Insurance – Subcontractor’s insurer breached duty to defend

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A subcontractor’s insurer wrongly relied on an inapplicable policy exclusion in refusing to defend against a suit by the subcontractor’s employee, who was severely injured at a worksite. The sub’s insurer must reimburse the contractor’s insurer for the settlement amount plus litigation fees and costs.

Background

KBR Building Group served as the general contractor on a construction project to build a hospital. KBR entered into a subcontract with SteelFab to supply and construct the steel infrastructure; SteelFab in turn contracted with Carolina Steel & Stone to erect the steel structure.

Dustin Miller, a Carolina Steel employee, tripped and fell 30 feet to the ground after his safety cable broke. He suffered serious injuries, including paralysis from the chest down. At the time, Carolina Steel held both commercial general liability and umbrella insurance policies issued by Amerisure. As required by its subcontract with SteelFab, the Amerisure policies included SteelFab and KBR as “additional insureds.”

In addition to its “additional insured” status under Amerisure’s policies, SteelFab held its own general liability policy issued by Continental Casualty Co., which contained an “additional insured” endorsement covering KBR. For its part, KBR was also insured under the Hospital Authority’s rolling owner-controlled insurance program (ROCIP).

Miller filed the underlying personal injury action against KBR and SteelFab, alleging numerous theories of negligence and breach of contract. He did not name Carolina Steel as a defendant but was paid workers’ compensation benefits based on his status as a Carolina Steel employee.

Continental agreed to defend the Miller action subject to a full reservation of rights. When Continental sought Amerisure’s participation in this defense, Amerisure declined on the ground that any defense was subject to a “controlled insurance program” exclusion contained in its policies.

Ultimately, KBR and SteelFab settled with Miller for $1.7 million. Continental paid this amount and also spent more than $660,700 in attorneys’ fees and costs. Continental then filed the present action seeking a declaratory judgment that Amerisure breached tis duty to defend the Miller action and requiring Amerisure to reimburse the cost of settlement, fees, and costs. The district court granted summary judgment in favor of Continental, but held that “equity dictates that the defense costs be shared equally among the two insurers.” The parties cross-appealed.

Duty to defend

Under North Carolina law, an insurer must defend its insured against a lawsuit unless no allegation in the plaintiff’s complaint is even arguably covered by the policy. Under Amerisure policies, the controlled-insurance exclusion applied only if two conditions were satisfied: (1) Miller’s injuries “arose out of” Carolina Steel’s operations, and (2) Carolina Steel’s operations were “included” in the ROCIP. Accordingly, any injuries allegedly arising out of KBR’s or SteelFab’s operations were not subject to the controlled-insurance exclusion.

At the time of Miller’s accident, he unquestionably was performing work for Carolina Steel. However, his complaint alleged more than one potential cause of his injuries. Numerous allegations rested on the failures of KBR and SteelFab with respect to their supervisory role over Carolina Steel’s operations and safety procedures. Miller also alleged that KBR and SteelFab independently failed to provide adequate safety equipment and procedures. Regardless of the actual cause of Miller’s injuries, at the time that Amerisure refused to defend the Miller action, the allegations presented a distinct possibility that Miller’s injuries arose from those other contractors’ operations.

Accordingly, the first condition of the controlled-insurance exclusion was not satisfied, and the court need not consider the second condition in order to conclude that Amerisure was not entitled under the policy language to rely on the controlled-insurance exclusion to avoid its duty to defend in the Miller action. Therefore, the district court did not err in concluding that Amerisure breached its duty to defend against the underlying personal injury action.

Settlement reimbursement

Under the plain language of the Amerisure umbrella policy, coverage was triggered when Amerisure’s general liability policy limit had been exhausted. Because the settlement amount of the Miller action exceeded the $1 million limit in the Amerisure general liability policy, the umbrella coverage was necessarily triggered.

This conclusion is unaffected by the “other insurance” provisions in the Continental CGL policy and the Amerisure umbrella policy. The Continental general liability policy, by its terms, was either a primary policy or an excess policy to another primary policy. The Amerisure umbrella policy’s “other insurance” provision stated that the policy was “excess over … any other insurance whether primary or excess.” But Amerisure didn’t issue its umbrella policy contingent on the existence of the Continental general liability policy. Instead, the umbrella policy coverage was triggered when the limit of the “underlying insurance” was exhausted. And only the Amerisure general liability policy was listed as “underlying insurance” in the policy declarations.

Moreover, any ambiguity arising from consideration of the “other insurance” provisions is resolved by the terms of Carolina Steel’s SteelFab subcontract that required Amerisure’s policies to be “primary and non-contributory” to all other insurance provided to SteelFab, including the Continental general liability policy. The court therefore concludes that the Amerisure umbrella policy coverage was triggered immediately upon the exhaustion of the Amerisure general liability policy, and that the Continental general liability policy didn’t take priority over that umbrella policy.

Accordingly, the district court did not err in holding Amerisure liable for the full $1.7 million settlement amount.

Defense reimbursement

Amerisure was solely liable for the payment of the fees and costs associated with defending the Miller action because its general liability policy provided coverage that was “primary without contribution,” and Continental didn’t have a separate duty to defend.

In concluding that the parties should share equally in the defense costs and fees, the district court erroneously relied on decisions in which insurers had independent duties to defend based on the nature of their primary coverage, which was applicable to acts occurring during different periods of time. But in the present case, one occurrence triggered coverage under concurrent, not consecutive, insurance policies, which clearly allocated the insurers’ respective duties to defend.

Therefore, the court concludes that the district court erred in assigning equal responsibility to Amerisure and Continental for payment of the defense fees and costs incurred in defending the Miller action and that Amerisure is liable for the full amount of those defense fees and costs.

Affirmed in part, vacated in part, and remanded.

Continental Cas. Co. v. Amerisure Ins. Co. (Lawyers Weekly No. 001-063-18 , 17 pp.) (Keenan, J.) No. 17-1149; Mar. 28, 2018; WDNC at Charlotte (Mullen, J.). Richard Leonard Pinto for Appellant; Karen Ventrell for Appellee. 4th Cir.