Deviney Construction Company, Inc. v. Ace Utility Boring & Trenching, LLC et al
Filing
81
ORDER denying 67 Motion for Summary Judgment; granting in part and denying in part 69 Motion for Summary Judgment; granting in part and denying in part 71 Motion for Summary Judgment for the reasons stated in the order. The parties are dire cted to contact the Court's courtroom deputy within ten days of the entry of this order to set the case for a status conference to discuss how the case should proceed in light of the foregoing rulings. Signed by District Judge Daniel P. Jordan III on June 30, 2014. (SP)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
DEVINEY CONSTRUCTION
COMPANY, INC.
PLAINTIFF
v.
CIVIL ACTION NO. 3:11cv468-DPJ-FKB
ACE UTILITY BORING & TRENCHING,
LLC, and PENNSYLVANIA NATIONAL
MUTUAL CASUALTY INSURANCE
COMPANY d/b/a PENN NATIONAL
INSURANCE COMPANY
DEFENDANTS
CONSOLIDATED WITH
ACE UTILITY BORING & TRENCHING,
LLC, and J.M. DRILLING, LLC
PLAINTIFFS
v.
CIVIL ACTION NO. 3:13cv60-DPJ-FKB
DEVINEY CONSTRUCTION
COMPANY, INC.
DEFENDANT
ORDER
These consolidated cases are before the Court on a number of dispositive motions. In the
lead, declaratory-judgment case, Defendants Pennsylvania National Mutual Casualty Insurance
Company (“Penn National”) [67] and Ace Utility Boring & Trenching, LLC (“Ace”) [69] have
moved for summary judgment, and Plaintiff Deviney Construction Company, Inc. (“Deviney”)
has moved for partial summary judgment [71].1 For the reasons that follow, Deviney’s motion is
granted as to its claims against Penn National but denied without prejudice as to the claims
against Ace; Penn National’s motion is denied, though the denial is without prejudice as to the
1
Plaintiffs in the breach-of-contract member case also filed motions for partial summary
judgment. Those motions are addressed by separate order.
duty to indemnify; and Ace’s motion is granted as to the duty to indemnify but otherwise denied
without prejudice.
I.
Facts and Procedural History
In 2007, AT&T contracted with Deviney to install a telephone cable along Holland
Avenue in Philadelphia, Mississippi. Deviney engaged Ace to make pavement borings where the
telephone cable would be installed, and on September 14, 2007, Ace and Deviney entered into an
Independent Contractor Agreement (“ICA”) to that end. At all relevant times, Ace was insured
under a commercial general-liability policy issued by Penn National.
On the morning of September 15, 2007, while making pavement borings, an Ace
employee allegedly bored into a natural-gas pipeline owned by Centerpoint Energy. Before the
gas line was repaired, a building on Holland Avenue exploded as a result of the gas leak, causing
some minor injuries and a significant amount of property damage.
Following the explosion, a number of lawsuits were filed against Ace, Deviney, and/or
Centerpoint. Deviney selected a lawyer from its general-liability carrier’s list of approved
lawyers to defend it in the underlying lawsuits. Believing it was entitled under the ICA to a
defense and indemnification from Ace and its insurer, Deviney, through its retained counsel,
made demand upon Penn National and Ace for defense and indemnification. Penn National
responded and agreed to accept the tender of defense under a reservation of rights, provided
Deviney “waive any conflict in order to allow [Ace’s lawyer in the underlying lawsuits] to defend
Deviney . . . as well.” Pl.’s Mot. [71] Ex. 8.
Aggrieved by Ace’s and Penn National’s responses to its demands, Deviney filed this
lawsuit on July 28, 2011. The Second Amended Complaint [24] asserts breach-of-contract
2
claims against Ace and Penn and seeks a declaratory judgment “that Penn and/or Ace had and
has a duty to defend and indemnify Deviney in connection with the lawsuits identified herein.”
2d Am. Compl. [24] ¶ 19. At the close of discovery, Defendants moved for summary judgment
and Plaintiff moved for partial summary judgment. The Court has personal and subject-matter
jurisdiction and is prepared to rule.
II.
Standard
Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure
when evidence reveals no genuine dispute regarding any material fact and that the moving party
is entitled to judgment as a matter of law. The rule “mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against a party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The party moving for summary judgment “bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of [the record] which it
believes demonstrate the absence of a genuine issue of material fact.” Id. at 323. The
nonmoving party must then “go beyond the pleadings” and “designate ‘specific facts showing
that there is a genuine issue for trial.’” Id. at 324 (citation omitted). Conclusory allegations,
speculation, unsubstantiated assertions, and legalistic arguments are not an adequate substitute
for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash.,
276 F.3d 754, 759 (5th Cir. 2002); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)
(en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993).
3
III.
Analysis
Defendants have moved for summary judgment on all of Deviney’s claims against them,
and Deviney has moved for partial summary judgment on its claim that Defendants have a duty
to defend it in the underlying lawsuits. Deviney asserts that (1) certain provisions in the ICA
between it and Ace obligated Ace to defend and indemnify Deviney and (2) coverage for
Deviney exists under certain provisions of Ace’s Penn National policy. In general terms, the
questions before the Court are whether Deviney qualifies as an Automatic Additional Insured
under the Penn National policy and/or whether Ace agreed to assume Deviney’s liability in an
“insured contract” as defined by the policy. Deviney also asserts that Ace separately breached
the ICA. Defendants assert that Deviney waived any entitlement to defense or indemnity. The
Court will address the issues in turn.
A.
Automatic Additional Insured
The Penn National policy issued to Ace contains an Automatic Additional Insured
endorsement, which expands the policy’s definition of “insured” to include
Any person(s) or organization(s) (referred to below as additional insured) with
whom you are required in a written contract or agreement to name as an additional
insured, but only with respect to liability for “bodily injury”, “property damage”
or “personal and advertising injury” caused, in whole or in part, by:
(1) Your acts or omissions; or
(2) The acts or omissions of those acting on your behalf;
in the performance of your ongoing operations for the additional insured(s) at the
location or project described in the contract or agreement.
4
Penn National Mot. [67] Ex. B, at 23. Deviney asserts that it qualifies under this definition
because Ace agreed to name Deviney as an additional insured on the Penn National policy in the
ICA.
Paragraph 22 of the ICA pertains to insurance and requires Ace to maintain several types
of coverage:
Independent Contractor shall provide and maintain, at its own expense, the
following minimum types and amounts of insurance, with insuring companies and
in such form as shall be satisfactory to Company:
A. Worker’s Compensation insurance in accordance with the Workers
Compensation Law of the state or states in which the subcontract is to be
executed . . . .
B. Comprehensive automobile liability insurance, with minimum limits of
liability being $500,000 each occurrence, bodily injury or property
damage, or both combined.
C. Comprehensive general liability insurance with the ‘explosion,
collapse, and underground exclusions’ eliminated, including productscompleted operations coverage, with MINIMUM limits of liability of
$500,000 each occurrence, bodily injury or property damage, or both
combined. The policy shall provide for protective liability insurance with
respect to operations of Independent Contractor, and shall include
contractual liability coverage for the following indemnity agreement,
which agreement is hereby made a part of the contract between the
Company and the Independent Contractor:
IN consideration of the specific sum of Ten Dollars ($10.00), the
receipt of which he acknowledges, the Independent Contractor
shall indemnify and hold harmless the Owner, Company and
Architect, and their agents and employees, from and against all
claims, damages, losses and expenses, including attorneys fees,
resulting from injury to or death sustained by any person . . . or
damage to property of any kind, which injury, death or damage
arises out of or in any way is connected with the Independent
Contractor’s performance of or failure to perform the work.
5
Company and Independent Contractor agree that the liability of
Independent Contractor to indemnify and hold Company harmless
shall not exceed the sum of $500,000 for bodily injury and property
damage arising out of one occurrence.
Company shall be shown as an additional insured as pertains to
general liability on automobile insurance coverage.
....
Independent Contractor shall not sublet or subcontract any part of this
Agreement without assuming absolute responsibility for requiring similar
insurance from its subcontractors and suppliers. . . .
Pl.’s Mot. [71] Ex. 3, at 10 (final emphasis added).
Deviney asserts that the parties’ clear intent to have Deviney listed as an additional
insured on Ace’s general-liability-insurance policy is evident from the language of paragraph 22.
Specifically, Deviney argues that the provision contains an obvious typographical error and must
be understood to require Ace to list Deviney as an additional insured “as pertains to general
liability [and] automobile insurance coverage.” For the following reasons, the Court agrees.
Mississippi law applies to this contract, and its rules of construction frame this dispute.
As an initial matter, “[q]uestions concerning the construction of contracts are questions of law
that are committed to the court rather than questions of fact committed to the fact finder.” Miss.
State Highway Comm’n v. Patterson Enters., Ltd., 627 So. 2d 261, 263 (Miss. 1993). The rules
for construing contracts were addressed in the oft-cited Royer Homes of Mississippi, Inc. v.
Chandeleur Homes, Inc.:
This Court has set out a three-tiered approach to contract interpretation. Legal
purpose or intent should first be sought in an objective reading of the words
employed in the contract to the exclusion of parol or extrinsic evidence. First, the
“four corners” test is applied, wherein the reviewing court looks to the language
that the parties used in expressing their agreement. We must look to the “four
6
corners” of the contract whenever possible to determine how to interpret it. When
construing a contract, we will read the contract as a whole, so as to give effect to
all of its clauses. Our concern is not nearly so much with what the parties may
have intended, but with what they said, since the words employed are by far the
best resource for ascertaining the intent and assigning meaning with fairness and
accuracy. Thus, the courts are not at liberty to infer intent contrary to that
emanating from the text at issue. On the other hand, if the contract is unclear or
ambiguous, the court should attempt to harmonize the provisions in accord with
the parties’ apparent intent. Only if the contract is unclear or ambiguous can a
court go beyond the text to determine the parties’ true intent. The mere fact that
the parties disagree about the meaning of a contract does not make the contract
ambiguous as a matter of law.
Secondly, if the court is unable to translate a clear understanding of the parties’
intent, the court should apply the discretionary “canons” of contract construction.
Where the language of an otherwise enforceable contract is subject to more than
one fair reading, the reading applied will be the one most favorable to the
non-drafting party. Finally, if the contract continues to evade clarity as to the
parties’ intent, the court should consider extrinsic or parol evidence. It is only
when the review of a contract reaches this point that prior negotiation, agreements
and conversations might be considered in determining the parties’ intentions in
the construction of the contract. Of course, the so-called three-tiered process is not
recognized as a rigid “step-by-step” process. Indeed, overlapping of steps is not
inconceivable.
857 So. 2d 748, 752–53 (Miss. 2003) (internal citations and punctuation omitted).
Within this general outline, Deviney relies on a more specific rule of construction. In
Robinson v. Martel Enterprises, Inc., the court held:
A written contract should be construed according to the obvious intention of the
parties, notwithstanding clerical errors or inadvertent omissions therein, which
can be corrected by perusing the whole instrument. If an improper word has been
used or a word omitted, the court will strike out the improper word or supply the
omitted word if from the context it can ascertain what word should have been
used.
337 So. 2d 698, 701 (Miss. 1976) (emphasis added) (citing 17 Am. Jur. Contracts § 280, now §
373)); see also Newell v. Hinton, 556 So. 2d 1037, 1042–43 (Miss.1990) (affirming summary
7
judgment and applying this rule of construction). In addition to the treatise cited in Robinson,
another leading treatise on contract law recognizes the same rule:
Words may be interpolated or rearranged to make clear the meaning of a contract.
Indeed, in order to carry out the contracting parties’ intention, the contract’s words
may be interpolated, transposed, or even rejected. For the same reason, terms may
be supplied by the court. Similarly, clerical or grammatical errors may be
corrected . . . .
These are but a few applications of the same essential principle that a contract will
be construed so as to effectuate rather than defeat the parties’ intentions and
purposes in entering the contract.
11 Williston on Contracts § 32:9 (4th ed.). Because these are rules of construction, they are
considered as a matter of law. Miss. State Highway Comm’n, 627 So. 2d at 263.
Based on these rules, the Court concludes that the disputed use of the word “on” in
paragraph 22 was a mistake that was clearly inconsistent with the parties’ intent. Instead, the
contract should be construed as requiring Ace to list Deviney as an “additional insured as
pertains to general liability [and] automobile insurance coverage.”
To begin, the Court looks to the contract as a whole, attempting to harmonize the contract
language where possible. Royer Homes of Miss., Inc., 857 So. 2d at 752. In this case, the parties
clearly intended to provide Deviney with the maximum protection allowed by law. See, e.g.,
Pl.’s Mot. [71] Ex. 3, at 11–12 (agreeing that “[w]here not specifically prohibited by law,” Ace
would indemnify and hold Deviney harmless).
Consistent with that intent, paragraph 22 of the ICA requires Ace to obtain three separate
types of insurance: worker’s compensation insurance, “[c]omprehensive automobile liability
insurance,” and “[c]omprehensive general liability insurance” (“CGL”). Id. at 10. These
8
provisions are found in three separately lettered paragraphs A–C. Id. Significantly,
subparagraph “C” relates to CGL coverage, and expressly states:
The [CGL] policy. . . shall include contractual liability coverage for the following
indemnity agreement . . . :
. . . Independent Contractor shall indemnify and hold harmless the
Owner . . . and against all claims . . . resulting from injury to or
death sustained by any person . . . or damage to property of any
kind . . . .
....
Company shall be shown as an additional insured as pertains to
general liability on automobile insurance coverage.
Thus, as written, subparagraph “C”—addressing CGL coverage—lists among Ace’s duties, the
duty to show Deviney as an additional insured.
It would make no apparent sense for the subparagraph addressing CGL coverage to hinge
on listing Deviney as an additional insured on Ace’s automobile policy alone. And if the parties
truly intended to limit the additional-insured requirement to the automobile policy, then it would
have been addressed in subparagraph “B” and not as a duty under subparagraph “C.”
Aside from this structural issue, the phrase “general liability on automobile insurance
coverage” has no apparent meaning. Penn National contends that it merely requires “Ace to add
Deviney as an additional insured on Ace’s automobile liability policy.” Def.’s Mem. [68] at 5.
But Penn National’s attempt to paraphrase the clause excludes the term “general liability,” and it
never explains how “general liability” can modify an automobile policy, or what type of coverage
that phrase would actually provide. The parties inserted the words “general liability” in the ICA
for a reason, and the Court is not inclined to simply ignore them. See Royer Homes of Miss. Inc.,
9
857 So. 2d at 752 (instructing courts to give effect to all contract clauses). As such, Penn
National has not offered a reasonable alternative construction that accounts for the term “general
liability.”
If “general liability” is not ignored, then it becomes impossible to harmonize if truly
intended to modify the automobile policy. Neither the ICA as a whole nor paragraph 22 say
anything about “general liability” coverage that is somehow part of the “automobile insurance
coverage.” Instead, the ICA uses the two terms to describe separate coverages in subparagraphs
“B” and “C” of paragraph 22.
By using “general liability” and “automobile insurance” to describe separate coverages,
the ICA complies with industry usage. See, e.g., 9A Couch on Insurance § 129:1 (3d ed.)
(explaining that comprehensive general liability refers to industry-standard policies that
originated in 1940); id. at 2 § 21:2 (noting that the same standards of construction apply to
“general liability insurance, [and] automobile liability insurance” policies); id. at 7A § 109:27
(noting that “insuring activities unrelated to vehicle’s use for transportation is a function of a
general liability policy, not an automobile policy”); id. at 8A § 119:26 (noting that insurers use
certain standard terms to “determine whether the auto insurer or the general liability insurer
would cover a given incident”).2
2
The only extrinsic evidence in the record is the expert testimony of Van Hedges, who
opined that there is no such thing as “general liability insurance on automobile coverage
insurance.” The Court may consider expert testimony on terms of art when construing a contract.
See Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 611–12 (5th Cir. 2000) (affirming
trial court’s use of expert testimony and relevant treatise to explain “technical meaning of terms
used in the industry [as] prudent”) (citation and quotations omitted)). Penn National produced no
countervailing evidence on this point and no argument that something called “general liability on
automobile insurance coverage” can be procured.
10
And because “general liability” is a term of art that loses meaning when coupled with
“automobile insurance,” it makes no sense to list Deviney as an additional insured “as pertains to
general liability on automobile insurance coverage.” In fact, the requirement appears to nullify
Ace’s duty to list Deviney even on the automobile policy—Penn has never explained what
“general liability on automobile insurance” is.3 The clause must have some meaning because the
parties would not have intended a nullity. See Wilson Indus., Inc. v. Newton Cnty. Bank, 245
So. 2d 27, 30 (Miss. 1971) (“A construction will not be adopted, if it can be reasonably avoided,
which will charge the parties with having bound themselves to provisions which are mutually
repugnant, senseless, ineffective, meaningless or incapable of being carried out in the overall
context of the transaction consistently with all of the other provisions of all of the several
contract documents.”); cf. Evans v. Boyle Flying Serv., Inc., 680 So. 2d 821, 825 (Miss. 1996)
(in statutory construction, “words or phrases may be altered or supplied, where this is necessary
to prevent the law from becoming a nullity”).
Looking at the ICA as a whole, the Court concludes that a drafting error occurred that
frustrated the clear intent of the parties to afford Deviney the maximum protection allowed by
law. As intended, paragraph 22 should have required Ace to list Deviney as an additional insured
“as pertains to general liability [and] automobile insurance coverage.”4 Penn National is
certainly correct to observe that this construction depends on the Court’s willingness to replace
3
It does not appear that either party attached Ace’s automobile policy to the record, so it is
not known whether Ace complied with paragraph 22(c) in a way consistent with Penn National’s
interpretation or not at all.
4
Not requiring Deviney to be listed as an additional insured on Ace’s worker’s
compensation insurance is consistent with Ace’s independent-contractor status.
11
contract language—something the Court does not take lightly. But this is not a case of rewriting
a policy to create coverage the parties never intended. Mississippi law allows the Court to alter
the language when construing a contract if it is clear that “an improper word has been used . . . .”
Robinson, 337 So. 2d at 701.
As modified, the language falls in full harmony with the structure of paragraph 22,
subparagraphs “B” and “C,” and the overall intent to provide Deviney the maximum protection
allowed by law. It further avoids a nonsensical articulation that actually nullifies the very
protection for which Deviney bargained. Deviney is an additional insured under the Penn
National policy.5
Finding that Deviney was an insured does not conclude the matter. Under the policy,
Penn National’s indemnity for additional insureds is limited to “liability for ‘bodily injury’,
‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by [Ace’s]
acts or omissions.” Penn National Mot. [67] Ex. B, at 23. At this stage, on the record before it,
the Court cannot tell whether Deviney has incurred liability in any of the underlying cases for
injuries or damages caused, in part, by Ace’s acts or omissions.6 A determination on Penn
5
A word of caution is in order. Construing contracts in this manner is allowed under
Mississippi law, but it rarely occurs, and the Court has some misgivings about doing so now.
But under Rule 56, Deviney has demonstrated through unrebutted record evidence and legal
authority that it is entitled to judgment as a matter of law. Defendants had opportunities to
directly address Deviney’s position, but on the record before the Court, they have not met their
burden under Rule 56.
6
If Ace is held wholly responsible in any of the lawsuits, Deviney can have no liability
because Ace was an independent contractor. See Chisolm v. Miss. Dep’t of Transp., 942 So. 2d
136, 141 (Miss. 2006) (“Under the general rule, the independent contractor’s principal has no
vicarious liability for the torts committed by the independent contractor or its employees in the
performance of the contract.” (citation omitted)).
12
National’s indemnity obligations necessarily awaits the outcome of the underlying lawsuits. Cf.
Travelers Prop. Cas. Co. of Am. v. Federated Rural Elec. Ins. Exch., No. 3:08cv83DPJ-JCS,
2009 WL 2900027, at *4, 9 (S.D. Miss. Sept. 3, 2009) (explaining that a determination of
parties’ negligence for underlying accident would fix extent of duty to indemnify). Penn
National’s motion for summary judgment is denied without prejudice on the duty-to-indemnify
question.
That leaves the issue of Penn National’s duty to defend Deviney in the underlying
lawsuits. The Penn National policy provides that Penn National “will have the right and duty to
defend the insured against any ‘suit’ seeking” “damages because of ‘bodily injury’ or ‘property
damage’ to which this insurance applies.” Penn National Mot. [67] Ex. B, at 36. “The duty to
defend is broader than the duty to indemnify, and exists if the complaint alleges facts that place
the claim arguably within a policy’s coverage.” Evanston Ins. Co. v. Neshoba Cnty. Fair Ass’n,
Inc., 442 F. Supp. 2d 344, 346 n.1 (S.D. Miss. 2006) (citation omitted). Because the underlying
complaints all allege injuries or damages caused, at least in part, by Ace’s negligence, the
underlying lawsuits are arguably within the policy’s coverage. See Pl.’s Mot. [71] Ex. 1
(outlining allegations against Ace in underlying cases). And as explained above, Deviney
qualifies as an insured under the policy’s automatic-additional-insured provision. Penn National
has a duty to defend Deviney in the underlying lawsuits.7
7
Penn National argues that certain requirements for Deviney’s defense costs to be covered
under the Supplementary Payments provision of the policy were not met. Penn National Mem.
[68] at 22 (citing Penn National Mot. [67] Ex. B, at 42–43). But those prerequisites apply only
when Penn National defends an indemnitee seeking defense based on an “insured contract.” See
Penn National Mot. [67] Ex. B, at 43 (extending defense to indemnitee where “insured has
assumed the liability of the indemnitee in a contract or agreement that is an ‘insured contract’”).
As the Court has held, Deviney qualifies as an insured under the policy, and Penn National’s duty
13
Two issues remain on the duty to defend: whether Deviney waived its right to have Penn
National defend it in the underlying lawsuits, and whether Deviney is entitled to have Penn
National pay for the independent counsel of Deviney’s choice. The two issues are factually
related.
Beginning in December 2008, Penn National’s claims specialist Brent Moelker purported
to offer to assume the defense of Deviney in the underlying lawsuits. In a December 3, 2008
letter to Deviney’s lawyer in the underlying cases, Moelker notified Deviney that “Mr. Jimmy
House is defending Ace” in the underlying suits and “ask[ed] that [Deviney] agree to waive any
conflict in order to allow Mr. House to defend Deviney . . . as well.” Pl.’s Mot. [71] Ex. 8, at 17.
Similar requests were included in letters from Moelker on March 20, 2009, and June 26, 2009.
Id. at 7, 12. On November 10, 2010, Deviney’s state-court counsel sent a letter to Penn National
explaining that Deviney rejected Penn National’s proposal that Ace’s state-court counsel
represent both Ace and Deviney. Pl.’s Mot. [71] Ex. 11, at 4. Deviney’s counsel stated that
Deviney was rejecting the proposal both “because there are inherent conflicts” between Ace and
Deviney “which cannot be waived” and because “under Mississippi insurance law, . . .
independent counsel is required.” Id. at 5. But Deviney explained that it “continue[d] to demand
complete defense and indemnification” including “separate independent counsel fees and
expenses.” Id. at 6.
These facts do not establish that Deviney waived its right to a defense under the policy.
“Waiver usually results when there is an intentional relinquishment of a known right.” Brent
Towing Co., Inc. v. Scott Petroleum Corp., 735 So. 2d 355, 359 (Miss. 1999) (citation omitted).
to defend Deviney arises from Deviney’s status as an insured, not as an indemnitee.
14
The correspondence from Penn National to Deviney’s counsel indicates that from late 2008
through November 2010, Deviney consistently sought defense and indemnification from Penn
National. And while Deviney refused to acquiesce to Penn National’s demand that Deviney
waive any conflict between Ace and Deviney, this refusal does not demonstrate Deviney’s
“intentional relinquishment” of its rights under the policy. There was no waiver.
Finally, Deviney asserts that it is entitled to retain independent counsel, at Penn
National’s expense, under Moeller v. American Guarantee and Liability Insurance Co. 707 So.
2d 1062 (Miss. 1996). In Moeller, the Mississippi Supreme Court held that where an insurer
agrees to defend an insured under a reservation of rights, the insured is entitled to independent
counsel at the expense of the insurer. 707 So. 2d at 1070. The crux of Penn National’s argument
that Deviney was not entitled to Moeller counsel is its position that “[a]t the very most, Deviney
is an indemnitee of an insured.” Defs.’ Resp. Mem. [76] at 11. Penn National even seems to
agree that Moeller would apply if the Court found that Deviney is an additional insured under the
policy. Id. (“[I]f Deviney is not an insured or additional insured under the Penn National policy,
it has no rights under the policy and no right to Moeller counsel.”) But as the Court has already
determined, Deviney is an additional insured under the policy. Because of potential conflicts
between Deviney and Penn National, Deviney is entitled to its own independent counsel.8
In sum, Deviney is an insured under Section II (A) of the Penn National policy, Penn
National owes Deviney a defense in the underlying lawsuits, and Deviney is entitled to
independent counsel in those cases. But Deviney’s right to indemnity in the underlying lawsuits
8
Penn National also argues that Deviney’s retained counsel was not independent because
he was retained by Deviney’s carrier. But Deviney offered unrebutted record evidence showing
that it retained and paid its attorney.
15
cannot be determined until those cases are resolved. Penn National’s motion for summary
judgment is denied, and that denial is without prejudice as to the duty to indemnify. Deviney’s
motion for partial summary judgment is granted as to its claims against Penn National. Because
the Court’s conclusion on the automatic-additional-insured issue answers the questions raised in
Penn National’s motion, the Court need not address the insured-contract issue.
B.
Breach of ICA
In its Second Amended Complaint, Deviney asserted that Ace breached the ICA “by
failing to indemnify, defend and hold harmless Deviney” from the claims contained in the
underlying lawsuits. 2d Am. Compl. [24] ¶ 13. In the briefing on the summary-judgment
motions, Deviney appears to have abandoned its claims for indemnity based on its own
negligence. See Pl.’s Mem. [78] at 7–8. Ace’s motion is therefore granted as to the indemnity
issue.
Deviney focuses instead on its claim that Ace breached the ICA by refusing to defend
Deviney in the underlying lawsuits. Paragraph 23 of the ICA, entitled Indemnity, contains a
number of provisions purporting to require Ace to indemnify Deviney. The final sub-paragraph
specifically addresses defense costs:
Independent Contractor shall, at its sole cost, expense, and risk, defend any claim,
suit, action or other legal proceeding (collectively “action”) arising out of the
performance of this Agreement brought jointly against the Indemnitees or any of
them and Independent Contractor or against any of the Indemnitees, shall pay and
satisfy any judgment or decree which may be rendered against any of the
Indemnitees in any such action and shall pay any costs and attorney’s fees which
may be incurred by the Indemnitees in connection therewith and/or in enforcing
the indemnification provisions set forth above. Should Independent Contractor, in
judgment of Company, ignore or fail to properly handle or defend any such action,
Company may at its option assume and undertake, or join the handling or defense
of any such action, and in the event that Independent Contractor will reimburse
16
Company for attorney’s fees and other expenses incurred by it in handling or
defending same, including any amounts paid by Company in settlement thereof or
in satisfaction of any judgment rendered.
Pl.’s Mot. [71] Ex. 3, at 13.
There is no dispute Ace refused to honor this portion of the ICA. See Pl.’s Mot. [71] Ex.
7 (letter from Ace’s counsel refusing to assume defense and full indemnification). Instead, Ace
asserts that the provision runs afoul of the anti-indemnity statute and is therefore void. Defs.’
Resp. Mem. [76] at 21–22 (citing Miss. Code Ann. § 31-5-41). That statute states with respect to
construction contracts that any promise to “indemnify or hold harmless another person from that
person’s own negligence is void as against public policy and wholly unenforceable.” Miss. Code
Ann. § 31-5-41.
Neither party cites any case law discussing whether the anti-indemnity statute applies to
bar a claim seeking only attorney’s fees and defense costs, rather than indemnification. And
neither party filed a rebuttal in support of its motion, so the Court will deny both Ace’s and
Deviney’s motions on this issue at this time. The denial is without prejudice to either side raising
and fleshing out the issue in the future.
IV.
Conclusion
The Court has considered all of the parties’ arguments. Those not specifically addressed
would not have changed the outcome. For the foregoing reasons, Penn National’s motion for
summary judgment [67] is denied, though denial is without prejudice as to the duty to indemnify.
Deviney’s motion for partial summary judgment [71] is granted as to its claims against Penn
National but denied without prejudice as to the claims against Ace. Finally, Ace’s motion for
summary judgment [69] is granted as to the duty to indemnify but otherwise denied without
17
prejudice. The parties are directed to contact the Court’s courtroom deputy within ten days of the
entry of this order to set the case for a status conference to discuss how the case should proceed
in light of the foregoing rulings.
SO ORDERED AND ADJUDGED this the 30th day of June, 2014.
s/ Daniel P. Jordan III
UNITED STATES DISTRICT JUDGE
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