32 Cal.App.5th 499
Cal. Ct. App.2019Background
- Deere & Company faced numerous asbestos-related personal-injury suits alleging exposure to asbestos in Deere products and sought declaratory relief and breach-of-contract damages against over 100 umbrella and excess liability insurers (policies 1958–1986).
- Deere’s tower: Deere paid per-occurrence self-insured retentions (SIRs) then first-layer umbrella policies paid up to their per-occurrence and aggregate limits; multiple higher-layer following-form excess policies sat above the first-layer umbrellas.
- Deere paid its first-layer SIRs and exhausted first-layer aggregate limits and then sought recovery from higher-layer excess insurers for (a) coverage for subsequent occurrences without paying additional per-occurrence SIRs and (b) reimbursement of defense costs for underlying cases dismissed without payment to claimants.
- The trial court ruled for insurers: held that Deere’s retained limits continued to apply to higher layers (so Deere had to pay additional per-occurrence SIRs before higher layers paid) and that insurers did not owe defense costs for underlying cases dismissed without a judgment or settlement requiring payment.
- The Court of Appeal reversed: it held (1) higher-layer following-form excess policies did not incorporate the dollar SIR/limits from the underlying first-layer umbrella policies and thus did not require Deere to pay additional SIRs once the underlying aggregate limits were exhausted, and (2) the policies obligated excess insurers to indemnify Deere for defense costs incurred in covered underlying actions even if those actions were dismissed without payment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether higher-layer following-form excess policies are triggered only after Deere pays additional per-occurrence SIRs once the first-layer umbrella aggregate is exhausted | Deere: once Deere has paid the underlying SIR and the first-layer aggregate is exhausted, higher-layer policies should pay without Deere paying additional SIRs | Insurers: the SIR/retained limits are not limits of liability excluded from following-form incorporation and therefore survive into higher layers, requiring Deere to pay SIRs per occurrence for higher layers | Held for Deere: the follow-form clause excluded "amount and limits of liability," so SIRs (expressed as retained limits) are not incorporated into higher layers; higher layers attach after underlying limits exhausted without additional SIRs by Deere |
| Whether excess insurers must indemnify Deere for defense costs incurred in underlying claims dismissed without payment | Deere: "ultimate net loss" includes defense expenses incurred on covered occurrences and does not require an adverse adjudication or settlement; Deere is entitled to defense-cost indemnity even when the underlying claim is dismissed without payment | Insurers: "ultimate net loss" requires "adjudication or compromise" before indemnity; absent payment or adverse adjudication, no indemnity obligation for defense costs | Held for Deere: "ultimate net loss" separately defines damages and expenses; expenses (litigation/defense) are included for covered occurrences and do not require an adverse adjudication; ambiguities resolved for insured |
Key Cases Cited
- Powerine Oil Co. Inc. v. Superior Court, 37 Cal.4th 377 (interpretation-of-policy rules; clear terms control)
- Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal.4th 38 (excess insurer duty-to-defend/indemnify principles)
- Padilla Constr. Co. v. Transportation Ins. Co., 150 Cal.App.4th 984 (SIR is part of primary coverage; excess attaches after exhaustion)
- Wells Fargo Bank v. California Ins. Guarantee Assn., 38 Cal.App.4th 936 (meaning of "covered" and "coverage")
- Ticor Title Ins. Co. v. Employers Ins. of Wausau, 40 Cal.App.4th 1699 (coverage means scope of policy, not insurer's acts)
- E.M.M.I., Inc. v. Zurich American Ins. Co., 32 Cal.4th 465 (ambiguities in coverage interpreted in insured's favor)
- FMC Corp. v. Plaisted & Co., 61 Cal.App.4th 1132 (addressed timing of defense-cost indemnity under similar "ultimate net loss" language)
- Montgomery Ward & Co., Inc. v. Imperial Casualty & Indemnity Co., 81 Cal.App.4th 356 (treatment of retained limits vs. insurer status)
- Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal.App.4th 1466 (distinction between deductible and SIR; SIR applies to defense costs)