A “following form” excess liability policy did not include uninsured motorist/underinsured motorist coverage that was provided in the underlying primary policy. ( Haering v. Topa Insurance Company (2016) WL 409532)
Facts
Larry Haering was the owner of California Fleet, Inc. California Fleet was the named insured under a State National Insurance Company primary policy which provided various types of coverage, including garage operations coverage with a $1 million limit and uninsured motorist/underinsured motorist (UM/UIM) coverage with a $1 million limit. The State National policy’s UM/UIM endorsement stated that State National would “pay all sums that the insured is legally entitled to recover as compensatory damages from the driver of an uninsured motor vehicle.”
California Fleet was also the named insured on a Topa Insurance Company excess liability policy with a $1 million limit. The Topa excess policy provided that Topa would “indemnify the insured for the amount of loss which is in excess of the applicable limits of liability … of the Underlying Insurance [i.e., the State National policy].” The Topa policy further provided that “the provisions of the immediate underlying policy are incorporated as a part of this policy except for … any other provisions therein which are inconsistent with the provisions of this policy.” The Topa policy defined “loss” as “the sum paid in settlement of losses for which the insured is liable….”
Haering was seriously injured in a motor vehicle accident caused by a negligent driver who had an auto policy with a $25,000 liability limit. Haering settled his claim against the negligent driver by accepting the $25,000 policy limit from the negligent driver’s insurer.
Haering then submitted a UIM claim to State National pursuant to the $1 million UM/UIM endorsement to the State National policy. Eventually, Haering recovered the UIM policy limit from State National.
Thereafter, Haering submitted a claim to Topa for $1 million in excess coverage. Haering argued that the Topa policy “followed form” to the State National policy and thus “incorporated” the State National policy’s UM/UIM coverage. Topa denied Haering’s claim, asserting among other things that the Topa policy’s insuring agreement limited coverage to third party liability claims and did not cover first party UM/UIM claims.
Following Topa’s denial of coverage, Haering sued Topa for breach of contract and bad faith. The trial court concluded that the Topa excess policy only covered third party liability claims, not first party UM/UIM claims. Thus, the trial court entered judgment in favor of Topa. Haering appealed.
Holding
The California Court of Appeal affirmed the judgment in favor of Topa. According to the appellate court, the Topa excess policy’s insuring agreement plainly “limits the insurer’s indemnity obligation to ‘losses for which the insured is liable,’ i.e., third party liability claims.” The appellate court thus concluded that Haering’s “claim for first party UM/UIM benefits does not come within the scope of that agreement.”
Haering nevertheless argued that the Topa policy was a “following form” excess policy that provided coverage on the identical terms as the underlying State National policy, including the UM/UIM coverage provided under the endorsement to the State National policy. The appellate court rejected that argument. The court reasoned that the language of the Topa policy that incorporated the provisions of the State National policy also expressly excepted from incorporation those provisions “which are inconsistent with” the Topa policy. Because the Topa policy’s insuring agreement expressly limited coverage to third party liability claims, first party UM/UIM coverage would be “inconsistent” with that limitation.
Comment
The appellate court in this case relied on the distinction between first party insurance, which provides coverage for loss sustained directly by the insured , and third party insurance, which provides coverage for liability of the insured to a third party . The court held that UM/UIM coverage is first party coverage, not third party coverage, because the insurer’s duty is to compensate its insured for his or her losses, rather than to indemnify the insured for losses sustained by others.