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From the Transportation Newsletter.

Brokers, What Kind of Contingent Auto Policy Do You Have? Excess or Reduction. Illinois Court of Appeals Finds Policy to Be Reduction.

Last month, the Illinois Court of Appeals ruled that an insurer owed no duty to defend or indemnify its insured pursuant to a contingent liability policy when the insured had a valid and collectible primary policy, but which was inadequate to fully cover the claimed damages. The case is Bartkowiak v. Underwriters at Lloyds, London, No. 1-13-3549 (Ill. App. Ct. Aug. 13, 2015). The underlying facts in the case are as follows. In October 2009, a truck delivering road-surfacing materials, driven by Stan Wdowikowski (“Driver”), struck and killed Joseph Bartowiak (“Plaintiff”), a road construction flagger. Bartkowiak, at *1. A lawsuit was filed by Plaintiff’s estate against Driver, the trucking company that employed him, Denise Wdowikowski Trucking, Inc. (“Motor Carrier”), and the truck broker that brokered the job to DWT, Jack Gray Services, Inc. (“Broker”). Id. Broker was listed as an additional insured on Motor Carrier’s automobile liability policy. Id. In addition, Broker had a policy of insurance with defendant Underwriters at Lloyd’s, London (“Insurer”). Id. The Insurer’s policy was entitled “Contingent Automobile Liability” insurance (the “Policy”). Id. Pursuant to the Policy, Insurer was obligated to only defend and indemnify Broker for damages resulting from automobile liability that may arise on a contingent basis. Id. (emphasis added). More specifically, the Policy stated “that the coverage provided under this Certificate of Insurance shall not apply if there is a valid collectible Automobile Liability insurance of any nature.” Id. The Policy required Broker to obtain primary automobile liability insurance; this requirement was fulfilled by being an additional insured on Motor Carrier’s automobile policy. Id. Broker tendered its defense in the wrongful death suit to Insurer; Insurer, however, denied coverage for the reason that the Motor Carrier’s policy served as a valid and collectible liability policy. Id., at *2.
A settlement was reached in the wrongful death suit; pursuant to the settlement the estate received $7.8 million, including $1 million from Motor Carrier’s automobile liability policy. Id. Still facing a potential exposure of several million dollars, Broker assigned its rights under the Policy to plaintiff. Id. Plaintiff filed the present action seeking a declaration that Insurer’s owed a duty to defend and indemnify Broker under the Policy. Id. The trial court dismissed plaintiff’s lawsuit concluding that Motor Carrier’s automobile liability policy constituted a valid and collectible liability policy; therefore, Insurer had no duty to defend or indemnify Broker. Id., at *3. The trial court refused to convert the Insurer’s contingent policy to one of excess coverage. It was from this decision that the plaintiff appealed.
The issue before the Illinois Appellate Court was whether the Policy provided coverage only in the event Broker had no primary coverage due to some invalidity or failure of the primary insurance policy. At both the trial court and appellate levels, plaintiff argued that the Policy’s exclusionary language did not apply for the reason that Motor Carrier’s automobile liability policy did not constitute a “valid and collectible” insurance for the reason that it failed to wholly cover the loss. Plaintiff argued that “collectible” implied some sort of monetary limit, to the extent that an underlying policy of insurance does not cover the entire loss, it is “uncollectible.” Id., at *6-7. Accordingly, when Motor Carrier’s policy did not cover the entire loss, according to plaintiff, it was not collectible and Insurer was obligated to defend and indemnify Broker. Id. In essence, plaintiff’s argument was that the Policy was not a contingent policy; rather, the Policy provided excess coverage when the primary coverage failed to fully cover the loss.
Insurance policies are contracts between the insurer and the insured and the intent of the parties dictates how that contract is applied. Courts generally look to the language of a policy to determine the intent of the parties. Id.,at *7. If the Policy language is unambiguous, the Policy will be enforced as written. Id. Here, the Court construed “the policy as a whole and [took] into account the type of insurance provided and the purposes of the entire contract.” Id. The Illinois Court of Appeals ultimately affirmed the decision of the trial court and held that the subject clause was not an excess clause, but an escape clause. Id., at *8. The Court concluded that “the parties’ intent [was] clear. … where, for some reason, the automobile liability insurance for the trucks brokered by the insured, Broker, completely failed due to invalidity or insolvency. If Broker could collect at all from [Motor Carrier’s automobile liability policy], then [Insurer’s] policy would not apply.” Id. The Policy was intended to cover Broker’s loss in a very specific contingency situation. Id. According to the Court, that was the deal the parties struck, and which the Court would not disturb. Id.
The Illinois Appellate Court’s decision that Insurer was not obligated to defend or indemnify its insured should serve as a reminder to all the importance of annually reviewing your insurance coverage with your broker or counsel, knowing what coverage you do and don’t have, and taking steps to fill any potential gaps in coverage. Once an accident or event occurs, it is often too late to take corrective steps to fill coverage gaps.