A general liability policy unambiguously provided that the policy’s self-insured retention could only be satisfied by the named insured, and not by someone else such as an additional insured. ( Forecast Homes , Inc . v . Steadfast Ins . Co (2010) 181 Cal.App.4th 1466)
Facts
Forecast Homes, Inc. (Forecast) is a residential home developer which typically hires subcontractors to build the homes. The subcontracts give Forecast express indemnity rights against the subcontractors and require that Forecast be listed as an additional insured on the subcontractors’ policies.
Between 2001 and 2003, Forecast was served with five different construction defect lawsuits. Forecast was the only named defendant in the lawsuits; the subcontractors were not named.
After being served with the lawsuits, Forecast tendered its defense to various subcontractors’ insurers which had issued additional insured endorsements in favor of Forecast. Over a dozen of the subcontractors had policies through Steadfast Insurance Company (Steadfast), and each Steadfast policy had self-insured retention (SIR). Some of the Steadfast policies provided that “ you [i.e., the named insured subcontractor] shall be responsible for payment of all damages and defense costs for each occurrence or offense, until you have paid self-insured retention amounts and defense costs equal to the per occurrence amount shown in the Schedule.” Other Steadfast policies contained similar language and further stated that “[p]ayments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention.”
Steadfast denied Forecast’s tenders on the ground that the only the named insured subcontractor could satisfy the SIR requirement, and none of the subcontractors had satisfied the SIRs.
Forecast sued Steadfast for breach of contract and bad faith. The trial court ruled that only the named insured subcontractors (not an additional insured such as Forecast) could satisfy the SIR requirement. The trial court thus ruled that Steadfast’s duty to defend Forecast had not been triggered. Forecast appealed.
Holding
The Court of Appeal affirmed. The appellate court held that under both versions of the Steadfast policies, only the named insured subcontractor could pay the SIR and thereby trigger the duty to defend. The appellate court further held that this was not counter to public policy, noting that Forecast could have (1) required its subcontractors to list Forecast as a named insured on the policies or (2) insisted on policy language permitting an additional insured to satisfy the SIR. Because the named insured subcontractors had not satisfied the SIRs, Forecast was not entitled to a defense from Steadfast.
Comment
In this case, the appellate court confirmed that payment of an SIR is a condition precedent to triggering coverage under a policy. Further, if the SIR language clearly provides, only the named insured – not an additional insured – can satisfy this condition precedent.
The court specifically distinguished some prior cases in which courts had held that someone other than a named insured might be able to satisfy an SIR. According to the appellate court, those prior cases involved different, arguably ambiguous, policy language.