An insured’s higher-layer excess policies did not incorporate lower-layer umbrella policies’ self-insured retentions, and did cover defense costs without regard to the outcome of the case. (Deere & Company v. Allstate Ins. Co. (2019) 32 Cal.App.5th 1230)
Facts
Deere & Company is a manufacturer of farm equipment. Numerous parties filed lawsuits against Deere in various jurisdictions for personal injuries arising from alleged exposure to asbestos-containing brakes, clutch assemblies, and gaskets used in Deere machines.
From 1958 through 1986, Deere’s insurance coverage consisted of numerous primary, umbrella, and excess policies. The primary policies did not cover products-liability claims, and thus those policies did not cover Deere’s alleged liability in the asbestos lawsuits. Rather, coverage for products liability was provided by a series of first-layer umbrella policies that provided coverage to Deere in excess of self-insured retentions (ranging over time from $50,000 to $2.5 million). Deere also had several layers of excess insurance policies, which sat above the first-layer umbrella policy limits.
Deere filed suit for declaratory relief and breach of contract with respect to over 100 umbrella and excess general liability policies issued to Deere from 1958 through 1986. Deere sought a declaration of coverage and compensatory damages for breach of contract, claiming that the policies covered the asbestos personal injury claims.
The coverage dispute proceeded to trial in three phases. In Phase III, that the trial court concluded that (1) the SIRs that Deere agreed to pay in its first-layer umbrella policies also applied to the higher-layer excess policies, and (2) the insurers were not obligated to pay defense costs when tort cases were dismissed without payment to a claimant. Deere appealed.
Holding
The California Court of Appeal reversed.
As to the first issue, the appellate court held that the higher-layer excess policies did not incorporate the lower-layer umbrella policies’ self-insured retentions. The court agreed that the higher-layer excess policies were “follow form” policies. Thus, the higher-layer excess policies generally provided the same scope of coverage as the underlying policies, with the exception of the policy limits. After examining the language of the various policies, the appellate court held that once Deere paid the SIR, the first-layer umbrella policies were triggered, and once the first-layer umbrella policies are exhausted, the higher-layer excess policies were triggered. Thus, Deere did not continue to owe SIRs with respect to subsequent claims under the higher-layer excess policies.
As to the second issue, the appellate court held that the higher-layer excess policies obligated the insurers to indemnify Deere for its defense costs without regard to the outcome in the underlying case. Nothing in the language of the higher-layer excess policies required a determination that Deere must pay damages (as opposed to obtaining a dismissal without payment) before the higher-layer excess insurers were obligated to pay the litigation expenses associated with Deere’s defense of the underlying asbestos actions. Thus, the higher-layer excess policies obligated the excess insurers to indemnify Deere for its defense costs in the underlying cases, irrespective of how those claims were resolved.
Comment
This case provides a good overview of the differences between primary and secondary policies, as well as the differences between deductibles and SIRs. Based on the specific language of the policies at issue, the appellate court correctly determined that the higher-layer excess policies did not incorporate the lower-layer umbrella policies’ self-insured retentions, and did cover defense costs without regard to the outcome of the underlying tort case.