Houston Casualty Company v. Strata Corporation

Strata Corporation appeals the district court’s1 order granting summary

judgment to its excess insurer Houston Casualty Company and denying its crossmotion

for summary judgment. We affirm.

In July 2012, Strata employee Peter Faust fell to his death at a Montana mine.

While Montana’s Workers’ Compensation Act generally provides the exclusive

remedy for workplace injuries, Mont. Code Ann. § 39-71-411, Faust’s estate brought

suit alleging that Strata’s intentional failure to maintain a safe workplace triggered

an exception and gave it a cause of action against Strata, see id. § 39-71-413.

Strata had a Workers Compensation and Employers Liability Insurance Policy

from Liberty Mutual Insurance Company that included a coverage limit of $500,000

for each accident. The policy excluded coverage for certain acts, including “[b]odily

injury intentionally caused or aggravated” by Strata. The policy also included a

Montana Intentional Injury Exclusion Endorsement excluding coverage for “[b]odily

injury caused by [Strata’s] intentional, malicious or deliberate act, whether or not the

act was intended to cause injury to the employee injured, or whether or not [Strata]

had actual knowledge that an injury was certain to occur.” Strata also had a

1The Honorable Ralph R. Erickson, then United States District Judge for the

District of North Dakota, now Circuit Judge for the United States Court of Appeals

for the Eighth Circuit.

-2-

Commercial Excess Liability Policy from Houston Casualty Company that provided

up to $5 million in excess coverage over and above the underlying Liberty Mutual

policy limits. This excess policy “followed form” with the underlying Liberty Mutual

policy. In particular, the Houston Casualty excess policy provided that “[u]nder no

circumstances will this coverage be broader than” the Liberty Mutual policy, and it

stated that it was “subject to the same terms, conditions, agreements, exclusions and

definitions” as the Liberty Mutual policy.

As the primary insurer, Liberty Mutual defended Strata against the Faust

estate’s lawsuit, subject to a reservation of rights. Strata eventually settled the lawsuit

with Faust’s estate, and Liberty Mutual contributed a portion of the settlement in

exchange for a release from Strata. Houston Casualty refused to contribute anything

toward the settlement, forcing Strata to pay the remaining balance from its own funds.

Houston Casualty brought suit seeking a declaratory judgment that it had no

duty to defend or indemnify Strata and that it did not breach its duty of good faith.

Strata counterclaimed. On cross-motions for summary judgment, the district court

concluded that North Dakota law applied, granted summary judgment to Houston

Casualty, and denied summary judgment for Strata. Strata appealed the district

court’s order, and Houston Casualty cross-appealed, maintaining that the district court

erred in finding that the settlement exhausted the underlying policy limits.

We review a district court’s grant of summary judgment de novo and may

affirm on any ground supported by the record. Moyle v. Anderson, 571 F.3d 814, 817

(8th Cir. 2009). Summary judgment is proper if “the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). Applying this standard, we conclude that the

district court properly granted summary judgment to Houston Casualty because the

excess insurance policy did not cover the Faust estate’s claims against Strata in the

-3-

underlying lawsuit. Thus, Houston Casualty had no duty to indemnify Strata, and it

did not breach its duty of good faith.

On appeal, Strata points out that Houston Casualty’s excess policy does not

expressly state that it is subject to endorsements to Liberty Mutual’s underlying

policy. Arguing that the policy must be construed strictly against the insurer, Strata

maintains that this omission means that the Montana Intentional Acts Exclusion

Endorsement cannot limit the scope of coverage. Strata further contends that this

endorsement is ambiguous, even if it does apply, and thus should not preclude

coverage here. These arguments are unavailing. The excess policy expressly states

that it is subject to exclusions in the underlying coverage. An exclusion is no less an

exclusion because it is incorporated into the underlying policy through an

endorsement. Under the policy’s plain language, in other words, coverage is subject

to the Montana Intentional Acts Exclusion Endorsement.

Nor is that provision ambiguous. To evade the exclusivity provision of

Montana’s Workers’ Compensation Act, Faust’s estate alleged that Strata’s deliberate

and intentional acts caused his death. Those allegations necessarily brought Faust’s

lawsuit within the Montana Intentional Acts Exclusion Endorsement, which excludes

coverage for “[b]odily injury caused by [Strata’s] intentional, malicious or deliberate

act, whether or not the act was intended to cause injury to the employee injured, or

whether or not [Strata] had actual knowledge that an injury was certain to occur.”

Indeed, this language is more sweeping than the language in Section 413, which it

tracks and amplifies. See Mont. Code Ann. § 39-71-413(3) (“‘[I]ntentional injury’

means an injury caused by an intentional and deliberate act that is specifically and

actually intended to cause injury to the employee injured and there is actual

knowledge that an injury is certain to occur.”). As a result, Houston Casualty has no

duty to indemnify Strata under the excess policy.

-4-

Furthermore, because the excess policy does not provide coverage for Faust’s

claims, Houston Casualty did not breach its duty of good faith. Under North Dakota

law, an “insurer has a duty to act fairly and in good faith in dealing with its insured,

including a duty of fair dealing in paying claims, providing defenses to claims,

negotiating settlements, and fulfilling all other contractual obligations.” Hartman v.

Estate of Miller, 656 N.W.2d 676, 680 (N.D. 2003). An insurer acts in bad faith

when it “acts unreasonably in handling an insured’s claim . . . by failing to

compensate an insured for a loss covered by a policy, unless the insurer has a proper

cause for refusing payment.” Id. at 681. For the reasons explained above, Houston

Casualty had a proper cause for refusing payment because Strata’s loss was not

covered by its excess insurance policy. Citing Montana and Ninth Circuit cases,

Strata argues that the reasonableness of Houston Casualty’s actions must be measured

at the time its claim first arose rather than with hindsight. But given the policy

language, it was clear from the time of the Faust estate’s original complaint that the

excess policy did not provide coverage.

Finally, we may easily dispose of the remaining issues. First, Strata argues that

Houston Casualty breached its duty to defend in the underlying lawsuit. But the duty

to defend is not at issue in this case because Strata’s primary insurer, Liberty Mutual,

defended it during the litigation. Second, Houston Casualty acknowledged at oral

argument that its cross-appeal would be moot if we affirmed the district court’s grant

of summary judgment. Thus, we need not consider it here.

For all these reasons, we affirm the district court order granting summary

judgment to Houston Casualty and denying summary judgment to Strata, and we

dismiss the cross-appeal as moot.