Opinion
No. 98-3326
January 27, 2001
Before the Court is Reliance National Insurance Company's motion in limine to disallow all testimony with regards to insurance interpretations or the reasonable expectations of any party. The Court has considered the motions, the insurance policies at issue and the relevant law and finds that Reliance's motion shall be granted for the reasons that follow.
I. Background
The motion before the Court is limited to testimony regarding the allocation of the amount to be paid among insurers. In this case, Reliance National Insurance Company and Lexington Insurance Company, Westchester Surplus Lines Insurance Company, Westchester Fire Insurance Company, and General Star Insurance Company ("property insurers") have agreed to pay their insured, IC RailMarine Terminal Co. ("ICRMT"), for the losses suffered in connection with the toppling of a large crane at ICRMT's Convent, Louisiana terminal in June 1998. However, the insurers reserved the right to litigate among themselves the percentage of the total damages award that each insurance company should bear. Whether testimony should be allowed to determine the percentage of allocation is the issue now before the Court.
Reliance moved for this Court to disallow testimony with regard to three separate issues concerning allocation of liability among the insurers: (1) the applicability of the doctrine of specific versus general insurance; (2) interpretations of the "ultimate net loss" provisions of the insurance policies issued by Lexington Insurance Company, Westchester Surplus Lines Insurance Company, Westchester Fire Insurance Company, and General Star Insurance Company, and (3) the reasonable expectations of parties with respect to the order of payment under the respective policies.
Reliance argues that the terms of the policies, not extrinsic evidence, should determine the allocation and priority of payment between the builder's risk and property policies. It is the property insurers contention that failure to consider the reasonable expectations of the parties would lead to an absurd result. According to the property insurers, the absurd result would be that they would be cast with partial primary liability, when in fact they claim that their policies are "true excess policies" for this loss. In other words, the property insurers that they provide excess coverage, not primary coverage for the loss at issue. With this brief background in mind, the Court turns to the relevant law and pertinent policy provisions.
II. Policy Interpretation
"An insurance policy is an aleatory contract subject to the same basic interpretive rules as any other contract." Doerr v. Mobil Oil Corp., 2000 WL 1880265 at *3 (La. 2000) (citing La. Civ. Code art. 1912 (other citations omitted)). As such, "[t]he role of the judiciary in interpreting insurance contracts is to ascertain the common intent of the insured and insurer as reflected by the words in the policy." Peterson v. Shimek, 729 So.2d 1024, 1028 (La. 1999). "If the language in an insurance contract is clear and unambiguous, the agreement must be enforced as written." Highlands Underwriters Insurance Company v. Foley III, 691 So.2d 1336, 1340 (La.App. 1 Cir. 1997) (citing Smith v. Matthews, 611 So.2d 1377, 1379 (La. 1993)). Furthermore, "the existence vel non of an ambiguity in a contract is a question of law." McKinley v. Scott, 721 So.2d 1018, 1020 (La.App. 3 Cir. 1998) (citations omitted). When there is no ambiguity in the written contract, parol evidence is inadmissable. Encalarde v. Patterson Insurance Company, 742 So.2d 715 (La.App. 5 Cir. 1999)(citing Crigler v. Crigler, 671 So.2d 1199 (La.App. 2 Cir. 1996)). Finally, "[a] contract must be interpreted within its "four corners" whenever the words of the contract are clear, explicit, and lead to no absurd consequences. When those conditions are met, a court is prohibited from taking parol evidence to explain or contradict the clear meaning of the contract." Peterson v. Shimek, 729 So.2d 1024, 1031 (La. 1999).
III. Ultimate Net Loss
A. The property policies
Lexington Insurance Company (policy no. 8533564) and Westchester Surplus Insurance Company (policy no. WXA 643121) issued property insurance policies "which included $8 million with a $2 million self-insured retention/deductible in the primary layer of coverageSee Statement of Uncontested Facts, ¶ C.14, Property Insurers Motion for Partial Summary Judgment on the Issue of Specific versus General Insurance (emphasis added). These policies, discrete to the IC terminal in Convent, were part of nationwide property coverage issued to Illinois Central Corporation. Additionally, Westchester Fire (policy no.IXA 393822) and General Star (policy no. IPG 357920) "issued excess general blanket commercial property policies" to IC Corp. on a nationwide basis.Id. at ¶ C.15. Those " excess policies provided $15 million worth of coverage in excess of $10 million in underlying limits . . ." Id.(emphasis added).
The property Insurers Incorporated this motion by reference in their motion in limine.
The Lexington and Westchester Surplus policies, each entitled "Primary Property" contain the following provisions relevant to the motion before the Court with respects to testimony regarding "Ultimate Net Loss."
Section II — Limit and Retention A. Limit: The limit of liability hereunder shall not exceed the sum of $8,000,000 Ultimate Net Loss (as defined in Section V-A hereof) any one occurrence (as defined in Section V-C hereof) . . .
B. Retention: Underwriters shall not be liable hereunder unless
Ultimate Net Loss amounts to $2,000,000 any one occurrence involving loss or damage as covered in Section I hereof and then only for the sum in excess of $2,000,000 Ultimate Net Loss subject to the limits set forth in Section II-A hereof; but, there is not limit [sic] to the number of occurrences for which claims may be made, provided such occurrences take place during the term hereof.
Ultimate Net loss is defined in Section V as follows:
A. The term "Ultimate Net Loss" shall mean the loss, including the direct and extra expenses, sustained by the Insured after making deductions for all salvages, recoveries, and other valid and collectible insurance except as respects insurance provided in accordance with Section IV-G.
B. Analysis
The property insurers seek to introduce testimony to persuade the Court that the "Ultimate Net Loss" provision of their policies transform those contracts into excess policies. Based on the law and the language of the policies themselves, the Court need not hear testimony on this point.
To start, the property insurers issued four policies that are at issue now with respect to allocation of liability for damages at IC RailMarine's Convent facility. Two of the policies (Lexington and Westchester Surplus) are titled "Primary Property". The other two policies (Westchester Fire and General Star) are titled "First Excess Layer." This distinction is recognized by the property insurers themselves as they characterize the Lexington and Westchester Surplus policies as being in "the primary layer of coverage" of IC's nationwide commercial property insurance and the Westchester Fire and General Star policies as "excess property policies" within that same coverage universe. See Statement of Uncontested Facts, ¶¶ C.14-15, Property Insurers Motion for Partial Summary Judgment on the Issue of Specific versus General Insurance. A plain meaning analysis of the labels and descriptions of the policies dictates that the Lexington and Westchester policies are not excess policies; for if the intent of the insurers was to issue four excess policies instead of two, it would have designated all four policies as ""First Excess Layer."
Moving on to the "Ultimate Net Loss" sections of the policies, which the property insurers argue transform the Lexington and Westchester Surplus policies into excess policies, the Court finds that testimony is not necessary to determine the effect of such provisions. Again, a comparison of all four property policies is useful.
A true excess policy is one that requires the presence of underlying primary coverage as a condition to coverage. See Gleason v. State Farm Mutual Auto. Ins. Co. 660 So.2d 137 (La.App. 2 Cir. 1995); Douglas C. Richmond, Issues and Problems in "Other Insurance ", Multiple Insurance, and Self-Insurance, 22 Pepp. L. Rev. 1373, 1399 (1995); See generally, Note, Drop Down Liability of Excess Insurers For Insolvent Primary Carriers: The Search for Unformity in Judicial Interpretation of Excess Insurance Policies, 33 Ariz. Law Rev. 239, 254 (1991). "In general, an excess insurance policy provides coverage that begins only after a predetermined amount of primary coverage is exhausted." Steve D. Thompson Trucking. Inc. v. Twin City Fire Insurance Co., 832 F.2d 309, 310 ("`Cir. 5th). "This underlying coverage reduces the risk that an excess insurer will have to pay for losses incurred by the insured." Id. "This reduced risk to the insurer translates into a reduced premium to the insured." Id.
An example of a true excess policy requiring underlying primary coverage is seen in the policies entitled "First Excess Layer." For instance, the Westchester Fire and General Star policies each provide that "[i]t is a condition of this Policy that the Policies of the "Primary Insurers" shall be maintained in full effect during the currency of the Policy." Westchester Fire Policy at ¶ 3 and General Star Policy at ¶ 3. On the other hand, the Lexington and Westchester Surplus policies, to the extent that they implicate other coverages merely state that "[p]ermission is granted to the Insured to insure all or any part of the first $2,000,000 of Ultimate Net Loss . . ." Needless to say, granting permission to insure the first $2,000,000 of Ultimate Net Loss is a far cry from requiring underlying insurance as a condition of coverage. Thus, the Lexington and Westchester Surplus policies have no such clause requiring the maintenance of underlying insurance — Moreover, the General Star Policy "Schedule First Excess Layer" lists Lexington Insurance Company (62.5%) and Westchester Surplus Lines (37.5%) as the primary insurers for the primary limits of $8,000,000 ultimate net loss which is excess of a self insured retention of $2,000,000. Neither does a comparison of the premiums reveal the existence of the "true excess" nature of the Lexington and Westchester Surplus policies. For the combined $8 million limits above the $2 million retention, the primary policies charged premiums of $236,875 and $141,125, respectively, while the "first excess layer policies" charged premiums of $88,000 and $44,000 for $15 million worth of coverage over the $10 million in underlying limits. Thus, if the premiums charged are any indication of the true nature of the policy, the Court must find that Lexington and Westchester provide primary coverage as they charged several times more for coverage than the "first excess" insurers.
The inclusion of an "ultimate net loss" provision does not change this determination. As used in the Limit and Retention section of the policy, the "ultimate net loss" term reflects nothing more than the losses above policy deductible after all salvage, recovery and other insurance (not including the self insured deductible) credits have been paid. Indeed, the property insurers, in describing the scope of the primary policies, explained that those policies were subject to a "$2 million self-insured retention/deductible." See Statement of Uncontested Facts, ¶ C. 14, Property Insurers Motion for Partial Summary Judgment on the Issue of Specific versus General Insurance. As stated above, the definition of the phrase states that the term "Ultimate Net Loss shall mean the loss, including the direct and extra expenses, sustained by the Insured after making deductions for all salvages, recoveries, and other valid and collectible insurance except as respects insurance provided in accordance with Section IV-G." When read in conjunction with the Limit and Retention section of the policy, what this definition does is to state that the $8,000,000 policy limits take effect when other sources of income, such as salvage and recovery and other insurance, excluding the permissive self insured deductible referenced in section IV-G, have been collected. Therefore, the reference to "other valid and collectible insurance" shall be treated as a standard "other insurance" clause and disregarded based on Reliance's inclusion of a similar clause. As a result, Section II's "Limit and Retention" provision requires that the property policies will not be cast for liability until the $2,000,000 deductible, as indicated on the standard property conditions form, has been satisfied.
The case law cited by the property insurers on the effect of the "ultimate net loss" provisions is distinguishable on the facts. The cases relied upon by the property insurers to convince the Court that their policies are excess, are inapposite in that the cases cited involve drop down excess policies, an entirely different factual context than the one before the Court. For instance, in Louisiana Insurance Guarantee Assoc. v. Interstate Fire Casualty Co., 630 So.2d 759 (La. 1994) ("LIGA"), the issue was whether an excess insurer was to provide drop down coverage when the insured's primary carrier was insolvent. Aside from the differing legal issue, the facts are also quite distinct from those in the case at bar. In LIGA the excess policy was labeled "Automobile Liability Excess Indemnity Policy"; the insuring agreement provided that the company would "indemnify the insured for loss in excess of the PRIMARY INSURANCE"; and the limits of liability provisions stated that the policy was excess over the primary insurance. Id at 764-65. LIGA's factual background as well as the legal issue it interpreted are clearly inapplicable here. Likewise, in truehart v. Blandon. 884 F.2d 223 ("5th Cir. 1989), the issue before the Court of Appeals was whether an "other insurance" clause could transform an excess policy into a primary policy. In truehart, there was no dispute as to the policy at issue being an umbrella policy, but rather the dispute was whether the umbrella policy would "drop down" simply because of an "other insurance clause." Indeed, the policy at issue stated that "the drop down provision would only come into play if primary insurance was unavailable." Id. at 228. Thus, truehart provides no relief for the property insurers when it is clear from the face of the policy that the property policies provide primary coverage. Again, Maynor v. Vosburg, 648 So.2d 411 (La.App. 2 Cir. 1994) is factually distinguishable in that the excess policy at issue there, "provid[ed] that it will constitute excess insurance over the amounts provided by basic policies" and "the words excess and excess insurance appear[ed] throughout the [excess policy]." Id. at 423. Such is not the case here, indeed the facts here indicate that the words "primary" appear on the policy. Thus, the cases cited are not persuasive.
Therefore, the Court finds the policy provisions regarding allocation are clear. Presumably, the purpose the testimony with respect to the meaning of "ultimate net loss" and the "reasonable expectations" of the parties was to educate the Court as to the meaning of the words of the respective property policies. However, the clear terms of the respective policies are sufficient to direct allocation among the insurers. Unlike the vast majority of disputes over the policies that have come before the Court earlier in the litigation, the property policies provide a definition of the phrase "ultimate net loss." See, e.g. Lexington policy at § V-A. Surely, when the policies at issue expressly define a term of the policy, the Court should rely on that definition to interpret the policy.
Therefore, as to the "reasonable expectations" of the parties, the Court finds that parol evidence is not permitted as a matter of Louisiana law. "Reasonable expectations" testimony is admitted only when there is an ambiguity in the policy. See Louisiana Ins. Guar. Ass'n v. Interstate Fire Cas. Co., 630 So.2d 759, 764 (La. 1994); Boudreaux v. Siarc. Inc., 714 So.2d 49, 54 (La.App. 5 Cir. 1998). In this instance, the allocation provisions of the respective policies are clear and shall guide this Court's determination of the allocation among the insurers.
As to the proposed testimony regarding the meaning of the phrase "ultimate net loss", the Court finds that the property polices provide adequate guidance to interpret the intent of the parties at the time of contracting. After examining the policies the Court finds that it is clear that (1) the Lexington and Westchester Surplus policies provide primary coverage; and (2) the "ultimate net loss" clauses in Section II of the property policies reflect nothing more than the amount of damage above retention/deductible to the policies. As such, the Court does not require testimony to glean the intent of the contracting parties. The Court will determine allocation according to the rules that govern allocation among primary insurers.
IV. Specific Versus General Insurance
As to testimony regarding the hierarchy of specific and general insurance, the issue has been settled by this Court's order entered November 22, 2000, which expressly held that the doctrine of specific versus general insurance was inapplicable as a matter of Louisiana law. Said ruling is the law of this case and therefore no testimony is necessary on this point. Accordingly,
IT IS ORDERED that Reliance National Insurance Company's motion is GRANTED.
IT IS FURTHER ORDERED that as no testimony is permitted as a matter of law, that the allocation and priority of payment among Reliance and the property insurers shall be taken on the briefs already submitted to this Court.