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First Mercury Insurance Co. v. Cincinnati Insurance Co.

United States Court of Appeals, Tenth Circuit

February 26, 2018

FIRST MERCURY INSURANCE COMPANY, Plaintiff - Counter/Defendant -Appellant/Cross - Appellee,
CINCINNATI INSURANCE COMPANY, Defendant - Counter/Plaintiff -Appellee/Cross - Appellant.

         Appeal from the United States District Court for the District of New Mexico (D.C. No. 1:14-CV-01052-WJ-LAM)

          Gregory D. Steinman, Madison, Mroz, Steinman & Dekleva, P.A., Albuquerque, New Mexico, for First Mercury Insurance Company.

          Timothy L. Fields (Nathan T. Nieman and Elizabeth A. Martinez with him on the briefs), Modrall Sperling Roehl Harris & Sisk, P.A., Albuquerque, New Mexico, for Cincinnati Insurance Company.

          Before BACHARACH, MURPHY, and McHUGH, Circuit Judges.


         This appeal asks us to settle a dispute between insurers over coverage for the defense and indemnification of a wrongful death action brought in a separate lawsuit. First Mercury Insurance Company ("First Mercury") assumed the duty to defend the wrongful death suit against Bingham Construction Company ("Bingham"), with a reservation of rights. First Mercury then filed a complaint for declaratory judgment in federal district court for the District of New Mexico against Cincinnati Insurance Company ("Cincinnati"), seeking a declaration that it had no obligation to indemnify Bingham, and that Cincinnati had an obligation to reimburse First Mercury for the costs of defense. First Mercury argued, among other things, that the underlying contract between Bingham and High Desert Roofing, Inc. ("High Desert"), the subcontractor, was void under New Mexico Stat. Ann. § 56-7-1, and that even if valid, the policy did not cover the wrongful death action.

         The parties eventually filed cross-motions for summary judgment. The district court ruled that First Mercury had a duty to defend and indemnify Bingham and that Cincinnati had no obligation to reimburse any part of the settlement amount or the defense costs. First Mercury now appeals, and Cincinnati has filed a conditional cross-appeal. We affirm the district court's order, although we do so on different grounds. We therefore do not address the issues raised in Cincinnati's conditional cross-appeal.

         I. BACKGROUND

         A. Factual History

         1. The Subcontract Agreement

         In July 2012, Bingham entered into a construction agreement ("subcontract agreement") with High Desert for roofing services to be performed by High Desert at a tractor supply store in Farmington, New Mexico. The subcontract agreement requires High Desert to procure and maintain an insurance policy relating to its work on the tractor supply store and to add Bingham as an additional insured on that policy. These conditions are set forth in the following provisions of the subcontract agreement:


(a) Before commencing any of its work under this Subcontract, and until completion and final acceptance thereof by Contractor [Bingham] and Owner, Subcontractor [High Desert] shall maintain at its expense such insurance as will protect it from the claims arising out of its operations and the expiration of the period described below in this subparagraph (a) under this Subcontract . . . .
The insurance coverage required under this article shall be of sufficient type, scope, and duration to ensure coverage for the Contractor [Bingham] or Owner for liability related to any manifestation date within the applicable statute of limitations which pertain to any work performed by or on behalf of the Contractor [Bingham] or Owner in relation to the work under this Subcontract. Subcontractor [High Desert] agrees to maintain the above insurance for the benefit of Contractor [Bingham] and Owner for a period of five years or the expiration of the applicable statute of limitation under Texas Civil Practice and Remedies code, chapter 16, whichever is longer.
. . . .
(d) The insurance policies . . . shall be endorsed to add the Contractor [Bingham], the Owner and their parent companies, subsidiaries and affiliated companies as additional insureds on a primary and non-contributory basis and shall be endorsed to provide notice to the Contractor [Bingham], in writing, by registered mail, at least thirty (30) days prior to the termination and before any changes are made in any policy which change restricts or reduces the insurance provided. The insurance carried by Subcontractor [High Desert] naming Contactor [Bingham] and the Owner as additional insureds shall be primary over any insurance policies carried by Contractor [Bingham] and the Owner. The Additional Insured endorsement on the Subcontractor's General Liability policy shall include coverage for "products and completed operations" of the Additional Insureds (Contractor [Bingham], the Owner and their parent companies, subsidiaries and affiliated companies).
. . . It is the intent of this Agreement that Additional Insured status shall include coverage for completed operations, ongoing operations and for the concurrent or sole negligence of Contractor [Bingham], the Owner, and their respective parent companies, subsidiaries, and affiliated companies.

App. III at 250-51.

         In addition to the foregoing provisions, the subcontract agreement contains a number of indemnity clauses, including the following:

(k) Subcontractor [High Desert] shall also defend, indemnify, and hold harmless contractor [Bingham], Owner, and contractor [Bingham]'s other indemnitees (and their officers, directors, shareholders, agents and employees) (hereinafter collectively referred to as "indemnified parties") from and against any [and] all claims, causes of action (including strict liability), lawsuits, judgments, and liability of every kind, including all expenses of litigation, court costs, and attorney's fees, for injury to or death of any person (including without limitation, Subcontractor [High Desert]'s employees), and for damages to any property, arising out of, relating to or in connection with the operations, performance, or acts or omissions of subcontractor [High Desert] (including all employees, sub-subcontractors, suppliers and others for whom subcontractor is responsible), or the work performed or to be performed by Subcontractor [High Desert]. Subcontractor [High Desert]'s above stated duty to indemnify extends to claims caused or alleged to be caused, in whole or in part, by the negligence of an indemnified party. . . . Without relieving subcontractor [High Desert] of its obligations hereunder, any of the indemnified parties, at their election, may defend or participate in the defense of any claim to which subcontractor [High Desert]'s duty to defend extends.
(p) Note: These indemnification obligations include indemnifying the Indemnities [sic] for their own negligence, whether sole or concurrent.

Id. at 252.

         2. The Insurance Policies

         In accordance with the subcontract agreement, High Desert obtained an insurance policy from First Mercury. First Mercury issued High Desert policy number IL-CGL-0000003261-01 (the "First Mercury Policy"), which, barring exclusions, provides High Desert commercial general liability coverage. The general liability provisions cover, among other things, "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies, " and create a "duty [for First Mercury] to defend the insured against any 'suit' seeking those damages."[1] App. I at 94. The First Mercury Policy also includes an endorsement regarding additional insureds ("Additional Insureds Endorsement") that provides automatic additional insured status to persons or organization "[a]s required by written contract signed by both parties prior to loss." Id. at 106. That endorsement provides:

. . . .
A. Section II - Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, 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 [High Desert's] acts or omissions; or
2. The acts or omissions of those acting on your [High Desert's] behalf;
in the performance of your [High Desert's] ongoing operations for the additional insured(s) at the location(s) designated above.


         The First Mercury Policy also contains another endorsement, entitled "Primary and Non-Contributing Insurance, " which provides that the policy is primary over any other insurance when required by a written contract. In relevant part, the endorsement provides:

4. Other Insurance
If all of the other insurance permits contribution by equal shares, we will follow this method unless the insured is required by written contract signed by both parties, to provide insurance that is primary and noncontributory, and the "insured contract" is executed prior to any loss. Where required by a written contract signed by both parties, this insurance will be primary & non-contributing only when and to the extent as required by that contract.
However, under the contributory approach each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first. If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer's share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.

App. II at 179. Thereafter, First Mercury provided Bingham a certificate of insurance that describes the coverage purchased by High Desert as follows:

The general liability policy includes a blanket automatic additional insured endorsement . . . that provides additional insured status to the certificate holder [Bingham] only when there is a written contract between the named insured [High Desert] and the certificate holder [Bingham] that require[s] such status. The general liability policy includes a blanket automatic waiver of subrogation endorsement . . . that provides such status to the certificate holder [Bingham] only when there is a written contract between the named insured [High Desert] and the certificate holder [Bingham] that requires such ...

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