Insurance Coverage – “Other Insurance” Provisions Between Excess Carriers

by Low, Ball & Lynch
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Advent, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA

Court of Appeal, Sixth Appellate District (December 6, 2016)

Historically, “other insurance” clauses in liability policies were designed to prevent multiple recoveries when more than one policy provided coverage for a given loss. Where such clauses are given effect, each insurer’s ultimate liability in an apportionment action is generally determined by the explicit provisions of the respective “other insurance” clauses. In this case, the Court was faced with competing “other insurance” provisions between excess carriers, one deemed “specific” and one “general.”

Advent, Inc. (“Advent”) was hired as the general contractor for the Aspen Family Village project in Milpitas, California. Advent subcontracted with Pacific Structures, Inc. (“Pacific”), which in turn subcontracted with Johnson Western Gunite (“Johnson”). The Advent/Pacific contract contained a provision regarding insurance, which required Pacific to name the owner and Advent as additional insureds. The Pacific/Johnson subcontract in an Exhibit “D” required all “subcontractors” to provide insurance certificates “as designated in the Subcontract.” However, the subcontract itself did not actually designate anything about insurance, and referred to the Advent/Pacific Contract as “the contract.”

Advent was insured by Landmark Insurance (“Landmark”) under a $1,000,000 CGL policy. It had a $5,000,000 excess commercial policy with Topa Insurance Company (“Topa”) which provided that it was “excess of the applicable limits of liability, whether collected or not, of the Underlying Insurance in Item 6 of the Declarations…” (Item 6 was the Landmark policy). Johnson was insured by National Union Insurance Company (“National Union”) under a $1,000,000 primary CGL policy, and a $15,000,000 excess policy, also from National Union. The primary policy was amended to include, as additional insureds, those “where required by written contract.” National Union’s excess policy stated that “insured” meant any person or organization other than Johnson, included as an additional insured in the underlying policy, “but not for broader coverage than would be afforded by [the primary policy.]”

The excess policy also expressly stated that it “will not make any payment” unless and until “The total applicable limits of Scheduled Underlying Insurance have been exhausted.” It also required that “Other insurance” be exhausted by payment of loss, and defined “Other Insurance” as “a valid and collectible policy of insurance providing coverage for damages covered in whole or in part by this policy.”

On August 22, 2008, Jerry Kielty (“Kielty”) was employed by Johnson as a cement pump operator. At around noon, his foreman directed him to retrieve a piece of plywood that had been left outside between Buildings 60 and 70 at the project. His path to retrieve the plywood was completely outside, and there was nothing about the task that would have required Kielty to enter Building 70. At some point after he was sent on his task, he was discovered at the bottom of stairs inside Building 70. He suffered severe injuries falling down the stairs, and could not recall how he fell. Kielty sued Advent and others for damages for injuries he sustained in the accident. Kielty did not name Johnson, his employer, or allege any negligence on the part of his employer. Advent tendered to its carriers, as well as to National Union, as an additional insured of Johnson. Landmark and Topa defended Advent, and ultimately, National Union defended under a reservation of rights on the primary policy. Kielty’s suit was eventually settled for $10,000,000. Landmark and National Union’s primary policies paid $1,000,000 each, and Topa paid its excess limits of $5,000,000. The remaining $3,000,000 was paid by other carriers.

Topa then brought an action against National Union’s excess policy seeking a declaration that Advent was an additional insured on the excess policy and seeking equitable contribution. Topa and National Union filed cross-motions for summary judgment. The trial court granted National Union’s motion, finding that the language of the subcontract could not be reasonably interpreted as incorporating by reference the insurance requirements in the Advent/Pacific subcontract, and that “poor drafting” of the contract language by Advent and/or Pacific could not be construed against Johnson. Therefore, Topa failed to show there was a written contract requiring Johnson to name Advent as an additional insured. The court also concluded that Kielty never alleged that Johnson was at fault for the accident. For the same reasons, Topa’s equitable contribution claims failed. Topa appealed.

The Court of Appeal affirmed. First, the Court noted that the parties disputed a critical issue: whether Topa bore the burden to prove that Kielty’s accident was actually covered by National Union’s policies, or whether National Union bore the burden to prove that Kielty’s accident was not actually covered. Topa argued that it only needed to demonstrate a potential for coverage under National Union’s excess policy, and that the burden then shifted to National Union, to show as an affirmative defense, that coverage did not exist.

The Court of Appeal noted that this burden-shifting policy made sense on Topa’s own motion for summary judgment, but that on National Union’s motion, its initial burden is to show that there are undisputed facts supporting each element of its affirmative defense of lack of coverage. Once it did that, Topa had to prove that there was evidence or a reasonable inference that there was coverage for Kielty’s claims.

Here, the National Union primary policy provided coverage for the additional insured with respect to bodily injury caused in whole or in part by the named insured, Johnson. The National Union excess policy followed the primary policy, and thus only covered claims caused in whole or in part by Johnson or someone acting on behalf of Johnson. The facts as known did not support such an inference. Based on the facts known or alleged, the Court held it was clear that Kielty’s injuries were not “caused by” Johnson or someone on behalf of Johnson. His supervisor did not ask him to go in the building, he had no business in the building, and Kielty himself could not say why he went in the building.

Topa argued that Kielty’s injuries were potentially caused by Johnson, because “at all relevant times,” Kielty was acting on Johnson’s behalf. National Union argued that this was “merely speculation,” and the Court agreed. Why Kielty went in Building 70 was completely unknown. When determining a duty to defend or indemnify, the court will not look at “made up facts,” or “extraneous facts,” which the Court agreed were speculative.

In a second argument, the Court of Appeal held that even if it were to determine that National Union’s excess policy provided coverage to Advent, National Union would still be entitled to judgment in its favor. The National Union policy provided that it would be obligated only after the underlying limits of the primary policy were paid and “other insurance have been exhausted by the payment of Loss.” In contrast, Topa’s excess coverage applied immediately once the Landmark Policy was exhausted. Topa argued that its definition of “loss” was in effect an “other insurance” policy. The Court disagreed. The reference to “other insurance” was vague, and no definition was provided.

The Court thus determined that Topa’s excess policy was a specific excess policy which attached before National Union’s general excess policy. Judgment in National Union’s favor was affirmed.

COMMENT

The general rule where multiple polices share the same risk but have inconsistent “other insurance” clauses is to prorate according to each policy’s limits. However, this case is a reminder that there must still be coverage for the loss under both, and if one has an “other insured” provision and the other does not, proration is not always appropriate.

For a copy of the complete decision, see: Advent v. National Union

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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