Washington Court of Appeals Rules on Allocation, Exhaustion and Supplementary Payments
On April 7, 2008, Division I of the Washington Court of Appeals ruled in Great American Ins. Co., et al. v. Assurance Co. of America on a number of allocation, exhaustion and supplementary payment issues. The case concerned the apportionment of “financial obligations” arising out of the equitable reapportionment of financial obligations arising from the settlement of a large construction defect lawsuit against Polygon Northwest Company, a property development company. In that case, several insurers funded a settlement of the underlying action while an umbrella insurer for Polygon, Great American, did not participate in the settlement. Great American argued in this appeal that the trial court erred by finding it liable because its underlying insurer, United Capitol, was insolvent and made no payments towards the settlement. Great American further argued that even if its excess coverage was triggered, the trial court erred by ordering it to pay amounts exceeding the limits of its policy.
The Court of Appeals agreed with the trial court that it was not necessary, under the terms of Great American's policies, that United Capitol, or anyone else, actually pay United Capitol's policy limits in order for Great American's excess coverage to be triggered. The court found that Great American’s policies stated it would be liable for those sums “in excess" of its underlying insurers' policy limits and thus, regardless of the lack of payment of underlying limits, Great American’s policies were triggered.
As to allocation, the court found that the trial court erred in finding that the insurers were required to be allocated the $2 million United Capitol limits in light of its insolvency as Washington law does not impose liability on insurers for losses they have not contracted for and further, that Great American’s policies specifically provided that they would apply as if the underlying policies were valid and collectible rather than outright replacing the primary policies. Finally, the court concluded that the trial court erred by classifying the "litigation costs" portion of the Polygon settlement as "supplementary payments" payable under Assurance Company of America's primary insurance policy. Therefore, the Court reversed and directed the trial court on remand to include in the reallocation of liability among the excess insurers the "litigation costs" that it previously allocated solely to Assurance.
