In Deere & Co. v. Allstate Ins. Co. (No. A145170, filed 2/25/19), a California appeals court held that the insured was not required to pay additional self-insured retentions (SIRs) in order to trigger higher level excess coverage because the retained limits applicable to the first layer of coverage did not also apply to the higher-layer excess policies.
In Deere, the insured was sued for injuries from alleged exposure to asbestos-containing assemblies used in Deere machines. In a declaratory relief action against its umbrella and excess insurers, the case was tried on: (1) whether the higher-layer excess policies were triggered once the first-layer excess policy limits, which were subject to an SIR paid by Deere, had been exhausted; and (2) whether the insurers’ indemnity obligation extended to Deere’s defense costs incurred in asbestos claims that had been dismissed. The trial court found in favor of the insurers, concluding that the retained limits in the first layer of coverage also applied to the higher-layer excess, which was not triggered until Deere paid additional SIRs. The court also concluded that the insurers were not obligated to pay defense costs when underlying cases were dismissed without payment to a claimant either by judgment or settlement.
The appeals court reversed. The court distinguished SIRs from deductibles, noting that, generally, SIRs have to be paid first, before coverage applies; SIRs apply to both defense and indemnity; and SIRs do not reduce available limits. The trial court noted an analogy to SIRs in the relation between primary and excess insurers, because “the primary insurer’s obligations are triggered once the SIR is exhausted, just like an excess insurer’s obligations are triggered once the primary limits are exhausted.”
The issue then came down to the scope of coverage provided by “following form” excess policies. The insurers had argued that the retained limits were incorporated into the higher-layer excess policies by virtue of the “following form” provisions in the policies’ “Maintenance of Underlying Umbrella Insurance” clauses, which stated that the higher level excess policies were “subject to the same terms, definitions, exclusions and conditions (except as regards the premium, the amount and limits of liability and except as otherwise provided herein) as are contained in or as may be added to the Underlying Umbrella Policies.”
The appeals court disagreed, noting that the policies said “nothing about higher-layer excess coverage being conditioned on Deere paying any additional SIR or retained limit before liability attaches.” The Deere court pointed out that the SIRs were found in the policies’ limits of liability section and, as with following form excess policies generally, the coverage provided was subject to the same conditions and limitations of the underlying policy, except for the policy limits. (Citing Coca Cola Bottling Co. v. Columbia Casualty Ins. Co. (1992) 11 Cal.App.4th 1176.) Thus, “the higher-layer excess policies follow form except, as is relevant here, regarding the limits of liability. Accordingly, the higher-layer excess policies do not follow form as to the SIR, which is written in terms of liability limits.”
Turning to the second issue, the Deere court then held that the policies obligated the insurers to indemnify Deere for its defense costs, without regard to the outcome of the underlying cases. The excess insurers had contended that their payment of defense costs was subject to an “adjudication or compromise” requirement that was missing when Deere prevailed and the underlying action was dismissed without any payment by Deere. The court disagreed, saying that “[t]his argument is irreconcilable with the plain language of the policies.”
The Deere court pointed out that the excess insurers were obligated for “all sums” that Deere became obligated to pay “by reason of the liability . . . for damages . . . and expenses . . . defined by the term ‘ultimate net loss’.” And “ultimate net loss” included “expenses for . . . lawyers . . . and investigators and other persons, and for all litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder.”
The court rejected an argument that “occurrence covered hereunder” required an actual finding of covered liability. The Deere court quoted its earlier opinion in Ticor Title Ins. Co. v. Employers Ins. of Wausau (1995) 40 Cal.App.4th 1699, 1709, saying that “In the context of an insurance policy, coverage means ‘inclusion within the scope of an insurance policy,’ not ‘the act or fact of covering.’ Thus ‘coverage’ has nothing to do with how, in reality, the insurer acts with respect to its insurance obligations.”
Consequently, “the products-liability lawsuits filed against Deere, claiming personal injuries caused by continuous or repeated exposure to asbestos, fall squarely within the scope of coverage afforded by the excess policies; indeed, the asbestos suits are precisely the sort of products-liability claims the policies were designed to encompass. Nothing in the plain language of the excess policies requires a coverage determination regarding Deere’s actual liability, before the insurers are obligated to pay the litigation expenses associated in Deere’s defense of the underlying actions.”
The Deere court also found support for payment of the defense costs in the policies’ notice and payment of loss provisions, to conclude that, therefore, “a ‘covered occurrence’ is one arising within the scope of the insurance, as opposed to an actual adjudication of the merits of an underlying claim.”
