Anchorage School District v. Starr Indemnity & Liability Co.

          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 ...