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American Family Mutual Insurance Co. v. Regent Insurance Co.

Supreme Court of Nebraska

May 2, 2014

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, APPELLEE,
v.
REGENT INSURANCE COMPANY, APPELLANT

As Amended May 21, 2014.

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Appeal from the District Court for Lancaster County: JOHN A. COLBORN, Judge.

Mark C. Laughlin and Patrick S. Cooper, of Fraser Stryker, P.C., L.L.O., and Brian D. Nolan and Michael D. Reisbig, of Nolan, Olson, & Stryker, P.C., L.L.O., for appellant.

Joel D. Nelson and Joel A. Bacon, of Keating, O'Gara, Nedved & Peter, P.C., L.L.O., for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, STEPHAN, MCCORMACK, MILLER-LERMAN, and CASSEL, JJ.

OPINION

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[288 Neb. 26] McCormack, J.

I. NATURE OF CASE

This is an action for contribution against an insurer to pay a share of a settlement paid by another insurer to an injured guest of a party at an apartment complex. The underlying law-suit was brought against both the ownership of the complex and its management under theories of joint and several liability. The insurer seeking contribution held liability policies [288 Neb. 27] covering both the complex's ownership and management. The insurer being sued for contribution held liability policies covering the management company; the parties dispute whether the policies also covered the " same risk" for the ownership as an additional insured. The insurer seeking contribution argues that it does not matter whether both tort-feasors were coinsureds under all the policies at issue because, either way, the insurers shared a " common obligation."

II. BACKGROUND

This contribution action stems from a lawsuit to recover for injuries sustained when a guest at an apartment complex fell off a third-story apartment's balcony. Beacon Hill Investment Group (Beacon Hill) owned the apartment complex, and

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N.P. Dodge Management Company (NP Dodge) managed it.

1. Accident

When the decks of the apartment complex were built in 1968, there was no code specifying the minimum height for deck railings. The decks of the complex were remodeled in 1997. This improvement was apparently at the behest of NP Dodge.

According to a representative of Beacon Hill, it was NP Dodge's job to ensure that its properties met safety codes. A representative of NP Dodge generally agreed it was NP Dodge's responsibility to keep the property compliant with current safety codes.

The plans submitted for the permit specified that the old deck railing would be reused, but incorrectly indicated that those deck railings were 36 inches high. In fact, the railings were 30 inches high. The applicable 1994 Uniform Building Code required guardrails within private apartments to be a minimum of 36 inches high. The 1994 Uniform Building Code required most other exterior guardrails to be 42 inches high.

In 2003, NP Dodge's assistant property manager lived in a third-floor apartment at the complex. While off duty, she had a small gathering of her friends at her apartment. There [288 Neb. 28] was underage drinking at the gathering, although the assistant property manager stated she did not provide any guests with alcohol.

A neighboring tenant and his friend, the guest, stopped by. The guest went out to the apartment's balcony to smoke. He was 20 years old and very intoxicated. He fell over the railing. Injuries from the fall rendered the guest a quadriplegic.

The guest sued both Beacon Hill and NP Dodge. The complaint alleged that Beacon Hill and NP Dodge were jointly and severally liable for his injuries under theories of premises liability and negligence relating to the dangerous condition of the low railing. The guest also alleged that NP Dodge's assistant property manager was negligent in allowing alcohol to be served to minors and in failing to warn the guest of the low railing height.

2. Management Agreement

NP Dodge has been managing the Beacon Hill property since 1986. The management agreement in force at the time of the accident provided that Beacon Hill was to obtain and keep in force adequate insurance " against liability for loss, damage, or injury to property or persons which might arise out of the occupancy, management, operation or maintenance of the Property." Beacon Hill was to cover NP Dodge " as an additional insured on all liability insurance maintained with respect to the Property." For its part, NP Dodge was required by the management agreement to, at all times, maintain " general liability, automobile liability, and worker's compensation insurance on [NP Dodge's] employees." And NP Dodge was to cover Beacon Hill as an " additional insured on [NP Dodge's] general liability policy."

A " Liability and Hold Harmless" provision contained in a 2001 amendment to the management agreement stated in relevant part:

To the extent not covered by applicable policies of insurance, [Beacon Hill] shall hold harmless and reimburse [NP Dodge] for expenses incurred by [NP Dodge], including . . . claims for personal injury and property [288 Neb. 29] damage, reasonable costs and attorney fees, and any liability, fines or penalties, in connection with any claim, proceedings, or suit involving an alleged violation by [NP Dodge] or [Beacon Hill], or both, of any law or duty with respect to any alleged violations of local, federal or state laws occurring after the effective date of this

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Agreement . . . provided, however, that [Beacon Hill] shall not be responsible to [NP Dodge] for any such expenses in the event the liability . . . is the result of a willful violation by [NP Dodge], or its employees, of any local, federal, or State laws or regulations (unless [NP Dodge] was not the cause of the violation and has used its best efforts to remedy the violation), or is the result of the willful misconduct or the negligent act or omission of [NP Dodge] or the agents or employees of [NP Dodge] or for any acts of [NP Dodge] arising outside of the scope of this Agreement.

Likewise, NP Dodge agreed to hold harmless and reimburse Beacon Hill

for any loss [Beacon Hill] incurs as a result of a willful violation by [NP Dodge], or its employees, of any local, federal, or State laws or regulations (unless [NP Dodge] was not the cause of the violation and has used its best efforts to remedy the violation), or is the result of the willful misconduct or the negligent act or omission of [NP Dodge] or the agents or employees of [NP Dodge] and for any acts of [NP Dodge] arising outside of the scope of this Agreement.

3. Insurance Policies

American Family Mutual Insurance Company (American Family) insured Beacon Hill as its named insured, and Regent Insurance Company (Regent) insured NP Dodge as its named insured. Pursuant to the management agreement, Beacon Hill was an additional insured under Regent's policies for NP Dodge and NP Dodge was an additional insured under American Family's policies for Beacon Hill.

[288 Neb. 30] (a) American Family Primary Policy

American Family provided a primary " Businessowners Package Policy" for Beacon Hill as the named insured in the amount of $1 million per occurrence. The coverage included bodily injury liability. The annual premium was $37,006. The policy included as an " insured" " any organization, while acting as [Beacon Hill's] real estate manager."

The " Other Insurance" provision of the American Family primary policy provided that the insurance was primary except with respect to certain fire, watercraft, and other insurance coverage, which are not applicable here. The obligations under the American Family primary policy were " not affected [by other insurance] unless any of the other insurance is also primary." In the event there was coverage for the loss with another primary policy, then the other insurance clause provided:

If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach each insurer contributes equal amounts until each has paid its applicable limit of insurance or none of the loss remains, whichever comes first.
If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer's share is based on the ratio of its applicable limit of insurance to the total applicable limit of insurance to the total applicable limits of insurance of all insurers.

(b) American Family Umbrella Policy

American Family provided an umbrella policy in the amount of $5 million for Beacon Hill as the named insured. The annual premium for the umbrella coverage was $5,714.

NP Dodge was an additional insured under the umbrella policy pursuant to a provision that the policy would cover any person " (other than your employee) or any

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organization while acting as your real estate manager."

The " Other Insurance" clause of the umbrella policy stated:

[288 Neb. 31] If other valid and collectible insurance is available to the insured for ultimate net loss we cover under this policy, [American Family's] obligations under this policy are limited as follows:
a. As this insurance is excess over any other insurance, whether primary, excess, contingent or on any other basis, except such insurance as is specifically purchased to apply in excess of this policy's Limit of Insurance, we will indemnify only our share of the amount of ultimate net loss, if any, that exceeds the sum of:
(1) The total amount that all such other insurance would pay for the loss in the absence of this insurance . . . .

(c) Regent Primary Policy

Regent provided a primary comprehensive insurance policy for NP Dodge as the named insured. The policy included general liability coverage in the amount of $1 million per occurrence. The premium for this policy was $144,403 annually.

A " Blanket Additional Insured Endorsement" for the Regent primary policy defined as an additional insured " [a]ny person or organization whom you are required to add as an additional insured on this policy under a written contract or agreement . . . ."

The endorsement provided that such " person or organization is only an insured with respect to liability arising out of premises you [NP Dodge] own, rent, lease or occupy; or 'your work' for that additional insured by or for you [NP Dodge]." The policy elsewhere defines " Your work" :

a. Means:
Work or operations performed by you [NP Dodge] or on your behalf; and
Materials, parts or equipment furnished in connection with such work or operations.

b. Includes

Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of " your work", and

[288 Neb. 32] The providing of or failure to provide warnings or instructions.

The blanket additional insured endorsement further stated that the insurance for such person or organization does not apply to:

" bodily injury" . . . arising out of an architect's, engineer's or surveyor's rendering or failing to render any professional services including:
1. The preparing, approving or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, design or specifications; or
2. Supervisory, inspection or engineering services.

As to the named insured under the policy, the " Other Insurance" section of Regent's primary policy was similar in most respects to the other insurance provision of American Family's primary policy:

a. Primary Insurance
This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. ...

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