Filed Under:Claims, Litigation

A Clash of Coverage Doctrines

Multiple Coverage Claims: Targeted Tender vs. Horizontal Exhaustion

The “targeted tender” and “horizontal exhaustion” doctrines are important insurance coverage doctrines that have significant consequences to both insurers and insureds.

In this three-part series, we will examine both doctrines and explain how an insured that invokes the former may find its excess insurance coverage jeopardized by the latter.

This doctrine is based upon the simple rationale that where an insured is covered by more than one primary insurance policy, the insured has the right to determine which of those policies should respond to a loss or defend a claim. In the absence of the targeted tender doctrine, the issue of what policy would apply to a particular loss would normally be governed by the “other insurance” clauses of the primary policies.

The 'Other Insurance' Clause

One Contractor, Multiple Policies

In the construction industry, it is becoming increasingly common for general contractors and others to be insured under multiple policies. Normally, for example, the general contractor will require that all subcontractors name it as an additional insured under their policies. The general contractor may thus enjoy coverage under multiple policies for any construction project, and if the general contractor is sued by an injured worker, then it may be in the general [contractor’s] best interest to invoke the coverage afforded to it as an additional insured under a subcontractor’s policy rather than to invoke its own coverage under its policy. The reason for doing so is fairly obvious: The general may want to avoid making claims under or using up its own insurance coverage limits for a particular loss where the loss is covered by another policy under which it is an additional insured.

Notice of Occurrence

At that time, Kraemer had coverage potentially available to the company under its own policy, which was written by United States Fidelity & Guarantee Company and under the American Country policy under which it was an additional insured. When it was sued, Kraemer made the conscious decision that it did not want to involve its own insurance and therefore made what it thought was a “targeted tender” to American Country. Kraemer specifically informed American Country that it was not invoking its own coverage under its own CGL policy. Unfortunately for Kraemer, the American Country policy contained a particular provision, in addition to the standard other insurance clause, which purported to require all insureds to tender their defense to all possible insurers that might provide coverage. The clause in question imposed the following specific duties upon the insured in the event of an occurrence, claim, or suit:

Policy Provisions vs. Public Policy

The appellate court went on to reject the contention by Kraemer that an insurance provision that requires an insured to tender its defense to all carriers that might provide coverage violates public policy. Thus, according to Kraemer, an insurer can avoid the targeted tender doctrine by appropriately drafted policy language.

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