Umbrella Policy’s Self-Insured Retention Does Not Apply to Excess Policies California Appellate Court, First District, February 25, 2019
CALIFORNIA — A coverage dispute arose from numerous claims filed, in various jurisdictions, against Deere & Company for personal injuries arising from alleged exposure to asbestos-containing brakes, clutch assemblies, and gaskets used in Deere machines. In this decision, the court addressed two issues: 1) whether Deere’s higher-layer excess policies were triggered once the first-layer excess policy limits, which were subject to a self-insured retention (SIR) paid by Deere, had been exhausted; and (2) whether the higher-layer excess insurers’ indemnity obligation extended to Deere’s defense costs incurred in asbestos claims that had been dismissed.
The court sided with Deere on both issues. As to the first, the court noted that the higher-layer excess policies followed form to the lower-layer policies—meaning the policies had the same terms and conditions—except with respect to the policies’ amounts and limits of liability. Moreover, the higher-layer policies themselves said nothing at all regarding any SIR. The court went on to state that SIRs are “part and parcel” to the policies that provide for them and cannot be thought of as separate layers of insurance that must be exhausted before a higher layer of insurance is triggered.
The court also held that the higher-layer policies covered Deere’s defense costs in cases where no payment was made to the underlying claimant, either in settlement or to satisfy a judgment. The court again looked to the plain language of the policies. The policies’ insuring agreements covered both “damages” and “expenses”, which were defined in the policies’ “ultimate net loss” provisions to include attorney fees and other defense costs. The insurers argued that the policies applied only to “occurrence[s] covered hereunder”, which did not mean “a claim that might result in indemnity; rather, it means an occurrence that does result in indemnity, a claim that is actually covered.” But the court interpreted “covered” to include everything in the insuring agreement, which as mentioned above included both “damages” and “expenses.” The court also looked to the policies’ “loss payable” conditions, which required Deere to make a claim after paying an amount exceeding its SIR, or when Deere’s liability was fixed. The court reasoned that this provision was inconsistent with an interpretation of the policy that required a finding of liability before Deere was entitled to its defense costs