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the policy make specific provision for the insolvency of an underlying carrier.
In so holding, the court distinguished the language of the policy at issue
from the policies addressed in Pisciotta and Coca Cola Bottling Co. v.
Columbia Cas. Ins. Co., 11 Cal. App. 4th 1176 (Ct. App. 1993).
Tenth Circuit
Alaska
California
Aramark Leisure Servs. v. Kendrick, 523 F.3d 1169 (10th Cir. 2008). Following a
boating accident in a rented boat, the renter sued the rental company and its
insurer, Albany Insurance Company (“Albany”), for damages. Albany argued
that its policy did not extend coverage to Plaintiff due to an “escape clause,”
which provided that Albany “escaped” liability for the accident if the insured
had other primary coverage. Albany directed Plaintiff to seek primary coverage
from the personal liability policy with Shelby Insurance Company (“Shelby”)
which was also carried by the insured. During the litigation, Shelby entered
receivership and the Utah Property and Casualty Insurance Guaranty
Association (“UPCIGA”), becoming potentially liable, entered the litigation.
UPCIGA argued that the Utah Insurance Guaranty Act required that Albany’s
coverage be exhausted before turning to UPCIGA for recovery. Reversing the
trial court, the Tenth Circuit held that the UPCIGA was liable for primary
coverage just as Shelby would have been in the absence of receivership. The
escape clause in the Albany policy is implicated because of the existence of the
Shelby policy. Stepping into the shoes of the insolvent insured, UPCIGA had all
the rights, duties, and obligations of Shelby, and therefore, became the sole
primary insured as a result of the very existence of the Shelby policy. Albany, in
this circumstance, did not “drop down” as a result of the plain language of the
Albany and Shelby contracts – including the escape clause – and therefore, the
only primary coverage belonged to Shelby, leaving no other policy to be
exhausted prior to turning to UPCIGA for recovery.
Grace v. Insurance Co. of N. Am., 944 P.2d 460 (Alaska 1997). The court held
that notwithstanding the insolvency of the primary and first layer excess
carriers, the second layer excess liability insurer had no duty to provide drop
down coverage absent policy language to the contrary. The excess insurer
would only be liable for amounts in excess of the liability limits of the
underlying policies and not for amounts in excess of sums actually paid by
those policies.
Coca Cola Bottling Co. v. Columbia Cas. Ins. Co., 11 Cal. App. 4th 1176 (Ct. App.
1993). The court held that an excess carrier was required to drop down to
cover the gap in coverage created by the insolvency of an underlying carrier
because the excess policy was "following form." The court determined that
except for the amount of premium and policy limits, the terms and
conditions of the excess policy were the same as the terms and conditions of
the underlying umbrella policy, which stated that it was excess of the
"amount recoverable" under the primary policy. Relying on Reserve Ins. Co.
v. Pisciotta, 640 P.2d 764 (Cal. 1982), the court found that pursuant to such
language, the excess insurer expressly assumed the risk of the underlying
insurer's insolvency.
Wells Fargo Bank v. California Ins. Guarantee Assn., 38 Cal. App. 4th 936 (Ct.
App. 1995). The court found that a third level excess policy, which was
following form, incorporated a provision contained in the second level policy
requiring that the underlying policy be exhausted solely by payment of
losses. Such language unambiguously precluded an obligation on the part of
the third level excess insurer to drop down upon the insolvency of the
second level insurer.