Excess Policy Not Triggered Despite Dissolution of Primary Carrier

    The excess carrier did to have to contribute to the defense and indemnity of the insures because the dissolution of one of the primary carrier meant full exhaustion had not been accomplished. Continental Cas. Co., et al. v. Argonaut Ins. Co., et al., 331 Ore. App. 26 (Or. Ct. App. 2024). 

    Schnitzer Steel Industries, Inc. and MMGL Corporation (insureds) were deemed potentially responsible parties by the EPA for the environmental cleanup of the Portland Harbor Superfund Site. The insureds submitted claims for defense and indemnity to their CGL insurers, including Continental. They also filed a claim with Insurance Company of the State of Pennsylvania (ICSOP), which provided umbrella insurance with limits of $5,000,000. ICSOP denied coverage, contending that the insureds' environmental claims were subject to the excess liability portions of its policies and those provisions had not been triggered. 

    A federal judgment determined that Continental had a duty to defend the insureds. Continental brought this action for contribution against all other insurers, including ICSOP. ICSOP argued that it should not be allocated any portion of contribution because its policies were excess to the loss covered by the underlying insurance listed in the policies, including El Dorado Insurance Company, which was defunct.  ICSOP also argued that its policies required horizontal exhaustion, meaning there must be an exhaustion of all CGL policies the insureds held for the covered loss, not just the El Dorado policies. 

    The ICSOP policy included a Loss Payable provision, as follows:

Liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurer, shall have paid the amount of the underlying limits on account of such occurrence.

    The "Other Insurance" provision stated, 

If other valid collectible insurance with any other insurer is available to the insureds covering a loss also covered by this policy . . . the insurance afforded by this policy shall be excess of and shall not contribute with such other insurance.

Because the insureds had other valid and collectible policies, ICSOP asserted that it had no liability for defense costs or a loss that had been incurred by the insureds. 

    The ICSOP policies also included a "Defense Endorsement", providing,

In consideration of the premium provided, it is understood and agreed that in the event there be no underlying insurance against loss or claim covered by this policy, ICSOP agrees to defend any suit against the insureds alleging . . . property damage and seeking damages on account thereof . . . All other terms an conditions remain unchanged.

Continental argued this endorsement triggered a duty to defend if the underlying insurance named in the policy – El Dorado – was not available to pay a claim. Thus, Continental asserted that because El Dorado had become insolvent and was no longer in existence, it was not available, and ICSOP's defense endorsement was triggered. ICSOP contended its coverage remained both excess and subject to the requirement for horizontal exhaustion – i.e., would be triggered only in excess of the limits of the El Dorado policies and when all other insurance was exhausted.

    The trial court agreed with Continental's construction of the defense endorsement and held that due to the extinction of El Dorado, there was an absence of underlying insurance, and ICSOP had a duty to defend the insureds.

    The Court of Appeals reversed. ICSOP's construction of the defense endorsement as triggered only when underlying insurance and other policy limits were exhausted was the correct construction when viewed in the context of the policy as a whole. The phrase "in the event there be no underlying insurance against loss or claim covered by [the ICSOP policies]" was a reference to coverage that ICSOP's policies provided when the limits of the underlying insurance had been exhausted. Thus, despite El Dorado's insolvency, it was nonetheless underlying insurance, and its policy limits had to be exhausted before ICSOP's duty to defend was triggered. 

    Therefore, Continental was not entitled to seek contribution from ICSOP and the trial court erred in so concluding. The appellate court reversed and remanded the judgment for a redetermination of the allocation on Continental's claim for contribution to defense costs.