DEDUCTIBLES and SELF-INSURED RETENTION

Insurance Coverage - SIR - Satisfied by Other Insurance
The Vons Companies, Inc. v. United States Fire Insurance Co.
USF contended that the self-insured retention had to be paid from the insured's own pocket. The Court, however, concluded that the SIR in the Vons policy stated it was subject to all of the policy's terms and conditions. The Court noted that there was no language in the policy which specifically stated the SIR was the responsibility of the insured and could not be satisfied by the payment of funds by another insurer. The "other insurance provision" provided that the Vons policy would be excess if there was another policy covering the accident. Vons, as a reasonable insured, could read this language as permitting the use of other insurance proceeds to cover the SIR amount.

Coverage - Other Insurance Clauses
Century Surety Company v. United Pacific Insurance Company
In that respect, "other insurance" clauses have no bearing. Further, applying public policy to avoid a primary insurer escaping liability for a risk that resulted in damage in their policy period, the Court concluded Century was liable to contribute on some equitable basis to the defense and indemnity expenses incurred in this case. To enforce the Century "other insurance" clause and the pro rata clauses of the other insurers was impossible. The only proper result was to ignore the clauses and to apportion the loss pro rata. This was consistent with public policy disfavoring an escape clause where promised coverage evaporates in the presence of other coverage.

California Pacific Homes vs. Scottsdale applies to "Self-Insured Retained Limit" or SIR. The insurers with SIR demanded that insured pay its "retained limits" before contributing to its "time on risk" allocation.

Armstrong World Industries vs. Aetna decided that a tender by the policy holder to a chosen carrier requires that the carrier to respond to the claim. The "chosen" carrier may then seek to spread the loss by tendering to and invoking the "other insurance" provision of the other policies pursuant to its rights of contribution and/or indemnity under California law. The insured is legally entitled to select one policy, if several provide coverage, to apply to a claim.

The Armstrong decision inferred that if only one policy can apply to each injury then only one deductible is reequired.

In Stonewall Insurance Co. vs. City of Palos Verdes Estates, the court remanded the contribution action between insurers back to the trial court with specific instructions: "The specific amounts which Jefferson and Admiral (and any other insurer from whom the City is entitled to recover) are to pay the City are to be determined by giving effect to the policy limits and the deductible, retention and "other insurance" clauses of the policies of those carriers from whom the City is entitled to recover. The obligations of those carriers to reimburse the City are not necessarily joint and several.

The Stonewall decision finds that at least where an insurer is on the risk for multiple years and the policy does not specifically state that only one policy maximum is available, then the policy is ambiguous adn the insured is entitled to coverage for the maximum per occurrence limit multiplied  by the number of years the insurer was on the risk. This meanss the insured is required to pay multiple deductibles on multiple policy years.

FMC Corp. v. Plaisted & Companies. 72 Cal. Rptr.2d 467 (Ct. App. 1998). In FMC, an insured manufacturer sued its primary and excess/umbrella liability insurers, seeking a declaration of coverage for pollution claims stemming from the manufacturer''s commercial activities that caused toxic contamination to soil and groundwater at a number of sites throughout the country. The FMC court found in favor of the insured, but the insured claimed that the court erred when it applied an anti-stacking rule in addition to finding that the insured was entitled to recover "all sums" under the policies at issue in that case.

The FMC court noted that "''[s]tacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy." Id. at 501. Applying a stacking principle to the facts in FMC, that court observed, would have entitled the insured to recover up to $7 million in liability coverage for a single occurrence under policies that specified a $1 million per occurrence limit. In short, "''stacking'' of the limits of an insurer''s policies for consecutive policy periods has been criticized as affording the insured substantially more coverage, for liability attributable to any particular single occurrence, than the insured bargained or paid for." Id. at 502 (citations omitted). The conclusion of the court in FMC was that an anti-stacking rule should apply so that only the policy limits of policies in effect during one of the policy periods in which coverage was triggered for a single occurrence can apply to property damage attributable to that occurrence, but that the insured could select under which of several triggered policies it was to be indemnified.

The decision in California Pacific Homes clearly takes into account the effect that stacking the retained limits has on the availability of coverage. The Court of Appeal observed, "[j]ust as stacking of policies may have the result of providing far more coverage than an insured has purchased, so stacking of retained limits would have the effect of affording an insured far less coverage for occurrence-based claims than the insured has purchased." Id. at 332 (citing FMC Corp. v. Plaisted & Companies, 72 Cal. Rptr.2d 467 (Ct. App. 1998)).

California Pacific Homes court endorsed the principle that once coverage is triggered the policy obligates the insurer to indemnify the insured for its entire loss, and successive insurers on the risk when continuous property damage firsts manifests itself are separately and independently obligated to indemnify the insured. California Pacific Homes, Inc. v. Scottsdale Ins. Co., 83 Cal. Rptr.2d at 332 (citing Aerojet-General Corp. v. Transport Indem. Co., 948 P.2d 909 (Cal. 1997)). For support, the trial court relied on the principles set forth in Montrose Chem. Corp. v. Admiral Ins. Co., 913 P. 2d 878 (Cal. 1995) as applied in Armstrong World Indus., Inc. v. Aetna Casualty & Sur. Co., 52 Cal. Rptr.2d 690 (Ct. App. 1996). In Armstrong, asbestos manufacturers sought to recover under liability policies for asbestos property damage. The Armstrong court concluded that the covenant contained in the policies at issue in that case to pay "all sums" that the insured was liable to pay as damages entitled the insured to select one policy, if several provided coverage, from which to seek indemnification for the entire claim. Although in California Pacific Homes the Court of Appeal subsequently noted that the Scottsdale and National policies did not contain the "all sums" language that appeared in the Armstrong policies, the Court of Appeal did not find the language in the Scottsdale and National policies to be inconsistent with the judgment of the trial court.

R. J. Reynolds Co. v. California Ins. Guarantee Association
The Aetna policy contained a retrospective premium endorsement. When the retrospective premium was calculated, in accordance with the terms of the Aetna policy, Reynolds' premium payment to Aetna included $200,000 of the incurred loss. Reynolds filed suit against the California Insurance Guarantee Association (CIGA), an association of member insurers formed to protect insureds from injury due to the insolvency of its members. Reynolds claims that CIGA had a duty to reimburse it the $200,000 it had paid to Aetna. The trial court granted summary judgment in favor of CIGA on the ground that the $200,000 retrospective premium payment was not a claim covered by CIGA, within the statutory definition of "covered claims." (Ins. Code, § 1063.1.) We agree with the trial court and affirm the judgment. 

MERCURY INSURANCE COMPANY vs. ENTERPRISE RENT-A-CAR COMPANY OF LOS ANGELES et al.,
Enterprise is a corporation authorized to do business in California for, among other things, the short term rental of automobiles to the general public.  As owner of the vehicles it rents, Enterprise complies with California’s financial responsibility laws by posting a cash deposit pursuant to Vehicle Code section 16054.2.

In respect to CIGA, the court ruled that Mercury’s claim was an obligation to an insurer excluded from “covered claims,” pursuant to section 1063.2, subdivision (e) and section 1063.1, subdivision (c)(4).  The claim was not a “covered claim” pursuant to section 1063.1, subdivision (c)(5), which excludes the portion of any claim in excess of any applicable limits provided in the now insolvent carrier’s policy.   The claim was also not a “covered claim” pursuant to section 1063.1, subdivision (c)(9) because it was covered by other insurance, i.e., Enterprise’s cash deposit.  Lastly, the court ruled the claim did not fall within the statutory exception of section 1063.2, subdivision (c)(1), granting a UM insurer a right of subrogation against CIGA. 

DENNY’S INC., vs. WORKERS’ COMPENSATION APPEALS BOARD, ESTHER BACHMAN et al.,
Denny’s Inc. (Denny’s) petitions this court by a writ of review challenging the decision of the Workers’ Compensation Appeals Board (WCAB) to dismiss the California Insurance Guarantee Association (CIGA) as a party to a workers’ compensation claim.  Denny’s contends CIGA is statutorily required to guarantee a proportionate share of an insolvent insurer’s disability obligation when a permissibly self-insured employer is jointly and severally liable for the claim. 

We agree with the WCAB and find the claim outside CIGA’s indemnification responsibility.  Essentially, Denny’s made the business decision to opt for self-insurance over private insurance and to not purchase an excess workers’ compensation policy.  To use an annoying proverb, pro tali numismate tales merces.  (“You get what you pay for.”)

U. E. Texas vs. General Star Indemnity
Plumbing leaks under different buildings in the same complex are separate occurrences for the purpose of determining deductibles.

Black Diamond Asphalt vs. Superior Court
Party with unsatisfied SIR may file against CIGA insured.