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The insured sued its insurer for what it believed was the limit of liability of its policy for damage to property by fire. The insurer defended itself based on the fact that as a deductible with one of several insurance coverage attorneys, it was only required to pay the portion of the damage described in the policy. The insured sued and the USDC for the Eastern District of Washington settled the dispute by reading the entire policy in Oregon Potato Company v. Kinsale Insurance Company, No. 2:22-CV-0049-TOR, United States District Court, ED Washington (May 5, 2023).
In a property insurance excess coverage dispute, USDC faced competing motions for summary judgment. Plaintiff Oregon Potato Company (“OPC”) sued Kinsale Insurance Company for (1) declaratory judgment, (2) breach of contract, (3) bad faith insurance and breach of the covenant of good faith and fair dealing, (4) violation of Washington law on Unfair Claims Settlement Practices and the Consumer Protection Act, and (5) reservation to assert claims for violations of the Washington Insurance Fair Practices Act.
OPC is a Washington company headquartered in Pasco, Washington that processes vegetable products and has a facility in Warden, Washington.
On 21 January 2021, a fire destroyed or damaged OPC property in Warden.
Prior to the fire, OPC had purchased property insurance covering its properties in three layers, with the final insurer, Kinsale, taking (20%) over the second excess layer for $25,000,000 to $50,000,000 for the shares shown in respective brackets. Kinsale expresses liability as “$5,000,000 part of $25,000,000 excess of $25,000,000 per occurrence.”
Kinsale’s policy includes the following insurance agreements:
The Company will indemnify the insured for our share, shown in paragraph 1 of the declaration page of this policy, of the ultimate net loss caused by the direct physical loss or damage to the covered property in excess of the primary and underlying excess insurance shown in the schedule of underlying insurance in this policy, which occurs during the policy period. This Agreement is subject to the following terms and any acceptances of this Policy.
Kinsale’s policy defines “Ultimate Net Loss” as follows:
Ultimate Net Loss means the actual loss suffered by the Insured as a direct physical result of the peril(s) insured against by the Primary and/or Underlying Deductible Insurers’ policy(s) limited by: a. Any sublimits included in this Policy or the Policy /policies of the primary and/or underlying excess insurer(s), and b. Deduct any salvage and recovery from any source other than this policy and the policies of the primary and/or underlying excess insurer.
The first sub-site listed in the value statement, shown in paragraph 10, was seriously damaged. Kinsale initially saw OPC’s loss as “a complete loss of our inventory/capacity” and set reserves at a whopping $5 million. Kinsale does not dispute that this was its preliminary decision, but claims that it was later superseded by a more precise determination of a lower loss reserve after the investigation and evaluation continued.
The OPC sent an Insurance Fair Conduct Act notice to Kinsale asking to pay the full $5 million limit. Kinsale responded that its policy “unequivocally” provides only “limited liability for Site 1 to the stated value of $25,100,000” and that its liability limit is not $5 million, but instead 20% of each dollar of loss over $25 million.
OPC claims that it is currently entitled to payment of the remaining balance of Kinsale’s $5,000,000 policy limit and Kinsale claims that it has paid all amounts due under proofs of loss filed to date.
“The Limitation of Liability for Occurrence of Liability” (“OLLE”): The OLLE is a modification of the underlying policy and sets out the upper limits of Kinsale’s liability. OLLE reads in conjunction with the rest of the Policy as “ALL OTHER TERMS AND CONDITIONS OF THE POLICY ARE UNCHANGED.”
The underlying policy states that Kinsale will indemnify OPC “for our share … of the ultimate net loss . . . in excess of the primary and underlying excess insurance shown in the schedule of underlying insurance in this policy”.
Overall, the language of Kinsale’s policy is not ambiguous. Kinsale’s policy provides excess cover, which when triggered is for their “share”, i.e. $5 million of $25 million, or 20 percent. Kinsale’s proportional/equity liability does not automatically entitle OPC to $5m under OLLE – otherwise OPC would entitle to overlapping, not excess, coverage. It was only liable to pay 20% of the amount due to its share of the total loss.
Therefore, summary judgment in Kinsale’s favor is appropriate.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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