An appellate court in Illinois, affirming a trial court's decision, has ruled that an insured who failed to maintain $500,000 in primary automobile liability insurance coverage as required by his umbrella policy was not entitled to defense or coverage under the umbrella policy until he incurred a loss exceeding $500,000.
The Case
Ian Hammersmith filed a personal injury complaint against Michael B. Zenn, alleging that he was injured in an automobile accident caused by Mr. Zenn's negligence. Upon being served with the Hammersmith complaint, Mr. Zenn tendered it Home-Owners Insurance Company, which insured him under its “Executive Umbrella Liability Insurance Policy,” for defense and indemnification. The policy had been acquired through Hub International Midwest Limited.
Home-Owners filed a declaratory judgment complaint against Mr. Zenn and Mr. Hammersmith. Among other things, the insurer alleged that as a condition of the umbrella coverage, Mr. Zenn was to maintain $500,000 in primary (also referred to as underlying) automobile liability coverage but that he did not maintain the required primary automobile coverage with limits of $500,000. Home-Owners asserted that the only primary automobile liability insurance available to Mr. Zenn on the date of the accident was a MetLife automobile liability policy with a single limit of $100,000. Home-Owners sought a declaration that it had no liability beneath the $500,000 minimum that Mr. Zenn was required to maintain in primary automobile liability coverage.
Home-Owners moved for summary judgment.
In response, Mr. Zenn did not dispute that he failed to have primary automobile liability coverage of $500,000. Instead, he maintained that, in order to deny his claim, Home-Owners singled out the requirement that he maintain $500,000 in primary coverage and ignored the other relevant provisions of the umbrella policy. Mr. Zenn further argued that there were questions of fact as to who was responsible for his lack of sufficient primary coverage and whether Hub was acting as an agent for Home-Owners or Mr. Zenn or both.
The trial court granted summary judgment to Home-Owners. The trial court found that Home-Owners had no obligation to provide coverage to Mr. Zenn in the Hammersmith litigation until Mr. Zenn had incurred a loss exceeding $500,000. The trial court further found that because Mr. Zenn had failed to provide any factual support for his agency argument, there was no genuine issue of fact precluding summary judgment to Home-Owners.
Mr. Zenn appealed.
The Umbrella Policy
The policy provided that Home-Owners was:
liable for the ultimate net loss in excess of the insurer's retained limit
, defined as:
the greater of: (a) the sum of the limits of liability: (1) stated for each policy listed or insurance described in Schedule A; and (2) applying to any other underlying insurance; or (b) $250 with respect to any one occurrence not covered by other insurance.
The policy also provided:
If any underlying insurance is exhausted by any occurrence, we will assume charge of the settlement or defense of any claim against the insured resulting from the same occurrence.The Appellate Court's Decision
The appellate court affirmed.
In its decision, the appellate court rejected Mr. Zenn's argument that the definition of “retained limit” was ambiguous, ruling that the umbrella policy “clearly” provided that Home-Owners agreed to be liable only for Mr. Zenn's “ultimate net loss in excess of $500,000,” the retained limit as defined by the policy.
Moreover, the appellate court did not agree with Mr. Zenn that the umbrella policy was ambiguous because it could be interpreted in two ways: (1) the excess coverage dropped down once the $100,000 of the MetLife policy was reached as it was “other underlying insurance”; or (2) the excess coverage did not drop down until the $500,000 had been incurred by the insured.
The appellate court reasoned that the Home-Owners policy provided that the insurer “would pay for losses in excess of a fixed amount, i.e., the primary policy limits.” It noted that Mr. Zenn's failure to maintain sufficient primary coverage was not due to the insolvency of the primary insurer. The appellate court then ruled, the “only reasonable interpretation” of the umbrella policy was that, regardless of the amount of underlying insurance, the excess coverage Mr. Zenn purchased did not apply until the claims against him exceeded $500,000.
Concluding that Mr. Zenn had provided no factual basis for concluding that Home-Owners or Hub bore responsibility for his failure to comply with the primary coverage requirement, it upheld the trial court's decision.
FC&S Legal Comment
Other cases have held that retained-limit language was not ambiguous. See, e.g., Premcor USA Inc. v. American Home Insurance Co., 400 F.3d 523 (7th Cir. 2005) (applying Illinois law to the interpretation of the insurance contracts and holding that a retained limit provision, similar to the one in Zenn, was not ambiguous); Garmany v. Mission Insurance Co., 785 F.2d 941, 946 (11th Cir. 1986) (read in tandem, the policy provision setting the excess carrier's threshold point of liability for loss “in excess of * * * the limits of the underlying insurances set out in the attached schedule” and the schedule, which set the limit at $500,000 in primary coverage, unambiguously set forth a fixed point, i.e., $500,000, at which the excess insurer's liability arose).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].