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JP Energy Marketing, LLC v. Commerce and Industry Insurance Co.

Court of Appeals of Oklahoma, Division III

March 20, 2017

JP ENERGY MARKETING, LLC, a foreign corporation, Plaintiff/Appellee,
v.
COMMERCE AND INDUSTRY INSURANCE COMPANY, a foreign corporation, Defendant, ALTERRA AMERICA INSURANCE COMPANY, a foreign corporation, Defendant/Appellant, NAVIGATORS INSURANCE COMPANY, a foreign corporation, Defendant/Appellant, BITCO GENERAL INSURANCE CORPORATION, a foreign corporation, Defendant/Appellant.

          Mandate Issued: 03/01/2018

         APPEAL FROM THE DISTRICT COURT OF PAYNE COUNTY, OKLAHOMA HONORABLE STEPHEN R. KISTLER, JUDGE

          Mark E. Dreyer, Isaac R. Ellis, CONNER & WINTERS, LLP, Tulsa, Oklahoma, for Plaintiff/Appellee,

          Sarah J. Timberlake, DOERNER, SAUNDERS, DANIEL & ANDERSON, L.L.P., Oklahoma City, Oklahoma, for Defendant/Appellant Alterra American Insurance Company,

          R. Lawson Vaughn, CHEEK LAW FIRM, PLLC, Oklahoma City, Oklahoma, for Defendant/Appellant Navigators Insurance Company,

          Phil R. Richards, Randy J. Lewin, Casper J. den Harder, RICHARDS & CONNOR, Tulsa, Oklahoma, for Defendant/Appellant BITCO General Insurance Corporation.

          Kenneth L. Buettner, Chief Judge

         ¶1 Defendants/Appellants BITCO General Insurance Corporation (BITCO), Alterra America Insurance Company (Alterra), and Navigators Insurance Company (Navigators) appeal from summary judgment granted in favor of Plaintiff/Appellee JP Energy Marketing, LLC (JP). After de novo review, we hold that JP is an additional insured under the terms of the insurance policies issued by BITCO, Alterra, and Navigators and that the insurers have a duty to indemnify and defend JP in the underlying litigation. The professional services and construction operations exclusions to coverage do not apply. The indemnity agreements and agreements to name JP as an additional insured do not violate Oklahoma's anti-indemnity statute, 15 O.S. § 221. Therefore, JP is entitled to judgment as a matter of law. AFFIRMED.

         ¶2 JP, formerly known as Parnon Gathering, Inc., owned the Great Salt Plains Pipeline in Payne County, Oklahoma. JP entered into an Engineering, Procurement and Construction Agreement (JP-IPS Contract) with IPS Engineering, LLC (IPS) March 1, 2012. IPS was to serve as general contractor for the construction of the pipeline. IPS then entered into a subcontract with Global Pipeline Construction, LLC (Global) to perform construction services and had previously entered into a subcontract with Wilcrest Field Services, Inc. (Wilcrest) to perform certain engineering and related technical services. The JP-IPS Contract and the subcontracts required the subcontractors maintain certain insurance coverages and that they name JP or the project owner as an additional insured on their policies.

         ¶3 On August 4, 2012, a fire occurred where the pipeline was being constructed. Numerous property owners in multiple lawsuits sued JP, IPS, Global, and Wilcrest for damages resulting from the fire. JP requested defense and indemnity from Global and Wilcrest's insurance carriers. BITCO had issued insurance policies to Global. Alterra had issued an insurance policy to Global. Navigators had issued a policy to Wilcrest. BITCO, Alterra, and Navigators denied coverage.

         ¶4 JP filed a Petition for Declaratory Judgment March 26, 2015 seeking declaratory relief that it is an additional insured under the BITCO, Alterra, and Navigators policies for the claims alleged against it in the underlying litigation; that BITCO, Alterra, and Navigators are obligated to indemnify and defend JP in the underlying litigation; and that the trial court determine the priority of payments among the defendant insurers. [1] JP filed a Motion for Summary Judgment to which BITCO, Alterra, and Navigators responded and also sought summary judgment in their favor. The trial court held a hearing on the motions July 7, 2016. The trial court found JP was an additional insured under the insurance policies issued by BITCO, Alterra, and Navigators, granted JP's motion for summary judgment, and denied BITCO, Alterra, and Navigators' requests for summary judgment in their favor. [2] The Journal Entry on Motions for Summary Judgment was entered July 27, 2016. BITCO, Alterra, and Navigators appeal. [3]

         ¶5 We review the trial court's grant of summary judgment de novo. Carmichael v. Beller, 1996 OK 48, ¶ 2, 914 P.2d 1051. Summary judgment proceedings are governed by Rule 13, Rules for District Courts, 12 O.S.2011 ch. 2, app. Summary judgment is appropriate where the record establishes no substantial controversy of material fact and the prevailing party is entitled to judgment as a matter of law. Brown v. Alliance Real Estate Group, 1999 OK 7, ¶ 7, 976 P.2d 1043. Where the facts are not disputed, an appeal presents only a question of law. Jones v. Purcell Investments, LLC, 2010 OK CIV APP 15, ¶ 2, 231 P.3d 706. Here, the material facts are not in dispute. The questions of law presented concern contract interpretation and statutory construction, which we review de novo. See May v. Mid-Century Ins. Co., 2006 OK 100, ¶ 22, 151 P.3d 132 (contract interpretation); Welch v. Crow, 2009 OK 20, ¶ 10, 206 P.3d 599 (statutory construction).

         ¶6 The parties' dispute centers around whether JP is an additional insured under the terms of four insurance policies. BITCO, Alterra, and Navigators contend JP is not an additional insured, because they do not have a direct contractual relationship with JP. JP argues the additional insured endorsements do not require privity of contract. Instead, the policy language at issue requires only that both have agreed in a written contract that JP will be added as an additional insured. JP argues that, when read together, the JP-IPS Contract and the subcontracts satisfy this requirement.

         ¶7 Because the policy language is the same for the BITCO and Alterra policies, we will analyze them together.

         BITCO COMMERCIAL LINES POLICY AND BITCO UMBRELLA POLICY ISSUED TO GLOBAL

         ¶8 At the time of the fire, Global was insured by a $2, 000, 000.00 per occurrence Commercial Lines Policy issued by BITCO (BITCO general policy) and a $5, 000, 000.00 Commercial Umbrella Policy also issued by BITCO (BITCO umbrella policy). The BITCO general policy contains an Oil and Gas Extended Liability Coverage Endorsement that defines who is an insured:

SECTION II - WHO IS AN INSURED is amended to include:
Any person or organization for whom you are performing operations if you and such person or organization have agreed in a written contract or written agreement executed prior to any loss that such person or organization will be added as an additional insured on your policy but only with respect to "bodily injury, " "property damage" or "personal and advertising injury" caused, at least in part, by your negligence and with respect to liability resulting from:
1. Your ongoing operations for the additional insured(s), or
2. Acts or omissions of the additional insured(s) in connection with their general supervision of such operations.

         ¶9 The BITCO umbrella policy insures any organization which qualifies as an insured in any underlying insurance designated on the declarations page. The schedule of underlying insurance on the declarations page includes the BITCO general policy. Therefore, the definition of "insured" in the BITCO general policy applies to the BITCO umbrella policy.

         ALTERRA EXCESS LIABILITY POLICY ISSUED TO GLOBAL

         ¶10 At the time of the fire, Global was also insured by a $5, 000, 000.00 Commercial Excess Liability Policy issued by Alterra. The Alterra policy defines "insured" as "the Named Insured shown in the declarations and any other person or organization qualifying as an Insured under the 'Underlying Insurance.'" The schedule of underlying insurance on the declarations page lists the BITCO umbrella policy. Therefore, the BITCO general policy supplies the applicable definition of "insured" for the BITCO general policy, the BITCO umbrella policy, and the Alterra policy.

         ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT BETWEEN JP AND IPS (JP-IPS CONTRACT)

         ¶11 The JP-IPS Contract provides that any subcontract entered into by IPS is required to incorporate the JP-IPS Contract's terms and conditions and any subcontractor is thereby required to accept its terms and conditions in writing. The JP-IPS Contract requires IPS to name JP as an additional insured, which, in turn, means all subcontractors are required to name JP as an additional insured. The JP-IPS Contract requires IPS and each of its subcontractors to provide commercial general liability coverage of $1, 000, 000.00 per occurrence and umbrella liability insurance of $10, 000, 000.00 in excess of primary coverage.

         IPS-GLOBAL SUBCONTRACT

         ¶12 IPS entered into a subcontract with Global for construction services. The IPS-Global Subcontract provides that the IPS-Global Subcontract, including Exhibits A through C and the Principal Contract, constitute the entire Subcontract between the parties. The Principal Contract is the JP-IPS Contract. The IPS-Global Subcontract states that Global and its permitted subcontractors shall carry and maintain during the performance of the work the insurance coverages sets forth on the attached Exhibit C, unless the JP-IPS Contract requires different or greater insurance coverage than the subcontractor, in which case the JP-IPS Contract prevails. Exhibit C states the insurance required shall be endorsed to include IPS and Owner as additional insureds. Owner is defined in IPS-Global Subcontract as JP.

         ¶13 BITCO and Alterra contend that to add JP as an additional insured, the BITCO policy requires a written contract or agreement between Global and JP that JP will be added as an additional insured. The BITCO policy defines "you" as referring to Global. According to the additional insured endorsement, an entity qualifies as an additional insured only if "you and such person or organization have agreed in a written contract or written agreement... that such person or organization will be added as an additional insured on your policy." No such agreement exists between Global and JP. BITCO and Alterra argue the trial court rewrote the policy by relying on the JP-IPS Contract and the IPS-Global Subcontract to satisfy the requirements of the additional insured endorsement. JP is not "such person or organization" with whom Global executed a written contract. The court would have to delete the phrase "and such person or organization, " modifying the term to "any person or organization for whom you are performing operations if you and such person or organization have agreed in a written contract or written agreement executed prior to any loss that such person or organization will be added as an additional insured on your policy." The court would also have to rewrite "a written contract or written agreement" to "written contracts or written agreements." BITCO and Alterra contend the policy language requires the agreement to be memorialized in a single writing. BITCO and Alterra also argue they were not parties to the JP-IPS Contract or the IPS-Global Subcontract and, therefore, cannot be bound by their terms.

         ¶14 An insurance policy is a contract. See Cranfill v. Aetna Life Ins. Co., 2002 OK 26, ¶ 5, 49 P.3d 703. The Supreme Court of Oklahoma has summarized the well-settled law governing insurance contracts:

Parties may contract for risk coverage and will be bound by policy terms. When policy provisions are unambiguous and clear, the employed language is accorded its ordinary, plain meaning; and the contract is enforced carrying out the parties' intentions. The policy is read as a whole, giving the words and terms their ordinary meaning, enforcing each part thereof. This Court may not rewrite an insurance contract to benefit either party.... We will not impose coverage where the policy language clearly does not intend that a particular individual or risk should be covered.

BP Am., Inc. v. State Auto Prop. & Cas. Ins. Co., 2005 OK 65, ¶ 6, 148 P.3d 832 (footnotes omitted).

An insurance policy is a contract, and a contract is to be construed as a whole, giving effect to each of its parts. The interpretation of an insurance contract and whether it is ambiguous is determined by the court as a matter of law. An insurance contract is ambiguous only if it is susceptible to two constructions on its face from the standpoint of a reasonably prudent layperson, not from that of a lawyer. However, this Court will not indulge in forced or constrained interpretations to create and then construe ambiguities in insurance contracts.

Haworth v. Jantzen, 2006 OK 35, ¶ 13, 172 P.3d 193 (footnotes omitted).

         ¶15 Whether this policy language requires a direct contract between the parties is an issue of first impression in Oklahoma. We hold the BITCO general policy language is unambiguous. While a direct contract between JP and Global would satisfy the additional insured provision, a direct contract is not necessarily required by the plain language of the policy. The ordinary, plain meaning is that JP is an insured if both JP and Global agree, in writing, that JP will be added as an additional insured to Global's policies and the other criteria are satisfied. What is essential is that both parties agree in writing. It is undisputed that in the JP-IPS Contract, JP and IPS agreed all subcontractors would be bound by the terms and conditions of the JP-IPS Contract, which included providing certain insurance coverages and naming JP as an additional insured. It is also undisputed that in the IPS-Global Subcontract, Global fully agreed to the terms and conditions of the JP-IPS Contract and that its policies would be endorsed to include JP as an additional insured. Therefore, we hold JP is an additional insured under the BITCO general policy, BITCO umbrella policy, and Alterra policy. [4]

         ¶16 The weight of authority from courts in other jurisdictions supports our decision. See First Mercury Ins. Co. v. Shawmut Woodworking & Supply, Inc., 48 F.Supp.3d 158, 166 (D. Conn. 2014), aff'd, 660 Fed.Appx. 30 (2d Cir. 2016), (holding the agreement could be memorialized in separate contracts without requiring a direct contractual relationship between the parties); Millis Dev. & Constr., Inc. v. America First Lloyd's Ins. Co., 809 F.Supp.2d 616, 626-27 (S.D. Tex. 2011) (holding the policy language does not require a direct contract); Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F.Supp.2d 242, 252 (D. Me. 2011) (holding the policy language does not require a direct contract); but see Westfield Ins. Co. v. FCL Builders, Inc., 948 N.E.2d 115, 118 (2011) (holding the policy language requires a direct, written agreement between the parties). [5]

         ¶17 Nothing in the BITCO general policy explicitly requires a direct contractual relationship between JP and Global. To accept BITCO and Alterra's position that a direct contract is required, we would need to rewrite the policy by adding language, such as "between" or "direct" with respect to the written contract or written agreement, or by adding to "have agreed in a written contract or written agreement" the words "with you, " "with each other, " or "together." See First Mercury, 48 F.Supp.3d at 167; Millis, 809 F.Supp.2d 616, 626-27; Pro Con, 794 F.Supp.2d at 251. Furthermore, we agree with the court's assessment in Pro Con that the policy's "repeated use of the phrase 'such person or organization' does not plainly restrict additional insured status only to those entities that have contracted directly with the named insured." 794 F.Supp.2d at 252. A reasonably prudent layperson, without specialized training in law or insurance, would have no reason to read this language as mandating privity of contract. See id.

         ¶18 We are also not persuaded by BITCO and Alterra's arguments they are not bound by the terms of the JP-IPS Contract and IPS-Global Subcontract. Under the terms of the insurance policies, contracts to which BITCO and Alterra are parties, BITCO and Alterra agreed to the additional insured endorsement and that they would provide coverage to any person or organization meeting the following criteria: (1) Global is performing operations for such person and organization, and (2) Global and the person or organization have agreed in writing such person or organization will be added as an additional insured. BITCO and Alterra do not control for whom Global performs operations and who Global agrees to add as additional insureds. In this case, the person or organization was JP.

         ¶19 Next, we consider the Navigators policy. Navigators asserts the same argument that JP is not an additional insured, because there is no direct contract between JP and Wilcrest.

         NAVIGATORS EXCESS LIABILITY POLICY ISSUED TO WILCREST

         ¶20 At the time of the fire, Wilcrest was insured by a $10, 000, 000.00 Commercial Excess Liability Policy issued by Navigators. The Navigators policy insures any person or organization that is an insured in controlling underlying insurance. The controlling underlying insurance is a $1, 000, 000.00 per occurrence commercial general liability policy issued by Employers Insurance Company of Wausau (Liberty Mutual). [6] The additional insured endorsement to the Liberty Mutual policy defines "insured" as:

A. Section II - Who Is An Insured is amended to include as an additional insured any person or organization to whom you are obligated by a written agreement to procure additional insured coverage, but only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf:
1. In the performance of your ongoing ...

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