Deere & Co. v. Allstate Ins. Co.
244 Cal. Rptr. 3d 100
| Cal. Ct. App. 5th | 2019Background
- Deere & Company faced many asbestos personal-injury suits arising from asbestos-containing parts in its machines and sued its insurers (over 100 umbrella/excess policies, 1958–1986) for coverage and breach of contract.
- Deere's program: first-layer umbrella policies sat above a self-insured retention (SIR) paid by Deere; multiple higher-layer following-form excess policies sat above those umbrella limits.
- Trial phases: earlier phases addressed vertical vs. horizontal exhaustion, the meaning of "occurrence," and stacking; Phase III (this appeal) addressed whether higher-layer excess insurers are triggered only after Deere pays additional per-occurrence SIRs once the first-layer aggregate is exhausted, and whether insurers must reimburse defense costs for underlying claims dismissed without payment.
- Trial court ruled for insurers: held that the SIRs in the first layer continued to apply to higher layers (requiring Deere to pay additional per-occurrence SIRs) and insurers need not indemnify defense costs for dismissed claims.
- Court of Appeal reversed both rulings: (1) higher-layer following-form excess policies do not incorporate the first-layer SIRs (those SIRs are part of the underlying limits excluded by the follow-form exception for "amount and limits of liability"); (2) excess policies obligate insurers to indemnify Deere for defense costs incurred in covered underlying cases even if the underlying claim is dismissed without payment.
Issues
| Issue | Plaintiff's Argument (Deere) | Defendant's Argument (Insurers) | Held |
|---|---|---|---|
| Whether higher-layer following-form excess policies are triggered only after Deere pays additional per-occurrence SIRs following exhaustion of the first-layer aggregate | SIRs are Deere's retention only for first layer; once underlying aggregate is exhausted higher layers should pay without Deere paying new per-occurrence SIRs | The follow-form clause incorporates the underlying policies' terms (including the SIR), so higher layers are conditioned on Deere paying SIRs per occurrence | Reversed trial court: higher-layer policies do not incorporate SIRs — follow-form excludes "amount and limits of liability," so higher layers attach once underlying limits (including the SIR-paid-first-layer exhaustion) are exhausted; Deere need not pay additional SIRs per occurrence to trigger higher layers |
| Whether excess insurers must indemnify Deere for defense costs when underlying claims are dismissed without payment (no adverse adjudication or settlement) | "Ultimate net loss" includes expenses; insurers must reimburse defense costs incurred for occurrences covered by the policies regardless of outcome | "Adjudication or compromise" language in "ultimate net loss" requires a determination of liability before indemnity for defense costs is owed; otherwise insurers would be assuming a duty to defend | Reversed trial court: policies distinguish damages (adjudication/compromise) from expenses; defense costs are part of "ultimate net loss" and payable for occurrences "covered hereunder" (i.e., within scope), so insurers must indemnify defense costs even if the underlying case is dismissed without payment |
Key Cases Cited
- Powerine Oil Co. Inc. v. Superior Court, 37 Cal.4th 377 (court reviews policy interpretation de novo)
- Wells Fargo Bank v. California Ins. Guarantee Assn., 38 Cal.App.4th 936 (defines "covered" as inclusion within scope of policy)
- Ticor Title Ins. Co. v. Employers Ins. of Wausau, 40 Cal.App.4th 1699 (coverage means scope, not insurer's act of paying)
- Forecast Homes, Inc. v. Steadfast Ins. Co., 181 Cal.App.4th 1466 (distinguishes SIR from deductible; SIR applies to defense costs)
- City of Oxnard v. Twin City Fire Ins. Co., 37 Cal.App.4th 1072 (excess triggers after primary and SIR exhaustion)
- Century Indemnity Co. v. London Underwriters, 12 Cal.App.4th 1701 (umbrella and following-form principles)
- Padilla Construction Co., Inc. v. Transportation Ins. Co., 150 Cal.App.4th 984 (SIR is part of primary; excess insurer not required to defend until SIR/primary exhausted)
- Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal.4th 38 (discusses timing of excess insurer obligations)
- E.M.M.I., Inc. v. Zurich American Ins. Co., 32 Cal.4th 465 (ambiguities in policy construed for insured)