N. Ins. Co. of NY v. Target Corp.
16-2222
6th Cir.Nov 29, 2017Background
- Home Niches sold products to Target under a Partners Online Agreement that required Home Niches to indemnify and defend Target for claims arising from Home Niches–supplied products.
- In 2011 Walsay executed an Assumption Agreement with Home Niches, agreeing to assume Home Niches’s liabilities to Target (including Existing Liabilities) and to be bound by the Partners Online terms; Home Niches assigned its account to Walsay.
- Walsay was insured by Northern Insurance under a commercial general liability policy that excluded liability "assumed in a contract or agreement," except where (1) the insured would have had the liability absent the contract, or (2) the liability was assumed in an "insured contract." The policy defined "insured contract" as a contract under which the insured assumes the tort liability of another party to pay for bodily injury or property damage (i.e., tort liability that would exist in the absence of contract).
- A child was injured using a product sold at Target; Neal sued Target, Home Niches, and Walsay. Target settled with Neal and obtained a judgment against Home Niches and Walsay for breach of the indemnity obligation.
- Northern sued Target seeking a declaratory judgment that Target’s indemnity recovery is excluded from coverage because Walsay assumed only contractual (not tort) liability and the Assumption Agreement (and Partners Online Agreement) are not "insured contracts." The district court granted summary judgment to Northern; Target appealed.
Issues
| Issue | Target's Argument | Northern's Argument | Held |
|---|---|---|---|
| Whether the Assumption Agreement is an "insured contract" because Walsay assumed Target's tort liability | Assumption Agreement made Walsay directly liable for Target's tort damages; tort damages here satisfy the insured-contract definition | Walsay assumed Home Niches’s contractual indemnity, not tort liability of a contracting party; Home Niches had no tort liability to Target | Court held Assumption Agreement is not an insured contract; Walsay assumed contractual, not tort, liability |
| Whether Target counts as "another party" under the insured-contract definition | Target contends it is an intended beneficiary/consenting party and thus fits within "another party" | "Another party" means another party to the insured contract (i.e., to the Assumption Agreement); Target is not a party to that agreement | Court held Target is not "another party" to the Assumption Agreement, so the insured-contract definition doesn't apply |
| Whether the Partners Online Agreement and the Assumption Agreement can be read together to create an insured contract | Target argues reading both together shows an assumption of tort liability and thus triggers the exception | Policy requires a single agreement that directly assumes a contracting party’s tort liability; two-step assignment does not convert contractual indemnity into assumed tort liability | Court held the agreements cannot be combined to create an insured contract; Walsay did not directly assume tort liability |
| Whether the underlying Illinois court’s findings establish that Walsay assumed Target’s tort liability for coverage purposes | Target claims the Illinois court’s allocation of indemnity responsibility shows Walsay assumed Target’s tort exposure | Northern notes the Illinois court resolved contractual indemnity among parties but did not decide the insurance-coverage issue here | Court held the Illinois rulings did not resolve whether Walsay assumed Target’s tort liability for purposes of Northern’s policy; they do not change the coverage analysis |
Key Cases Cited
- Savage v. Fed. Express Corp., 856 F.3d 440 (6th Cir.) (summary judgment standard review)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S.) (standard for summary judgment)
- Rory v. Continental Ins. Co., 703 N.W.2d 23 (Mich. 2005) (insurance policies construed as contracts; unambiguous terms enforced)
- Hunt v. Drielick, 852 N.W.2d 562 (Mich.) (burden of proof and strict construction of exclusions)
- Auto-Owners Ins. Co. v. Churchman, 489 N.W.2d 431 (Mich.) (exclusionary clauses strictly construed in favor of insured)
- Colony Nat’l Ins. Co. v. Manitex, L.L.C., [citation="461 F. App'x 401"] (5th Cir.) (assumption of contractual liability is not tort liability for insured-contract exception)
- APL Co. Pte. v. Valley Forge Ins. Co., [citation="541 F. App'x 770"] (9th Cir.) (insured-contract exception applies only where insured assumes a contracting party’s tort liability)
- Golden Eagle Ins. Co. v. Ins. Co. of the W., 99 Cal. App. 4th 837 (Cal. Ct. App.) (rejecting interpretation that would swallow contractual-liability exclusion)