United States: Haering v. Topa Insurance Company

(Because Uninsured / Underinsured Motorist Coverage is Considered First Party Coverage, Excess Policy Affording Third Party Coverage Did Not Provide Uninsured / Underinsured Motorist Coverage, Notwithstanding Following Form Insuring Agreement)

In Haering v. Topa Ins. Co., 244 Cal.App.4th 725 (February 3, 2016), the California Second District Court of Appeal affirmed the trial court’s entry of judgment in favor of Topa Insurance Company (“Topa”) relative to whether an excess following form policy issued by Topa afforded uninsured / underinsured motorist coverage.

The plaintiff, Larry Haering, is the owner of California Fleet, Inc. (“California Fleet”) which was an insured under a primary insurance policy issued by State National Insurance Company with a policy period of December 9, 2011 to December 9, 2012. California Fleet was also an insured under an excess liability policy issued by Topa Insurance Company for the same policy period. The Topa policy designated the State National policy as the underlying primary policy. The State National policy afforded uninsured motorist / underinsured motorist (“UM / UIM”) coverage of $1 million.

The insuring agreement for the Topa policy provided as follows:

"To indemnify the insured for the amount of loss which is in excess of the applicable limits of liability, whether collectible or not, of the Underlying Insurance inserted in-Item 6' of the Declarations, provided that this policy shall apply only to those coverages for which a limit of liability is inserted in Item 5 of the Declarations. If such scheduled Underlying Insurance contains a sub-limit in a lesser amount than the scheduled limit, the Insurance afforded by this policy shall apply in the same manner it would have applied had the scheduled limit been maintained and not reduced by the sub-limit. Provided further that the limit of the Company's liability under this policy shall not exceed the applicable amount inserted in Item 5 of the Declarations.

“The provisions of the immediate underlying policy are incorporated as a part of this policy except for:

"(a) any obligation to investigate, defend, or pay for costs incident to the same;

"(b) the amount of the limits of liability;

"(c) any 'other insurance' provision, and

"(d) any other provisions therein which are inconsistent with the provisions of this policy.

"lf the applicable coverage in the immediate underlying policy insures accidents, rather than occurrences, then 'accident' is substituted for 'occurrence' in the applicable coverage of this policy."

The Topa policy also defined the term “loss” as “the sum paid in settlement of losses for which the insured is liable after making deduction for all recoveries, salvages or other insurance . . . (whether recoverable or not, and shall include all expenses and costs.).”

On October 14, 2012, Mr. Haering was injured in a motor vehicle accident caused by a negligent driver who was an insured under a policy with a $25,000 liability limit. Subsequently, in February 2013, Haering settled his claim against the negligent driver by accepting the $25,000 limit under the driver’s policy. In May 2013, Haering submitted a claim to State National and eventually recovered the policy limit under the $1 million UIM endorsement to the State National policy. Thereafter, on July 23, 2013, Haering submitted a claim to Topa for $1 million in excess coverage. Haering maintained that the Topa policy followed form to the State National policy and incorporated the $1 million UM/UIM endorsement, notwithstanding an exclusion in the Topa policy barring coverage for UM and UIM claims.

Thereafter, Haering filed an action against Topa for breach of contract and bad faith. Subsequently, Haering filed a motion for summary adjudication of a single issue, whether the Topa policy obligated Topa to provide UM / UIM coverage for his injuries sustained as a result of the October 14, 2012 accident. Following a July 14, 2014 hearing on plaintiff’s summary adjudication motion, the trial court denied the motion, and found that Topa’s policy only covered third party liability claims, and not a first party UM / UIM claim for benefits for injuries sustained by the insured. Thereafter, plaintiff and Topa entered into a stipulation for entry of judgment, and such judgment was entered in Topa’s favor. Haering then appealed the judgment.

In affirming the trial court’s decision, the Court of Appeal described UM / UIM coverage as follows:

Insurance Code section 11580.2 requires insurance policies that cover the ownership, maintenance, or use of any motor vehicle to provide coverage for damages caused by an uninsured or underinsured vehicle. (Ins. Code, § 11580.2) "Section 11580.2 mandates two separate types of coverage — UM and UIM coverage. UM coverage requires the insurer to pay its insured, up to specified limits, damages for bodily injury or wrongful death the insured would be entitled to recover from the owner or operator of an uninsured motor vehicle. [Citation.] UIM coverage allows an insured to recover from his or her own insurer the difference between the amount of the insured's own underinsured motorist policy limits and whatever is available from the negligent driver's liability insurance. [Citations.]" (Daun a USAA Cas. Ins. Co. (2005) 125 Cal.App.4th 599, 606.)

The statutory requirement for UM/ UIM coverage does not apply, however, to excess insurance policies. (Ins. Code, § 11580.2, subd. (a)(1); Furlough v. Transamerica Ins. Co. (1988) 203 Cal.App.3d 40, 47 ["neither statutory nor decisional law requires that insurance furnished on an umbrella or excess basis include uninsured motorist coverage"] )

The Court of Appeal also noted the distinction between primary insurance coverage and excess insurance coverage with respect to policies affording “following form” coverage. The Court of Appeal stated as follows:

The distinction between primary insurance coverage and excess insurance coverage is also pertinent to our analysis. Primary insurance provides immediate coverage upon the happening of an occurrence that gives rise to liability. (Century Surety Co. v. United Pacific Ins. Co. (2003) 109 Cal.App.4th 1246, 1255.) Excess insurance provides coverage after a predetermined amount of primary coverage has been exhausted. (Ibid.)

A "following form" excess policy incorporates by reference the terms and conditions of the underlying primary policy. (Coca Cola Bottling Co. v. Columbia Casualty Ins. Co. (1992) 11 Cal.App.4th 1176, 1182 (Coca Cola).) A following form excess policy generally will contain the same basic provisions as the underlying policy, with the exception of those provisions that are inconsistent with the excess policy. (Seaman & Kittridge, Excess Liability Insurance: Law and Litigation (1997) 32 Tort & Ins. U. 653, 658.) Any inconsistency or conflict between the provisions of a following form excess policy and the provisions of an underlying primary policy is resolved by applying the provisions of the excess policy. "It is well settled that the obligations of following form excess insurers are defined by the language of the underlying policies, except to the extent that there is a conflict between the two policies, in which case, absent excess policy language to the contrary, the wording of the excess policy will control. [Citations.]" (Ostrager & Newman, Handbook of Insurance Coverage Disputes (17th ed. 2014) § 13.01; see also Home Ins. Co. v. American Home Products Corp. (2d Cir. 1990) 902 F2d 1111, 1113 [although both primary and excess policies must be examined in determining the scope of excess insurer's obligations, excess policy controls if there is any conflict between the two insuring agreements].)

Some excess insurance policies include, by endorsement, a "broad as primary" provision. A "broad as primary" endorsement enlarges the scope of coverage to include a loss that is within the scope of the underlying primary policy, even though that loss otherwise would have been excluded under the terms of the excess policy. (Ostrager & Newman, Handbook of Insurance Coverage Disputes, supra, § 13.01(b); see Housing Group v. California Ins. Guarantee Assn. (1996) 47 Cal.App.4th 528, 533-535 [broad as primary endorsement applies to any loss within the scope of primary policy's coverage].)

The Court of Appeal then held that the insuring agreement in the Topa excess policy only afforded indemnity coverage for third party claims. The Court of Appeal held as follows:

The plain language of the Topa policy's insuring agreement limits the insurer's indemnity obligation to "losses for which the insured is liable," i.e., third party liability claims.' (Montrose, supra, 10 Cal.4th at p. 663; Garvey, supra, 48 Cal.3d at pp. 407-408.) Plaintiff's claim for first party UM/UIM benefits does not come within the scope of that agreement. (Waller, supra, 11 Cal.4th at p. 16 [insured bears the burden of brining a claim within the scope of the policy's insuring agreement].)
. . .
The language of the Topa policy that incorporates the provisions of the State National policy also expressly excepts from incorporation those provisions "which are inconsistent with" the Topa policy. The Topa policy's insuring agreement expressly limits coverage to third party liability claims, and first party UM/UIM coverage would be inconsistent with that limitation. There is no "broad as primary" endorsement. Given these circumstances, the provisions of the Topa policy govern the scope of coverage. (Ostrager & Newman, Handbook on Insurance coverage Disputes, supra, § 13.01, and cases cited.)

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