                   NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                              File Name: 08a0415n.06
                                Filed: July 10, 2008

                                           No. 07-1296

                             UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT

AMERICAN AUTOMOBILE INSURANCE CO. &                      )
AMERICAN INSURANCE CO.,                                  )
                                                         )      ON APPEAL FROM THE
           Plaintiffs-Appellants,                        )      UNITED STATES DISTRICT
                                                         )      COURT FOR THE EASTERN
v.                                                       )      DISTRICT OF MICHIGAN
                                                         )
TRANSPORTATION INSURANCE CO.,                            )      OPINION
                                                         )
           Defendant-Appellee.                           )


BEFORE:           DAUGHTREY and McKEAGUE, Circuit Judges; GWIN, District Judge.*

           McKEAGUE, Circuit Judge. This case involves a battle between two insurance companies

over what portion of a $3.75 million wrongful death settlement each of them should be required to

pay. Plaintiffs, American Automobile Insurance Co. and American Insurance Co. (collectively

referred to as “American”), argue that the district court erred in holding that Defendant,

Transportation Insurance Co. (“Transportation”), was only required to contribute $190,000 towards

the $3.75 million settlement. For the reasons set forth below, we AFFIRM in part and REVERSE

in part.

                                       I. BACKGROUND

A. Historical Facts




           *
        The Honorable James S. Gwin, United States District Judge for the Northern District of
Ohio, sitting by designation.
No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

       Underlying the insurance dispute that confronts us today is a tractor-trailer versus automobile

accident that claimed the life of Mr. Steven Reynolds on August 8, 2001. The tractor involved in

the accident was owned by Hazen Transport, Inc. (“Hazen”) and operated by its employee, Mr.

Robert Isaac (“Isaac”). The trailer, which was owned by Mid-Lakes Recycling, Inc. (“Mid-Lakes”),

was being hauled by Hazen’s tractor pursuant to an agreement under which Hazen’s tractors would

haul Mid-Lakes’ trailers to and from various facilities. Hazen was insured by American while Mid-

Lakes was insured by Transportation. Both provided coverage for Isaac.

       As a result of the accident, Reynolds’s estate filed a wrongful death action against Hazen and

Isaac; neither Mid-Lakes nor Transportation were named as parties in that suit. The estate alleged

that Hazen negligently maintained the tractor’s brakes, and Isaac negligently operated the tractor.

American settled the case on behalf of both Hazen and Isaac for a total of $3.75 million. On August

4, 2003, American filed this diversity action against Transportation in the United States District

Court for the Eastern District of Michigan seeking contribution towards the $3.75 million settlement.

According to American—although neither Mid-Lakes nor Transportation were parties to the

wrongful death action—the policies that Transportation issued to Mid-Lakes provided coverage for

the negligence of both Hazen and Isaac. Thus, American believes Transportation should be required

to pay a significant portion of the $3.75 million settlement.

B. The Dispute

       Four different insurance policies are involved in this case: (1) American’s $1 million primary

policy; (2) Transportation’s $1 million primary policy; (3) American’s $10 million umbrella policy;



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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

and (4) Transportation’s $1 million umbrella policy.2 In terms of the priority of the four policies,

it is undisputed that American’s $1 million primary policy is at the front of the line and should be

exhausted first. There is also no dispute that Transportation’s $1 million primary policy is second

in line. But, there is disagreement regarding the portion of its $1 million policy maximum that

Transportation should be required to contribute towards the $3.75 million settlement.

       With regard to its $1 million primary policy, Transportation agrees that it should contribute

some money towards the settlement based on the language of the policy that it wrote for Mid-Lakes.

The dispute centers on who is covered by Transportation and how much money Transportation must

contribute to the settlement. According to Transportation, its policy covered Hazen only to the

extent that Hazen is vicariously liable for the negligence of the driver, Isaac, who Transportation

agrees was covered by its policy. On the other hand, American argues that, in addition to its

vicarious liability for Isaac’s negligence, Transportation insured Hazen for Hazen’s own negligent

maintenance of its tractor. Looking beyond the primary policies, the parties also disagree regarding

the application of their respective umbrella policies. American argues that Transportation’s umbrella

policy applies first. Unsurprisingly, Transportation thinks the inverse is true; American’s umbrella

policy applies first and its own umbrella policy applies second.

C. The District Court’s Decisions




       2
          Although the complaint indicates that Transportation’s umbrella policy has a $3 million
limit, it appears from the language of the policy that the umbrella policy’s limit is actually $1
million. See JA at 682.

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

        In a decision dated February 15, 2005, the district court held that Transportation insured

Hazen only to the extent that Hazen was vicariously liable for the negligence of Isaac. In reaching

this decision, the district court stated: “Neither party disputes the facts that (a) Hazen owns the

tractor; (b) the tractor is a ‘covered auto’ under the Transportation policy; or (c) Mid-Lakes hired

Hazen for its tractor.” Dist. Ct. Op. at 7 (Feb. 15, 2005). Based on these apparent concessions by

the parties, the district court determined that the tractor qualified for the exception found in Section

II, ¶1.b(1) of the Transportation primary policy for “hired” vehicles and, therefore, Transportation

did not cover Hazen for its own negligence in maintaining the tractor. Because it concluded that

there existed a genuine issue of material fact regarding the extent of Isaac’s fault for the accident,

the district court’s February 15, 2005, decision did not specify the portion of the $3.75 million

settlement that Transportation was required to contribute. Regarding the priority of the umbrella

policies, the district court held that American’s umbrella policy applies first.

        American later filed a motion for summary judgment regarding the scope of the settlement

agreement. In a ruling dated November 10, 2005, the district court held that the settlement

agreement was silent on the allocation of liability between Hazen and Isaac. Following this ruling,

both parties moved for summary judgment regarding the allocation of fault between Hazen and Isaac.

Believing that genuine issues of material fact remained regarding the extent to which Hazen and

Isaac were liable for the fatal accident, the district court denied both parties’ motions. To avoid a

trial on the apportionment of liability, American and Transportation entered into a stipulation of

fault. According to the stipulation, Isaac was 19% liable for the accident, and Hazen was 81% liable.

Because the stipulation resolved the remaining factual issue, the district court issued an opinion on

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

January 16, 2007, ordering Transportation to contribute $190,000 towards the settlement. The

district court arrived at $190,000 by calculating 19% of Transportation’s $1 million policy limit.

The district court’s decision rendered American responsible for paying the remaining $3.56 million.

American timely appealed.

                                          II. ANALYSIS

A. Standard of Review

       We review a district court decision granting summary judgment de novo. Bender v. Hecht’s

Dep’t Stores, 455 F.3d 612, 619 (6th Cir. 2006), cert. denied, 127 S.Ct. 2100 (2007). Summary

judgment is appropriate where “the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that the movant is entitled

to judgment as a matter of law.” Fed. R. Civ. P. 56(c).

B. Discussion

       In this case, American argues that the district court committed several errors. First, it submits

that the district court incorrectly determined that Transportation’s policy did not provide coverage

for Hazen’s own negligence. Second, American argues that, even if Transportation only covered

Hazen to the extent that it was vicariously liable for Isaac’s negligence, the district court erred in

concluding that it was necessary to apportion fault between Hazen and Isaac because both are jointly

liable for the entire $3.75 million settlement. Third, American argues that if it was necessary to

apportion fault, the district court erroneously held that Transportation was only required to contribute

$190,000 towards the $3.75 million settlement. Fourth, American argues that the district court



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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

erroneously held that American’s umbrella policy applied before Transportation’s umbrella policy.

We consider each of these arguments in turn.

        1. Transportation’s Liability for Hazen’s Own Negligence

        According to American, Transportation’s primary policy covers Hazen for Hazen’s negligent

maintenance of its tractor. This argument finds its genesis in the language of Section II, ¶1.b of the

primary policy that Transportation issued to Mid-Lakes. Section II, ¶ 1.b defines “An Insured” to

include: “Anyone else while using with [Mid-Lakes] permission a covered ‘auto’ you own, hire or

borrow . . . .” JA at 595. An exception to this provision is found in Section II, ¶1.b(1), which states

that Transportation’s coverage does not extend to “[t]he owner or anyone else from whom you hire

or borrow a covered ‘auto.’” JA at 595. Thus, the determination of whether Transportation covers

Hazen for its own negligence boils down to whether Hazen’s tractor was “hire[d] or borrowe[d]” by

Mid-Lakes. If, as American contends, Mid-Lakes did not hire Hazen’s tractor, then the exception

found in ¶1.b(1) does not apply and Transportation insures Hazen for its own negligence. On the

other hand, if Transportation is correct that Mid-Lakes did hire the tractor from Hazen, then the

exception found in ¶1.b(1) applies and Transportation provides no coverage for Hazen’s own

negligence.

        We decline to address the merits of American’s assertion that Hazen’s tractor was not hired

by Mid-Lakes because this argument was not presented to the district court. As we have repeatedly

recognized, “the failure to present an issue to the district court forfeits the right to have the argument

addressed on appeal.” Armstrong v. City of Melvindale, 432 F.3d 695, 700 (6th Cir. 2006) (finding

that an issue was waived for failure to raise it below even though both parties briefed the issue on

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

appeal). This rule reflects the fact that our function as an appellate court is “to review the case

presented to the district court, rather than a better case fashioned after an unfavorable order.” Id.

(internal quotations and alterations omitted). We rarely depart from this general rule, and will do

so only in exceptional cases and those where its application would result in an obvious miscarriage

of justice. Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008).

       In this case, the district court stated: “Neither party disputes the facts that (a) Hazen owns

the tractor; (b) the tractor is a ‘covered auto’ under the Transportation policy; or (c) Mid-Lakes hired

Hazen for its tractor. Thus, because of the exemption listed above [¶1.b(1)], Hazen is not an

“insured” under the above listed clause.” Dist. Ct. Op. at 7 (Feb. 15, 2005) (emphases added). It

is apparent from this portion of the opinion that American failed to present the district court with the

argument that this case falls outside of the exception found in ¶1.b(1) because Mid-Lakes did not

hire Hazen’s tractor. Having independently reviewed the district court record, we have been unable

to locate any motions or other documents advocating the position that American advances today

regarding the language of ¶1.b(1). While on appeal American urges this court to follow the Seventh

Circuit’s decision in USF&G Co. v. Heritage Mutual Insurance Company, 230 F.3d 331 (7th Cir.

2000), one can search American’s lower court submissions in vain for any citation to USF&G or any

other case involving the “hired auto” issue. Furthermore, American failed to file a motion for

reconsideration with the district court, which is what we would have expected it to do if the district

court’s decision misstated American’s position or if the district court misunderstood the nature of

the arguments raised. Because American failed to argue below that Hazen’s tractor was not hired

by Mid-Lakes such that the ¶1.b(1) exception does not apply, this argument has been waived. There

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.

is nothing exceptional about the circumstances in this case that would necessitate our departure from

the general rule that issues not raised below are waived.

       2. Joint Liability Under the Settlement Agreement

       Because we have concluded that American waived its argument regarding the applicability

of the exception found in ¶1.b(1), it is necessary to consider American’s various alternative

arguments. In its first alternative argument, American argues that no allocation of fault was

necessary by the district court because Isaac is jointly liable for the entire $3.75 million settlement.

According to American, Isaac and Hazen bear equal responsibility for payment of the entire

settlement amount. This argument fails. There is no language in the settlement agreement or other

evidence in the record indicating that Isaac and Hazen share a joint obligation to pay the entire $3.75

million. Therefore, we agree with the district court that Isaac is not jointly obligated under the

settlement to pay the entire $3.75 million.

       3. Allocation of Fault Between Hazen and Isaac

       In its second alternative argument, American argues that the district court erred in holding

that Transportation was only required to contribute $190,000 towards the $3.75 million settlement.

According to American, the district court arrived at the $190,000 figure by incorrectly applying

Isaac’s stipulated fault of 19% to Transportation’s $1 million policy limit instead of to the overall

settlement amount of $3.75 million. Thus, American believes that Transportation should be required

to pay $712,500—19% of $3.75 million—because that amount represents the actual extent of Isaac’s

liability for the underlying accident. Transportation counters by arguing that the district court

correctly arrived at $190,000 by applying the 19% to Transportation’s $1 million policy limit

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.
because that was the only policy in dispute. We agree with American that the district court should

have applied the 19% stipulation of fault to the entire $3.75 million settlement instead of to

Transportation’s $1 million policy limit.

       The policy that Transportation issued to Mid-Lakes defines an insured to include: “Anyone

liable for the conduct of an ‘insured’ described above but only to the extent of that liability.” JA at

595. Transportation concedes that this clause provides coverage to Hazen “to the extent” of its

vicarious liability for the negligence of Isaac—who qualifies as an insured under a separate provision

of Transportation’s policy. Because the settlement agreement does not specify the extent of Isaac’s

liability, the parties stipulated below that he was 19% responsible for the fatal accident. The

question before this court is to what figure that 19% applies. According to the language of the

stipulation, Isaac was 19% liable for the “underlying collision and injury.” Because the total amount

of damages resulting from the accident was $3.75 million, the extent of Isaac’s liability is 19% of

$3.75 million, which amounts to $712,500. In other words, because Isaac was 19% liable for the

accident, he should bear 19% of the responsibility for the damages caused by the accident.

       Rather than applying the 19% to the overall amount of damages resulting from the accident,

the district court erroneously chose to apply the 19% to Transportation’s $1 million policy limit. The

amount of Transportation’s policy limit does not provide the proper framework for determining the

extent of Isaac’s liability for the accident; it merely determines how much of the insured’s liability

will be borne by the insurer. Isaac’s liability should have been calculated with reference to the

damage he caused, not the extent of insurance coverage available for his conduct. Per the parties’

stipulation, the extent of Isaac’s liability for the collision and injury was 19%. The total amount of

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.
damages resulting from the collision and injury was $3.75 million. Thus, responsibility for $712,500

of the total damages rests with Isaac. Hazen is, therefore, vicariously liable for the $712,500 in

damage caused by the negligence of its driver, Isaac. Because Transportation insured Hazen to the

extent of Hazen’s vicarious liability for the conduct of Isaac, Transportation should contribute

$712,500 towards the total settlement.

        Based on our conclusion that Transportation should contribute $712,500 towards the

settlement, $3,037,500 remains to be paid. After American’s $1 million primary policy is exhausted,

$2,037,500 is left unpaid. Therefore, it is necessary to consider the umbrella policies.

        4. The Umbrella Policies

        Both American and Transportation have umbrella policies, but the parties dispute whose

umbrella policy applies first. The dispute revolves around the language of the “other insurance”

clauses that are found in the two policies. An other insurance clause is a provision inserted in

insurance contracts “to vary or limit the insurer’s liability when additional insurance coverage can

be established to cover the same loss.” St. Paul Fire & Marine Ins. Co. v. Am. Home Assurance Co.,

514 N.W.2d 113, 115 (Mich. 1994). Generally, other insurance clauses fall into three categories:

(1) pro-rata clauses; (2) escape or no-liability clauses; and (3) excess clauses. Id. This case involves

the relationship between a pro-rata clause and an excess clause.

        According to the Michigan Supreme Court, a pro-rata clause “purports to limit the insurer’s

liability to a proportionate percentage of all insurance covering the event.” Id. Typically, a pro-rata

clause is identified by language that “creates a formula for establishing the liability of an insurer

when other, collectible insurance exists on a proportionate basis.” Id. at 116. An excess clause

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No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.
“limits the insurer’s liability to the amount of loss in excess of the coverage provided by the other

insurance.” Id. at 115. Typically, an excess clause is identified by language indicating that “the

policy will provide coverage only for liability above the maximum coverage of the primary policy

or policies.” Id. at 116 (internal quotations omitted). When two insurance policies are involved,

both of which contain other insurance clauses, Michigan law provides that a policy with a pro-rata

clause will pay before a policy with an excess clause. Id. at 119-21 (adopting the majority view that

a policy with an excess clause is secondary to a policy with a pro-rata clause).

       In this case, Transportation’s umbrella policy contains an other insurance clause, which

states: “Whenever you are covered by other: (a) Primary (b) Excess; or (c) Excess-contingent

insurance not scheduled on this policy as ‘scheduled underlying insurance,’ this policy shall apply

only in excess of, and will not contribute with, such other insurance.” JA at 694 (emphasis added).

As the district court correctly held, the italicized language makes clear that Transportation’s other

insurance clause is an excess clause. American’s umbrella policy also contains an other insurance

clause, which states:

       When both this insurance and Other Insurance apply to the loss on the same basis,
       whether primary, excess or contingent, we shall not be liable under this policy for a
       greater proportion of the loss than that stated in the applicable contribution provision
       as follows:
               ....
               b. Contribution of Limits
               If any of such Other Insurance does not provide for contribution by
               equal shares, we shall not be liable for a greater proportion of such
               loss than the applicable Limit of Insurance under this policy for such
               loss bears to the total applicable limit of insurance of all valid and
               collectible insurance against such loss.



                                                - 11 -
No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.
JA at 665.3 The district court correctly recognized that American’s other insurance clause is of the

pro-rata variety. Thus, we are confronted with a conflict between Transportation’s excess clause and

American’s pro-rata clause. Under Michigan law, a pro-rata clause has priority over an excess

clause.

          In an effort to avoid the conclusion that its umbrella policy applies first because it contains

a pro-rata clause, American argues that Transportation’s other insurance clause has not been

triggered in this case. American takes the position that Transportation’s other insurance clause is

inapplicable because the word “you” in the clause refers only to the named insured, Mid-Lakes, and

not additional insureds such as Hazen and Isaac.                Essentially, American believes that

Transportation’s other insurance clause only applies where the insured seeking coverage under the

policy is the named insured. Thus, American posits that, rather than a case involving a conflict

between a pro-rata clause and an excess clause, this case involves an umbrella policy with an other

insurance clause—American’s policy—and a policy with no applicable other insurance

clause—Transportation’s policy.

          American’s argument fails. We hold that Transportation’s other insurance clause applies

here for the reasons set forth in the district court’s opinion of February 15, 2005. Accordingly,

American’s umbrella policy applies first because it contains a pro-rata other insurance clause while

Transportation’s umbrella policy contains an excess other insurance clause. Because American’s




          3
       This language is contained in a Michigan Amendatory to American’s umbrella policy, which
modifies the other insurance clause found in the original umbrella policy.
                                                  - 12 -
No. 07-1296
American Automobile Insurance Co. v. Transportation Insurance Co.
umbrella policy is sufficient to cover the remaining balance, it is not necessary for Transportation

to contribute from its umbrella policy.

                                      III. CONCLUSION

       For the foregoing reasons, we AFFIRM the district court’s decision that Transportation’s

policy provides no coverage for Hazen’s own negligence, as well as its decision that American’s

umbrella policy applies before Transportation’s umbrella policy. We REVERSE the district court’s

decision that Transportation was liable for only $190,000 of the $3.75 million settlement, and we

REMAND this matter for further proceedings consistent with this opinion.




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