This blog post has been cross posted from the Insurance Section Blog.
By Dean A. Pappas
Ropers, Majeski, Kohn & Bentley
In Haering v. Topa Insurance Co. (2016) 244 Cal.App.4th 725, Plaintiff was insured under a primary commercial auto insurance policy issued by State National Insurance Company issued to his employer that provided uninsured motorist/underinsured motorist (UM/UIM) coverage. The policy limits for the UM/UIM coverage was $1 million. The employer was also an insured under an excess liability policy issued by Topa Insurance Company. The State National policy was scheduled in the Topa policy as the underlying primary policy. The limits of liability in the excess policy were $1 million for each occurrence and $1 million in the aggregate.
Plaintiff was injured in a motor vehicle accident caused by a negligent driver who was an insured under a policy with a $25,000 liability limit. Plaintiff settled his claim against the negligent driver by accepting the $25,000 limit under the driver’s policy. He then submitted a claim to State National and eventually recovered the policy limit under the $1 million UM/UIM coverage. Plaintiff next submitted a claim to Topa for $1 million in excess coverage asserting that the excess policy incorporated the underlying UM/UIM coverage since the Topa policy “followed form” to the State National policy. Topa denied any obligation. Plaintiff sued. The trial court agreed with Topa and plaintiff appealed.
The issue on appeal was whether an excess liability insurance policy that “follows form” to an underlying primary policy that provides UM/UIM coverage must also provide such coverage after the underlying policy limit has been exhausted. The Court of Appeal agreed that the Topa policy did not include any UM/UIM coverage.
The key to the Court of Appeal’s analysis was the distinction between “first party” insurance coverage and “third party” insurance coverage. First party insurance coverage applies to loss or damage sustained directly by the insured. Third party insurance coverage, in contrast, provides coverage for liability of the insured to a “third party.” UM and UIM coverages are “first party” coverages; they create an obligation to compensate an insured directly for their loss or damage. The most common type of first party insurance coverage is property insurance. Third party insurance coverage is commonly called liability coverage.
The Topa policy was an excess liability insurance policy; it applied to damages in excess of the underlying limit of liability “for which the Insured is liable.” Plaintiff, however, was seeking payment due his own losses. Plaintiff’s claim for “first party” UM/UIM benefits did not come within the scope of the “third party” liability insurance coverage provided by the Topa policy. Judgment for Topa, therefore, was affirmed.
Caveat: Different wording of a policy providing excess coverage may expand the excess coverage. The Court of Appeal noted that some excess insurance policies include a “broad as primary” provision that enlarges the scope of coverage to include a loss that is within the scope of the underlying primary policy, even though that loss otherwise would have been excluded under the terms of the excess policy. (Id. at 735.)