Excess Insurer's Duty to Defend and Indemnify Strategies to Broaden - PowerPoint PPT Presentation

Presenting a live 90-minute webinar with interactive Q&A Excess Insurer's Duty to Defend and Indemnify Strategies to Broaden or Limit the Scope of the Excess Insurer's Obligations WEDNES DAY, NOVEMBER 13, 2013 1pm East ern | 12pm Cent ral | 11am Mount ain | 10am Pacific Today’s faculty features: Marc S . Mayerson, Of Counsel, Orrick Herrington & Sutcliffe , Washington, D.C. S cott M. S eaman, Partner, Meckler Bulger Tilson Marick & Pearson , Chicago The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

Tips for Optimal Quality FOR LIVE EVENT ONLY S ound Qualit y If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-866-927-5568 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.

Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: • In the chat box, type (1) your company name and (2) the number of attendees at your location • Click the S END button beside the box If you have purchased S trafford CLE processing services, you must confirm your participation by completing and submitting an Official Record of Attendance (CLE Form). Y ou may obtain your CLE form by going to the program page and selecting the appropriate form in the PROGRAM MATERIALS box at the top right corner. If you'd like to purchase CLE credit processing, it is available for a fee. For additional information about CLE credit processing, go to our website or call us at 1-800-926-7926 ext. 35.

Program Materials FOR LIVE EVENT ONLY If you have not printed the conference materials for this program, please complete the following steps: • Click on the ^ symbol next to “ Conference Materials” in the middle of the left - hand column on your screen. • Click on the tab labeled “ Handouts” that appears, and there you will see a PDF of the slides for today's program. • Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon.

EXCESS INSURANCE: Marc S. Mayerson DEFENSE AND (202) 339-8456 INDEMNITY – mmayerson@orrick.com Orrick, Herrington & CUTTING-EDGE Sutcliffe LLP www.orrick.com ISSUES Washington, DC November 2013 5

DEFINING KEY TERMS: EXCESS - Supplements the Coverage Limits of Excess Primary, subject to additional terms - Indemnity - Defense, usually Supplementary Primary Payments in addition to limits E.g., Am. Resources Ins. Co. v. H&H Stephens Constr., Inc., 939 So.2d 868, 871 (Ala. 2006) 6

DEFINING KEY TERMS: UMBRELLA - Serves as Excess Coverage Umbrella - Broader than Underlying Primary - Drops Down to Fill Gap; acts as “primary” within gap (“retained loss”) Primary Primary Auto Homeowners E.g., Kajima Constr. Servs. v. St. Paul , 227 Ill. 2d 102 (2007); Aetna v. Centennial Ins. , 838 F.2d 346, 350 (9 th Cir. 1988) 7

TACTICAL EXAMPLE If the primary “provided” coverage, the client Umbrella would have a 100 (w/o exclusion) percent deductible. We took position that the “exclusion” applied, therefore no underlying Primary coverage – and with Primary (possibly therefore the umbrella applicable) had a duty to defend exclusion (ala a primary) in the and matching deductible gap. 8

ORDINARY EXAMPLE Exhaust underlying (primary) insurance and then access excess Excess E.g., Whitehead v. Fleet Towing, Primary 110 Ill. App. 3d 759, 764 (Ill. App. 1982); Maine Bonding & Cas. v. Centennial Ins ., 693 P.2d 1296,1297-1302 (Or. 1985) 9

EXHAUSTION OF UNDERLYING  Ordinary Course:  Judgment in tort case exceeds primary policy’s indemnity limits  Primary pays defense costs in excess of policy limits (“supplementary payments”)  Excess policy pays the portion of the judgment exceeding primary indemnity limits  Prima Facie Case  Proof of underlying exhaustion  Amounts incurred within “Ultimate Net Loss” 10

PROOF OF UNDERLYING EXHAUSTION  Premise I : If policyholder cannot prove underlying exhaustion, it has failed to prove a necessary element of its prima facie case for coverage.  Premise II : Primary insurance cannot “tender” limits or prematurely exhaust and accelerate payment obligations of excess carrier.  Duty to Appeal? IICNA v. Hawkeye Sec. Ins ., 260 F.2d 361 (10 th Cir. 1958). 11

PROOF OF UNDERLYING EXHAUSTION  Payment by underlying is presumptive proof of proper exhaustion. See generally St. Paul Fire & Marine v. American Int’l Spec. Lines Ins. Co., 365 F.3d 263, 274 (4 th Cir. 2004 ); Keystone Shipping Co. v. Home Ins. Co., 840 F.2d 181, 184-86 (3d Cir. 1988 ); Drake v. Ryan , 514 N.W.2d 785, 789 (Minn. 1994)  Overlying not bound to interpretation by underlying, if plain language: Allmerica Fin. Corp. v. Certain Underwriters , 449 Mass. 621, 630-31 (2007).  But, payment by underlying presumed to be in good faith and reasonable, cf. Independent Ins. Co. v. Republic Nat’l Life Ins. Co., 447 S.W.2d 462, 469 (Texas App. 1969)  Overlying can review (not “audit”) to confirm payment, but not de novo. Everest Re v. Maremont Corp. (Ill. Ch. Ct. May 24, 2004); American Ins. Co. v. St. Jude Medical (D. Minn. Sept. 20, 2010). 12

IF UNDERLYING EXHAUSTION PROVED  Does “Ultimate Net Loss” include “expenses”?  Aetna Cas. & Sur. Corp. v. Lloyd’s, 129 Cal. Rptr. 47 (Cal. App. 1976) ; State Farm v. Foundation Reserve Ins. , 431 P .2d 737 (N.M. 1967); Maryland Cas. v. Marquette Cas., 143 So. 2d 249 (La. App. 1962).  Compare Stonewall Ins. v. ACMC, 73 F.3d 1178, 1218 (2d Cir. 1995).  Does the excess policy disclaim any defense obligation?  Signal Cos. v. Harbor Ins., 27 Cal. 3d 348, 362 (1980). 13

PAYMENT OF DEFENSE WITHIN LIMITS?  Primary Policies : “Supplementary Payments” provision  Excess : “Ultimate Net Loss”, “Loss”, “Expense”  “Loss” refers to sums paid in settlement or judgment  Policy excludes “expense” from loss subject to policy limits, Affiliated FM Ins. v. Owens-Corning , 16 F.3d 684 (6 th Cir. 1984); Continental Cas. V. Pittsburgh Corning , 917 F.2d 297 (7 th Cir. 1990). 14

UNDERLYING COVERAGE UNAVAILABLE, AND EXCESS/UMBRELLA DROPS DOWN, BECAUSE:  Primary denies coverage “incorrectly”  New Amsterdam Cas. v. Lloyd’s , 34 Ill. 2d 424, 431 (Ill. 1966). But see Schulman Inv. Co. v. Olin, 514 F. Supp. 572, 576-77 (S.D.N.Y. 1981).  Primary is Insolvent  Reserve Ins. v. Pisciotta, 30 Cal.3d 800, 807-08 (1982). But see Continental Marble & Granite v. Canal Ins. , 785 F.2d 1258, 1259 (5 th Cir. 1986). 15

EXCESS DOES NOT DROP DOWN, BUT STILL PAYS XS OF UNDERLYING LIMITS:  Primary Expired  Kelley v. Midwestern Indem ., 670 N.E. 2d 510, 510 (Ohio App. 1995)  “Maintenance of Underlying” Clause  Primary insolvent, but insured pays in stead  Polygon Northwest Co v. Am. Nat'l Fire Ins. Co. , 189 P .3d 777, 786-88 (Wash. App. 2008); Zurich Ins. v. Heil , 815 F.2d 1122, 1125 (7 th Cir. 1987).  Defense Costs Incurred in Excess of Retained Limit  Coleman v. Cal. Union Ins., 960 F.2d 1529 (10 th Cir. 1992); cf. Vons Cos. v. US Fire Ins. , 78 Cal. App. 4 th 52, 52 (2000). 16

TIMING OF PAYING DEFENSE I  Only After Liability Case Is Over, American Excess v. MGM Grand Hotels, 729 P.2d 1352 (Nev. 1986).  Only If Liability Case Is Actually Covered , In Re Kenai , 136 B.R. 59 (S.D.N.Y. 1992)  But some authority for advancement of defense costs (i.e., potentially covered claims), Gon v. First State Ins. Co ., 871 F.2d 863 (9 th Cir. 1989).  But see Cinergy Corp. v. St. Paul Surplus Lines Ins . , 838 N.E.2d 1104 (Ind. App. 2005). 17

TIMING OF PAYING DEFENSE II  Only after Consent? Or after Notice?  Coastal Iron Works v. Petty Ray Geophysical, 783 F.2d 577 (5 th Cir. 1986); Pickering v. Am. Employers Ins. Co. , 292 A.2d 584, 591 (R.I. 1971); cf. Belleville v. Farm Mut. Bureau , 702 N.W.2d 468 (Iowa 2005).  But see Crown Center Redevelopment Corp. v. Occidental Fire , 716 S.W.2d 348 (Mo. App. 1986).  Without requiring payment of SIR first , Legacy Vulcan v. Superior Court (Transport Ins.), 185 Cal.App.4th 677 (2010). 18