Federal Ins. Co. v. Pacific Sheet Metal, Inc.

• Decision Date: 19 June 1989
• Docket Number: N,No. 21702-0-
• Citation: Federal Ins. Co. v. Pacific Sheet Metal, Inc., 774 P.2d 538, 54 Wn.App. 514 (Wash. App. 1989)
• Court: Washington Court of Appeals
• Parties: FEDERAL INSURANCE COMPANY, a foreign insurance corporation, Respondent, v. PACIFIC SHEET METAL, INC., a Washington corporation; R.C. Winter & Associates, Inc., a Washington corporation; Pay'N Pak Stores, Inc., a foreign corporation, Appellants. o. 21704-6-I.

Page 514

54 Wn.App. 514

774 P.2d 538

FEDERAL INSURANCE COMPANY, a foreign insurance corporation, Respondent, v. PACIFIC SHEET METAL, INC., a Washington corporation; R.C Winter & Associates, Inc., a Washington corporation; Pay'N Pak Stores, Inc., a foreign corporation, Appellants.

No. 21702-0-I, No. 21704-6-I.

Court of Appeals of Washington Division 1.

June 19, 1989.

Charles L. Meyer, Weckworth, Barer & Meyer, Richard Martens, Alan B. Hughes, Waitt, Johnson & Martens, Seattle, for Pacific Sheet Metal, Inc., R.C. Winter and Assoc., Inc., Pay'n Pak Stores, Inc.

William Jones Price, Robert G. Mitchell, Philip Talmadge, Karr, Tuttle, Campbell, Seattle, for Federal Ins. Co. GROSSE, Acting Chief Judge.

Pacific Sheet Metal, Inc., R.C. Winter & Associates, Inc., and Pay'N Pak Stores, Inc., appeal from a summary judgment entered for Federal Insurance Company.

On May 1, 1984, Federal Insurance Company (Federal) issued a commercial umbrella liability policy to Pacific Sheet Metal, Inc. (Pacific). On January 3, 1985, a fire occurred while Pacific was performing as a subcontractor on a roof repair and ventilation job for a Pay'N Pak store. Pay'N Pak sued Pacific and the general contractor, R.C. Winter & Associates (Winter), alleging damages of $225,000. Winter settled with Pay'N Pak for $193,297.50 in exchange for an assignment of Pay'N Pak's rights against Pacific.

The key policy provision at issue provides:

2. UNDERLYING LIMIT--RETAINED LIMIT

The Company shall be liable only for the ultimate net loss the excess of the greater of the insured's underlying limit or retained limit defined as:

(a) Underlying limit--an amount equal to the limits of liability indicated beside the underlying insurance listed in the schedule of underlying insurance, plus the applicable limits of any other underlying insurance collectible by the insured;

(b) Retained limit--... ¹

A property damage liability policy issued by Holland America was in effect from May 1, 1984 through May 1, 1985 and was listed on the schedule of underlying insurance in the umbrella policy. Holland America is insolvent and unable to pay on its policy. Federal brought a declaratory action seeking an order that it has no obligation to pay any portion of the loss. It denied coverage alleging that it is only liable for losses in excess of the scheduled limit of the underlying policy ($250,000). The trial court agreed.

Appellants argue that the policy is ambiguous; that case law and the words of the policy support what is termed "drop down" coverage in circumstances such as these where the underlying insurer is insolvent. "Drop down" coverage occurs when the excess carrier is obligated to provide the coverage that the underlying insurer had agreed to provide. In the instant case if Federal would have to provide "drop down" coverage it would have to pay the entire amount of the settlement. In granting summary judgment to Federal, the trial court held that the policy was not ambiguous and did not provide "drop down" coverage. We agree.

Appellants argue that the Federal policy is ambiguous and, therefore, must be construed against the insurer. They urge us to adopt the rule that an insurance policy is ambiguous if courts of different jurisdictions differ with respect to the construction of the policy. The ALR annotation cited by both parties states that the largest number of cases collected support the proposition that the fact there is a difference of judicial opinion with respect to the construction of language in insurance policies is at least evidence of an ambiguity. Annot., 4 A.L.R.4th 1255 § 2[a] (1981). Accord Crunk v. State Farm Fire & Cas. Co., 38 Wash.App. 501, 686 P.2d 1132 (1984). Cf. Sayan v. United Servs. Auto. Ass'n, 43 Wash.App. 148, 154, 716 P.2d 895 (1986) (applying a similar rule to statutory ambiguities).

In Crunk v. State Farm Fire & Cas. Co., 38 Wash.App. 501, 686 P.2d 1132 (1984), the Court of Appeals held a policy provision ambiguous because of a difference of opinion among courts of different jurisdictions with respect to the meaning of the provision at issue. However, on review, the Washington Supreme Court held that the policy was not ambiguous and expressly rejected the rule posited by the Court of Appeals. Crunk v. State Farm Fire & Cas. Co., 106 Wash.2d 23, 719 P.2d 1338 (1986). ²

In this jurisdiction it is settled that coverage is ambiguous " 'when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable' ". McDonald Indus., Inc. v. Rollins Leasing Corp., 95 Wash.2d 909, 912, 631 P.2d 947 [774 P.2d 540] (1981) (quoting Morgan v. Prudential Ins. Co. of Am., 86 Wash.2d 432, 435, 545 P.2d 1193 (1976)). Presumably, when there is a difference of opinion between courts as to the interpretation of the same policy language, the language is susceptible to differing reasonable interpretations. Thus, there is some logic to the majority rule as expressed in the annotation. However, the danger of the rule is perhaps best illustrated by reference to one of the cases cited by the appellants.

Geerdes v. St. Paul Fire & Marine Ins. Co., 128 Mich.App. 730, 341 N.W.2d 195 (1983), ³ involved a clause that included the same wording as the Federal clause entitled UNDERLYING LIMIT--RETAINED LIMIT: "plus the applicable limits of any other underlying insurance collectible by the Insured." Geerdes, 341 N.W.2d at 196. The issue of drop down coverage was raised because the underlying policies were apparently not available to cover the loss from an accident. The Michigan court held that coverage clause was unambiguous and that the policy provided drop down coverage. The holdings were premised on the court's definition of "other". The court read the word "other" from the phrase "other underlying insurance collectible by the insured" as indicating that the only policies to be considered in the calculation of ultimate net loss are those that are collectible. The only discussion of the meaning of "other" in Geerdes occurs in a footnote:

Compare, for example, the following sentence: "I have read Murder on the Orient Express and other mystery novels written by Agatha Christie." By virtue of the word "other" in the final clause, the sentence clearly conveysthe notion that Murder on the Orient Express is a mystery novel by Agatha Christie. To construe the sentence as suggesting that the cited writing lacks any of those qualities would be to ignore the ordinary meaning of the word "other".

Geerdes, 341 N.W.2d at 197 n. 1.

"Other" has two equally important meanings: "being the one (as of two or more) left: not being the one (as of two or more) first mentioned or of primary concern". Webster's Third New International Dictionary 1598 (1981). Rather than arbitrarily adopting one of these meanings as the Geerdes court did, we believe that the word "other" must be considered in context. The phrase at issue, "other underlying insurance collectible by the insured", is separated from the rest of the clause by a comma and the connecting word "plus". In contrast to the Geerdes court, we define the word "other" as "not being the one first mentioned". The adjective "collectible" modifies only the noun "insurance" which directly precedes it. The clause defining ultimate net loss is not ambiguous: it obligates Federal to pay only the excess over the scheduled limits plus the limits of any other underlying insurance that is collectible by the insured. Ultimate net loss is defined by reference to a readily ascertainable number, $250,000, which represents the "limits of liability indicated beside the underlying insurance listed in the schedule of underlying insurance ...". The policy obligates Federal to pay only the excess of those limits unless the limits of liability of the underlying policies have been exhausted solely as a result of occurrences.

Thus, the fact that this court differs with the Geerdes court cannot rationally be considered as evidence of an ambiguity. The problem remains one of determining whether there are two "reasonable" interpretations. In this case we believe that there is only one reasonable interpretation of the clause in question. Therefore we hold that the language of the Federal policy is unambiguous and does not provide for drop down coverage. See Washington Ins. Guar. Ass'n v. Guaranty Nat'l Ins. Co., 685 F.Supp. 1160 (W.D.Wash.1988) (word collectible does not mean funds actually paid and does not support drop down coverage).

Our reading of the clause entitled UNDERLYING LIMIT--RETAINED LIMIT is consistent with other pertinent clauses in the Federal policy. We reject appellants' contention that the OTHER INSURANCE clause contradicts the clause at issue and the COVERAGE clause; thus creating an ambiguity. ⁴ An "other insurance" clause is designed to avoid concurrent coverage. Note, Effect of Conflicting "Other Insurance" Clauses, 41 Wash.L.Rev. 564, 565 (1966). The OTHER INSURANCE clause at issue refers to other valid and collectible insurance covering...