COURT OF APPEALS DECISION DATED AND FILED June 26, 2008 David R. Schanker Clerk of Court of Appeals |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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APPEAL and CROSS-APPEAL from
an order of the circuit court for
Before Higginbotham, P.J., Vergeront and Lundsten, JJ.
¶1 VERGERONT, J. Tenneco, Inc., appeals an
order granting summary judgment in favor of Gulf Underwriters Insurance Company
on Tenneco’s cross-claim against Gulf based on the insurance contract between Gulf
and McClain Group, Inc.[1] Tenneco also appeals the court’s grant of
summary judgment in favor of McClain on Tenneco’s cross-claim against McClain. Based on the undisputed facts, we conclude
McClain is entitled to summary judgment because of the one-year time limit for
bringing claims against it under
BACKGROUND
¶2 For purposes of this appeal, the following facts are not in
dispute. In April 2004, Daniel Berg was
injured in
¶3 Through a series of mergers and acquisitions, Tenneco, an
¶4 Gulf is a Connecticut-based insurer that issued a commercial general liability policy to McClain. The policy was in effect at the time of Berg’s injury.
¶5 In February 2005, Berg filed this action against McClain and Gulf,[2] asserting claims for product liability and negligence and seeking damages for his injuries resulting from the incident with the trash compactor. Although McClain was named in the initial complaint and each of the three subsequent amended complaints, it was not served until the fourth amended complaint.[3]
¶6 In the first amended complaint, Berg named Tenneco as a
defendant. Tenneco answered by denying
liability and asserting cross-claims against McClain and Gulf. Tenneco’s cross-claim against McClain alleged
that, under the assumption agreement with McClain, McClain was obligated to
indemnify Tenneco for its liability to Berg, to hold Tenneco harmless, and to
pay Tenneco’s defense costs. Tenneco’s
cross-claim against Gulf alleged that the
¶7 Berg, Tenneco, and Gulf all filed motions for summary
judgment seeking a declaration of Gulf’s obligation under the insurance policy it
had issued McClain. Tenneco’s motion
sought a ruling that Gulf was obligated to defend it or pay its defense costs
and to indemnify it. McClain also filed
a motion for summary judgment contending that under
¶8 Prior to the commencement of this action, Gulf had filed a
declaratory judgment action in
¶9 In light of the
¶10 The circuit court granted Gulf’s motion for summary judgment, dismissing
it without prejudice[5]
and denied Berg’s and Tenneco’s motions. The court concluded that the
¶11 The court also granted McClain’s motion for summary judgment,
dismissing McClain without prejudice. The
court concluded that Berg’s and Tenneco’s claims against McClain were time-barred
by the
¶12 The court denied Tenneco’s motion for reconsideration.
DISCUSSION
¶13 Tenneco appeals the court’s order denying its motion for
summary judgment against Gulf and granting McClain’s and Gulf’s motions for
summary judgment. Tenneco contends there
are no disputed issues of fact and it is entitled to judgment as a matter of
law that the Gulf policy issued to McClain obligates Gulf to defend and
indemnify it (Tenneco) because of the assumption agreement. Gulf and McClain respond that the circuit
court correctly decided summary judgment in their favor.[7]
¶14 Summary judgment is appropriate when there is no material
factual dispute and the moving party is entitled to judgment as a matter of
law. Germanotta v. National Indem. Co.,
119
¶15 If the cross-claim does state a claim for relief, we examine the submissions to determine whether there are any genuine issues of material fact. See id. at 320. If there are none, we decide which party is entitled to judgment as a matter of law. See id.
I. Tenneco’s Claim Against McClain
¶16 We first examine Tenneco’s cross-claim to determine if it states a claim for relief against McClain. We conclude it does state a claim under the assumption agreement for indemnification from McClain for its liability to Berg. No party argues otherwise.
¶17 Turning to the summary judgment submissions, we do not
understand Tenneco to argue on appeal that the
II. Tenneco’s Claim Against Gulf
¶18 Tenneco asserts that under
¶19 Beginning with the allegations in Tenneco’s cross-claim, we see
that there is no reference to “third-party beneficiary.” The allegations relating to Gulf are that the
¶20 Tenneco relies on Mich. Comp. Laws Ann. § 600.1405 (2007) as the legal basis for its third-party beneficiary claim. This statute provides in relevant part:
Rights of third-party beneficiaries.
Sec. 1405. Any person for whose benefit a promise is made by way of contract, as hereinafter defined, has the same right to enforce said promise that he would have had if the said promise had been made directly to him as the promisee.
(1) A promise shall be construed to have been made for the benefit of a person whenever the promisor of said promise had undertaken to give or to do or refrain from doing something directly to or for said person.
(2)(a) The rights of a person for whose benefit a promise has been made, as defined in (1), shall be deemed to have become vested, subject always to such express or implied conditions, limitations, or infirmities of the contract to which the rights of the promisee or the promise are subject, without any act or knowledge on his part, the moment the promise becomes legally binding on the promisor, unless there is some stipulation, agreement or understanding in the contract to the contrary.
(b) If such person is not in being or ascertainable at the time the promise becomes legally binding on the promisor then his rights shall become vested the moment he comes into being or becomes ascertainable if the promise has not been discharged by agreement between the promisor and the promisee in the meantime.
….
(3) Nothing herein contained shall be held to abridge, impair or destroy the rights which the promisee of a promise made for the benefit of another person would otherwise have as a result of such promise.
….
¶21 Gulf responds that Schmalfeldt v. North Pointe Ins. Co.,
670 N.W.2d 651 (
¶22 The Schmalfeldt court explained that a court is to determine if a
person is an intended third-party beneficiary within the meaning of the statute
by looking at the contract.
¶23 While Schmalfeldt was concerned with a clause
agreeing to pay medical expenses for accidents occurring at the insured’s
business without regard to the insured’s fault,[10]
an earlier Michigan case deals with a standard liability clause. In Allstate Ins. Co. v. Keillor, 476
N.W.2d 453, 455 (Mich. Ct. App. 1991), rev’d
on other grounds sub nom. Allstate Ins. Co. v. Hayes, 499
N.W.2d 743 (
¶24 Returning to the allegations in Tenneco’s cross-claim against Gulf, we observe there is no reference to or description of any provisions in the insurance contract between Gulf and McClain. We will nonetheless assume without deciding that the cross-claim does state a claim for relief under a third-party beneficiary theory. We do so because Gulf did not argue in the circuit court, and does not argue on appeal, that the cross-claim does not state a claim for relief under a third-party beneficiary theory because it does not refer to or describe the relevant policy provisions. This omission would have been easy for Tenneco to remedy had Gulf made this argument.
¶25 The policy Gulf issued to McClain was submitted with the summary judgment motions and its contents are not disputed. McClain is the named insured under the policy. Gulf agrees to
pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” … to which this insurance applies. [Gulf] will have the right and duty to defend the insured against any “suit” seeking those damages.…
¶26 Although there is an exclusion for bodily injury or property damage “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement,” this exclusion does not apply to liability for damages:
….
(2) Assumed in a contract or agreement that is an “insured contract,” provided the “bodily injury” … occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an “insured contract”, reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of “bodily injury[,]” provided
(a) Liability to such party for, or the cost of, that party’s defense has also been assumed in the same “insured contract”; and
(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.
¶27 As relevant to this appeal, “insured contract” is defined in the insurance policy as:
That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability for another party to pay for “bodily injury” … to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
¶28 Thus, Gulf agrees to pay the sums McClain becomes legally obligated to pay as damages for bodily injury both because of McClain’s own torts and because of tort liability for another that McClain assumed under a contract.
¶29 Tenneco contends that Schmalfeldt (and presumably also Keillor)
does not apply because Tenneco is not an injured person but an indemnitee of
the insured. Tenneco relies on Brunsell
v. City of Zeeland, 651 N.W.2d 388, 389 (Mich. 2002), in arguing that
it is a member of a class sufficiently described in the insurance contract—an
indemnitee under an indemnitee agreement—to allow the court to conclude that
the contract was intended to benefit it.
In Brunsell, the plaintiff, a pedestrian injured by tripping over
a defect in a sidewalk, asserted she was a third-party beneficiary of a lease
between the city and the owner of the property.
¶30 We do not agree with Tenneco that Schmalfeldt is inapplicable because Tenneco is not an injured person but rather an indemnitee of the insured. The reasoning in Schmalfeldt does not turn on whether the plaintiff is an injured person but on whether the insurance contract shows the plaintiff is an intended, as opposed to an incidental, beneficiary of the contract. 670 N.W.2d 654-55. The same is true of Keillor, 476 N.W.2d at 455. Whether McClain is legally obligated to pay money to another because of its own torts or because it assumed contractual liability for another’s torts, the insurance clauses in paragraphs 25-27, supra, show the primary intent of Gulf’s promise is to benefit McClain by paying those sums.
¶31 In addition to the insurance clauses cited above, Tenneco refers us to the subsection on “Supplementary Payments” and, in particular, to the clause beginning: “If we defend an insured against a ‘suit’ and an indemnitee of the insured is also named a party to the ‘suit,’ we will defend that indemnitee if all the following conditions are met[.]” Among the conditions are that the “‘suit’ against the indemnitee seeks damages for which the insured has assumed the liability of the indemnitee in a contract or agreement that is an ‘insured contract’; [t]his insurance applies to such liability assumed by the insured”; and the “obligation to defend, or the cost of the defense of, that indemnitee, has also been assumed by the insured in the same ‘insured contract[.]’” Some additional conditions are that there must appear to be no conflict of interest between the insured and the indemnitee and that both the “indemnitee and the insured ask us to conduct and control the defense of that indemnitee … and agree we can assign the same counsel to defend the insured and the indemnitee[.]” If these and other conditions are met, Gulf agrees to pay the attorney fees and litigation expenses incurred in defending the indemnitee as “Supplementary Payments,” and the payments will not reduce the limits of insurance.
¶32 Tenneco argues that this clause makes specific promises to a specific class—indemnitees—and it is a member of this class. We conclude Brunsell does not resolve this issue. While it is true that an “indemnitee” is a more specific designation than “the public,” the crux of the issue here is whether Gulf, in promising McClain that it will do these things, is “undertak[ing] to give or to do … something directly to or for” an indemnitee who meets the specified conditions under an insured agreement. See Mich. Comp. Laws Ann. § 600.1405. We conclude the answer is no.
¶33 Reading the “defense of an indemnitee” clause in context with the provisions for coverage and definition of an “insured agreement,” we conclude the primary purpose of this clause is to benefit both the insured and the insurer, and the indemnitee is only an incidental beneficiary. This clause applies only where the insured would be obligated under the insured agreement to pay the indemnitee’s cost of defense, as well as its liability; in that case, it is in the insured’s interest to have the insurer pay for the indemnitee’s defense without having that payment reduce payments from the insurer for the tort liability the insured has assumed; and it is in the insurer’s interest to minimize its obligation with the efficiency of a combined defense where feasible and where agreeable to the insured. This clause thus delineates the conditions under which the insurer will make these supplementary payments.
¶34 Notably, the insurer has no obligation to defend an indemnitee unless the insured and indemnitee both ask the insurer to defend the indemnitee and agree that the insurer can assign the same counsel.[11] These conditions make it particularly clear that Gulf is not, in the words of the statute, “undertak[ing] to give or to do … something directly to or for” Tenneco or any class of which it is a member. See Mich. Comp. Laws Ann. § 600.1405. Instead, an indemnitee may incidentally benefit if all the conditions of this clause are met; and that depends on what the insured wants, within the defined limits of the clause, not on what the indemnitee wants.
¶35 We conclude that, based on the insurance contract language, Tenneco is not a third-party beneficiary under the contract.
¶36 Tenneco has not presented us with any other legal theory under
which it has a claim against Gulf.[12] Accordingly, it is unnecessary for us to
decide whether, if Tenneco did have a viable claim against Gulf, the
CONCLUSION
¶37 Based on the undisputed facts, we conclude McClain is entitled to summary judgment on Tenneco’s cross-claim because of the one-year limitation of Mich. Comp. Laws § 450.1842a. Based on the undisputed facts, we conclude Gulf is entitled to summary judgment on Tenneco’s cross-claim because Tenneco is not a third-party beneficiary to the insurance contract between Gulf and McClain. Thus, although our analysis differs from that of the circuit court, we conclude that the circuit court properly granted summary judgment in favor of both Gulf and McClain.
By the Court.—Order affirmed.
Not recommended for publication in the official reports.
[1] Ace American Insurance Company is Tenneco’s insurer and also an appellant, but it is not necessary to refer to it separately on this appeal. McClain Group, Inc., changed its name to Eldridge Group, Inc., but we refer to this entity as McClain in this opinion.
[2] Berg
also named General Casualty Insurance Company of
[3] Gulf has filed a cross-appeal, contending that the circuit court erred in allowing Berg to file a fourth amended complaint and to serve McClain for the first time with that complaint. It is unnecessary for us to address this issue because of our disposition of the issues raised on appeal. We observe, however, that it was unnecessary for Gulf to raise this issue on a cross-appeal because it is an alternative ground for affirming the court’s order dismissing McClain. See B&D Contractors, Inc. v. Arwin Window Sys., Inc., 2006 WI App 123, ¶4 n.3, 294 Wis. 2d 378, 718 N.W.2d 256 (citing State v. Alles, 106 Wis. 2d 368, 391, 316 N.W.2d 378 (1982)).
[4] All references to the Michigan Compiled Laws Annotated are to the version current through the end of the 2007 legislative session. The current versions of the statutes cited in this opinion are the same as those in effect at the times relevant to this appeal.
[5] The
claim was dismissed without prejudice because the circuit court did not agree
with the reasoning of the
[6] All references to the Wisconsin Statutes are to the 2005-06 version unless otherwise noted.
[7] Although Berg is labeled as “Plaintiff–Respondent–Cross-Respondent” in the caption and has filed a brief titled “Brief of Plaintiff-Respondent,” that brief responds to Gulf’s cross-appeal challenging the court’s order allowing the filing of the fourth amended complaint. See footnote 3. Berg has not filed a brief in response to Tenneco’s appeal.
[8] Michigan Comp. Laws Ann. § 450.1842a provides:
Dissolved
corporations; publication of notice, barred claims.
Sec. 842a. (1) A dissolved corporation may also publish notice of dissolution at any time after the effective date of dissolution and request that persons with claims against the corporation present them in accordance with the notice.
(2) The notice must be in accord with both of the following:
(a) Be published 1 time in a newspaper of general circulation in the county where the dissolved corporation’s principal office, or if there is no principal office in this state, its registered office, is or was last located.
(b) State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within 1 year after the publication date of the newspaper notice.
(3) If the dissolved corporation publishes a newspaper notice in accordance with subsection (2), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within 1 year after the publication date of the newspaper notice:
(a) A claimant who did not receive written notice under section 841a.
(b) A claimant whose claim was timely sent to the dissolved corporation but not acted on.
(c) A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
(4) Notwithstanding subsection (3), a claimant having an existing claim known to the corporation at the time of publication in accordance with subsection (2) and who did not receive written notice under section 841a is not barred from commencing a proceeding until 6 months after the claimant has actual notice of the dissolution.
[9] Because
both parties confine their arguments on this point to
[10] The
plaintiff in Schmalfeldt v. North Pointe Ins. Co., 670 N.W.2d 651, 652 n.1 (
[11] Indeed, because Gulf has this obligation only if it is defending an insured and because the Michigan court has ruled that Gulf does not have a duty to defend or to indemnify McClain, even if Tenneco were somehow a third-party beneficiary because of this clause and could enforce Gulf’s obligations under the clause, Gulf would have no obligation to provide Tenneco a defense because it is not defending McClain. Similarly, unless McClain asks Gulf and agrees, which it has apparently not done and has no intention of doing, Gulf has no obligation to provide a defense to Tenneco under this clause.
[12] Tenneco conceded in the circuit court that its claim against Gulf is not based on the direct action statute and it does not argue otherwise on appeal. Wisconsin Stat. § 632.24 provides:
Direct action against insurer. Any bond or policy of insurance covering liability to others for negligence makes the insurer liable, up to the amounts stated in the bond or policy, to the persons entitled to recover against the insured for the death of any person or for injury to persons or property, irrespective of whether the liability is presently established or is contingent and to become fixed or certain by final judgment against the insured.
Gulf’s position, which Tenneco
does not dispute, is that the policy it issued to McClain was not delivered or
issued for delivery in Wisconsin and, therefore, under Kenison v. Wellington Ins. Co.,
218
We recently certified to the Wisconsin Supreme Court
the issue of whether Kenison was correct on this point as
well as the issue whether we correctly stated in Kenison, 218
[13] Tenneco
argues that, while the
Negligence Actions: Insurers. (a) In any action for damages caused by negligence, any insurer which has an interest in the outcome of such controversy adverse to the plaintiff or any of the parties to such controversy, or which by its policy of insurance assumes or reserves the right to control the prosecution, defense or settlement of the claim or action, or which by its policy agrees to prosecute or defend the action brought by plaintiff or any of the parties to such action, or agrees to engage counsel to prosecute or defend said action or agrees to pay the costs of such litigation, is by this section made a proper party defendant in any action brought by plaintiff in this state on account of any claim against the insured. If the policy of insurance was issued or delivered outside this state, the insurer is by this paragraph made a proper party defendant only if the accident, injury or negligence occurred in this state.
In
Kenison,
218