Plaintiff-appellant-cross-appellee Federal Insurance Company (“Federal”), as subrogee of regional automobile club AAA Mid-Atlantic, Inc. (“AAAMA” or “AAA Mid-Atlantic”), appeals from a judgment entered October 21, 2009, in the United States District Court for the Southern District of New York (Marrero, /.), granting in part and denying in part its motion for summary judgment.
Federal Ins. Co. v. Am. Home Assurance Co.,
Federal originally brought this action in New York Supreme Court, New York County, against defendants, seeking a declaratory judgment and ancillary relief to establish the obligation of the defendants to indemnify AAAMA in a personal injury action arising from an accident involving a tow truck operator who was a preferred service provider for AAAMA. Federal paid $26.5 million out of a $27.25 million settlement of the underlying action. Defendants, invoking diversity jurisdiction pursuant to 28 U.S.C. § 1332(a), removed the action to the United States District Court for the Southern District of New York, pursuant to 28 U.S.C. § 1441.
In its October 13, 2009 Decision and Order, the District Court determined that (1) Florida law governed interpretation of the commercial general liability (“CGL”) policies issued by defendants; (2) Federal reserved its right to proceed in an action for equitable contribution against the defendants under the policies; (3) defendants’ policies provided coverage to AAA-MA, and AAAMA’s loss was within the coverage of the policies; (4) contribution was not limited by (a) a jury’s assessment of AAAMA’s percentage of fault in the underlying personal injury action or (b) an amount attributable to AAAMA’s direct liability, as found by the jury; (5) contribution of $1 million by AHA, the primary insurer, and $12 million by NUIC, which provided umbrella coverage, was warranted; and (6) Federal was entitled to prejudgment interest, accruing from the date of settlement. Accordingly, the court entered judgment ordering (1) AHA to pay Federal $1 million plus prejudgment interest from June 13, 2007, at the rate set by Florida law, of $235,095.89; and (2) NUIC to pay Federal $12 million plus prejudgment interest from June 13, 2007, at the rate set by Florida law, of $2,821,150.69.
On appeal, Federal claims that the District Court erred in its determination that the umbrella policies issued by Federal and NUIC, each in the amount of $25 million, must share equally in the payment obligation of the settlement of the underly
The defendants argue on cross-appeal that the settlement and verdict in the underlying personal injury action establish that AAAMA’s liability “arises out of’ its own operations and not AAA’s operations. Alternatively, the defendants claim that if AAAMA’s liability to Cannon arose out of AAA’s operations, then Federal and NUIC should share that loss equally, as the District Court found. They argue that the “other insurance” provisions in both umbrella policies purport to be excess of each other and that those provisions therefore cancel each other out, resulting in an equal obligation to cover the loss. Defendants also argue that ratable contribution should apply and that contribution should be limited to that portion of the underlying settlement reasonably attributable to AAAMA’s direct negligence. Finally, defendants argue that the District Court abused its discretion in awarding to Federal prejudgment interest on any amount owed to Federal.
For the reasons stated below, we reverse the judgment of the District Court and remand for entry of judgment in favor of defendants-appellees.
BACKGROUND 2
1. The AAA Organization and the Member Clubs
The American Automobile Association, Inc. (“AAA” or “AAA National”) is an affiliation of seventy independently operated and managed automobile clubs (“Member Clubs”), including AAAMA. AAA’s activities include maintaining “a strong federation of not-for-profit Member Clubs organized to achieve the objects and purposes of [AAA] in assigned service territories.”
Am. Home Assurance Co.,
Aрproximately forty-six million individuals are members of the Member Clubs. These individuals can obtain emergency roadside service anywhere in the United States by calling 1-800-AAA-HELP, the
Member Clubs must go through AAA’s accreditation process every five years or whenever a Member Club is determined not to be in compliance with AAA’s rules and regulations. The accreditation process includes an inspection to verify that the procedures, services rendered, documents, and appearance of the Member Club are in compliance with AAA’s standards. Id. at 402. In addition to each Member Club being accredited at least once every five years, Member Clubs must submit their audited financial statements on an annual basis to AAA. Id.
One requirement of AAA’s accreditation process is an evaluation of the automotive services rendered by the Member Club, and emergency roadside services are emphasized within that evaluation. Id. Once accredited, AAA monitors individual Member Clubs’ emergency roadside services based on response times and requires certain member satisfaction scores on emergency roadside Member Satisfaction Surveys. Id.
Pursuant to its Bylaws, AAA has the right to assign service areas to Member Clubs; approve activities to be undertaken by Member Clubs; make, publish, amend, and enforce rules and regulations defining Member Club services to assure their uniform availability to motorists throughout the United States and Canada; and censure, expel, or revoke the accreditation of any Member Club that violates the Bylaws, quality standards, or any of AAA’s rules and regulations. Id. at 402-03.
II. The Underlying Personal Injury Action
On Sеptember 6, 2001, on Route 1 South in the Township of Woodbridge, New Jersey, a tow truck operated by Gerard M. Taber collided with a stalled vehicle operated by Richard Douglas Cannon, then twenty-one years of age, causing Cannon’s stalled vehicle to explode. The accident resulted in permanent injuries to Cannon including “horrific burn injuries.”
Am. Home Assurance Co.,
The Cannon trial began on April 10, 2007, and at trial, Taber testified that while he was en route to provide roadside assistance, the MDT сaused him to become distracted when it beeped, prompting him to check with it to obtain information about the roadside assistance call to which he was en route. Id. He then heard horns honking, turned to look at the flatbed rear of his truck to determine whether any chains were loose, and then glanced at a woman in a nearby vehicle for approximately 10-15 seconds before turning back to look out his front windshield. At that time he saw Cannon’s car stopped in the road. Id. Taber testified that he tried to stop but could not before rear-ending Cannon’s car. Id.
Before the close of trial, AAAMA and Cannon agreed on May 31, 2007, to settle all claims against AAAMA for $27.25 million, with Federal contributing $26.5 million and AAAMA’s excess insurer, Fireman’s Fund, contributing $750,000. AHA and NUIC did not make any settlement offers on AAAMA’s behalf. The defendants never contestеd the reasonableness of the settlement of the Cannon action and did not assert any affirmative defenses that the settlement was unreasonable.
Following the settlement of the claim against AAAMA, the Cannon action proceeded to trial on various issues. The state trial court instructed the jury that as a matter of law E & D controlled Taber, the agent and employee of E & D. The court also instructed the jury that E & D and Taber were negligent on the date of the accident and that this was not an issue for their consideration. The court then instructed the jury to resolve the direct negligence and agency issues. With respect to agency, the court instructed the jury to consider whether AAAMA was the master of E & D and whether AAA National was the master of AAAMA. The court explained that this issue required the jury to resolve whether AAA National controlled AAAMA’s operations:
You must determine whether or not either of thеse entities had a right to control the day-today basis of operation of a particular institution. In other words, did [AAAMA] have the right to ... control the day-to-day operation of E & D Towing? That’s up to you. Did ... AAA National have the right and did they exercise a [sic] control over [AAAMA]?
App. 971.
In its verdict, the jury made the following findings. First, as to agency, the jury
III. The Insurance Policies
Federal issued three liability policies insuring AAAMA for the relevant time period, including a CGL primary policy with a limit of $1 million for each occurrence (the “Federal Primary Policy”); a CGL umbrella policy with a limit of $25 million (the “Federal Policy”); and a business auto policy with a limit of $500,000 per accident (the “Federal Business Auto Policy”).
AHA issued a primary CGL policy with a limit of $1 million per occurrence (the “AHA Policy”) to AAA, insuring AAA for the relevant time period. The AHA Policy contained an endorsement numbered CL 261 (the “Endorsement” or the “AHA Endorsement”) naming Member Clubs as additional insureds under the AHA Policy “but only with respect to liability arising out of [AAA] operations or premises owned by [AAA].” Id. (emphasis supplied).
NUIC issued to AAA a CGL umbrella policy with a limit of $25 million that covered AAA during the relevant time period (thе “NUIC Policy”). The parties have not disputed that the NUIC Policy would provide coverage for the Member Clubs to the extent that the clubs qualified as insureds under the AHA Policy. Id. at 403-04.
By letter dated April 19, 2007, AAAMA and Federal first tendered demands for insurance coverage under the AHA Policy and the NUIC Policy. Id. at 404. On May 8, 2007, the defendants disclaimed coverage under both policies. Id.
IV. Proceedings in the District Court
Federal first brought this action in New York Supreme Court, New York County, against defendants, seeking a declaratory judgment and ancillary relief relating to the obligations of the parties to defend and indemnify AAAMA in the Cannon action. Id. at 401. Defendants removed the action to the District Court, 28 U.S.C. § 1441, invoking that court’s diversity jurisdiction pursuant to 28 U.S.C. § 1332(a).
In the District Court, Federal moved for summary judgment under Federal Rule of Civil Procedure 56 arguing that AAAMA is insured under policies issued to AAA by AHA and NUIC, and Federal is therefore entitled to reimbursement for $25 million of the $26.5 million it paid to settle the Cannon action. Defendants also moved for summary judgment, arguing that they do not insure AAAMA with respect to any liability arising from the Cannon action, and alternatively, if they do insure AAA-MA, that they are obligated to pay, according to the principles of equitable contribution, only half of the $25 million that Federal seeks.
In ruling on the motions for summary judgment, the District Court first examined whether New York or Florida law should apply. In support of the application of Florida law, the court noted that it was presented with the question of “inter
The District Court disagreed with the parties’ contention that New York law should be applied and applied Florida law. In so ruling, the District Court first noted that the defendants’ policies require that the insured give notice to the defendants of the need for coverage “as soon as practicable.”
Id.
at 405. As to New York’s law оn the failure to comply with a notice provision in an insurance contract, the District Court stated that failure to comply with such a notice provision in New York would relieve an insurer of its duty to indemnify.
Id.
at 405 (citing
New York v. Blank,
With regard to Florida law, however, the District Court noted that failure to comply with an insurance contract’s notice provision can be excused if the insurer has not been prejudiced.
Id.
(citing
Tiedtke v. Fid. & Cas. Co.,
[E]ach jurisdiction provides substantively different rules.
As a matter of Florida law, Federal can rebut the presumption of prejudice to Defendants. The rationale driving the notice requirement is that insurers should be provided the opportunity to investigate the occurrence, control litigation, and participate in settlement negotiations. None of those rationales apply here because Cannon sued AAA as well as AAAMA [.] As AAA’s insurers, Defendants were able to perform their own investigation of the accident. Defendants’ counsel worked with Federal’s counsel throughout the litigation, and Defendаnts’ counsel was asked to participate in the settlement. Though Defendants did not receive an official request to defend and indemnify until April 2007, they were fully aware of the matter and were in no way prejudiced by any delay. Having found that Federal satisfies the threshold notice requirement, the [c]ourt will proceed to the merits of Federal’s claim.
Id.
The court next turned to the language of the Endorsement that provided for liability
As to the defendants’ contention that any purported contribution should be limited to 14% of the settlement, AAAMA’s fault percentage found by the jury, the District Court rejected that argument and found that “[a]ny attempt to determine settlement contribution amounts based on actual jury outcome would distort the parties’ ex ante assessment of liability.” Id. at 408-09. Thus, the District Court held that the entire settlement amount was subject to equitable contribution. Id. at 409. The court also found that the defendants’ contribution should not be limited by an apportionment of AAAMA’s direct and vicarious liability. Id. at 409.
Having found that the AHA Policy and the NUIC Policy insure AAAMA as an additional insured with respect to liability arising out of the Cannon action, the District Court examined whether defendants must reimburse Federal for all or a portion of the settlement amount. The court noted that under the $27.25 million settlement, (1) the Federal Business Auto Policy, a primary policy not at issue, “provided $500,000 of coverage”; (2) the Federal Primary Policy “paid $1 million”; (3) the Fireman’s Fund, an excess policy also not at issue, contributed $750,000; and (4) the Federal Policy paid $25 million. Id.
With regard to the Federal Primary Policy and AHA Policy, each primary policies, the court found that the AHA Policy should have been exhausted to its limits— $1 million — before the Federal Policy was applied to pay the settlement amount. Id. The defendants did not “dispute that any primary coverage obligatiоn found by the court would be shared by the AHA Policy with the Federal Primary Policy.” Id. Thus, the court found that AHA must therefore reimburse Federal $1 million under the AHA Policy. Id.
As to the Federal Policy and the NUIC Policy, both excess or umbrella policies, each policy contained “other insurance” provisions requiring the policy to be considered excess over any other applicable excess policy. Id. at 410-11. The District Court found that each policy was “written to provide coverage beyond primary business auto and general liability policies, and although their precise language varies, the [cjourt finds that they are incompatible.” Id. at 411. The court held that under Florida law, the “mutually repugnant clauses drop out, and each policy must share equally the remainder of the settlement amount.” Id. Thus, after contribution by the primary insurers totaling $2.5 million (and the Firemen’s Fund excess policy in the amount of $750,000), the court found the amount due to be $24 million and ordered NUIC to reimburse Federal $12 million. Id.
Finally, the District Court awarded Federal prejudgment interest, as Federal was found to have suffered an out-of-pocket loss.
Id.
The court found that Federal paid the entire sum of the settlement, a portion of which the defendants were obligated to pay, and fixed the date of loss as the date of settlement, June 13, 2007. The
Federal appeals only that part of the District Court’s judgment that held that the “other insurance” provisions required equal sharing, arguing that the court erred by disregarding the Federal Policy’s language that “[it] will not make any payments until the other insurance has been exhausted by payment of claims.” Id. at 411. Federal therefore claims that the NUIC Policy should be exhausted before any amount is paid from the Federal Policy.
The defendants argue in the cross-appeal that under the plain language of the Endorsement contained in the AHA Policy, that AAAMA’s liability did not “arise out of’ AAA’s operations, and, thus, neither the AHA Policy nor the NUIC Policy should be required to contribute to Federal’s settlement obligations. In the alternative, AHA argues that while the District Court correctly apportioned the loss between Federal and NUIC, Federal is not entitled to prejudgment interest.
ANALYSIS
I. Standard of Review
We review a district court’s grant of summary judgment
de novo,
“construing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in its favor.”
Fincher v. Depository Trust & Clearing Corp.,
II. Choice of Law
The District Court held that Florida law applies because the law of the forum state, New York, аnd the law of Florida differ as to the effect of an insured’s late notice to its insurer. While the defendants asserted affirmative defenses of late notice in their answers, the defendants did not raise this issue in their cross-motion for summary judgment or in opposition to Federal’s motion for summary judgment. Nor do the defendants contest the application of New York law on appeal, as the parties agree that New York law should apply. Under New York choice of law rules, the first inquiry in a case presenting a potential choice of law issue is whether there is an actual conflict of laws on the issues presented.
Fieger,
III. Whether AAAMA Qualifies as an Additional Insured Under the Endorsement
The AHA Endorsement names Member Clubs, such as AAAMA, as additional insureds under the AHA Policy “but only with respect to liability arising out of [AAA’s] operations or premises owned by [AAA].” (emphasis supplied). Thus, whether or not defendants must contribute to the settlement payment made by Federal depends on a threshold determination of whether AAAMA qualifies as an additional insured under the AHA Policy issued to AAA National. This determinatiоn requires us to examine the meaning of the phrase “arising out of’ in conjunction with the word “operations.”
A. The Operative Phrase Defined
“The New York approach to the interpretation of contracts of insurance is to give effect to the intent of the parties as expressed in the clear language of the contract.”
Mount Vernon Fire Ins. Co. v. Belize NY, Inc.,
On the other hand, under New York law, contract claims are generally not subject to summary judgment if the resolution of a dispute turns on the meaning of an ambiguous term or phrase.
See Haber v. St. Paul Guardian Ins. Co.,
The New York Court of Appeals has held that the phrase “arising out of’ is “ ‘ordinarily understood to mean originating from, incident to, or having connection with.’”
Maroney v. N.Y. Cent. Mut. Fire Ins. Co.,
Further, additional insured provisions, extending coverage for liability “arising out of’ the named insured’s work or
operations,
are applied consistent with “ ‘common speech’ and the rеasonable expectations of a businessperson.”
Belt Painting Corp. v. TIG Ins. Co.,
We agree with the District Court insofar as it found that the plain language “arising out of ... operations” in the AHA Endorsement is unambiguous. It seems to us, however, that the learned District Court misapplied the unambiguous language of the Endorsement here.
B. The Operative Phrase in Other Evidentiary Contexts
Federal seeks indemnification for its settlement with Cannon on behalf of AAAMA,
In
Worth Construction Co. v. Admiral Insurance Co.,
The New York Court of Appeals disagreed with the Appellate Division. Although recognizing that “[generally, the absence of negligence, by itself, is insufficient to establish that an accident did not ‘arise out of an insured’s operations,” the court agreed with Farm Family that Worth’s admission that its claims of negligence against Pacific were without factual merit — and “that the staircase was merely the situs of the accident” — established that the accident did not “arise out of’ Pacific’s operations. See id. (stating that after Worth’s admission, “it could no longer be argued that there was any connection between [plaintiffs] accident and the risk for which coverage was intended”). 4
In
Bovis Lend Lease LMB, Inc. v. Garito Contracting, Inc.,
In
Greater N.Y. Mutual Insurance Co. v. Mutual Marine Office, Inc.,
C. The Operative Phrase in the Case at Bar
Contending that AAA was engaged in “operations” at the time of the accident, Federal argues that AAA’s activities were “far more than ‘ancillary’ or ‘incidental’ to AAAMA’s emergency road service,” especially given that emergency roadside service was AAA’s “core” operation. We disagree. AAA National is a “not-for-profit affiliation of independently operated automobile clubs.” At the time of the accident, AAA National’s activities included “maintaining the federation of clubs” and “accrediting] member clubs; promoting] use of the MDTs; issuing] towing, service, and lockout manuals to the member clubs; disseminating] quality standards, including a thirty-minute response time goal; and maintaining] the toll-free telephone number that directed service calls to the member club operating in the area of the call’s origin.” Its activities were therefore much different from the operations of AAAMA, which provided actual roadside emergency services, including towing. At the time of Cannon’s accident, AAAMA “owned” and “operated” over 100 trucks and also contracted with towing contractors, including E & D. AAAMA also financed the truck Taber was driving, required E & D to use the MDT, trained E & D to use the MDT, and equipped the truck with the MDT.
In addition, the minimum causal relationship between “the injury and the risk for which coverage is provided” is lacking here.
See Maroney,
We also note that while AAA National recommended the MDT after evaluating its technology, it never mandated its use. And although Taber testified that while he was initially distracted by the MDT, he subsequently turned to check the flat-bed, and then became distracted by a woman in a passing car, having stared at her for 10-15 seconds before immеdiately thereafter slamming into Cannon’s vehicle.
Furthermore, we reject the District Court’s conclusion that “AAA’s operations include a level of emergency roadside oversight and coordination that is, at the very least ‘connected to’ the Cannon accident and AAAMA’s liability,” i.e., AAA National’s role in operating the 1-800-AAA-HELP line.
Am. Home Assurance Co.,
Most importantly, an AAA member can call 1-800-AAA-HELP anywhere in the country and receive emergency roadside assistance twenty-four hours a day, seven days a week. All of the service calls are processed by AAA’s reciprocal clearing bureau, which allocates charges among the clubs. In most cases, the member does not know which AAA Member Club will respond to his or her call, or that therе are even different Member Clubs. Each responding tow truck and driver displays the same AAA insignia, aims to arrive within the thirty-minute window set by AAA, and reports estimated times of arrival and actual times of arrival to AAA, all to comply with AAA’s automotive quality standards .... At the time of the accident, Taber was responding to an AAA member call. The record shows that the member called the AAA nationwide 1-800 number and was then directed to the Member Club, which dispatched E & D. Taber hit Cannon’s car on his way to help an AAA member who had called the AAA number.
Id.
at 407-08. We find, however, that reliance upon such evidence is akin to the general contractor’s claim in
Worth
that its liability arose out of Pacific’s operations simply because Pacific had built the stair frame that was the site of the injury,
Worth Constr. Co.,
Similarly, the organizational structure of AAA National and its member organizations precludes us from concluding that AAA National’s operations include emergency road service. The record establishes that the AAA organization has divided its activities and operations into sets of distinct functions — AAA National directs policies, accredits member clubs, and
In sum, we conclude that AAAMA’s liability did not “arise out of’ AAA National’s “operations.” Because we conclude that the AAA National contract does not insure AAAMA as an additional insured in this action, we need not consider the parties’ remaining arguments — that the “other insurance” provision in the Federal Policy renders it excess to the NUIC Policy, that the defendants’ сontribution should be limited to the 14% liability that the jury assigned to AAAMA, or that Federal is entitled to prejudgment interest.
CONCLUSION
In accordance with the foregoing, we conclude that the District Court erred in finding that AAAMA is an additional insured in the Cannon action, and we REVERSE the judgment of the District Court and remand for the entry of summary judgment in favor of the defendantsappellees.
Notes
. Of the $26.5 million paid to settle the underlying personal injury action, Federal does not seek reimbursement for the $500,000 paid under its business auto policy ($500,000 per accident) or for the $1 million paid under its $ 1 million primary policy.
Am. Home Assurance Co.,
. In reciting the background for our analysis in this case, we rely essentially on the factual findings made by the District Court.
. A mobile data terminal is an electronic device placed in an emergency response vehicle to receive information pertaining to a AAA-member’s break-down location.
. Although the parties cite to
Regal Construction Corp. v. National Union Fire Insurance Co. of Pittsburgh, PA,