United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                  _____________

                                 No. 01-1898WA
                                 _____________

Wal-Mart Stores, Inc., and National     *
Union Fire Insurance Company of         *
Pittsburgh, Pennsylvania,               *
                                        *
             Appellants,                * On Appeal from the United
                                        * States District Court
      v.                                * for the Western District
                                        * of Arkansas.
                                        *
RLI Insurance Company,                  *
                                        *
             Appellee.                  *
                                   ___________

                             Submitted: January 14, 2002
                                Filed: June 5, 2002
                                 ___________

Before LOKEN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.
                           ___________

RICHARD S. ARNOLD, Circuit Judge.


      This is a dispute between several insurers and an insured. The parties disagree
about the interpretation of multiple insurance contracts and an indemnity clause in a
vendor agreement. Wal-Mart and its insurer, National Union, brought this action for
declaratory judgment in the District Court for the Western District of Arkansas to
determine their responsibility for an $11 million products-liability settlement. Wal-
Mart and National Union argued that they were protected from liability by an
indemnity clause in the vendor agreement between Wal-Mart and its supplier,
Cheyenne, and that RLI Insurance Company, which insured Cheyenne and Wal-Mart,
had no claim against them for any part of the settlement.

       The District Court ruled against Wal-Mart and National Union. It ordered that
they pay RLI, the excess insurer of Cheyenne, $10 million. Two bases underlay this
conclusion: first, that the language of the insurance policies governed the allocation
of liability for the settlement, not the indemnity agreement between Cheyenne and
Wal-Mart; and second, that Wal-Mart’s insurance with National Union was
underlying insurance under RLI’s policy and must be exhausted before RLI is
obligated as an excess insurer.

       Wal-Mart and National Union appeal the District Court’s decision. They argue
that the result of the decision is to make a covered insured (Wal-Mart) liable to its
own insurer (RLI), in violation of an axiomatic insurance principle. They also assert
that the District Court’s decision will result in unnecessary and circular litigation,
wherein RLI will ultimately still be held liable for the entire settlement because of
Cheyenne’s promise to indemnify Wal-Mart. We agree with Wal-Mart and National
Union and reverse the decision of the District Court. We direct entry of an order
granting summary judgment to Wal-Mart and National Union.

                                          I.

        This litigation arises out of a sales agreement between Cheyenne and Wal-
Mart. Cheyenne distributes halogen lamps. Wal-Mart and Cheyenne entered into a
vendor agreement, under which Cheyenne would supply lamps for Wal-Mart to sell
at its retail stores. As part of this agreement, Cheyenne promised to indemnify Wal-
Mart from any liability resulting from its sales of the lamps. Cheyenne was also
required to demonstrate proof of at least $2 million of liability insurance. Cheyenne
was covered by two insurance companies. St. Paul was its primary insurer; this

                                         -2-
policy had a $1 million limit for products liability. RLI was an excess insurer beyond
the St. Paul coverage; this RLI policy had a $10 million limit for products liability.
Wal-Mart was a covered insured under both the St. Paul and RLI policies.
Additionally, Wal-Mart had its own insurer, National Union, which covered it with
a $10 million policy limit.

      A lamp, distributed by Cheyenne and purchased at Wal-Mart, allegedly was
defective, causing a fire that severely injured a girl named Jasmine Boykin. Her
family sued Wal-Mart, Cheyenne, and other parties in a California state court for
personal injuries. This “Boykin” litigation was eventually settled for $11 million.
All parties agreed that St. Paul was liable for the first $1 million of the settlement.
Cheyenne, Wal-Mart, and their insurers disagreed, however, about their respective
responsibilities for the remaining $10 million of the settlement. Eventually, RLI paid
the $10 million but reserved its right to seek recovery from National Union and Wal-
Mart.

       Wal-Mart and National Union then brought this declaratory-judgment action
to determine whether they owed RLI any portion of the $10 million it had paid in the
Boykin settlement. They argued that the vendor agreement, containing the indemnity
clause, governed the apportionment of liability between Wal-Mart and Cheyenne’s
insurers. RLI filed a counterclaim contending that as an excess insurer, it was entitled
to contribution from Wal-Mart’s insurer, National Union.

       Both parties moved for summary judgment. On February 23, 2000, the District
Court granted partial summary judgment in favor of RLI. Although it acknowledged
that “a contract with an indemnification clause . . . may shift an entire loss to a
particular insurer notwithstanding the existence of an ‘other insurance’ clause in its
policy,” the Court ruled that the “other insurance” clauses in the RLI and National
Union policies made RLI’s coverage of Wal-Mart secondary to National Union’s
coverage. Addendum to Appellant Wal-Mart’s Brief (hereinafter “ADD”) 19,

                                          -3-
quoting Lee R. Russ & Thomas F. Segalla, 15 Couch on Insurance § 219:1, at 219-7
(3d ed. 1999).

       A year later, all parties again moved for summary judgment. Wal-Mart and
National Union requested reconsideration of the earlier order of the District Court.
They also argued the entire settlement should be attributed to Cheyenne’s liability,
rather than to any wrongdoing by Wal-Mart, which was indemnified by Cheyenne.
The District Court rejected these arguments and ruled in favor of RLI. Wal-Mart
Stores, Inc. v. RLI Ins. Co., 

, 1044 (W.D. Ark. 2001). It
determined that the “other insurance” provision in RLI’s policy stating that all other
coverage must be exhausted before RLI becomes liable was controlling, and that
National Union and Wal-Mart were therefore responsible for reimbursing RLI the $10
million it had paid for the settlement. National Union and Wal-Mart appeal this
decision.

                                         II.

     We review a district court’s grant of summary judgment de novo. Generali/US
Branch v. Bierman, 

, 867 (8th Cir. 1998). The District Court applied
Arkansas law to analyze the provisions in the contracts. We do the same.

      Insurance policies are contracts, and so, as with any contract, we begin our
analysis with the language of the agreements. The pivotal provision in the view of
the District Court was the “other insurance” clause in RLI’s policy.

             Whenever the insured is covered by other primary, excess
             or 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. This policy shall not be subject to the terms,
             conditions or limitations of any such other insurance. In

                                         -4-
             the event of payment under this policy where the insured is
             covered by such other insurance, we shall be subrogated to
             all of the insured’s rights of recovery against such other
             insurance.

ADD 16.

      The parties agree that Wal-Mart was an “insured” of RLI for purposes of this
clause. They also agree that National Union’s policy was not scheduled insurance on
the RLI policy. This provision states that RLI’s policy will apply only in excess of
other unscheduled insurance. This is the core of RLI’s argument that its policy is
excess to Wal-Mart’s coverage by National Union.

      Before deciding this issue, we must look to the competing “other insurance”
clause in National Union’s policy that covered Wal-Mart. It states that National
Union’s insurance was primary unless specified conditions occurred as described in
part “B. Excess Insurance.” This clause, in relevant part, reads:

             This insurance is excess over any of the other insurance,
             whether primary, excess, contingent or on any other basis:
             . . . 4) That was bought specifically for an Insured.

ADD 7. Wal-Mart and National Union contend that the National Union policy is
excess insurance because Cheyenne purchased the RLI policy specifically for Wal-
Mart. The District Court rejected this argument. ADD 18. National Union argues
that, in so doing, the District Court impermissibly decided a disputed question of fact
on a motion for summary judgment.

      We find it unnecessary to resolve these issues about the “other insurance”
clauses. Even if the RLI policy was not bought specifically for Wal-Mart (and the
evidence is in conflict on this point), we hold that RLI is liable for the $10 million


                                         -5-
settlement. We reach this conclusion despite the language in RLI’s policy, quoted
above, that purports to make RLI an excess insurer when an insured, such as Wal-
Mart, has other insurance, as it does here with National Union.

       In our opinion, on the facts of this case, the indemnity agreement controls the
outcome, not the “other insurance” clauses. Three reasons persuade us this is the
correct result. First, examination of the relationships between the parties has
convinced us that Cheyenne intended to and did make a valid promise to indemnify
Wal-Mart for claims arising from the halogen lamps, and that RLI provided liability
insurance to Cheyenne that covers both the Boykin settlement and Cheyenne’s
indemnification obligation. In this situation we think consideration of the indemnity
agreement reflects the intention of the parties and does not unfairly prejudice the
insurers. Second, we believe that to make Wal-Mart, an insured of RLI, liable to its
insurer, RLI, for the settlement would turn the nature of insurance on its head and
violate the principle that insureds cannot be liable to insurers for covered losses.
Third, we conclude that to make Wal-Mart or National Union liable to RLI would
simply be the first step in a circular chain of litigation that ultimately would end with
RLI still having to pay the $10 million. To avoid these results, we hold that Wal-
Mart and National Union have no obligation to RLI for any part of the $10 million
settlement.

       We begin our analysis with the language of the indemnity provisions.
Cheyenne agreed to indemnify Wal-Mart at the outset of their contractual
relationship. The contract contained two broad indemnity clauses.

             [Cheyenne] shall protect, defend, hold harmless and
             indemnify [Wal-Mart] from and against any and all claims
             [and] actions . . . or arising out of any actual or alleged
             death or of injury to any person . . . or other damage or
             loss, by whomsoever suffered, resulting or claimed to


                                          -6-
             result in whole or in part from any actual or alleged defect
             in such merchandise . . ..

             Indemnification; [Cheyenne] agrees to save [Wal-Mart] . . .
             harmless and indemnified from all claims, liability, loss,
             damage and expense, including reasonable attorneys’ fees,
             sustained from the purchase, use o[r] sale of any goods or
             from the breach of any of the guaranties or warranties
             hereunder . . . and such obligations shall survive
             acceptance of the goods and payments therefor by [Wal-
             Mart].

ADD 2.

       The language of the provisions is clear. Cheyenne has promised to indemnify
Wal-Mart for any liability or loss resulting from Wal-Mart’s sale of its lamps. A
judgment against Wal-Mart to pay the Boykin settlement is a liability to Wal-Mart
resulting from its sale of Cheyenne’s goods. RLI argues that the indemnity clause is
ineffective to cover Wal-Mart’s own negligence because such an obligation is not
clearly and unequivocally expressed as required by Arkansas law.

       We are not persuaded. The indemnity provisions are very broad and state that
Cheyenne will indemnify Wal-Mart for claims resulting “in whole or in part” from
any actual or alleged defect in the lamps. The Boykin settlement met this criterion;
plaintiffs alleged that design flaws in the lamp resulted in its explosion. Any possible
negligence by Wal-Mart does not protect Cheyenne from its contractual promise to
indemnify Wal-Mart. Therefore, if Wal-Mart is liable to RLI to reimburse it for the
Boykin settlement, Wal-Mart would have the right to sue Cheyenne and be
indemnified for that amount. Subrogated to Wal-Mart’s right, National Union could
also sue Cheyenne to enforce the indemnity agreement if found liable to RLI for the
Boykin settlement. The indemnity agreement squarely applies to obligate Cheyenne



                                          -7-
to protect Wal-Mart and National Union from liability arising from the Boykin
settlement.

       Notwithstanding Cheyenne’s obligation, RLI urges this Court that the
indemnification provision is irrelevant to this case. It contends that only the language
of insurance policies determine the priority of payment between insurers. We reject
this argument. “[C]ourts will assess whether the factual circumstances ‘create [ ] a
relationship between the indemnity contract and the insurance allocation issues . . ..”
Travelers Cas. & Surety Co. v. Am. Equity Ins. Co., 

, 1154, 

, 621 (2001) (quoting Maryland Cas. Co. v. Nationwide Mutual Ins.
Co., 

, 1092, 

, 380 (2000)). We find no
authority for the proposition that a court may never consider an indemnity clause in
determining liability for a settlement. We reject this bright-line approach.

        This is not to say, however, that indemnity agreements always govern
insurance-allocation issues. RLI cites a case in which, on facts similar to these, the
indemnity agreement was not given effect. See Reliance Nat’l Indem. Co. v. General
Star Indem. Co, 

, 

(1999). However, there
are many more cases ruling that indemnity agreements determine the allocation of
liability in an insurance dispute. See Rossmoor Sanitation, Inc. v. Pylon, Inc., 

, 

(1975). A leading commentator summarizes this situation
by observing that “an indemnity agreement between the insureds or a contract with
an indemnification clause . . . may shift an entire loss to a particular insurer
notwithstanding the existence of an ‘other insurance’ clause in its policy.” 15 Couch
on Insurance, supra, § 219:1, at 219-7. Our task is to determine if the present dispute
should fall into this category.

       As explained above, whether an indemnity agreement is relevant turns on the
particular facts of the case, such as the intentions and relationships of the parties.
Because the indemnification agreement creates rights in Wal-Mart and National

                                          -8-
Union to recover money paid in the settlement, the relationship between the
indemnity contract and the insurance-allocation issues makes consideration of the
indemnity contract necessary to resolve the dispute. When we analyze the parties’
obligations under both the insurance contracts and the indemnity agreement, we
conclude that the indemnity agreement controls the outcome of this case. We shall
try to explain why we think this, and how a different result would not give complete
relief to the plaintiffs and would cause circuitous litigation.

       National Union and Wal-Mart point this Court to cases from several
jurisdictions1 holding that an indemnity agreement prevents the indemnitee’s insurer
from being liable for a settlement arising from a covered loss. Our own Court has
recently reached this conclusion in Continental Cas. Co. v. Auto-Owners Ins. Co.,

(8th Cir. 2000) (applying Minnesota law). There, a dispute arose
between multiple insurers about how to allocate liability for a settlement from an
accident that occurred during a railroad salvage project. The insureds (Fitzsimmons
and Burlington Northern) were not parties to the case, but had signed an indemnity
agreement in which Fitzsimmons, the salvage company, agreed to indemnify
Burlington Northern. The Court considered the indemnity clause because it noted
that the provision allowed Burlington Northern’s insurer, “Interstate, being
subrogated to Burlington Northern’s rights, [to] reach Fitzsimmons and, through it,
Fitzsimmon’s CGL carrier, Auto-Owners.” 

Based on this chain of
relationships, we held that “Auto-Owners is obligated to bear the entire loss, and not,
as the district court concluded, just a portion of it.” 

this result
notwithstanding the fact that Interstate’s policy covered the loss at issue.




      1
       The parties agree that Arkansas law governs. The parties have nevertheless
cited mainly cases from other jurisdictions, apparently on the theory (which we have
no reason to question) that these cases rest on general principles of insurance law
which the Supreme Court of Arkansas would apply.

                                         -9-
       We think this case provides strong support for our conclusion that RLI must
bear the entire loss for the Boykin settlement. First, we note that although the insureds
were not parties in Continental, the Court nonetheless considered the indemnity
agreement. “The present action . . . is founded not just on the insurance policies but
also on the agreements between” the insureds, which contained an indemnity
provision. 

This fact defeats RLI’s argument that consideration of the
indemnity agreement is inappropriate because Cheyenne was not successfully brought
into this suit. Indeed, there is a greater reason to consider the indemnity agreement
in this case since Wal-Mart, one of the parties to the vendor contract, is a party and
bases its declaratory-judgement action on the indemnity agreement.

       The Continental Court also noted that the contract between the insureds
required the insurance arrangements. This also is true in the instant case. The vendor
agreement required Cheyenne to obtain $2 million in insurance. The St. Paul policy
satisfied $1 million of this obligation. The RLI policy satisfied the remaining $1
million, and in fact, went further, since it provides $9 million in additional coverage.
Although the RLI policy may not have been bought “specifically” for Wal-Mart, it
nevertheless satisfied the requirements of the vendor contract. There is thus a close
factual relationship between the indemnity obligation and the insurance contracts.

       In a suit between two insurers with identical and dueling “other insurance”
clauses, the indemnity agreement was held to be paramount. Chubb Insurance Co.
of Canada v. Mid-Continent Cas. Co., 

, 438 (S.D. Miss. 1997). The
court explained:

             [T]o the extent that Smith Brothers [the indemnitor] is
             liable to Coho [the indemnitee] for indemnity, so, too, are
             its insurers, to the extent that their policies provide
             coverage for Smith Brothers’ indemnity liability. To hold
             otherwise would render the indemnity contract between the
             insureds completely ineffectual and would obviously not

                                          -10-
             be a correct result, for it is the parties’ rights and liabilities
             to each other which determine the insurance coverage; the
             insurance coverage does not define the parties’ rights and
             liabilities one to the another.

court made the indemnitor’s insurer bear the entire loss, despite its
“other insurance” clause that provided for allocation with other applicable insurance.

       A similar logic underlay the result in J. Walters Constr. Inc. v. Gilman Paper
Co., 

(Fla. App. 1993). In that case, a contract required a construction
company to obtain insurance and to indemnify the owner of the building. When an
accident occurred and a lawsuit was brought and settled, the owner sued to enforce
the indemnification provision against the construction company and its insurer. They
defended by arguing that because the indemnitee also had insurance that could cover
the claim, the indemnitor’s insurer should be liable only for part of the settlement.
The court rejected this argument, holding that “to apply the ‘other insurance’
provisions to reduce [the indemnitor’s insurer’s liability] would serve to abrogate the
indemnity agreement between” the construction company and the building owner.

See also Aetna Ins. Co. v. Fid. & Cas. Co. of New York, 

,
473 (5th Cir. 1973) (indemnity agreement “controls all the rights and obligations of
the parties and their privies (the insurers)”).

       RLI contends that none of these cases is apposite because they deal with two
insurers on the same level (i.e., both primary) suing on claims for contribution or
allocation, and RLI characterizes the present dispute as arising between an excess
insurer (itself) and a primary insurer (National Union). We reject RLI’s contention.
The above-discussed cases are disputes about whether indemnity agreements relieve
particular insurers of an obligation to pay. This is the heart of what this suit is about.
It is a declaratory-judgment action by Wal-Mart and National Union seeking a
determination that the indemnity agreement prevents them from being liable.
Whether the parties are termed “primary” or “excess” depends on who is required to

                                           -11-
pay first, and that is the question presented here. The answer to this question,
however, depends on the indemnity agreement because of its effect on the obligations
of the parties. In this situation, RLI cannot avoid liability for the settlement by
pointing to language in its policy calling itself “excess.” RLI is “excess” to National
Union only if we determine that National Union is liable first, and, as explained
above, we do not do so because we believe the indemnity agreement governs.

       RLI strenuously urges this court to adopt the approach of Reliance Nat’l Indem.
Co. v. General Star Indem. Co., 

, 

(1999).
It contends that this case is the most persuasive because it deals with a dispute
between a primary and an excess insurer. The dispute in Reliance arose when an
audience member was injured at a Lollapalooza performance. Lollapalooza entered
into a contract with Don Law to do a concert in Rhode Island. The contract required
Don Law to indemnify and hold Lollapalooza harmless for personal injuries and to
purchase liability insurance naming Lollapalooza as an insured. Don Law had a
primary policy with Gulf Insurance and an excess policy with General Star Insurance.
Lollapalooza was named as an additional insured under both policies. It also had its
own insurance with Reliance Company. The suit by the audience member was settled
for $2 million with partial funding by Gulf, General Star, and Reliance.

      In a suit to allocate final responsibility for the settlement, Reliance argued that
Don Law’s indemnity obligation to Lollapalooza relieved Reliance, as Lollapalooza’s
insurer, of any obligation for the settlement. The court disagreed. It held that
General Star was not required to contribute to the settlement because it was an excess
insurer who need not pay until all primary insurance was exhausted, notwithstanding
Don Law’s promise to indemnify Lollapalooza. So here, according to RLI, its
obligation does not come into play until Wal-Mart’s own insurance with National
Union has been exhausted.




                                          -12-
       We do not believe that Arkansas would adopt the approach of Reliance to
resolve this case. First, as we shall explain, Reliance seems to be the minority
position and is in apparent conflict with a California Supreme Court case. Second,
we do not think the Reliance approach would comport with the equities in this case
or lead to a fair or efficient resolution of this dispute. For these reasons, we
respectfully disagree that Reliance governs this case.

       The District Court cited only Reliance to support its resolution of the case, and
it seems to be the only relevant case that uses the approach urged by RLI. In the other
cases cited by RLI, the insureds were not bound by an indemnity agreement. See
Universal Underwriters Ins. Co. v. CNA Ins. Co., 

, 

(1998); Continental Cas. Co. v. Pacific Indem. Co., 

, 184 Cal.
Rptr. 583 (1982). These cases are not relevant in determining the effect that should
be given to the indemnity clause that does exist in this case. Reliance is in the
minority. We doubt that Arkansas would follow its reasoning, in light of the
numerous cases that do consider indemnity agreements along with insurance policies
in resolving allocation disputes.

       We also hesitate to follow Reliance, a California intermediate appellate case,
because we do not think its result fully accords with a California Supreme Court case,
Rossmoor Sanitation, Inc. v. Pylon, Inc., 

, 

(1975). In
Rossmoor, the plaintiff contracted with Pylon to build a sewage pump station. 

The contract specified that Pylon would indemnify Rossmoor against all claims
arising out of the construction and that Pylon would obtain insurance and name
Rossmoor as an additional insured. Pylon obtained coverage under U.S. Fire.
Rossmoor also had independent coverage with INA. Both the U.S. Fire and INA
policies had “other insurance” clauses stating that apportionment was required if an
insured had other insurance for a covered loss. 

An accident occurred,
harming two Pylon employees. They brought suit and won a judgment, which was
satisfied by Rossmoor’s independent insurer, INA. Rossmoor then brought a

                                         -13-
declaratory-judgment action against Pylon and U.S. Fire seeking indemnity for the
money paid. 

Supreme Court ruled in favor Rossmoor and held that Pylon and
U.S. Fire were obligated to reimburse Rossmoor for its loss. Determining that the
indemnity clause covered the accident, the court noted that INA could enforce the
indemnity promise against Pylon as a subrogee of Rossmoor’s rights. 

In so doing, the court rejected Pylon’s and U.S. Fire’s argument that it was unfair to
ignore the terms of the insurance policies and consider the indemnity clause. “It
appears that both INA and U.S. Fire calculated and accepted premiums with
knowledge that they might be called upon to satisfy a full judgment. There is no
evidence that either company knew there was or would be other insurance when they
issued the policies.” 

also noted that to hold otherwise would deny
Rossmoor the benefit of its indemnity agreement, an inequitable result.

        Rossmoor was argued to the Reliance court, but it held the case did not bind
the court on the facts of Reliance. 

. The Reliance
court distinguished Rossmoor as a case between what it termed two “primary”
insurers, while it categorized Reliance as a dispute between a “primary” and an
“excess” insurer. 

that to hold the indemnitor’s “excess” insurer liable
first, before calling upon the indemnitee’s insurer, would allow the indemnitee’s
primary insurer to “shift the loss to an excess carrier which charged a lower
premium.” 

unconvinced that an indemnitee loses its ability to have the effect of an
indemnity contract considered in an insurance-allocation dispute because of how the
insurers characterize themselves in the abstract. As we explained above, the labels
“primary” and “excess” are shorthand for priority of payment obligations. In our
case, we agree that RLI explicitly made itself “excess” to St. Paul. The RLI policy
specifically referenced the St. Paul policy. We fail to see why RLI deserves the

                                         -14-
benefit of being “excess” to National Union, an insurer it knew nothing about. We
think the Reliance court’s efforts at escaping the holding of Rossmoor are
unpersuasive. We read Rossmoor to stand for the proposition that, when an
indemnity agreement is put at issue by a party in an insurance-allocation dispute, the
effect and purpose of such an indemnity agreement may govern the allocation of
liability, despite policy language that would require a different result. On this
reading, we think Rossmoor should have been controlling in the Reliance case. More
importantly, we believe Rossmoor is better reasoned than Reliance and would be
followed by Arkansas courts.

       The terms of the policies at issue in Reliance and in the case at hand also differ.
In Reliance, the indemnitor’s insurer had a clause in its policy that specified that
“[n]othing herein shall be construed to make this Policy subject to the terms,
conditions and limitations of other insurance, reinsurance or indemnity.” 

38. (emphasis added). RLI does not point out any such exclusion in its policy. The
RLI policy covered Cheyenne for contractual liability, without specific exclusion for
indemnity provisions. We think this, too, makes Reliance unpersuasive authority for
the present case.

       Courts consider the equities in resolving insurance-allocation disputes. See
United States Fid. & Guaranty Co. v. Aetna Cas. & Surety Co., 

, 956
(8th Cir. 1969 (“[i]t is settled law in Arkansas . . . that contribution is founded upon
principles of equity and that relief is granted only where the equities are equal.”);
Welch Foods, Inc. v. Chicago Title Ins. Co., 

, 519, 

, 470
(2000) (“Subrogation is a doctrine steeped in equity and generally governed by
equitable principles.”) In this case, the equities do not tip the balance in favor of RLI.
Although RLI contends that it would be unfair to make it, an “excess” insurer, liable,
while allowing National Union, a “primary” insurer, to avoid paying any part of the
settlement, we note that RLI calculated its premiums relying only on the primary
insurance of St. Paul. RLI has received the benefit of the St. Paul policy, which

                                          -15-
covered the first $1 million of the Boykin settlement. RLI has introduced no evidence
that it knew whether Wal-Mart had other insurance to cover liability from the sales
of the halogen lamps, or the extent of any such coverage.

        On the other hand, Wal-Mart has an equitable argument in its favor. Wal-
Mart’s purpose in obtaining a promise from Cheyenne to indemnify it was to avoid
liability for any claims arising out of its retail sales of Cheyenne’s halogen lamps.
The District Court entered an order making Wal-Mart jointly and severally liable to
RLI for $10 million for a loss that arose out of Wal-Mart’s sale of Cheyenne’s
merchandise. It is exactly to avoid liability for suits like that brought by the Boykin
plaintiffs that Wal-Mart negotiated the indemnification provision with Cheyenne. We
think that Wal-Mart deserves the benefit of its contractual bargain with Cheyenne,
that is, not to be liable for claims stemming from its sales of Cheyenne’s lamps. See
Rossmoor, 

, 634, 

, 104-05 (noting that to make
indemnitee’s insurer liable “would effectively negate the indemnity agreement and
impose liability on [indemnitee’s insurer] when [indemnitee] bargained with
[indemnitor] to avoid that very result as part of the consideration for the construction
agreement”).

       We have identified two other persuasive reasons to reverse the judgment of the
District Court. First, to make Wal-Mart liable to RLI would violate a basic principle
of insurance: that an insured cannot be liable to an insurer for a covered loss. Second,
the District Court’s resolution of the case would lead to circular litigation that would
ultimately place the parties back in the positions they were in at the filing of this suit.

      Wal-Mart directs this Court’s attention to the anti-subrogation rule, which
prevents an insurer from taking on one of its insured’s rights in order to recover from
another insured for a covered loss. See Maryland Cas. Co. v. Nationwide Ins. Co.,

, 155 (App. Div. 1999); 16 Couch on Insurance, supra, § 224:2, at
224-17. Wal-Mart argues that although RLI does not specify its theory of recovery,

                                           -16-
the general purpose of the anti-subrogation rule would still be violated if Wal-Mart
is made liable to RLI. We agree. To make Wal-Mart liable to RLI defeats the
purpose of Wal-Mart’s being insured by RLI. It would leave Wal-Mart liable for the
Boykin settlement, which arose from a covered event under the RLI policy, which
listed Wal-Mart as an insured. Such a result would be startling, to say the least.
Generally, insureds may not be made liable to their insurers for covered losses. See
Industrial Indem. Co. v. Beeson, 

, 506, 

, 637 (Ariz. App.
1982) (disallowing insurer from bringing subrogation action because to do so would
be “tantamount to permitting an insurer to recover from its own insureds for the very
risk insured against”). Accord, Dalrymple v. Royal-Globe Ins. Co., 

,

(1983).

       Finally, we believe the District Court’s result was incorrect because it would
produce circuitous litigation that would still result in RLI being ultimately liable for
the $10 million. This could occur in two ways, depending on whether Wal-Mart or
National Union satisfied the judgment for which the District Court made them jointly
liable. If Wal-Mart paid the judgment, it would sue Cheyenne to enforce the
indemnity provisions in their vendor agreement. As discussed above, Wal-Mart
would win this suit and obtain a judgment against Cheyenne. Cheyenne would then
look to its insurer, RLI, to cover this loss because the policy covers contractual
indemnity liability. The end result would be that RLI would have to pay out $10
million. A similar course of events would occur if National Union satisfied the
judgment, except that it would step into Wal-Mart’s shoes and bring a subrogation
action against Cheyenne asserting Wal-Mart’s contractual right to indemnification.

       Under either scenario, two ultimate results would occur, neither of which we
think is permissible. If Cheyenne ended up paying Wal-Mart or National Union, RLI
would have accomplished indirectly what it could not accomplish directly. It would
have made its insured liable to itself, an insurer, for a covered loss. We have already
explained why this result is illogical and unfair to the insured, who paid premiums to

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its insurer exactly to avoid liability for these claims. To allow Cheyenne to be liable
would prevent Cheyenne from receiving the benefit of its insurance policy with RLI.
If Cheyenne succeeded in getting RLI to cover the $10 million claim resulting from
the enforcement of the indemnity provisions, the parties would be back in the
situation they were in before this action was brought—RLI is liable for the $10
million Boykin settlement. The District Court recognized this result as likely but did
not use it as a factor in its decision. ADD 19 n.6.

        We think this was error. Generally, courts will not allow parties to engage in
circuitous action when the foreseeable end result is to put the parties back in the same
position in which they began. In Maryland Cas. Co. v. Employers Mut. Liab. Ins. Co.
of Wisconsin, 

(2d Cir. 1953), Judge Learned Hand reasoned that
“complete circuity of action” was a valid defense to a judgment in an insurance
action. 

There, Maryland Casualty Company paid a settlement on a lawsuit
arising from a covered claim. It then sued the defendant insurance company for
contribution on the basis of the “other insurance” clauses in both policies. Judge
Hand reasoned that to allow Maryland Casualty Company to recover any part of the
settlement it paid from the defendant insurance company was error, because the
defendant insurance company, subrogated to the rights of the insured, could have then
brought suit and recovered against Maryland Casualty Company. Because the
litigation was clearly circular and would not ultimately change the parties’ obligations
from their pre-suit positions, Maryland Casualty was barred from recovery. See also
Pacific Nat’l Ins. Co. v. Transport Ins. Co., 

, 518 (8th Cir.), cert. denied,

(1965) (policy against allowing such litigation “prevents a multiplicity
of suits and holds the insurer liable who by a circuity of actions would eventually be
obligated”) (quoting Travelers Ins. Co. v. General Cas. Co., 

, 236
(E.D. Idaho 1960)).

      We think this potential circuity of action is significant, in that it reveals the true
nature of the parties’ obligations and relationships with each other. RLI will

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ultimately be liable for the $10 million because of Cheyenne’s promise to indemnify
Wal-Mart and RLI’s contractual-liability coverage in its policy covering Cheyenne.
To prevent such wasteful litigation and to give effect to the indemnification
agreement between the parties, we hold that RLI cannot recover against National
Union or Wal-Mart. We reverse the District Court’s decision to the contrary.

                                       III.

    Accordingly, the judgment is reversed. We direct entry of an order granting
summary judgment to Wal-Mart and National Union.



      A true copy.

            Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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