In 2019, California courts issued a number of interesting decisions on insurance issues. Three stand out.
In Deere & Co. v. Allstate Insurance Co., 32 Cal. App. 5th 499 (2019), the court addressed a question about the interplay of primary and excess insurance policies and, in particular, whether an insured had to pay self-insured retention (“SIR”) at each level of insurance. Deere’s liability insurance program, like those of many companies, featured multiple layers of insurance policies each year. As is often the case, the excess policies purported to “follow form” to an underlying policy. As the court explained, “the usual function of a ‘follow form’ clause in an excess policy is to provide coverage for the same acts or occurrences as the underlying policy.” This means that the scope of coverage “is generally subject to the same conditions and limitations of the underlying primary policy, with the exception of the policy limits.”
Deere’s liability program had an SIR. “The first-layer policies are invoked only after the applicable SIR has been paid by Deere. And the higher-layer policies are triggered once both the underlying limits, of which the SIRs are a part, have been exhausted.” The higher-level excess insurers contended that Deere had to pay multiple SIRs—not just one under the policy to which they followed form, but a separate one between each layer of coverage. The court rejected this contention. It held: “[O]nce Deere has paid its self-insured retentions under its first-layer umbrella policies and once the first-layer umbrella policies are exhausted, Deere may seek coverage from the higher-layer excess policies. It will be Deere’s exhaustion of its SIRs that will trigger coverage under its first-layer policies. And, the exhaustion of the first-layer policies is what will trigger coverage under the higher-layer policies.” The court stressed, “Continually requiring Deere to pay SIRs for each successive layer would have the effect of affording Deere far less coverage than it had purchased.”
Full article available at 2019 LADJ-review of Cal ins law decisions