Maximus, Inc. v. Twin City Fire Insurance
2012 U.S. Dist. LEXIS 32970
| E.D. Va. | 2012Background
- Maximus sues Axis seeking coverage under Axis’s excess policy after underlying policies (AISLIC, Executive Risk, Beazley) were exhausted via settlements and payments up to limits.
- Maximus holds five policies: AISLIC primary ($20M), Executive Risk ($10M), Beazley/Lloyd’s ($20M), Axis ($10M), Twin City ($10M).
- Axis policy triggers only after exhaustion by underlying insurance; it pays excess over retentions for already-exhausted underlying coverage.
- Damages claimed total approximately $78.3M arising from a settlement among Maximus, Accenture, HHSC; Maximus paid gaps to reach underlying limits in earlier settlements.
- Axis moved to dismiss Count I of Axis’s counterclaims seeking a declaration that Axis is not liable because lower-tier exhaustion is not shown; Maximus moved to dismiss that claim.
- Choice of law: Virginia law applies per endorsements; New York law relevant to ADR provisions but not outcome.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Exhaustion standard ambiguity. | Maximus argues Axis exhaustion is ambiguous and settlements with underlying carriers exhaust policies. | Axis argues exhaustion requires actual payment by underlying carriers to full policy limits, before excess attaches. | Exhaustion provision is ambiguously defined; settlements may exhaust underlying policies. |
| Whether below-limit settlements exhaust underlying policies under Axis. | Settlements with underlying insurers exhaust their policies by filling gaps up to limits. | Exhaustion requires actual payment of full limits by the carriers themselves, not settlements filling gaps. | Settlements can exhaust underlying policies where language is ambiguous; not clearly precluded. |
| Policy language interpretation framework (Virginia law). | Insured-friendly interpretation under Virginia law when ambiguity exists. | Policy language should be read to restrict coverage unless clearly stated. | Virginia-law interpretation favors insured when exhaustion language is ambiguous. |
| Public policy and Zeig influence on interpretation. | Zeig encourages settlements as exhaustion due to public policy in favor of settlements. | Zeig should not override clear language requiring full insurer payment if text is unambiguous. | Zeig-like considerations support treating settlements as exhausting where language is ambiguous. |
| Choice of law applicability for interpretation. | New York ADR-related provisions may extend to governing law for interpretation. | Virginia law governs the Axis policy; outcome would be the same under either. | Virginia law applies; outcome would be the same under New York law as well. |
Key Cases Cited
- Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir.1928) (exhaustion can be satisfied by settlements; public policy favors settlements)
- SNL Fin., LC v. Phila. Indem. Ins. Co., 455 F.App’x 363 (4th Cir.2011) (liberal construction for insured; ambiguity standard under Virginia law)
- Comerica Inc. v. Zurich Am. Ins. Co., 498 F.Supp.2d 1019 (E.D.Mich.2007) (actual payment must be by insurers; below-limit settlements not exhaustion)
- JPMorgan Chase & Co. v. Indian Harbor Ins. Co., 31 Misc.3d 1240(A) (N.Y.Sup.Ct.2011) (below-limit settlements not actual payment under some policies)
- Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 161 Cal.App.4th 184 (Cal.Ct.App.2008) (California interpretation of exhaustion language)
- Trinity Homes LLC v. Ohio Casualty Insurance Co., 629 F.3d 653 (7th Cir.2010) (public policy concerns and ambiguity in umbrella policy language)