Union Indem. Ins. Co. v. Certain Underwriters

• Decision Date: 31 July 1985
• Docket Number: C.A. No. H-83-4324.
• Citation: 614 F. Supp. 1015
• Parties: UNION INDEMNITY INSURANCE CO. OF NEW YORK v. CERTAIN UNDERWRITERS AT LLOYD'S, et al.
• Court: U.S. District Court — Southern District of Texas

614 F. Supp. 1015

UNION INDEMNITY INSURANCE CO. OF NEW YORK v. CERTAIN UNDERWRITERS AT LLOYD'S, et al.

C.A. No. H-83-4324.

United States District Court, S.D. Texas, Houston Division.

July 31, 1985.

Innes A. Mackillop, Brown, Sims & Ayre, Houston, Tex., for plaintiff.

Ed Bluestein, Jr., Fulbright & Jaworski, Houston, Tex., for defendants.

ORDER

CARL O. BUE, Jr., District Judge.

Plaintiff brought this action for a declaratory judgment pursuant to 28 U.S.C. § 2201, for the purpose of determining the obligations of plaintiff and defendants as hull underwriters under the insurance policies with respect to contribution to a settlement involving the assured. Soon thereafter, cross motions for summary judgment were filed and argued to the Court. Simply stated, plaintiff contends that because a "total loss" occurred in this case, all hull underwriters, regardless of any priority under the policies that they may have in the event of a partial loss, are obligated to respond to the maximum monetary limits of their respective policies.¹ In response, defendants contend that plaintiff, as the primary hull insurer, has an obligation, regardless of the extent of the loss, which requires the exhaustion of its policy limits before defendant excess insurers are obligated to pay. Accordingly, the critical issue in this case which appears to be one of first impression is whether in a hull insurance case in which a total loss occurs and is later compromised each hull underwriter, whether primary or excess, should be required by policy or by law to share ratably in the satisfaction of the settlement.

After careful consideration of the facts of the case, the insurance policies in question, argument of counsel, and relevant law, this Court is of the opinion that plaintiff's motion for summary judgment should be denied and that defendants' cross-motion for summary judgment should be granted for the reasons discussed below.

Background

The F/V DECO XX, owned by Duzich Trawlers, Inc., sank in heavy water in the Gulf of Mexico in April of 1982 and could not be salvaged. Thereafter, the insured made a claim for a "total loss". At the time of the loss, the DECO XX was insured under several policies, one of which was issued by plaintiff and the remainder of which were issued by defendants. The agreed value of the vessel as stated in each of these policies was $475,000. The owner's claim was compromised for $300,000.

In order to fund the settlement, plaintiff, the primary hull insurer, paid $250,000, the limit of its policy. One set of defendants, Certain Underwriters at Lloyd's, whose policy had a limit of $10,000 in excess of $250,000, paid its limit. A second set of defendants, Certain Underwriters at Lloyd's together with the member companies, whose policies had a combined limit of $215,000 in excess of $260,000, paid the remainder of the settlement, or $40,000.

Summary Judgment Standards

In order to succeed on a motion for summary judgment, a movant must demonstrate that there is no genuine issue as to any material fact, and that the law demands a judgment in the movant's favor based on those undisputed facts. FED.R. CIV.P. 56(c); Darden v. C.H. Heist Corp., 743 F.2d 1135, 1137 (5th Cir.1984). Plaintiff and defendants are in agreement as to the material facts in this case — the existence of the insurance policies, the total loss of the F/V DECO XX and the subsequent settlement. The only question remaining is the legal one of plaintiff's right, if any, to contribution from defendants. Therefore, the parties concur that this case is a proper one for summary judgment.

The Law

For an insurer to be entitled to equitable contribution from other insurers, the policies in question must insure the same party, the same interest, and the same risk. Reliance Ins. Co. v. Allstate Indem. Co., 514 F.Supp. 486 (E.D.Penn. 1981), aff'd, 681 F.2d 808 (3rd Cir.1982). This is known as double or overlapping insurance. Brockway-Smith Co. v. Boston & Maine Corp., 497 F.Supp. 814, 823 (D.D. Mass.1980); 6 Appleman, Insurance Law and Practice § 3903 (1972). If one insurer pays the insured's entire loss in such a situation, that insurer is entitled to pro rata contribution from any other insurer who issued double insurance. Reliance Ins. Co., 514 F.Supp. at 486, 487. The purpose of the doctrine of equitable contribution is to prevent the insured from making a double recovery. See 1 Arnold, Law of Marine Insurance and Average, § 433, (16th ed. 1981).

Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. Whitehead v. Fleet Towing Co., 110 Ill.App.3d 759, 66 Ill.Dec. 449, 442 N.E.2d 1362 (Ill. App.Ct.1982). An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. Brownsville Fabrics, Inc. v. Gulf Ins. Co., 550 S.W.2d 332, 337 (Tex.App. — Corpus Christ 1977, writ ref'd n.r.e.). In a situation in which there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. U.S. Fire Ins. Co. v. Lay, 577 F.2d 421 (7th Cir.1978), reh'g denied; see also Valentine v. Aetna Ins. Co., 564 F.2d 292, 296 (9th Cir.1977); Travelers Indem. v. Certain Underwriters at Lloyd's, 566 F.Supp. 267, 270 (E.D.La.1983). In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess insurer thus greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy.

In the instant case, plaintiff's insurance policy is unmistakably primary and defendants' are excess. Not only are defendants' policies labeled "excess", but they recite, in addition, that they follow the terms and conditions of the underlying coverage. Clearly, in this situation, each underlying policy must be exhausted before the next layer of excess insurance is required to contribute. There is no danger of the insured making a double recovery because each insurer is liable only to the limits of its policy.

Nevertheless, plaintiff contends that the case at bar presents a situation analogous to a co-insurance scenario. Stated simply, plaintiff asserts that where, as here, the aggregate of the policy limits equals the agreed insured value, the nature of the contractual obligation owed by each underwriter to the assured in a total loss situation is identical, except as to the difference in policy limits. In other words, all underwriters may be said to insure the same party at the same time and against the same risk.² However, plaintiff cites no authority in support of this contention, nor does the Court following its own research find any.

Instead, plaintiff attempts to support its position inter alia by analogy to the effects of a compromised total loss involving other types of insurance. As its single authority on this point, plaintiff quotes Buglass, Marine Insurance and General Average in the United States, pp. 112-113 (2d ed. 1981) as follows:

When a claim for constructive total loss is compromised for, say, 90% of the agreed or insured value in the basic hull policy, any other total loss underwriters must respond similarly (that is to say, any underwriters insuring increased value, disbursements or freight, must also respond for 90% of the sum for which they insure). In other words, any compromise settlement reached by the assured with his basic hull underwriters carries with it the other total loss insurances.

However, insurance for increased value, disbursements and freight does not insure the same interest as hull insurance. Brown v. Merchant's Marine Ins. Co., 152 Fed. 411, 413 (9th Cir.1907). While those coverages may be bound by the percentage of loss represented by the settlement achieved by the hull underwriter, those coverages do not contribute to lessen the hull underwriter's obligation. In the case sub judice, the insurers do insure the same interest — the hull — but they do not insure the same parts of the risk. In short, the authority cited by plaintiff, while undoubtedly accurate in its own context, is inapposite to the case at bar.

Plaintiff finds further support for his contentions in Brown in a quote taken from Arnould, Marine Insurance § 1215 (7th ed.) which reads as follows:

Upon abandonment, each of the underwriters participates in the benefits of the transfer by sharing in the proceeds of the salvage according to the proportion which the amount of his subscription bears to the whole value of the thing insured, and this without regard to the date of the different subscriptions, or the priority of the policies, if more than one.

152 Fed. at 413. In Brown, the Court held that the underwriters of a disbursement policy should rank equally with the other underwriters in the distribution of the fund in court. That Court neither analyzed nor ruled upon the issues raised herein.

The distinction between hull insurance and disbursements, discussed previously by this Court, is explained in that opinion as well:

The object of insurance on disbursements is to insure the shipowner the recovery of additional sums beyond the amount covered by his insurance on ship and freight, and it is made against total loss only.... Policies on disbursements ... are designed to cover a variety of interests not covered by policies in the ordinary form.... `Disbursement' policies are often issued where the hull is fully

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