7th Jan 2020
There are disputes which involve multi-layered complex insurance-coverage. Liability insurance is often purchased in “towers” (e.g. $1,000,000 primary, $5,000,000 first-level excess, $10,000,000 second-level excess, $20,000,000 third-level excess, and so on). These arrangements benefit both the insurance company (allocating the risk) and the insured (reducing premium costs). [Deere v. Allstate (2019) 32 Cal. App. 5th 499, 505] A large manufacturer such as Deere, manufacturer of motorized products nationally may be sued in multiple claims over multiple years. In such litigation, after suit, Deere would commence its defense by paying its retained limit (SIR) which was part of the insurance program, and then look to the first layer to provide coverage. The first layer would then pay out its per-occurrence and aggregate limits, and then Deere would look to the next level of coverage, and so on and so forth, all the way up the “tower”. [Deere v. Allstate (2019) 32 Cal. App. 5th 499, 507] See § S18 SELF-INSURED RETENTION (SIR) [§ S18:9 Multi-layered policy; analysis, methodology in determining coverage] § P33 PER PERSON/PER OCCURRENCE; § A51 AGGREGATE AMOUNT; § L10.03 LAYERED POLICY [§ L10.03:1 In general].
Upper layer following-form excess policies
A large manufacturer, in addition to the above, may also maintain several layers of excess umbrella liability insurance policies, which by their terms cover any “ultimate net loss” [§ U1 ULTIMATE NET LOSS] in excess of the underlying limits of the first-layer umbrella policies. In any given policy period, there may be anywhere from two to five, or more, layers of such excess coverage. The upper layers may be following-form policies. See § F37 FOLLOWING FORM (EXCESS POLICY) [§ F37:1 In general]. These upper layer policies are generally short, consisting of one or two pages that incorporate by reference the underlying policy coverages, except for the premium; the liability limits; and as otherwise provided therein. [Deere v. Allstate (2019) 32 Cal. App. 5th 499, 510] See § E46 EXCESS LIABILITY INSURANCE POLICY [§ E46:5]; § L10.03 LAYERED POLICY [§ L10.03:2]
Excess, umbrella, layered policies are obligated to pay insured for its defense costs.
An insured face with numerous lawsuits filed over numerous years is entitled to payment of defense costs including attorneys fees from such layered policies without regard to the outcome of the underlying cases. Excess, layered policies define “ultimate net loss” as the “total sum” which the insured becomes obligated to pay by reason of personal injury, property damage or advertising liability claims either through adjudication or compromise and shall also include all sums paid as expenses for doctors, lawyers, nurses, 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 under the policy. See § U1 ULTIMATE NET LOSS. The “ultimate net loss” provision structurally consists of two provisions: (1) damages on the one hand, which arise through adjudication and compromise of the insured’s liability, and (2) expenses on the other, which are paid in connection with litigation of claims and suits. Payment of expenses, unlike damages, does not require a determination of the insured’s liability. [Deere v. Allstate (2019) 32 Cal. App. 5th 499, 519] The insurance company’s argument that a request for payment of defense costs by the insured is tantamount to requesting a duty to defend, noting that excess and umbrella polices do not contain such defense until the primary policy has been exhausted. However in the circumstance discussed herein the excess insurers are not being asked to step in and defend the insured against any claim that is potentially covered. In this circumstance an insured is asking for “coverage”, i.e. indemnity in accordance with the language used in the “ultimate net loss” provision. [Deere v. Allstate (2019) 32 Cal. App. 5th 499, 521-523]
References in bold are to Mr. Cornblum’s text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE, 2019 Edition, published by ThomsonReuters (1-800-344-5008) to order 3-Volume text). This text also available to search on Westlaw.