The appeal from the dismissal of this diversity breach of contract suit presents an interesting and, we suspect, important question, nominally of Illinois law, concerning the *1301 characterization of an insurance policy as “primary” or “excess.” A policy is primary if the insured has a right to collect the proceeds in the event of a loss regardless of what other insurance he may have. It is excess if his right is contingent on his having exhausted the limits of his other insurance. There are also hybrid primary/excess policies, which the insurance company calls “excess by coincidence” policies and which it argues the policies at issue in this case are. There may be other types of hybrid primary/excess policies as well, see Michael M. Marick, “Excess Insurance: An Overview of General Principles and Current Issues,” 24 Tort & Ins.L.J. 715, 717-19 (1989), but we won’t have to worry about them in this ease.
The background of the dispute can be sketсhed briefly. By passing the “Superfund” statute in 1980 Congress increased the exposure of enterprises to monetary liability for damage to the environment from toxic spills. Rhone-Poulenc (actually a predecessor, but we can omit that detail) was one of those enterprises. Between 1981 and 1984 it bought from International Insurance three identical policies insuring it against “Environmental Impairment Liability.” Rhone-Poulenc already had a number of Comprehensive General Liability policies issued by other insurance companies, but there was uncertainty about the extent to which such policies covered liability for damaging the environment. Rhone-Poulenc bought still another policy from an affiliate (and code-fendant) of International Insurance; we shall call it the ISLIC policy, after the affiliate’s initials. It has significance to this appeal only for the light it may shed on the interpretation of the Environmental Impairment Liability policies.
After incurring heavy clean-up costs at several contaminated sites, Rhone-Poulenc submitted claims to International Insurance for reimbursement pursuant to the three Environmental Impairment Liability policies. These were “claims made” policies, that is, policies that insured against claims made against Rhone-Poulenc, rather than against liability-creating acts committed by it, dining the period in which the policies were in force. International Insurance refused to pay Rhone-Poulenc’s claims. It took the position that the policies were excess policies and that Rhone-Poulenc had not shown that it had exhausted its other insurance. That refusal precipitated this lawsuit, filed last year and dismissed on the ground that Rhone-Pou-lenc’s Comprehensive General Liability insurers (19 in number!) were indispensable parties that Rhone-Poulenc had failed to join as defendants and could nоt join, because to do so would destroy complete diversity of citizenship and with it federal jurisdiction over this suit.
If the policies issued by International Insurance are pure primary policies, the district judge’s ruling cannot stand. Other primary insurers
may
be indispensable parties in a suit by an insured against a primary insurer,
Evergreen Park Nursing & Convalescent Home, Inc. v. American Equitable Assurance Co.,
But if the policies that International Insurance issued to Rhone-Poulenc are excess, the ruling dismissing the suit for failing to join indispensable parties was well within the scope of the district judge’s authority in applying the standard of Rule 19(b). If those policies are excess, it would mean that International Insurance’s liability is contingent on the liability of the Comprehensive General Liability insurers to Rhone-Poulenc, a liability that cannot be determined in the absence of those insurers. On this ground it has been held in the only eases that we have found on the issue, none of them appellate cases, that a suit against an excess insurer cannot proceed in the absence of the primary insurers until the latter have acknowledgеd their liability to the insured or have been determined by a court to be liable to him.
Witco Corp. v. Travelers Indemnity Co.,
The determining question in this appeal is, therefore, the classification of the Environmental Impairment Liability policies as primary or excess. Each of the policies is for one year (twelve and a half months in the case of the first policy) and provides maximum coverage of $20 million for one claim, and $40 million for all claims, made against the insured while the insurance is in force, subject to a $2 million dollar deductible. The annual premium diffеrs slightly among the three policies, averaging about $250,000 a year. The policies do not list any underlying insurance; nor is any of them labeled an excess insurance policy. But condition number 8 in each of them states:
This Policy shall not be called upon in contribution and no liability shall attach hereunder for any injury, loss, damage, costs or expenses recoverable under any other insurance whether primary or excess inuring to the benefit of the insured excеpt as regards any excess over and above the amounts collectible under such other insurance; PROVIDED ALWAYS that this clause shall not apply to any policy that is specifically arranged by the insured to cover limits in excess of those stated in this Policy. Nothing herein shall be construed to make this Policy subject to the terms, conditions and limitations of any other insurance.
This is the provision that, according to International Insurance, shows that the Environmental Impairment Liability policies are a form of excess policy if the insured has other coverage.
The policy issued by International Insurance’s affiliate, the ISLIC policy, is, on its face anyway, quite different. The first words of the policy are “EXCESS INSURANCE POLICY.” Item number 4, on the first page, is captioned “Underlying Insurance” and lists $20 million for one claim and $40 million in the aggregate “as per International Insurance Company policy #560 000 039, forms on file with the company.” The referencе is to one of the Environmental Impairment Liability policies that International Insurance had issued to Rhone-Poulenc. The limits of the ISLIC policy are $10 million for one claim and $20 million in the aggregate, and the annual premium is $24,472. A subsequent amendment raised the policy limit to $20 million for one claim, for an additional premium of $2,336. As with each of the Environmental Impairment Liability policies, the term is approximately one year. Condition 8 in those policies does nоt appear in the ISLIC policy. Instead there are several provisions explaining in rather excruciating detail that the insurer has no obligation until the insured has exhausted his rights under *1303 his other insurance policies. An endorsement states: “This policy is warranted to the exact terms and conditions as the primary policy except with respect to limit of liability and premium.”
In arguing that the Environmental Impairment Liability policies are not excess policies, Rhоne-Poulenc emphasizes the difference in wording between them and the ISLIC policy and also the difference in premiums. The premium for the ISLIC policy was a tenth as large as the premiums for each of the Environmental Impairment Liability policies even though the coverage (before the amendment) of the ISLIC policy was not a tenth but a half as large. This makes the Environmental Impairment Liability policies seem awfully expensive if they are merely excess policies; and the amount of consideration for a contract, while only rarely usable to invalidate the contract, is often a good clue to what the contract means,
In re Stoecker,
The insurance company’s position is that condition 8 is unequivocal in making the policies excess and the court should look no further, especially since Rhone-Poulenc is a large and thoroughly sophisticated consumer of insurance rather than some hapless individual sold a policy with incomprehensible boilerplate. The second clause (following “and”) of the first sentence states that the insurer shall not be liable for any costs recoverable under any other insurance policy except insofar as they exceed the amounts collectible under the other policy or policies. So if Rhone-Poulenc incurred $15 million in clean-up costs and $5 million was recoverable from another insurance company, International Insurance would be liable to it for only $10 million. This is a correct literal interpretation and in addition the insurance company, wisely not content to rest on a purely litеral reading of the policies, also has a plausible explanation for the striking difference in form between the Environmental Impairment Liability policy and the ISLIC policy. The former, it argues, is a hybrid of primary and excess coverage rather than a pure excess policy like the latter. In the early 1980s, the insurance company tells us, when the Superfund law greatly enlarged the potential liability of enterprises for environmental damage, the extent of coverage under existing liability policies was uncertain. The enterprises wanted to protect themselves from that uncertainty by buying insurance that would kick in only if the existing policies turned out not to provide adequate coverage of liability for environmental damage. In effect they wanted insurance against the possible inadequacy of their existing insurance. Hence the Environmental Impairment Liability policy, a specialized pоlicy for environmental damage liability. Rather than attempt the impossible task of estimating the likelihood that the insureds’ existing coverage was inadequate, the argument continues, International Insurance based its premiums for the new policy solely on the exposure of the insureds to liability for environmental damage, regardless of what insurance they might have against such liability. Since the premiums were calculated independently of any underlying insurance coverage, the poli *1304 cies do not list any of that coverage, as a pure excess insurance policy, illustrated by the ISLIC policy, would do.
International Insurance calls the Environmental Impairment Liability policies “excess by coincidence,” meaning that whether the policy provides primary or excess coverage depends on the insured’s other insurance coverage.
Employers Mutual Cos. v. Country Cos.,
International Insurance’s characterization of its Environmental Impairment Liability policies as excess by coincidence may be correct, in which event the district court should be affirmed. But we cannot be very confident that it is correct. While the insurance company tells a beguiling story of the origin and purpose of the Environmental Impairment Liability policy, it offers no supporting documentation. The boilerрlate of insurance policies is often the product of insurance industry trade groups rather than of the issuer of a particular policy. These standard conditions generally have a published or at least public “legislative” history which can be consulted for clues to the meaning of a provision. See, e.g.,
Eljer Mfg., Inc. v. Liberty Mutual Ins. Co.,
More important in casting doubt on the soundness of International Insurance’s position is the context of the clause. Every competent person engaged in translation or interpretation understands that you cannot figure out the meaning of a sentence just by looking up every word in it in the dictionary. The meaning of a sentence inheres in the relations among the words, relations given by the rules of grammar, and not just in the meaning of the words considered one by one in isolation from each other. To take a trivial example, the sentence “The cat swallowed the mouse” cannot be interpreted with the aid merely of a dictionary. The dictionary will tell you what a cat is and what a mouse is and what swallowed is, but it will not tell you who swallowed whom. By the same token the meaning of a paragraph inheres in the relations among the sentences that compose it rather than merely in each sentence taken one by one. “I have a pair of loafers” seems clear enough. But its meaning depends on whether the sentence preceding it is “I am disappointed with my research assistants this year” or “I have comfortable shoes.”
In this case we have a sentence that has two independent clauses, the equivalent of sentences in a paragraph. International Insurance relies on the second clause. The first clause must not be ignored, however. It states: “This Policy shall not be called upon in contribution.” The term “contribution” has a settled meaning in law. It refers to the right of two potentially liable persons to a sharing of the cost of that liability. One speaks for example of contribution among joint tortfeasors. The natural meaning for a lawyer to attach to the first clause is that it disclaims entitling other insurers of the insured to shift any of their liability to International Insurance. The disclaimer sсotches any argument that other insurers are third-party beneficiaries of this insurance contract and so might claim over against International *1305 Insurance if the insured went against other insurers instead. Rhone-Poulenc had 19 other liability insurers and might very well collect from one or more of them sufficient proceeds to cover its entire liability for environmental damage, in which event International Insurance would be off the hook completely if none of the other insurers could obtain contribution from it.
Now whether a disclaimer of liability for contribution in an insurance policy would actually be effective may be doubted. The right is not the insured’s to disclaim. It is a right of other insurers, who are not parties to the insurance policy, and it is a right founded not on the concept of third-party beneficiaries of contracts and hence not on “the wishes of the insured” but rather on notions of equity and unjust enrichment.
Royal Globe Ins. Co. v. Aetna Ins. Co.,
International Insurance contends that the word “contribution” in the policies is not being used in its legal sense at all but in its lay sense, in which one might say of an insurance company that by paying a claim by the insured it had “contributed” to the insured. This interpretation is possible but not inevitable, and International Insurance offers no evidence to support it. If “contribution” is being used in its legal sense, this tends to color a reader’s interpretation of the second clause. We now see that the liability to which it refers could be liability just to other insurers, rather than to the insured. Even the phrase that is strongest for International Insurance—confining its liability to “any excess over and above the amounts collectible under such other insurance”—is, we can now see, ambiguous. It could mean simply that, should another insurer happen to incur legal or other expenses in defending against a claim for an amount in excess of that insurer’s policy limits—an amount therefore that International Insurance might well be called upon to pay but for a successful defense by that other insurer—the other insurer would, consistent with the right of contribution among insurers, be entitled to claim from International Insurance a contribution to those costs, since they had conferred a potential benefit on International Insurance. This would not obligate the insured to go after the other insurer.
As an original matter, therefore, we cannot be confident whether condition 8 mаkes the Environmental Impairment Liability policies excess in the sense contended for by International Insurance, or primary; and although ambiguities in insurance contracts are to be resolved against the insurer, this principle comes into play only after reasonable efforts at interpretation have failed, including the taking of evidence concerning the drafting or negotiation of the contract.
McNeilly v. Bankers United Life Assurance Co.,
All this points to the necessity of a remand. But before we can be sure that this is the right course we must be sure that the interpretive dispute has not been resolved by judicial interpretation of similar or identical language in other insurance contracts. It has not. The eases that the parties have cited to us deal with a different question, the effect of an “other insurance” clause (the
*1306
genus of which condition 8 is a species) in two or morе policies issued to the same insured. E.g.,
Putnam v. New Amsterdam Casualty Co.,
Rather than guess in a vacuum whether an Environmental Impairment Liability policy is primary or excess insurance — a question that for all we know has large financial implications for enterprises that have substantial exposure to liability for environmental damage, and for their insurers — we think it the prudent course to vacate the judgment dismissing Rhone-Poulenc’s suit for failure to join indispensable parties and to remand the matter for further proceedings to determine the meaning of condition 8. If the district court determines that the Environmental Impairment Liability policies are “excess by coincidence” policies it should reinstate the Rule 19(b) order and the judgment dismissing the suit, while if the court finds that the policies are primary it should conduct a fresh inquiry into whether Rhone-Poulenc’s other primary insurers are indispensable parties to this suit.
Vacated and Remanded, with DiRections.