A Louisiana court of appeals ruled that a commercial umbrella liability policy did not “drop down” to provide coverage when the primary insurer was insolvent in Domingue v. Legion Indemnity Co., No. 05-580, 2006 WL 20016 (La. App. 3 Cir. Jan. 4, 2006).

 

Ronald Domingue, while riding his bicycle, was struck and killed by a vehicle operated by John Ard. The vehicle was owned by Louisiana Motors, for which Ard was an independent contractor. He used the vehicle with the permission of Louisiana Motors.

 

Ronald's mother, Amanda Domingue, filed a wrongful death/survival action against Ard and his personal auto insurer, Allstate, as well as Louisiana Motors, its auto liability insurer, Legion Indemnity, and its commercial umbrella liability insurer, Federal Insurance.

 

Domingue settled all claims with Legion in mediation, but before the settlement could be paid, Legion became insolvent. Legion was a surplus line insurer, so the claims were not covered by the Louisiana Insurance Guaranty Law.

 

Domingue filed a motion for summary judgment seeking coverage under the commercial umbrella liability policy of Louisiana Motors. Federal claimed that its policy did not “drop down” to provide coverage.

 

The Federal policy included a condition under coverage A stating that “while this policy is in effect you agree to maintain underlying insurance in full force.” The policy required the underlying insurance to be available “regardless of the bankruptcy or insolvency of the underlying insurer.”

 

The court said, “There is clearly no 'drop down' under this policy provision since the collectibility of the underlying insurance issued by Legion was not available due to Legion's insolvency.”

 

Furthermore, coverage B specifically excluded “any liability arising out of the ownership, maintenance, use, loading or unloading or entrustment to others of autos.” Because Louisiana Motors entrusted its vehicle to Ard, the court said that this exclusion applied.