UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ALLIANCE GENERAL INSURANCE
COMPANY,
Plaintiff-Appellee,

v.

THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA, Member of
                                    No. 97-1432
the American International Group,
Defendant-Appellant,

and

DELORES MARIE VAUGHAN; MORGEN
INDUSTRIES, INCORPORATED,
Defendants.

ALLIANCE GENERAL INSURANCE
COMPANY,
Plaintiff-Appellant,

v.

THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA, Member of
                                    No. 97-1475
the American International Group,
Defendant-Appellee,

and

DELORES MARIE VAUGHAN; MORGEN
INDUSTRIES, INCORPORATED,
Defendants.
Appeals from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Tommy E. Miller, Magistrate Judge.
(CA-95-1113-2)

Argued: October 31, 1997

Decided: January 29, 1998

Before WIDENER and ERVIN, Circuit Judges, and
BULLOCK, Chief United States District Judge for the
Middle District of North Carolina, sitting by designation.

_________________________________________________________________

Affirmed by unpublished opinion. Judge Ervin wrote the opinion, in
which Judge Widener and Chief Judge Bullock joined.

_________________________________________________________________

COUNSEL

ARGUED: George Janis Dancigers, Thomas Saunders Berkley,
HEILIG, MCKENRY, FRAIM & LOLLAR, P.C., Norfolk, Virginia,
for Appellant. Jamie Anderson Stalnaker, WILLIAMS, KELLY &
GREER, Norfolk, Virginia, for Appellee. ON BRIEF: Rebecca L.
McFerren, WILLIAMS, KELLY & GREER, Norfolk, Virginia, for
Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

ERVIN, Circuit Judge:

This appeal arises from a declaratory judgment in the district court
that The Insurance Company of the State of Pennsylvania, a member

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of the American International Group (AIG), should indemnify the
Alliance General Insurance Company (Alliance) for damages and fees
paid by Alliance in the defense of an insured who had two successive
insurance policies, one issued by Alliance and one by AIG. The dis-
trict court, finding that AIG should have had primary responsibility
for defending the insured and paying any successful claims, ordered
indemnification on the grounds of unjust enrichment and equitable
subrogation.

The issues raised on appeal by AIG are 1) whether Alliance is
estopped from claiming indemnity because it undertook responsibility
for litigating the case for the insured; 2) whether Alliance had a con-
tract with AIG by which Alliance agreed to be primary carrier in this
case; and 3) whether AIG was unduly prejudiced by Alliance's con-
duct in the case, including its choice of attorney. On cross-appeal,
Alliance requests prejudgment interest on the monies the district court
ordered AIG to pay. Finding no merit in the above arguments, we
affirm the judgment of the court below.

I.

Delores Vaughan was injured in Virginia on August 13, 1987,
while working on a piece of equipment manufactured by Morgen
Industries, a South Dakota company. Alliance had issued a "claims
made" insurance policy to Morgen Industries effective October 1,
1986 to October 1, 1987. A "claims-made" policy covers claims actu-
ally made during the time the policy is in force, regardless of when
the underlying incident happened. The Alliance policy was renewed
twice, through October 1, 1989. Alliance issued the policy from its
Illinois office and sent the policy first to J.H.C. Insurance Group, an
independent insurance broker in Minnesota, which forwarded the pol-
icies to Universal Insurance Services, an independent agent in Michi-
gan. Universal then forwarded the policy on to Morgen in South
Dakota.

AIG issued a "claims-made" policy to Morgen from its Pennsylva-
nia office that succeeded the Alliance policy and was effective from
October 1, 1989 through October 1, 1990. AIG also delivered its pol-
icy first to J.H.C. Insurance in Minnesota, which then sent it to Uni-
versal in Michigan, which in turn sent it to Morgen.

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When Ms. Vaughan's injury occurred, Morgen notified J.H.C. that
a potential claim existed. J.H.C. in turn informed Alliance of the
injury. Though Ms. Vaughan's injury occurred in 1987, she did not
file suit against Morgen until August 14, 1989, two months before
Alliance's coverage ended. Morgen was not served with Vaughan's
motion for judgment until July 12, 1990, after AIG's policy came into
effect. Morgen delivered the court documents to Universal, which
delivered them to J.H.C., which then notified both Alliance and AIG
of the claim.

Alliance had investigated the potential claim and monitored its
progress from the time it was informed of Ms. Vaughan's injury. In
mid-1990, Alliance believed it should be the primary carrier. AIG
agreed to be excess carrier, though internal AIG documents indicate
that AIG executives questioned that division of responsibility. Alli-
ance's coverage was capped at $1,000,000, but the claim for damages
and probable attorneys' fees seemed likely to exceed that amount. As
excess carrier, AIG would pay any amount owing over the $1,000,000
limit. AIG's policy did not have a similar cap.

Alliance thus litigated the Vaughan case, which eventually went to
the Virginia Supreme Court. AIG monitored the case, but did not par-
ticipate in the litigation. Ms. Vaughan won a settlement of $850,000,
and attorneys' fees amounted to $463,750.30. In 1996, when review-
ing the file on the Vaughan judgment in preparation for paying the
claim up to $1,000,000 (AIG paid the excess), Alliance's general
counsel realized for the first time that AIG should have been primary
insurer all along, and notified AIG's counsel of that fact. AIG did not
accept Alliance's tender of responsibility, and Alliance filed for a
declaratory judgment in the district court. The parties agreed to have
all proceedings heard by a magistrate judge under 28 U.S.C. § 636(c).
The district court entered a final order on February 6, 1997; this
timely appeal followed under 28 U.S.C. § 1291.

II.

The district court determined that the claim was made when Mor-
gen was served with the motion for judgment in the Vaughan suit in
July, 1990, during which time Morgen was covered by its insurance
contract with AIG. Neither party disputes this conclusion. Rather, the

                    4
first issue in contention is whether Alliance's mistaken assumption of
coverage precludes it from now seeking indemnification from AIG.

A.

The district court, sitting in diversity, applied the choice-of-law
rules of the forum, Virginia, to determine which state's law to apply
to the merits of the case. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S.
487 (1941); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Virginia
law provides that the law of the place of contracting applies to the
performance of the policy when an insurance policy has multistate
coverage. Ryder Truck Rental, Inc. v. UTF Carriers, Inc., 790 F.
Supp. 637, 641-642 (W.D. Va. 1992). Under Virginia law, an insur-
ance contract is binding upon "delivery." Hancock v. Smith, 90 F.
Supp. 45, 49 (W.D. Va. 1950); Pacific Fire Ins. Co. v. Bowers, 175
S.E. 763, 766 (Va. 1934). The district court found that both insurance
contracts became effective upon their delivery to J.H.C., as Morgen's
broker, in Minnesota. The district court accordingly applied Minne-
sota law to the merits of the case under Virginia choice-of-law rules,
since Minnesota was the place of contracting and the policies had
multistate coverage.

It is, of course, firmly established that we review the district court's
findings of fact for clear error and its conclusions of law de novo.
Hendricks v. Central Reserve Life Ins. Co., 39 F.3d 507, 512 (4th Cir.
1994). Where delivery of the insurance contract took place is a factual
issue and as such is reviewed for clear error. A factual finding is
clearly erroneous if "although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed." United States v.
United States Gypsum Co., 333 U.S. 364, 395 (1948). A district court
may clearly err if its factual determinations are not supported by sub-
stantial evidence. Jiminez v. Mary Washington College, 57 F.3d 369,
379 (4th Cir. 1995), cert. denied, 116 S.Ct. 380 (1995).

Though the district court could have more clearly identified the
basis for its determination that J.H.C. acted as Morgen's agent, sub-
stantial evidence supports the district court's conclusion. An "inde-
pendent broker" who is not an agent for any particular insurance
company is generally held to act as an agent for the insured. Bowers,

                    5
175 S.E. at 765; In re Jones, 19 B. R. 293, 295 (E.D. Va. 1982); see
also 3 Couch on Insurance, § 45:4 (3d ed. 1996). J.H.C., identified as
an "independent broker" in the stipulation of facts, was also stipulated
to have advised Alliance of the accident "on behalf of Morgen." AIG
itself, in a July 1990 report on the claim, stated that Morgen had noti-
fied "their insurance broker" of the incident in 1987. Based on these
facts, the district court's decision to apply Minnesota law based on its
conclusion that the insurance contracts were completed on delivery to
J.H.C. was not clearly erroneous.

AIG's suggestion that the district court could just as easily have
found that delivery occurred in Michigan to Universal, an "indepen-
dent agent," does not compel a different conclusion. The record also
shows that Universal acted on behalf of Morgen with respect to the
claims. Even if there are two permissible views of the evidence, the
district court's choice of one of them cannot be clearly erroneous.
Anderson v. Bessemer City, 470 U.S. 564, 573 (1985).

We review de novo the district court's application of Minnesota
law to the facts. Hendricks, 39 F.3d at 512. AIG's primary argument
is that Alliance is estopped from claiming indemnification by having
assumed and conducted Morgen's defense. Under Minnesota law, this
argument must fail.

While Minnesota recognizes that estoppel will prevent an insurer
from later denying liability against an insured once the insurer has
assumed the defense of the insured, that estoppel does not apply in the
case of one insurance company seeking estoppel against another.
Gamble-Skogmo, Inc. v. St. Paul Mercury Indem. Co. , 64 N.W.2d 380
(Minn. 1954). The estoppel rule is to protect the insured once she has
given up all control of her defense in the lawsuit, and as such does
not apply between insurers. Id. at 388-89; Iowa Nat'l Mut. Ins. Co.
v. Liberty Mut. Ins. Co., 464 N.W.2d 564, 568 (Minn. App. 1990).

Minnesota courts have, moreover, refused to use the doctrine of
estoppel to enlarge the coverage of an insurance policy to include
something not previously covered. Minnesota Mut. Fire & Cas. Co.
v. Rudzinski, 347 N.W.2d 848, 851 (Minn. App. 1984). The Minne-
sota Supreme Court has refused to compel one party to pay another's
debt, and has stated that one insurer should not be penalized for

                    6
promptly paying a debt owed by another. Iowa Mut., 464 N.W.2d at
567. Alliance, then, should not be penalized for having assumed
responsibility for Morgen's defense, and the district court properly
ordered AIG to reimburse Alliance for the fees incurred in defending
the Vaughan suit.

AIG also argues that Alliance waived any right it had to indemnify
AIG by assuming responsibility for Morgen's defense. In Gamble-
Skogmo, the facts were such that it was unclear where the negligence
occurred, which in turn had a direct effect on which insurer was liable
for coverage. In this case, further investigation on the part of Alliance
should have revealed that the claim was made during AIG's period of
coverage, rather than Alliance's. Nevertheless, neither a mistake of
law nor a mistake of fact will act as a voluntary relinquishment of a
known right. Rudzinski, 347 N.W.2d at 851. AIG's waiver of rights
argument is therefore unpersuasive.

B.

AIG argues that it had a contract with Alliance by which Alliance
agreed to assume primary coverage of the claim and which Alliance
cannot now breach. AIG did not raise this argument below, however,
and thus cannot raise it here. Absent plain error that would result in
a denial of fundamental justice, we will not address for the first time
on appeal issues that were not raised in the court below. United States
v. Bornstein, 977 F.2d 112, 115 (4th Cir. 1992); Bakker v. Grutman,
942 F.2d 236, 242 (4th Cir. 1991). Failure to consider AIG's contract
claim does not reach that standard.

AIG contends that it did raise the issue; however, even an expan-
sive reading of the proceedings in the court below reveals at most that
AIG asserted that it had an "implied-in-law" contract with Alliance by
virtue of Alliance having assumed Morgen's defense. The "implied-
in-law" contract theory is apparently a version of the estoppel and
waiver of rights theory that AIG contends prevents Alliance from now
seeking subrogation.

C.

AIG also seeks relief from the district court's determination that
AIG must properly pay not only Vaughan's damages award but also

                     7
the attorneys' fees incurred by Alliance defending the suit, since those
costs were part of the costs of defending the lawsuit. AIG contends
that forcing it to pay unreasonably high attorneys' fees in a case in
which it had no say in directing the defense would cause it undue
prejudice.

In a similar case, the Minnesota Appeals Court found the second
insurer was estopped from making such a claim. In Iowa National, the
second insurer refused to take over the defense when it was tendered,
but "stood by and did nothing while accepting the benefits of the
defense." 464 N.W.2d at 568. AIG is in a similar position here. It is
true that Alliance did not tender the defense to AIG before trial
because of the mistaken belief it should be primary carrier. This con-
sideration is more than counterbalanced by the fact that AIG, whose
internal documents revealed its strong suspicion that Alliance had
assumed primary responsibility in error, purposefully did not raise the
coverage issue with Alliance in the hope that AIG could continue to
benefit from Alliance's mistake. Because AIG did not discuss its con-
cerns with Alliance, the district court properly held that AIG was
estopped from raising undue prejudice as a defense.

D.

The district court's decision not to grant prejudgment interest to
Alliance is reviewed for abuse of discretion under Virginia law,
which governs prejudgment interest awards in diversity cases. United
States v. Dollar Rent A Car Sys., Inc., 712 F.2d 938, 940-41 (4th Cir.
1983); Continental Ins. Co. v. City of Virginia Beach, 908 F. Supp.
341 (E.D. Va. 1995).

Virginia law requires a court to balance the equities of the case
when determining whether to award prejudgment interest. McDevitt
& Street Co. v. Marriott Corp., 754 F. Supp. 513, 515 (E.D. Va.
1991), aff'd in relevant part, 948 F.2d 1281 (4th Cir. 1991). The dis-
trict court found that while Alliance was entitled to recover the sums
it disbursed in defending the claim, Alliance was not without fault in
the matter. Had Alliance exercised better care, the case would never
have been at this stage in the legal proceedings, and therefore Alli-
ance was not entitled to prejudgment interest.

                    8
Alliance argues that the district court incorrectly applied McDevitt,
distinguishing that case by the degree of wrongdoing on the part of
the seeker of interest. This claim is unpersuasive, since the district
court must weigh the equities in any particular case. The district court
acted reasonably when it determined that Alliance was not entitled to
prejudgment interest. We certainly cannot say that the denial of pre-
judgment interest was an abuse of discretion.

III.

For the reasons stated above, we affirm the judgment of the court
below.

AFFIRMED

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