Coverage litigation ensued. The parties disputed whether the severability provision in the primary policy was incorporated into the excess policy by its incorporation clause and, if so, whether that provision rendered an exclusion in the excess policy ambiguous.

Praetorian moved for summary judgment.

The Praetorian Policy

The Praetorian policy stated:

The definitions, terms, conditions, limitations, exclusions, and warranties of the first "Underlying Insurance" policy . . . apply to this coverage unless they are inconsistent with the provisions of this policy. . . .

The Praetorian policy excluded losses to:

personal property in the care, custody or control of any insured.

(Emphasis added).

The Primary Policy

The primary policy's "severability provision" stated:

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

a. As if each Named Insured were the only Named Insured; and

b. Separately to each insured against whom claim is made or "suit" is brought. 

The district court granted Praetorian's motion for summary judgment.

In its decision, the district court observed that the "care, custody, or control" exclusion in the excess policy stated that losses to personal property in the care, custody, or control of "any" insured were excluded from coverage. This contrasted with the exclusion in the primary policy, the district court noted, which barred coverage for property in the care, custody, or control of "the" insured.

The district court then noted that because the damaged cattle were within the care, custody, or control of the named insureds under the excess policy, they were subsumed within the phrase "any insured" and the excess policy, standing on its own, excluded the losses from coverage.

The district court then explored whether the excess policy incorporated the primary policy's severability provision and, if so, whether it created an ambiguity with the excess policy's care, custody, or control exclusion that had to be resolved against Praetorian as the insurer.

The district court pointed out that the incorporation clause of the excess policy stated that all provisions of the primary policy were incorporated into the excess policy unless they were "inconsistent" with the provisions of the excess policy. It then ruled that the provision to be incorporated into the excess policy – the severability provision of the primary policy – was facially inconsistent with the excess policy's "care, custody, or control" exclusion.

The district court reasoned that the severability provision of the primary policy stated that the policy applied "[a]s if each Named Insured were the only Named Insured." However, the district court continued, the "care, custody, or control" exclusion in the excess policy excluded coverage for losses to "[p]ersonal property in the care, custody or control of any insured." (Emphasis added.)

Therefore, the district court found, the severability provision of the primary policy purported to treat each insured's coverage separately, while the exclusion of the excess policy applied collectively regardless of which insured was claiming the loss and which insured had control of the property at issue. The inconsistency was "apparent on the face of the primary and excess policies."

Because the excess policy incorporated only those provisions of the primary policy that were not inconsistent with the provisions of the excess policy, this inconsistency prevented the severability provision of the primary policy from being incorporated into the excess policy, the district court said. It added that because the severability provision of the primary policy was not incorporated into the excess policy, there was no ambiguity created by its interplay with the "care, custody, or control" exclusion in the excess policy and the exclusion set forth in the excess policy applied "in full force."

Therefore, the district court concluded, because the cattle were within the care, custody, or control of Western Milling and C&K, coverage for the losses was excluded under the excess policy.

The case is Praetorian Ins. Co. v. Western Milling, LLC, No. 1:15-cv-00557-DAD-EPG (E.D. Cal. Feb. 2, 2018). Attorneys involved include: For Praetorian Insurance Company an Illinois corporation, Plaintiff, Counter Defendant: Gary Robert Selvin, LEAD ATTORNEY, Selvin Wraith Halman LLP, Oakland, CA; John Alexander Chatowski, Selvin Waith Halman LLP, Oakland, CA. For Western Milling, LLC a California limited liability company, Defendant, Counter Claimant: Danica Laynne Crittenden, LEAD ATTORNEY, Shernoff Bidart Echeverria Bentley LLP, Claremont, CA; Michael John Bidart, LEAD ATTORNEY, Shernoff Bidart Echeverria Bentley, LLP, Claremont, CA; Ricardo Echeverria, LEAD ATTORNEY, Shernoff Bidart Echeverria LLP, Claremont, CA; Steven Patrick Messner, Shernoff Bidart Echeverria, LLP, Claremont, CA. For Praetorian Insurance Company an Illinois corporation, Counter Defendant: Gary Robert Selvin, LEAD ATTORNEY, Selvin Wraith Halman LLP, Oakland, CA. For Western Milling, LLC a California limited liability company, Counter Claimant: Danica Laynne Crittenden, LEAD ATTORNEY, Shernoff Bidart Echeverria Bentley LLP, Claremont, CA; Michael John Bidart, LEAD ATTORNEY, Shernoff Bidart Echeverria Bentley, LLP, Claremont, CA; Ricardo Echeverria, LEAD ATTORNEY, Shernoff Bidart Echeverria LLP, Claremont, CA.