Ware v. Carrom Health Care Products, Inc.

• Citation: 727 F. Supp. 300
• Decision Date: 19 December 1989
• Docket Number: No. EC86-218-S-D.,EC86-218-S-D.
• Parties: Clara WARE, Plaintiff, v. CARROM HEALTH CARE PRODUCTS, INC., Defendant.
• Court: U.S. District Court — Northern District of Mississippi

727 F. Supp. 300

Clara WARE, Plaintiff, v. CARROM HEALTH CARE PRODUCTS, INC., Defendant.

No. EC86-218-S-D.

United States District Court, N.D. Mississippi, E.D.

December 19, 1989.

Wilbur Colom, Dennis Harmon, Columbus, Miss., for plaintiff.

J. Carter Thompson, Jr., Butler, Snow, O'Mara, Stevens & Cannada, Jackson, Miss., for International Ins. Co.

Shane F. Langston, Holcomb, Dunbar, Connell, Chaffin & Willard, Jackson, Miss., for Everest and Jennings Intern., EV-JEN Medical, and Carrom Health Care Products, Inc.

Taylor B. Smith, Threadgill, Smith, Sanders & Jolly, Columbus, Miss., for St. Paul Fire and Marine Ins. Co.

OPINION

SENTER, Chief Judge.

This cause is before the court on cross motions for summary judgment. In short, "we are asked to declare the winner in a game of grammatical tug-of-war between an excess insurer and an insured over whether an excess insurance policy `drops down'¹ in place of a policy issued by a now-insolvent primary insurer." Transco Exploration Co. v. Pacific Employers Insurance Co., 869 F.2d 862 (5th Cir.1989).

I.

A.

The original complaint alleges that on February 1, 1984, a hospital bed manufactured by defendant Carrom Health Products, Inc., fell on plaintiff Clara Ware as she was performing her duties as housekeeper for the Oktibbeha County Hospital and caused serious injury to her back. Her theories of recovery are that the bed was defective and unreasonably dangerous and negligently designed.

Mission American Insurance Company, Carrom's liability carrier, hired an attorney to defend the suit. An answer was filed on Carrom's behalf but then, on September 11, 1987, counsel was allowed to withdraw. The magistrate's order indicated that Mission American had been placed under conservatorship by the State of California and attempts to contact any entity carrying on business in the name of Carrom were unsuccessful.²

International Insurance Company filed an intervening petition because it had issued to Carrom a policy of excess insurance. The request for declaratory judgment relief was based on an argument consistently maintained throughout this litigation:

As clearly provided in the attached policy of insurance, International does not provide "drop down" coverage in the event of the insolvency of the primary carrier. The policy makes it clear that International has no coverage for any claim, including the plaintiff's claim herein, unless and until a judgment is rendered in excess of the primary policy limits ($500,000.00).

It is further clear from the policy of insurance that International does not have a duty to defend Carrom in this case. Under paragraph 6 of Section III, for example, the policy states: "This policy shall not apply to defense, investigation, settlement or legal expenses covered by underlying insurance."

A contestant for this position immediately surfaced in the corporate persons of Everest and Jennings International and EV-JEN Medical,³ on whose behalf a Rule 57 Complaint for Declaratory Judgment was filed.

After default was averted, International and Carrom filed respective motions for summary judgment.⁴ The construction of a contract is squarely before us;⁵ any analysis must be preceded by mapping out its relevant provisions.

B.

According to the declarations sheet, the limit of liability for certain coverages and the aggregate limit for each annual period with respect to other hazards is $5,000,000.00 each. Item 4(c), "self-insured retention," is zero. The schedule of underlying comprehensive general liability insurance for bodily injury, combined single limit, is $500,000.00 each occurrence and $500,000.00 aggregate when applicable. A $1,900.00 annual premium is "flat charged;" next to estimated annual exposure is "N/A."

The body of the policy contains, inter alia, the following language:

DEFENSE SETTLEMENT

With respect to any occurrence covered by the terms and conditions of this policy, but not covered, as warranted, by the underlying policies listed in Schedule A hereof or not covered by any other underlying insurance collectible by the insured, the company shall;

(a) defend any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient; ...

(c) pay all expenses incurred by the company, all costs taxed against the insured in any such suit and all interest accruing after entry of judgment until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon; ...

* * * * * *

DEFINITIONS

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"ULTIMATE NET LOSS"

"Ultimate Net Loss" means the total of the following sums with respect to each occurrence;

(a) all sums which the insured is legally obligated to pay as damages whether by reason of adjudication or settlement, because of bodily injury, personal injury, property damage or advertising liability to which this policy applies, and (b) all expenses, other than defense settlement provided in Insuring Agreement II, incurred by or on behalf of the insured in the investigation, negotiation, settlement and defense of any claim covered by this policy or suit seeking such damages, excluding only the salaries of the insured's regular employees.

This policy shall not apply to defense, investigation, settlement or legal expenses covered by underlying insurance.

* * * * * *

RETAINED LIMIT — LIMIT OF LIABILITY

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; or

(b) the self-insured retention stated in Item 4(c) of the declarations as the result of all occurrences not covered by said underlying insurance, and which shall be borne by the insured, separately as respects each annual period of this policy.

When the self-insured retention stated in Item 4(c) has been exhausted, this policy shall apply without application of the self-insured retention for the remainder of that annual period.

The company's liability shall not exceed the amount stated in Item 4(a) of the declarations as the result of any one occurrence....

* * * * * *

CONDITIONS

A. Premium Computation ... The advance premium is based upon the estimated exposures for the policy period as stated in the declarations.

* * * * * *

E. Assistance and Co-operation. Except as provided in Insuring Agreement II (Defense Settlement) or in Condition J (Underlying Insurance) the company shall not be called upon to assume charge of the settlement or defense of any claim made or proceeding instituted against the insured, but the company shall have the right and opportunity to associate with the insured in the defense and control of any claim or proceeding reasonably likely to involve the company. In such event the insured and the company shall cooperate fully.

* * * * * *

G. Loss Payable. Liability of the company with respect to any one occurrence shall not attach unless and until the insured, the company in behalf of the insured, or the insured's underlying insurer, has paid the amount of retained limit. Where the company must indemnify the insured for ultimate net loss in accordance with Insuring Agreements, the insured shall make a definite claim for any loss for which the company may be liable within twelve (12) months after the insured shall have paid an amount of ultimate net loss in excess of the amount borne by the insured or after the insured's liability shall have been made certain by final judgment against the insured after actual trial, or by written agreement of the insured, the claimant and the company. If any subsequent payments are made by the insured on account of the same occurrence, additional claims shall be made similarly from time to time and shall be payable within thirty (30) days after proof in conformity with this policy.

The insured shall promptly reimburse the company for any amount of ultimate net loss paid on behalf of the insured within the self-insured retention specified in Item 4(c) of the declarations.

H. Bankruptcy or Insolvency. Bankruptcy or insolvency of the insured shall not relieve the company of any of its obligations hereunder.

I. Other insurance. If other collectible insurance including other insurance with this company is available to the insured covering a loss also covered hereunder (except insurance purchased to apply in excess of the sum of the retained limit of liability hereunder) the insurance hereunder shall be in excess of and not contribute with such other insurance.

J. Underlying Insurance. If underlying insurance is exhausted by any occurrence the company shall be obliged to assume charge of the settlement or defense of any claim or proceeding against the insured resulting from the same occurrence, but only where this policy applies immediately in excess of such underlying insurance, without the intervention of excess insurance of another carrier.

In the event of the reduction or exhaustion of the aggregate limits of liability of the underlying policies listed in Schedule A solely by reason of losses paid thereunder in respect of occurrences happening during the policy period of this policy, this policy, (1) in the event of reduction, shall pay the excess of the reduced underlying limits; or (2) in the event of exhaustion, shall continue in force as underlying insurance.

* * * * * *

O. Maintenance of Underlying Insurance. It is warranted by the insured that the underlying policies listed in Schedule A, or renewals or replacements thereof not more restricted, shall be maintained in force during the currency of this policy, except for any reduction of the aggregate limits contained therein solely by payment

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