Insured Settles for Less from Insurers, and Excess Coverage Still Must Indemnify: “Ultimate Net Loss Liability” Could Apply to Settlement Amounts with Lower Level Insurers
On Friday, August 29, 2014, the Eleventh Court of Appeals in Texas reversed the trial court’s summary judgment order finding that an excess insurance policy was triggered though the underlying policies had not exhausted their full coverage limit.
Plantation Pipe Line Co. operates pipelines transporting petroleum throughout the southern and eastern United States. In 1990, a leak was found in North Carolina, and Plantation was required to remediate the site. Plantation spent almost $12 million to clean and restore the area. Plantation sought defense and indemnity from three of its insurers, each of whom disclaimed coverage based on untimely notice and pollution exclusion. Plantation brought suit against the three insurers, but not against Highlands as it didn’t anticipate triggering the excess coverage. The litigation ended in settlements whereby each of the three insurers paid amounts less than the agreed upon policy limits, and Plantation agreed to pay the difference. Plantation then sought defense and indemnity from its excess insurance carrier, Highlands Insurance Co.
Highlands disclaimed, stating that their policy would only trigger if all underlying insurance was exhausted. The trial court granted Highlands’ motion for summary judgment because the settlements between Plantation and its insurers each resulted in the insurers paying less than the full policy limits, and the excess insurance policy requires full exhaustion of underlying insurance.
The Appellate Division reversed the order, however, denying such an interpretation of the policy. The dispute centered on the language stating that the excess coverage attaches after the underlying insurers “have paid or have been held liable to pay the full amount of their respective ultimate net loss liability.” Highlands contended that ‘ultimate net loss liability’ was unambiguous language meaning the full policy limit. The court agreed the language was unambiguous but found that the contract expressly states it is subject to the terms and definitions contained in the underlying policies. In an underlying policy the term ‘ultimate net loss’ was defined as including the total sums, paid by an insurer or insured by adjudication or settlement, thus triggering the excess coverage.
The court also found that reading the excess policy provision in accord with the entire contract also supported such a reading. The maintenance clause similarly does not require the source of payment on the underlying policies be the insurer. Simply put, the clauses read together state that the Highlands policy will attach at the attachment point of $8 million. Plantation’s remediation costs exceeded that point of $8 million, therefore, Highlands is required to indemnify.