Presenting a live 90 ‐ minute webinar with interactive Q&A Horizontal vs. Vertical Exhaustion of Insurance Evaluating Priority of Coverage Issues and Resolving Disputes When Primary Carrier Settles for Less Than Policy Limits TUES DAY, NOVEMBER 22, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Jeffrey J. Vita, Partner, Saxe Doernberger & Vita , Hamden, Conn. Rebecca DiMasi, Partner, Van Osselaer & Buchanan , Austin, Texas William C. Eustace, S enior Vice President, Marsh USA, Inc. , New Y ork 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 .
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Evaluating Priority of Coverage Issues and Resolving g y g g Disputes When Primary Carrier Settles for Less Than Policy Limits Presented by: Jeffrey J. Vita , Saxe Doernberger & Vita, P.C. William C. Eustace , Marsh USA, Inc. Rebecca DiMasi Van Osselaer & Buchanan LLP Rebecca DiMasi , Van Osselaer & Buchanan, LLP November 22, 2011 5
Priority of Coverage Multiple parties Multiple layers of coverage in AI context Loss exceeds limits of a single primary policy policy 6
Priority of Coverage 2 schools of thought: 1. Review language of competing policies’ “ th “other insurance” clauses; i ” l 2. Determine intent of parties regarding risk transfer by reviewing underlying contract 7
Priority of Coverage Horizontal Exhaustion All available primary policies must exhaust first exhaust first Focus on policy language not underlying Focus on policy language, not underlying contract Excess policy is a payer of last resort 8
Priority of Coverage Vertical Exhaustion AI policies (primary & excess) exhaust before upstream party’s primary policy before upstream party s primary policy Focus on underlying contract’s indemnity obligation not policy language obligation, not policy language Reflects intent of parties Avoids circuity of litigation 9
Priority of Coverage - Example GC’s Corporate Excess Sub’s Excess Insurance Insurance (GC s AI Excess Insurance) (GC’s AI Excess Insurance) GC’s Corporate Sub’s Primary y Primary Insurance Primary Insurance Insurance (GC’s AI Carrier) General Contractor Sub-Contractor Promise to Indemnify (“GC”) (“Sub”) Promise to Procure Promise to Procure Insurance 10
Priority of Coverage - Example Contract requires $5M of primary non-contributory coverage q $ p y y g 11
Horizontal v. Vertical Exhaustion - Views 1) Illinois View Focuses upon traditional rules of p primary v. excess without examining language 2) New York/California View Focuses primarily upon the language Focuses primarily upon the language within the policy 3) I d 3) Indemnity View it Vi Focuses primarily upon the language of the subcontractor agreements the subcontractor agreements 12
Priority of Coverage Vertical Cases Horizontal Cases 4 th Circuit (Virginia) Illinois 5 th Circuit (Texas) th California 8 th Circuit 8 Circuit New York New York (Arkansas) Mi Missouri i Kentucky Kentucky 13
Illinois View Kajima Constr. Servs. v. St. Paul Fire and Marine Ins. Co., 227 Ill. 2d 102 (2007) Marine Ins. Co., 227 Ill. 2d 102 (2007) N North River Ins. Co. v. Grinnell Mut. th Ri I C G i ll M t Reinsurance Co. 369 Ill. App. 3d 563 (2006) (2006) 14
New York/California Views Bovis v. Great Amer. Ins. Co., 855 N.Y.S. 2d 459 (2008) 2d 459 (2008) Tishman Constr. Corp. v. Great Am. Ins. Ti h C t C G t A I Co., 861 N.Y.S. 2d 38 (2008) JPI Westcoast Constr. L.P. v. RJS & Assoc., Inc. et.al, 156 Cal. App. 4 th 1448 (2007) ( ) 15
Priority of Coverage – Horizontal Exhaustion Example Owner (DASNY) Const. Mgr Gen. Ctr. (BOVIS) (STONEWALL) Steel Ctr Illinois $1M Primary Policy (SMI-OWEN) Liberty $1M Primary Policy Elevator Sub. Westchester $10M (AJ MCNULTY) Umbrella Great American Concrete Sub. (J&A) QBE $1M Primary United $5M Umbrella DECEDENT 16
Bovis Trial Court Apportionment of AI Coverage for Bovis Trial Court Apportionment of AI Coverage for Bovis QBE $1,000,000 J&A Primary J&A Primary UNITED $5,000,000 J&A Umbrella J&A Umbrella LIBERTY $1,000,000 Stonewall Primary WESTCHESTER $10,000,000 Stonewall Umbrella ILLINOIS $1,000,000 BOVIS Primary 17
Bovis Appellate Court Apportionment of AI Coverage for Bovis Appellate Court Apportionment of AI Coverage for Bovis QBE $1,000,000 J&A P i J&A Primary LIBERTY $1 000 000 $1,000,000 Stonewall Primary ILLINOIS $1,000,000 BOVIS Primary UNITED WESTCHESTER $5,000,000 $10,000,000 Sharing pro rata J&A Umbrella Stonewall Umbrella 18
Indemnity View Vertical Exhaustion/Circuity of Litigation Wal-Mart Stores Inc v RLI Ins Co Wal-Mart Stores, Inc. v RLI Ins. Co. , 292 292 F.3d 583 (8th Cir 2002) American Indemnity Lloyds v Travelers Property Casualty Ins. Co. , 335 F.3d 429 (5th Cir 2003) Hertz Equip Rental Corp v Ammon Hertz Equip. Rental Corp. v. Ammon Painting Co. 2009 MO. App. LEXIS 1131 (Mo App 2009) (Mo. App. 2009) 19
Vertical Exhaustion Example – Wal-Mart RLI 2 National Union $10M Excess $10M Excess 3 3 $10M Primary 1 St. Paul $1M Primar $1M Primary AI Status Wal-Mart Retailer Cheyenne - Manuf. Indemnity Contract – required $2M Primary Obtained - $1M Primary/$10M Excess Settlement - $11M: St. Paul $1M/RLI $10M DJ – Wal-Mart and National Union sought to avoid contributing to $10M paid by RLI Result – St. Paul $1M/RLI $10M 20
Horizontal/Vertical Exhaustion Check List Risk Management/Pre-Litigation Check applicable state’s law regarding horizontal/vertical exhaustion If you are an Additional Insured (“AI”), add a vertical If Additi l I d (“AI”) dd ti l exhaustion endorsement to your corporate policy Require vertical exhaustion of all AI policies in contracts Require vertical exhaustion of all AI policies in contracts Check AI policies’, “other insurance” provisions and endorsements regarding horizontal exhaustion endorsements regarding horizontal exhaustion Ensure that indemnity agreement is broad and enforceable 21
Horizontal/Vertical Exhaustion Check List Claims & Litigation Management Put your corporate policy and all AI policies (primary + y p p y p (p y excess) on notice of “occurrence” and “suit” Demand that AI policies pay vertically Demand indemnification from named insured on the AI policy to trigger circuity of litigation and ensure indemnity Work with your corporate insurer to ensure coverage in the event horizontal exhaustion applies C Consider breach of contract claim against named insured if id b h f t t l i i t d i d if they fail to obtain AI coverage promised 22
What happens when the insured settles What happens when the insured settles with the primary carrier for less than policy limits? policy limits? It depends on your jurisdiction It depends on your jurisdiction and policy language . . . 23
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