United States District Court, D. Alaska
ORDER AND OPINION [RE: MOTIONS AT DOCKET 14,
21]
JOHN
W. SEDWICK SENIOR JUDGE, UNITED STATES DISTRICT COURT.
I.
MOTIONS PRESENTED
At
docket 14, Plaintiff Anchorage School District
(“Plaintiff” or “ASD”) filed a motion
for summary judgment as to its complaint against Defendant
Starr Indemnity & Liability Co. (“Defendant”
or “Starr”), asking that the court declare that
all amounts paid to an ASD student pursuant to ASD's
“Catastrophic Student Blanket Accident Policy”
issued by Ace American Insurance Company (“Ace”)
will work to erode the retained limit needed to trigger
coverage under ASD's “Special Excess Liability
Policy” issued by Starr. Defendant filed a response and
cross motion for summary judgment at docket 21.[1] Plaintiff filed a
response to the cross motion for summary judgment and a reply
to its motion at docket 23.[2] Defendant replied at docket 26.
Oral argument was not requested and would not be of
assistance to the court.
II.
BACKGROUND
ASD is
the school district governing most of the schools in the
Anchorage area. It purchased an excess liability policy from
Starr with a limit of $10 million (the “Starr
Policy”). However, given that it is an excess liability
policy, it has a retained limit of $1.5 million, meaning
coverage under the Starr Policy is only triggered after the
retained limit has been met. The retained limit can be met
through the insured, ASD, paying out of pocket or obtaining
underlying insurance coverage.
ASD
also purchased a policy from Ace Insurance Company (the
“Ace Policy”). The Ace Policy is labeled a
“Catastrophic Blanket Accident Policy” that
provides various coverage to injured students totaling up to
$1.65 million. The Ace Policy is not a liability policy;
rather, it provides first-party benefits to injured ASD
students regardless of fault on the part of ASD.
On
December 15, 2014, an ASD student was severely injured during
wrestling practice. The student and his parents asserted a
negligence claim against ASD. ASD tendered the claim to its
insurance providers. The student received benefits under the
Ace Policy. ASD contends that the benefits paid to the
student under its Ace Policy erode the $1.5 million retained
limit in the Starr Policy, triggering excess liability
coverage up to $10 million. Starr, however, asserts that the
payments made to the student under the Ace Policy do not
count toward the retained limit because (1) the Ace Policy is
not an “underlying insurance” policy for ASD and
(2) payments made pursuant to the Ace Policy do not
constitute “payments for judgments, settlements, or
defense costs” as is required to erode the retained
limit under the Starr Policy. ASD responds that a reasonable
interpretation of the Starr Policy does not require
underlying insurance to be liability insurance or to cover
payments for judgments, settlements, or defense costs. It
instead argues that the Starr Policy only requires any
underlying insurance to be “available” to ASD and
the term “available” is ambiguous enough to
include an ASD policy that is at ASD's disposal for the
purpose of resolving a claim against it.
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.”[3] 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.”[4] Ultimately, “summary judgment will
not lie if the . . . evidence is such that a reasonable jury
could return a verdict for the nonmoving
party.”[5] 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.”[6]
The
moving party has the burden of showing that there is no
genuine dispute as to any material fact.[7] 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.[8] 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.[9] 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.[10] 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.[11]
IV.
DISCUSSION
The
dispute at issue in this litigation turns on the
interpretation of the Starr Policy. Under Alaska law, the
interpretation of an insurance contract is a question of law
for the court.[12] The court must construe an insurance
policy in such a way as to give effect to an insured's
reasonable expectations in light of ordinary usage of terms
in the contract.[13] “However, since most insureds
develop an expectation that every loss will be covered, the
reasonable expectation doctrine ‘must be limited by
something more than fervent hope engendered by
loss.'”[14] In interpreting the contract to
determine reasonable expectations, the court looks to (1) the
language of the disputed policy provisions; (2) language of
other policy provisions; (3) relevant extrinsic evidence; and
(4) case law interpreting similar provisions.[15]
“Ambiguities in an insurance policy are to be construed
most favorably to an insured, but ambiguities only exist when
there are two or more reasonable interpretations of
particular policy language.”[16] Grants of coverage should
be construed broadly and exclusions interpreted
narrowly.[17]
The
disputed policy provisions in this case involve those related
to the retained limit and what is necessary to erode that
limit and trigger excess coverage. As noted above, the Starr
Policy provides coverage up to $10 million above the retained
limit of $1.5 million: “We will pay on your behalf
those sums in excess of the retained limit that the insured
becomes legally obligated to pay as damages by reason of
liability imposed by law because of bodily injury . . .
.”[18] The coverage is limited in Section III
of the Starr Policy:
C. We will pay any sums covered under this Policy only after
your retained limit has been exhausted by payments for
judgments, settlements or defense costs for claims and suits
subject to Paragraph B above. We will then pay damages in
excess of your retained limit up to our Limits of Insurance.
D. If you procure underlying insurance with limits of
liability that are less than your retained limit, you shall
bear the risk of the difference. If such limits are greater
than your retained limit, this Policy is excess of the
greater limits.[19]
The
bolded terms in the Starr Policy are those that are
specifically defined. The disputed and relevant terms here
are “retained limit” and “underlying
insurance.” Those terms are defined as follows:
X. Retained limit refers to the amount stated in the
Declarations. The amount may consist of a self-insured
retention, underlying insurance or a combination thereof. The
retained limit will be the sum of all damages for: 1. Bodily
injury, property damages or personal and advertising injury
arising out of each such occurrence . . . [or] wrongful act;
. . . . In determining the retained limit that applies only
one of the following will apply to the damages or losses of a
claim or suit brought: . . .All occurrences [or wrongful
acts] arising out of continuous, repeated, or related
occurrences shall be treated as a single occurrence and the
retained limit in effect at the first occurrence shall apply.
. . . The retained limit, with respect to a self-insured
retention, shall include defense costs. The retained limit
shall not include salaries of your employees, your office
expenses, or expenses of any claims servicing organization
that you have engaged. However, the retained limit shall
include allocated defense costs incurred in the
investigation, defense or appeal of a claim or suit to which
this insurance applies by attorneys, paralegals, adjusters
and investigators who are your employees.
AA. Underlying insurance refers to any policies listed the
Schedule of Underlying Insurance and includes: 1. Any renewal
or replacement of such policies; 2. Any other insurance
available to you; and 3. Any other valid and collectible risk
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