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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 19-1426 

LEXINGTON INSURANCE COMPANY and NATIONAL

UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, 

Plaintiffs-Appellants, 

v.

RLI INSURANCE COMPANY, 

Defendant-Appellee. 

____________________ 

Appeal from the United States District Court for the 

Central District of Illinois. 

No. 1:17-cv-01514-JBM-JEH — Joe Billy McDade, Judge. 

____________________ 

ARGUED NOVEMBER 7, 2019 — DECIDED JANUARY 27, 2020 

____________________ 

Before HAMILTON, SCUDDER, and ST. EVE, Circuit Judges. 

HAMILTON, Circuit Judge. In this contract dispute, two insurers of New Prime, Inc., a trucking company, accuse a third 

insurer of not paying its share toward two multimillion-dollar 

personal injury settlements. Plaintiffs Lexington Insurance 

Company and National Union Fire Insurance Company contend that defendant RLI Insurance Company underpaid 

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2 No. 19-1426 

according to the policy it sold to New Prime, leaving National 

Union to make up the difference. 

In the district court, Lexington and National Union sought 

a declaratory judgment as to the meaning of the RLI Policy 

and equitable contribution of $2.5 million from RLI toward 

the settlements in question. Both sides moved for summary 

judgment. Both based their motions on the language of the 

RLI Policy and on extrinsic evidence of the parties’ intent. The 

district court granted summary judgment to RLI, relying exclusively on contract language that it found unambiguous. 

We affirm. The text of the RLI Policy is not as clear to us as it 

was to the district court, but undisputed extrinsic evidence 

shows that RLI’s position is correct. 

I. Factual and Procedural Background

As a large commercial trucking company, New Prime 

faces substantial risks of tort liability. In the relevant years, 

New Prime managed and covered its own liability without 

insurance for the first $3 million of exposure per occurrence. 

But to protect itself from unusually large claims, New Prime 

bought excess liability insurance from three different companies: RLI, Lexington, and National Union. (Lexington and National Union are both wholly owned subsidiaries of the American International Group, Inc., and for most purposes we can 

refer to them together as AIG.) In contracting with several different insurers, New Prime followed a common industry 

practice to stack policies into sequential “layers” of excess insurance coverage.1 This case concerns the threshold of liability at which RLI’s responsibility ended and AIG’s began. 

 

1 See Scott M. Seaman & Charlene Kittredge, Excess Liability Insurance: Law 

and Litigation, 32 Tort & Ins. L.J. 653, 654–55 (1997) (“An insured’s liability 

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No. 19-1426 3

The facts of the layers’ sequential ordering are undisputed. New Prime, through its insurance agent Cottingham & 

Butler, contacted RLI in October 2011 and purchased a $2 million policy largely overlapping with the calendar year 2012. 

New Prime renewed the $2 million RLI Policy, with one relevant change we discuss later, for the years 2013, 2014, and 

2015. Not until May 1, 2014 did New Prime, this time through 

the agents AmWINS and Regions, obtain a $5 million policy 

from Lexington to sit above RLI’s layer. New Prime already 

had a $25 million “umbrella” policy from National Union to 

sit above Lexington’s layer, and New Prime renewed that policy for the year starting May 1, 2014 as well. Both AIG policies 

were then renewed without changes for the year beginning on 

May 1, 2015.2

The two tragic accidents that led to this lawsuit occurred 

in 2015, when New Prime was covered by the RLI, Lexington, 

and National Union policies. On March 4, 2015, a New Prime 

tractor-trailer drifted into the median of Interstate 80 in Mercer County, Pennsylvania. The truck struck and severely injured Daniel Montini, who was changing a flat tire. See Memorandum Order, Montini v. New Prime, Inc., No. 2:15-cv-1591, 

slip op. at 1 (W.D. Pa. Nov. 15, 2017). In February 2018, Montini settled his lawsuit against New Prime for $16 million. On 

December 28, 2015, near Santa Rosa, New Mexico, a New 

 

insurance program generally includes a layer of primary insurance or selfinsurance coverage followed by one or more layers of excess insurance.”). 

2 “Umbrella insurance” is a generic term for excess insurance that does not 

perfectly “follow form” with the underlying insurance. Umbrella coverage can be both broader and narrower than the lower layers, depending 

on the specifics of the contracts. See generally Seaman & Kittredge, cited 

above in note 1, at 660. 

Case: 19-1426 Document: 38 Filed: 01/27/2020 Pages: 27
4 No. 19-1426 

Prime tractor-trailer rear-ended a sedan driven by Katherine 

and Samuel Herrera. Both were killed. See Complaint, Tafoya 

v. New Prime, Inc., No. D412CV201600190 (N.M. Dist. May 19, 

2016), 2016 WL 4411077. In March 2018, the Herreras’ estates 

settled their claims against New Prime for $20 million.

The dispute here is over how much RLI needed to contribute first to the Herrera settlement and then to the later Montini

settlement, which were so large as to trigger the excess insurance policies. The parties agree that, starting from the first 

dollar, New Prime itself was required to cover $3 million of 

costs or losses for each occurrence because of the so-called 

“Self-Insured Retention” built into the RLI Policy. In effect, 

the Self-Insured Retention made New Prime its own primary 

insurer up to $3 million per occurrence, with both RLI and 

AIG providing forms of excess insurance. See, e.g., Kajima 

Const. Servs., Inc. v. St. Paul Fire & Marine Ins. Co., 879 N.E.2d 

305, 313 (Ill. 2007) (“Excess insurance coverage attaches only 

after a predetermined amount of primary insurance or selfinsured retention has been exhausted.” (quotation omitted)). 

The RLI Policy provided the next layer of coverage but 

came with a feature called the “Aggregate Corridor Deductible” or “ACD,” which is the central focus of this lawsuit. Read 

alone, the main text of the RLI Policy would have provided 

for the first $2 million of coverage immediately above New 

Prime’s $3 million Self-Insured Retention. An endorsement to 

the Policy, however, added the Aggregate Corridor Deductible and described its function (emphasis added): 

The Insured [i.e., New Prime] shall respond to, 

investigate, adjust, defend, and dispose of by 

payment or otherwise all losses and claims for 

losses covered by the Policy for which the total 

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No. 19-1426 5

claim is greater than the $3,000,000 Self Insured 

Retention (SIR) until the Aggregate Corridor Deductible of $2,500,000 has been satisfied. Once the 

Aggregate Corridor Deductible has been exhausted by payment for one or more losses & 

“costs”, the Insured is only responsible for losses 

and “costs” up to [the] Per Occurrence Self Insured Retention.

The endorsement also specified that the ACD amounts to 

“$2,500,000 excess of the $3,000,000 Self Insured Retention.” 

Although not a model of clarity, this endorsement obligated 

New Prime to pay out an additional $2.5 million above its 

Self-Insured Retention of $3 million per occurrence before RLI 

began to pay. But while the Self-Insured Retention applied to 

each covered incident, the $2.5 million ACD applied only 

once per year, so New Prime needed to pay that additional 

amount only once per policy year. On these basics RLI and 

AIG agree. 

The dispute, however, is whether New Prime’s payments 

toward the Aggregate Corridor Deductible diminished the 

amount that RLI owed on any claims. RLI argues that the 

ACD sat within RLI’s $2 million layer, leaving RLI with no responsibility for making any payment on any claim until New 

Prime had both (a) paid $3 million per occurrence and (b) 

paid the year’s ACD total on losses between $3 million and 

$5 million per occurrence. If that is correct, then New Prime 

and RLI would together owe at most $5 million on any claim: 

the $3 million Self-Insured Retention plus the $2 million RLI 

Policy. In contrast, AIG argues that the ACD sat below RLI’s 

$2 million layer. On this view, RLI had to provide coverage 

whenever the loss exceeded the sum of the Self-Insured 

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6 No. 19-1426 

Retention and remaining ACD balance. In other words, AIG 

asserts, “the ACD operates ... as an additional $2.5 million 

self-insured retention applying per policy period.” If that 

were correct, then AIG’s duty to pay would not have been 

triggered until New Prime and RLI had together paid 

$7.5 million for the first big occurrence(s) of the policy year. 

The charts below illustrate the parties’ respective views on 

how to allocate the first $10 million of the Herrera and Montini

settlements, showing a dispute over $2.5 million. 

RLI’s Position AIG’s Position 

At the time of the Herrera and Montini settlements, RLI insisted on its view of the Aggregate Corridor Deductible. It 

paid none of the Herrera settlement and only $1.5 million of 

the Montini settlement. AIG reserved its rights to recoup the 

alleged deficit of $2.5 million from RLI. Because the settlements exhausted Lexington’s policy layer on any view of the 

$3.0 $3.0

$2.0

$0.5

$0.0

$1.5

$5.0 $5.0

Herrera Montini 

AIG Coverage

RLI Coverage

New Prime ACD

New Prime SIR

$3.0 $3.0

$2.5

$0.0

$2.0

$2.0

$2.5

$5.0

Herrera Montini 

AIG Coverage

RLI Coverage

New Prime ACD

New Prime SIR

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No. 19-1426 7

RLI Policy, it is National Union that seeks equitable contribution through this lawsuit.

The parties filed cross-motions for summary judgment in 

the district court. Both RLI and AIG attached to their motions 

extrinsic evidence, including email correspondence, underwriting files, and employee affidavits. Both sides referred to 

extrinsic evidence and disputed its significance in their summary judgment briefing. The district court declined to consider the evidence. The court found that the RLI Policy provided unequivocally that payments toward the Aggregate 

Corridor Deductible erode RLI’s policy layer. The court entered summary judgment for RLI on that basis, and AIG appealed. 

II. Principles Governing Illinois Contract Interpretation

The parties agree on appeal that Illinois law governs this 

contract dispute. In interpreting any insurance policy, the 

“primary function” of an Illinois court “is to ascertain and 

give effect to the intention of the parties, as expressed in the 

policy language.” Thounsavath v. State Farm Mut. Auto. Ins. Co., 

104 N.E.3d 1239, 1244 (Ill. 2018). This analysis ends with the 

text of the agreement if it is unambiguous: “A court will first 

look to the language of the contract itself to determine the parties’ intent. ... If the words in the contract are clear and unambiguous, they must be given their plain, ordinary and popular 

meaning.” Thompson v. Gordon, 948 N.E.2d 39, 47 (Ill. 2011). 

On the other hand, if the contract language is ambiguous, Illinois courts may consider extrinsic evidence of the parties’ 

intent. See id.; Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). 

On appeal, both AIG and RLI maintain that the RLI Policy was 

unambiguous in their favor; RLI also argues that the extrinsic 

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8 No. 19-1426 

evidence provides an alternate basis for affirming the judgment in its favor. 

Illinois courts treat contracts as ambiguous where the language of the contract is “susceptible to more than one meaning,” Thompson, 948 N.E.2d at 47, or “obscure in meaning 

through indefiniteness of expression.” Central Illinois Light Co. 

v. Home Ins. Co., 821 N.E.2d 206, 213 (Ill. 2004). “All the provisions of the insurance contract, rather than an isolated part, 

should be read together to interpret it and to determine 

whether an ambiguity exists.” Rich v. Principal Life Ins. Co., 875 

N.E.2d 1082, 1090 (Ill. 2007), quoting United States Fire Ins. Co. 

v. Schnackenberg, 429 N.E.2d 1203, 1205 (Ill. 1981). The mere 

fact of disagreement between the parties does not render language ambiguous, of course. Thompson, 948 N.E.2d at 48. Conversely, however, and equally obviously, “a contract is not 

necessarily unambiguous when, as here, each party insists 

that the language unambiguously supports its position.” Central Illinois Light, 821 N.E.2d at 214. 

In practice, Illinois courts do not hesitate to order consideration of extrinsic evidence if contract language alone cannot 

resolve a dispute. E.g., Shapich v. CIBC Bank USA, 123 N.E.3d 

93, 99–100 (Ill. App. 2018) (reversing grant of summary judgment and remanding to trial court because both parties’ interpretations contradicted portions of text); Morningside North 

Apartments I, LLC v. 1000 N. LaSalle, LLC, 75 N.E.3d 413, 419 

(Ill. App. 2017) (same). With these principles in mind, we first 

consider the text of the RLI Policy. 

III. Textual Analysis

The district court’s construction of the RLI Policy was a 

legal finding, so we review it de novo. See, e.g., Soarus L.L.C. v. 

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No. 19-1426 9

Bolson Materials Int’l Corp., 905 F.3d 1009, 1011 (7th Cir. 2018). 

We agree with much of the court’s analysis, but we ultimately 

cannot agree that the contract language unambiguously specified how the Aggregate Corridor Deductible operated. 

The basic problem is that the RLI Policy failed to define 

the custom-tailored Aggregate Corridor Deductible feature or 

to describe its mechanics with precision. On the key question 

in this case—whether payments toward the ACD erode the 

policy limit—the contract was silent. A lengthy definitions 

section included such diverse terms as “bodily injury,” “damages,” “nuclear material,” “we,” and “you.” Yet the word “deductible” appeared nowhere in the main text of the agreement. Without a policy definition, three endorsements to the 

Policy created the ACD and described some aspects of its operation. These provisions did not explicitly state whether the 

ACD eroded policy limits. We find that neither the reasoning 

of the district court nor the arguments of the parties fully dispel this ambiguity. 

A. Inconclusive Usage and Custom Arguments

We first address a genre of argument on which both sides 

rely heavily. AIG contends that the Aggregate Corridor Deductible actually functioned as a “self-insured retention.” RLI 

insists that it operated as a “deductible,” as its name would 

suggest. With extensive citation to non-Illinois cases and secondary literature, the parties expound on these terms’ meanings in insurance law, which they believe clarify the role of 

the ACD. Both sides, for example, cite Judge Hellerstein’s 

opinion in the World Trade Center litigation, which explained 

the general distinction: 

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A [self-insured retention] differs from a deductible in that a SIR is an amount that an insured 

retains and covers before insurance coverage 

begins to apply. Once a SIR is satisfied, the insurer is then liable for amounts exceeding the 

retention, less any agreed deductible. ... In contrast, a deductible is an amount that an insurer 

subtracts from a policy amount, reducing the 

amount of insurance. 

In re Sept. 11th Liability Ins. Coverage Cases, 333 F. Supp. 2d 111, 

124 n.7 (S.D.N.Y. 2004), citing 2 Barry R. Ostrager & Thomas 

R. Newman, Handbook on Insurance Coverage Disputes 

§ 13.13[a] (12th ed. 2004).3

AIG and RLI both seek to label the ACD as one or the other 

and thus to determine how the RLI Policy worked. The name 

for such reasoning about contractual language is usage and 

custom. Courts have long recognized that technical trade usages can sometimes clarify contract terms. See Shreffler v. 

Nadelhoffer, 25 N.E. 630, 633 (Ill. 1890) (directing courts “to collect the real intention of the parties from the terms used in the 

 

3 AIG’s brief omitted this excerpt’s second sentence, which tends to favor 

RLI’s position in this lawsuit, and, more troubling, did not even use an 

ellipsis or any other signal that text was omitted. See Appellant’s Br. at 21. 

AIG’s counsel initially said he thought the omitted sentence “wasn’t relevant” to this case. He then retreated to the assertion that the omission was 

not intended to mislead the court, and he apologized to the court. Oral 

Arg. 35:20–36:30. We remind all counsel that they must not “knowingly 

misrepresent, mischaracterize, misquote, or miscite facts or authorities in 

any oral or written communication to the court.” Lawyers’ Duties to the 

Court, No. 5, Standards for Professional Conduct Within the Seventh Federal Judicial Circuit; see also Illinois Rule of Professional Conduct 3.3(a)(2) 

& cmt. [4]. 

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No. 19-1426 11

contract, taking them in their plain, ordinary, and popular 

sense, unless by the known usage of the trade they have acquired a peculiar sense”); see generally 12 Richard A. Lord, 

Williston on Contracts § 34:5 (4th ed. 2019) (“It is currently the 

widely accepted rule that custom and usage may be proved 

to show the intention of the parties to a written contract or 

other instrument in the use of phrases of a peculiar technical 

meaning which, when unexplained, are susceptible of two or 

more plain and reasonable constructions.”). 

Along these lines, AIG and RLI both seek to import what 

they say are established industry understandings into the RLI 

Policy. At oral argument, counsel for AIG asserted that the 

ACD “bears every single characteristic of a self-insured retention recognized by the cases”—in function if not in name. 

Counsel for RLI responded that it was an “industry practice” 

and “accepted legal principle” that anything labeled a “deductible” erodes policy limits unless the policy states otherwise. Counsel went on to assert that New Prime and RLI “understood ... what the word deductible meant; they didn’t 

need to define it.” These are assertions that usage and custom 

should guide our decision. 

A threshold question, then, is whether an Illinois court 

would consider trade usage in this situation. Illinois law appears somewhat unsettled on just when parties may introduce 

such evidence. Compare Illinois Ins. Guar. Fund v. Nwidor, 105 

N.E.3d 1035, 1046 (Ill. App. 2018) (“Usage or custom is admissible to explain or make clear what a contract means but not 

to contradict a meaning obvious on the face of the instrument.”), with Amalgamated Transit Worker’s Union, Local 241 v. 

Pace Suburban Bus Div. of Reg’l Transp. Auth., 943 N.E.2d 36, 40 

(Ill. App. 2011) (“[E]ngrafted on every written contract are the 

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12 No. 19-1426 

customs, practices and definitions which are commonly understood and accepted by the parties.”). That said, the situation here blurs the line between trade usage and everyday textual interpretation; AIG and RLI resort not to extrinsic factual 

evidence but to case law and treatises. We will assume for present purposes that an Illinois court would consider such materials in a case like this. See Matter of Envirodyne Indus., Inc., 

29 F.3d 301, 305 (7th Cir. 1994) (“It would be passing odd to 

forbid people to look up words in dictionaries, or to consult 

explanatory commentaries that, like trade usage, are in the nature of specialized dictionaries.”). 

In the end, though, the parties’ arguments from industry 

usage are inconclusive. The debate revolves around the fact 

that the RLI Policy gave New Prime primary authority to “respond to, investigate, adjust, defend, and dispose of” claims 

falling within the Aggregate Corridor Deductible. AIG contends that a true deductible policy would task the insurer, not 

the insured—RLI, not New Prime—with claims-processing 

duties: only a self-insured retention would lodge them with 

the insured. Authority supports this distinction as a matter of 

industry practice. See, e.g., Monroe Guar. Ins. Co. v. Langreck, 

816 N.E.2d 485, 495 (Ind. App. 2004) (“in a policy with a deductible, the insurer retains complete control of claims handling; in a policy with a retained amount, the insurer has no 

claims handling responsibility”); 3 Jeffrey E. Thomas et al., 

New Appleman on Insurance Law Library Edition 

§ 16.09[3][b][i] (2019) (“A ‘self-insured retention’ (or ‘SIR’) is 

an insurance arrangement whereby the insured takes all responsibility for dealing with claims up to a certain amount of 

loss.”). RLI responds that the Policy apportioned duties as it 

did because it provided only excess insurance, with New 

Prime serving as its own primary insurer. This view also finds 

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No. 19-1426 13

support in case law and secondary literature. See, e.g., Royal 

Ins. Co. v. Process Design Assocs., Inc., 582 N.E.2d 1234, 1242 (Ill. 

App. 1991) (“the primary insurer, and not the excess carrier, 

has the duty to defend its insured”); Seaman & Kittredge, 

cited above at n.1, at 662 (“In contrast to the primary insurer, 

the excess insurer rarely undertakes to defend the insured.”). 

This debate shows only that the usages of the insurance 

industry do not resolve this case. As a deductible attached to 

excess insurance, the Aggregate Corridor Deductible was a 

customized term that did not mimic either a standard “deductible” or a standard “self-insured retention” in every respect. The parties were of course free to contract for nonstandard terms to suit their particular needs. See Nation Oil 

Co. v. R. C. Davoust Co., 201 N.E.2d 260, 265 (Ill. App. 1964) 

(“parties to a contract may express intent contrary to a custom 

of the trade”); see also Sulser v. Country Mut. Ins. Co., 591 

N.E.2d 427, 431 (Ill. 1992) (“Parties to a contract may agree to 

any terms they choose unless their agreement is contrary to 

public policy.”). Since New Prime and RLI agreed on such a 

customized policy feature here, one that included at least 

some features of both standard deductible terms and self-insured retentions, received trade usage simply does not provide a reliable guide to their agreement. Instead, we move on 

to other potential evidence of their mutual intent as expressed 

in the language of the RLI Policy. 

B. Other Textual Arguments

The parties also base arguments solely on the text of the 

RLI Policy. We address these points both to give them due 

consideration and to provide background for the extrinsic evidence that we find decisive here. On balance, the text offers 

support for RLI’s view that payments toward the Aggregate 

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Corridor Deductible eroded policy limits, but not unambiguously so. We start with the terms most favorable to RLI. 

First, RLI makes the simple point that the Policy used distinct terms for Self-Insured Retention and Aggregate Corridor 

Deductible. The Policy defined both “Retained Limit” and 

“Self-Insured Retention” without reference to the ACD.4 It 

then obligated RLI to indemnify New Prime for losses “in excess of” the “Self-Insured Retention,” otherwise known as the 

“retained limit,” again without reference to the ACD. The district court reasoned that, as a result, the Self-Insured Retention and ACD were “entirely separate,” and the ACD necessarily sat within RLI’s policy layer. This argument has merit 

but we do not view it as conclusive. It ultimately depends too 

much on the labels alone to decide how the ACD feature 

works, and we rejected that path above because of other features of the policy. Cf. Learning Curve Intʹl, Inc. v. Seyfarth 

Shaw, LLP, 911 N.E.2d 1073, 1079 (Ill. App. 2009) (“We determine the character of a contract from its substantive effects, 

not from the labels that parties prefer to place on its provisions.”). 

Second, RLI points to the “Defense Endorsement,” which 

set forth the division of labor between New Prime and RLI in 

defending lawsuits and processing claims. The Endorsement 

explained that New Prime “shall have the sole and unrestricted right to settle or pay any loss for which [RLI] has no 

 

4 These two terms turn out to be synonymous: “Retained Limit” was defined in the RLI Policy to “consist of a ‘self-insured retention’ or required 

primary insurance, as indicated in the Declarations,” and the Declarations 

indicated that no primary insurance was required under this policy. By 

process of elimination, the Retained Limit was simply the Self-Insured Retention. 

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No. 19-1426 15

potential responsibility ... as a result of the application of the 

SIR and Corridor Deductible.” The district court reasoned, 

and RLI argues, that unless ACD payments eroded policy limits, RLI had at least potential responsibility for every filed 

claim, rendering New Prime’s right to defend a nullity. AIG 

responds that this formalistic definition of “potential” ignores 

numerous claims that “pose nothing but the most tenuous 

theoretical possibility of implicating RLI’s coverage.” That 

contention is at least plausible since RLI’s coverage did not 

even begin until New Prime itself had spent at least $5.5 million in the policy year. The text alone does not resolve this debate about the sense of the word “potential.” As we will see 

later, extrinsic evidence does. 

Third, the district court placed “significant” weight on the 

RLI Policy’s use of the word “aggregate” to describe the 

$2 million indemnity limit, reasoning that New Prime’s ACD 

payments and RLI’s indemnities sum up to “aggregate” coverage. Therefore, this argument goes, ACD payments must 

have reduced RLI’s share. We do not find this logic convincing. RLI itself did not assert this meaning of the word “aggregate” in summary judgment briefing. The district court introduced the argument, and RLI has endorsed it on appeal. As 

AIG points out, however, the district court’s sense of “aggregate” clashes with other parts of the policy, such as the Separation of Insureds Condition. This argument also does not settle the function of the ACD.5 

 

5 On this point, RLI protests that the Separation of Insureds Condition 

“does not use the term ‘aggregate’ anywhere,” Appellee’s Br. at 24, but it 

did: “nothing contained herein shall operate to increase Our total aggregate

limit of indemnity in excess of Self-Insured Retention” (emphasis added). 

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16 No. 19-1426 

Finally, on the other side, AIG’s strongest textual argument is that the RLI Policy contemplated that a single occurrence could exhaust the ACD. Recall that, if ACD payments 

eroded the RLI Policy limit, then New Prime could spend at 

most the $2 million limit toward the ACD on a single occurrence and thus could not exhaust the entire $2.5 million ACD. 

Yet the Aggregate Corridor Deductible Endorsement expressly allowed that the ACD could be “exhausted by payment for one or more losses & ‘costs’” (emphasis added). Another provision directed New Prime to pay all costs until the 

total on “one or more claims together equals the amount of the 

Annual Aggregate Corridor Deductible” (emphasis added). 

These two passages are not consistent with RLI’s interpretation of how the ACD functions because payments toward one 

occurrence could not possibly exhaust the ACD of $2.5 million. 

The district court held that the references to “one or more” 

did not introduce ambiguity into the RLI Policy because this 

“boiler-plate language” could not “render the policy as a 

whole unclear.” If we were otherwise convinced that the text 

unequivocally provided for ACD payments to erode the policy limit, we might agree that an “isolated part” of the contract 

should not “determine whether an ambiguity exists.” Rich v. 

Principal Life Ins. Co., 875 N.E.2d 1082, 1090 (Ill. 2007). But we 

are not convinced of the premise, especially after setting aside 

the inconclusive arguments regarding usage and custom. The 

RLI Policy left the key term in this dispute undefined, and 

both sides’ proffered interpretations of the ACD would in effect nullify some language in the contract, which is ordinarily 

a result to be avoided in legal textual analysis. We therefore 

conclude that, as applied to the dispute here, the custom-tailored ACD feature of the RLI Policy was “obscure in meaning 

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No. 19-1426 17

through indefiniteness of expression” and hence ambiguous. 

Central Illinois Light Co. v. Home Ins. Co., 821 N.E.2d 206, 213 

(Ill. 2004). 

IV. Extrinsic Evidence

Undisputed evidence of the negotiations between New 

Prime and RLI, and between New Prime and AIG, resolves 

the ambiguity in RLI’s favor. As noted, Illinois courts may 

consider extrinsic evidence upon a finding of ambiguity. See 

Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007). Under federal 

procedural law, if uncontested facts clarify the meaning of a 

contract, an appellate court may decide the issue as a matter 

of law at summary judgment. See Citadel Grp. Ltd. v. Washington Reg’l Med. Ctr., 692 F.3d 580, 587 (7th Cir. 2012) (“Even 

when a contract is ambiguous, as long as the extrinsic evidence bearing on the interpretation is undisputed and leads 

to only one reasonable interpretation, we can decide the matter on summary judgment.”); see generally Fidelity & Deposit 

Co. of Maryland v. Rotec Indus., Inc., 392 F.3d 944, 949 (7th Cir. 

2004) (“in all cases in federal court, including diversity cases, 

the allocation of responsibility between judge (‘law’) and jury 

(‘fact’) is governed by federal rather than state law”). 

Although the district court here ruled only on textual 

grounds, the parties submitted extensive evidence and briefing regarding the history of the insurance contracts at issue. 

We may affirm summary judgment “on any ground that finds 

support in the record,” so long as that ground was “adequately presented in the trial court so that the non-moving 

party had an opportunity to submit affidavits or other 

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18 No. 19-1426 

evidence and contest the issue.” Box v. A & P Tea Co., 772 F.2d 

1372, 1376 (7th Cir. 1985).6

Summary judgment for RLI was proper because emails 

and underwriting files show that New Prime, RLI, and AIG 

itself all intended the combined liability of New Prime and 

RLI to be capped at $5 million per occurrence, so that AIG’s 

liability would begin at $5 million per occurrence, not at $7 or 

$7.5 million. As a matter of Illinois law and common sense, 

the parties’ statements during negotiations and their conduct 

afterward carry more weight than legal interpretations offered in the run-up to litigation. See Szafranski v. Dunston, 34 

N.E.3d 1132, 1157 (Ill. App. 2015) (“The intended meaning of 

ambiguous contract language may be derived from the circumstances surrounding the formation of a contract or from 

the conduct of the parties subsequent to its formation.”). We 

first consider the record of negotiations prior to the Montini

accident in March 2015—not only between New Prime and 

RLI but also between New Prime and AIG. Then we turn 

 

6 Dicta in some of our decisions have incorrectly suggested an additional 

requirement for alternate grounds for affirming summary judgment, that 

“the district court adequately considered them.” Scheidler v. Indiana, 914 

F.3d 535, 540 (7th Cir. 2019); see also Nationwide Agribusiness Ins. Co. v. 

Dugan, 810 F.3d 446, 450 (7th Cir. 2015); Gerhartz v. Richert, 779 F.3d 682, 

685 (7th Cir. 2015); Costello v. Grundon, 651 F.3d 614, 637 (7th Cir. 2011); 

Best v. City of Portland, 554 F.3d 698, 702 (7th Cir. 2009). But see, e.g., Levy 

v. Marion Cty. Sheriff, 940 F.3d 1002, 1009 (7th Cir. 2019) (not requiring district court to have considered the issue). The correct rule, as stated in Box, 

772 F.2d at 1376, is that we may affirm summary judgment for reasons not 

considered by the district court as long as the parties had a fair opportunity to present their arguments and evidence. See Singleton v. Wulff, 428 

U.S. 106, 120–21 (1976) (federal appellate courts usually do not decide an 

issue not decided in the district court but have discretion to do so if parties 

had fair opportunity to be heard on the issue).

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No. 19-1426 19

briefly to statements made during the defense of the claims at 

issue in this lawsuit. 

A. Negotiations Between New Prime and RLI

To start with identified textual ambiguities, the “one or 

more” references that are so critical to AIG’s textual arguments turn out to be mere vestiges of an earlier version of the 

RLI Policy. The record contains the relevant portions of policy 

in effect for 2012, the first year that New Prime and RLI contracted for coverage. During that year, the Aggregate Corridor Deductible was only $2 million—not $2.5 million—so 

New Prime would have been able to exhaust it through losses 

on a single claim even if ACD payments erode the policy. The 

ACD remained at $2 million for 2013. New Prime and RLI 

then agreed to increase it to $2.5 million for 2014. RLI 

acknowledges that it and New Prime should have revised 

“one or more claims” to “two or more claims” to reflect the 

changed arithmetic. But in interpreting the ambiguity, we will 

focus on New Prime and RLI’s objectively expressed mutual 

intent, not just their drafting oversights. Cf. Regency Commercial Assocs., LLC v. Lopax, Inc., 869 N.E.2d 310, 316 (Ill. App. 

2007) (in case of ambiguity, “a court may consider preliminary negotiations between the parties in order to determine 

the meaning of contract provisions and the intent of the parties”). We suspect any lawyer or judge who has edited a legal 

document has had the experience of overlooking in the editing process a needed conforming change like this. AIG has 

presented no contrary evidence to create an issue of material 

fact on this point. 

Extrinsic evidence also clarifies the purpose of the Defense 

Endorsement and its use of the word “potential,” which also 

figures prominently in AIG’s textual arguments. On 

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20 No. 19-1426 

December 13, 2011, in the final days of the negotiations for the 

first policy year, a New Prime employee emailed the broker 

at Cottingham & Butler to explain why New Prime needed 

the Aggregate Corridor Deductible. New Prime was concerned that RLI could force it to settle claims “using our SIR 

dollars,” in other words below $3 million where RLI had no 

skin in the game.7 New Prime hence requested a “$2 M. annual aggregate deductible” so that the “combination of SIR 

plus the annual aggregate deductible equals the $5 M. per occurrence limit.” Although we do not have RLI’s response to 

New Prime’s proposal, we know that the RLI Policy ultimately incorporated the ACD as described. In this manner, 

the ACD created a class of claims for which RLI had “no potential responsibility,” in the sense of even theoretical possibility. The Defense Endorsement granted New Prime “the 

sole and unrestricted right to settle or pay” those claims. Of 

course, this plan would work only if New Prime’s payments 

toward the ACD did in fact erode the RLI Policy limit. 

Record evidence confirms that the 2013 version of the Policy carried forward this understanding. On November 30, 

2012, RLI responded in writing to queries from Cottingham & 

Butler regarding the renewal of New Prime’s coverage. This 

document described the policy as “Primary Fleet Auto 

 

7 The Third Circuit has observed that the structure of excess insurance creates the inherent conflict of interest New Prime identified: “the excess carrier [here, RLI] wishes the primary insurer [New Prime] to dispose of the 

case within its limits and is not unduly impressed with the primary insurer’s desire to save some or all of its policy limits by a favorable verdict 

at trial.” Puritan Ins. Co. v. Canadian Universal Ins. Co., 775 F.2d 76, 78 (3d 

Cir. 1985). 

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No. 19-1426 21

Liability at $5,000,000 CSL per occurrence.”8 The responses 

went on to explain that the ACD “was installed [in] December, 2011 to make-work an agreement with the underwriter 

that PRIME would have sole control of defense and settlement 

of all claims within the above layer.” Far from disputing the 

accuracy of this document, AIG cites two phrases from it to 

try to support its own position: “$2,000,000 Limit excess a 

$3,000,000 SIR + $2,000,000 Corridor Deductible” and “policy 

will remain on SIR, not a Deductible.” But these descriptions 

merely reiterated basic aspects of the RLI Policy; they did not 

contradict the clear evidence that New Prime and RLI understood their collective liability to be capped at $5 million per 

occurrence. 

The record also contains evidence, albeit slightly less onesided, regarding the 2015 RLI Policy at issue in this case. In 

the lead-up to renewal, RLI prepared a proposal dated December 4, 2014. The proposal said that the Aggregate Corridor 

Deductible was “in Layer above $3,000,000 SIR” and that it 

“applies to the $2,000,000 Limit” (emphasis added). These 

phrases clearly indicate that RLI and New Prime intended the 

ACD to sit within RLI’s policy layer. AIG has not disputed the 

authenticity of the December 4 proposal. In an email two 

weeks later, on December 18, a Cottingham & Butler broker 

asked RLI to “bind” the coverage “with the $2,500,000 corridor per the quote attached.” RLI asserted in the district court 

that the referenced “quote” was the December 4 insurance 

proposal, and AIG did not dispute that point. 

 

8 In the insurance business, “CSL” is an acronym for “combined single 

limit.” E.g., Alshwaiyat v. American Serv. Ins. Co., 986 N.E.2d 182, 185 (Ill. 

App. 2013). 

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22 No. 19-1426 

Nevertheless, AIG argues that RLI’s reply the next day to 

Cottingham & Butler creates a material fact dispute to preclude summary judgment. In a one-sentence summary of the 

policy, RLI described the indemnity limit as “above” the 

ACD, a word choice that conflicts with the earlier insurance 

proposal. Not long afterward, however, RLI returned a “Binding Confirmation” to New Prime that repeated the “in Layer 

above” and “applies to” language from the original quote. 

This exchange does not create a genuine dispute of material 

fact. RLI’s brief reply email was at best ambiguous, and the 

more formal policy documents consistently made clear that 

ACD payments would erode policy coverage. 

A final, pre-dispute account of how RLI understood the 

Policy comes from a December 20, 2014 memo in the underwriting file. The memo described the terms under which 

Swiss Re, a reinsurance company, offered to reinsure the RLI 

Policy assuming “a $2.5MM Corridor Deductible within the 

$2MM layer above the SIR” (emphasis added). Absent evidence to the contrary, we can assume that RLI was not lying 

to Swiss Re, especially given the duty of “utmost good faith” 

that governs reinsurance transactions. Amerisure Mut. Ins. Co. 

v. Glob. Reinsurance Corp. of Am., 927 N.E.2d 740, 749 (Ill. App. 

2010). AIG does not contend otherwise. RLI has consistently 

understood, and expressed its understanding, that New 

Prime’s ACD payments reduce its own responsibility for 

losses, and New Prime did not disagree before this dispute 

arose.9

 

9 One unusual feature of this case, as compared to most insurance coverage disputes, is that the insured and insurer agree about how to apply the 

disputed RLI Policy. The disagreement comes from excess insurers who 

were not parties to that policy. The several excess insurance contracts were 

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No. 19-1426 23

B. Negotiations Between New Prime and AIG 

The record also contains evidence that AIG knew at the 

time it contracted with New Prime that its responsibility for 

losses would begin at $5 million per occurrence. On April 2, 

2014, Todd Brejcha, a broker with New Prime’s agent AmWINS, emailed Lexington to seek a quote for an excess insurance layer of “$5MM xs $5MM P.” An attached “Transportation Risk Summary” described the “U/L Program” as “$5MM 

CSL–RLI subject to a $3MM SIR.” Translating the industry jargon, Brejcha was seeking an offer to provide $5 million of coverage in excess of a $5 million primary policy. The Risk Summary explained that the underlying insurance program was 

RLI’s $5 million combined single limit policy, $3 million of 

which belonged to New Prime’s Self-Insured Retention. In 

other words, Brejcha told Lexington that New Prime sought 

excess coverage to begin at a $5 million per occurrence threshold. 

Two weeks later, Brejcha emailed Lexington again and 

sent a copy of the entire 2014 RLI Policy, presumably after 

Lexington expressed interest in selling coverage to New 

Prime. Brejcha described the RLI Policy as “the main $2MM 

xs $3MM primary policy,” thus reiterating that Lexington’s 

responsibility would begin at $5 million. Four days later, on 

April 21, 2014, an AIG broker replied to Brejcha with a “$5M 

xs of $5M Quote” from Lexington. The attached “Quote Confirmation” listed the underlying policies as AIG understood 

them: a $2 million RLI combined single limit above a 

 

all designed to fit together, however, and there has been no argument here 

to the effect that the AIG excess insurers are not entitled to contest the 

effect of the RLI Policy. 

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24 No. 19-1426 

$3 million self-insured retention. The Quote Confirmation did 

not mention the Aggregate Corridor Deductible, even though 

Lexington had received a copy of the RLI Policy and so knew 

about the ACD. A week later, on April 28, 2014, Brejcha 

emailed the AIG broker to “bind the $5MM xs $5MM per your 

attached quote.” 

The only reasonable inference from this back-and-forth is 

that AIG did not believe the ACD affected the threshold at 

which its layer began—namely $5 million per occurrence. 

AIG thus understood that ACD payments eroded the RLI Policy. In the district court, AIG insisted that “no such inference 

exists given the plain language of the only document the 

Court can consider absent finding an ambiguity–the RLI Policy.” We have found ambiguity, however. The extrinsic evidence of dealing between New Prime and AIG shows beyond 

reasonable dispute that AIG knew exactly what it bargained 

for in April 2014, and that’s exactly where the district court’s 

judgment left it. 

C. Later Events 

Although the evidence from before the Herrera and Montini accidents decides this case in RLI’s favor, we must still 

consider whether later events introduce a factual dispute that 

precludes summary judgment. RLI can point to many additional emails among New Prime, its brokers, and RLI from 

April 2016 onward that endorsed RLI’s interpretation of the 

ACD. Since the evidence from before the Herrera and Montini

accidents suffices on its own, however, we see no reason to 

rely on after-the-fact correspondence that could be criticized 

as affected by strategic posturing in the dispute then brewing 

with AIG. We likewise decline to rely on the affidavits RLI 

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No. 19-1426 25

submitted to the district court to the extent that they are uncorroborated by documentary evidence. 

We do need, however, to examine in detail a chain of correspondence from April 24, 2015. At 10:42 AM on that date, 

Michelle Mertz, the Risk Manager at New Prime, emailed 

Todd Brejcha at the AmWINS brokerage regarding the Montini claim. Mertz’s initial view on how New Prime’s insurers 

should share the losses tracked AIG’s later position in this 

lawsuit: “Prime would pay the first 5.5 million ($3m per occurrence, $2.5m aggregate corridor) [and] RLI would then 

pay their $2m. So, as of now, $7.5m would have to be paid on 

this claim before it got to Lexington’s layer.” This email represents the first and only time either party to the RLI Policy 

endorsed AIG’s interpretation of how the ACD functions. Notably, Mertz had become New Prime’s Risk Manager in 2013, 

so she was not present when the RLI Policy was initially negotiated. 

Less than half an hour later, Brejcha emailed the other brokers—Tim Larocca at AmWINS and Jack Welbourn at Regions—to express his disagreement with Mertz’s view that 

“RLI will participate above the corridor deductible.” Larocca 

then asked to see the RLI Policy himself because he recalled 

that “this wording is very confusing.” At 11:35 AM, Welbourn 

wrote that, after reading the policy, he remained uncertain: “it 

really does not spell out the actual limit per claim.” About 

forty-five minutes later, though, Welbourn emailed Mertz, 

copying the others, to explain that he “thought the limit was 

$5,000,000 and not $7,5000,000 [sic],” but that “the wording in 

the policy is a bit ambiguous.” He asked Mertz to request clarification from RLI “so in the event of a loss we do not have a 

carrier dispute.” 

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26 No. 19-1426 

But as the need to write this opinion indicates, that ship 

had sailed. Mertz had already told Charlie Creamer, a “complex director” for AIG, that Lexington’s responsibility would 

not begin until $7.5 million of losses. At 12:33 PM, sixteen 

minutes after she received the email from Welbourn, Mertz

emailed Creamer to walk back her earlier position: “My description of the underlying limits is incorrect. I incorrectly 

stated that RLI would pay $2m on this claim over $5.5m. The 

RLI policy has a $5m limit so Lexington would have any 

amount over $5m.” 

The question is whether Mertz’s temporary view during 

the morning of April 24, 2015 creates a genuine dispute as to 

a material fact such that a reasonable jury could return a verdict for AIG. See, e.g., Medical Protective Co. of Fort Wayne v. 

American Int’l Specialty Lines Ins. Co., 911 F.3d 438, 445 (7th Cir. 

2018). We think not. Mertz’s confusion, as well as the brokers’ 

statements that the language in the RLI Policy was difficult to 

parse, tends to confirm what we have already held: the Policy’s language was ambiguous in this respect. Mertz’s erroneous statements regarding the legal effect of language she had 

not negotiated did not address or rebut the objective evidence 

from 2011 to 2014 summarized above. 

To put it another way, Illinois courts clarify ambiguous 

contract language based on general circumstances around 

contract formation but only actual conduct subsequent to formation. See Szafranski v. Dunston, 34 N.E.3d 1132, 1157 (Ill. 

App. 2015). The April 24, 2015 statements from Mertz and the 

brokers were not conduct. All of New Prime’s concrete actions, in contrast, were consistent with RLI’s position in this 

lawsuit: Although New Prime originally advanced nearly 

$10 million in defense costs for the Herrera lawsuit, Mertz

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No. 19-1426 27

testified in the district court that it ultimately paid only the 

$5 million RLI Policy limit. AIG’s position would have 

obliged New Prime to pay $5.5 million of Herrera costs. New 

Prime’s conduct therefore supports RLI’s interpretation of the 

ACD. The April 24 emails do not present a genuine issue of 

material of fact that a jury would need to decide. 

To sum up, the language of the RLI Policy is ambiguous 

as applied to this dispute, but the extrinsic evidence compels 

summary judgment in favor of RLI. On this ground, the judgment of the district court is 

AFFIRMED. 

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