98 A.D.3d 18
N.Y. App. Div.2012Background
- Bank One bought $175 million in claims-made banker's professional liability and securities action coverage for Oct 1, 2002–Oct 1, 2003 as part of a tower of follow-the-form excess coverage.
- Primary carrier was Indian Harbor; excess carriers included Houston Casualty, Arch, St. Paul, Twin City, Lumbermens, Swiss Re, and nonparties Federal, Executive Risk, American Zurich, Gulf in higher tiers.
- NPF litigation triggered several settlements (2006–2008) totaling $718 million; plaintiffs contend the Bank One heritage portion exceeded the tower limits.
- Plaintiffs settled with Federal for $17 million (no allocation between Federal and Executive Risk); Swiss Re remained higher in the Bank One tower.
- Plaintiffs later settled with Zurich and Steadfast for $17 million, allocating $15 million to Zurich and $13.4 million to Steadfast for unrelated claims; Zurich was later dropped as a defendant.
- Twin City, along with Swiss Re, Lumbermens, St. Paul, and Arch, moved for summary judgment arguing lack of express conditions precedent to coverage; the trial court granted these motions; appellate court affirms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether underlying insurers’ admission of liability and payment of full limits are conditions precedent to excess coverage. | Twin City requires underlying admission and payment as a condition. | Underlying insurers must exhaust and admit/payment before excess liability attaches. | Yes; these are conditions precedent, so coverage was not triggered. |
| Whether the other excess policies similarly require exhaustion of underlying limits before excess liability attaches. | Exhaustion is required under the attached underlying policies. | Same condition applies across Lumbermens, St. Paul, Arch, Swiss Re. | Yes; exhaustion/admission conditions prevent excess recovery. |
| Whether settlements with Zurich/Steadfast and Federal/Executive Risk preclude determining exhaustion under underlying limits. | Settlements show exhaustion of underlying limits. | Settlements lack allocations and do not prove exhaustion. | Yes; settlements without allocations preclude establishing exhaustion under the policies. |
| Whether Zeig or maintenance provisions alter the outcome. | Maintenance provision could salvage coverage. | Maintenance provision does not override express prerequisites. | Maintenance provisions not controlling; conditions precedent govern. |
Key Cases Cited
- Zeig v. Massachusetts Bonding & Ins. Co., 23 F.2d 665 (2d Cir. 1928) (ambiguity; parties may set any condition precedent; not controlling here)
- Qualcomm, Inc. v. Certain Underwriters at Lloyd's, London, 161 Cal. App. 4th 184 (Cal. App. 4th 2008) (paid or liable-to-pay requirement; primary exhaustion required)
- Citigroup Inc. v. Fed. Ins. Co., 649 F.3d 367 (5th Cir. 2011) (settlement below policy limits does not exhaust underlying policy)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (1992) (policy construction; use plain meaning; Illinois law governs)
- Putzbach v. Allstate Ins. Co., 143 Ill. App. 3d 1077 (1986) (insurance policy construed as contract; determination of conditions precedent)
- Premcor USA, Inc. v. American Home Assur. Co., 400 F.3d 523 (7th Cir. 2005) (exhaustion of primary/underlying policies precedes excess coverage)