The parties submitted these cases to the trial court on agreed statements of fact and motions for summary disposition. Plaintiff appeals as of right from the resulting final judgments in favor of the defendants.
Plaintiff is a Michigan manufacturer which purchased an umbrella, or excess, liability insurance policy from defendant First State Insurance Company for the period October 1, 1982, to October 1, 1983, which insurance was designed to insure against liability claims in excess of the $1,000,000 coverage provided by an underlying general liability insurance policy with Ambassador Insurance Company. For the period October 1, 1983, to October 1, 1984, plaintiff purchased a similar umbrella policy from Western Employers Insurance Company with $1,000,000 underlying general liability insurance provided by Union Indemnity Insurance Company of New York.
Products liability suits have been commenced against plaintiff for alleged causes of action arising during the terms of each of the insurance policies. Each of the general liability carriers became insolvent and were ordered into court-supervised liquidation. Plaintiff made demand on both defendants for coverage and that they assume defense in the pending actions.
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1
Each defendant refused to assume the defense of the pending actions and denied liability for payment of claims until they exceeded the $1,000,000 upper limit of the under
Plaintiff’s claim is that the umbrella coverage is not for liability in excess of the amount of $1,000,000 but rather for liability in excess of whatever amount may be recoverable from the carrier of the underlying $1,000,000 general liability insurance, e.g., if the general liability carrier becomes insolvent, the lower limit of the excess coverage "drops down” from $1,000,000 to whatever amount can be recovered from the insolvent general liability carrier. Plaintiff in reality seeks to make the umbrella carrier an insurer not only against the liabilities described in the contract but also of the solvency of the general insurance carrier.
Defendants, in turn, argue that the umbrella insurance provides coverage for liability in excess of $1,000,000. Had their policies said that and no more in describing the intended coverage, plaintiff clearly would have no claim. The insuring agreements of the policies may have once had "plain English” origins, simply defining the coverage in that way, but evolution through generations of legal usage have rendered the present insuring agreements prolix. The translation, however, is the same, for the coverage is still defined as being for an excess over an amount, which amount is elsewhere identified as $1,000,000. The insuring agreement of the First State policy, for instance, 2 provides:
I. Coverage
To indemnify the insured for ultimate net loss, as defined hereinafter, in excess of retained limit, as herein stated. . . .
II. Underlying limit—retained limit
The Company shall be liable only for the ultimate net loss in excess of the greater of the insured’s:
A. Underlying limit—an amount equal to the limits of liability indicated beside the underlying insurance listed in the Schedule a of underlying insurance[ 3 ]. . .; or,
B. Retained limit—The amount speciñed in Item 3 i b of the declarations as the result of any one occurrence not covered by said underlying insurance, and which shall be borne by the insured.[ 4 ] [Emphasis added.]
These provisions of the policy thus state the threshold of liability level thereof as an amount which is the policy limit of the underlying general liability insurance, $1,000,000.
Plaintiff contends, however, that this language is inconsistent with the language contained in the declarations page of the policies which speaks of the limits of liability as follows:
[Western Employers policy] Limits of Liability: The limit of the Company’s liability shall be as stated herein, subject to all the terms of this policy having reference thereto.
A. $10,000,000. Single Limit any one occurrence combined Personal Injury, Property Damage and Advertising Injury or Damage in excess of:
(1) Underlying limit
The amount recoverable under the underlying insurance as set out in the Schedule of Underlying Insurance attached or
(2) Retained limit
$10,000. Ultimate Net Loss as the result of anyone occurrence not covered by said underlying insurance..
B. $10,000,000. Limit in the aggregate for each annual period with respect to:
(1) The Products Hazard or Completed Operations Hazard or both combined, or
(2) Occupational Disease sustained by employees of the insured. [Emphasis added.]
Plaintiff contends that this definition of the underlying limit in the declarations, unlike the language in the insuring agreement, does not indicate a set and specific amount; rather, plaintiff claims, the "amount recoverable” speaks to the ability of the primary carrier to pay out the limits of its policy, thereby defining the underlying limit as a variable amount, the policy limit of the underlying insurance or whatever amount is recoverable thereunder. Given this conflict between the language in the insuring agreement and the declarations, plaintiff argues, there is an ambiguity which, under accepted principles of insurance law, must be construed in favor of the insured. 5
The trial judge herein rejected that argument, pointing out that the language in the declarations to which plaintiff points begins: "The limit of the Company’s liability shall be as stated herein, subject to all of the terms of this policy having reference thereto.” (Emphasis added.) We agree with this conclusion that the policies, read as a whole, are unambiguous.
The financial vicissitudes of the insurance industry in recent years have spawned numerous similar cases, though this is the first of its genre in Michigan. Though there have been some differences in the language of the various insurance contracts construed in such cases, the result in
We therefore look to the possible consequencesof the rule Continental Marble propounds. Imposing the duty of indemnification on Canal would, in effect, transmogrify the policy into one guaranteeing the solvency of whatever primary insurer the insured might choose. See Golden Isles Hospitals, Inc v Continental Casualty Co, 327 So 2d 789, 790 (Fla App, 1976). An excess liability insurer obviously does not anticipate this heavy onus:
"Excess or secondary coverage is coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted. A second insurer thus greatly reduces his risk of loss. This reduced risk is reflected in the cost of the policy.”
Whitehead v Fleet Towing Co,
110 Ill App 3d 758; 66 Ill Dec 449;
Where a contrary result has been reached, it has been predicated upon the presence of language in the policy from which, the court has found, a policyholder might draw a reasonable expectation of coverage, contrary to other language in the policy denying coverage, thereby creating an ambiguity which is resolved in favor of the insured.
7
This is plaintiff’s theory. To reach that result,
A contract is said to be ambiguous when its words may reasonably be understood in different ways.
If a fair reading of the entire contract of insurance leads one to understand that there is coverage under particular circumstances and another fair reading of it leads one to understand there is no coverage under the same circumstances the contract is ambiguous and should be construed against its drafter and in favor of coverage.
Yet if a contract, however inartfully worded or clumsily arranged, fairly admits of but one interpretation it may not be said to be ambiguous or, indeed, fatally unclear.
As noted above, we find the insuring agreement of the contract herein to clearly provide coverage in excess of a stated amount, the amount "indicated beside the underlying insurance listed . . . .” Other provisions of the policies are to the same effect, e.g.:
[First State policy] conditions:
G. . . . Coverage under this policy shall not apply unless and until the insured, or the insured’s underlying insurer, shall be obligated to pay the amount of the underlying limit or reaTINED LIMIT ....
I. ... If underlying insurance applicable in any one occurrence is exhausted by payment of judgment or settlement on behalf of the insured, the company shall be obligated to assume charge of the settlement or defense of any claim or proceeding against the insured resulting from the same occurrence ....
O. ... It is warranted by the insured that the underlying policy(ies) listed in Schedule a, or renewals or replacements thereof not more restrictive in coverage, shall be maintained in force during the currency of this policy, except for any reduction in the aggregate limit(s) contained therein solely by payment of claims in respect of occurrences happening during the period of this policy. In the event of failure of the insured so to maintain such policy(ies) in force, the Insurance afforded by this policy shall apply in the same manner it would have applied had such policy(ies) been so maintained in force.”[ 8 ] [Emphasis added.]
From the use of the disjunctive "or” in condition G, it is clear that there is no coverage until the full amount of the underlying limit has been reached by casualty occurrences resulting in the obligation of either the insured or the underlying carrier to pay the same.
Radiator Specialty v First
Conditions i and o reinforce the insuring agreements by making it clear that the obligations of the excess carrier are triggered only by
occurrences
as a result of which the underlying insurance is exhausted by payment of judgment or settlement. Insolvency is neither an "occurrence” within the meaning of the policy nor is the resultant uncollectibility of the underlying policy an exhaustion thereof by payment or settlement.
United States Fire Ins Co, Inc v Capital Ford Truck Sales, Inc,
257 Ga 77;
In addition, in the First State policy, the applicable casualty endorsement (FF 6) reads as follows:
It is agreed that this policy shall not apply to any liability for personal injury or property damages arising out of products or completed operations as defined in this policy, unless such liability is covered by valid and collectible underlying insurance as described in the schedule of underlying insurance, and then only for such hazards for which coverage is afforded under said underlying insurance. [Emphasis added.]
The general rule, in Michigan as elsewhere, is that, if there is an ambiguity such that all parts of the contract cannot be harmonized, the language of the policy endorsement or rider controls.
Peterson v Zurich Ins Co,
Among the jurisdictions arriving at a different result is California.
Reserve Ins Co v Pisciotta,
30 Cal 3d 800; 180 Cal Rptr 628;
The parties agree that the place of making the
The Western Employers policy provided that it was not valid unless countersigned by an authorized representative. As is typical, there is no place for a countersignature on the body of the policy but only on the attached declarations page and the endorsements. Neither the declarations page nor the five endorsements attached at issuance were countersigned, 11 yet the parties stipulated that there was a valid contract. Endorsement 5, which was not countersigned, was a countersignature endorsement reading as follows:
It is agreed that the signature appearing on this endorsement is the signature of a person duly authorized to countersign on behalf of the Company in the state designated above and which is appended hereto in conformity with the insurance laws of that state.
Despite the lack of a countersignature on the countersignature endorsement, the trial judge
The First State contract was countersigned in Massachusetts and the parties agree that the law of that state is controlling. Massachusetts precedents construing insurance contracts are essentially the same as those of Michigan. 12
Two recent Massachusetts cases found ambiguity in umbrella policies and held that the coverage of the excess carriers dropped down to provide pri
In Gulezian, Section iii of the insuring agreements spoke of "applicable limits” of liability of the underlying insurance. In the unusual structure of Section in, the Court found that "applicable” was synonymous with "collectible.” The Gulezian court’s interpretation of "applicable” as "collectible” was reinforced by the "Other Insurance” condition, which said:
"The insurance afforded by this Policy shall be excess insurance over any other valid and collectible insurance available to the Insured . . . .” [399 Mass 611. Emphasis in original.]
The First State policy does not use the word "collectible” in its conditions, nor does the insuring agreement therein use the adjective "applicable” in describing the limits of the underlying insurance, so the rationale of Gulezian defining the same in terms of collectibility does not exist here.
In Continental Casualty, the policy provided:
[I]f the applicable limit of the underlying insurance is less than as stated in the schedule of underlying insurance because the aggregate limit of liability of the underlying insurance has beenreduced, this policy becomes excess of such reduced limit of liability. [399 Mass 600, n 3. Emphasis added.]
The court said of this language that "an excess policy that says without limitation that it drops down when the underlying coverage is reduced provides first dollar coverage when the primary insurer becomes insolvent.” 399 Mass 601. (Emphasis added.) Unlike the Continental Casualty policy, the comparable provision of the First State policy has an express limitation, speaking of reduction in the aggregate limits of the underlying policy "solely by payment of claims.” Reduction by any other cause, including insolvency of the underlying carrier, is clearly excluded.
Gulezian and Continental Casualty are thus inapplicable to the First State policy. We note that McNeal v First State Ins Co, an unpublished 1987 opinion of the Third Circuit, see 822 F2d 53, dealt with a First State policy identical to that here involved and, in applying Massachusetts law, distinguished both Gulezian and Continental Casualty to construe the policy as we have. We think that McNeal is an accurate application of Massachusetts law.
Affirmed.
Notes
It is conceded that, if there is no coverage for liability claims, there is no duty on the part of defendants to assume the defense against such claims.
The language of the Western Employers policy is the same in all material respects.
In Schedule a of each policy the limits of liability indicated beside the underlying insurance listed is $1,000,000.
The retained limit in each case for which the insured is responsible is $10,000.
Royal Globe Ins Cos v Frankentmuth Mutual Ins Co,
See, e.g.,
Golden Isles Hospitals, Inc v Continental Casualty Co,
327 So 2d 789 (Fla App, 1976);
US Fire Ins Co, Inc v Capital Ford Truck Sales, Inc,
257 Ga 77;
Contra,
Reserve Ins Co v Pisciotta,
30 Cal 3d 800; 180 Cal Rptr 628;
Reserve Ins Co v Pisciotta, Gross v Houston Fire & Casualty Ins Co, MacNeal v Interstate Fire & Casualty, Massachusetts Insurers Insolvency Fund v Continental Casualty Co, and Gulezian v Lincoln Ins Co, supra, n 5.
We note that plaintiff contends that
Geerdes v St Paul Fire & Marine Ins Co,
The language of Condition o in the Western Employers policy militates even more strongly against plaintiffs argument, reading as follows:
In the event of failure by the insured to maintain such policy(ies) in force for any reason, including but not limited to bankruptcy of the insured or any underlying insurer, the insurance afforded by this policy shall apply in the same manner it would have applied had such policy(ies) been so maintained in force. [Emphasis added.]
In so holding, the court in
Pisciotta
based its decision on the wording of the policy and repudiated the seemingly unqualified statement of an earlier decision,
McConnell v Underwriters at Lloyds,
56 Cal 2d 637; 16 Cal Rptr 362;
California insurance policies are governed not only by the statutory law but by the decisional law of that state in effect at the time of issuance of the policy.
Interinsurance Exchange of the Automobile Club of Southern California v Ohio Casualty Ins Co,
58 Cal 2d 142; 23 Cal Rptr 592;
There were later endorsements altering the coverage of the original contract which were countersigned.
"Policies of insurance, like all other contracts, must be reasonably construed by giving to the words contained therein their usual and ordinary significance . . .
and by construing the various portions of the policy as parts of a single contract of insurance without according undue emphasis to any particular part over another;
but if the terms of the policy are ambiguous then every doubt is to be resolved against the insurer.”
Woogmaster v Liverpool & London & Globe Ins Co, Ltd,
312 Mass 479, 481;