October 12, 2016

Ranocchia v. Erie Ins., No. 2166 MDA 2015, 2016 WL 5418191, (Pa. Super. Ct. Aug. 19, 2016)

Plaintiff, Alfio J. Ranocchia was involved in a head-on motor vehicle accident on State Route 307 in Pennsylvania. He accepted $15,000 from the tortfeasor's limits of liability insurance as well as $300,000 in underinsured motorist coverage from his own insurer, the defendant–Erie. Ranocchia made a several demands to Erie for payment of additional UIM benefits under a separate excess insurance policed called The Personal Catastrophe Policy. Erie denied the claim each time Ranocchia made demand for payment.

This case was appealed to the Supreme Court of Pennsylvania where the court again sided with Erie, stating that Erie's Motion for Summary Judgement was well founded because the language in the disputed Personal Catastrophe Policy was indeed unambiguous. The policy read:

“It is agreed that the insurance does not apply to Underinsured Motorists Coverage.”

However, despite the language, the Ranocchias' claim that Erie did not follow Pennsylvania law, MVFRL, because the policy included UIM and uninsured motorist coverage rejection forms on the same page rather than on separate pages. The court rejected that argument by saying that no Pennsylvania court has held that an excess policy is subject to the MVFRL. Furthermore, the MVFRL does not apply to the Personal Catastrophe Policy, so Erie “bore no duty to obtain signed waivers of coverage” from the Ranocchias.

The Supreme Court of Pennsylvania adopted the majority rule that “umbrella policies are not automobile insurance policies for purposes of §1731 and cannot create coverage where none exists. Also, courts must construe the terms of an insurance policy as written and not modify the plain meaning of the words under the guise of 'interpreting' the policy. Therefore, Erie's Motion for Summary Judgment was upheld.

Boehm v. Scheels All Sports, Inc., No. 15-CV-379-JDP, 2016 WL 4386104 (W.D. Wis. Aug. 17, 2016)

Sports photographers brought action against sports memorabilia dealers, alleging that dealers made and sold unauthorized reproductions of photographers' copyright protected work. After dealers tendered the action to their business liability insurers, insurers intervened to contest coverage. Insurers filed motion for summary judgment.

The district court held that (1) an exception to copyright infringement exclusion did not apply to provide coverage under business liability policy; (2) the doctrine of reasonable expectations did not apply to require coverage under business liability and commercial liability umbrella policies; and (3) prior publication exclusion in business liability policy applied to prevent insurer from having to defend claim that insured advertised offending material for sale on third-party retail website. Under Wisconsin law, doctrine of reasonable expectations did not apply to require coverage under business liability and commercial liability umbrella policies for advertising injury claims by sports photographers, and thus insurer did not have duty to defend or indemnify insured in the underlying action; endorsement contained in both policies unambiguously excluded advertising injuries from coverage, and since insured did not show that it made any statement to its agent requesting specific coverage, it was not entitled to completely rely on its agent to get coverage for all its business operations.

EMJ Corp. v. Hudson Specialty Ins. Co., No. 15-60254, 2016 WL 4375011 (5th Cir. Aug. 16, 2016)

General contractor and its commercial umbrella insurer brought action against subcontractor's commercial umbrella insurer, seeking a declaratory judgment that general contractor's insurer was entitled to contribution from subcontractor's insurer for amount it paid to settle an underlying personal injury lawsuit. Following a judgment for general contractor and its insurer, the United States District Court for the Northern District of Mississippi entered an order granting in part and denying in part subcontractor's insurer's motion for judgment notwithstanding the verdict, and denying general contractor's insurer's motion for further relief. Parties cross-appealed.

The court of appeals held that (1) building inspector's fall was an occurrence under subcontractor's policy; (2) subcontractor's policy's additional insured provision did not require a direct causal connection to trigger coverage; (3) general contractor was an additional insured under subcontractor's policy; and (4) policies were both true excess policies and prorata contribution applied. Under Mississippi law, commercial umbrella policies of general contractor and subcontractor were both true excess policies, so insurers were required to contribute pro rata to a settlement of an underlying lawsuit against general contractor for injuries sustained by a building inspector when he fell from a ladder installed by subcontractor at general contractor's project site, where policies' “other insurance” provisions both negated prospect of contribution, even though general contractor's policy did so more explicitly.

Phibro Animal Health Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 142 A.3d 761 (N.J. Super. App. Div. 2016)

Insured brought action against commercial general liability (CGL) insurer for declaratory judgment of coverage for claims by chicken producers that food additive manufactured by insured to prevent coccidiosis stunted growth. Insured also alleged breach of contract and bad faith. The Superior Court, Law Division, Bergen County, entered summary judgment in favor of insurer. Insured appealed.

The court held that (1) stunted growth was “occurrence” covered by the policies; (2) the stunted growth was “property damage”; and (3) factual questions precluded summary judgment on applicability of “impaired property” exclusion. Economic loss doctrine did not prevent stunted chicken growth from food additive to prevent coccidiosis from being an “occurrence” under additive manufacturer's commercial general liability (CGL) and umbrella policies; damage caused by the additive was not to the product itself, and the business risk doctrine related only to exclusions and should not be read into the general insuring clauses. Stunted growth of chickens from food additive to prevent coccidiosis was “physical injury” and thus “property damage” within meaning of additive manufacturer's commercial general liability (CGL) and umbrella policies, even though growth resumed when additive was removed from diets, undersized chickens were sold for human consumption, and insurer claimed lack of physiological change; stunted growth represented harm to chickens' physical condition, and delaying slaughter was not commercially feasible.

Kretsinger Real Estate Co. v. Amerisure Ins. Co., No. WD 78791, 2016 WL 3414107 (Mo. Ct. App. June 21, 2016)

Judgment creditors brought equitable garnishment action against contractor's commercial general liability (CGL) and umbrella insurer to collect payment on judgment for using defective concrete to construct parking lot. The Circuit Court, Clay County entered judgment in favor of insurer. Creditors appealed.

The court of appeals held that any property damage from installation of defective concrete in parking lot constructed by insured contractor occurred when subcontractor finished installing the concrete before period of insured's commercial general liability (CGL) and umbrella policies, not when the crumbling, cracking, and deterioration manifested itself during policy period, and, thus, policies provided no coverage.

Sinclair Oil Corp. v. Allianz Underwriters Ins. Co., 2015 IL App (5th) 140069

Insured owner of oil pipeline and refinery brought action against its umbrella insurer for declaratory judgment that insurer breached duty to defend owner in lawsuits arising out of alleged contamination of soil and groundwater. Insurer counterclaimed alleging it owed no duty to defend or indemnify owner. The circuit court entered partial summary judgment in favor of owner. Insurer appealed.

The defendant, Allianz Underwriters Insurance Company appeals. In said order, the circuit court made a determination that Allianz breached its duty to defend Sinclair with respect to multiple underlying lawsuits and claims arising out of alleged environmental contamination of soil and groundwater in Hartford, as well as cleanup activities and alleged exposure to benzene-containing products as a result of such alleged contamination. The issues necessary to resolve this appeal as follows: (1) whether an umbrella insurance policy issued by Allianz contained a “drop down” provision that required Allianz to defend Sinclair upon exhaustion of an underlying primary policy issued by the Home Indemnity Company (the Home policy); (2) whether the underlying policy contained aggregate limits of $500,000 for bodily injury and property damage; and (3) whether the information Sinclair provided to Allianz regarding payments under the Home policy and the nature of the claims set forth in the underlying lawsuits was sufficient to trigger Allianz's “drop down” duty to defend as a matter of law.

Sinclair owned and operated an oil pipeline near Hartford between 1979 and 1990. During 1981 and 1982, there are four instances on record where the pipeline leaked or spilled. Sinclair ceased operation of the pipeline in 1984, but some petroleum remained dormant in the pipeline. When Sinclair evacuated the pipeline in 1990, Sinclair discovered that more petroleum had leaked from the pipeline during its dormant stage. Contamination in and around Hartford prompted multiple lawsuits beginning in 2003. The underlying lawsuits include claims for property damage and personal injury, as well as regulatory matters relating to administrative orders issued by the United States Environmental Protection Agency and the Illinois Environmental Protection Agency (EPA) for remediation of the contamination. The Allianz insurance policy at issue in this case is a commercial general liability umbrella policy, which was effective from July 31, 1981, to July 31, 1982. According to the schedule of underlying insurance appended to the Allianz policy, the primary commercial general liability policy underlying the Allianz policy was issued by Home and was effective July 31, 1981, to July 31, 1984. It is the interplay between the Allianz policy, the Home policy, and the underlying lawsuits that is at issue on appeal.

Drop down provision in umbrella liability policy required insurer to defend insured in event of exhaustion of aggregate limits of underlying comprehensive general liability (CGL) policy, even though umbrella policy imposed no duty to defend; the drop down provision made the umbrella policy continue in force as underlying insurance, and CGL policy contained duty to defend. Umbrella liability insurer breached duty to defend insured owner of refinery with regard to property damage claims under drop down provision of umbrella policy and was liable for defense costs from time it received actual notice of lawsuits against insured, where comprehensive general liability (CGL) insurer made $500,000 payment to settle coverage dispute for aggregate limit, insured sent some evidence of the payment to umbrella insurer, and insurer did nothing to seek information to determine whether separate aggregate limit applied.

New NGC, Inc. v. Ace Am. Ins. Co., No. 3:10-CV-00022-RLV, 2015 WL 2259172 (W.D.N.C. May 13, 2015)

Insured drywall manufacturer brought action in state court against its commercial general liability insurers, which issued primary, umbrella and excess policies, asserting claims for breach of contract and declaratory judgment regarding insurers' duty to defend insured in underlying actions alleging insured's drywall was defective. Following removal, insurers moved to dismiss or alternatively for summary judgment. The insured moved for a partial summary judgment.

NGC operates a fully integrated building products manufacturing business from its headquarters in Charlotte, North Carolina. In this business, NGC has become one of the leading producers of domestically manufactured drywall in this country. ACE and National Union (collectively Defendants) are insurance companies that issued commercial general liability insurance policies covering NGC's liabilities arising from their business.

In 2009, at the outset of this suit, NGC faced individual and putative class action lawsuits (the Drywall Lawsuits) alleging wrongdoing by NGC. The Drywall Lawsuits asserted injuries and damages arising from exposure to what was alleged to be defective drywall manufactured, sold, used, or distributed by NGC. The Drywall Lawsuits alleged property damage in the form of corrosion of metal pipes and electrical wiring, deterioration of air conditioning coils, and melting of insulation, as well as bodily injury in the form of respiratory ailments and allergy-like symptoms. The Drywall Lawsuits were filed against NGC from thousands of claims by American property owners alleging identical defects, injuries, and damages stemming from drywall products.

Dismissal of insured drywall manufacturer's action against its commercial general liability insurers, arising from insurers' refusal to defend insured in underlying actions alleging its drywall was defective, was not warranted, since insured's claim for defense costs from insurers under primary policies was not subject to arbitration. Based on clauses contained in umbrella and excess policies would impede nature and scope of duty to defend under primary policies, and determination of whether a duty to defend existed under primary policies was not necessarily determinative of arbitrable issues.

Piatt v. Indiana Lumbermen's Mut. Ins. Co., No. SC 94364, 2015 WL 1926378, (June 30, 2015)

Insured's judgment creditors brought equitable garnishment action, as assignees, against liability insurer to collect on judgment in suit alleging wrongful death of insured's employee and recover for breach of contract and vexatious refusal to pay. The circuit court entered summary judgment in favor of insurer. Creditors appealed.

Linda Nunley was killed while working for a charcoal manufacturer. The plaintiffs obtained a judgment for wrongful death against Junior Flowers, the company's sole owner, director, and executive officer. Flowers assigned his insurance claims to the plaintiffs, and they sued the insurer for breach of duties to defend and indemnify under commercial general liability and umbrella policies. The circuit court applied the policies' employee exclusions, which prevented coverage for work-related injuries to employees of the insured, and granted summary judgment for the insurer. This court agrees, and the circuit court's judgment is affirmed.

Commercial general liability (CGL) insurance is generally not intended to cover liability for injuries to employees; the purpose of CGL insurance is to protect businesses against the potentially vast liability that can arise from accidentally injuring members of the public.

Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Donaldson Co., No. CIV. 10-4948 JRT/TNL, 2015 WL 1292561, (D. Minn. Mar. 23, 2015)

Plaintiffs, National Union Fire Insurance Company of Pittsburgh, PA, and American Home Assurance Company, bring this action against their insured, Donaldson Company, Inc. and Donaldson's excess insurer, Federal Insurance Company.

National Union and American Home contributed to a settlement on behalf of Donaldson and are now seeking to recover those contributions. Because the court finds that Donaldson has adequately pled recoverable damages in its counterclaim, the court will deny plaintiffs' motion for judgment. The court will grant in part Plaintiffs' and Donaldson's motions for summary judgment, and deny Federal's motion for summary judgment, because the court finds that there were two “lots” in the Burroughs cross-claim litigation. Finally, the court will grant Donaldson's and Federal's Daubert motions, because the court finds that the experts' testimony is unnecessary at this stage in the litigation.

In 2001, purchasers of Western Star trucks began filing claims against Donaldson, alleging that the walls of the air-intake ducts were too thin, causing the ducts to soften and melt. The melting of the ducts allegedly caused the collapse of the air-intake duct walls and the failure of engines in some trucks. Several purchasers of Western Star trucks filed Otho Arender v. Burroughs Diesel, Inc. In Mississippi state court against Burroughs Diesel, Inc., Donaldson, and Western Star, alleging that they could no longer operate their Western Star trucks due to engine dusting. Burroughs, a commercial dealer of Western Star trucks, filed a cross-claim against Donaldson alleging that the defective ducts had led to premature failure of engines in several hundred trucks sold between 1989 and 1999.

Plaintiffs insured Donaldson from 1996 to 2002, with largely identical insurance policies. National Union issued four commercial general liability policies to Donaldson, effective for consecutive annual periods from July 31, 1996 to July 31, 2000. American Home issued two, consecutive CGL policies to Donaldson for annual periods between July 31, 2000 and July 31, 2002. Each policy contained a $1 million per-occurrence limit and a $500,000 per-occurrence deductible for bodily injury or property damage. The policies cover property damage caused by “occurrences”. Donaldson obtained six annual umbrella insurance liability policies from Federal between July 31, 1996 and July 31, 2002. National Union issued two commercial umbrella liability policies to Donaldson, one of which ran from July 31, 2001 to July 31, 2002.

Mid-Content Cas. Co. v. I & W, Inc., No. CIV-11-0329 WJ/LAM, 2015 WL 658658 (D.N.M. Feb. 10, 2015)

Mining company's insurer brought action seeking declaratory judgment that it had no obligation under commercial general liability (CGL) insurance policies to indemnify company for damages awarded in neighboring property owners' state court action to recover for damage to their property. The United States District Court for the District of New Mexico entered summary judgment in insurer's favor, and owners appealed. The Court of Appeals for the Tenth Circuit, affirmed in part and reversed in part.

An insurance coverage dispute in which the parties seek a determination as to whether plaintiff (MCC) owes defendant (I & W) a duty to indemnify I & W for damages sought and awarded in an underlying state court action for property damage that occurred as a result of I & W's mining operations. The I & W property is adjacent to the defendants' property upon which sits the Circle S Feed Store located in Carlsbad, New Mexico. I & W's facility is located on private property in a developed area of the City of Carlsbad, at the intersection of two highways and adjacent to the Carlsbad Irrigation District ditch that serves farmers in the southern portion of the state.

I & W owned and operated a brine well facility that was involved in the solution mining of salt from brine water. In such an operation, a well is drilled into a salt zone. The operator injects fresh water into the salt zone, where it dissolves the salt. The resulting brine water is pumped out and sold. Through the mining process, the salt zone dissolves away from the earth in which it was embedded, leaving behind an underground cavern. I & W's solution mining operations took place between 1995 and 2008.

The court has determined that defendants' motion shall be granted with regard to coverage, but denied as to the issue of whether all of the general commercial policies are triggered for coverage. Subsidence and damages that mining company's negligence caused to neighboring property as result of its solution mining activities was a single occurrence only triggering coverage under one of company's consecutive commercial general liability (CGL) policies, despite property owners' contention that coverage was triggered under all of the policies pursuant to a “continuous injury” theory. There was no basis for stacking coverage under terms of mining company's consecutive CGL policies with regard to damages awarded in negligence action that resulted from a single occurrence covered by multiple policy periods, insurer was obligated to cover the damages under the policy with the highest indemnity limit.

Premcor v. American Home Assurance Co., 400 F.3d 523 (7th Cir. 2005)

This case from the Seventh Circuit Court of Appeals dealt with wrongful death lawsuits. The insured employer sued its umbrella insurer seeking coverage for the costs of defending wrongful death actions brought by the estates of employees killed in on-the-job accidents. The U.S. District Court for the Northern District of Illinois granted summary judgment for the insurer ,and the insured appealed.

Premcor sued American Home Assurance Company (AHA) for coverage of litigation defense costs under an umbrella policy. Premcor argued that the policy required AHA to pay more than two million dollars in costs that Premcor incurred while defending itself in an Illinois state court case based on the deaths of two Premcor employees. The estates of the employees initiated negligence actions against Premcor to recover damages under the Illinois Wrongful Death and Survival Act. The cases cost Premcor over two million dollars to defend and the costs were continuing at the time of this lawsuit against AHA.

At the time of the accident, Premcor had a two million dollar commercial general liability policy with Reliance National Indemnity Company, and an umbrella policy with AHA that provided Premcor with ten million dollars in excess coverage. Reliance became insolvent and that left Premcor with the task of paying its own defense costs. Premcor then filed a declaratory judgment action against AHA, arguing that AHA had to drop down and pay all defense costs above the amount that Premcor received from Reliance, which in this case was zero because Reliance was insolvent. Premcor claimed that the amount recoverable language in the AHA policy meant that AHA was responsible for all amounts above that which was actually recovered from the underlying insurance.

The appeals court did agree with Premcor on the importance of the amount recoverable language in the AHA umbrella policy, saying that the dispute over the scope of the coverage in this case focused on the interpretation of the amount recoverable language in the policy. The court noted that the umbrella policy had a clause that stated that the liability of AHA should not be increased by the refusal or inability of any underlying insurer to pay, whether by reasons of insolvency, bankruptcy, or otherwise. Another clause in the AHA policy stated that ultimate net loss (the amount AHA had agreed to pay in the umbrella policy insuring agreement) does not include expenses when such are covered by underlying policies of insurance, whether collectible or not. Basically what this policy language means is that AHA will not be liable for defense costs in the case of insolvency of the underlying carrier.

The appeals court decided that the proper interpretation of the amount recoverable language most consistent with these provisions is that AHA only covers costs in excess of the limits of the underlying policy. Therefore, AHA was not required to pay the defense costs that Premcor incurred in its wrongful death lawsuit. The court saw no ambiguity in the AHA policy; it was required to provide excess coverage only after the underlying insurance had been paid to the policy limits. Summary judgment for AHA was upheld.

Makki v. Farmers Insurance Exchange, 2005 WL 26993 (Mich. App.)

A court of appeals in Michigan had to decide whether the plaintiff was an insured within the meaning of the umbrella policy.

In this case, the plaintiff appealed from an order denying his motion for summary judgment and granting summary judgment to the insurer, Farmers Insurance Exchange. The plaintiff had accidentally struck and killed his one year old child while operating his own auto. At the time the insured (Makki) had an automobile insurance policy, and an umbrella policy for excess coverage in the amount of one million dollars. The personal representative of the child's estate brought an action against Makki; the umbrella insurer denied coverage; and the insured filed a declaratory judgment action, seeking a ruling that the insurer was obligated to provide a defense and indemnification in excess of the underlying policy limits.

The appeal court decided that the dispositive issue was whether Makki was an insured under the terms of his policy with Farmers. The umbrella policy defined an insured, with respect to autos and watercraft, as the named insured and any person using autos not owned by the named insured or furnished for the regular use of the named insured.

In this case, it was undisputed that Makki was using his own auto at the time of the accident. Therefore, under the explicit language of the umbrella policy, Makki was not an insured and the insurer was not obligated to defend or indemnify him. The grant of summary judgment to the insurer was affirmed.

Owners Insurance Company v. Benjamin Trucking, 2005 WL 1398836 (Ohio App. 9 Dist.)

An insurer brought a declaratory judgment action against an insured seeking judgment that the insurer had no duty to defend in an employee's litigation against the employer. The Court of Appeals, Ninth District, Ohio , handled this case on an appeal from the Common Pleas Court of Summit County.

Robert Rey, a former employee of Benjamin Trucking, suffered a job related injury requiring the amputation of his leg. Rey was then terminated from his employment and he subsequently filed a lawsuit against Benjamin, claiming retaliatory discharge, handicap discrimination, violations of public policy, and negligent or intentional infliction of emotional distress. Benjamin sought coverage under its insurance policies and Owners filed a declaratory judgment action. The trial court found for the insurer and Benjamin appealed.

There was a commercial general liability policy involved here, as well as a stop gap endorsement attached to the CGL form, and an umbrella policy. Benjamin argued under all three items that the insurer had a duty to defend based on the Rey complaint and its charges. The insurer argued that because the underlying CGL form was not triggered by the complaint, the umbrella policy could not be triggered.

The appeals court examined the provisions of the umbrella policy. That policy declared that the insurer would pay those sums included in the term ultimate net loss that the insured becomes legally obligated to pay as damages because of bodily injury caused by an incident. The umbrella policy defined an incident as: when coverage applies under both this policy and the scheduled underlying insurance, either occurrence, offense, or claims-made, whichever one of these is the basis of coverage under the scheduled underlying insurance. The appeals court then examined the underlying insurance policies against the wording of the complaint and found that reasonable minds could come to but one conclusion, namely, that pursuant to the terms and conditions of the CGL form and relevant endorsements, none of the allegations in the complaint triggered the insurer's duty to defend or indemnify. Therefore, since Benjamin was not entitled to coverage pursuant to the terms of the CGL form, it followed that Benjamin failed to meet the definition of incident as noted on the umbrella policy. None of the allegations in the Rey complaint triggered the duty to defend or indemnify under the umbrella policy. The trial court's judgment was affirmed.

Allstate v. Lahoud, 605 S.E.2d 180 (N.C. App. 2004)

This was a case wherein the insurer brought a declaratory judgment action claiming that the intentional acts exclusion in an umbrella policy barred coverage. This was based on the insured pleading guilty to taking indecent liberties with a child.

Lahoud was charged with one count of taking indecent liberties with a child. He was allowed to plead guilty to this one charge in exchange for a suspended sentence. The child, through his guardian, filed a civil complaint against Lahoud for assault and battery and intentional infliction of emotional distress. Lahoud sought coverage under his insurance policies and Allstate filed a declaratory judgment action to determine its rights, duties, and obligations. The issues were whether Allstate had a duty to defend Lahoud in the civil suit and whether it had to provide insurance coverage for him. The trial court found for the insurer and Lahoud appealed.

Lahoud contended that there is a genuine issue of material fact regarding whether his acts were intentionally harmful. Allstate argued that Lahoud's guilty plea in the criminal case establishes conclusively that he committed an intentional act, and the umbrella policy stated that there was no coverage for any intentionally harmful act or omission of an insured. The appeals court found that Allstate had to prove the acts were intentionally harmful in order for the exclusion to apply, and so, the question became whether the guilty plea did establish conclusively that Lahoud committed an intentionally harmful act.

Lahoud stated that he agreed to plead guilty to one count of taking indecent liberties with a child only because he was afraid that he would be prosecuted in federal court and face more severe charges, including active prison time. The appeals court was not impressed. The court stated that Lahoud pled guilty, accepted responsibility, and made the following statement: “I would like to apologize to the young man who is the victim and his family. He has done nothing wrong. I am completely responsible and I am sorry.” To the court, this showed that Lahoud had the intent to commit the act.

The court decided that Allstate supported its summary judgment motion with Lahoud's own sworn testimony, and that Lahoud could defeat the summary judgment call on the issue of his intentional acts only by producing evidence other than his own affidavit or deposition contradicting his trial testimony. This he did not do. The court said that the language of the exclusion is unambiguous and through his intentional actions, Lahoud placed himself outside the area of coverage. The trial court's opinion was affirmed.

Vogelbusch v. State Farm Fire & Casualty, 2004 WL 1554995 (Tex. App. Houston, 14 Dist.).

In this insurance coverage/declaratory judgment case, the Court of Appeals in Houston, Texas had to decide whether the trial court erred in granting summary judgment to the insurers under a general liability policy and a commercial umbrella policy. The trial court found that the insurers had no duty to defend the insured in regard to a counterclaim asserted against the insured by a purchaser of the insured's product. At issue was a dispute over the products/completed operations hazard exclusions.

The owner of a plant that produced high purity beverage grade alcohol contracted with Vogelbusch to engineer and design a high purity ethanol dehydrator to be installed at the alcohol plant. Vogelbusch did just that but after the machine was installed, the plant owner claimed the dehydrator did not produce beverage grade ethanol because of the presence of a contaminant. The plant owner refused to pay Vogelbusch, Vogelbusch sued, and the plant owner countersued, claiming breach of contract, negligent misrepresentation, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose.

State Farm insured Vogelbusch under a commercial general liability policy and a commercial umbrella liability policy. The insurer declined to defend Vogelbusch in this claim and Vogelbusch filed a lawsuit against State Farm. The trial court found in favor of State Farm and the insured appealed.

The appeals court said that, in analyzing insurance coverage disputes of this nature, it looked first to the policy and then to the pleadings to determine if coverage exists. The court would determine State Farm's duty to defend based on the allegations in the claim against Vogelbusch and the language of the insurance policy (the eight corners rule). The umbrella policy excluded coverage for any activity or operation included in the definition of products hazard; this definition pertained to products or operations of the named insured that caused a loss after possession of the products had been relinquished by the named insured, or the operations of the named insured had been completed. The court found this exclusionary language to be unambiguous. The policy excluded coverage if the alleged property damage was caused by a product that Vogelbusch no longer possessed, or by work that Vogelbusch had completed.

The court concluded that the facts alleged by the plant owner clearly fell within the exclusionary language of the policy, and so, State Farm had not duty to defend Vogelbusch. The judgment of the trial court was affirmed.

Meeks-Snyder v. Liberty Mutual, 2004 WL 584507 (Ohio App. 8 Dist.)

In this case, the injured motorist sought to recover uninsured/underinsured (UM/UIM) motorist coverage under business auto and umbrella policies issued to her spouse's employer.

Meeks-Snyder appealed from a common pleas court order granting summary judgment for the insurer, Liberty Mutual; Liberty Mutual was the insurer for the employer of the husband of Meeks-Snyder. Meeks-Snyder asserted that the trial court erred by finding that the other owned auto exclusion precluded coverage under the business auto policy, and that the umbrella policy did not provide coverage because of this lack of coverage under the auto policy.

There was no disagreement on the facts of this case. Meeks-Snyder was operating her own vehicle when she was struck by another vehicle that failed to yield the right-of-way. She was seriously injured and received the policy limits of the other driver's policy. Meeks-Snyder's husband was employed by Canton Drop Forge and Liberty Mutual was the company's insurer. Liberty declined to pay a claim submitted by Meeks-Snyder and she filed a declaratory judgment action seeking a determination that she was entitled to coverage under the Liberty Mutual policies.

The trial court found that Meeks-Snyder was an insured for purposes of UM/UIM coverage under the business auto policy of Canton Drop Forge, but that coverage was excluded by an other owned auto exclusion. Meeks-Snyder appealed and the appeals court came to an interesting conclusion. That court noted that the business auto policy defined an insured as the named insured and anyone else occupying a covered auto, with a covered auto being further defined as only those autos owned by the named insured. Therefore, Meeks-Snyder was not an insured under the terms of the auto policy, and since she was not an insured, the other owned auto exclusion was a moot point. In other words, the underlying auto policy did not provide coverage for Meeks-Snyder simply because she was not an insured; the exclusion on the policy used by the trial court to grant judgment for Liberty Mutual was not relevant.

As for the umbrella policy, the court found that it only provided excess coverage and did not drop down to provide first dollar coverage. Therefore, having found no coverage under the business auto policy, there was no coverage under the umbrella policy.

Quickle v. Progressive Casualty Company, 2004 WL 1902563 (Ohio App. 8 Dist.)

After his son sustained fatal injuries when the motorcycle he was driving was struck by another vehicle, Quickle sought uninsured/underinsured (UM/UIM) motorists benefits under various policies, including the auto policy and the umbrella policy that had been issued to Quickle' employer. The trial court granted summary judgment to the insurers and Quickle appealed..

William Quickle, a minor, was operating his father's motorcycle when a car driven by McClough turned left in front of him. Quickle was fatally injured. On the date of the accident, Karl Quickle, the father, was employed by EMH Regional Care, the named insured under an auto policy issued by Kemper and an umbrella policy issued by First Specialty. Quickle filed a complaint against various insurers seeking damages for loss of consortium and UIM and medical benefits. The trial court found for the insurers, holding that none owed a duty to provide UIM coverage to any plaintiff. Quickle appealed and set forth four assignments of error.

In the second and third assignments of error, Quickle asserted a claim against his employer's primary insurer and the umbrella insurer. The question was whether Quickle, and thus by extension, an insured under these policies. Based on a prior ruling by the Ohio Supreme Court, this appeals court found that Quickle was not a named insured under either of his employer's policies, and so, no member of his family would be an insured under the policies for UIM coverage. However, the court did find that his claim as a father may still be viable. This is so because even though the state Supreme Court had ruled that a policy that has a corporation as the named insured does not extend coverage to a family member of an employee unless that employee is also a named insured, the court also decided that a policy that names a corporation as an insured for UM/UIM coverage covers a loss sustained by an employee if the loss occurs within the course and scope of employment.

The umbrella insurer held the position that absent UIM coverage under the underlying auto policy for Quickle, any UIM coverage imposed by operation of law either never arose and/or would be viable only when and if the underlying coverage was exhausted. The insurer claimed that because the trial court found no UIM coverage for the son, there was no duty to provide UM/UIM coverage for the father. The appeals court said that while it may agree that the son was not an insured under the umbrella policy, such may not be the case for the father. The court felt that if the father's loss occurred within the course and scope of his employment, the primary policy would provide coverage and then, by law, the umbrella policy would apply.

Therefore, the appeals court decided that, while only the father, individually, could be an insured under the auto policy and the umbrella policy, a finding of fact had to be determined to see if the loss the father suffered because of the death of his son occurred within the course and scope of his employment. If so, the umbrella policy may provide coverage for the father. The case was remanded back to the trial court for a determination on this point.

Terra Industries v. National Union Fire, 383 F.3d 754 (8th Cir. 2004)

In this case, an insured pesticide manufacturer sued an excess insurer, seeking coverage for claims. The district court granted summary judgment to the insured and the insurer appealed.

Terra manufactured and distributed methyl parathion, a pesticide intended for agricultural use. Terra had a commercial general liability policy and also had an excess policy with National Union. The excess policy had what was called a “sunrise endorsement” added to it after both the insured and the insurer agreed on it. The sunrise endorsement stated that the policy would provide coverage only for those occurrences that happened on or between the dates of January 1, 1985 and July 1, 1997. This case arose out of the differing interpretations by Terra and National Union of this sunrise endorsement.

National Union refused to pay any of Terra's litigation costs for defending and settling several methyl parathion lawsuits where the claims were made after 1997 but were based on pre-1997 occurrences; Terra disagreed. When the disagreement got to the court of appeals, that court noted that, under the terms of the excess policy, National Union had agreed to pay sums in excess of the retained limit and this retained limit was the sum of two items: the limits in the policies listed in the schedule of underlying insurance and the applicable limits of any other underlying insurance. National Union argued that Terra must exhaust the retained limit before coverage is available under the sunrise endorsement, but the court said that the sunrise endorsement makes no reference whatsoever to any other insurance policies or to retained limits. The endorsement refers to the underlying coverages and limits that are applicable solely as respects the coverage afforded by the contract. The circuit court believed that this language indicated that the monetary limits were unique to the sunrise endorsement and are the exclusive underlying coverages and limits that must be exhausted before coverage becomes available under that endorsement.

The court said that the excess insurer's rationale for separating known and unknown policies is to ensure that the insured maintains at least the known primary insurance policies, while not forgoing any contribution from additional primary coverage that may be obtained after the excess policy's adoption. The court agreed with Terra that the endorsement fully replaces the main policy's retained limit calculations with its underlying coverages and limits in definite monetary amounts, and that National Union's obligation under the endorsement arises when Terra's total liability on the methyl parathion lawsuits exceeds $1 million. In sum, the sunrise endorsement did not require the insured to exhaust primary coverage before the excess insurer became obligated to pay. The judgment of the district court was affirmed.

Francis v. Hartford Fire Insurance Co., 2003 WL 21949719 (Ohio App. 5 Dist.)

An insured motorist sought to recover uninsured/underinsured motorist (UM/UIM) coverage under commercial auto and umbrella insurance policies. The court of common pleas granted summary judgment to the insurers and the case was appealed to the Fifth District Court of Appeals.

Kevin Francis died as a result of an accident that occurred while he was operating a motorcycle. His wife was a passenger at the time and received serious injuries. The wife was employed by Meijer on the date of the accident. Meijer had a commercial auto policy with Hartford Fire Insurance Company and a commercial umbrella liability policy with Royal Insurance Company. The wife sought uninsured/underinsured motorists coverage under these policies and the insurers filed motions for summary judgments. The trial court granted the motions and the wife appealed.

There were several assignments of error that were proposed to the appeals court. The wife asserted the following errors: the trial court erred in ruling that there was no coverage under the umbrella policy because the accident occurred outside the scope of employment; the court erred in ruling that the umbrella policy was not a motor vehicle liability policy; and the court erred in ruling that the umbrella policy did not extend UIM coverage because primary coverage under the auto policy was not established.

The appeals court found that the primary auto policy was included in the schedule of underlying insurance contained on the umbrella policy. Therefore, it followed that the umbrella policy was a motor vehicle policy of insurance requiring that UM/UIM coverage be provided pursuant to state law. And, since UM/UIM coverage arose by operation of law, the exclusions contained in the umbrella policy did not apply, including the scope of employment exclusion. The court also agreed with the wife about the other claimed error, and the case was remanded back to the trial court for rehearing based on the findings of the appeals court.

Note, however, that this was not the end of the case. An appeal was made to the Ohio Supreme Court on the findings and that court reversed the judgment of the appeals court. In a terse statement, the Supreme Court said that the judgment is reversed based on the authority of Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216 (Ohio 2003). In that case, the Ohio Supreme Court limited UM/UIM coverage (under a policy with a corporation as named insured) for losses sustained by an employee of the corporation to those that occur within the course and scope of employment. The court further held that where a policy designates a corporation as the named insured, the designation of family members of the named insured as other insureds does not extend coverage to a family member of an employee of the corporation unless that employee is also a named insured.

Long Island Lighting Company v. Allianz Underwriters Insurance, 805 N.Y.S.2d 74 (NY App. Div. 1st Dept. 2005).

The insured in this case sought a declaratory judgment that several excess commercial general liability insurers were obligated to defend and indemnify the insured for remediation liability. The remediation pertained to liability for soil and groundwater contamination caused by wastes created at seven plants belonging to the insured. The trial court granted the insurer partial summary judgment and the insured appealed.

The appeals court upheld the trial court's decision. It held that an occurrence reasonably likely to have involved excess CGL insurers, requiring notice from the insured, happened when the insured received a letter from an attorney threatening a lawsuit. The court stated that the insured failed to satisfy its obligation under the terms of the policies to give notice upon the happening of an occurrence that was reasonably likely to involve the policies. This occurrence happened not when the insured was actually sued in the underlying action some five weeks before giving the insurer notice, but almost six months earlier, when the insured received a letter from an attorney threatening a lawsuit.

The court rejected the insured's argument that there was a reasonable possibility that the subject policies, both excess, would not be reached by the underlying claim, where the insured offered no evidence that the timing of its notice was the result of a deliberate determination to that effect, and not, as the record suggests, the belief that it was not responsible for the cleanup costs. An argument that the insurer was not prejudiced by the late notice was found to be of no avail.

(The decision affirming the lower court ruling was a short one. To understand the case more fully, the dissenting opinion is also discussed here.)

The dissenting judges noted that the EPA had advised the insured (LILCO) in writing that it had documented the release of hazardous substances at a landfill on Long Island. The correspondence between EPA and LILCO continued for a year and then, EPA sent LILCO a copy of a cleanup proposal costing $26.2 million. Approximately three years after this, the town near the landfill sent a letter to LILCO asserting that LILCO was liable under state and federal law for all or a portion of the costs of cleanup. One year after that, the town filed a lawsuit against LILCO; only then did LILCO inform its insurers about the issue. Allianz Underwriters declined coverage and LILCO filed a declaratory judgment action.

The declination of coverage was based on the fact of late notice. LILCO said it did not appear to be reasonably likely that it faced liability until the town filed its lawsuit, and so, the notice was timely. The dissenting judges noted that New York law provides that, absent a valid excuse, a failure to satisfy the notice requirement vitiates the policy, and the insurer need not show prejudice before it can assert the defense of noncompliance. The judges also noted that it was well-settled law in New York that an insured's delay or failure to give timely notice may be excused where the insured has a reasonable belief that it would not be liable. So, the question was: was it reasonable for LILCO to believe that no claim would be asserted against it? Since the reasonableness of LILCO's beliefs was the relevant factual inquiry, the dissenting judges would not agree with granting summary judgment to the insurer.

Domingue v. Legion Indemnity Company, 2006 WL 20016 (La. App.3d Cir.)

In this case, a bicyclist's mother brought a wrongful death and survival action against a driver, his insurer, and the car owner's insurers. The mother settled claims and sought recovery from the umbrella liability insurer.

Domingue was killed while riding his bicycle when struck by an auto being operated by John Ard. Ard was operating a vehicle owned by Louisiana Motors, and he was returning the car to Louisiana Motors after doing some work on it. The mother of Domingue filed a lawsuit and settled with the insurers. However, after the settlement, Legion, the primary surplus lines insurer became insolvent, and Domingue filed a motion for summary judgment against the commercial umbrella liability insurer. Domingue claimed that the umbrella insurer had to drop down to provide primary liability insurance coverage. The insurer filed a cross-motion for summary judgment and the trial court sided with the insurer. This appeal followed.

The appeals court said that the sole issue was whether the umbrella insurer dropped down to provide coverage because of the insolvency of the primary insurer. The court noted that the policy imposed the condition upon the insured that he had to maintain underlying insurance in full force. And, the policy also stated that the collectability of underlying insurance limits must be available regardless of the bankruptcy or insolvency of the underlying insurer. Based on this wording, the appeals court declared that, clearly, there was no drop down requirement under these policy provisions. The policy did say that the insurer would drop down if the limits of underlying insurance were reduced by payment of loss, or if the limits of underlying insurance have been exhausted by payment of loss. But, that is not what happened in this instance, so the appeals court affirmed the opinion of the trial court.

Cincinnati Insurance Companies v. Pestco, Inc., 374 F. Supp.2d 451 (W.D. Pa. 2004)

This case concerned the filing of a declaratory judgment action by the insurer over whether it had a duty to defend or indemnify the insured under the general liability policy and the umbrella policy. The underlying case dealt with a claim against the insured over trade dress infringement, unfair competition, and false advertising.

Cincinnati Insurance Companies commenced this action seeking a declaration that it had no duty to defend or indemnify Pestco in an underlying lawsuit filed by California Scents against Pestco. That lawsuit asserted claims against Pestco for trade dress infringement, unfair competition, and false advertising. The insurer said that Pestco's conduct, as alleged in the underlying lawsuit did not constitute advertising injury or liability as defined in the general liability policy or the umbrella policy. Also, the insurer claimed, the known loss doctrine relieved Cincinnati of its defense and indemnity obligations because the alleged advertising injury occurred prior to the inception date of the policies. Finally, the insurer argued that the false advertising claim was an excluded act under the terms of the policies.

The umbrella policy provided coverage for advertising liability for occurrences during the policy period in excess of the underlying insurance, or for occurrences covered by the umbrella policy that are either excluded or not covered by the underlying insurance. The umbrella policy covered advertising liability if committed or alleged to have been committed in any advertising, publicity article, broadcast or telecast, and arising out of the insured's advertising activities, libel, slander, defamation, infringement of copyright, title or slogan, piracy, unfair competition, idea misappropriation, or invasion of rights of privacy. The umbrella policy excluded advertising liability arising out of the following: failure to perform a contract; infringement or misappropriation of a trademark, service mark, or trade name; incorrect description of any article or commodity; or a mistake in advertised price.

The insurer argued that it had no duty to defend under the umbrella policy for two reasons: the alleged conduct of the insured set forth in the complaint did not qualify as an occurrence as defined in the umbrella policy; and, even assuming an occurrence, the policy excluded coverage for trade dress infringement. The insured obviously disagreed.

Even though the insurer claimed that the insured's conduct was intentional and not accidental (and so, not an occurrence), the court found that the argument of the insurer was without merit. The court said that intentional conduct was not a necessary element of a trade dress infringement claim. Allegations of negligence or recklessness would be sufficient to make Pestco's alleged trade dress infringement actionable, and so, any allegations that Pestco acted intentionally do not relieve Cincinnati of its duty to defend. Besides, the umbrella policy was ambiguous on the following point: the policy grants coverage for advertising liability, which it defines as a series of acts that involve intentional conduct; and then, this very same coverage is eviscerated by the policy exclusion for intentional conduct. This inconsistency means the exclusionary language is unenforceable.

As for the argument that the umbrella policy excluded coverage for trade dress infringement, the court noted that the exclusion relied on by the insurer does not even mention trade dress; the exclusion addresses infringement of a trademark, service mark, or trade name, but not trade dress. And even though the insurer maintained that trade dress infringement and trademark infringement are synonymous, the court disagreed.*

The court did allow one small victory for the insurer. It found that, after reviewing the false advertising claim in the complaint against Pestco along with the relevant language in the umbrella policy, the false advertising claim did not qualify as advertising injury or liability. There was no coverage for the false advertising claim, but Cincinnati was still obligated to defend Pestco because the other claims were covered.

*Note: While this Court held that ambiguous policy language should be interpreted against the insurer and in favor of coverage, the Court in Kim Seng Co. v. Great American Incs. Co. of New York, 179 Cal.App4th 1030 (Cal.App. 2 Sist., 2009) held that coverage and policy exclusion interpretation may be based on materials first published before the beginning of the policy period, even though the exclusionary words (e.g., “trade dress infringement”) did not appear in the policy's actual definition of “advertising injury” applicable to trademark infringement.

Glades Oil Company v. R.A.I. Management, 510 So. 2d 1193 (Ct. App., Fla. 4th Dist., 1987)

The insured brought an action for negligence and breach of fiduciary duty against its insurance agent for placing the umbrella liability coverage with a financially unsound company. The trial court entered judgment for the agent and the insured appealed.

Glades Oil was a wholesale oil distributor. Glades asked its insurance agent, Rumfelt, for recommendations for an insurer to issue an umbrella policy. Rumfelt placed the umbrella coverage with Northeastern Fire Insurance Company of Pennsylvania . In October 1981, one of the Glades trucks overturned, killing Daphney Muccio. The estate brought a wrongful death action against Glades. A settlement was reached prior to trial whereby the estate agreed to accept the primary and umbrella policy limits. However, after this agreement was reached, the umbrella carrier (Northeastern) was unable to pay its policy limits due to financial problems. This caused the agreement to collapse and the case of the estate against Glades went forward. The estate recovered a verdict against Glades for $3,100,000. Northeaster did pay $850,000 of its $1 million policy limit, but this still left Glades with a huge amount of money owed to the estate. Glades thereafter filed a lawsuit against Northeastern and Rumfelt, alleging negligence and breach of fiduciary duty.

The trial court granted a motion for summary judgment for Rumfelt. That court concluded that, assuming Rumfelt was liable in negligence, the measure of damages against the agent was limited to the policy limits. Since Northeastern had already obtained a setoff of the judgment against Glades for the full amount of the policy limits, no further damages were recoverable from Rumfelt. When the appeals court got the case, it noted that the trial court made no ruling with regard to the alleged negligence on the part of Rumfelt. Therefore, the issue presented to the appeals court was the proper measure of damages against an insurance agent who negligently obtained coverage for the insured in a financially unsound insurer.

The appeals court found that the agent was not liable in damages for the excess judgment recovered against Glades. The court said that, had the negligence of the agent not occurred, Glades would have been entitled to $1 million in coverage. Its insurer (Northeastern) paid the equivalent of that amount, and so, in accordance with many court rulings that agents and brokers are liable for losses only up to the limits of the policy, the agent in this case would be liable for no more of the amount claimed by the insured.

The insured was allowed by the court to attempt to plead a cause of action for punitive damages against the agent, but the agent was not liable for any compensatory damages claimed by the insured.

National Union Fire Insurance Company of Pittsburgh, PA. v. Dixon, 112 P.3d 825 (Idaho 2005)

The employer's umbrella liability insurer sought a declaratory judgment that an employee was not acting within the duties of his employment and so, was not insured at the time of the auto accident. The trial court entered summary judgment in favor of the insurer.

This case involved the interpretation of an insurance contract. While driving a company vehicle insured by National Union, Dixon hit and killed three people. The insurer filed a declaratory judgment action alleging it had no duty to defend or indemnify Dixon because he had no rights under the auto policy of his employer. This was because his conduct did not fall within the language of the insurance policy which limited coverage to employees acting within the scope of their duties as employees.

Dixon had a company car, assigned to him by the insured employer. Dixon drove the car to refuel it so he could leave the next day for a job site. After filling the gas tank, Dixon stopped at two bars where he drank beer and visited with friends. Then, Dixon walked to a friend's home and consumed several more beers. About an hour and a half later, Dixon drove home but failed to stop at a stop sign, and as a result, he struck another vehicle and killed three people.

The employer insured maintained a written company policy prohibiting alcohol and drug use while on the job or with the use of any company vehicles. Dixon was aware of this policy, but factual allegations arose during this case that the employer continuously disregarded its own written policy. So, the issue for the court was whether Dixon could be considered an insured at the time of the accident, or whether he was not an insured because he was not acting within his duties as an employee. The court had to determine whether Dixon was furthering his employer's interests when the accident happened.

The court said that Dixon did have an obligation to fill the company vehicle with gas and so he was acting within his duties when he drove the car to fill it with fuel. However, the court went on, when Dixon decided to visit two bars and a friend's home, he clearly abandoned his employer's objectives and any service remotely connected to his employer. Dixon was not going to work or coming home from work after he fueled the company auto. He was not on a remote job site at the time of the accident. And, there was no evidence that Dixon returned to any activity remotely connected with his duties of employment. The coverage found under the terms of the policy limited coverage to employees while acting in their duties and Dixon did not fit this description. Therefore, the trial court decision granting summary judgment to the insurer was affirmed.

United States Fidelity and Guaranty Company v. Dealers Leasing, Inc., 137 F. Supp.2d 1257 (USDC, Kansas 2001)

This was a case wherein the insurer sought a declaratory judgment that it had no duty to defend its insured in a lawsuit alleging negligence and negligent misrepresentation as to the condition of a van.

The insured, Dealers Leasing was sued, with the complaint alleging violation of the Missouri Merchandising Practices Act, civil conspiracy, fraud, breach of express and implied warranties, negligence, and negligent misrepresentations. The complaint alleged that Dealers sold a reconstructed van and did not disclose the van's wreck damage, reconstruction history, or innumerable problems. The ultimate buyers of the van sought damages that included the lost value of the van, the cost of making various repairs to the van, finance charges, taxes, insurance premiums, warranty premiums, expenses, loss of use, mental pain, anguish, emotional distress, embarrassment, humiliation, and inconvenience. Dealers tendered the lawsuit to its insurer which then declined coverage and filed a declaratory judgment action.

The commercial umbrella liability policy in this case provided coverage for bodily injury or property damage that is caused by an incident. An incident was defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions that results in bodily injury or property. The insured argued that the insurer was obligated to defend the insured and pay any judgment because the complaint included claims for negligence and negligent misrepresentation. The insurer responded that the insurance policy only covered damages that are caused by an occurrence or an incident. The court decided that the alleged negligence and negligent misrepresentation did not cause the damages listed in the complaint.*

The court felt that the poor condition of the van was not caused by the negligence or negligent misrepresentations of the insured. Instead, the wreck and the negligent reconstruction of the van caused it to be in poor condition. Because these damages were not caused by negligence or negligent misrepresentations by Dealers, they are not covered under the insurance contracts. Any damage caused by negligence or negligent misrepresentations was economic as opposed to property damage because it caused the plaintiff to pay more for the minivan than it was worth. Economic damages were not covered by the umbrella policy.

The court held that the complaint alleged acts that are clearly not covered by the insurance contract and so, the insurer had not duty to defend the claim or pay any judgment.

*This rationale is employed primarily where there is a question of causation. If any negligent act is an accident in and of itself, this rationale may not apply and an insurer may owe a duty to defend the insured. Park University Enterprises, Inc. v. American Cas. Co. of Reading, PA, 314 F.Supp.2d 1094 (D.Kan., 2004).

Liggett Group, Inc. v. ACE Property and Casualty Insurance Company, 798 A.2d 1024 (Del. 2002)

In this case before the Supreme Court of Delaware, the cigarette manufacturer insured brought an action against its liability insurers for a declaratory judgment. The trial court found in favor of the insurers and the Supreme Court affirmed that decision.

The issue involving the umbrella policy was whether Liggett was a named insured on the policy. The insurer had issued an umbrella policy to Intercontinental Hotels Corporation, with an endorsement listing other entities as insureds, including Grand Metropolitan Public Limited Company. Liggett is not a direct subsidiary of Grand Metropolitan because there are several intervening layers of corporate control between them, although there is a business connection. The trial court had ruled that Liggett was not a named insured under the umbrella policy. Liggett argued that the court erred in holding that the term “subsidiary” as used on the policy encompassed only direct subsidiaries. The insurer countered that the umbrella policy was issued to cover hotel operations and that the contracting parties never intended for Liggett (who was six corporate layers down from the actual named insured) to be covered by the policy.

The supreme court decided that the trial court had properly construed the umbrella policy to cover only those subsidiaries that were directly owned or controlled by the actual name insured. The court said that a subsidiary is commonly understood to be limited to direct subsidiaries and Liggett was not a direct subsidiary. This commonly understood principle comported with the intent of the contracting parties in this instance to not cover tobacco litigation.

Royal Insurance Company of America v. Thomas, 879 So. 2d 1144 (Ala. 2003)

An umbrella insurer of a car dealership brought an action in federal court against the dealership's garage policy insurer, motorist injured in collision with customer of dealership, and the customer of the dealership, seeking a declaratory judgment. The United States District Court for the Northern District of Alabama certified questions to the Alabama Supreme Court.

Carl Cannon lent a car to Thomas while he repaired the Thomas car. A few days later, Thomas collided with another car driven by Daniel. Daniel was severely injured and filed a lawsuit against Thomas and Cannon. Cannon had garage coverage through policies issued by Lloyd's of London and Royal (Royal provided the umbrella policy), and Thomas sought coverage as a customer of the garage. Lloyd's balked at coverage for Thomas; Daniel and Royal both objected to this claim.

Royal conceded that Thomas was an insured entitled to coverage under the umbrella policy, but said that the umbrella policy covered Thomas only for liability to Daniel that exceeds $1,000,000, the limits of the underlying Lloyd's policy. Daniel contended that if the coverage under the Lloyd's policy was limited (that is, limited to the minimum $20,000 required by the state motor vehicle act) as Lloyd's claimed, then the Royal umbrella policy had to drop down and indemnify Thomas for any liability that she incurred to Daniel that was in excess of $20,000 and less than or equal to the $5,000,000 policy limits of the umbrella policy.

Upon receiving the certified questions from the federal court, the Alabama Supreme Court noted that the Lloyd's policy generally excluded customers of Cannon as insureds, with two exceptions. The exceptions preserved coverage for the customer up to the $20,000 minimum liability limits required by state law if the customer had no other available insurance, or if the customer had an insufficient amount of insurance to meet the minimum limits. Then, the court came out with a rather interesting conclusion.

The court said that the Royal umbrella policy did include Thomas as an insured by definition; she was using a Cannon car with the permission of Cannon. Moreover, Royal admitted that Thomas is an insured under the umbrella policy, an insured who is entitled to excess coverage at the very least. Therefore, because Thomas is an insured and has excess insurance available to her under the Royal policy, the Lloyd's garage policy excludes Thomas as an insured. Continuing with this reasoning, the court said that since Thomas had no underlying coverage (because of the exclusion), a gap exists in coverage which an umbrella policy is meant to cover by its very nature. Thomas had no applicable underlying insurance or other insurance, so the Royal umbrella policy afforded primary coverage to Thomas for Daniel's claims.*

*The Royal policy definition of “insured,” which does not condition coverage by the Royal policy on there being coverage by “underlying insurance” or other insurance, contradicted Royal's argument. Likewise, the very nature of umbrella coverage reveals the fallacy of the argument made by Royal. Umbrella policies differ from standard excess insurance policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage). Commercial Union Ins. Co. v. Walbrook Ins. Co., 7 F.3d 1047, 1053 (1st Cir.1993). An umbrella policy could not fill a horizontal gap in coverage by providing primary coverage if it provided coverage only for insureds who were covered by underlying insurance. In effect, Royal argued that the umbrella policy it issued affords only excess coverage rather than umbrella coverage. However, the designation of the coverage as “umbrella” on the declarations page of the Royal policy foreclosed that argument.

American Resources Insurance Company v. H & H Stephens Construction, Inc., 2006 WL 749992 (Ala.)

The personal representative of a driver's estate brought a wrongful death action against the insured, seeking recovery regarding a fatal accident that involved the insured's employee. The insured filed a third-party complaint against the passenger, the auto insurer, and the umbrella insurer, requesting a declaratory judgment that the umbrella carrier had a duty to provide coverage. The trial court ordered that the umbrella insurer was obligated to provide coverage and the insurer appealed. The case ended up at the Alabama Supreme Court.

Gilmore, an employee of H & H Stephens and acting within the scope of his employment duties, was operating a vehicle that collided with one driven by Garvin. Garvin was killed and her passenger was severely injured. Stephens was sued for the damages. Stephens had three policies from American Resources at the time of the accident: a business auto policy; a general liability policy; and an umbrella policy. The insurer refused to defend Stephens, contending that there was no coverage for the claims. Stephens filed a complaint against American Resources seeking coverage under the umbrella policy, and the trial court gave the following judgment.

The trial court held that the umbrella policy was ambiguous, and that a reasonably prudent person would have understood and expected the umbrella policy to extend coverage to these claims against Stephens. The court concluded that the umbrella policy was ambiguous because although the title page of the policy is captioned “Commercial Umbrella Policy”, the policy provisions did not contain an umbrella coverage form, but rather an occurrence excess policy. The court felt that the discrepancy between the title page and the policy provisions was significant and patently misleading. The court concluded that a reasonably prudent person relying on the American Resources umbrella policy would find his expectations defeated if American Resources could deny coverage; therefore, in accordance with the reasonable expectations rule, the umbrella policy provided the coverage sought by the insured.

The appeals court noted that the insurer argues that the umbrella policy is not ambiguous. The court said that the test to be applied in determining whether there is ambiguity in an insurance policy is not what the insurer intended its words to mean, but what a reasonably prudent person applying for insurance would have understood them to mean; the terms of an insurance policy should be given a rational and practical construction. In this instance, the umbrella policy required H & H Stephens to have had a separate policy on the auto that Gilmore was driving, and had to have that separate policy listed in Item 7 of the declarations section of the umbrella policy; these terms were not ambiguously written. The insured had to have underlying insurance on the auto exposure, and underlying insurance was defined on the umbrella policy as the coverage afforded under insurance policies designated in Item 7 of the declarations. The auto policy was not listed in Item 7; the insured did not comply with the conditions and a claim of ambiguity in the policy language does not change this fact.

As for the reasonable expectations doctrine, the appeals court said that, regardless of whether the umbrella policy coverage takes the form of excess or nonexcess coverage, it was still subject to the umbrella endorsement's exclusion. And, regardless of any discrepancy between the commercial umbrella policy caption on the title page and other policy language, the appeals court felt that H & H Stephens could not have reasonable expected, in the face of the unambiguous exclusion in the umbrella endorsement, that the umbrella policy would provide coverage for the claims. The judgment of the trial court was reversed and a judgment for American Resources was rendered.

Hose v. Younger Brothers, Inc., 878 So.2d 548 (La. App. 1 Cir. 2004)

A trucking company's excess insurer, which settled a motorist's personal injury claim, asserted a subrogation claim against the company in its role as primary insurer. The trial court rendered judgment in favor of the excess insurer and this appeal followed.

Hose filed a lawsuit against Younger Brothers and its excess insurer (Carolina Casualty Insurance) based on injuries she received in a multi-vehicle chain reaction accident; this accident began when a truck owned by Younger Brothers rear-ended Hose's car. Younger Brothers acted as its own primary insurer and was self-insured for the first $250,000 of a claim.

More than five years after the original lawsuit had been filed, Carolina settled the claim and paid $75,000 to Hose. In return, Hose assigned all of her rights to Carolina , which then sued Younger Brothers in a demand for subrogation. The trial court found that Younger Brothers was the primary insurer, the excess insurer (Carolina) was subrogated to the rights of Hose, and that the claim was worth at least the $75,000 paid by Carolina . The court said that Younger Brothers owed Carolina for the $75,000 payment and Younger Brothers appealed.

The appeals court said that Carolina was not prohibited from utilization of the rights imbued by the law of subrogation merely because it is an excess insurer. After a thorough review of the record on the issue of causation, the appeals court said that the trial court was not clearly wrong in finding that Younger Brothers was liable for the damages suffered by Hose. Therefore, the trial court finding was affirmed.

USF&G v. Commercial Union Midwest Insurance Company, 430 F.3d 929 (8th Cir. 2005)

The estate of a deceased worker, a retailer and the retailer's primary and excess insurer all brought a diversity action to recover amounts paid by or on behalf of the retailer, as well as defense costs, from the contractor's insurers that provided umbrella coverage. The United States District Court granted summary judgment for the defendants in part and the plaintiffs appealed.

The appeals court noted that this case involved a dispute between insurance companies over whose policy covers Payless Cashways liability related to the death of Hincher; Hincher was killed during a work accident on the property of Payless. Hincher worked for KamCo and that company was hired by Payless to install lighting displays and to perform re-merchandising work. Hincher was killed when a store display fell on him, and his widow sued Payless for wrongful death. Payless filed a third-party lawsuit against KamCo, asserting that KamCo had to defend and indemnify Payless in accordance with the terms of the work contract. KamCo had a commercial general liability policy with American Employers (AE) Insurance Company and had an umbrella policy with Commercial Union (CU). Payless carried its own excess liability policy with USF&G.

USF&G tendered Payless' defense of the wrongful death lawsuit to KamCo's insurers (AE and CU), but both insurers refused the tender. The claim was settled and USF&G commenced this action to recover amounts paid on behalf of Payless and defense costs.

CU agreed that Payless was an additional insured under the provisions of the umbrella policy. Both CU and USF&G agreed that their respective policies provided coverage for Payless' own liability resulting in Hincher's death. What the insurers disagreed over was which policy provided primary coverage.

The district court determined that the other insurance clauses of the two policies conflicted since both insurers purported to provide excess coverage. But, the court held that the USF&G policy was closer to the risk of loss stemming from Hincher's death since Payless paid a premium to USF&G specifically to cover Payless' negligence; conversely, CU received no additional premium to cover Payless. On the other hand, the appeals court said that neither policy specifically describes the accident-causing instrumentality, and the fact that CU did not charge an additional premium to add Payless to its policy did not change the clear import that coverage was provided to Payless.

The appeals court reviewed the two policies and decided that the loss should be shared pro-rata. The court also ruled that the self-insured retention (SIR) paid by Payless was not other insurance, so CU could not use the SIR to push its other insurance clause.

As for defense costs, the appeals court left this to the district court to decide, upon remand to that court of this case.

Greene, Tweed & Co. v. Hartford Accident & Indemnity Co., 2006 WL 1050110 (E.D. Pa.)

Greene Tweed complained that it has been named as a defendant in Thousands of underlying actions alleging that it is subject to tort liability for injuries suffered by claimants as a result of exposure to asbestos-containing products allegedly manufactured by Greene Tweed. The policy limits of Greene's primary liability policies were close to being exhausted as a result of these claims. So, Greene looked to its excess liability policies. The problem arose when the insurers said that the asbestos claims arose from a single occurrence, and so, the limits of coverage available to Greene were limited. Greene argued that the claims constituted multiple occurrences and the occurrence limits are available for each of the claims. A federal court was called upon to settle this dispute.

The court noted that the general rule is that an occurrence is determined by the cause or causes of the resulting injury. Using this analysis, the court asked if there was but one proximate, uninterrupted, and continuing cause that resulted in all of the injuries. The court decided that in this case, there was but one occurrence for purposes of policy coverage, and as long as the injuries stem from one proximate cause, there is a single occurrence. The court said that claims from the asbestos claimants stem from a common source, that is, the manufacture and sale of the asbestos-containing products, and the policy language is clear and unambiguous that the injuries arising from this common source must be treated as resulting from a single occurrence. Besides, because all the persons who filed claims against Greene Tweed were exposed to substantially the same general conditions, this only strengthens the point that there is only one occurrence.

Additionally, Pennsylvania law requires that, when determining the number of occurrences, the inquiry must focus on the underlying circumstances that resulted in the claim for damages, rather than on the number of persons injured, the variety of injuries, the variety of conditions, or the time frame within which the injuries occurred. Therefore, the court concluded, any fair reading of the limits of liability provisions here establishes that all injuries arising from the same source arise from one occurrence. The position of the insurers was upheld.

Liberty Mutual Insurance Company v. Treesdale, Inc., 418 F.3d 330 (3rd Cir. 2005).

The umbrella excess liability insurer sought a declaratory judgment that it had no further duty to defend or indemnify the insured manufacturer against asbestos-related personal injury claims under successive insurance policies. The district court entered summary judgment for the insurer and the insured appealed.

From approximately 1966 to 1975, Treesdale manufactured and sold Soffelex, a product that contained asbestos. Several thousand asbestos exposure claims have been filed due to this operation and there is no dispute that the primary liability policies have been exhausted by judgments and/or settlements. Treesdale then looked to its umbrella excess liability policies for further coverage. Some of these policies ran from 1975 to 1983 and provided policy limits of $2,000,000 per occurrence and in the aggregate; the policies from 1983 to 1985 provided policy limits of $5,000,000 per occurrence and in the aggregate.

Liberty Mutual agreed to indemnify Treesdale but said that once it paid $5,000,000, the highest limit of liability under any umbrella policy, it had no further duty to defend or indemnify. Treesdale disagreed and counterclaimed, asserting that Liberty Mutual is obligated to defend or indemnify under each and every policy until the limit of each and every policy is reached; this figure totaled $26 million. When the dispute went to court, the trial court agreed with the insurer and this appeal followed.

The appeals court ruled that the asbestos claims arose from a single occurrence.* Furthermore, the court held that the policy language is clear and unambiguous that any injuries arising from a common source must be treated as resulting from a single occurrence. The insurer's burden would be limited to the highest limit of liability under any of the umbrella policies, that is, $5,000,000. The decision of the lower court was affirmed.

*In determining whether there was a single occurrence, the Court applied the cause of loss test it enunciated in Appalachian Insurance Co. v. Liberty Mutual Insurance Co., 676 F .2d 56 (3d Cir.1982). First, the general rule is that an occurrence is determined by the cause or causes of the resulting injury. Using this analysis, the court must then ask if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.

Abrohams v. Atlantic Mutual Insurance Agency, 2006 WL 2507052 (Ga. App.).

The following case deals with a personal umbrella liability policy, but its main message is relevant for both personal umbrella policies and commercial umbrella policies: namely, provisions in insurance policies that conflict with the plain terms of insurance statutes are illegal and of no effect.

Abrohams and his minor son were injured in a motor vehicle collision with an underinsured motorist. After the collision, Abrohams sought underinsured motorist benefits from his auto and umbrella policies with Atlantic Mutual. Although the coverage provided by the auto policy was not in dispute, the insurer argued that the umbrella policy did not provide underinsured motorists coverage. The insurer filed a declaratory judgment action to resolve the issue and the trial court ruled in favor of Atlantic Mutual. The Abrohams appealed.

The court of appeals noted that the value of the claim exceeded $1,450,000 and that this figure exceeded the limits of the underlying policies from which Abrohams had collected or would collect. The court also noted that the umbrella policy specifically excluded uninsured/underinsured motorists coverage, that Atlantic Mutual never offered such coverage, and that the Abrohams never rejected such coverage. Finally, the court noted that state law provided that no auto liability policy was to be issued unless it contained provisions for uninsured/underinsured motorists coverage; and, the insured may affirmatively reject the coverage in writing.

The Abrohams maintained that the statute requires that an umbrella policy provide uninsured/underinsured motorists coverage unless the insured rejected that coverage in writing. The insurer argued that the statute does not apply to umbrella policies and, because the Abrohams' umbrella policy specifically excluded the coverage, the Abrohams did not have uninsured/underinsured motorists coverage at the time of the auto accident.

The appeals court ruled that the statute did not exclude umbrella policies from its reach and that the language of the law did not limit its application to primary policies. To hold that umbrella policies are exempt from the statute would contravene the intent of the law and the legislature. The court noted decisions from various states which came down on both sides of the issue (Nevada, Arizona, Ohio, and Louisiana courts ruling that an umbrella policy must include uninsured/underinsured coverage; courts in Pennsylvania, Connecticut, and New Hampshire ruling otherwise), and chose to follow the pro-coverage decisions. The court held that the insurer was required to provide uninsured/underinsured motorists coverage and that the policy exclusion was void in the face of state law.

Rebernick v. Wausau General Ins. Co., 711 N.W.2d 621 (Wis. 2006)

In another case dealing with state law versus policy language in a personal umbrella liability policy, the insureds brought an action against the insurer to reform the personal umbrella liability policy to provide underinsured motorist (UIM) coverage.

Here, Rebernick was seriously and permanently injured when the lawn mower he was riding was hit by a car. Rebernick collected from the auto driver and from his own auto UIM coverage, but also sought the policy limits of $1 million from his umbrella policy. The terms of the umbrella policy expressly excluded UIM coverage, but Rebernick asserted he was entitled to reform the policy because the insurer had failed to provide notice of the availability of the coverage, which was required by law. The insurer asserted that the law applied only to primary auto liability policies.

When the case got to the Wisconsin Supreme Court, that court said that the central issue was whether the insurer had to notify the insureds of the availability of UIM coverage under the umbrella policy in compliance with state law. The court said that from both the language of the statute and its legislative history, it was evident that a central purpose of the law was to ensure that all insureds knew of the availability of UIM coverage. Therefore, the insurer was required to notify the Rebernicks of the availability of UIM coverage under the umbrella policy pursuant to state law; however, given the circumstances of the case, the court determined that the insurer did provide such notice to the insured. Therefore, summary judgment in favor of the insurer was upheld.

Stone v. Acuity, 2006 WL 2346337 (Wis. App.)

This case was an appeal from orders of the circuit court for Milwaukee County, Wisconsin . The issue presented by the appeal was whether the insured's umbrella coverage with Acuity provided underinsured motorists coverage for the insureds.

Stone was riding his bicycle when he was hit by a van driven by Lange. The Stones had underinsured motorists (UIM) coverage with Acuity and claimed they were also entitled to UIM coverage under the umbrella endorsement. A trial resulted from this claim and the trial court held that the Stones did have umbrella UIM coverage because the umbrella endorsement was ambiguous; it left a reasonable insured with the impression that the umbrella endorsement provided the UIM coverage even though the endorsement language did not specifically state this point.

The appeals court did not address the ambiguity argument because it found that the insurer did not comply with state law requiring notice be given to the insured pertaining to the availability of UIM coverage under an umbrella policy. Since the insurer violated state law on the subject, and since the Stones therefore did not know that they could purchase UIM coverage, the appeals court ruled that the umbrella policy should be reformed to provide the UIM coverage.

Note that this case was decided several months after the Rebernick case, and the appeals court used the Rebernick reasoning to substantiate its ruling. In the Rebernick case, the supreme court ruled that the state law pertaining to notice of the availability of uninsured/underinsured coverage applied to umbrella policies. In that case, the insurer had to provide notice and was found to provide such notice. In this case, however, while the insurer had to provide the notice, it failed to do so. That meant the insured was allowed to have his policy reformed in order to provide UIM coverage.

Rogers v. Penn National Ins. Co., 2006 WL 2277867 (4th Cir., N.C.)

This was a declaratory judgment action in which the court was asked to decide whether an umbrella insurance policy covered injuries arising from a motor vehicle accident.

A tractor-trailer collided with a line of traffic that was stopped on the highway, killing some people and seriously injuring Rogers . The tractor portion of the vehicle belonged to Williamson Produce and was leased to Williamson Transport Company. Williamson Produce carried an auto policy that extended coverage to autos described in the policy, hired autos, and nonowned vehicles; Williamson also carried an umbrella policy that provided up to $2 million in coverage. Stone sought payment under the umbrella policy and the issue was: did the umbrella policy extend coverage to the vehicle at the time of the accident. The district court granted the insurer's motion for summary judgment and this appeal followed.

The appeals court found that the unambiguous language of the umbrella policy meant that there was no coverage for injuries sustained during the accident. The umbrella policy contained an endorsement that said the umbrella coverage did not extend to the ownership, maintenance, operation, use, loading or unloading of any auto, unless such liability is covered by valid and collectible underlying insurance as listed in the schedule of underlying insurance. Penn National's auto policy was the only auto liability policy listed in the schedule of underlying insurance and so, the umbrella policy covered only auto accidents that were also covered under the auto policy. However, in this case, the tractor was not covered by that auto policy; it was covered by another policy issued by Canal Insurance Company. As a result, the court concluded that the umbrella policy did not apply to the claim by Rogers . The ruling of the district court was affirmed.

As an aside, the court noted that the purpose of an umbrella policy is to protect the insured in the event of catastrophic circumstances when the insurer's liability would exceed the limits of its underlying policy. An umbrella policy is designed to expand the amount, but not the scope of coverage. The court said that this ruling is consistent with the purpose of the umbrella policy.

Devillier v. Alpine Exploration Companies, Inc., 2006 WL 3821075 (La.App. 3 Cir.)

The subject matter of the dispute in this case was how the self-insured retention (SIR) would apply to claims. The question is whether an SIR of $100,000 applies to each individual claim of every claimant arising from an occurrence, or only once to the occurrence regardless of the number of individual claims or claimants.

An oil well experienced a hydrocarbon blowout in Jefferson Parish and as a result, a number of lawsuits for personal injuries and property damages were filed. The insured, Petroleum Engineers, had a liability policy with an SIR endorsement. The insured sought coverage under the terms of its policy and ended up filing a declaratory judgment action against its insurer. The insured contended that only one SIR of $100,000 was applicable to the blowout claims; the insurer contended that the SIR applied per claim, meaning to each claimant as a separate claim, and that until the SIR was exhausted as to each, the insurer had no obligation to defend. The endorsement itself declared that the deductible amount stated on the declarations page is applicable to each claim, applies once to each claim, and can be applied either for defense expenses, settlement, compromise, or indemnification. The trial court sided with the insurer and this appeal followed.

The appeals court said that the meaning of “per claim” is the main point in this dispute. The court then noted that the trial court's grant of summary judgment in favor of the insurer was based on its finding that there was no ambiguity in the policy language. However, based on its de novo review of the policy language, the appeals court found that the SIR coverage language was ambiguous. Due to this finding, the lower court ruling was reversed and the case was remanded for further proceedings.

Kline v. Gulf Ins. Co., 466 F.3d 450 (6th Cir. 2006)

The estate of an auto accident victim brought a garnishment lawsuit against the bankrupt trucking company's umbrella insurer to collect a portion of a judgment. The trial court ruled in favor of the insurer and this appeal followed.

The appeals court said that the case involved the legal question of whether a federally-prescribed form endorsement attached to a trucking company's insurance policy modified the attachment point of an umbrella policy when the endorsement was not legally required in the first place. The trucking company purchased liability insurance beyond what was required under federal regulations and had attached to the policy an endorsement for the purpose of meeting those federal requirements.

Kline died as a result of injuries that he sustained in a collision with a truck owned by Builders Transport, Inc., an interstate trucking business. Builders transport self-insured up to the federally required minimum of $1 million. It also obtained an excess insurance policy for claims over $1 million, up to $3 million; and an umbrella policy for liability over $3 million was purchased from Gulf Insurance. Kline's widow obtained a judgment of $3.2 million against Builders Transport, but since Builders Transport filed for bankruptcy, she only received $1 million from the excess policy and $200,000 from Gulf.

For some reason, Gulf attached an endorsement, MCS-90, to the truckers liability policy, and Kline argued that this endorsement increased Gulf's liability by amending the liability policy. The appeals court noted that the district court held that an MCS-90 form did not require Gulf to pay Kline any more than the $200,000 because, at most, MCS-90 required Gulf to act as a surety for Builders Transport's self-insurance plans, and furthermore, public policy goals behind MCS-90 did not require Gulf to pay any more than it did. The appeals court agreed with the lower court, although for slightly different reasons.

The appeals court said that, at first glance, under the terms of MCS-90, Gulf must pay up to $1 million for each accident in excess of the underlying limit of $1 million for each accident. But, the court went on, the language of MCS-90 as a whole, interpreted in light of the surrounding circumstances, leads to the conclusion that Gulf did not change its coverage when filling out the form. The reference to the underlying limit of $1 million could have referred to any accident resulting in liability over $1 million, or to any accident that resulted in liability exceeding the excess carrier's underlying limit of $1 million. Under this latter reading, Gulf would not be liable because the excess policy attached at $2 million and excess of this underlying limit would be the $200,000 in liability above $3 million. This ambiguity in language and coverage arises in large part because the MCS-90 does not really permit Gulf to reflect the limits contained in the original excess insurance contract. The excess carrier's attachment point was a moving target and Gulf's attachment point depended on the excess carrier's attachment point; Gulf had no single value that it could have entered into the blanks of MCS-90 to reflect accurately Gulf's attachment point. And since Gulf was not the author of MCS-90, the ambiguity in the situation cannot be held against Gulf.

In this situation, it can be said that Gulf intended to offer $1 million in coverage only if the law required such coverage. But since, the insured self-insured to the minimum federally require limits, such coverage by law was not required by Gulf. The insured did not fail to insure up to the required minimum, so Gulf is not liable. Judgment for Gulf was affirmed.

Travelers Indem. Co. v. Western American Specialized Transportation Services, 409 F.3d 256 (5th Cir. 2005)

An excess liability insurer brought a declaratory judgment action against the insured motor carrier, a truck driver for the carrier, the carrier's primary liability insurer, and judgment creditors, seeking a determination that it was not liable for the balance of a judgment against the insured driver and carrier. Summary judgment was granted to creditors and the excess insurer was ordered to pay the judgment. The excess insurer appealed.

Carriere was injured when her auto and truck owned and operated by Barnett collided. Barnett was operating his vehicle in the course of employment with Western American Specialized Transportation Services. Western and Barnett were insured by a $1 million primary policy and Western procured an excess policy of $4 million from Travelers Indemnity; this policy included an endorsement, MCS-90.

Carriere and her family brought a court action against Barnett, Western, and the primary insurer. She won that case and the primary insurer deposited its policy limits into the registry of the court. Then, the Carrieres attempted to collect the remainder of the judgment from Travelers. Travelers objected and sought a declaratory judgment that its excess policy did not cover any liability of the defendants in the Carriere claim. Travelers had discovered that the primary insurer had refused a settlement offer from the Carrieres that was within the primary policy limits of insurance. Travelers asserted that the primary insurer had breached its duties to its insureds, and so, Travelers was subrogated to the rights of the insureds and can sue the primary insurer for breaching the duty to defend.

When the case wound up in the appeals court, that court noted the issue as whether the district court erred in ruling that Travelers had no claim against the primary insurer. The court said that Travelers became subrogated to the rights of the Carrieres as judgment creditors of the insured parties, with a right to reimbursement from the insureds. This was due to the peculiar nature of form MCS-90, which is, in effect, suretyship by the insurance carrier to protect the public and not an ordinary insurance provision to protect the insured. MCS-90 transfers the right to receive the insured's debt obligation from the judgment creditor to the insurer.

Because Travelers became subrogated to the rights of the Carrieres as creditors and not to the rights of the debtors insured under the primary policy, Travelers cannot pursue a claim against the primary insurer under a theory of breach of contract. The court said that the primary insurer does not owe a duty of care or even of good faith performance to the excess insurer of the insured. If an excess insurer is to recover from a primary insurer for acts which make the excess insurer's contract and liability more burdensome, it must do so by asserting the insured's rights after becoming subrogated to them or after acquiring then through assignment. In this case, Travelers did not accomplish that task and the judgment of the district court was affirmed.

The Home Ins. Co. v. The Cincinnati Ins. Co., 821 N.E.2d 269 (Ill. 2004)

This was a case wherein equitable subrogation and equitable contribution was sought by one insurer against another. The trial court ruled in favor of the defendant; the appeals court affirmed the judgment; and the case ended up in front of the state supreme court.

Allied Asphalt Paving Company was the general contractor for a renovation project. Allied subcontracted work to Aldridge Electric Company and Western Industries. Fisher, an employee of Aldridge was injured on the job and he filed numerous lawsuits. Allied tendered the defense of its lawsuit to both Cincinnati Insurance (primary insurance) and Home Insurance (excess insurance). Home accepted the defense but stated that it did so on the basis of sharing defense and indemnity costs on a 50/50 basis. When Fisher settled his claim against Allied for $600,000, Home paid $500,000 and Cincinnati only offered $100,000. Home sued in order to get Cincinnati to pay more of the settlement costs.

The trial court found that Home was not entitled to equitable contribution from Cincinnati because the Home policy was excess and the Cincinnati policy was primary, and excess and primary insurers do not insure the same risk. Equitable subrogation was also denied. The appeals court upheld this ruling.

The Illinois Supreme Court reviewed the matter and stated that contribution applies to multiple, concurrent insurance situations and is only available where the concurrent policies insure identical risks, the same entities, the same interests, and the same risks. Accordingly, when two insurers cover separate and distinct risks, there can be no contribution among them. The court said that it was well settled that the doctrine of equitable contribution is not applicable to primary/excess insurer issues. This is because by definition, the policies do not cover identical risks; the protections under the excess policy do not begin until those of the primary policy cease. This part of the lower court's ruling pertaining to equitable contribution was upheld by the supreme court.

On the other hand, the ruling on equitable subrogation was not upheld. The court noted that the elements of equitable subrogation were: the defendant carrier must be primarily liable to the insured for a loss under a policy of insurance; the plaintiff carrier must be secondarily liable to the insured for the same loss under its policy; and the plaintiff carrier must have discharged its liability to the insured and at the same time extinguished the liability of the defendant carrier. In this instance, the court found that Home did insure the same loss as Cincinnati . Home was entitled to summary judgment on its equitable subrogation claim as a matter of law.

Travelers Casualty & Surety v. Gerling Global Reinsurance Corp., 419 F.3d 181 (2nd Cir. 2005)

This case deals with an alleged breach of facultative certificates in the refusal to pay a post-settlement allocation of asbestos claims. But it is mentioned here only for informational purposes and with reference to a discussion of the follow-the-fortunes doctrine.

In settling this case, the court of appeals discussed the doctrine of follow-the-fortunes, or follow-the-settlements. The court said that the existence of a mutuality of interest is not the only factor underlying the doctrine. The main rationale for the doctrine is to foster the goals of maximum coverage and settlement and to prevent courts from undermining the foundation of the cedent-reinsurer relationship. The court said that the follow-the-fortunes doctrine extends to a cedant's post-settlement allocation decisions, regardless of whether an inquiry would reveal an inconsistency between that allocation and the cedant's pre-settlement assessments of risk, as long as the allocation meets the typical follow-the-fortunes requirements: good faith, reasonableness, and a settlement within the applicable limits. An insurer that seeks to avoid application of follow-the-fortunes by claiming bad faith, must make an extraordinary showing of a disingenuous or dishonest failure. There is no law that says the insurer and reinsurer interests have to be perfectly aligned to trigger a follow-the-settlement clause. And, it is well-established that follow-the-fortunes does not require indemnification for losses not covered by underlying policies.

Wolverine World Wide, Inc. v. Liberty Mut. Ins. Co., No. 260330, LC No. 01-011763-CK (March 8, 2007)

This case involved two umbrella policies issued to the plaintiff by the defendant covering the years 1966 to 1972. A dispute arose as to whether the policies covered damages caused by contamination and pollution. The plaintiff, a manufacturer of footwear, produced a toxic sludge from its tannery operations and disposed of this sludge at the Butterworth Landfill from the years 1965 and 1973, and at Northeast Gravel site beginning in 1970 and ending in 1979.

In 1991, the Michigan Department of Natural Resources informed plaintiff that it may be potentially liable for contamination at the Northeast Gravel site. And even though a subsequent investigation showed that the plaintiff was not responsible for the contamination, Northeast Gravel sued the plaintiff for the cost of cleanup. It cost the plaintiff $199,339.20 to resolve the matter.

Then, in 1997, the EPA notified the plaintiff that it may be potentially liable for contamination at the Butterworth site. Mediation efforts alleged that the insured was liable for 1.306% of the damage. The plaintiff paid $1,224,550.84 in remediation costs.

The plaintiff filed a lawsuit against its insurer seeking to recover the defense and settlement costs incurred in relation to both landfill sites. The trial court ultimately granted summary judgment to the defendant, finding that there were no genuine issues of material fact; however, the court did find that the defendant did owe a portion of the costs that the plaintiff incurred. The trial court relied on the time-on-the-risk theory to allocate damages.

On appeal, the plaintiff asserted that the trial court erred granting summary judgment to the defendant because there was sufficient evidence to establish that the defendant was required to provide coverage for “all sums” that the plaintiff incurred for occurrences within the policy period. The time-on-the-risk method of allocation used by the trial court, according to the plaintiff, was not reconcilable with the terms of the umbrella policies that the insured possessed.

The appeals court noted that the umbrella policies in question did apply coverage for all sums for which the insured became obligated to pay because of property damage, but these were sums for damages that resulted during the policy period. Therefore, when there was ongoing environmental damage over the years while the subject policies were in force, and even after that time, using a time-on-the-risk method for allocating damages is appropriate. The appeals court decided that the trial court properly ruled that the time-on-the-risk method of allocation was the correct method to employ in determining the amount of damages for which the defendant was liable.

The court also found that in order to understand the period of time over which damages should be allocated, it was necessary to understand when coverage is triggered. In this case, the trigger is actual property damage, which means that damages can be triggered at the time the pollutants were deposited until the time the contamination was removed or remedied. Thus, those insurers that provided policies at any time in between may be liable on a pro-rata basis. And then, using the time-on-the-risk method of allocation, the amounts found by the trial court for damages at the two sites were appropriate.

In affirming the lower court ruling, the appeal court also pointed out that the defendant's umbrella policies afforded coverage in excess of the underlying primary insurance policy's annual limits of $50,000. That is, the defendant's obligation under the umbrella policies at issue here did not arise until the plaintiff incurred at least $50,000 in liability each year; if this amount was not reached, coverage under the umbrella policies was not triggered. And, the court said that apportioning the damages over all the years when damages continued to occur equals less than $50,000 in damage in any year. So, there was never any coverage under the umbrella policies anyway.

Samuels v. State Farm Mutual Auto. Ins. Co., 939 So. 2d 1235 (La. 2006)

In this case, the insured brought an action against the auto and personal umbrella liability insurers. One of the umbrella insurers wanted to rank insurance policies; the other did not. The trial court required umbrella insurers to share pro-rata on the limits of the policies. This appeal followed.

When this case got to the Supreme Court of Louisiana, the court said that the issue in this insurance policy dispute is whether, where an insurance agent makes a clerical error on the declarations page of a policy, the policy can be reformed to reflect the true intent of the parties. The facts of the case are as follows.

Samuels was operating a vehicle owned by his son when the vehicle was involved in a serious, single car accident. The son's wife was killed and all the other family members were severely injured. Samuels carried two umbrella policies, one issued by State Farm with a $2 million limit, and the other issued by Evanston Insurance Company with a $2 million limit. After the son filed a lawsuit, State Farm filed a motion to rank the insurance policies and have each umbrella insurer provide coverage on a pro-rata basis. Evanston contended that its coverage should be excess over the State Farm policy. Evanston claimed that the intent of the parties involved was that the Evanston policy was to be in excess of the State Farm policy, but that due to a clerical error, the State Farm policy was mistakenly identified as a homeowners policy.

The court agreed that the evidence presented clearly indicated that Evanston and Samuels intended for the Evanston policy to provide excess umbrella coverage over and above the State Farm umbrella policy. And, the court continued, it is clear that Evanston's agent made a clerical error in identifying the State Farm policy on the Evanston declarations page as a homeowners policy. And, the court noted, it is also clear that, in issuing its umbrella policy, State Farm in no way mistakenly relied on the Evanston error in issuing its policy or assessing the risks under its policy.

Since judicial responsibility in interpreting insurance contracts is to determine the parties' common intent, the court found that with Evanston presenting uncontroverted evidence that both the insured and the insurer intended the Evanston umbrella policy at issue to be in excess of the State Farm umbrella policy, the trial court ruling was reversed. In the case of mutual error, the court ruled, an insurance contract may be reformed to reflect the intent of the parties. Where, as here, the insurance agent has made a clerical error on the declarations page of an insurance policy as to the identity of certain underlying insurance policies, that clerical error will be corrected to reflect the clear intent of the parties. There are simply no rules of contractual interpretation that would lead the court to ignore the clear intent of the parties to the fortuitous benefit of a third party insurance company that did not even rely on this error in issuing its own policy.*

*Reformation is “an equitable remedy used to correct errors or mistakes” in contracts. WMC Mortg. Corp. v. Weatherly, 963 So.2d 413, 416 (La.Ct.App.2007). An insurance policy “may be reformed if, through mutual error or fraud, the policy as issued does not express the agreement of the parties.” Samuels v. State Farm Mut., 939 So.2d 1235, 1240 (La.2006). The party seeking reformation has the burden to establish a mutual error (by clear-and-convincing evidence) in the creation of a contract. Id. Parole evidence is admissible to establish such a mutual error, but not to create ambiguity in the meaning of an intended term. Id. Furthermore, even in the event of a mutual error, reformation may be inappropriate if the rights of third parties are affected. Washington v. Savoie, 634 So.2d 1176, 1180 (La.1994).

It may be found that reformation may be inappropriate where a case involves a third party who assumes or relies on an original contract in any manner. American Elec. Power Co. Inc. v. Affiliated FM Ins. Co., 556 F.3d 282, 287 (La.2009). Reformation may also be found to be inappropriate where there is an issue of interpreting an ambiguous term rather than simply correcting a clerical error to reflect the parties' mutual intent. Id.

State Farm Fire & Cas. Ins. Co. v. Grabowski, Cause No. CV2000-019587 (Ct. App., Div. One, Az. 2007)

In this case, State Farm appealed a jury verdict finding that Grabowski had met her burden to show that an insurance policy exclusionary clause violated the insured's reasonable expectations, and therefore, was unenforceable.

Hedge and his wife were killed in a single vehicle auto accident. State Farm insured the vehicle in which they were riding at the time of the accident, and also insured the Hedges under an umbrella policy with coverage of $2 million. Grabowski, the wife's mother, asserted a claim for wrongful death against the estate of Hedge. State Farm denied coverage under the umbrella policy based on an exclusion not contained in the basic underlying auto policy, and sought a declaration that the umbrella policy did not provide coverage for Grabowski's claim.

The umbrella policy provided coverage for damages for a loss, an accident that results in bodily injury. There were sixteen exclusions on the umbrella policy, one of which excluded coverage for bodily injury to the named insured, spouse, or anyone within the meaning of insured. State Farm argued that the policy thus excluded coverage for damages suffered by any person if those damages arose from the bodily injury of a named insured. Grabowski countered that the exclusion did not operate to bar her claim because Grabowski had suffered the injury, and she was not an excluded insured. The trial court granted summary judgment to Grabowski and this appeal followed.

In the appeal, State Farm said that the trial court's jury instruction regarding the doctrine of reasonable expectations was a prejudicial misstatement of the law. The appeals court reviewed the reasonable expectations doctrine and said that it relieves an insured from certain clauses of an agreement that he did not negotiate, probably did not read, and probably would not have understood had he read them; but, the court went on, this doctrine only applies under certain limited circumstances. For example, if the drafting party had reason to believe that the signing party would not have accepted a particular term, the court may strike that term from the agreement.

In this case, the trial court instructed the jury that it could find the exclusion violated the Hedges' reasonable expectations if at least one of the following things occurred: the Hedges did not receive full and adequate notice of the exclusion and it was unusual, unexpected, or emasculated apparent coverage; some activity that could be attributed to State Farm would have created an objective impression of coverage in a reasonable insured; or some activity that could be attributed to State Farm induced the Hedges to believe they had coverage despite the exclusion. The appeals court found that these instructions were not a proper explanation of the state law regarding the doctrine of reasonable expectations.

The instructions given by the trial court would have allowed the jury to conclude that the exclusion violated the Hedges' reasonable expectations if it found that the Hedges did not read the provision and it was unusual. The trial court did not advise the jury that it was to determine whether State Farm had reason to believe that the Hedges would not have agreed to the exclusion if they had been aware of it. The trial court did not need to instruct the jury on every refinement of the law, but it must fully and accurately state the law that the jury is to apply. Here, this was not done. The required instruction that State Farm had reason to believe that the Hedges would not have agreed to the exclusion was not given, and it was not possible, according to the appeals court, to conclude that the jurors found that the legal requirements of the reasonable expectations doctrine were satisfied.

The appeals court found that the trial court erred by giving the jury an instruction that did not fully and correctly state the applicable law. The lower court ruling was reversed and the case was remanded for a new trial.

General Motors Acceptance Corp. v. Nationwide Ins. Co., 4 N.Y.3d 451, 2005 N.Y. Slip Op. 02564

This case, is presented as an example of court rulings that an excess carrier has no obligation to participate in the defense of an insured, unlike the primary insurer.

The court here was called upon to determine whether an allocation of defense costs between a primary and excess insurer was warranted. The facts of the underlying case are as follows.

Sabin leased an SUV from General Motors Acceptance Corporation (GMAC). GMAC required Sabin to add it as an additional insured on his primary auto policy, which he did through Nationwide Insurance Company. GMAC also obtained two distinct policies from Fireman's Fund, a primary business auto policy and an excess liability policy. Sabin collided with a dump truck, causing serious injuries and a death. Sabin and GMAC were sued and Nationwide undertook the defense at first but then, wrote that Fireman's Fund should assume the defense since the damages awarded to the plaintiffs would easily surpass the limits of liability in the Nationwide policy. Fireman's agreed but noted that it reserved its right to pursue collection of all defense costs from Nationwide. The case eventually was settled and Fireman's sought to recover all of its legal expense from Nationwide. Nationwide refused to pay and this lawsuit followed.

The trial court granted summary judgment to GMAC and Fireman's and Nationwide appealed.

The appeals court noted that, in general, a primary insurer has a duty to defend without any entitlement to contribution from an excess insurer. In this particular case, Fireman's issued a primary policy which was deemed excess by the other insurance clause and a true excess or umbrella policy where the duty to defend came into effect only after the limits of the underlying primary coverage were exhausted. Furthermore, Fireman's accepted the defense of the action, and in so doing, triggered its own duty to defend, a duty that overlapped with Nationwide's same obligation. Both Nationwide and Fireman's participated in the defense, both are liable for the defense costs, and the costs should be shared equally.

The court rejected Nationwide's position (followed in only a minority of jurisdictions) that an equitable allocation between a primary and excess insurer must be realized. However, based on the circumstances peculiar to this case, the court then found that both insurers here should be required to share defense costs.

The order of the trial court was reversed.*

* This holding should be limited to its particular circumstances, including the excess carrier's voluntary assumption of the defense. By specifically rejecting Nationwide's broader position, the general rule inferred from this case is that a primary insurer will be required to fund an insured's defense, without contribution from the excess insurer, until the primary insurer's coverage has been exhausted, whereupon the excess insurer will be required to take over the defense.

Padilla Construction Co. v. Transportation Ins. Co., 150 Cal.App.4th 984 (2007)

In this case, the insured brought an action against the umbrella liability insurer to recover the cost of defense after exhaustion of the first primary policy covering continuous property damage. The trial court determined that the umbrella insurer was not required to provide a defense since primary coverage was still available under a policy that covered subsequent periods. An appeal followed.

There was an underlying continuous damage construction defect lawsuit filed by two homeowners against the developer of their property. The lawsuit alleged that the foundation vents were blocked with stucco, work done by Padilla Construction. Padilla had four successive primary liability policies, running from January 1995 until March 2003. Additionally, coincident with the primary policy that ran from January 1995 through December 1997 (written by Transcontinental), the insured had two yearly commercial umbrella policies which were written by Transportation Insurance.

Of the four primary insurers, only two were available to defend the insured in the underlying lawsuit because the other two became insolvent. Of the two remaining primary insurers, one notified the insured that, because of numerous other claims against the insured, its policies were nearing exhaustion. In response, instead of seeking coverage from the other primary insurer, the insured requested its attorney to tender the defense and indemnity to the umbrella carrier, Transportation. The umbrella insurer then declined the tender on the grounds that all the primary insurance policies had not yet been exhausted.

The primary insurer that was handling the lawsuit finally did have its limits exhausted and told the insured its role in the lawsuit was being entirely withdrawn. The insured assumed its own defense and reached a settlement with the claimant. The insured then sued the umbrella insurer and claimed that it had a duty to drop down and defend and indemnify the insured once the primary insurer's limits were exhausted. The umbrella insurer denied the claim and the trial court ruled that because there was still primary coverage available to the insured, the umbrella insurer was not obligated to provide a defense.

The appeals court looked at the remaining primary insurance policy and noted that under its terms, the insured was responsible for defense costs and indemnity costs up to a retention amount of $25,000 (a self-insured retention, or an SIR). Only after this SIR was exhausted did the remaining primary insurer become obligated to defend the insured. Furthermore, the Transportation umbrella policy stated that it was excess over any unexhausted primary policies that provided coverage to the insured. So, there was primary insurance available to the insured because of the remaining primary insurance policy even though the insured had the SIR to pay before the primary insurer became obligated.

The insured claimed that due to the $25,000 SIR, it had no primary insurance from the remaining primary insurer. And since it had no other insurance for this part of the claim against it, the insured claimed the umbrella other insurance clause was not operative. The appeals court said that this was flawed logic because it assumed that the SIR could be meaningfully separated from the remaining primary insurance policy, of which it is a creature. The SIR was part and parcel of the remaining primary insurance policy and so, the insured did have remaining primary insurance. The ruling of the trial court was affirmed.

Allmerica Financial Corp. v. Certain Underwriters at Lloyd's, 871 N.E.2d 418 (Mass. Super. 2007)

As a matter of first impression, the Supreme Judicial Court of Massachusetts held that a follow form excess liability insurer was not bound by the primary insurer's decision to settle the insured's claim for indemnification based on the underlying class action.

After the plaintiff, Allmerica Financial Corporation, settled a class action lawsuit that alleged improper practices in the sale of its life insurance policies, it sought indemnification from its insurers. The primary insurer had participated in the settlement negotiations and agreed to pay its policy limits into the settlement fund. When Allmerica sought indemnification for the settlement beyond the primary policy limits, the excess insurers denied coverage (the excess policy was a follow form type policy, meaning that its terms, conditions, and exclusions were the same as those in the primary policy). Allmerica filed a lawsuit against Certain Underwriters seeking a declaration of coverage and judgment against the underwriters for breach of contract.

When this case got to the Supreme Judicial Court of the state, that court noted that excess insurance policies are separate and distinct contracts from the primary policy; and, that the use of a follow form clause is advantageous in crafting an insurance program because it makes an excess policy a carbon copy of the primary policy, with the only differences being the names of the parties and the coverage limitations. The court said that follow form language allows an insured to have coverage for the same set of potential losses (with the same set of exceptions) in each layer of the insurance program; but, the language does not bind the various insurers to a form of joint liability should coverage at a prior layer fail. The layer of risk each insurer covers is defined and distinct.

Allmerica argued that by using the follow form language, the underwriters adopted not only the language used by the primary carrier to describe coverage and exclusions, but also the intent of the parties to the primary policy. This meant that the underwriters intended to be bound by the primary insurer's interpretations, including any decisions about coverage and settlement. However, the court decided that an excess carrier's intent to incorporate the same words used in a separate agreement between the primary insurer and the insured does not imply an intent by the excess insurer to accept decisions made by the primary carrier about the extent of its obligations under its own agreement. By adopting the form of words used by the primary insurer, the underwriters did not also cede to it the right to make decisions about the underwriters' obligation to perform in various circumstances. To conclude otherwise, the court said, would undermine the distinct and separate nature of each insurer's contract with Allmerica.

In sum, absent an explicit contractual commitment to do so, an insurer is not bound by the settlement another insurer makes for the same claim, even if the language of the nonsettling policy follows the form of the settling policy. The Supreme Judicial Court ruled that the underwriters were entitled to make a determination concerning the merits of the settlement and coverage under its policy independent of that made by the primary insurer.

California Capital Ins. v. Nielsen, 153 Cal.App.4th 1221 (2007)

In this case, an uninsured motorist (UM) carrier sought a declaratory judgment that a car not covered by the auto liability policy was not an uninsured motor vehicle since the personal umbrella policy provided coverage.

Eighteen-year-old Nielsen was a passenger in a car driven by Jones; Jones was inebriated and driving with a suspended license. Jones crashed into a pole and severely injured Nielsen. Jones's mother had a $1 million personal liability umbrella policy with State farm but did not have the car covered by any auto liability insurance policy. State Farm paid its policy limits, but then, Nielsen made a claim against his father's auto liability policy for its per-person limits of $100,000 in UM benefits. This insurer, California Capital, declined coverage, concluding that the auto was not an uninsured motor vehicle in light of the State Farm personal liability umbrella policy. The insurer filed a declaratory judgment action to ratify its no-coverage decision and the trial court agreed. This appeal by Nielsen followed.

The appeals court said that the issue was whether a personal liability umbrella policy that provides bodily injury liability coverage to the owner and to the operator of an otherwise uninsured motor vehicle means that the vehicle is not uninsured, thereby precluding an injured person from obtaining uninsured motorist benefits under his or her own auto liability policy.

The court reviewed the statutes on UM coverage and the policy provisions and concluded that Nielsen was not legally entitled to recover bodily injury damages from the owner or operator of an uninsured motor vehicle because the car driven by Jones was not an uninsured motor vehicle. That car was not a motor vehicle with respect to the ownership, maintenance, or use of which there was no bodily injury liability insurance applicable at the time of the accident; there was an applicable personal umbrella liability policy. So, the UM provision of Nielsen's California Capital auto policy did not apply. The decision of the trial court was affirmed.

State Farm Fire and Cas. v. Utica National Ins. Group, 873 N.E.2d 416 (2007)

This case tackles the issue of competing other insurance clauses and the effect on coverage for the insured.

In this case, an auto collided with a minivan, killing both the driver and passenger of the auto. State farm Mutual Auto Insurance Company carried the insurance on the auto. In addition to the auto insurance policy, there were two umbrella policies in question: State Farm Fire and Casualty Company had issued a personal umbrella insurance policy to the owner of the auto, and Utica had issued a commercial umbrella policy to Digital Imaging Solutions, Inc., a company owned by the owner of the auto. After some initial disagreements, State Farm and Utica cooperated in the settlement of the underlying lawsuits. In this agreement, the insurance companies agreed to pay $6 million as follows: $1 million by State Farm Mutual on the auto liability policy; $3 million by State Farm on the personal umbrella policy; and $2 million by Utica on its commercial umbrella policy. However, this agreement did allow Utica to pursue its claim that its policy was in excess over the State Farm umbrella. If a court were to determine that the Utica policy was in excess over the State Farm policy, then State Farm was to reimburse Utica in the amount of $2 million.

Both the State Farm umbrella policy and the Utica umbrella policy had an other insurance clause that provided that the policy was in excess over all other insurance policies. State Farm's policy provided that “this policy is excess over all other valid and collectible insurance”. The Utica policy read: “this insurance is excess over any other valid and collectible insurance, whether primary, excess, contingent, or any other basis”. Based on this, State Farm moved for summary judgment and claimed that Utica was required to contribute to the settlement because the two other insurance clauses were incompatible, and thus, cancelled each other out. Utica , of course, disagreed and said its policy was in excess to the State Farm policy. The trial court agreed with State Farm and this appeal followed.

The appeals court noted that there are generally three types of other insurance clauses: the pro-rata clause; the excess clause; and the escape clause. The pro-rata clause provides that when an insured has other insurance available, the company will be liable only for the proportion of the loss represented by the ration between its policy limit and the total limits of all available insurance. The excess clause allows coverage only over and above other insurance. The escape clause holds the policy null and void with respect to any hazard as to which other insurance exists. State Farm and Utica conceded that the other insurance clauses in this instance were both excess clauses.

The appeals court said that when two clauses are the same sort, they are deemed incompatible, and since both State Farm and Utica agreed both clauses were excess, they cancel each other out. This means that the insurers must share the costs associated with defending and indemnifying the insured. But, Utica objected and said that while the two clauses may both be excess, they are not the same sort because the two clauses do not contain identical language. Utica said that its clause is more specific.

The appeals court rejected this argument and decided that the clauses in both policies were the same type of other insurance clause, they were incompatible, and they cancelled each other out. The two insurers had to share the loss on a pro-rated basis.

Cincinnati Ins. Co. v. CPS Holdings, Inc.,875 N.E.2d 31 (Ohio 2007).

The umbrella liability insurer brought an action against the insured contractor for a declaratory judgment that the errors and omissions (E&O) policy was not underlying insurance, and that the umbrella policy provided no coverage for liability for a claim of mismanagement of state funds.

The Ohio Department of Administrative Services (DAS) sued CPS Holding Company alleging that CPS, as a third-party administrator of a program to procure natural gas, had mismanaged state funds and failed to pay the natural gas suppliers pursuant to contract. CPS requested the insurer, Cincinnati Insurance, to provide a defense. The insurer had issued two policies to CPS: a common policy and a commercial umbrella liability policy. Cincinnati filed a declaratory judgment action to determine its duty to defend. The trial court ruled in favor of the insurer and an appeals court reversed. The issue then went to the Ohio Supreme Court.

CPS dropped any claim under the common policy, but argued that the insurer had a duty to defend under the terms of the umbrella policy because CPS had an E&O liability policy that potentially provided coverage. This caused the court to review the insuring agreement in the umbrella policy. That agreement provided that the insurer would pay on behalf of the insured the ultimate net loss that the insured was legally obligated to pay as damages in excess of the underlying insurance.

So, the first question for the court was whether the E&O policy qualified as underlying insurance. Underlying insurance was defined in the umbrella policy as the policies of insurance listed in the schedule, unlisted insurance policies applicable to an occurrence (a defined term), and self-insurance or alternative methods of coverage. The court found that the E&O policy does not fall within any of the three types of underlying insurance as defined in the umbrella policy The E&O policy is not self-insurance, is not listed in the schedule of underlying policies, and is not a policy applicable to an occurrence because it does not cover accidents that result in bodily injury or property damage. The E&O policy was not underlying insurance and therefore, Cincinnati Insurance did not have a duty to defend CPS in the litigation. The judgment of the appeals court was reversed.

Rockwell Automation, Inc. v. National Union Fire Ins. Co., 494 F.Supp.2d 1009 (E.D. Wis., 2007)

The insured brought a suit seeking a declaration that excess insurers had an obligation to reimburse it for post-judgment interest paid on the underlying judgment. One excess carrier agreed with the insured to pay the accrued interest and then filed a cross-claim seeking contribution from the other insurers.

In February 1999, a boiler at a Kansas City Power & Light power plant exploded. This resulted in a lawsuit against Rockwell and several other entities. The jury found Rockwell liable for $97.6 million. At the time, Rockwell was self-insured up to $2 million per occurrence. Travelers Indemnity provided the next layer of coverage through an excess liability policy with a $1 million limit. National Union Fire Insurance provided a third layer though an umbrella policy with a $50 million limit. Federal Insurance Company provided the fourth layer through an excess policy with a $50 million limit. And, Travelers provided a fifth layer through an excess policy with a $50 million limit.

Rockwell retained and paid for its own counsel at the trial. For some reason, National engaged in settlement discussions with the power plant and retained its own law firm to assist Rockwell's counsel and to identify appellate issues. After the trial, National retained another attorney to represent Rockwell and paid the attorney's fees for the appeals process. Then, after agreeing with the insured to pay post-judgment interest, National sought contribution from the other excess insurers.

The court reviewed the National policy for guidance on the issue and found two sections relevant to the issue of post-judgment interest: the coverage section and the defense section. The coverage section obligates the insurer to pay those sums in excess of the retained limit that the insured becomes legally obligated to pay. The defense section provides that when the insurer assumes the defense of any claim or lawsuit, the insurer will pay all interest that accrues after entry of judgment. The court saw these words as unambiguous and as not including post-judgment interest.

The court reasoned that the entity that controls the defense controls the length of time in which interest accrues, so since National had assumed the defense, it was required to pay the post-judgment interest. Neither Federal not Travelers had assumed any role in Rockwell's defense so neither party was obliged to reimburse National for the post-judgment interest.

As an aside, National did request the court to use California law as the guidepost for the decision. California law declares that an insurer's responsibility for paying all interest that accrues after entry of judgment when it assumes the defense means it is responsible only for all interest on that part of the judgment for which the company is liable, and not all interest on the entire judgment. However, the court chose to have Wisconsin law govern which states that all interest means all interest on the judgment, whatever its amount in relation to the policy limits. National Union was responsible for the entire post-judgment interest payment with no contributions form the other insurers.

As for the claim that the settlement was unreasonable, the court said that had Evanston not unconditionally denied coverage, it would have been able to influence the amount of the settlement. So, the denial of coverage barred Evanston from challenging the reasonableness of the settlement amount.

Eller Media Co. v. National Union Fire Ins. Co., 2008 WL 4224292 (S.D. Fla.).

In this case, the policyholder funded its own defense in a criminal matter and then sought reimbursement from its umbrella insurer. This course was based on the claim that the insurer used work product generated in the criminal case in the defense of a civil lawsuit without paying for it. In other words, the insured wanted to be paid for the use of its work product so as to prevent the insurer from being unjustly enriched.

The undisputed facts of the case were that a minor was electrocuted near a bus shelter. It was alleged that Eller was criminally liable for the death since Eller performed the electrical installation of the bus shelter. Eller defended itself in the criminal proceedings and the criminal matter was concluded. The family of the deceased then filed a civil action for wrongful death against Eller. The primary insurer for Eller initially provided a defense but when the policy limits were exhausted, the defense was turned over to the umbrella insurer, National Union, which accepted the role.

The insured then claimed that National Union utilized the work product generated by Eller in its criminal defense for Eller's civil defense and refused to pay for that product. The insured said this violated National Union's obligations under the terms of the policy, and Eller sued for breach of contract and unjust enrichment.

National Union asserted that it fulfilled its duties under the umbrella policy in that it was not obligated to provide a defense in the criminal proceedings and that it was not obligated to pay for expenses incurred prior to the time that National Union assumed the defense. Eller claimed that the insurer is required to pay the costs associated with the defense in the civil action and this includes the criminal work product the insurer was using in the civil action.

The court noted that Eller did not contend that National Union failed to defend Eller or that the insurer provided a negligent defense. Rather, Eller contended that National Union did not pay for a portion of the expenses incurred in defense. The court said that state law makes clear that an insurer satisfies its duty to defend when it provides an adequate defense to its insured; however, a claim for breach of duty to defend may be predicated upon a failure to pay for the costs associated with the defense. Eller argued that the costs associated with the defense included the costs of defending the criminal charges, but the court said that Eller is seeking to be compensated by National Union, not as an insured, but as a quasi-third party vendor who claims that it is entitled to be paid for its work. Such a payment is not and would not be included in an insurer's duty to defend.

The court went on to state that Eller did not demonstrate any damages suffered due to National Union's action. Even if National Union had forgone the use of Eller's work product and chosen to start from scratch, Eller's expenses related to the criminal proceedings would be the same, and Eller would not have recouped any of the criminal expenses for the creation of that work product. Moreover, the policy unambiguously requires that the insured incur expenses at the insurer's request in order to be compensated, and there is no proof that National Union requested Eller to incur expenses in the criminal trial.

As to the claim for unjust enrichment, the court said that the use of the criminal trial work product was not a case where a benefit was conferred upon a party (National Union) that did not simultaneously confer a benefit on the other party (Eller). Indeed, it would have been questionable whether National Union would have been acting in the best interests of Eller if the insurer had refused to utilize or at the very least review the work that had been previously created in Eller's criminal defense. While it may be fortuitous that National Union was able to utilize some of Eller's previous work without having to pay for that work, that does not render such use inequitable, particularly in light of the fact that the expenses were initially incurred by Eller for its benefit and then used by National Union again for Eller's benefit. It was basically in Eller's best interests to tender the work product to National Union in order that Eller could have the best defense presented in the civil case.

The court granted summary judgment to the insurer.

TIG Ins. Co. v. Eagle, Inc., 2008 WL 4422333 (C.A.5, La.)

In this case, the United States Court of Appeals, Fifth Circuit, was presented with a contract interpretation issue regarding an excess insurance policy. The question was whether the insurer is obligated under the terms of the policy to pay up-front the covered claims and defense costs, or pay-back those covered claims and defense costs.

Eagle held a general liability policy issued by TIG Insurance and an excess insurance policy issued by Gray Insurance Company. The excess policy was termed an aggregate excess reimbursement policy. In 2005, TIG filed an action against Eagle and Gray seeking a declaratory judgment as to the extent of its obligations under its policies. The issue before the district court was whether Gray had to pay up front for claims asserted against Eagle and for defense costs, or whether Gray must only pay back Eagle for any of those amounts after Eagle had already paid them. The district court found the Gray policy terms to be ambiguous and ruled against Gray. This appeal followed.

The appeals court found that the Gray policy's language was clear and unambiguous. The coverage section of the policy plainly limited Gray's payment obligations to aggregate reimbursements to the insured. This means that Gray was only responsible for reimbursing, or paying back, Eagle. The court noted that the trial court said that as a starting point, the policy coverage and defense language must be considered in conjunction with the Gray policy statement that “the policy, except as to limits, shall be subject to all the exclusions and conditions of the underlying policies”. To the trial court, this meant all of the policy provisions of the underlying policy were incorporated and this included the coverage section, wherein the insurer was obligated to pay claimants directly on behalf of the insured. However, the appeals court found that the incorporation provision was limited to the conditions and exclusions sections of the underlying policy. Without a specific reference to the wholesale incorporation of the underlying policy in the Gray's policy text, the appeals court said it could not incorporate de facto or use the entire underlying policy to interpret the Gray policy so as to create an ambiguity.

The district court also suggested that condition 7 in the underlying policy supports an interpretation of the Gray policy that would obligate Gray to pay up-front expenses and claims that exceed the limits of the underlying policy. The circuit court found that this condition allows Gray to reimburse the ultimate net loss only after Eagle or a third party had already paid the sums, including defense costs, in settlement of claims.

The circuit court decided that the Gray policy is a pay-back or reimbursement policy and that Gray is only required to reimburse Eagle for claims and expenses paid first by Eagle. The ruling of the district court was reversed.

Bundul v. Travelers Indem. Co., 753 N.W.2d 761 (Minn. App., 2008)

In this case, the trustee of the heirs and next of kin of an automobile passenger, who was killed in an accident, brought a declaratory judgment action against the umbrella liability insurer for the automobile's owners and driver, asserting that the policy's “household exclusion” was void and unenforceable under the Minnesota Automobile Insurance No-Fault Act.

The insureds maintained a primary policy with limits that exceeded those required by law. The umbrella policy provided coverage of “$1,000,000 Per Occurrence,” but it also contained a “household exclusion”-for any injury to, or death of, “any person who is related by blood … to an 'insured' and who is a resident of the household of that person.”

The insurer contended that its clear “household exclusion” in the umbrella policy did not violate any rule or principle of law and was legally enforceable. The trustee argued that the exclusion was precluded by express statutory language and by public policy. The trustee argued that Minnesota 's abolition of family tort immunity was assimilated into the Minnesota Automobile Insurance No-Fault Act, thus making the insurer's household exclusion, which barred recovery of insurance benefits for an intrafamily tort, unenforceable. The trustee also argued that the exclusion conflicted with the Act's underlying public policy of “compensating victims of automobile accidents.”

The district court denied the insurer's motion for summary judgment, ruling that the exclusion was void and unenforceable, and the insurer appealed.

In its decision, the appeals court explained that the extent of an insurer's obligations to its insured was governed by the language of the contract to which the parties agreed, so long as the policy did not omit legally required coverage or contravene applicable statutes. Thus, even if there is an express agreement between an insurer and an insured, no exclusion will be held valid and enforceable if it contravenes the law because the subject matter of any contract must be legal.

The court further explained that the minimum insurance coverages for injury, death, and other specified losses resulting from automobile accidents in Minnesota are governed by the state's No-Fault Act , and no class of accident victims could be precluded from the mandated coverages of the Act. However, the court stated, no language in the Act rendered invalid an exclusion of a particular class of accident victims from coverage beyond that mandated by the Act. And, once an insurance policy alone, or a primary and an umbrella policy together, has satisfied the coverage mandate of the no-fault act, no further Act regulation of coverages exists.

Therefore, the court reversed the district court decision, holding that the Minnesota No-Fault Automobile Insurance Act did not preclude the “household exclusion” in a personal liability umbrella insurance policy so long as the underlying primary insurance policy provided the coverage mandated by the Act.

 State Farm Fire and Cas. Co. v. Nationwide Mut. Ins. Co., 596 F.Supp.2d 940 (E.D.Va., 2009)

In this case, Lou Ann Broughton filed a civil action against Robert Bruce Hoag, III. Hoag III was involved in a collision with Broughton, a pedestrian, when Hoag III negligently operated his motor vehicle, resulting in the collision and causing injury to Broughton.

Hoag III was the owner and regular user of the 2003 Jeep Wrangler that was involved in the collision. The Jeep was insured under an auto policy issued by State Farm to Hoag III, with bodily injury limits of $25,000 per person. This was the only liability insurance policy maintained by Hoag III for the vehicle.

In addition, Hoag III's father, Robert Bruce Hoag, Jr., was the named insured under a personal liability umbrella policy issued by State Farm, which provided for liability coverage up to $1,000,000. Hoag III was an additional insured under the provisions of Hoag Jr.'s State Farm umbrella policy.

At the time of the incident, Hoag Jr. was the named insured under a policy of motor vehicle liability insurance issued by State Farm to Hoag Jr., with bodily injury limits of $250,000 per person. Hoag III was not entitled to liability coverage under the Hoag Jr. motor vehicle policy for the claims asserted by Broughton.

Broughton was insured by Nationwide under a personal auto policy that provided UM/UIM coverage of $50,000 per person and a business auto policy that provided UM/UIM coverage of $500,000 per person.

The issue for the court was whether State Farm was obligated under the umbrella policy to pay for the amount of loss that exceeded Hoag III's underlying insurance of $25,000, or whether State Farm was only obligated to pay for the amount of loss in excess of $250,000. Nationwide stipulated that if the court determined that State Farm was only obligated to cover the amount of loss in excess of $250,000, then Nationwide would be responsible for the underinsured gap of $225,000 pursuant to Broughton's UM/UIM coverage.

The court explained that under the plain language of the umbrella policy, coverage was defined as “your net loss” minus the “retained limit”, which is the “total amount of liability of your underlying insurance”, without reference to the minimum coverage amounts listed in the declarations. Since “your” included Hoag III, Nationwide contended that State Farm must pay $750,000, the net loss, minus $25,000, the limit of Hoag III's underlying insurance. Thus, Nationwide contended, there was no underinsured gap in coverage, as State Farm was obligated to provide coverage up to the amount of Hoag III's underlying insurance.

However, the section of the policy entitled “Your Duties To Us,” stated:

We may not provide coverage if you refuse to … maintain your underlying insurance. All insurance listed in the Declarations must be maintained at all times. The limits listed in the Declarations are the minimum you must maintain. If the required underlying limits are not maintained, you will be responsible for the underlying limit amount of any loss.

Nationwide limited its analysis to the first two sentences of this provision. As to the first sentence, Nationwide argued that the “underlying insurance” was not defined with reference to any particular dollar figure, and Hoag III's maintenance of his underlying insurance at the policy limit of $25,000 did not violate this provision. As to the second sentence, Nationwide contended that because it did not specifically require “you,” including Hoag III, to maintain the insurance minimums in the declarations, this provision was satisfied by Hoag Jr.'s maintenance of all insurance required in the declarations.

The court explained that it could not limit its analysis to the first two sentences and disregard the rest of the provision. Thus, after also examining the third and fourth sentences, it appeared that since “you” included Hoag III, the provision required Hoag III to maintain underlying insurance in the amounts listed in the declarations, and, if he failed to do so, limited Hoag III's coverage to amounts that exceed the specified minimum.

The court explained that the determination of the case, then, turned upon the question of whether this provision, which required the insured to perform the affirmative act of maintaining insurance at policy limits greater than the amount required by law, was enforceable against a third party additional insured of the policy. There was no evidence in this case to indicate that Hoag III had knowledge of the umbrella policy's requirement to maintain insurance with policy limits of $250,000 for bodily injury, or that he had knowledge of the benefits he was eligible to receive under the umbrella policy.

The court looked to both insurance contract and third party beneficiary principles to determine the rights and obligations of the additional insured. It explained that although the general principle of contract law was that a person is not bound by a contract to which he did not agree, there was an exception to this general rule where a third party seeks to enforce a contract assumed for his benefit, and the Virginia Supreme Court had held that a third party beneficiary was “entitled to sue on the contract, bound by the terms of the contract, and subject to defenses arising out of the contract.”

Further, because the third party beneficiary took his rights under the contract subject to any conditions, the distinction between a promise and a condition was relevant in evaluating the enforceability of the terms of the contract against the third party. Here, it appeared that the provision of the State Farm umbrella policy at issue was a condition precedent, not a promise.

The court explained that Virginia cases interpreting insurance contracts were persuasive in finding that third party additional insureds were bound by policy provisions that operated as conditions precedent to the insurance company's obligation to pay. Thus, the court held that the provision of the State Farm umbrella policy requiring the insured to maintain underlying insurance at the minimum limits specified in the declarations was a condition precedent to State Farm's obligation to pay for the loss that exceeded the insured's underlying policy limits.

Also, the Virginia Supreme Court would hold such a condition precedent to be enforceable against a third party additional insured seeking coverage under the policy. Therefore, because Hoag III did not maintain underlying insurance at the required minimum limit of $250,000 for bodily injury, pursuant to the terms of the umbrella policy, State Farm was only obligated to pay for the amount of loss in excess of $250,000.

Accordingly, Hoag III was underinsured to the extent of $225,000, and Nationwide was responsible for that amount pursuant to its stipulation.

C.B., D.B., and S.B. v. Evdokimoff, 2008 WL 5025018 (N.J.Super.A.D.).

This is a case that involves the effect that the intentional acts of one insured have on the coverage for another insured. Evdokimoff was a teacher employed at a high school and he engaged in a sexual relationship with one of his students. When the relationship was discovered, Evdokimoff was arrested and the parents of the student filed a civil lawsuit against Evdokimoff and his wife. The wife was accused of being aware of her husband's conduct and not taking any steps to intervene or to protect the student.

The wife sought coverage under the homeowners policy and the umbrella policy that listed both Evdokimoff and the wife as named insureds. Both the homeowner insurer and the umbrella insurer (American International) denied coverage based on the intentional acts exclusions. Specifically, the umbrella policy stated that there was no coverage for bodily injury, personal injury, or property damage resulting from the willful or malicious act or omission by any person. The insurers filed a declaratory judgment action and the trial court granted summary judgment to the insurers.

Upon appeal, the wife argued that she should have coverage because she did not know of or condone her husband's conduct with the student. The appeals court upheld the decision of the trial court, ruling that both the homeowners policy and the umbrella policy excluded coverage for all insureds for the intentional acts of any insured.

State Farm Fire and Cas. Co. v. Repke, 301 Fed. Appx. 698 (9th Cir. 2008]

In this case, the insurer brought a declaratory judgment action against the insureds over the provisions of Nevada law as they applied to a personal liability umbrella policy. The U.S. District Court and the U.S. Court of Appeals both ruled in favor of the insurer. However, the point to be made here is that the courts determined that umbrella policies are not policies of motor vehicle insurance covering private passenger cars. As such, the insurer was not obligated under Nevada law to provide the insured an opportunity to reject any limitations on coverage when he obtained the umbrella policy.

Guidant Mutual Ins. Co. v. Indemnity Ins. Co. of North America, 2009 WL 1798818 (Miss.)

A county's auto liability insurer brought a declaratory judgment action seeking determination that a volunteer firefighter's auto insurer had a duty to defend him, the county, and others in a personal injury action arising from a motor vehicle accident.

James Hingle, a volunteer fireman with the Slayden Mt. Pleasant volunteer fire department in Marshall County , was dispatched to the scene of a fire in the county. En route to the fire scene, while driving his own personal vehicle, Hingle collided with a vehicle occupied by the Andersons . The Andersons were seriously injured. They sued Hingle and the county and the fire department.

Guidant Mutual insured Hingle under a personal auto policy with a $250,000 per person/$500,000 per accident limit of liability. Guidant also issued a personal umbrella protection policy to Hingle with a $1,000,000 limit. Indemnity Insurance Company insured the county and the fire department with a business auto policy with limits of liability of $300,000. While the lawsuits filed by the Andersons were pending, a dispute arose between the insurers as to which company should defend the litigation and which policy (or policies) should be considered as providing primary coverage and excess coverage.

Guidant eventually entered into a settlement with the Andersons and notified Indemnity Insurance of a settlement offer. Guidant requested $300,000 from Indemnity for the settlement. Indemnity responded that until Guidant was willing to discuss reimbursement of its legal costs, Indemnity was not willing to discuss a settlement contribution. Guidant did settle with the Andersons , allocating $300,000 from the personal auto policy and $450,000 from the umbrella policy. Guidant then filed a motion for summary judgment against Indemnity seeking contribution or reimbursement in the amount of $450,000. Guidant argued that the umbrella policy was excess to the Indemnity auto policy. The trial court ruled that Guidant was the primary insurer under both of its policies and until the total amount of the $1.5 million limit was exhausted, Indemnity had no obligation to participate in the settlement. Guidant appealed.

The Mississippi Supreme Court eventually got this case and noted that Guidant admitted that it was a primary insurer, but also argued that Indemnity was a co-primary insurer since Hingle was on fire department business at the time of the accident. The court said that the long-standing law in Mississippi is that the insurance policy issued to the owner of the vehicle is the primary policy. Therefore, Guidant is the primary insurer.

Also noted was the fact that the policies of both insurers had other insurance clauses, with Guidant's clause calling for pro-rata sharing and Indemnity's clause saying the coverage for nonowned autos was excess over any other collectible insurance. As to how these clauses affected coverage under the umbrella policy, the court noted that most courts have held that an umbrella policy is not other insurance for the purposes of a primary policy. An umbrella policy is for the purpose of true excess coverage above and beyond any other applicable primary excess policy. Other insurance clauses from primary auto policies should not be compared with other insurance clauses in umbrella policies. Since they do not warrant comparison, they cannot be found to have identical, mutually repugnant clauses. Therefore, Guidant was correct in its assertion that the trial court erred in finding that Guidant's personal umbrella policy issued to Hingle must be exhausted before Indemnity's business auto policy should be applied.

The supreme court ruled that the Indemnity policy issued to the county and the fire department provided coverage for nonowned vehicles in excess of the primary auto insurance available to Hingle. And, because the umbrella policy that Guidant issued to Hingle was true excess coverage, the other insurance clauses in the Indemnity policy and the Guidant umbrella policy do not conflict. Therefore, the coverage provided by the umbrella policy would come into play only after the exhaustion of applicable coverage under the personal auto policy of Hingle and the business auto policy of the county. The opinion of the trial court on this issue was reversed.

Harleysville Ins. Group v. Omaha Gas Appliance Co., 278 Neb. 547 (Neb., 2009)

In this case, the general liability insurer brought a declaratory judgment action, seeking declaration that the pollutant exclusion to coverage for bodily injury applied and that it had no duty to defend the insured in a wrongful death action brought by the personal representative/special administrator of the insureds' customers after they died from carbon monoxide poisoning, due to insured's allegedly negligent repair of customers' boiler. The personal representative/special administrator intervened. The district court entered summary judgment in favor of the insurer and the personal representative/special administrator appealed.

The Supreme Court of Nebraska affirmed, holding that the provision in the insured's umbrella policy that “this insurance does not apply to … any liability caused by pollutants excluded by underlying insurance” did not provide an exception to the pollutant exclusion from coverage for deaths of the insured's customers. The court explained that in construing an insurance contract, a court must give effect to the instrument as a whole and, if possible, to every part thereof. Further, in situations involving the interplay between primary and umbrella coverages, courts should examine the overall pattern of insurance and construe each policy as a whole . Thus, reading the phrase, “[a]ny liability caused by pollutants excluded by 'underlying insurance,' ” the court found no basis for the personal representative/special administrator's conclusion that this could reasonably be construed as providing coverage, admittedly excluded by the underlying insurance, for negligence-based pollution occurrences. Viewing the phrase in context, it clearly conveyed that the umbrella policy was not meant to provide coverage for any additional pollution occurrences excluded under the general liability policy. The umbrella policy, like the general liability policy, excluded coverage for liability occasioned by the release of pollutants—regardless of what level of human culpability was involved.

Stickley v. State Farm Fire & Cas. Co., No. 307, Sept. Term, 2011

The issue before this court is the proper interpretation of the phrase “private passenger motor vehicle liability insurance”. The main question before the court is whether an umbrella policy fits within that definition such that an insurer must offer insured liability coverage for family members in the same amount as the liability coverage for non-family members. Joan Stickley, was injured in a car accident that killed her husband. Mrs. Stickley was riding as passenger in the vehicle her husband was driving when he negligently drove into an intersection and was struck by another vehicle. At the time of the accident Mrs. Stickley and her husband had a motor vehicle liability policy through State Farm with coverage of $100,000 per person, and $300,000 per accident. They also had an umbrella policy through the same agent at State Farm. The uninsured motorist coverage on this policy was $200,000. The umbrella policy provided coverage for bodily injury, personal injury, and property damage but required the insured to maintain specific underlying insurance, including auto liability. After the accident State Farm offered the $100,000 for the liability coverage provided under the policy. Mrs. Stickley made a claim for bodily injury under the umbrella policy, which was denied by State Farm due to a household exclusion that was included in the policy specifying that injury caused by an insured household members negligent acts are not covered. She sought to have the household exclusion that is in their umbrella policy declared void because, she claimed, her husband and herself were never offered equal coverage for family members under their automobile insurance policy which was contained within their umbrella policy. Both parties filed Cross-Motions for Summary Judgment. The trial court concluded that the purpose of the umbrella policy is to protect the insured, not attach to any vehicle in particular. Mrs. Stickley also argued that enforcing the household exclusion was against public policy. The court concluded that public policy only required the insurer to offer liability coverage in an amount equal to non-family members in a private passenger motor vehicle liability insurance policy, not an umbrella policy. The trial judge ruled in favor of State Farm and granted their Motion for Summary Judgment finding “absolutely no ambiguity” in the exclusions of the umbrella policy.

Powerine Oil Co., Inc. v. Superior Court, No. S113295.Aug. 29, 2005

The Powerine Oil Company, a defunct oil refinery, faced liability for governmentally imposed cleanup orders requiring it to remediate soil and groundwater pollution that were a result of past refinery operations at various locations. From the 1930's Powerine was involved with oil and petroleum related exploration, production, terminaling and transportation that operated throughout the Midwest. In 1985 Powerine filed for bankruptcy, forced of hand by the soft petroleum market. As a result of its operations, Powerine faced governmentally imposed environmental liabilities arising from alleged soil and groundwater contamination at the various locations the company was located. Two orders to cleanup and abate were issued by the Regional Water Boards, requiring Powerine to remediate all pollution resulting from the company's operations at ten sites. Powerine notified its insurers of the orders, which lead to a declaratory relief action against the company. Powerine cross-complained against numerous insurers, the real party in interest being Central National, which had issued nine excess/umbrella policies covering periods from 1973-1983. This cross-complaint alleged that each insurer had a contractual duty to defend and indemnify Powerine for the costs of cleanup and abatement that arose from the orders from the Regional Water Boards. The issue presented is whether the insurer's obligation to indemnify the insured under the wording of nine excess/umbrella insurance policies was limited to the money ordered by the court in a suit for damages. The court held that the nature of the coverage sought by the insured under the policies in question was encompassed within the insuring language in the first instance as a matter of law. Under a literal reading of the excess/umbrella policies, the indemnification obligation was extended beyond the court ordered money damages to include expenses incurred in responding to government agency orders imposed outside the context of a government lawsuit to cleanup and abate environmental pollution. This shows the proclivity of this court to interpret insurance policies via their most literal interpretation of the language therein.

LaRocco v. Old Republic Ins. Co., Civil Action No. 5:08–cv–00205.Sept. 28, 2009

Claire LaRocco filed for declaratory judgment action against Old Republic Insurance Company (Old Republic) and Ohio Casualty Insurance Company (Ohio Casualty), regarding insurance coverage for injuries that LaRocco suffered in a car accident. LaRocco was riding in a car driven by her husband when a car attempted to merge before fully passing their car. Although there was no vehicle contact, Mr. LaRocco lost control of the car and crashed on the roadside, rolling several times. The car LaRocco was riding in was insured by State Farm, who honored their claim, which was insufficient to compensate her for her medical expenses. LaRocco submitted a subsequent claim for uninsured motorists benefits with Old Republic, which provides insurance for LaRocco Enterprises Inc. LaRocco is the President-Treasurer and Board Chairperson of LaRocco Enterprises, but was not acting within the scope of her duties at the time of the accident, and Old Republic denied the claim. LaRocco also seeks declaratory judgment against Ohio Casualty who issued a Commercial Umbrella Policy that generally provides umbrella coverage for losses not fully covered by the Old Republic policy. Ohio Casualty denies that LaRocco is entitled to coverage under the Umbrella Policy. The court asks to what extent, if any, is LaRocco covered under Old Republic's commercial auto coverage, and Ohio Casualty's umbrella policy. Since LaRocco was not a named party to the Old Republic insurance, she is not entitled to the broad coverage that the policy provided to those named insureds. Even if LaRocco's claims were correct in her assertion that the state law required equivalent uninsured motorists coverage, Old Republic has satisfied any statutory obligations. When the accident occurred, LaRocco was a passenger in a vehicle owned by her husband, therefore she would not have been eligible for liability coverage under the Drive Other Car endorsement, which excludes LaRocco from uninsured motorists coverage if her car, or a car owned by a family member, is the at-fault uninsured vehicle. The implied uninsured motorists coverage extends to any “insured” party in the umbrella policy, but LaRocca was not considered an “insured” according to the Old Republic insurance agreement. LaRocca was not considered an insured of the umbrella policy by operation of the law under the circumstances of the accident. LaRocca's motions for summary judgment were denied.

Graff v. Robert M. Swendra Agency, Inc., Nos. A09-173, A09-522-Court of Appeals of Minnesota-December 29, 2009-776

This case revolves around a failure to insure lawsuit. It is a suit between Curtis Graff and Robert Swendra, owner and operator of the Robert M. Swendra Agency, Inc. Robert Swendra acted as an agent of the insurance agency and arranged Graff's insurance policies. Before purchasing insurance coverage through American Family Insurance, Graff discussed with Swendra the procurement of an additional supplemental umbrella policy that included $1,000,000 in additional underinsured motorist coverage. Graff and Swendra were working together with American Family Insurance to procure the coverage. Swendra did not secure the additional coverage, and claimed that the conversation never occurred and he had no obligation to procure the additional insurance. Graff was severely injured in an automobile accident. The other party's insurance carrier paid Graff the policy limits, and he demanded that American Family cover the remainder of his damages. American Family refused to pay under the umbrella policy, but eventually settled for $100,000, as part of the underinsured motorist coverage. Graff released all of his claims against American Family. Upon finding out that Graff had settled with American Family, Swendra asked the court to dismiss Graff's action against him. He argued that if a jury found that he had agreed to procure the desired coverage then he would not be independently liable and American Family would be contractually bound. The court continued with the trial, and the jury found Swendra 90 percent negligent for not procuring the additional underinsured insurance. Graff was entitled to damages. The case was appealed and the judgment of the lower court was affirmed.