Case:    EMJ Corp. et al. v. Hudson Specialty Insurance Co.
             Case No. 15-60254
             Fed. 5th Circuit Court of Appeals, Mississippi

The priority of excess policies of a contractor and subcontractor was squarely at issue in this instructive Mississippi case. EMJ Corp. subcontracted with Contract Steel for steel erection services on a new building. The parties' contract required Contract Steel to obtain insurance to protect it and EMJ from personal injury claims, and Contract Steel purchased a primary and excess policy and provided EMJ a certificate of insurance. The parties' contract called for EMJ to be named additional insured and Contract Steel's policies to be primary.

An inspector fell from a ladder constructed by Contract Steel. The ladder had been accepted by EMJ although it was known to be constructed incorrectly. The inspector sued several defendants including EMJ. EMJ ultimately settled the case for $5 million, funded by EMJ's primary policy, $1 million, and EMJ's excess policy, $4 million. EMJ's excess carrier, Westchester, then filed suit against Contract Steel's excess carrier, Hudson, seeking reimbursement of the $4 million paid by Westchester. The trial court first found in Westchester's favor but then changed its position, finding that the two carriers' "other insurance" clauses were mutually repugnant and thus required contribution according to policy limits, under Mississippi law. Ultimately, the Fifth Circuit affirmed and, along the way, the Fifth Circuit addressed several recurring issues in insurance coverage litigation.

The Fifth Circuit made quick work of Contract Steel's carrier's argument that there was no "occurrence" because EMJ knowingly accepted a defective ladder and thus the injury was "expected or intended." Under Mississippi law, however, the Fifth Circuit noted there must be a knowing expectation of injury: "There is coverage unless the 'chain of events leading to the injuries complained of were set in motion and followed a course consciously devised and controlled by [the insured] without the unexpected intervention of any third person or extrinsic force.'"

The Fifth Circuit also rejected a somewhat novel argument made by Hudson – that EMJ's actions could not have been a proximate cause of the inspector's injuries if those injuries were "unexpected" for the purpose of determining whether there was an occurrence. However, the Fifth Circuit didn't bite – noting that the argument confused insurance law and tort concepts.

Hudson next argued that its policy did not provide additional insured coverage because Contract Steel's operations were not a "direct cause of the inspector's fall." Interpreting the policy's additional insured grant of coverage – to provide insurance "but only with respect to operations performed by you [Concrete Steel]," the Fifth Circuit confirmed that the phrase "with respect to" does not require a "direct causal connection" – but only "a causal connection between the additional insured and the insured's operations." This connection was clearly shown as the inspector was on site to inspect Concrete Steel's work, was climbing down the ladder after inspecting Contract Steel's work and fell from the ladder installed by Contract Steel. Notably, the court here referenced the Texas Supreme Court's interpretation of the "with respect to" language, stating it required only some sort of "causal connection or relation" between the injury and the primary insured's operations.

Discarding a few other appellate points, the Fifth Circuit got to the meat of its decision: the two policies' Other Insurance clauses. First, the Fifth Circuit rejected Westchester's argument that its more explicit Other Insurance language, which negated any contribution with other excess policies, should take precedence over Hudson's less specific language which contemplated the possibility of contribution. The panel found that both policies intended to be true excess policies and to pay only after all other non-named policies had paid, noting the Mississippi Supreme Court's instruction that "more specific rejections of coverage should not be favored over more general rejections of coverage." The Fifth Circuit found the two Other Insurance clauses to be mutually repugnant, thus cancelling each other out.

Perhaps the most notable of its findings, the Fifth Circuit rejected Westchester's invitation to apply the Fifth Circuit's logic and holding in Ironshore Spec. Ins. Co. v. Aspen Underwriting, Ltd., 788 F.3d 456, 460-61 (5th Cir. 2015), which discussed the Texas Supreme Court's ruling in In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015), and which would require – or at least permit – the court to look to the parties' underlying contract to determine the intent of the parties regarding the priority of their policies. The Fifth Circuit found that Mississippi courts would not consider extrinsic evidence to interpret the policies in the absence of ambiguity. 

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