OneBeacon America Insurance Co. v. Travelers Indemnity Company of Illinois

OneBeacon American Insurance Co. (OneBeacon) (plaintiff) is a vehicle liability insurance company. OneBeacon provided up to $1,000,000 in vehicle liability insurance coverage on request to Leasing Associates, Inc. and LAI Trust (collectively LAI). OneBeacon’s insurance agreement with LAI defined an “insured” as “you for any covered auto,” and “anyone else while using with your permission a covered auto you own.” LAI is a vehicle leasing company that leases commercial vehicles to other businesses. Capform, Inc. (Capform) is one such business that used LAI’s vehicles. When LAI entered its leasing agreement with Capform, LAI provided the option to Capform of either applying for vehicle liability insurance from OneBeacon, or providing its own independent full-coverage vehicle liability insurance policy from another insurance carrier. This general policy, which was available to all LAI’s customers, was described in a written Agreement for Judgment executed between LAI and OneBeacon. Capform chose not to apply for insurance from OneBeacon when it leased vehicles from LAI. Rather, Capform obtained its own full-coverage vehicle liability insurance policy from Travelers Indemnity Company of Illinois (Travelers) (defendant). The Travelers policy covered any damages incurred by Capform while operating a vehicle leased from LAI. While driving an LAI-owned vehicle, one of Capform’s employees struck and severely injured a pedestrian. The pedestrian reached a $5,000,000 settlement with Capform, which was to be paid by Travelers. After the settlement, Travelers discovered OneBeacon’s policy providing insurance coverage to vehicles leased from LAI. Travelers sought $1,000,000 from OneBeacon as payment for Capform’s damages. OneBeacon filed a petition for a declaratory judgment against Travelers in federal district court. OneBeacon argued that even if the language of its insurance policy agreement with LAI could be interpreted as providing coverage even to LAI-leased vehicles carrying independent insurance policies, this result was not the intent of either OneBeacon or LAI in making the agreement, and thus the agreement should be reformed. Both OneBeacon and Travelers filed motions for summary judgment. The trial court granted Travelers’ motion for summary judgment, and OneBeacon appealed.