Great Divide Insurance Company v. Bear Mountain Lodge, LLC et al

Filing 86

ORDER denying 7 Motion for Summary Judgment. Signed by Judge John W. Sedwick on 6/24/16. (GMM, CHAMBERS STAFF)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 DISTRICT OF ALASKA 10 11 12 GREAT DIVIDE INSURANCE COMPANY, 13 Plaintiff, 14 vs. 15 16 17 BEAR MOUNTAIN LODGE, LLC; MERRILL M. MCGAHAN; LAURI B. JOHNSON; MERRILL MARIE MCGAHAN, et al., 18 19 Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 3:15-CV-00189 JWS ORDER AND OPINION [Re: Motion at docket 7] 20 21 22 I. MOTION PRESENTED At docket 7, Defendants Bear Mountain Lodge, LLC, Merrill M. McGahan, Lauri 23 B. Johnson, and Merrill Marie McGahan ( collectively “BML”) filed a motion for summary 24 judgment as to the declaratory judgment action brought by Plaintiff Great Divide 25 Insurance Company (“Great Divide”). Great Divide opposes the motion at docket 56. 26 BML replies at docket 61. Oral argument was requested, but was denied for the 27 reasons given in the order at docket 84. 28 1 II. BACKGROUND 2 On July 7, 2013, Walter Rediske, owner and chief pilot of Rediske Air, LLC 3 (“Rediske Air”) was transporting guests in a deHavilland DHC-3 Otter aircraft to the 4 Bear Mountain Lodge when the plane crashed following its takeoff from the Soldotna 5 Airport. Walter Rediske and all of the passengers died in the crash. The survivors and 6 estates of the deceased filed various lawsuits related to the crash. They filed one 7 lawsuit in the District of Alaska against Rediske Air, Rediske Family Defendants, and 8 the estate of Walter Rediske. They filed a separate lawsuit in the District of Alaska 9 against BML and other companies that allegedly modified or provided parts to the 10 aircraft involved in the crash. One of the companies then filed a third-party claim 11 against Rediske Air, Rediske Family Defendants, and the estate of Walter Rediske. In 12 a third and separate lawsuit brought in the District of Alaska, the estate of Walter 13 Rediske sued BML and Rediske Family Defendants. They also filed a parallel lawsuit in 14 state court. The three District of Alaska cases have been consolidated. 15 Bear Mountain Lodge, LLC is named as the insured on a Great Divide insurance 16 policy that was in effect at the time of the crash. Defendants Merrill M. McGahan, Lauri 17 B. Johnson, and Merrill Marie McGahan are the owners of Bear Mountain Lodge, LLC, 18 and, as such, are potential additional insureds under the policy . BML, through its 19 attorney, reported the litigation to Great Divide. Great Divide sent BML’s attorney a 20 reservation-of-rights letter. The letter explained Great Divide’s position that provisions 21 in BML’s insurance policy may exclude coverage for the claims arising from the airplane 22 crash. In addition, the letter explained that Great Divide would pay the attorney’s fees 23 and costs BML incurred in the defense of those claims as to which Great Divide had 24 reserved its rights. Two months later, Great Divide filed a complaint for declaratory 25 judgment, asking that the court determine its obligations under BML’s insurance policy. 26 Specifically, Great Divide contends that there are three exclusions in the policy that 27 disclaim coverage for the accident: 1) the “Aircraft Exclusion”; 2) the “Designated 28 Operations Exclusion”; and 3) the “Contractors Exclusion.” -2- 1 BML filed a motion for summary judgment, asking the court to find the three 2 exclusions inapplicable and dismiss the declaratory judgment action. Meanwhile, 3 Rediske Air filed a motion requesting that the court stay the declaratory judgment action 4 pending the resolution of the underlying tort cases. The court granted the motion to 5 stay in part; it stayed its determination as to whether the Aircraft Exclusion and the 6 Designated Operations Exclusion in BML’s insurance policy apply so as to preclude 7 coverage in the underlying litigation, but would not stay its determination as to whether 8 the Contractors Exclusion applies. Therefore, the court will only rule on BML’s 9 summary judgment motion as to the applicability of the Contractors Exclusion. 10 11 III. STANDARD OF REVIEW Summary judgment is appropriate where “there is no genuine dispute as to any 12 material fact and the movant is entitled to judgment as a matter of law.”1 The 13 materiality requirement ensures that “only disputes over facts that might affect the 14 outcome of the suit under the governing law will properly preclude the entry of summary 15 judgment.”2 Ultimately, “summary judgment will not lie if the . . . evidence is such that a 16 reasonable jury could return a verdict for the nonmoving party.”3 However, summary 17 judgment is mandated “against a party who fails to make a showing sufficient to 18 establish the existence of an element essential to that party’s case, and on which that 19 party will bear the burden of proof at trial.”4 20 The moving party has the burden of showing that there is no genuine dispute as 21 to any material fact.5 Where the nonmoving party will bear the burden of proof at trial 22 on a dispositive issue, the moving party need not present evidence to show that 23 1 24 25 Fed. R. Civ. P. 56(a). 2 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 26 3 27 4 28 5 Id. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Id. at 323. -3- 1 summary judgment is warranted; it need only point out the lack of any genuine dispute 2 as to material fact.6 Once the moving party has met this burden, the nonmoving party 3 must set forth evidence of specific facts showing the existence of a genuine issue for 4 trial.7 All evidence presented by the non-movant must be believed for purposes of 5 summary judgment and all justifiable inferences must be drawn in favor of the 6 non-movant.8 However, the non-moving party may not rest upon mere allegations or 7 denials, but must show that there is sufficient evidence supporting the claimed factual 8 dispute to require a fact-finder to resolve the parties’ differing versions of the truth at 9 trial.9 10 11 12 13 14 15 IV. DISCUSSION In its motion for summary judgment, BML argues that the Contractors Exclusion does not apply to preclude coverage. The provision reads as follows: This insurance does not apply to “bodily injury”, “property damage”, “personal and advertising injury” or medical payments arising out of work performed by any contractor or subcontractor whether hired by or on behalf of any insured, or any acts or omissions in connection with the general supervision of such work.10 16 BML’s primary argument in support of its position is that the term “contractor” in the 17 exclusion is limited to mean only a contractor in the construction industry. It argues that 18 the exclusion “is designed to deal with a situation where an insured retains the services 19 of a contractor to perform construction-type work.”11 Great Divide asserts that BML’s 20 21 22 6 23 Id. at 323-25. 7 24 25 Anderson, 477 U.S. at 248-49. 8 Id. at 255. 26 9 27 10 28 11 Id. at 248-49. Doc. 7-4 at p. 41. Doc. 8 at p. 25. -4- 1 interpretation of the term “contractor” is too narrow and “does not comport with the 2 objectively reasonable expectations of the average insured.”12 3 When interpreting the insurance policy, the court must apply Alaska substantive 4 law.13 The Alaska Supreme Court has explained that insurance policies are considered 5 contracts of adhesion, and, as such, their interpretation is controlled by different 6 standards than typical contracts.14 Rather than simply trying to ascertain the 7 reasonable expectations of the parties, the court must construe an insurance policy “to 8 provide the coverage which a layperson would have reasonably expected, given a lay 9 interpretation of the policy language.”15 Under this approach, policy language is 10 construed in accordance with ordinary and customary usage.16 “It is not required that 11 ambiguities be found in the policy language as a condition precedent for such 12 construction.”17 That is, “even unambiguous language in an insurance contract will be 13 interpreted to comport with the reasonable expectations of a layperson.”18 If 14 ambiguities do exist in the language, then they are resolved in favor of the insured.19 15 To determine reasonable coverage expectations, the court must look to the language of 16 the disputed provision, the language of the other provisions in the policy, relevant 17 18 12 19 13 20 21 Doc. 56 at p. 17. Feldman v. Allstate Ins. Co., 322 F.3d 660, 666 (9th Cir. 2003) (“[F]ederal courts sitting in diversity apply state substantive law and federal procedural law.”). 14 Stordahl v. Gov’t Emps. Ins. Co., 564 P.2d 63, 65 (Alaska 1977); C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216, 1222 (Alaska 2000). 22 15 23 Stordahl, 564 P.2d at 65-66. 16 24 25 26 State Farm Mut. Auto. Ins. Co. v. Dowdy, 192 P.3d 994, 998 (Alaska 2008). 17 Stordahl, 564 P.2d at 66; see also Farquhar v. Alaska Nat’l Ins. Co., 20 P.3d 577, 579 (Alaska 2000) (stating that the “flexible approach [to insurance policy interpretation] is appropriate regardless of whether the policy language is ambiguous”). 27 18 28 19 Allstate Ins. Co. v. Teel, 100 P.3d 2, 6 (Alaska 2004). Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519, 522 (Alaska 1999). -5- 1 extrinsic evidence, and case law interpreting similar provisions.20 However, even with 2 this “layperson” approach, the court may not simply ignore or rewrite provisions in an 3 insurance contract. 21 4 The common definition of the term “contractor” is “one that contracts or is party 5 to a contract.”22 More specifically, the common definition includes “one that contracts to 6 perform work or provide supplies,” as well as “one that contracts to erect buildings.”23 7 Black’s Law Dictionary defines “contractor” as “[a] party to a contract” and specifies that 8 it includes “one who contracts to do work for or supply goods to another; . . . a person 9 or company that agrees to do work or provide goods for another company.”24 10 Therefore, based on these definitions, the term ordinarily includes any person or 11 company that is a party to a contract and usually involves a contract regarding services 12 or supplies. While the term includes and is frequently used to refer to those who 13 provide services related to building, it cannot be said that the common, layperson usage 14 of the term is limited only to construction contractors. There is no other language in 15 BML’s policy to suggest as much. Indeed, as noted by Great Divide in its response 16 brief, commercial general liability insurance is “designed to protect the insured from 17 losses arising out of [its] business operations.” Excluding the operations of a business 18 retained through a contract to provide goods and services is congruent with the purpose 19 of the policy. BML fails to point to any extrinsic evidence in support of its position that 20 the exclusion should only apply to any third-party doing construction work for it. 21 22 20 23 Stordahl, 564 P.2d at 66; Holderness v. State Farm Fire & Cas. Co., 24 P.3d 1235, 1238 (Alaska 2001). 24 21 25 22 26 Stordahl, 564 P.2d at 65; Farquhar, 20 P.3d at 579. Merriam-Webster, (last visited June 20, 2016). 27 23 28 24 Id. Black’s Law Dictionary (10th ed. 2014). -6- 1 Moreover, case law does not lend support to BML’s argument and, in fact, 2 suggests that the common usage of the term “contractor” is simply one who contracts to 3 provide goods or services to another. BML relies primarily on a Texas case, Nautilus 4 Insurance Co v. ACM Contractors, Inc.25 The case involved the application of a 5 contractor-subcontractor exclusion like the one here. The insured in that case was a 6 construction company, ACM, who was building a bridge pursuant to a contract with a 7 county government. It arranged for a third-party, Original Concrete, to deliver and pour 8 concrete. While pouring the concrete, an accident occurred that caused the death of 9 one person and serious injury to another person. The insurance company brought a 10 declaratory judgment action to disclaim coverage for the accident, arguing that a 11 contractors exclusion in the insurance policy applied because the accident resulted 12 from the work of a subcontractor, Original Concrete. One of the defendants, a 13 secondary insurance company which wanted the plaintiff insurance company to 14 continue to provide the defense for ACM, argued that Original Concrete was not a 15 subcontractor within the meaning of the policy because it was not specifically alleged to 16 have been one and did not have a written contract with ACM. The defendant argued 17 that the term “contractor” was ambiguous and therefore the exclusion should be 18 interpreted in its favor to apply only to work done by those parties specifically defined as 19 “contractors” by written agreement and not by parties informally engaged to perform 20 services. The court declined to interpret the exclusion that way, instead finding that 21 because Original Concrete was providing material and services to a general contractor, 22 it must have been a subcontractor. The court did not make a finding on whether the 23 exclusion applied only to the construction industry. 24 25 BML stresses the court in Nautilus stated that the term “contractor” is a commonly used term “with a generally accepted meaning, particularly in describing 26 27 28 25 549 F. Supp. 2d 857 (S.D. Tex. 2008). -7- 1 parties involved in construction projects and/or contracts.” 26 The court, however, then 2 went on to provide the dictionary definitions of “contractor” and noted that the term is 3 defined as “one of the parties to a contract” or “a person who contracts to supply certain 4 materials or do certain work for a stipulated sum.”27 It then went on to hold that 5 because Original Concrete was providing materials and services to a general 6 contractor, it was necessarily a subcontractor. Because the case happened to inv olve 7 the construction industry and a construction project, the court did not need to decide 8 whether the term was specific to only the construction industry. The court also quoted 9 another Texas case which stated that the term subcontractor was not ambiguous and 10 had only one ordinary meaning— “‘an individual or business firm contracting to perform 11 part or all of another’s contract.’” 28 12 In its reply, BML cites an Alaska case, Everette v. Alyeska Pipeline Service 13 Co.,29 and states that “the court [in Everette] construed the term “contractor” to include 14 the construction of the pipeline.”30 That is not an accurate assessment of the court’s 15 holding. The court was considering the relationship of the parties for purposes of 16 applying workers’ compensation laws. It did not hold that one must be in the 17 construction industry to be considered a contractor. Moreover, the Alaska Supreme 18 Court in Everette recognized that in another Alaska case, Thorsheim v. State,31 it had 19 “defined the term ‘contractor’ as ‘a person who undertakes, by contract, the 20 21 22 26 23 27 24 28 25 549 F. Supp. 2d at 866. Id. Id. at 866-87 (quoting Crow-Williams v. Fed. Pac. Elec. Co., 683 S.W.2d 523, 525 (Tex. Civ. App. 1984). 26 29 27 30 28 31 614 P.2d 1341 (Alaska 1980). Doc. 61 at p. 19. 469 P.2d 383 (Alaska 1970). -8- 1 performance of certain work for another, including the furnishing of goods and 2 services’” for purposes of Alaska’s workers’ compensation statute. 32 3 BML cites to other cases where a contractor exclusion applied in a construction- 4 industry situation. Again, while the cases suggest that the issue often comes up in a 5 construction-related context, it does not suggest that the ordinary meaning is limited to 6 just the construction industry. As noted by Great Divide, the term “contractor” is used in 7 other cases to denote an entity doing work under a contract and encompasses a broad 8 range of industries and operations. 33 9 BML also cites to a definition of the term “contractor” found in Title 8 (Business 10 and Professions), Chapter 18 (Construction Contractors and Home Inspectors) of the 11 Alaska Statutes. “As suggested by the title and chapter descriptions, this definition is 12 uniquely tailored to laws governing the construction industry.”34 It does not provide the 13 ordinary meaning of the word “contractor” for purposes of interpreting BML’s insurance 14 policy. The court therefore concludes that the term “contractor” in the Contractors 15 Exclusion provision cannot reasonably be understood as referring only to those 16 contractors who perform construction-type work. 17 BML alternatively argues that summary judgment in its favor is appropriate 18 because the Contractors Exclusion only applies if the contractor was “hired” by the 19 insured and because it did not hire Rediske Air within the plain meaning of that term the 20 exclusion does not apply. As noted by BML in its motion, “[t]he term ‘hired’ is generally 21 understood to mean that a person is paying for labor or personal services.” BML 22 argues that it only purchased the airplane tickets from Rediske Air on behalf of the 23 decedent passengers and therefore did not actually hire Rediske Air. BML, however, 24 has not met its burden of showing that there is no genuine dispute as to any material 25 26 32 27 33 28 34 614 P.2d at 1345 (quoting Thorsheim v. State, 469 P.2d 383, 389 (1970)). Doc. 56 at pp. 19-20. Doc. 56 at p. 18. -9- 1 fact regarding whether BML was simply a middleman or whether it engaged Rediske 2 Air’s services in some capacity. Indeed, discovery had not yet taken place at the time 3 BML filed its motion, and there is little evidentiary support in the record. 4 In its reply, BML argues that the complaints in the underlying tort litigation allege 5 that the damages suffered were in part based on BML’s own negligent conduct and its 6 own work related to the airplane transportation, separate f rom work performed by 7 Rediske Air, and therefore the claims do not fall within the language of the Contractor’s 8 Exclusion. It asks the court to rule that Great Divide’s duty to defend remains 9 “untouched and unquestionable.”35 However, BML raised this issue for the first time in 10 its reply brief, providing no opportunity for Great Divide to address this argument. The 11 court will not consider this as a basis for summary judgment.36 Moreover, BML ignores 12 the language of the Contractors Exclusion that excludes injury and damage “arising out 13 of . . . acts or omissions in connection with the general supervision of [the contractor’s 14 or subcontractor’s work].” It fails to provide any argument as to why allegations against 15 BML that describe negligent hiring, negligent training and regulation, negligent 16 oversight, and failure to properly provide weight or load the plane do not constitute acts 17 or omissions in connection with the general supervision of the contractor’s work. 18 Therefore, the court declines to find that the allegations regarding BML’s own negligent 19 conduct precludes the application of the Contractor’s Exclusion. 20 21 22 23 24 35 25 26 27 28 Doc. 61 at p. 19. 36 See, e.g., State of Nev. v. Watkins, 914 F.2d 1545, 1560 (9th Cir.1990) (“[Parties] cannot raise a new issue for the first time in their reply briefs.” (citations omitted)); United States ex rel. Giles v. Sardie, 191 F. Supp. 2d 1117, 1127 (C.D. Cal.2000) (“It is improper for a moving party to introduce new facts or different legal arguments in the reply brief than those presented in the moving papers.”). -10- 1 V. CONCLUSION 2 Based on the preceding discussion, BML’s motion for summary judgment at 3 4 docket 7 is DENIED. DATED this 24th day of June 2016. 5 6 /s/ JOHN W. SEDWICK SENIOR JUDGE, UNITED STATES DISTRICT COURT 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11-

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