Hartford Acc. & Indem. Co. v. Chicago Housing Authority

• Citation: 12 F.3d 92
• Decision Date: 14 December 1993
• Docket Number: No. 92-3672,92-3672
• Parties: HARTFORD ACCIDENT & INDEMNITY COMPANY, Plaintiff-Appellee, v. CHICAGO HOUSING AUTHORITY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 92

12 F.3d 92

HARTFORD ACCIDENT & INDEMNITY COMPANY, Plaintiff-Appellee, v. CHICAGO HOUSING AUTHORITY, Defendant-Appellant.

No. 92-3672.

United States Court of Appeals Seventh Circuit.

Argued Sept. 10, 1993.

Decided Dec. 14, 1993.

Joshua G. Vincent, Nancy G. Lischer (argued), D. Kendall Griffith, Thomas Crisham, Hinshaw & Culbertson, Chicago, IL, for plaintiff-appellee.

Stanley L. Hill, Christopher W. Graul, Jennifer Lee (argued), Hill & Associates, Chicago, IL, for defendant-appellant.

Before BAUER, EASTERBROOK and RIPPLE, Circuit Judges.

BAUER, Circuit Judge.

Hartford Accident & Indemnity Company brought this diversity action seeking a declaratory judgment of its rights and the return of payments made pursuant to an insurance contract it sold to the Chicago Housing Authority ("CHA"). The CHA counterclaimed, seeking a declaratory judgment of its rights pursuant to the same insurance contract. Each party filed a motion for summary judgment. The district court granted Hartford's motion and denied the CHA's motion. We affirm.

I.

The CHA purchased insurance policies from two insurers to insure itself against loss for the period of April 1, 1983 to April 1, 1984. First, the CHA purchased an insurance policy of excess comprehensive general liability and automobile insurance from the Holland-America Company. The limits of Holland-America's liability are "$1,000,000 Per Occurrence and in the Aggregate where applicable excess of $150,000 Per Occurrence Self Insured Retention $1,500,000 Annual Aggregate Retention." For the sake of clarity, we set out in more detail the general scope of the risk assumed by Holland-America for a given claim against the CHA in a policy year. The CHA is to pay up to $150,000 per claim, but not more than a total of $1,500,000 in a given year. Holland-America is to pay the excess of $150,000 per claim, but not more than $1,000,000 for that claim. Once the CHA has exhausted its $1,500,000 limit for the year, however, Holland-America must pay an entire claim up to $1,000,000.

The Holland-America policy also includes a minor variance in this coverage scheme. If a claim is categorized as arising "as a result of the products and/or completed operations hazards," ¹ then Holland-America's risk is limited to $1,000,000 in the aggregate per year. The only situation described in the Holland-America policy concerning an aggregate limit of liability is with respect to products claims.

The CHA also purchased a second policy for the same period from Hartford Accident & Indemnity Company. The Hartford policy, which provides excess coverage to that of the Holland-America policy, is triggered when the Holland-America policy has been exhausted according to its terms. While the extent of coverage afforded by the Hartford policy is the central issue in this case, at a minimum the Hartford policy insures the excess of claims over $1,000,000 and the excess over the $1,000,000 aggregate for products claims.

This dispute over the coverage afforded by the Hartford policy arose when Holland-America became insolvent. Apparently, Holland-America made no payments pursuant to the policy. The CHA then assumed the administration and payment of the approximately 841 claims filed during the relevant period. None of these claims was a products claim. During the policy period, the CHA exhausted its $1,500,000 self-insured retention and paid an additional $3,148,110.12 for general and automobile liability claims on behalf of Holland-America.

The CHA then notified Hartford that its self-insured retention and the limits of the Holland-America policy were exhausted. In response, Hartford paid the CHA $344,945.83. When Hartford discovered that the CHA had not paid more than $1,000,000 on any single claim, it demanded that its payment be returned. When the CHA refused, Hartford filed this action seeking the return of its payment. The CHA counterclaimed for all payments it made in excess of its self-insured retention.

II.

We review de novo a district court's grant of summary judgment. Doe v. Allied-Signal, Inc., 925 F.2d 1007, 1008 (7th Cir.1991). Our task is to determine whether the record reveals that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); see Adickes v. S.H. Kress & Co., 398 U.S. 144, 159, 90 S.Ct. 1598, 1609 26 L.Ed.2d 142 (1970). Further, we "must view the record and all inferences drawn from it in the light most favorable to the party opposing the motion." Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir.1991) (citations omitted). Both parties agree that Illinois law applies.

The CHA admits that under ordinary circumstances, an excess insurer is not required to indemnify its insured for losses which otherwise would be covered by a primary insurer but for the latter's insolvency; this is known as "drop down" coverage. The CHA makes this concession because this court has repeatedly held that excess insurers are not required to provide "drop down" coverage absent clear language that provides this coverage. See Hudson Ins. Co. v. Gelman Sciences, Inc., 921 F.2d 92 (7th Cir.1990) (applying Illinois law); United States Fire Ins. Co. v. Charter Fin. Group, Inc., 851 F.2d 957 (7th Cir.1988) (applying Indiana law); Zurich Ins. Co. v. The Heil Co., 815 F.2d 1122 (7th Cir.1987) (applying Wisconsin law). In addition, the Hartford policy explicitly disclaims "drop down" coverage for any reason, and the CHA admitted this at oral argument. ² Notwithstanding the policy's disclaimer, the CHA argues that Hartford contracted to provide greater coverage to the CHA in the event of Holland-America's insolvency than Hartford would have had to provide if Holland-America had remained solvent.

The Hartford contract is entitled "Excess Liability Policy." The policy states:

Except as otherwise provided by this policy, the insurance afforded herein shall follow all the terms, conditions, definitions and exclusions of the controlling underlying insurance policy designated in Item 6 of the declarations. ³

This provision renders the Hartford policy a "following form" policy. As such, it insures the same risks covered by the underlying policy issued by Holland-America, but provides coverage to the insured in addition to and in excess of the coverage provided by the Holland-America policy. See The Coleman Co., Inc. v. California Union Ins. Co., 960 F.2d 1529, 1530 n. 1 (10th Cir.1992) (describing "following form" policies). Accordingly, the interpretation of the extent of coverage afforded by the Hartford policy will be dictated by the terms of the Holland-America policy.

The CHA, however, disputes this method of interpretation and argues that a different provision in the Hartford policy alters the method of interpretation such that the Hartford policy should be read independently of the Holland-America policy. The Hartford policy includes provisions that require the CHA to maintain the underlying insurance as a condition of the policy and to notify Hartford if another primary carrier is substituted for Holland-America. These provisions, the CHA contends, indicate that Hartford expected that other insurers might be insuring the underlying risk; therefore, goes the argument, the Hartford policy should be read independently of the Holland-America policy.

This argument is unavailing. In those provisions on which the CHA relies, Hartford simply seeks to ensure that the underlying coverage will be maintained. Further, these provisions, in no uncertain terms, insulate Hartford from liability for any amount less than $1,000,000 per claim (except with respect to products claims), even if the CHA fails to maintain the required underlying insurance. Thus, the provisions on which the CHA relies do not bear on whether the Hartford policy is to be read independently, and the Hartford policy's plain language directs that its terms and conditions are to follow those of the Holland-America policy.

Keeping in mind that the Hartford policy "follows the form" of the Holland-America policy, we evaluate the coverage afforded by the Hartford policy. The Hartford policy states that "[t]he company will indemnify the insured for ultimate net loss in excess of underlying insurance stated in Item 5 of the declarations, but not in excess of the company's limits of liability stated in Item 4 of the declarations." Item 5, entitled "Total Limits of Liability--All underlying...