Title: Roberts v. Northland Insurance Co.

State: illinois

Issuer: Illinois Supreme Court

Document:

Roberts v. Northland Insurance Co. (Ill. 
S.Ct.)
Docket No. 84115-Agenda 
19-May 1998.
KIRK ROBERTS, 
Appellant, v. NORTHLAND INSURANCE COMPANY et al., 
Appellees.
Opinion filed October 29, 
1998.
JUSTICE HEIPLE delivered the opinion of 
the court:
Plaintiff Kirk Roberts appeals from a 
decision of the appellate court which reversed in part a declaratory judgment 
entered by the circuit court of Peoria County. The circuit court held that when 
a victim of an automobile accident is covered by two underinsured motorist 
policies, each issued by a different insurance company, the amount of workers' 
compensation benefits received by the insured for the accident may be deducted 
only once from the insured's total coverage under the two policies. The 
appellate court reversed this holding, ruling that two deductions may be taken, 
one by each company. The appellate court affirmed, however, the circuit court's 
holding that neither company may deduct the amount of social security disability 
payments received by the insured. 291 Ill. App. 3d 727. For the reasons that 
follow, we reverse the appellate court's holding regarding workers' 
compensation, but affirm as to social security disability.
FACTUAL AND PROCEDURAL 
HISTORY
Plaintiff was seriously injured in an 
accident while driving a truck in the course of his employment. The driver of 
another vehicle involved in the accident, Thomas Fortune, was insured under an 
automobile liability policy with limits of $50,000. Fortune's insurer paid 
plaintiff $50,000 pursuant to this policy. Plaintiff was also awarded 
$196,114.26 in workers' compensation benefits as a result of the accident. In 
addition, plaintiff was awarded social security disability benefits of 
approximately $300 per month.
At the time of the accident, plaintiff 
was covered by two separate insurance policies issued by defendants Chicago 
Motor Club Insurance Company and Northland Insurance Company. These policies 
provided underinsured-motorist coverage in the amounts of $300,000 and $500,000, 
respectively. All parties agree that Chicago Motor Club's policy was "primary" 
while Northland's policy was "excess," meaning that Northland was required to 
pay under its policy only after other applicable insurance, such as the Chicago 
Motor Club coverage, was exhausted.
The Chicago Motor Club policy contained 
the following provision:
The 
Northland policy contained a similar provision:
In 
correspondence with plaintiff, Chicago Motor Club and Northland asserted that 
each company was entitled to "set off," or reduce, its payments to plaintiff by 
the amount of workers' compensation and social security disability benefits 
awarded to plaintiff for the accident. Plaintiff thereupon filed a declaratory 
judgment action in the circuit court of Peoria County to determine whether 
defendants could legally claim the workers' compensation and social security 
disability setoffs. Plaintiff alleged in his complaint that his damages exceeded 
$1 million.
The circuit court concluded that it was 
impermissible for both insurance companies to apply setoffs for the full amount 
of plaintiff's workers' compensation benefits. The court reasoned that because 
plaintiff received only one workers' compensation payment, only one setoff in 
the amount of that payment should be allowed. The court ruled that to enforce 
the literal language of each policy by applying two setoffs would create an 
unfair windfall for the insurers in violation of public policy.
The circuit court further held that the 
single setoff for workers' compensation benefits should be applied first to 
payments made to plaintiff by the primary insurance carrier, Chicago Motor Club. 
Because the amount of the workers' compensation setoff was less than the amount 
of plaintiff's coverage under the Chicago Motor Club policy, the circuit court 
ruled that the entire setoff should be applied to Chicago Motor Club, and none 
of it to Northland.
Finally, the circuit court ruled that no 
setoff would be allowed by either insurer for social security disability 
payments received by plaintiff, citing Pearson v. State Farm Mutual 
Automobile Insurance Co., 109 Ill. App. 3d 649 (1982).
The appellate court reversed the circuit 
court's judgment with regard to the workers' compensation setoff. The appellate 
court held that because the Chicago Motor Club and Northland insurance policies 
were separate, the setoff provisions in each should be applied separately. The 
court acknowledged that if, instead of purchasing one $300,000 policy and one 
$500,000 policy, plaintiff had instead purchased a single $800,000 policy, only 
a single setoff would apply. Nevertheless, the court held that because it knew 
of no Illinois law requiring setoffs to be applied to primary carriers only or 
multiple policies to be treated as one combined policy, each defendant was 
entitled to enforce the terms of its own policy by deducting the full amount of 
the workers' compensation benefits from plaintiff's coverage under each 
policy.
The appellate court affirmed, however, 
the circuit court's ruling that no setoff is allowed for social security 
disability benefits. The appellate court noted that, while a recipient of 
workers' compensation is required to reimburse the workers' compensation carrier 
for any amounts recovered from a tortfeasor, no such reimbursement is required 
in the case of social security benefits. Consequently, the court concluded, a 
setoff by the underinsured carrier for social security disability benefits 
received by the plaintiff would be unjustified.
We allowed plaintiff's petition for leave 
to appeal the appellate court's holding regarding the workers' compensation 
setoff. 166 Ill. 2d R. 315. In addition, defendants have requested cross-relief 
reversing the appellate court's holding regarding the social security disability 
setoff. 166 Ill. 2d R. 315.
ANALYSIS
I. Workers' 
Compensation
The construction of an unambiguous 
insurance policy provision is a question of law subject to de novo 
review. Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 
166 Ill. 2d 520, 529 (1995); Quake Construction, Inc. v. American Airlines, 
Inc., 181 Ill. App. 3d 908, 913 (1989). The terms of an insurance policy 
are to be applied as written unless those terms contravene public policy. 
Illinois Farmers Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 
(1997).
Plaintiff contends that allowing both 
insurance companies to deduct the full amount of his workers' compensation 
benefits from the coverage limits of the two underinsured-motorist policies 
would violate public policy. Plaintiff notes that this court has held that the 
purpose of underinsured-motorist coverage is "to place the insured in the same 
position he would have occupied if injured by a motorist who carried liability 
insurance in the same amount as the policyholder." Sulser v. Country Mutual 
Insurance Co., 147 Ill. 2d 548, 558 (1992). Plaintiff points out that if 
the tortfeasor in the instant case had carried liability insurance in the same 
amount as he, he could have recovered $800,000 from the tortfeasor's insurance 
carrier. Plaintiff then would have been required to reimburse his workers' 
compensation carrier for the $196,114.26 in benefits he received, leaving him 
with a net insurance settlement of $603,885.74. Plaintiff argues that because 
underinsured-motorist coverage is intended to simulate the situation just 
described, his net settlement in the instant case should likewise be 
$603,885.74. Under the appellate court's holding permitting two setoffs, 
however, plaintiff's net settlement would instead be $407,771.48.
Defendants counter that an insurance 
contract must be construed so as to give effect to the intention of the parties 
as expressed in the agreement. de los Reyes v. Travelers Insurance 
Cos., 135 Ill. 2d 353, 358 (1990). Defendants note that their respective 
policies clearly provide that underinsured coverage payments be reduced by the 
amount of workers' compensation benefits received by the insured. In arguing 
that this unambiguous policy language must be enforced, defendants assert that 
plaintiff simply made a mistake in purchasing insurance coverage: rather than 
purchasing one policy with $800,000 in coverage, to which only one setoff would 
apply, he instead purchased two policies, with coverages of $300,000 and 
$500,000, respectively. Because plaintiff purchased two policies, defendants 
contend his coverage is subject to two setoffs. Defendants argue that enforcing 
the literal language of the two policies does not violate public policy because 
plaintiff was free to purchase one policy instead of two.
We first note that underinsured-motorist 
coverage is a statutory creation. Section 143a-2(4) of the Illinois Insurance 
Code requires automobile insurers to include underinsured-motorist coverage in 
policies they issue. 215 ILCS 5/143a-2(4) (West 1992). The purpose of 
underinsured-motorist coverage is to place the insured in the same position he 
would have occupied if the tortfeasor had carried adequate insurance. 
Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483 
(1997).
In Sulser v. Country Mutual Insurance 
Co., 147 Ill. 2d 548 (1992), this court held that an underinsured-motorist 
policy provision reducing the insured's coverage by the amount of any workers' 
compensation benefits received by the insured for the accident did not violate 
public policy. The court noted that an accident victim who recovers insurance 
proceeds from a tortfeasor is statutorily required to reimburse his employer for 
all workers' compensation benefits he has received for that accident up to the 
full amount of the insurance proceeds. Sulser, 147 Ill. 2d  at 553; 820 
ILCS 305/5(b) (West 1992). Therefore, because the victim of an adequately 
insured tortfeasor is not allowed to keep his workers' compensation benefits, 
the court held that the victim of an underinsured tortfeasor is likewise 
required to abide by the terms of a policy which allow the insurer to deduct the 
amount of workers' compensation benefits from the insured's coverage. 
Sulser, 147 Ill. 2d  at 553, 558.
This court's holding in Sulser 
was based on the rationale that preventing a company from offsetting its 
underinsured coverage by the amount of workers' compensation would unfairly 
allow the holder of an underinsured policy to retain in full both his insurance 
coverage and his workers' compensation benefits, a windfall denied to accident 
victims injured by adequately insured tortfeasors. The court thus held that it 
was not against public policy for an insurer to prevent such a windfall by 
offsetting its payments for underinsured coverage by the amount of workers' 
compensation benefits received by the insured as a result of the accident. 
Sulser, 147 Ill. 2d  at 558.
This rationale is inapplicable, however, 
when, as in the instant case, an accident victim holds two separate policies 
from different companies and each company seeks to set off the insured's 
coverage by the full amount of workers' compensation benefits received by the 
insured. Although the insured receives his workers' compensation award only 
once, the insurers nevertheless attempt to subtract that award 
twice from the insured's coverage. Allowing such a double setoff would 
frustrate the General Assembly's intention that underinsured-motorist coverage 
"place the insured in the same position he would have occupied if injured by a 
motorist who carried liability insurance in the same amount as the 
policyholder." Sulser, 147 Ill. 2d  at 558. If plaintiff had been 
injured by, and subsequently recovered damages from, a motorist who carried 
liability insurance in the amount of plaintiff's underinsured coverage, 
plaintiff would have been required to reimburse his employer only once 
for the amount of his workers' compensation benefits.
Defendants repeatedly assert that because 
the instant plaintiff held two separate insurance policies, two setoffs should 
be allowed. Public policy allows one setoff, however, because the setoff 
prevents the plaintiff from receiving an unfair windfall through his workers' 
compensation benefits, while still guaranteeing plaintiff the level of coverage 
he would have received had he been injured by an adequately insured tortfeasor. 
A double setoff, on the contrary, deprives the victim of the level of coverage 
he would have received if the tortfeasor had been adequately insured, and 
therefore violates public policy.
In support of the proposition that they 
both should nevertheless be allowed a full setoff for plaintiff's workers' 
compensation benefits, defendants cite Chester v. State Farm Mutual 
Automobile Insurance Co., 227 Ill. App. 3d 320 (1992), and Obenland v. 
Economy Fire & Casualty Co., 234 Ill. App. 3d 99 (1992). Those cases, 
however, involved setoffs to underinsured coverage for amounts recovered from a 
tortfeasor's liability insurance, not setoffs for workers' compensation benefits 
as in the instant case. The purpose of the workers' compensation setoff, as 
explained above, is to simulate the reimbursement which the Workers' 
Compensation Act requires when an injured employee recovers both from workers' 
compensation and from a tortfeasor's liability insurer. See 820 ILCS 305/5(b) 
(West 1992). Setoffs for benefits received from workers' compensation thus 
implicate different considerations than setoffs for amounts received from a 
tortfeasor's liability insurance, and the cited cases are therefore 
inapplicable. Furthermore, because the parties to this appeal have not raised 
the issue of the proper allocation of setoffs among multiple carriers of 
underinsured coverage for amounts received from a tortfeasor's liability 
insurer, we do not address that question.
For the reasons stated, we hold that when 
an accident victim is covered by more than one insurance policy providing 
underinsured-motorist coverage, public policy permits only one setoff to that 
coverage for the amount of workers' compensation benefits received by the 
insured.
Having determined that only one setoff 
for workers' compensation is permitted, we must next determine how that setoff 
is to be allocated among the instant defendants. Chicago Motor Club contends 
that, if this court allows only one setoff, the setoff should first be applied 
against its coverage because it is the primary insurer. Northland counters that 
the setoff should instead be applied initially against its excess coverage 
because a primary insurer such as Chicago Motor Club typically receives higher 
premiums than an excess insurer. Northland also argues that allocating the 
setoff initially to the excess carrier will force the primary carrier 
immediately to pay the full limits of its policy and thereby hasten the 
insured's recovery.
We believe that, despite Northland's 
arguments, assigning the setoff initially to the primary carrier is the 
preferable result. The primary carrier receives higher premiums than the excess 
carrier because the primary carrier faces greater risk. The primary carrier must 
satisfy an insured's claim up to the full amount of its policy limits before the 
excess carrier is required to pay anything. Because it bears this greater 
burden, the primary carrier should also be the first to receive the benefit of 
the setoff in order to reduce the coverage upon which the insured has first 
claim. Furthermore, assigning the setoff first to the primary carrier will not 
result in any more delay in compensating the insured than would a contrary rule. 
In a typical claim situation, the primary carrier should be able to determine 
quickly and easily the amount of its net liability and pay the insured 
accordingly. Cf. Cobb v. Allstate Insurance Co., 663 A.2d 38 (Me. 1995) 
(holding that setoff for amounts recovered from tortfeasor's liability insurer 
should be allocated to primary rather than excess carrier). We therefore hold 
that when an accident victim is covered by both primary and excess insurance 
policies offering underinsured-motorist coverage, the primary insurer is 
entitled to deduct from its coverage the full amount of workers' compensation 
benefits received by the insured, after which any remaining setoff may then be 
applied to the excess coverage.
II. Social Security 
Disability
The circuit and appellate courts both 
held that neither defendant may apply a setoff to its coverage for social 
security disability benefits received by plaintiff. Defendants contend that the 
provisions in plaintiff's policies allowing a setoff for social security 
disability should be enforced in order to prevent plaintiff from receiving a 
double recovery for the same accident. Defendants note that in Sulser v. 
Country Mutual Insurance Co., 147 Ill. 2d 548 (1992), this court held that 
a setoff to underinsured-motorist coverage for workers' compensation benefits 
received by the insured is not against public policy. Defendants urge us to 
extend this holding to encompass a setoff for social security disability 
benefits received by the insured.
Plaintiff responds that a setoff for 
social security disability benefits is against public policy because, unlike 
workers' compensation benefits, social security disability benefits are not 
subject to mandatory reimbursement in the event an injured employee recovers 
from a tortfeasor's liability insurer. Plaintiff argues that deducting the 
amount of his social security benefits from his underinsured-motorist coverage 
would therefore fail to place him in the same position as if he had been injured 
by an adequately insured tortfeasor. We agree.
Social security disability benefits are 
awarded to compensate disabled employees who are insured under the federal 
Social Security Act. 42 U.S.C. §423 (1988 & Supp. 1991). A recipient of 
social security disability benefits who also recovers damages from a tortfeasor 
as a result of the same accident which occasioned his disability benefits is not 
required to repay any portion of those benefits to the social security 
disability system. See Richardson v. Belcher, 404 U.S. 78, 30 L. Ed. 2d 231, 92 S. Ct. 254 (1971) (holding that provision requiring reimbursement of 
social security disability benefits for workers' compensation but not for 
recovery of tort damages is not unconstitutional). In contrast, the Illinois 
General Assembly has mandated that injured employees who receive workers' 
compensation benefits must make reimbursement of those benefits for any amounts 
recovered from a tortfeasor for the injury which occasioned the benefits. 820 
ILCS 305/5(b) (West 1992).
Because of this difference in 
reimbursement requirements between workers' compensation and social security 
disability benefits, a motorist who is injured by, and recovers from, an 
adequately insured tortfeasor is required to repay any workers' compensation 
benefits received, up to the amount of tort damages received, but is not 
required to repay any portion of social security disability benefits received. 
As noted previously, the purpose of underinsured-motorist coverage is to "place 
the insured in the same position he would have occupied if injured by a motorist 
who carried liability insurance in the same amount as the policyholder." 
Sulser, 147 Ill. 2d  at 558. If the instant plaintiff had been injured 
by a motorist who carried the same amount of insurance as he, he would not have 
been required to repay any of his social security disability benefits out of his 
recovery from the tortfeasor. Allowing a setoff to plaintiff's coverage for his 
social security disability benefits thus would frustrate the purpose of 
underinsured-motorist coverage.
Defendants argue, however, that social 
security disability benefits themselves are reduced by any workers' compensation 
payments received by an injured employee. See 42 U.S.C. §424a (1988 & Supp. 
1991). While this observation is true, we fail to see how it supports 
defendants' contention that underinsured-motorist coverage should be reduced by 
the amount of social security disability benefits received by the insured. The 
fact that the instant plaintiff is receiving less social security disability 
benefits than he would have if he had not been awarded workers' compensation has 
no bearing on the question of whether those social security disability benefits 
should be deducted from plaintiff's underinsured-motorist coverage.
Finally, defendants argue that this court 
should follow the lead of the Supreme Court of Iowa, which has upheld a policy 
provision allowing a setoff for social security disability benefits. Gentry 
v. Wise, 537 N.W.2d 732 (Iowa 1995). Not once in the cited opinion, 
however, does the Iowa court discuss the fact that a recipient of social 
security disability benefits is not required to make reimbursement of those 
benefits for any amounts received from a tortfeasor. This fact, ignored by the 
Iowa court, renders defendants' attempted setoff violative of the policy 
underlying underinsured-motorist coverage in Illinois.
We thus hold that a provision in an 
underinsured-motorist policy purporting to reduce the insured's coverage by the 
amount of social security disability benefits received by the insured violates 
public policy and is therefore unenforceable.
CONCLUSION
We reverse the appellate court's holding 
that two insurers providing underinsured-motorist coverage are each allowed to 
deduct the amount of the insured's workers' compensation benefits from their 
coverage. We affirm the appellate court's holding that neither insurer may 
deduct the amount of the insured's social security disability benefits. We 
affirm the circuit court's judgment in its entirety.
Appellate court judgment 
affirmed in part
and reversed in 
part;
circuit court judgment 
affirmed.
CHIEF JUSTICE FREEMAN, concurring in part 
and dissenting in part:
I concur in that portion of the majority 
opinion which holds that an insurer may not set off social security disability 
benefits from its amounts payable to an insured. I also agree with the opinion 
to the extent that it holds that only a single setoff for worker's compensation 
benefits is permitted under the Illinois Insurance Code. I disagree, however, 
with the majority's conclusion that it is the primary insurer which is initially 
entitled to that setoff, and I write separately to express my views on the 
issue.
The majority holds that assigning the 
setoff initially to the primary carrier is "the preferable result" because the 
primary carrier "receives higher premiums than the excess carrier *** [and] 
faces greater risk." Slip op. at 7. The majority asserts that "[t]he primary 
carrier must satisfy an insured's claim up to the full amount of its policy 
limits before the excess carrier is required to pay anything. Because it bears 
this greater burden, the primary carrier should also be the first to receive the 
benefit of the setoff in order to reduce the coverage upon which the insured has 
first claim." Slip op. at 7. Although the majority's rule is alluring in its 
simplicity, as applied it fails to adequately give meaning to the intent of the 
language of the policies at issue and fails to take into account the 
relationship between a primary and an excess carrier. In my view, the question 
of the allocation of the worker's compensation benefits setoff must be 
determined by examining the language contained in each policy with respect to 
the risk insured and the level of coverage provided for that risk. My approach 
to this question, as set forth in this separate opinion, in no way seeks to 
erode an insurer's duty to provide coverage to its insured and should not be 
applied to leave the insured without the coverage it is due. Rather, I attempt 
only to give effect to the intent of both insurers with respect to the nature of 
each insurer's duty to provide underinsured coverage to its insured under the 
circumstances at issue.
Before turning to the policy language, 
however, I believe that an overview of the concepts of both primary and excess 
coverage is useful. As one commentator has explained,
Thus, 
when an individual purchases a $50,000 liability policy, only $50,000 in 
coverage is available to cover an occurrence for which the policy provides 
liability coverage. If a judgment is reached against the insured in the amount 
of $150,000, the primary insurer will not ordinarily be obligated to indemnify 
its insured for the additional $100,000 amount over the policy's stated limits 
of liability. In other words, the insured will be liable for the excess amount 
of the judgment.
Excess insurance, when it exists as part 
of an overall insurance package, provides a secondary level of coverage for the 
insured. Such coverage protects an insured in those instances where a judgment 
or a settlement exceeds the primary policy's limits of liability. This type of 
insurance coverage "attaches only after a predetermined amount of primary 
insurance has been exhausted." S. Seaman & C. Kittredge, Excess 
Liability Insurance: Law and Litigation, 32 Tort & Ins. L.J. 653, 656 
(1996). Thus, "[u]ntil such time as the limits of primary insurance coverage are 
exhausted, secondary coverage does not provide any collectible insurance." 
Whitehead, 110 Ill. App. 3d at 764-65. See also Farmers Automobile 
Insurance Ass'n v. Iowa Mutual Insurance Co., 77 Ill. App. 2d 172 
(1966).
I note that, although the majority 
opinion does not allude to it, the circumstances under which excess insurance 
coverage may come into play in any given case can vary. For example, excess 
coverage may arise "by coincidence" in situations where multiple primary 
insurance contracts apply to the same loss or occupance. 32 Tort & Ins. L.J. 
at 657. In these instances, courts examine the "other insurance" clauses 
contained in each of the policies to determine which is primary and which is 
excess. Landmark American Insurance Co. v. Country Mutual Insurance 
Co., 275 Ill. App. 3d 1021 (1995). In contrast to "by coincidence" excess 
coverage, "true" excess insurance can also be purchased by the insured in 
separate contracts which are written by design. Such contracts are commonly 
known as "following form" or "specific" excess coverage. 32 Tort & Ins. L.J. 
at 657. In these cases, the insured specifically bargains with the carrier for 
an excess contract which either (i) solely protects the insured against the 
possibility that a claim will exceed the limits of the primary policy or (ii) 
contains it own terms, definitions, and exclusions and otherwise "follows form" 
to the primary policy. See 32 Tort & Ins. L.J. at 658. Under either 
scenario, however, the rates of such a "true" excess insurer are ascertained 
only after the excess insurer has given due consideration to the terms of the 
underlying primary policy. 46 C.J.S. Insurance §1138 (1993). As a 
result, 
An 
"umbrella" insurance policy encompasses yet another form of excess coverage. The 
umbrella policy provides two different coverages within its terms-a standard 
"following form" excess coverage, in addition to a broader coverage than is 
otherwise provided by the underlying primary carrier. See Continental 
Casualty Co. v. Roper Corp., 173 Ill. App. 3d 760 (1988) (describing 
umbrella insurance). Due to the fact that the umbrella policy combines the 
characteristics of both a primary and a following form excess policy, 
commentators have described it as a "hybrid" policy. See 32 Tort & Ins. L.J. 
at 660; 24 Tort & Ins. L.J. at 719. Once an excess policy is triggered in a 
case, whether "by coincidence" or by design, the limits of the primary insurance 
must be exhausted before the excess carrier will be required to contribute to a 
settlement or a judgment.
In the case at bar, excess coverage arose 
"by coincidence" through the existence of the "other insurance" clause contained 
in the Northland policy. Under the express language contained in its policy, 
Northland agreed to provide underinsured-motorist coverage "excess" over any 
other collectible underinsured-motorist insurance "for any covered `auto' while 
hired or borrowed from [the insured] by another `trucker.' " The Chicago 
Motor Club (CMC) policy provides that "with respect to automobiles not owned by 
the subscriber, this policy will be excess and will apply only in the amount 
that the Company's limits of liability exceeds the sums of the applicable limits 
of liability of all other applicable insurance." The record reveals (and the 
parties agree) that at the time of the accident giving rise to this litigation, 
the insured had owned the covered vehicle and had also leased the vehicle to 
another trucker; therefore, the Northland policy was excess over any other 
collectible underinsured-motorists insurance, i.e., the limits of the 
CMC policy. The language contained in the two policies demonstrates that CMC and 
Northland chose to assume different levels of risk in this situation. Given the 
fact that Northland specifically attempted to limit its level of exposure in 
such circumstances, I believe that the worker's compensation benefits setoff 
should be allocated first to Northland, and not to CMC. To allow otherwise would 
guarantee that the primary carrier would never be faced with a maximum dollar 
contribution up to its policy limits when an excess carrier is involved and a 
setoff for worker's compensation benefits is available. Such a result runs 
counter to the purpose of excess coverage, i.e., to provide collectible 
insurance once the underlying policy has been exhausted up to its 
limits.
I must clarify at this point in my 
discussion that I do not refer to "exhaustion" as that concept relates to the 
insured. Rather, my analysis focuses on the true out-of-pocket dollar 
amount each insurer ends up paying to the insured when all is said and done. In 
this case, by virtue of the setoff allowed by the majority, CMC will contribute 
only $153,855.74 towards the judgment while Northland will contribute the full 
$500,000 limits of its excess policy. The problem with the majority's result is 
that the full $500,000 in excess coverage has become collectible even though the 
$300,000 in primary coverage initially paid out by the primary carrier has been 
replenished in part by an outside source and, thus, has not been truly 
exhausted. As a result, the carrier which specifically wrote its policy so as 
not to provide "first dollar" coverage for the occurrence at issue is now left 
paying the lion's share of the insured's recovery. Stated differently, the 
excess carrier must pay up to the limits of its coverage even though the dollar 
amount of the primary insurer's contribution to the judgment has been reduced, 
by an outside source, to a dollar amount well below the primary policy's limits 
of coverage.
The majority allows the primary carrier 
the right to set off the worker's compensation benefit "in order to reduce the 
coverage upon which the insured has first claim." Slip op. at 7. Given the 
language contained in the policies, however, I simply cannot fathom why the 
primary insurer should be allowed to set off the very "first dollar" coverage it 
agreed to provide its insured in its policy. In my view, the first right to a 
reduction of amounts payable belongs to the excess carrier because that carrier 
agreed to cover the insured at a level secondary to the primary carrier. Here, 
the excess carrier specifically wrote its contract to provide only secondary 
coverage for the accident which formed the genesis of the dispute. As the "last 
in," the excess carrier should be the "first out" because such a result more 
properly reflects the level of risk that was underwritten and the type of 
coverage that was bargained and paid for. Under my analysis, Northland's true 
out-of-pocket expense in this case would be the limits of its policy, less the 
amount of the setoff, while CMC's true out-of-pocket cost would be the limits of 
its coverage under its policy. Such a result gives full effect to the level of 
risk each carrier intended to expose itself to with respect to the type of 
accident at issue.
Despite the intent of the insurers as 
evinced by the language of their respective policies, the majority justifies 
assigning the setoff initially to the primary carrier because the primary 
carrier receives higher premiums and faces greater risk. See slip op. at 7. 
Interestingly enough, the premium received by CMC under its policy was $469, and 
the premium received by Northland was $1,778. Notwithstanding the fact that the 
record fails to even support the majority's analysis with regard to which 
carrier received the higher premium, I do not believe the resolution to this 
question turns on a face value comparison of the amount of premiums charged. 
This is especially true in cases where the excess coverage was written by 
design. The premiums in such circumstances are lower because the insurers are 
not covering the same risk-they are covering separate and clearly defined 
layers of risk. In this case, although I acknowledge that both of the 
policies at issue were written as primary policies, the premiums charged for 
each policy were nevertheless calculated upon the types of risks covered by the 
policy. As such, Northland calculated its premium by assessing the risk it was 
insuring against at each level, including the level of secondary coverage 
assumed in the "other insurance" clause. Had Northland written its policy 
so as to provide primary level coverage for the accident at issue, its premium 
would have been higher in order to reflect the higher level of coverage 
provided. Moreover, although the majority's statement that the primary carrier 
"faces greater risk" is correct, I do not see why that fact alone is 
determinative of the question. The primary carrier faces greater risk because, 
by the very terms of its agreement with the insured, it chose to provide to the 
insured a primary level of coverage, as opposed to a secondary level. As a 
result, the premiums assessed against the insured reflected the cost of this 
primary level of insurance. The majority's analysis ignores the fact that excess 
premiums are lower because excess coverage is, by its very nature, not supposed 
to be triggered until the underlying policy has been exhausted up to its limits. 
The majority's initial allocation of the setoff to the primary carrier, however, 
ensures that the limits of a primary policy are never truly paid out before the 
coincidental excess carrier must provide collectible insurance. While this 
result is of no moment to the insured, the result vis à vis the 
insurers turns the concept of excess coverage on its head.
The majority cites Cobb v. Allstate 
Insurance Co., 663 A.2d 38 (Me. 1995), in support of its conclusion that 
the primary insurer is entitled to take the initial setoff of worker's 
compensations benefits from its amounts payable to the insured. The court in 
Cobb, however, held that a setoff for amounts recovered from a 
tortfeasor's liability carrier should be allocated to the primary rather than to 
the excess carrier, which is an entirely different question from that which is 
raised in this case. Moreover, the court in Cobb reached its conclusion 
solely on the basis that allowing the primary carrier the setoff would allow it 
to settle more quickly and remove itself from further legal disputes. Although 
some might be inclined to find such policy sentiments to be laudatory, I do not 
find them legally persuasive in the face of the specific contractual language 
contained in each of the policies at issue in this case. In my view, the 
allocation question must be resolved on the basis of the intent of the insurers 
as evinced in the policies issued to the insured.
The majority unfortunately chooses to 
address the concept of excess insurance in a generic manner and fails to 
distinguish between the various forms in which such coverage can arise in a 
given case. As a result, the simplistic rule announced today will doubtless be 
applied pro forma in all cases in which an excess carrier claims an 
allocation of a setoff over a primary carrier. I am confident that the insurance 
industry's response to this overly generalized rule will be an increase in the 
cost of "true" excess insurance premiums. I note that such premiums 
"[t]raditionally *** were very low as excess insurers anticipated not having any 
involvement in defending the insured, minimal claims handling, and rarely, if 
ever, being called upon to indemnify the insured for a settlement or judgment." 
32 Tort & Ins. L.J. at 653. As a result of the low cost of excess premiums, 
secondary layers of coverage have, over the years, become more attractive to 
consumers-"[m]ore excess insurance contracts have been issued as commercial and 
professional insureds purchase excess coverage as part of comprehensive risk 
management programs." 32 Tort & Ins. L.J. at 653. If excess coverage becomes 
too cost prohibitive, then consumers will be less likely to purchase it. Sadly, 
this, in turn, will lead to fewer avenues of indemnification for tort 
victims.
For the foregoing reasons, I dissent from 
that portion of the majority opinion which assigns the setoff for worker's 
compensation benefits initially to CMC. I concur in the opinion in all other 
respects.
JUSTICES MILLER and McMORROW join in this 
partial concurrence and partial dissent.