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An SIR is not insurance



The First Circuit Court of Appeal was faced with a "second insurance" clause that sought to hold an insurance company whose insurance included a $ 2 million self-insured retention (SIR) as other insurance that requires payment even though neither the insured nor the additional insured used $ 2 million SIR in Scottsdale Insurance Company v United Rentals (North America), Inc., Nos. 18-1588, Nos. 18-1593, United States Court of Appeals for First Circuit (October 2, 2020).

FACTS

In a personal injury claim, Mr. and Mrs. Ayotte sued United Rentals, Gomes and others in the Rhode Island State Court, claiming a vicarious charge against United Rentals for Gomez's negligence in operating an elevator and two bills of direct liability for United Rentals' own negligence in maintaining the elevator and rent the elevator to Gomes. The bottom line was that the elevator's "travel alarm" could not emit an audible sound to warn Ayotte that he would be run off the elevator.

At the time of the accident, United Rentals was insured by ACE American Insurance Company. ("ACE") under two relevant policies, the ACE CGL Policy and the ACE Ultimate Net Loss Policy, and Gomes was insured by Scottsdale Insurance Company ("Scottsdale") under Scottsdale Insurance. Scottsdale Policy extended the coverage to all parties required by Gomes through a written agreement to add as an "additional insured". The lease agreement between Gomes and United Rentals forced Gomes to carry adequate liability insurance and, upon request, to provide United Rentals with "proof of such insurance" through an insurance certificate "naming United [Rentals] as the beneficiary and further insured."

On August 24, 201

1, United Rentals requested that Scottsdale defend and reimburse United Rentals, as an additional insured, against the claims raised in Ayotte Action. Following correspondence between Scottsdale and United Rentals – including a letter dated 25 September 2012 describing United Rentals as further insured – the parties sought a declaratory judgment in federal court on Scottsdale's obligation to defend and replace United Rentals in the Ayotte action.

The Massachusetts District Court held, in a summary judgment, that United Rentals was entitled to defense costs from Scottsdale as an additional insurance under the Scottsdale Policy. Following the resolution of the Ayotte action, Scottsdale and United Rentals again proceeded for a summary assessment of Scottsdale's liability. On March 30, 2018, the district court found that the Scottsdale policy provides United Rentals with additional insurance coverage for both its direct and deputy liability in the Ayotte action, but that this coverage was higher than United Rentals' own coverage under the ACE CGL policy.

Both parties appealed.

ANALYSIS

Additional appealed insurance status appealed

Scottsdale disputes the district court's decision of December 23, 2015 that United Rentals is an additional insured under the Scottsdale Policy. However, Scottsdale agreed in writing that resolving a lawsuit against certain obligations has the right to expect a fairly literal interpretation of the hearing that was struck and approved by the court and where the wording is unambiguous, its terms will be strictly applied. Here, paragraph four contains two separate promises from Scottsdale: (1) to "waive any appeal" of the district court's decision of December 23, 2015. Since Scottsdale's challenge to United Rentals' status as additional insured is contrary to the first promise, its challenge was excluded.

Scope of additional insured coverage. [19659004] Scottsdale Policy & # 39 ;s Additional Insured Approval ("AI Approval") provides additional insurance coverage "only with respect to" bodily injury "liability. . . caused in whole or in part by [Gomes’] acts or omissions [] or

Scottsdale had an obligation to indemnify United Rentals in the Ayotte Action for both its direct and deputy liability.

Self-Insured Retention

United Rentals also appealed from the District Court March 30, 2018 ruled that Scottsdale Policy coverage was excessive over United Rentals own ACE CGL Policy. United Rentals claims that since both ACE policies are forms of self-insurance, neither provides any other "valid and collectible insurance" for the purpose of setting priority for coverage.

The ACE Ultimate Net Loss Policy has $ 2 $ M self-insured retention ("SIR") and an insurance limit of $ 3 million. Under this policy, United Rentals is not entitled to coverage from ACE until it pays the full $ 2M SIR, and once SIR has been paid, United Rentals is entitled to up to $ 3M coverage.

A clear majority has had that self-insurance is not insurance. A maintained self-insurance in deductible or in any similar situation does not constitute insurance for the purpose of another insurance clause.

The status of being self-insured involves the assumption of own risk instead of transferring it to a third-party insurance company by purchasing insurance cover. The term self-insured is a way of referring to a decision not to be insured by a third party.

ACE Ultimate Net Loss Policy provides insurance coverage for claims over $ 2 million, but SIR itself does not provide insurance coverage because ACE has no obligation to pay any claim within the $ 2 million limit. "Insurance" is by definition about risk shifting and "self-insurance" – a perfectly good phrase in other contexts – is the opposite of "insurance."

As United Rentals had no other valid and group insurance, Scottsdale Policy provides coverage to United and the "other insurance" clauses are irrelevant.

Insurance is a risk transfer device. Self-insurance is a risk risk device. The self-insured exposes their own assets. In this case, United Rentals agreed to fund each claim up to the first $ 2 million before asking for the benefits of the policy. Since self-insurance is not "insurance", it is not "other insurance" and the insurer has no obligation to handle a claim until the insured spends $ 2 million of his own money. That is why it is required to rent the equipment to make it an additional insurance of their insurance to avoid paying their own money in case of loss and transfer the risk of loss to the tenant insurance.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance claims management, insurance claims and insurance fraud almost equal for insurers . He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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