Playtex FP, Inc. v. Columbia Cas. Co.

• Decision Date: 06 April 1992
• Citation: 622 A.2d 1074
• Parties: PLAYTEX FP, INC., et al., Plaintiffs, v. COLUMBIA CASUALTY COMPANY, et al., Defendants, v. ESMARK, INC., et al., Counterclaim Defendants. . Submitted:
• Court: Delaware Superior Court

Page 1074

622 A.2d 1074

PLAYTEX FP, INC., et al., Plaintiffs, v. COLUMBIA CASUALTY COMPANY, et al., Defendants, v. ESMARK, INC., et al., Counterclaim Defendants.

Superior Court of Delaware,

New Castle County.

Submitted: April 6, 1992.

Decided: May 21, 1992.

Decision After Hearing on Insolvency Drop Down Issue.

Walter L. Pepperman, II, Andrea L. Rocanelli, Morris, Nichols, Arsht & Tunnell, Wilmington, and William J. McSherry, Jr., James Lawless, IV, Battle Fowler, New York City, and Robert N. Sayler, Covington and Burling, Washington, DC, and Stephen D. Chakwin, Jr., Playtex, Inc., Stamford, CT, for plaintiffs.

Irving Morris, Morris and Morris, and Kevin Gross, Rosenthal, Monhait & Gross, P.A., Wilmington, and William H. Briggs, Jr., Rebecca L. Ross, Garrick Grobler, Ross, Dixon & Masback, Washington, DC, and Julian C. Campbell, Jr., Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, IL, for defendant Columbia Cas. Co.

Howard M. Berg, Berg, Bifferato, Tighe & Cottrell, P.A., Wilmington, and Edward M. Laine, Jeffrey J. Bouslog, Oppenheimer, Wolff and Donnelly, St. Paul, MN, for defendant Intern. Ins. Co., AIU Ins. Co. and Nat. Union Fire Ins. Co.

Stephen P. Casarino, Casarino, Christman & Shalk, Wilmington and Dion J. Sartorio, Tribler & Orpett, P.C., Chicago, IL, for defendant Northwestern Nat. Ins. Co.

Nancy E. Chrissinger, Tybout, Redfearn & Pell, Wilmington, for Delaware Ins. Guar. Ass'n.

Gerald G. Saltarelli, Butler, Rubin, Newcomer, Saltarelli & Boyd, Chicago, IL, for counterclaim defendants Esmark, Inc., and Beatrice Companies, Inc.

OPINION

DEL PESCO, Judge.

Playtex and the Delaware Insurance Guarantee Association (DIGA), the plaintiffs in this action, and Columbia Casualty Company (Columbia), National Union Fire Insurance Company (National Union), and International Insurance Company (International), the defendant insurance companies, have submitted cross-motions for summary judgment on the issue of insolvency drop down. Whether or not an excess insurance policy requires insolvency drop down is an issue of first impression in Delaware. After careful consideration of the insurance policies, extensive expert testimony ¹, and the pertinent case law, I conclude that these policies do not require insolvency drop down.

The dispute in this case arises over the interpretation of a $200 million dollar umbrella liability insurance program covering Esmark, Inc. from October 1, 1984, to October 1, 1985. The program consisted of numerous primary policies with varying limits of specialized coverage including a primary comprehensive general and automobile liability policy issued by Northwestern National Insurance Company (Northwestern) with a $1 million dollar each occurrence, $7 million dollar aggregate limit ²; a lead umbrella liability policy with limits of $5 million dollars each occurrence and in the aggregate issued by Mission National Insurance Company (Mission); and several layers of excess umbrella liability insurance which followed form to the Mission policy. Columbia issued an excess umbrella liability policy with limits of $10 million dollar each occurrence and in the aggregate for the layer directly above Mission, and National Union and International issued excess umbrella liability policies sharing the $10 million dollar layer above Columbia. As a subsidiary of Esmark Playtex was an insured under the Esmark program. ³

Unlike the majority of insurance contracts, which are written by insurance companies and issued to unsophisticated individuals, the Mission umbrella liability policy, to which the excess insurers followed form, was drafted by Esmark's brokerage firm and presented to prospective lead umbrella insurers. The prospective insurers had an opportunity to negotiate changes to the form. See Playtex v. Columbia, et al., Del.Super., 609 A.2d 1087 (1991) ("Dec. 9 opinion").

At the time the 1984-85 program was being placed, the excess insurance market was moving from a "soft" period, where there was heavy competition among the insurers coupled with a high capacity and low prices, to a "hard" period, where the insurers were attempting to cancel underpriced policies and were limiting capacity. In other words, prices were beginning to rise, and insurers were less willing to offer the high limits that they had provided in the early eighties. ⁴

Mission has been declared insolvent, thus causing this dispute over whether or not the Esmark insurance program requires insolvency drop down. Mission has not made payments on any 1984-85 policy year TSS claims. As a result of Mission's insolvency, DIGA has made payments for some, but not all, of the claims. Both Playtex and DIGA assert that the policies require the excess insurers to drop down into the $5 million dollar layer which was occupied by Mission.

Neither party has shown the Court evidence of the parties' intent regarding drop down at the time the insurance program was placed. There is no express provision in the Mission policy or in the relevant portions of the excess insurers' policies about the insurer's obligation in the event of the insolvency of an underlyer. It appears that neither side considered the possibility of insolvency drop down. Therefore, it is up to the Court to examine the policies and evidence about practices in the insurance industry to determine the meaning of the Esmark 1984-85 insurance program.

"Where the court is presented with cross-motions for summary judgment, neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law." Empire of America v. Commercial Credit Co., Del Supr., 551 A.2d 433, 435 (1988). In this determination of whether or not the Esmark insurance program for 1984-85 provided for drop down, the only disputed issue is the interpretation of the insurance policies. Under Delaware law, the interpretation of contract language is treated as a question of law. Klair v. Reese, Del.Supr., 531 A.2d 219 (1987).

"The basic rule of contract construction gives priority to the intention of the parties. In upholding the intentions of the parties, a court must construe the agreement as a whole, giving effect to all provisions therein. Moreover, the meaning which arises from a particular portion of an agreement cannot control the meaning of the entire agreement where such inference runs counter to the agreement's overall scheme or plan." E.I. du Pont de Nemours v. Shell Oil Co., Del.Supr., 498 A.2d 1108, 1113 (1985) (citations omitted). The court should consider the overall purpose of the contracts and of the specific provisions at issue. Continental Casualty Co. v. Ocean Accident and Guarantee Corp., 58 Del. (8 Storey) 338, 209 A.2d 743, 751 (1965). An understanding of the industry is also important to an intelligent interpretation of the meaning of a contract. "[T]he meaning of words used in an agreement can only be known through an appreciation of the context and circumstances in which they were used." Klair v. Reese, 531 A.2d at 223; see also Empire of America, 551 A.2d at 435. Because of the specialized nature of the language used in the insurance contracts at issue and the fact that these are not "plain English" policies, the court considered expert testimony. ⁵

There are two factors in this Court's determination that the Esmark Insurance program does not require insolvency drop down. The first is that the purpose of a comprehensive general liability policy is to cover liability, not the solvency of one's insurers. The second is that the policy language, read as a whole and with the benefit of testimony from highly qualified experts on policy construction, unambiguously precludes insolvency drop down in this situation.

In interpreting the meaning of a contractual provision, the court should consider the purpose of the contract. E.I. du Pont v. Shell, 498 A.2d 1108. The purpose of a liability insurance policy is to insure against third party liability. Mr. Graves D. Hewitt, an expert testifying on behalf of the excess insurers, ⁶ testified:

[The Mission policy] is an umbrella liability policy, which means that, for a claim to come under the Mission policy, the expectation is and the intent is that the insured will either have caused or deemed to have caused injury to a third party and that that third party has turned around and said to the insured, you have injured me and I want to be financially made whole.

The insolvency of the Mission was not caused by the insured in this case. Mission is not alleging that the insured caused the insolvency. Mission is not asking for financial reimbursement from the insured.

Hewitt, Feb. 11 at 185. Professor Spencer L. Kimball also testified that the Mission policy is a liability policy which does not cover the risk of insolvency. Kimball, Feb. 13 at 19.

The practice employed by the insurance industry in the placement of large umbrella liability programs such as this one is consistent with the conclusion that umbrella liability policies were not intended to provide for insolvency drop down. Underwriters evaluate risks in determining the premium to be charged to an insured. In placing the 1984-85 umbrella liability program, Esmark provided extensive information to prospective lead umbrella insurers describing Esmark's operations and risk history. As is common practice in the excess insurance industry, once Esmark had a commitment from a lead umbrella insurer, in this case Mission, Esmark began to fill the layers of excess coverage above Mission. Excess underwriters often rely on the lead umbrella insurer's evaluation of the risk and sign on for layers of excess coverage based on the lead umbrella premium and the attachment point of a particular layer of coverage, sometimes without seeing the lead umbrella policy form or knowing what insurers occupied the underlying layers. See Dec. 9 opinion at 14. The premiums of excess insurance policies are generally much less...