, culminated in a settlement in which WTCP received a total of roughly $4.1 billion. The insurers brought subrogation claims against several airlines and affiliated companies that they claimed were responsible for the damages suffered by WTCP, and these claims were ultimately settled for roughly $1.2 billion. See In re Sept. 11 Prop. Damage Litig., 650 F.3d 145 (2d Cir. 2011). In this action, WTCP claims that Defendants' insurance policies entitle it to a portion of Defendants' share of the subrogation proceeds.

Two rulings are at issue in this appeal.¹ First, in an opinion dated November 27, 2012 denying the parties' cross-motions for summary judgment, the district court held that Defendants' policies would entitle WTCP to a portion of the subrogation proceeds only if WTCP could show that it had suffered "legally recoverable tort damages" in excess of its $4.1 billion insurance recovery. In re Sept. 11 Litig., 906 F. Supp. 2d 295, 305 (S.D.N.Y. 2012) ("2012 Decision"). Second, in a separate case involving tort claims brought by WTCP against airlines and security contractors allegedly liable for the September 11 attacks (the "Tort Action"), the district court held that WTCP could not obtain a damages award because its maximum potential tort recovery under New York lawwas $2.805 billion, an amount that had already been (more than) fully "offset" by the $4.1 billion settlement with its insurers. In re Sept. 11 Litig., 957 F. Supp. 2d 501 (S.D.N.Y. 2013); In re Sept. 11 Litig., 590 F. Supp. 2d 535 (S.D.N.Y. 2008); see N.Y. C.P.L.R. 4545(c) (providing that tort damage awards must be offset by amounts received from collateral sources). In the instant case, the district court gave collateral estoppel effect to its holding in the Tort Action, and—because WTCP's legally recoverable tort damages did not exceed its $4.1 billion insurance recovery—granted summary judgment to Defendants. In re Sept. 11 Litig., Nos. 21-mc-101, 10-cv-1642, 2013 WL 5979670, at *2-3 (S.D.N.Y. Sept. 18, 2013) ("2013 Decision").

In addition to filing the instant appeal, WTCP appealed the district court's holding in the Tort Action. In an opinion issued along with this summary order, we affirm the relevant orders in the Tort Action insofar as they held that WTCP's potential tort recovery must be offset by its $4.1 billion insurance settlement, but vacate those orders insofar as they held that WTCP's maximum potential tort recovery was $2.805 billion. In re Sept. 11 Litig., --- F.3d ----, Nos. 13-3619-cv, 13-3782-cv, slip op. at ___ (2d Cir. July ___, 2015). Because it is conceivable that the district court will, on remand in the Tort Action, find that WTCP has legally recoverable tort damages in excess of its insurance settlement, we vacate the district court's judgment in the instant case as well and remand for further proceedings.²

For the reasons detailed below, however, we affirm the 2012 Decision and 2013 Decision insofar as they held that Defendants' insurance policies entitle WTCP to a share of the subrogation proceeds only if WTCP has legally recoverable tort damages exceeding its $4.1 billion insurancesettlement. Because the district court reached that conclusion in a summary judgment setting, we review it de novo, viewing the evidence in the light most favorable to WTCP and resolving any factual disputes in its favor. See Fed. R. Civ. P. 56(a); Nabisco, Inc. v. Warner-Lambert Co., 220 F.3d 43, 45 (2d Cir. 2000). A contractual ambiguity will generally preclude summary judgment unless a reasonable jury would be required to resolve the ambiguity in one party's favor. See 3Com Corp. v. Banco do Brasil, S.A., 171 F.3d 739, 746-47 (2d Cir. 1999).

We consider WTCP's claims against QBE first. QBE insured WTCP pursuant to the WilProp 2000 policy form (the "WilProp Form"). In relevant part, the WilProp Form provides that "[i]f any amount is recovered as a result of [subrogation] proceedings, the net amount recovered after deducting the costs of recovery shall be distributed first to the insured in reimbursement for the deductible amount retained and for any uninsured loss or damage resulting from the exhaustion of limits under this policy or primary or excess policy(ies)." J.A. 84-5. The parties' dispute centers on the undefined term "any uninsured loss or damage": WTCP claims that this term means any loss that would have been insured under the policy but for the policy's liability limit (or WTCP's "policy-defined losses"), while QBE argues that the term means legally recoverable tort damages—that is, the recovery to which New York tort law would entitle WTCP if it were to sue the tortfeasors itself. The district court sided with QBE, holding that the term unambiguously refers to legally recoverable tort damages. We agree.

"Subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss." Winkelmann v. Excelsior Ins. Co., 650 N.E.2d 841, 843 (N.Y. 1995). By permitting the insurer (instead of the insured) to sue the tortfeasor, subrogation forecloses insureds from recoveringtwice for the same injury while also preventing tortfeasors from escaping liability. See id.; 16 Steven Plitt et al., Couch on Insurance § 222:8 (3d ed.). Although subrogation is an equitable doctrine, parties to insurance policies frequently include subrogation provisions in their policies, in which case their "rights must be governed by the terms of the policy." J&B Schoenfeld, Fur Merchs., Inc. v. Albany Ins. Co., 492 N.Y.S.2d 38, 41 (App. Div. 1985). Still, when giving meaning to contractual subrogation provisions, courts appropriately rely on equitable subrogation principles on the assumption that, absent an evident intention to the contrary, the parties meant to incorporate those principles. See, e.g., Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency Inc., 644 F.3d 166, 169-70 (2d Cir. 2011); see also Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir. 2010) ("[T]he court 'must be informed of the meaning of the language as generally understood in [the parties'] business, in light of the customs and practices of the business.'" (quoting Fox Film Corp. v. Springer, 8 N.E.2d 23, 24 (N.Y. 1937))).

Equitable subrogation principles include the "made whole rule," under which an insurer's recovery against a tortfeasor in a subrogation lawsuit is limited to "those funds and assets that remain after the insured has been compensated." Fasso v. Doerr, 903 N.E.2d 1167, 1170 (N.Y. 2009). Equity deems an insured to be fully compensated (or "made whole")...