« Homeowner Denied Coverage for Water Damage Caused by Third-party Negligence | Main | Covering an Accident—Oral Argument in the California Supreme Court in the Delgado Case »

May 26.2009

Recent San Francisco Superior Decision Tackles Obligation to Pay Defense Costs Outside of Limits

by Amanda Hairston

In Yarway Corp. v. Admiral Ins. Co., the parties submitted to a bench trial for resolution on the issue of whether an umbrella insurer was obligated to pay the insured’s defense costs in addition to policy limits.  The insured sought coverage for lawsuits brought against it for asbestos-related bodily injury related to the insured’s products.  The insured had exhausted its primary insurance and settled with several of its other umbrella carriers.
 
The umbrella policy at issue provided coverage for defense costs in addition to policy limits “with respect to an occurrence which is not covered by any policy of underlying insurance [listed] and to which there is no other insurance in any way applicable.”  The parties’ dispute centered on the meaning of “applicable.”  The insured argued that the term “applicable” meant that only policies triggered by the asbestos-related suits could be “applied” to the claims and that its higher-level excess policies did not qualify as “other insurance” since they were not yet triggered by the suits.  The carrier argued that the “other insurance” clause was broad enough to include any and all policies that could at any time cover asbestos-related claims regardless of the level of that insurance and whether or not that coverage had been triggered.
 
Judge Munter of the San Francisco Superior Court held that both interpretations were reasonable.  As a result, he was compelled to find that the language was ambiguous and construe the language against the carrier.  In addition, he found that the limits of liability section of the policy contemplated that the umbrella policy would “continue in force as underlying insurance” after the primary policy was exhausted.  As a result, he held that it was a reasonable interpretation of the policy that the carrier was required to step in before any other higher-level policies since the “drop down” language indicated the umbrella policy was triggered by vertical exhaustion, not horizontal.  As a result of these two clauses, the court found that the “other insurance” clause only referred to policies that applied contemporaneously with the defendant carrier’s policy and did not refer to policies that were either no longer “valid and collectible” or higher-level excess policies that might apply after the defendant carrier’s policy was exhausted.  As a result, the Judge ruled that payment of defense costs would not reduce the carrier’s policy and the carrier was obligated to pay defense costs until its limits were exhausted by payment of indemnity.
 
This decision highlights the need to carefully consider the “other insurance” clause and which policies need to be exhausted or triggered before they can applied.  As shown by the Yarway decision, policyholders can find support in both ambiguous “other insurance” clauses and limits of liability requirements to force an umbrella carrier to pay for defense costs outside of limits.

Posted in General Liability Policies | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83425306353ef01156fa4c563970c

Listed below are links to weblogs that reference Recent San Francisco Superior Decision Tackles Obligation to Pay Defense Costs Outside of Limits:

Comments

Post a comment





Comments to the Policyholder Perspective blog are welcome; however, such communications must be considered NON-CONFIDENTIAL and do not create any attorney-client relationship. Accordingly, please refrain from including confidential information in any comment or question. Feel free to read the full disclaimer and terms of use.