A federal district court in California, in a case pitting one insurance company against another, has issued a decision explaining how to read a policy's self-insured retention (SIR) endorsement.
The interpretation was necessary to determine whether the SIR had been met as to any claims in four underlying actions so as to trigger a duty to defend the entirety of any of the underlying actions.
The provision
The section in question provided, in whole:
For purposes of this endorsement, the term "claims expense" shall include all fees, costs, charges and expenses generated by an attorney designated to represent the insured, and all other costs, charges and expenses incurred in the investigation, adjustment, settlement, arbitration, defense or appeal of any claim to which this insurance otherwise applies.
The prior order
The court, in a prior order, had truncated that section to read that qualifying "claims expenses":
include all fees, costs, charges and expenses … to which this insurance otherwise applies.
In a motion for summary judgment, Evanston Insurance Company disagreed with the court's characterization of "qualifying claims expenses." Evanston contended that by using an ellipsis in quoting from the "claims expenses" section of the SIR Endorsement, the court inaccurately interpreted that provision.
According to Evanston, the "to which this insurance otherwise applies" language applied only to the items beginning with "all other costs."
(Photo: Shutterstock/emilie zhang)
The court's decision
The court denied Evanston's motion and, instead, granted summary judgment to North American Capacity Insurance Company (NAC).
Related: 5 crazy claims you won't believe
In its decision, the court said that although the grammatical structure of the section in question was "flawed," Evanston's reading would "lead to an absurd result."
The court reasoned that Evanston's interpretation meant that the section could logically be broken into two separate sentences. "Claims expense" would include:
(a) all fees, costs, charges and expenses generated by an attorney designated to represent the insured, and
(b) all other costs, charges and expenses incurred in the investigation, adjustment, settlement, arbitration, defense or appeal of any claim to which this insurance applies.
The court pointed out that this construction would mean that any fee generated by an attorney designated to represent the insured—regardless of whether it were covered by the policy or even related to the insured—would reduce the SIR. Such a reading, the court declared, was "unreasonable."
According to the court, the "reasonable reading" was that the "to which this insurance otherwise applies" language "shoots through to each of the matters for which claims expenses can be generated."
Thus, the court ruled, the section should be read:
claims expense shall include all fees generated by an attorney designated to represent the insured to which this insurance otherwise applies, all costs generated by an attorney designated to represent the insured to which this insurance otherwise applies, et cetera.
Therefore, the court concluded, Evanston had not proven that NAC had a duty to defend any of the underlying actions. It held that NAC was entitled to summary judgment in its favor.
The case is Evanston Ins. Co. v. North American Capacity Ins. Co, No. 1:13–cv–01365–AWI–SAB (E.D. Cal. Aug. 7, 2015).
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.