California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Excess Insurers

 

Exhaustion of the Underlying Policies

 

Attachment Point of the Excess Policy

 

Breach of Contract

 

Insurance Law

 

California Law

 

Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023)

 

 

 

(San Francisco County Super. Ct. No. CGC17557275)

 

 

(…) (Archdale v. American International Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 466 [breach of contract cause of action “necessarily relates only to the express promises made by [an insurer] in its policy”]; see also Levy v. State Farm Mutual Auto. Ins. Co. (2007) 150 Cal.App.4th 1, 5, 58 [demurrer properly sustained where plaintiff offered mere allegation of breach without facts demonstrating “a link” between the alleged violations “and the insurance contract”].) And as to the allegation as to what might be a breach of contract, i.e., the failure to pay covered claims, it fails as well, as the policies are excess policies, described this way by the late Justice Croskey in his leading commentary: “‘Excess’ insurance: Excess insurance ‘refers to indemnity coverage that attaches upon the exhaustion of underlying insurance coverage for a claim.’ (Montrose Chemical Corp. Of Calif. v. Superior Court (Canadian Universal Ins. Co., Inc.) (Montrose III) (2020) 9 Cal.5th 215, 222 (internal quotes omitted); Powerine Oil Co., Inc. v. Superior Court (Central Nat’l Ins. Co. Of Omaha) (Powerine II) (2005) 37 Cal.4th 377 (citing text).) “ In other words, excess insurance ‘provides coverage after other identified insurance is no longer on the risk.’ (North American Capacity Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 291.)

 

“An excess insurer’s coverage obligation begins once a certain level of loss or liability is reached; that level is generally referred to as the ‘attachment point’ of the excess policy. [Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023) 8:177.) In Reserve Insurance Co v. Pisciotta (1982) 30 Cal.3d 800—there addressing the issue of insolvency of an underlying insurer—our Supreme Court held that “we must look to the excess policy’s express language to determine whether an excess insurer is obligated” on its policy. (Id. at p. 814.) We do that, and easily conclude that plaintiffs show no such “obligation.” The policies have not, in Justice Croskey’s words, “attached.” The St. Paul policy provides that St. Paul “shall only be liable . . . after the total amount of all Underlying Limits of Liability has been paid in legal currency by the Issuers of all Underlying Insurance as covered loss thereunder.”

 

(…)

 

Finally, there are sound policy reasons why the excess insurers should stay on the sidelines without incurring these unnecessary costs. A strict exhaustion requirement brings stability and predictability to the excess insurance system, both for insurers and insureds. “An excess insurer predicates the premiums it charges upon the obligations that it and the primary insurer assume . . ..”  (Hartford Accident and Indemnity Company v. Continental National Insurance Cos. (1988 861 F.2d184, 1187.) Thus, burdening the excess insurers with prematurely litigating coverage issues before exhaustion upsets insurers’ settled expectations. Again, Iolab is apt, where the court concluded that “requiring the excess insurer to defend against [the insured’s] claim would impose on the excess insurers the unnecessary cost of litigating a claim that may never trigger excess coverage and thereby frustrate the policy adopted by the California courts.” (Iolab, supra, 15 F.3d at pp. 1504−1505.)

 

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)