Primary insurer on first | Zalma on insurance

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Two insurance companies argued over who must indemnify an insured for a settlement involving their mutual insured. Great American Insurance Company defaulted and sued the primary insurer, Allied World Assurance Company, arguing that because it was the umbrella insurer it was only liable after Allied World as the primary insurer paid its limits. The district court agreed and granted summary judgment in favor of Great American.

IN Great American Insurance Company v. Allied World Assurance Company, Inc., no. 22-12496, United States Court of Appeals, Eleventh Circuit (May 31, 2023) determined who was first to indemnify the insured, Tribridge Residential. After two women were shot and killed at an apartment complex Tribridge managed, a subsequent lawsuit alleged Tribridge negligently failed to implement security. Tribridge settled that lawsuit with the plaintiff.

Three different insurance companies insured Tribridge. AmTrust International Underwriters DAC, an insurer that issued Tribridge a primary commercial general liability policy, paid out its policy limit against the settlement. Then Allied World and Great American disagreed over which policy was the priority coverage for the remainder of the settlement.

ALLIED WORLD POLITICS

Allied World issued Tribridge a commercial general liability policy. Allied World issued a “primary policy”, it contains a deductible clause purporting to make its coverage in addition to other policies when liability arises from Tribridge’s property management activities.

GREAT AMERICAN POLICY

Great American issued a “Commercial Umbrella Coverage” policy that includes Tribridge as an additional insured. The policy covers “those amounts in excess of the “retained limit” that the “insured” becomes legally obligated to pay by law or . . . because of “bodily injury.”

Great American paid the remainder of the settlement against Tribridge and sued Allied World, seeking equitable relief and a declaratory judgment that its coverage obligation is not triggered until Allied World’s policy limit is exhausted.

ANALYSIS

Georgia law delineates between a “primary” policy “written to provide primary coverage” — and an “umbrella” policy — which acts as an actual deductible in addition to any type of primary insurance. All primary coverage must be exhausted before the umbrella policy is triggered.

Primary policies pre-empt umbrella policies even when the primary policy contains an applicable “excess clause”. Umbrella policies, almost without a doubt, are considered real deductibles in addition to any type of primary coverage, excess provisions that occur in regular policies in any way, or escape clauses. Primary policies take priority over umbrella policies, even when the primary policy contains an applicable excess clause.

Great American’s commercial umbrella coverage policy covers only the amounts in excess of the listed underlying insurance. The Allied World policy is written to provide primary coverage and the Great American policy is the true excess policy. Accordingly, Allied World’s primary policy must be exhausted before the large American umbrella policy is applied.

In summary, Allied World is first in the pecking order as the “primary insurer”.

Summary judgment was granted for Great American but the court vacated the award of attorney’s fees.

The great comedians Abbot & Costello created “Who’s on First Routine” which brought laughter to the question of who runs the game. In this case, a primary insurer, even with an “excess” and/or “escape” clause, the primary is always first and the umbrella is liable only after the primary – the insurer at first – pays its limit and then the umbrella, on second base pays what is needed after the primary has paid its limit. Allied World tried to avoid its obligation, failed and is obliged to replace Great American.

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