Insurance plays an important role in personal injury cases. Large companies often have multiple policies with different types of coverage, including “excess coverage” that takes effect when the primary policy has paid out its limits.
The Tenth Circuit recently decided whether excess insurers were responsible for defending and indemnifying a distributor of products containing asbestos when the primary insurer was insolvent. The plaintiff in Canal Insurance Company v. Montello, Inc. had distributed a drilling mud viscofier that contained asbestos from 1966 to 1985. The distributor had been sued by people who had alleged they were injured by exposure to asbestos.
Montello had a primary insurance policy with The Home Insurance Company
from 1975 to 1984. That insurer was declared insolvent in 2003. It had
not paid any personal injury claims on behalf of the plaintiff at that time.
Canal Insurance Company subsequently filed a declaratory judgment action, claiming that it did not have a duty to defend or indemnify Montello in personal injury cases. Montello filed counterclaims for a declaratory judgment and breach of contract against Canal, and it also filed third-party complaints against Continental Casualty Company and Houston General Insurance Company.
The district court found that neither Canal nor Houston General was obligated to “drop down” and provide a defense or indemnity. The district court also found that Montello had not provided sufficient evidence to establish the terms of the policies with Continental. Neither party had a copy of the Continental policies, and Montello attempted to establish the terms through secondary evidence. Montello appealed.
Montello relied on language in the introductory clause to the coverage section of the Canal policy. The language stated that Canal would indemnify Montello “for all sums which the insured shall become legally obligated to pay as damages and expenses….” Montello argued that it had already incurred expenses and could become legally liable for damages. The circuit court found that the policy was triggered by an “occurrence,” and the primary insurer’s insolvency did not count as an occurrence under the contract.
The circuit court next looked to the excess clause. The court found that excess coverage is triggered when the primary insurance limits have been reduced by a “payment of loss.” The language of the policy states that the company is liable for the net loss arising from an occurrence in excess of “the amounts of the applicable limits of liability of the underlying insurance . . . less the amount, if any by which any aggregate limit of such insurance has been reduced by payment of loss.” The excess insurance also applies to any excess over the retained limit when the “underlying insurance is inapplicable to the occurrence….”
Montello argued that the underlying policy was not “applicable” because of the insurer’s insolvency. Montello relied on a Massachusetts case in which the court held that the excess policy dropped down when the underlying policy was not collectible without fault on the part of the insured. In that case, however, the court had found ambiguity in the language. Here, the circuit court found no ambiguity. The circuit court also noted that the policies here did not have the same language. Furthermore, that case is a minority view.
Montello also argued that the excess insurer must drop down because there was not any language in the policy that said it would not do so. The circuit court rejected this argument.
The circuit court then looked at the umbrella clause in the Canal policy. Under the terms of the policy, the umbrella coverage only applies when the primary insurance is inapplicable to the occurrence. In this case, the primary policy would have covered asbestos claims. The court found that the primary policy was applicable, and the umbrella coverage was therefore not triggered.
The court next reviewed the “other insurance” clause, which stated that the insurance under the policy is excess “over any other valid and collectible insurance available to the insured….” Montello argued that the primary insurance was not “valid and collectible.” The circuit court noted that this language appeared in the “other insurance” clause, which is not intended to expand liability.
In considering the duty to defend, the court noted that excess insurers are generally not required to defend just because the primary insurer cannot do so. It pointed out that excess insurers have low premiums because the duty to defend lies with the primary insurer except when the loss is not covered by the primary policy. The circuit court found the policy language to clearly require a defense only when the primary insurer had satisfied its obligations.
The court did not examine the specific language of the Houston General policy, but instead, it stated that its holdings as to the Canal policy also applied to the Houston General policy.
The circuit court also agreed with the district court that Montello had not presented sufficient evidence of the terms of the lost Continental policy. Montello had presented expert testimony and submitted form policies to the state Board of Insurance Commissioners. The insurance company had multiple policy forms in use at the time, however, and neither of these forms of evidence was able to provide the terms of the policy in question.
Ultimately, none of the insurers, in this case, were required to drop down and defend or indemnify Montello. Since their duties under the policies would not be triggered until there is a “payment of loss,” there was no case or controversy before the court, and the district court properly dismissed the action. The 10th Circuit affirmed the district court’s decision.
Insurance companies, just like the businesses they insure, sometimes become insolvent. Mesothelioma victims suffer when neither the responsible party nor its insurer is able to cover the loss. It is therefore important to identify all potential defendants. Our experienced mesothelioma attorneys can investigate cases to identify all of the possible responsible parties.
Help for mesothelioma victims can be found at The Ferraro Law Firm by calling 1-800-275-3332. Offices in Miami and Washington, D.C.
Canal Insurance Company v. Montello, Inc., November 27, 2015, U.S. Court of Appeals, Tenth Circuit
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