Multiple Liability Policies and Who Pays First | Ervin Cohen & Jessup LLP


When multiple liability policies are triggered, must one of the insurers insist that their deductible be satisfied before the insured can benefit from a defence? Similarly, can the insured choose which insurer should provide the defence?

This situation frequently occurs in cases where the underlying damage is “continuing or progressive”. Montrose Chemical Co. v. Admiral Ins. Co., 10 Cal. 4th 645, 662 (1995). In montrosethe California Supreme Court has ruled that in the event of successive policies and continuous or progressive damage over several policies, all insurers on the risk during the duration of the loss must defend the insured. Identifier. at 665. Although all insurers have a duty to defend, California courts allow the “policyholder to choose the policy under which he is to be indemnified”. Armstrong World Indus., Inc. v. Aetna Cas. & On. Co., 45 Cal. App. 4th 1, 50 n.15 (1996).

Other jurisdictions have followed this rule. For example, in Air Products. & Chem. V. Hartford Accident & Indemnity Co., 25 F.3d 177 (3d Cir. 1994), two different policies were triggered by the underlying loss. In determining which policy would come into play first, the district court adopted the “chronological and sequential” method, whereby the first policy triggered must defend and indemnify the insured until the policy limit is reached. By this reasoning, the next-in-time policy is then mandatory, and so on until the policies are exhausted.

The Third Circuit rejected this approach, holding that “if more than one policy is triggered, the insured ‘should be free to choose the policy or policies under which he is to be indemnified.’ [Citation omitted] When the limits of the chosen policy are exhausted, the insured has the right to choose again from the triggered policies and to continue to do so until he is fully indemnified for the claims”. Identifier. at 181. Keene Corp. vs. Ins. Co. of N. Am.667 F.2d 1034, 1049-50 (DC Cir. 1981); A m. Doctors Ins. Scale against Garcia, 876 SW 2d 842, 855 (Texas 1994).

It follows from these principles that disputes between successive insurers on the subject of allocation or contribution do not concern the insured. Thus, an insured has the right to obtain cover from a single policy of his choice which covers all sums incurred as damages during the period of insurance. “In such a case, the insurers have the burden of obtaining the contribution of other applicable primary insurance policies as they deem necessary.” Goodyear Tire & Rubber Co. v. Aetna Case. & On. Co.769 NE 2d 835, 841 (Ohio 2002).

California law is consistent with this principle. See Lexington Ins. Co. c. QBE Specialty Ins. Co.2021 USDist.LEXIS 38631, at *21 (ND Cal. Feb. 25, 2021); A m. States Ins. Co. c. Nat’l Fire Ins. Hartford County, 202 Cal. App. 4th 692, 705 (2011).

Notwithstanding these principles, some insurers have taken the position that where multiple policies are involved, the insured must satisfy all deductibles for all policies triggered before the first dollar of defense or indemnity is available. Such a position has been affirmed (and rejected) in cal. Pac. Homes c. Scottsdale Ins. Co., 70 Cal. App. 1187 (1999).

In this case, Scottsdale and National Casualty issued successive comprehensive liability insurance policies to California Pacific Homes from 1990 to 1995. Each policy was subject to a deductible of $250,000 and had identical policy limits of 1,750,000 $. CPH applied to Scottsdale under its 1990-91 policy. However, the insurers took the position that before having the obligation to indemnify, CPH was obliged to settle the settlement of an aggregate amount equal to its limit retained for each of the five successive policies (i.e. say $1,250,000).

The Court rejected this reasoning: “Just as policy stacking may result in providing much more coverage than an insured has purchased, so stacking the limits retained would have the effect of providing an insured with much greater coverage lesser for losses based on events that the insured purchased”. Identifier. at 1194. In this case, “the insured could select one policy, if more than one offered coverage, to apply to each claim”. Identifier. at 1193.

In particular, the above jurisdictions do not not follow what is known as the “targeted tendering” or “selective tendering” rule. The targeted tendering rule goes even further by granting the insured the right to completely release a given insurer from its obligation to defend, so as to “enable an insured who has paid for several coverages to protect its interests, namely to keep future premiums low, to optimize claims history and to prevent policy termination among the insurers it chooses. » City by the river. I, LLC c. Hundred. Ins. cos., 919 NE 2d 426, 431 (Ill. App. 2009). Jurisdictions outside of Illinois have been “extremely reluctant to enforce the selective bidding rule.” Lexington Ins. Co.2021 USDist.LEXIS 38631, at *21, which was called “exceptionally generous to policyholders.” Ill. Sch. Dist. Agency c. St. Charles Cmty. Unit Sch. Dist. 303, 971 NE2d 1099, 1109 (Ill. App. 2012). In fact, the targeted call for tenders rule excludes a claim for equitable contribution by one insurer against another insurer. Westfield Ins. Co. c. Indem. Ins. Co. of N. Am., 423 F. Sup. 3d 534, 551 (CD Ill. 2019).

In contrast, in jurisdictions where the targeted bidding rule does not exist, the insurer’s equitable contribution rights exist independently of the insured’s rights. A m. States Ins. Co, 202 Cal. App. 4th at 706 n°8. This rule is based on the principle that “where several insurers or indemnifiers share equal contractual responsibility for the principal indemnification of a loss or the performance of an obligation, the selection of the indemnifier who must bear the loss must not often not be left to the arbitrary choice of the plaintiff of the loss. Ins fire fund. Co. c. Md. Case. Co., 65 cal. App. 4th 1279, 1295 (1998). This avoids the “potentially unfair result that the company that pays first must cover the entire loss”. Identifier.; Pennsylvania State Insurance Company v. Great Northern Insurance Company473 Mass. 745, 751 (2016) (same).

Jurisdictions with and without the targeted bidding rule allow the insured to choose the policy under which he will be indemnified. Although the targeted tendering rule has been criticized as being exceptionally generous towards policyholders, it should be noted that its application seems to be mentioned most frequently in disputes between insurers. From the perspective of insureds, as long as they can choose the policy under which they are indemnified and defended, it seems to make little difference whether insurers end up paying for that defense.


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