R.T. Vanderbilt Co., Inc. v. Hartford Accident & Indemnity Co. et al. (2014)

SUPPLEMENTAL MEMORANDUM OF DECISION AS TO ORDER # 1003

The issue presented to the court is “whether CNA is obligated to defend the underlying claims under its umbrella policies for the period 1968–1977,” per the court's April 24, 2013 order (# 978).¹  On April 9, 2013, the parties requested that the court consider the issue prior to the commencement of Phase II of the trial and represented in writing on April 15, 2013 that resolution of the issue “would not immediately dispose of all claims” but “would be of great assistance in ultimately reaching a global resolution.”   In its April 24, 2013 order, the court specified the pleadings that it would consider in deciding the present issue.   All of the pleadings under consideration pertain to CNA's January 20, 2012 motion for summary judgment (# 159;  Docket No. CV 07 5016213);  CNA's October 9, 2012 post-trial brief (# 785);  R.T. Vanderbilt's (Vanderbilt) October 19, 2012 application for temporary injunction and order to show cause (# 794);  and Vanderbilt's October 19, 2012 expedited motion for summary judgment (# 821).   The court has reviewed these pleadings, the CNA umbrella policies at issue, the cases cited in the pleadings and the exhibits attached thereto.   Based on its review and analysis, the court holds that the plain and unambiguous language of the policies does not provide for a duty to defend under the circumstances of the present action.

The CNA umbrella policies at issue are:  RDU 9004526, effective from January 1, 1968 to January 1, 1971 (plaintiff's trial exhibit ² V–8);  RDU 8046898, effective from January 1, 1971 to January 1, 1974(V–9);  RDU 1251453, effective from January 1, 1974 to January 1, 1977 (V–10);  and RDU 1863573 (V–11), effective from January 1, 1977 to January 1, 1978.³

Plaintiff argues that CNA must provide it with a defense under a provision that is common to all of the policies at issue and entitled “COVERAGE B—EXCESS LIABILITY iNDEMNITY OVER RETAINED LIMIT.”   This provision states in relevant part:

The company, with respect to an occurrence not covered in whole or in part by underlying insurance, or to which there is no other insurance in any way applicable, shall have the right and duty to defend any suit against the insured seeking damages on account of ․ personal injury, property damage or advertising injury, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted.   V–8 through V–11.

In contrast, a provision entitled “COVERAGE A—EXCESS LIABILITY INDEMNITY” immediately precedes Coverage B in the policies and states in relevant part:

The company will indemnify the insured for loss in excess of the total applicable limits of liability stated in the schedule of underlying insurance.   The provisions of the immediate underlying policy are, with respect to Coverage A, incorporated as a part of this policy except for any obligation to investigate and defend and pay for costs and expenses incident to any of the same, the amount of the limits of liability, an “other insurance” provision and any other provisions therein which are inconsistent with this policy.   V–8 through V–11.

There is no dispute that Vanderbilt cannot obtain a defense from CNA under Coverage A;  counsel for Vanderbilt has previously conceded this point before this court.   Instead, the parties dispute whether a defense is available to Vanderbilt under Coverage B. Vanderbilt argues that the underlying actions involve “occurrence[s] not covered in whole or in part by underlying insurance or to which there is no other insurance in any way applicable,” because if the underlying CNA primary policies are exhausted, they are inapplicable and unable to “cover in whole or in part” the actions against Vanderbilt, thus qualifying Vanderbilt for a defense from CNA. In the alternative, Vanderbilt argues the language in Coverage B is ambiguous, and the court must construe it in favor of coverage.

CNA argues that the question of whether underlying insurance “covers” an occurrence for purposes of triggering a duty to defend under Coverage B focuses on the nature of the occurrence, not the amount of the primary policy limit.   According to CNA, because the bodily injury claims against Vanderbilt are indisputably the types of claims “covered in whole or in part” by the primary policies underlying its umbrella policies, Coverage B is unavailable to Vanderbilt.   The only coverage that Vanderbilt may seek from CNA under the umbrella policies is indemnity coverage under Coverage A.

“It is the function of the court to construe the provisions of the contract of insurance ․ The [i]nterpretation of an insurance policy ․ involves a determination of the intent of the parties as expressed by the language of the policy ․ [including] what coverage the ․ [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy ․ [A] contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy ․ [giving the] words ․ [of the policy] their natural and ordinary meaning ․ [and construing] any ambiguity in the terms ․ in favor of the insured ․” (Internal quotation marks omitted.)  Connecticut Ins. Guaranty Ass'n v. Fontaine, 278 Conn. 779, 784–85, 900 A.2d 18 (2006).  “The fact that the parties advocate for different meanings of the [insurance policy] does not necessitate a conclusion that the language is ambiguous ․ Rather, insurance policy language is ambiguous if we determine that it is reasonably susceptible to more than one reading.”  (Citation omitted;  internal quotation marks omitted.)  Id., 786.

The parties do not cite to any binding, relevant Connecticut law on the issue, and the court has not found any such law in its research.   In support of its position, Vanderbilt relies primarily upon Cambridge Mutual Fire Ins. Co. v. Ketchum, United States District Court, Docket No. 3:11–cv–00743 (D.Conn. August 16, 2012), and Fortin v. Hartford Underwriters Ins. Co., Superior Court, complex litigation docket at Middletown, Docket No. X04 CV 03 0103483 (April 6, 2005, Quinn, J.), both of which are factually and legally distinguishable from the present action.   Fortin is distinguishable because the trigger for the plaintiffs' claim for a defense from its excess carrier was the primary carrier's refusal to provide a defense, not the exhaustion of the primary policy.   Furthermore, the parties in Fortin did not present the court with excess policy language expressly addressing what would happen upon the exhaustion of the underlying primary policy, whereas such language is before the present court, by virtue of the Coverage A provision of the CNA umbrella policies.

Ketchum is distinguishable because there the issue was whether the excess carrier was obligated to provide a defense to its insured when the primary policy was not exhausted, but the damages sought in the covered claim against the insured were estimated to exceed the primary policy's limits.   The court noted:  “There is a split of opinion among states as to when an excess carrier becomes obligated to defend its insured if the insured is liable for damages over the amount of the primary policy limit.”  Cambridge Mutual Fire Ins. Co. v. Ketchum, supra, United States District Court, Docket No. 3:11–cv–00743.  “It appears that a majority of states to have addressed this issue have held that the excess carrier's duty to defend is not triggered until the policy limit of the primary carrier is exhausted by settlement or tender of payment, even if the claim for damages in the underlying action exceeds the primary carrier's limit and the excess carrier's policy will necessarily be implicated in the action.”  Id. “A minority of states have held that the excess carrier's duty to defend is triggered once the excess carrier becomes aware that the claim for damages in the underlying action will exceed the primary carrier's policy limit.”  Id.

The Ketchum court adopted the minority position and concluded:  “[T]he policy indicates that Cambridge will provide coverage for an occurrence if ‘not covered by any primary insurance.’   Here, where it is clear that the claim exceeds the monetary limits of the primary policy, the majority of the claim is now no longer ‘covered by any primary insurance’ and therefore Cambridge has an obligation under the terms of its policy to defend.   Moreover, where the claim is in excess of the primary policy limits, the primary insurance policy is in effect exhausted and consequently the excess coverage is necessarily implicated at that moment.”  Id. The court in the present action finds the majority position more persuasive and more consistent with our well established standards of insurance policy interpretation.   Furthermore, the umbrella policy language at issue in Ketchum provided for an obligation to defend upon the exhaustion of the underlying primary policy, whereas the policy language at issue in the present action provides that there is no such obligation upon such occurrence.

The cases upon which CNA relies are more applicable and pertinent to the present action.  “In providing excess coverage, an insurance company may offer umbrella policies which differ from standard excess insurance policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage) ․ The vertical coverage provides additional coverage above the limits of the insured's underlying primary insurance, whereas horizontal coverage is said to ‘drop down’ to provide primary coverage for situations where the underlying insurance provides no coverage at all ․ [U]mbrella policies have two functions:  1) to provide for a higher limit of liability for those losses typically covered by liability insurance—general liability ․ [and] 2) to provide for some coverage of those less common losses not typically covered by liability insurance ․” (Citations omitted;  internal quotation marks omitted.)   American Special Risk Ins. Co. v. A–Best Products, Inc., 975 F.Sup. 1019, 1022 (N.D.Ohio 1997), aff'd, 166 F.3d 1213 (6th Cir.1998);  see also 15 L. Russ & T. Segalla, Couch on Insurance (3d Ed.2005) § 220:32.

In American Special Risk Ins. Co., the court held that excess policy language providing for a defense that would not erode the policy's limits was inapplicable where the language specified “occurrences covered under this policy, but not covered under the underlying insurance or under any collectible insurance,” and the underlying insurance covered the occurrences until the exhaustion of its policy limits.   The court interpreted the language to provide horizontal defense coverage, and a situation in which an insured seeks a defense after exhausting its primary policy would entail vertical coverage.   The court also determined that the language was not ambiguous where another policy provision specified situations in which “the underlying insurance ․ will not apply because of the exhaustion of the aggregate limits of liability thereunder.”  (Internal quotation marks omitted.)  American Special Risk Ins. Co. v. A–Best Products, Inc., supra, 975 F.Sup. 1025.   The court further concluded that reading the policy language at issue to be inapplicable made “better sense of the policy as a whole” and that “hold[ing] otherwise would render the [other policy provision] mere surplusage.”  Id., 1025–26.

One of the cases upon which the American Special Risk Ins. Co. court relied in reaching its holding was Mission National Ins. Co. v. Duke Transportation Co., Inc., 792 F.2d 550 (5th Cir.1986).   One of the issues in Mission National Ins. Co. was whether an excess/umbrella insurer had a duty to defend its insured after the insured's primary insurer became insolvent.   The policy language providing for a defense stated:  “As respects occurrences covered under this policy, but not covered under the underlying insurances as set out in the attached schedule or under any other collectible insurance, the Company shall (a) defend in his name and behalf any suit against the Insured alleging liability insured under the provisions of this policy and seeking damages on account thereof ․” (Emphasis in original.)  Id., 551.   Like Vanderbilt in the present action, the insured in Mission National Ins. Co. “interpret[ed] ‘covered’ to mean covered by the coverage terms of an underlying policy on which the insured can collect.”  Id., 552.   Similarly, like CNA in the present action, the insurer in Mission National Ins. Co. “interpret[ed] ‘covered’ to mean covered by an underlying policy without regard to whether the insured can collect from the primary insurer.”  Id. The Mission National Ins. Co. court agreed with the excess/umbrella insurer:  “When an excess insurer uses the term ‘collectible’ or ‘recoverable’ it is agreeing to drop down in the event the primary coverage becomes uncollectible or unrecoverable;  on the other hand, when an excess insurer uses the term ‘covered’ or ‘not covered,’ it is agreeing to drop down only in the event that the terms of the underlying policy do not provide coverage for the occurrence or occurrences in question.”  Id., 553.   Because there was no dispute that the terms of the insolvent underlying policy provided coverage for the occurrences in question, the court concluded that the excess/umbrella insurer's policy language did not entitle the insured to a defense.

Most striking of the cases that support CNA's position is Continental Casualty Co. v. Roper Corp., 173 Ill.App.3d 760, 527 N.E.2d 998 (1988).   At issue in Roper were the exact same Coverage A and Coverage B provisions that are at issue in the present action.   The insured in Roper, like Vanderbilt, exhausted the limits of its primary policy and subsequently sought a defense under the Coverage B provision of its umbrella excess policy:  “According to Roper, coverage A provides excess insurance for actions covered by an underlying policy and coverage B insures actions not covered by an underlying policy or actions which would have been covered by an underlying policy but for the exhaustion of the underlying policy's limits.”  Id., 764.   CNA took the position that “coverage A and coverage B are mutually exclusive.   Coverage A is excess coverage which picks up indemnity obligations at the point when the underlying primary coverage is exhausted.   Coverage A does not provide for defense costs or investigation costs.   By comparison, coverage B is limited primary coverage for risks not covered by underlying insurance or for damages not covered by underlying insurance.   Continental explained that an example of the latter situation is when punitive damages are sought for an occurrence which is covered by the primary underlying policy.   If the primary policy does not pay punitive damages, coverage B would pay those damages.”  Id.

The Roper court agreed with CNA's position and affirmed the trial court's conclusion that “the word ‘coverage’ [as used in the Coverage B provision] means the sum of risks that an insurance policy covers.   Thus, because the risk involved in the [underlying] claim [against the insured] and the type of damages sought were assumed by the underlying [primary] policy, coverage A of the Policy applied when [primary] coverage was exhausted.”  Id., 765.   The Roper court further determined that “the language of the Policy [was] not susceptible to [the insured]'s interpretation” and “[a]ccordingly ․ f[ou]nd no ambiguity.”  Id., 767.

These cases are part of “a series of cases whose outcomes were strictly limited to the policy language of those cases ․ interpreting ‘not covered by the underlying insurance’ to refer to the fact of coverage, not to the extent of coverage.   In other words, if a claim would have been covered by the underlying policy had it not become exhausted, then the claim ‘is covered by ․ underlying policies' within the meaning of the umbrella policy and there is no defense obligation under the umbrella.”  (Emphasis in original.)   T. Novak, “The Defense Obligation of Excess and Umbrella Liability Insurance Policies,” 36 A.B.A Fall Brief 12, 15 (2006).  “Based on the different coverages set forth in [these cases] (i.e., expressly distinguishing between coverage for occurrences not covered by underlying insurance and coverage for claims where underlying insurance becomes exhausted), it is clear that in those policies the phrase ‘not covered by underlying insurance’ referred to the fact of coverage, not its extent.”  Id., 17.

This court holds that this action belongs in this series of cases, given our well-established insurance policy interpretation standards and the manner in which Coverage A specifies situations of primary policy exhaustion while Coverage B does not.   As in Roper, Vanderbilt's argument that the language of Coverage B is ambiguous is unavailing because the language is not reasonably susceptible to its proposed interpretation.   If accepted, it would render Coverage A inconsistent with and superfluous to Coverage B.

Thus, the court finds the plain and unambiguous language of the 1968–1977 CNA umbrella policies does not impose upon CNA a duty to defend Vanderbilt in the underlying actions.

BY THE COURT

Shaban, J.

FOOTNOTES

FN1. Unless otherwise noted, the pleadings to which the court refers are located in Docket No. CV 07 5016321..  FN1. Unless otherwise noted, the pleadings to which the court refers are located in Docket No. CV 07 5016321.

FN2. The plaintiff introduced all of the policies at issue as trial exhibits, which the court marked in the matter referenced above..  FN2. The plaintiff introduced all of the policies at issue as trial exhibits, which the court marked in the matter referenced above.

FN3. This policy was superseded by RDX 3652404, effective from May 17, 1977 to March 25, 1978 (V–12)..  FN3. This policy was superseded by RDX 3652404, effective from May 17, 1977 to March 25, 1978 (V–12).

Shaban, Dan, J.