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Fireman's Fund Insurance Company v. Td Banknorth Insurance Agency Incorporated

April 29, 2011

FIREMAN'S FUND INSURANCE COMPANY, PLAINTIFF-COUNTER-DEFENDANT-APPELLEE,
v.
TD BANKNORTH INSURANCE AGENCY INCORPORATED, F/K/A MORSE, PAYSON & NOYES INSURANCE, DEFENDANT-COUNTER-CLAIMANT-APPELLANT.



The opinion of the court was delivered by: Dennis Jacobs, Chief Judge:

10-0797-cv

Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency Inc.

Argued: December 21, 2010

10-0797-cv

30 Before: DENNIS JACOBS, Chief Judge, 31 GUIDO CALABRESI, 32 ROBERT D. SACK, Circuit Judges.

A policyholder appeals from a declaratory judgment 35 entered in the United States District Court for the District 36 of Connecticut (Droney, J.), awarding to its insurer all 37 funds held in escrow as proceeds from settlement of the 38 policyholder's claims against third parties. The 1 policyholder, TD Banknorth Insurance Agency, Inc., 2 challenges the allocation of the escrowed funds on the 3 ground that Connecticut's common law "make whole" doctrine 4 entitles it to recover its deductible before its insurer, 5 Fireman's Fund Insurance Company, can collect as subrogee. 6 The district court concluded that the subrogation 7 clause in the contract between the two parties abrogated 8 Connecticut's make whole doctrine. We disagree. The 9 contract at issue did not abrogate Connecticut's make whole 10 doctrine; however, this conclusion raises the more basic 11 issue of whether Connecticut's make whole doctrine applies 12 to insurance deductibles at all. Because this question is 13 undecided under Connecticut law, we certify it to the 14 Supreme Court of Connecticut and stay resolution of this 15 case in the interval.

A policyholder appeals from a declaratory judgment 4 entered in the United States District Court for the District 5 of Connecticut (Droney, J.), awarding to its insurer all 6 funds held in escrow as proceeds from settlement of the 7 policyholder's claims against third parties. The 8 policyholder, TD Banknorth Insurance Agency, Inc. ("TD 9 Banknorth"), challenges the allocation of the escrowed funds 10 on the ground that Connecticut's common law "make whole" 11 doctrine entitles it to recover its deductible before its 12 insurer, Fireman's Fund Insurance Company ("Fireman's 13 Fund"), can collect as subrogee.

14 The district court concluded that the subrogation 15 clause in the contract between TD Banknorth and Fireman's 16 Fund abrogated Connecticut's make whole doctrine. We 17 disagree. The contract at issue did not abrogate 18 Connecticut's make whole doctrine; however, this conclusion 19 raises the more basic issue of whether Connecticut's make 20 whole doctrine applies to insurance deductibles at all. 21 Because this question is undecided under Connecticut law, we 22 certify it to the Supreme Court of Connecticut and stay 23 resolution of this case in the interval.

1 BACKGROUND

2 In 2005 Haynes Construction Company ("Haynes") began 3 work on a housing development and retained TD Banknorth as 4 its agent to arrange insurance. TD Banknorth procured a 5 Builder's Risk insurance policy from Peerless Insurance 6 Company ("Peerless") and an Inland Marine insurance policy 7 from Hartford Insurance Company ("Hartford"). In February 8 2006, a fire destroyed a house being built on Lot 14 of the 9 Haynes development. Peerless denied coverage of the loss 10 because Lot 14 was not listed in its Builder's Risk policy-- 11 an error of omission by TD Banknorth. Haynes thereupon 12 claimed against TD Banknorth for its negligent omission of 13 Lot 14.

14 To protect against the risk of such negligence, TD 15 Banknorth had purchased Errors & Omissions coverage with 16 Fireman's Fund ("E&O Contract"). Fireman's Fund undertook 17 to pay on TD Banknorth's behalf any sums TD Banknorth became 18 "legally obligated to pay as damages because of a negligent 19 act, error or omission in the performance of [TD 20 Banknorth's] professional services." The E&O Contract had a 21 deductible of $150,000 per claim. TD Banknorth gave timely 22 notice of the loss to Fireman's Fund.

1 In July 2006, TD Banknorth and Fireman's Fund settled 2 with Haynes for $354,000.*fn1 Of that, TD Banknorth 3 contributed $150,000 (its single claim deductible) and 4 Fireman's Fund contributed the $204,000 remainder. In the 5 settlement, Haynes assigned its rights against Peerless and 6 Hartford to Fireman's Fund and TD Banknorth collectively. 7 TD Banknorth--and Fireman's Fund as subrogee--then 8 proceeded against Peerless and Hartford for the $354,000. 9 In the ensuing settlement, Peerless paid $88,000 and 10 Hartford paid $120,100 in exchange for complete releases. 11 TD Banknorth and Fireman's Fund "reserve[d] all rights that 12 they may have against each other relating to the allocation 13 of the [settlement funds] held in escrow." The $208,000 was 14 deposited in an escrow account.

15 In March 2008, Fireman's Fund commenced this action 16 against TD Banknorth in the District of Connecticut, seeking 17 a declaratory judgment that it was entitled to all of the 18 escrow funds. Fireman's Fund claimed $10,000 in defense 19 costs (incurred on TD Banknorth's behalf) in addition to the 20 $204,000 it had paid Haynes: a total of $214,000. TD 21 Banknorth counterclaimed for a declaratory judgment that, 1 under Connecticut's make whole doctrine, it was entitled to 2 recover its $150,000 deductible from the escrow funds. 3 Both parties moved for summary judgment. The district 4 court found that the subrogation clause in the E&O Contract 5 abrogated Connecticut's make whole doctrine, and accordingly 6 granted summary judgment in favor of Fireman's Fund.

7 Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency, Inc., 8 No. 3:08-cv-364, 2010 WL 420041, at *4 (D. Conn. Feb. 1, 9 ...


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