Kelly v. Weil

• Decision Date: 04 June 1990
• Docket Number: No. 90-CC-0271,90-CC-0271
• Citation: 563 So.2d 221
• Parties: Charles P. KELLY, Jr. v. Estelle V. WEIL, Associated Moving and Storage Co., Inc., Transprotection Service, Royal Oldsmobile, Inc., and Fireman's Fund Insurance Companies. 563 So.2d 221
• Court: Louisiana Supreme Court

Page 221

563 So.2d 221

Charles P. KELLY, Jr. v. Estelle V. WEIL, Associated Moving and Storage Co., Inc Transprotection Service, Royal Oldsmobile, Inc. and Fireman's Fund Insurance Companies.

No. 90-CC-0271.

563 So.2d 221

Supreme Court of Louisiana.

June 4, 1990.

Gus A. Fritchie, III, New Orleans, for U.S. Fire Ins. Co., defendant-applicant.

Louis LaCour, New Orleans, Henry Terhoeve, Baton Rouge, for Estelle V. Weil & Associated Moving & Storage Co., Inc., defendant-respondent.

Malcolm Robinson, Metairie, for Charles P. Kelly, Jr., plaintiff-respondent.

Robert Levenstein, Laplace, for State of La., Dept. of Transp., defendant-respondent.

William R. Seay, Jr., Metairie, for American Mut. Liability Ins. Co./LIGA, defendant-respondent.

Michael Martin, New Orleans, for State Farm Ins. Co., defendant-respondent.

Geoffrey P. Clement, Metairie, for American Auto. Ins. Co., defendant-respondent.

CALOGERO, Chief Justice ^*.

Charles P. Kelly, Jr. and Estelle V. Weil, opposing drivers, were involved in an automobile accident on November 11, 1983. As a result of the accident, Kelly filed suit against Weil and her employer, Associated Moving and Storage Company, Inc., the alleged owner of the vehicle. Transit Casualty Company, through the named defendant, Transprotection Service Co., provided automobile liability insurance of $1,000,000 per accident on the Associated vehicle driven by Weil, and became obligated to provide a defense against this claim for damages. After suit was filed Transit became insolvent. Thereupon, plaintiff added the Louisiana Insurance Guaranty Association ("LIGA") pursuant to LSA-R.S. 22:1382(1)(a), and U.S. Fire Insurance Co., Associated's excess insurance carrier.

Weil and Associated, as third party plaintiffs, contend that because the primary carrier became insolvent, U.S. Fire, as excess insurer, should "drop down" to provide a defense and to indemnify them for any liability they may incur arising out of this suit, including that which would have been provided by Transit. Kelly therefore added U.S. Fire through an amended petition for damages. U.S. Fire then moved for a partial summary judgment prior to trial, alleging that its policy does not provide coverage until its insured is cast in judgment in excess of the $1,000,000 limit of the underlying policies. The trial judge following a hearing on that motion and a cross motion for summary judgment filed by Weil and Associated, granted Weil and Associated's cross motion ruling that U.S. Fire's policy provided coverage in excess of $150,000 up to its policy limits, and denied U.S. Fire's motion. ¹ The court of appeal denied writs, agreeing with the district court's judgment. We granted writs in this case, and in another, Robichaux v. Randolph, No. 90-C-0157, ² involving an identical issue, to determine whether the respective excess insurance policies provide for a "drop down" when the primary underlying insurance carrier is insolvent (i.e., whether the excess carrier essentially becomes an underlying insurer in place of an insolvent underlying insurance carrier).

A review of the state and federal jurisprudence in this country reveals that the controlling consideration on this "drop down" issue is the agreement between the insurer and the insured, namely, the insurance policy itself. Basically three types of excess policies are to be found in the cases.

In one category there are excess policies that distinctly facilitate dropping down. The policies in this group state, in effect, that the underlying limit of the excess coverage is dependent on the "collectibility" or "recoverability" of the primary limits. For instance, in McGuire v. Davis Truck Services, Inc., 518 So.2d 1171 (La.App. 5th Cir.), writ denied, 526 So.2d 791 (La.1988) and Reserve Ins. Co. v. Pisciotta, 30 Cal.3d 800, 180 Cal.Rptr. 628, 640 P.2d 764 (1982), the respective policies provided for liability in excess of "the amount recoverable under the underlying insurance as set out in the schedule of the underlying insurance. ..." It is clear that in this type of policy the excess carrier does drop down to provide coverage. Insolvency of the underlying carrier prevents the primary limits from being collectible, or recoverable. If not recoverable because of insolvency, the underlying insurance does not constitute any part of a retained limit. Where this phraseology is used (liability in excess of the amount recoverable), the pro-coverage result is consistent in the cases.

In a second category are excess policies that also convey a sufficiently clear meaning, but, to the contrary, are properly understood not to facilitate a drop down of the excess insurance. Those policies describe the excess coverage as the excess of the limits of the policies "covered" in schedules attached to the policy. It is evident that this language does not provide for a drop down. The retained limit in this instance is simply the limits of the policies "covered" in the attached schedules. Excess coverage is not made dependent on recoverability or collectibility of the amount. See Radar v. Duke Transp. Inc., 492 So.2d 532 (La.App. 3d Cir.1986) and Mission Nat. Ins. Co. v. Duke Transp. Co., Inc., 792 F.2d 550 (5th Cir.1986).

In a third category of cases, the insured's "retained limit" is defined as the greater of the "applicable limits of the scheduled underlying policies, and the applicable limits of any other insurance collectible by the insured." This phraseology, unlike that in the two types of policies discussed above, at least arguably raises the question of whether the excess insurance kicks in if the underlying policy is not "collectible by the insured."

Some courts, finding the policy language ambiguous, and thus subjecting the drafter to an unfavorable interpretation, hold that "collectible" modifies both "other insurance" and the scheduled "underlying policies." The excess insurance drops down because the retained limit excludes the scheduled underlying policy limits if not collectible (for whatever reason). See Poirrier v. Cajun Insulation, Inc., 501 So.2d 800 (La.App. 4th Cir.), recon. denied, 502 So.2d 579 (1987); Geerdes v. St. Paul Fire & Marine Ins. Co., 128 Mich.App. 730, 341 N.W.2d 195 (1983).

The larger number of cases in the jurisprudence regarding the third category of cases, however, find that there is no drop down based on this policy language. These cases hold that the provision is not ambiguous, and that the proper interpretation of the policy language does not require the underlying policy to be collectible. Only the "other insurance" carries that requirement. The insured's retained limit, as to which the excess insurer is in no event bound, is minimally the applicable limits of the scheduled underlying policies, whether that insurance is collectible or not. See Transco Explor. Co. v. Pacific Employers Ins. Co., 869 F.2d 862 (5th Cir.1989); Continental Marble & Granite v. Canal Ins. Co., 785 F.2d 1258 (5th Cir.1986); LIGA v. Intern. Ins. Co., 551 So.2d 50 (La.App. 1st Cir.1989); Gibson v. Kreihs, 538 So.2d 1057 (La.App. 4th Cir.), writ denied, 541 So.2d 856 (La.1989); Radar v. Duke Transp. Inc., 492 So.2d 532 (La.App. 3d Cir.1986); U.S. Fire Ins. v. Capital Ford Tr. Sales, 257 Ga. 77, 355 S.E.2d 428 (1987); U.S. Fire Ins. Co. v. Coleman, 754 S.W.2d 941 (Mo.App.1988).

Cases which fit this third category vary slightly in the relevant phraseology. ³ The policy language at issue in this case is as follows:

"V. RETAINED LIMIT--LIMIT OF LIABILITY

With respect to Coverage I(a), I(b) or I(c), or any combination thereof, the company's liability shall be only for the ultimate net loss in excess of the insured's retained limit defined as the greater of:

(a) the total of the applicable limits of the underlying policies listed in Schedule A hereof, and the applicable limits of any other insurance collectible by the insured; ..." (Emphasis provided.)

Our conclusion is that the language, standing alone, is not ambiguous, and that this is even more evident when we focus upon the policy in its entirety. First, regarding the provision itself, the phrases are disjunctive, separated by a comma and the conjunction "and", with "collectible by the insured" only within the second phrase. There is no such qualifier where reference is made, in the first phrase, to the "underlying policies listed in Schedule A." A simple, logical, common sense reading of the provision leaves one conclusion--that the retained limit is the limits of the scheduled underlying policies, supplemented by any other insurance, provided that the other insurance is collectible.

The U.S. 5th Circuit came to this same conclusion upon analyzing similar policy language in Transco Explor. Co. v. Pacific Employers Ins. Co., 869 F.2d 862 (5th Cir.1989). That policy provided for coverage with identical language in the limit of liability clause, except that it substituted the word "plus" for the word "and." The reasoning used by that court to find no drop down is applicable here. The Transco court held that:

"[This policy] plainly contemplates two types of underlying insurance, scheduled and nonscheduled. Each appears in a distinct phrase, as is evidenced by the use of a comma between the words 'hereof' and 'plus' and by the use of the word 'plus' itself. The most natural reading of the language is therefore to read the two phrases separately, with the collectibility requirement being confined to the second phrase. With the policy so construed, only nonscheduled underlying insurance need be collectible to be included in the calculation of the insured's retained limit; ..."

Similarly, the court in Value City, Inc. v. Integrity Ins. Co., 30 Ohio App.3d 274, 508 N.E.2d 184, 187 (1986) explained the phraseology as follows:

"A linguistic analysis reveals that the 'underlying limit' is defined ... by two separate conditions, and is expressed in the conjunctive. Thus, even if no other underlying insurance is 'collectible,'...