United States District Court, D. Alaska
ORDER AND OPINION [RE: MOTION AT DOCKET 7]
JOHN
W. SEDWICK SENIOR JUDGE
I.
MOTION PRESENTED
At
docket 7, Defendants Bear Mountain Lodge, LLC, Merrill M.
McGahan, Lauri B. Johnson, and Merrill Marie McGahan
(collectively “BML”) filed a motion for summary
judgment as to the declaratory judgment action brought by
Plaintiff Great Divide Insurance Company (“Great
Divide”). Great Divide opposes the motion at docket 56.
BML replies at docket 61. Oral argument was requested, but
was denied for the reasons given in the order at docket 84.
II.
BACKGROUND
On July
7, 2013, Walter Rediske, owner and chief pilot of Rediske
Air, LLC (“Rediske Air”) was transporting guests
in a deHavill and DHC-3 Otter aircraft to the Bear Mountain
Lodge when the plane crashed following its takeoff from the
Soldotna Airport. Walter Rediske and all of the passengers
died in the crash. The survivors and estates of the deceased
filed various lawsuits related to the crash. They filed one
lawsuit in the District of Alaska against Rediske Air,
Rediske Family Defendants, and the estate of Walter Rediske.
They filed a separate lawsuit in the District of Alaska
against BML and other companies that allegedly modified or
provided parts to the aircraft involved in the crash. One of
the companies then filed a third-party claim against Rediske
Air, Rediske Family Defendants, and the estate of Walter
Rediske. In a third and separate lawsuit brought in the
District of Alaska, the estate of Walter Rediske sued BML and
Rediske Family Defendants. They also filed a parallel lawsuit
in state court. The three District of Alaska cases have been
consolidated.
Bear
Mountain Lodge, LLC is named as the insured on a Great Divide
insurance policy that was in effect at the time of the crash.
Defendants Merrill M. McGahan, Lauri B. Johnson, and Merrill
Marie McGahan are the owners of Bear Mountain Lodge, LLC,
and, as such, are potential additional insureds under the
policy. BML, through its attorney, reported the litigation to
Great Divide. Great Divide sent BML’s attorney a
reservation-of-rights letter. The letter explained Great
Divide’s position that provisions in BML’s
insurance policy may exclude coverage for the claims arising
from the airplane crash. In addition, the letter explained
that Great Divide would pay the attorney’s fees and
costs BML incurred in the defense of those claims as to which
Great Divide had reserved its rights. Two months later, Great
Divide filed a complaint for declaratory judgment, asking
that the court determine its obligations under BML’s
insurance policy. Specifically, Great Divide contends that
there are three exclusions in the policy that disclaim
coverage for the accident: 1) the “Aircraft
Exclusion”; 2) the “Designated Operations
Exclusion”; and 3) the “Contractors
Exclusion.” BML filed a motion for summary judgment,
asking the court to find the three exclusions inapplicable
and dismiss the declaratory judgment action. Meanwhile,
Rediske Air filed a motion requesting that the court stay the
declaratory judgment action pending the resolution of the
underlying tort cases. The court granted the motion to stay
in part; it stayed its determination as to whether the
Aircraft Exclusion and the Designated Operations Exclusion in
BML’s insurance policy apply so as to preclude coverage
in the underlying litigation, but would not stay its
determination as to whether the Contractors Exclusion
applies. Therefore, the court will only rule on BML’s
summary judgment motion as to the applicability of the
Contractors Exclusion.
III.
STANDARD OF REVIEW
Summary
judgment is appropriate where “there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”[1] The materiality requirement
ensures that “only disputes over facts that might
affect the outcome of the suit under the governing law will
properly preclude the entry of summary
judgment.”[2] Ultimately, “summary judgment will
not lie if the . . . evidence is such that a reasonable jury
could return a verdict for the nonmoving
party.”[3] However, summary judgment is mandated
“against a party who fails to make a showing sufficient
to establish the existence of an element essential to that
party’s case, and on which that party will bear the
burden of proof at trial.”[4]
The
moving party has the burden of showing that there is no
genuine dispute as to any material fact.[5] Where the
nonmoving party will bear the burden of proof at trial on a
dispositive issue, the moving party need not present evidence
to show that summary judgment is warranted; it need only
point out the lack of any genuine dispute as to material
fact.[6] Once the moving party has met this burden,
the nonmoving party must set forth evidence of specific facts
showing the existence of a genuine issue for
trial.[7] All evidence presented by the non-movant
must be believed for purposes of summary judgment and all
justifiable inferences must be drawn in favor of the
non-movant.[8] However, the non-moving party may not rest
upon mere allegations or denials, but must show that there is
sufficient evidence supporting the claimed factual dispute to
require a fact-finder to resolve the parties’ differing
versions of the truth at trial.[9]
IV.
DISCUSSION
In its
motion for summary judgment, BML argues that the Contractors
Exclusion does not apply to preclude coverage. The provision
reads as follows:
This insurance does not apply to “bodily injury”,
“property damage”, “personal and
advertising injury” or medical payments arising out of
work performed by any contractor or subcontractor whether
hired by or on behalf of any insured, or any acts or
omissions in connection with the general supervision of such
work.[10]
BML’s primary argument in support of its position is
that the term “contractor” in the exclusion is
limited to mean only a contractor in the construction
industry. It argues that the exclusion “is designed to
deal with a situation where an insured retains the services
of a contractor to perform construction-type
work.”[11] Great Divide asserts that BML’s
interpretation of the term “contractor” is too
narrow and “does not comport with the objectively
reasonable expectations of the average
insured.”[12]
When
interpreting the insurance policy, the court must apply
Alaska substantive law.[13] The Alaska Supreme Court has
explained that insurance policies are considered contracts of
adhesion, and, as such, their interpretation is controlled by
different standards than typical contracts.[14] Rather than
simply trying to ascertain the reasonable expectations of the
parties, the court must construe an insurance policy
“to provide the coverage which a layperson would have
reasonably expected, given a lay interpretation of the policy
language.”[15] Under this approach, policy language is
construed in accordance with ordinary and customary
usage.[16] “It is not required that
ambiguities be found in the policy language as a condition
precedent for such construction.”[17] That is,
“even unambiguous language in an insurance contract
will be interpreted to comport with the reasonable
expectations of a layperson.”[18] If ambiguities do exist
in the language, then they are resolved in favor of the
insured.[19]To determine reasonable coverage
expectations, the court must look to the language of the
disputed provision, the language of the other provisions in
the policy, relevant extrinsic evidence, and case law
interpreting similar provisions.[20] However, even with this
“layperson” approach, the court may not simply
ignore or rewrite provisions in an insurance
contract.[21]
The
common definition of the term “contractor” is
“one that contracts or is party to a
contract.”[22] More specifically, the common definition
includes “one that contracts to perform work or provide
supplies, ” as well as “one that contracts to
erect buildings.”[23]Black’s Law Dictionary defines
“contractor” as “[a] party to a
contract” and specifies that it includes “one who
contracts to do work for or supply goods to another; . . . a
person or company that agrees to do work or provide goods for
another company.”[24]Therefore, based on these definitions,
the term ordinarily includes any person or company that is a
party to a contract and usually involves a contract regarding
services or supplies. While the term includes and is
frequently used to refer to those who provide services
related to building, it cannot be said that the common,
layperson usage of the term is limited only to construction
contractors. There is no other language in BML’s policy
to suggest as much. Indeed, as noted by Great Divide in its
response brief, commercial general liability insurance is
“designed to protect the insured from losses arising
out of [its] business operations.” Excluding the
operations of a business retained through a contract to
provide goods and services is congruent with the purpose of
the policy. BML fails to point to any extrinsic evidence in
support of its position that the exclusion should only apply
to any third-party doing construction work for it.
Moreover,
case law does not lend support to BML’s argument and,
in fact, suggests that the common usage of the term
“contractor” is simply one who contracts to
provide goods or services to another. BML relies primarily on
a Texas case, Nautilus Insurance Co v. ACM Contractors,
Inc.[25] The case involved the application of a
contractor-subcontractor exclusion like the one here. The
insured in that case was a construction company, ACM, who was
building a bridge pursuant to a contract with a county
government. It arranged for a third-party, Original Concrete,
to deliver and pour concrete. While pouring the concrete, an
accident occurred that caused the death of one person and
serious injury to another person. The insurance company
brought a declaratory judgment action to disclaim coverage
for the accident, arguing that a contractors exclusion in the
insurance policy applied because the accident resulted from
the work of a subcontractor, Original Concrete. One of the
defendants, a secondary insurance company which wanted the
plaintiff insurance company to continue to provide the
defense for ACM, argued that Original Concrete was not a
subcontractor within the meaning of the policy because it was
not specifically alleged to have been one and did not have a
written contract with ACM. The defendant argued that the term
“contractor” was ambiguous and therefore the
exclusion should be interpreted in its favor to apply only to
work done by those parties specifically defined as
“contractors” by written agreement and not by
parties informally engaged to perform services. The court
declined to interpret the exclusion that way, instead finding
that because Original Concrete was providing material and
services to a general contractor, it must have been a
subcontractor. The court did not make a finding on whether
the exclusion applied only to the construction industry.
BML
stresses the court in Nautilus stated that the term
“contractor” is a commonly used term “with
a generally accepted meaning, particularly in describing
parties involved in construction projects and/or
contracts.”[26] The court, however, then went on to
provide the dictionary definitions of
“contractor” and noted that the term is defined
as “one of the parties to a contract” or “a
person who contracts to supply certain materials or do
certain work for a stipulated sum.”[27] It then went
on to hold that because Original Concrete was providing
materials and services to a general contractor, it was
necessarily a subcontractor. Because the case happened to
involve the construction industry and a construction project,
the court did not need to decide whether the term was
specific to only the construction industry. The court also
quoted another Texas case which stated that the term
subcontractor was not ambiguous and had only one ordinary
meaning- “‘an individual or business firm
contracting to perform part or all of another’s
contract.’”[28]
In its
reply, BML cites an Alaska case, Everette v. Alyeska
Pipeline Service Co., [29] and states that “the
court [in Everette] construed the term
“contractor” to include the construction of the
pipeline.”[30] That is not an accurate assessment of
the court’s holding. The court was considering the
relationship of the parties for purposes of applying
workers’ compensation laws. It did not hold that one
must be in the construction industry to be considered a
contractor. Moreover, the Alaska Supreme Court in Everette
recognized that in another Alaska case, Thorsheim v.
State, [31] it had “defined the term
‘contractor’ as ‘a person who undertakes,
...