In 2014, the primary carrier took the position that under the non-cumulation provisions, liability was capped at $7.2 million, rather than the $17.4 million aggregate coverage of all five policies. The primary carrier also counted defense costs against policy limits. The insured then sued the primary and excess carriers. On cross- motions for summary judgment, the trial court held that: the non-cumulation provision in the primary policies was ambiguous, and therefore, the insured could “stack” the limits of each primary policy; the excess carrier’s obligations under the excess policies were triggered by exhaustion of the primary policies covering the same policy periods; and defense costs eroded the policy limits of the 1986 and 1987 National Union policies.
The Georgia Court of Appeals held that the non-cumulation provision in the latter two primary policies was ambiguous and therefore had to be construed against the insurer. The court reasoned that the provision did not indicate whether the non-cumulation provision applied to the policy period only or to the aggregate period under the original and renewed policies.
The Court of Appeals also affirmed that the excess policies were triggered by the exhaustion of the primary policies covering the same period. The excess carrier argued that the “other insurance” provision required the exhaustion of all policies issued to the insured for any time period. However the court disagreed because part of the “other insurance” provision required the insured to “maintain the underlying policies which are in force at the commencement of this insurance[,] and any reduction in the coverage provided by same should be advised to [the excess carrier] as soon as practicable.” The court reasoned that when construing the “other insurance” provision as a whole and giving meaning to each part, the excess carrier was obligated to defend and indemnify the insured upon the exhaustion of primary coverage that overlapped in time with the excess policy period.
Finally, the Court of Appeals reversed the trial court’s holding that defense costs eroded policy limits under the 1986 and 1987 primary policies. At issue was the definition of “ultimate net loss”, which is defined in relevant part as:
[t]he total sum which [the insured] or [primary carrier] as its insurer, or both, become obligated to pay due to any [b]odily [i]njury … including all expenses incurred by [primary carrier], all costs taxed against [insured] in any claim, suit[,] or other action defended by [primary carrier] and all interest on the entire amount of any judgment. …
The primary carrier argued that the phrase “all expenses incurred by [primary carrier]” includes defense costs. In rejecting that argument, the Court of Appeals held that even if it was correct, the endorsement was ambiguous about whether such expenses include defense costs the primary carrier was obligated to pay solely as part of its contractual duty to defend, as opposed to those sums it was legally obligated to pay by reason of the liability imposed upon the insured by law for damages.
This case highlights the potential pitfalls for insurers in litigating the language in older policies for long-tail claims. When looking at potential arguments under older policies it is important to consider the doctrine of contra proferentem. One area unaddressed in this opinion is the extent to which the insured may have participated in the drafting of the policies, and if so, how that may affect the court’s application of contra proferentem. This should be raised by insurers if facts exist to support such an argument. In the absence of such evidence, contra proferentem will continue to be a powerful argument in these types of cases.
Seth M. Friedman is with Lewis Brisbois Bisgaard and Smith, LLP, Atlanta, GA.