Source: http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326
Timestamp: 2017-03-26 17:45:57
Document Index: 22336004

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Is Self-Insurance Really Insurance? Uninsured Motorist and Personal Injury Protection Coverage Obligations for Self-Insurers - Part I/The Metropolitan Corporate Counsel | Williams Kastner - JDSupra
Is Self-Insurance Really Insurance? Uninsured Motorist and Personal Injury Protection Coverage Obligations for Self-Insurers - Part I/The Metropolitan Corporate Counsel
This article, “Is Self-Insurance Really Insurance? Uninsured and Personal Injury Protection Coverage Obligations for Self-Insurers," discusses the obligations of self-insurers relating to personal injury protection (PIP) and uninsured/underinsured motorist (UM) coverage. According to authors Teena Killian and John Fetters, “courts in Washington and California seem to rely heavily on the notion that they cannot create obligations for self-insurers in the area of UM and PIP…because to do so would be to usurp the function of the legislature.” The authors suggest that the governments of Washington and Oregon are best equipped for enacting UM and PIP coverage requirements, noting that Oregon’s mandatory UM and PIP coverage was created by its state legislature.
Download PDF In these tough economic times, many businesses are looking for ways to cut expenses. For many, self-insurance is one solution. Before switching to a system of self-insurance, it is important for businesses to understand the various obligations of self-insurers. For instance, is a self-insurer required to provide personal injury protection (“PIP”) or uninsured/underinsured motorist (“UM”) coverage? This article reviews Wa s h i n g t o n , Or e g o n , a n d California law as it relates to UM and PIP coverage and discusses the corresponding obligations of selfinsurers in those states.1 WHAT IS SELF-INSURANCE? The term “self-insurance” can be a bit of a misnomer because many view self-insurance as simply no insurance—i.e., all risks not otherwise insured are self-insured.2 Self-insurance, however, should be distinguished from what is known as “going bare.”3 Some commentators have noted that a true selfinsurance plan includes a fund based on projections of future losses.4 The plan identifies possible and actual claims so that money from the fund may be set aside to pay those claims if and when they come due.5 Choosing to self-insure may be a smart move, especially if a company has a large number of similar risks that are small in relation to the size of the business.6 Some of the benefits of self-insurance include greater control over funds and claims, the opportunity to earn Uniting Plaintiff, Defense, Insurance, and Corporate Counsel to Advance the Civil Justice System The SIRMon News From the Self-Insurers and Risk Managers Committee IN THIS ISSUE: Continued on page 6 Winter 2009 CommitteNeews Is Self-Insurance Really Insurance? UMAnd PIP Coverage Obligations For Self-Insurers.....................................1 Letter From The Chair-Elect..3 Quill Of The Editor .................4 Proper Policy: Excess Insurer Liability Following Settlements For Less .......................................5 2009 TIPS Calendar ..............10 IS SELF-INSURANCE REALLY INSURANCE? UM AND PIP COVERAGE OBLIGATIONS FOR SELF-INSURERS By: John Fetters and Teena Killian 1 There are several other regulatory issues that a business should consider before switching to a system of self-insurance. This article discusses the issue of a self-insurer’s UM and PIP obligations only. In addition, this article does not address the legal implications of using a system of “captive insurance,” where a business forms a wholly-owned insurance company subsidiary to insure the parent company’s risks. Ultimately, a business should seek the advice of experienced counsel before switching to an alternate system of insurance. 2 See 1A Steven Plitt et. al., Couch on Insurance § 10:1 (3d ed. 2007). 3 Alan D. Windt, Insurance Claims and Disputes § 11:31 (5th ed. 2007). 4 See, e.g., id. 5 Id. 6 Eric Mills Holmes et al., Appleman on Insurance §2.18 (2d ed. 1996). SIRMon From The Chair ......3 Committee e News Winter 2009 The SIRMon News From the Self-Insurers and Risk Managers Committee IS SELF-INSURANCE REALLY INSURANCE? UM AND PIP COVERAGE OBLIGATIONS FOR SELF-INSURERS By: John Fetters and Teena Killian In these tough economic times, WHAT IS SELF-INSURANCE? Choosing to self-insure may be many businesses are looking for a smart move, especially if a com-ways to cut expenses. For many, The term “self-insurance” can pany has a large number of similar self-insurance is one solution. be a bit of a misnomer because risks that are small in relation to the many view self-insurance as simply Before switching to a system of size of the business.6 Some of the no insurance—i.e., all risks not oth-self-insurance, it is important for benefits of self-insurance include businesses to understand the vari-erwise insured are self-insured.2 greater control over funds and Self-insurance, however, should be ous obligations of self-insurers. For claims, the opportunity to earn instance, is a self-insurer required distinguished from what is known as “going bare.”3 Some commenta-Continued on page 6 to provide personal injury protection ( “PIP ” ) or uninsured /tors have noted that a true selfinsurance plan includes a fund IN THIS ISSUE: underinsured motorist (“UM”) based on projections of future loss-coverage? This article reviews es.4 The plan identifies possible and Is Self-Insurance Really Wa s h i n g t o n , O r e g o n , a n d California law as it relates to UM actual claims so that money from Insurance? UM And PIP and PIP coverage and discusses the the fund may be set aside to pay Coverage Obligations For Selfthose claims if and when they come Insurers ... .1 corresponding obligations of self-due.5 insurers in those states.1 SIRMon From The Chair ......3 1There are several other regulatory issues that a business should consider before switching to a system of self-insur-Letter From The Chair-Elect..3 ance. This article discusses the issue of a self-insurer’s UM and PIP obligations only. In addition, this article does not address the legal implications of using a system of “captive insurance,” where a business forms a wholly-owned insur-Quill Of The Editor ... ..4 ance company subsidiary to insure the parent company’s risks. Ultimately, a business should seek the advice of experienced counsel before switching to an alternate system of insurance. 2 Proper Policy: Excess Insurer See 1A Steven Plitt et. al., Couch on Insurance § 10:1 (3d ed. 2007). 3Alan D. Windt, Insurance Claims and Disputes § 11:31 (5th ed. 2007). Liability Following Settlements 4See, e.g., id. For Less ... ...5 5Id. 6Eric Mills Holmes et al., Appleman on Insurance §2.18 (2d ed. 1996). 2009 TIPS Calendar ... ..10 Uniting Plaintiff, Defense, Insurance, and Corporate Counsel to Advance the Civil Justice System Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326SIRMon—From the Self-Insurers and Risk Managers Committee 2009 AON Global Risk Consulting 274-(Williams Kastner 628-(Angels Baseball LP 940-(Wolfe & Wynman LLP 475-AON Global Risk Consulting 9 274-(727-749-(247-Perkins Coie LLP 727-(Goodman & Jacobs LLP 385-(Brown Law Group 330-(brownlawgroup.Brown Brothers Harriman Trust Company NA 493-(Kilpatrick Stockton LLP 607 14th St 686-(kilpatrickstockton.Peterson & Colantoni 92694-481-(Hamilton Quigley & Twait 602-(Scott Insurance 832-(Golden Rothschild Spagnola et al 722-(2009 American St, Chicago, Illinois 60654; (reserved. the ABA, permission from the Tort Trial & Insurance Practice members of the Self-Insurers and Risk Managers Association — of interest by nonmembers. Neither the ABA, or The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 Chair Vice-Chairs Arthur D Perschetz Kilpatrick Stockton LLP Arnold F Mascali Jr Christopher Holmes Anderson Ste 900 AON Global Risk Consulting Ste 4650 60714th St NW 199 Water St 701 Fifth Ave Washington, DC 20005-2019 New York, NY 10038-3526 Seattle, WA 98104-7030 (202) 686-8624 (212) 274-9100 (206) 749-0094 Fax: (202) 966-9404 Fax: (212) 479-4672 Fax: (206) 749-0194 aperschetz@kilpatrickstockton.com arnold_mascali@aon.com chris@fsav.com Catherine Clarke Timothy A Peterson Chair-Elect Peterson & Colantoni 7823 Rustic Park Ste 100 Jessie Lee Harris San Antonio, TX 78240-5226 999 Corporate Dr Williams Kastner (706) 247-2811 Ladera Ranch, CA 92694-2149 Ste 4100 clarkec@gmail.com (949) 481-0400 601 Union St Sarah J Crooks Fax: (949) 481-0440 Seattle, WA 98101-2380 Perkins Coie LLP tpeterson@pcllp.net (206) 628-2436 Fl 10 Kevin Quigley Fax: (206) 628-6611 1120 NW Couch St jharris@williamskastner.com Hamilton Quigley & Twait Portland, OR 97209-4128 First Natl Bnk Bldg W Ste 1450 (503) 727-2252 332 Minnesota St Last Retiring Chair Fax: (503) 727-2222 Saint Paul, MN 55101-1314 David S Cohen scrooks@perkinscoie.com (612) 602-6262 Angels Baseball LP Judith F Goodman Fax: (612) 602-9976 2000 E Gene Autry Way Goodman & Jacobs LLP Dora Tartakovsky Anaheim, CA 92806-6143 Fl 30 # B (714) 940-2065 75 Broad St 2009 Hanover Pike Fax: (714) 940-2251 New York, NY 10004-2415 Hampstead, MD 21074-1321 david.cohen@angelsbb.com (212) 385-1191 dtart001@umaryland.edu Fax: (212) 385-1770 Law Student Vice-Chair Membership Vice-Chair jgoodman@goodmanjacobs.com Richard J Tugman Christophe D Greinke Ronald Hornback Scott Insurance Wolfe & Wynman LLP 5414 Garden Village Dr 1503 Clayton Ave Ste 1100 Kingwood, TX 77339-1262 Lynchburg, VA 24503-2313 5 Park Plz r3hornback@yahoo.com (434) 832-2134 Irvine, CA 92614-8502 Karina Juarez Fax: (434) 455 8862 (949) 475-9200 Brown Law Group rtugman@scottins.com Ste 1650 Christopher H Westrick Newsletter Vice-Chair 600 B St Golden Rothschild Spagnola et al San Diego, CA 92101-4517 James Tortorella 1011 Route 22 W (619) 330-1714 AON Global Risk Consulting PO Box 6881 Fax: (619) 330-1701 Fl 9 Bridgewater, NJ 08807-0881 juarez@brownlawgroup.com 199 Water St (908) 722-6300 New York, NY 10038-3551 Joseph Loporto Fax: (908) 722-0029 (212) 274-9100 Brown Brothers Harriman Trust Company NA cwestrick@grsl.com Fax: (212) 274-8575 140 Broadway james_tortorella@aonhorizon.com New York, NY 10005-1108 (212) 493-7245 Website Vice-Chair Fax: (212) 493-7200 joseph.loporto@bbh.com Daniel R Spragg 3519 Runnymeade Dr Newtown Square, PA 19073-3050 (610) 727-3973 dspragg@alvarezandmarsal.com ©2009 American Bar Association, Tort Trial & Insurance Practice Section, 321 N Clark St, Chicago, Illinois 60654; (312) 988-5607. All rights reserved. The opinions herein are the authors’ and do not necessarily represent the views or policies of the ABA, TIPS or the Self-Insurers and Risk Managers Committee. Articles should not be reproduced without written permission from the Tort Trial & Insurance Practice Section. Editorial Policy: This Newsletter publishes information of interest to members of the Self-Insurers and Risk Managers Committee of the Tort Trial & Insurance Practice Section of the American Bar Association — including reports, personal opinions, practice news, developing law and practice tips by the membership, as well as contributions of interest by nonmembers. Neither the ABA, the Section, the Committee, nor the Editors endorse the content or accuracy of any specific legal, personal, or other opinion, proposal or authority. Copies may be requested by contacting the ABA at the address and telephone number listed above. 2 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326The SIRMon—News From the Self-Insurers and Risk Managers Committee Winter 2009 3 Our Committee is off to a great start in 2009, and I am pleased to report on the progress on the goals set by our leadership. We planned to challenge ourselves in three key areas: to increase and diversify ourmembership; to better focus the spotlight on ourmission statement; and to educate our members and others on relevant and interesting topics. So far, we are on track on all three goals. We have connected our Committee with the Young Lawyers Division leadership to promote the benefits our members can offer that group.We are working on ways to facilitate communication with younger lawyers whomight be interested in self-insurance or insurance in general.Also, at a time when some younger lawyers might need to expand their network like never before, our experienced membership could play a vital role in mentoring and guiding them through the challenges in our profession. Much more to come on this. Conversations with many of you seem to suggest that our Committee has struggled to articulate a clear value proposition. Indeed, many cannot precisely state our mission statement. Of course, without clear direction, goals cannot be set, and metrics cannot be measured. We are working towards a more specific and simple mission statement that will help focus our Committee now and in the future. Finally, as I have stated often, our Committee members rank among the finest in our profession. As leaders within the insurance industry, we must take a role in educating other lawyers and insurance professionals on the latest developments in our field. Currently, we are planning a webinar for the spring and will also co-sponsor a program at the Annual Meeting in Chicago. We will continue to encourage all members to publish interesting and informative articles in our Newsletter, and look for ways to foster interaction among more members of our Committee. In sum, our Committee has maintained the momentum created over the last few years, and is looking to build upon that energy. We have a terrific group of leaders ready to take the reins in August, and an enthusiastic membership ready to take on more responsibility. As always, please drop me a note with your thoughts on how to improve our Committee, or just to keep in touch. Regards, Arnold (Arnie) Mascali AON Horizon Consultants Inc LETTER FROM THE CHAIR-ELECT Greetings! I had the pleasure of joining our Newsletter Editor James Tortorella at the ABA Annual Meeting in Boston. We attended a plenary session put on by the Scope and Correlation Committee. The plenary session was well attended and consisted of an overview of the strategic planning process and a discussion on the broader purpose and objectives of the General Committee structure. We then attended breakout sessions where Committee Chairs and Vice-Chairs in attendance were presented with the opportunity to iron out individual strategic plans. Our planning session was facilitated by our Scope Committee Liaison, James Young. James did a masterful job in helping us focus on SIRM’s many strengths and opportunities going forward. Upon completing our strategy session, we left with a great deal of enthusiasm and affirmation that our Committee, under the leadership of Arnold Mascali has been heading in the right direction. The Midyear Meeting also afforded us the opportunity to network with Vice-Chairs of other Committees with overlapping focus. Arnold Mascali and I intend to have further discussions with other Committees to explore ways we can collaborate on programs of mutual benefit. As always, we welcome your thoughts on ways to keep our Committee connected and moving forward! Best regards, Jessie L. Harris Williams KastnerSIRMON FROM THE CHAIR The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 SIRM ON FROM THE CHAIR Our Committee is off to a great start in 2009, and I am pleased to report on the progress on the goals set by our leadership. We planned to challenge ourselves in three key areas: to increase and diversify our membership; to better focus the spotlight on our mission statement; and to educate omuermbers and others on relevant and interesting topics. So far, we are on track on all three goals. We have connected our Committee with the Young Lawyers Division leadership to promote the benefits our members can offer that group. We are working on ways to facilitate communication with younger lawyers who might be interested in self-insurance or insurance in general.Also, at a time when some younger lawyers might need to expand their network like never before, our experienced membership could play a vital role in mentoring and guiding them through the challenges in our profession. Much more to come on this. Conversations with many of you seem to suggest that our Committee has struggled to articulate a clear value proposition. Indeed, many cannot precisely state our mission statement. Of course, without clear direction, goals cannot be set, and metrics cannot be measured. We are working towards a more specific and simple mission statement that will help focus our Committee now and in the future. Finally, as I have stated often, our Committee members rank among the finest in our profession. As leaders within the insurance industry, we must take a role in educating other lawyers and insurance professionals on the latest developments in our field. Currently, we are planning a webinar for the spring and will also co-sponsor a program the Annual Meeting in Chicago. We will continue to encourage all members to publish interesting and informative articles in our Newsletter, and look for ways to foster interaction among more members of our Committee. In sum, our Committee has maintained the momentum created over the last few years, and is looking to build upon that energy. We have a terrific group of leaders ready to take the reins in August, and an enthusiastic membership ready to take on more responsibility. As always, please drop me a note with your thoughts on how to improve our Committee, or just to keep in touch. Regards, Arnold (Arnie) Mascali AON Horizon Consultants Inc LETTER FROM THE CHAIR-ELECT Greetings! I had the pleasure of joining our Newsletter Editor James Tortorella at the ABA Annual Meeting in Boston. We attended a plenary session put on by the Scope and Correlation Committee. The plenary session was well attended and consisted of an overview of the strategic planning process and a discussion on the broader purpose and objectives of the General Committee structure. We then attended breakout sessions where Committee Chairs and Vice-Chairs in attendance were presented with the opportunity to iron out individual strategic plans. Our planning session was facilitated by our Scope Committee Liaison, James Young. James did a masterful job in helping us focus SIRM’s many strengths and opportunities going forward. Upon completing our strategy session, we left with a great deal of enthusiasm and affirmation that our Committee, under the leadership of Arnold Mascali has been heading in the right direction. The Midyear Meeting also afforded us the opportunity to network with Vice-Chairs of other Committees with overlapping focus. Arnold Mascali and I intend to have further discussions with other Committees to explore ways can collaborate on programs of mutual benefit. As always, we welcome your thoughts on ways to keep our Committee connected and moving forward! Best regards, Jessie L. Harris Williams Kastner 3 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 OF THE EDITOR Welcome to the Winter 2009 edition of the SIRMon. A few weeks ago I had the opportunity to attend a strategic planning session with Jessie Harris at the ABA Midyear Meeting in Boston. Together with our facilitator, James Young, we identified the strong foundation of our Committee as well as the potential opportunities for our Committee going forward. We are excited about this momentum and encourage all of our members to stay actively involved in building on this momentum. One such way to contribute is through our quarterly Newsletter, and I encourage everyone to submit materials for consideration to my attention. In this edition, we are pleased to highlight articles from Teena Killian and John Fetters on UM and PIP coverage obligations for self-insurers. In addition, we have a Quick Note by Louis Russo, which highlights a recent decision from California on the obligations of excess insurers when a primary layer settles for less than limits. Thank you for your support and please enjoy this edition of the SIRMon. James R. Tortorella Assistant Vice President Aon Inc New York, New York james_tortorella@aon.com Visit Us On The Web http://www.abanet.org/tips/selfrisk/home.html The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 QUILL OF THE EDITOR Welcome to the Winter 2009 edition of the SIRMon. A few weeks ago I had the opportunity to attend a strategic planning session with Jessie Harris at the ABA Midyear Meeting in Boston. Together with our facilitator, James Young, we identified the strong foundation of our Committee as well as the potential opportunities for our Committee going forward. We are excited about this momentum and encourage all of our members to stay actively involved in building on this momentum. One such way to contribute is through our quarterly Newsletter, and I encourage everyone to submit materials for consideration to my attention. In this edition, we are pleased to highlight articles from Teena Killian and John Fetters on UM and PIP coverage obligations for self-insurers. In addition, we have a Quick Note by Louis Russo, which highlights a recent decision from California on the obligations of excess insurers when a primary layer settles for less than limits. Thank you for your support and please enjoy this edition of the SIRMon. James R. Tortorella Assistant Vice President Aon Inc New York, New York james_tortorella@aon.com Visit Us On The Web http://www.abanet.org/tips/selfrisk/home.html 4 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 POLICY: EXCESS INSURER LIABILITY FOLLOWING FOR LESS By: Louis A. Russo1 An excess insurer typically becomes liable when the underlying primary policy is exhausted. In this context, settlements between insureds and primary insurers for less than policy limits create an interesting legal issue to be deciphered by the courts. Namely, should these settlements for less than the full value of the primary policy be deemed exhausted thereby triggering excess coverage? Many courts faced with this issue have answered affirmatively; however, the California Court of Appeal recently broke rank. In Qualcomm, Inc. v. Underwriters at Lloyd’s,2 Qualcomm, Incorporated (“Qualcomm”) was previously sued by several of its employees relating to the right to unvested stock options. These various suits ultimately cost Qualcomm $29 million to defend or settle. Qualcomm had a $20 million director and officer insurance policy with National Union Fire Insurance Company of Pittsburg, P.A. (“National Union”). Qualcomm also had a $20 million first layer excess policy (the “Policy”) with certain underwriters at Lloyd’s, London (“Lloyd’s”). The Policy contained a maintenance clause requiring Qualcomm to maintain the full underlying National Union policy limit and also a “Limit of Liability” provision stating that: This Policy provides excess coverage only. . . . This Policy does not provide coverage for any loss not covered by the [National Union policy] except and to the extent that such loss is not paid under the [National Union policy] solely by reason of the reduction or exhaustion of the Underlying Limit of Liability through payments of loss thereunder. . . . Lloyd’s shall be liable only after the insurers under each of the Underlying Policies have paid or have been held liable to pay the full amount of the Underlying Limit of Liability. [“Exhaustion Provision”]3 National Union’s total payout under the primary policy after settling with Qualcomm was $16 million ($4 million less than the full value of the policy). Qualcomm asked Lloyd’s to cover its remaining $9 million unreimbursed loss that exceeded the $20 million National Union policy limit. Lloyd’s refused. Qualcomm filed suit for breach of contract and sought a judicial declaration that the Policy had been triggered. Lloyd’s demurred, arguing that Qualcomm had failed to maintain and exhaust Qualcomm’s primary coverage, and therefore Lloyd’s excess policy had not been triggered. The trial court granted the demurrer finding that Qualcomm failed to maintain the National Union policy limit by settling for less than the full $20 million policy amount. At issue on appeal before the California Court of Appeal was whether primary insurance should be deemed exhausted and an excess carrier liable for losses exceeding the actual limits of underlying primary insurance, even where the primary insurer settled for less than the actual policy limits. On this point, the court addressed two distinct arguments which both focused on policy. Lloyd’s argued that the clear and unambiguous language of the Policy should control the court’s analysis. Coverage under the Policy had not been triggered, according to Lloyd’s, because National Union, by settling for $16 million, or 75% of the full value of its policy, had not truly “paid” or been “held liable” to pay the $20 million policy limit as was required by the Exhaustion Provision. Qualcomm, on the other hand, argued that such an interpretation was not required in light of the parties’ awareness of contrary authority existing at the time the Policy was issued (Zeig v. Massachusetts Bonding & Ins. Co.4 (“Zieg”) and its progeny in particular). Qualcomm argued that the parties’ awareness of such authority which broadly interpreted similar exhaustion clauses to include settlements for less was enough to create an ambiguity as to the parties’ understanding of the Exhaustion Provision, thus, making dismissal premature. The court disagreed. The court reasoned that there was no good reason why Lloyd’s should be imputed with knowledge of only the Zeig line of cases because there also was authority to it before the parties entered into the Policy in 1999. In addition, the court was not persuaded by Qualcomm’s reliance on Zeig. It disagreed with the 1 Mr. Russo is an associate in the Litigation and Dispute Resolution Department of Proskauer Rose LLP’s New York office. 2 3 4 23 F.2d 665 (2d Cir. 1928). The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 PROPER POLICY: EXCESS INSURER LIABILITY FOLLOWING SETTLEMENTS FOR LESS By: Louis A. Russo1 An excess insurer typically becomes liable when the Qualcomm filed suit for breach of contract and underlying primary policy is exhausted. In this context, sought a judicial declaration that the Policy had been settlements between insureds and primary insurers for triggered. Lloyd’s demurred, arguing that Qualcomm less than policy limits create an interesting legal issue had failed to maintain and exhaust Qualcomm’s prito be deciphered by the courts. Namely, should these mary coverage, and therefore Lloyd’s excess policy had settlements for less than the full value of the primary not been triggered. The trial court granted the demurrer policy be deemed exhausted thereby triggering excess finding that Qualcomm failed to maintain the National coverage? Many courts faced with this issue have Union policy limit by settling for less than the full $20 answered affirmatively; however, the California Court million policy amount. of Appeal recently broke rank. At issue on appeal before the California Court of In Qualcomm, Inc. v. Underwriters at Lloyd’s,2 Appeal was whether primary insurance should be Qualcomm, Incorporated (“Qualcomm”) was previous-deemed exhausted and an excess carrier liable for lossly sued by several of its employees relating to the right es exceeding the actual limits of underlying primary to unvested stock options. These various suits ultimate-insurance, even where the primary insurer settled for ly cost Qualcomm $29 million to defend or settle. less than the actual policy limits. On this point, the Qualcomm had a $20 million director and officer court addressed two distinct arguments which both focused on policy. insurance policy with National Union Fire Insurance Company of Pittsburg, P.A. (“National Union”). Lloyd’s argued that the clear and unambiguous lan-Qualcomm also had a $20 million first layer excess pol-guage of the Policy should control the court’s analysis. icy (the “Policy”) with certain underwriters at Lloyd’s, Coverage under the Policy had not been triggered, London (“Lloyd’s”). The Policy contained a mainte-according to Lloyd’s, because National Union, by setnance clause requiring Qualcomm to maintain the full tling for $16 million, or 75% of the full value of its polunderlying National Union policy limit and also a icy, had not truly “paid” or been “held liable” to pay the “Limit of Liability” provision stating that: $20 million policy limit as was required by the This Policy provides excess coverage only. . . Exhaustion Provision. This Policy does not provide coverage for any Qualcomm, on the other hand, argued that such an loss not covered by the [National Union policy] interpretation was not required in light of the parties’ except and to the extent that such loss is not paid awareness of contrary authority existing at the time the under the [National Union policy] solely by rea-Policy was issued (Zeig v. Massachusetts Bonding & son of the reduction or exhaustion of the Ins. Co.4 (“Zieg”) and its progeny in particular). Underlying Limit of Liability through payments Qualcomm argued that the parties’ awareness of such of loss thereunder. . . . Lloyd’s shall be liable authority which broadly interpreted similar exhaustion only after the insurers under each of the clauses to include settlements for less was enough to Underlying Policies have paid or have been held create an ambiguity as to the parties’ understanding of liable to pay the full amount of the Underlying the Exhaustion Provision, thus, making dismissal pre-Limit of Liability. [“[“Exhaustion Provision”]3 mature. The court disagreed. National Union’s total payout under the primary The court reasoned that there was no good reason policy after settling with Qualcomm was $16 million why Lloyd’s should be imputed with knowledge of ($4 million less than the full value of the policy). only the Zeig line of cases because there also was Qualcomm asked Lloyd’s to cover its remaining $9 authority to it before the parties entered into the Policy million unreimbursed loss that exceeded the $20 mil-in 1999. In addition, the court was not persuaded by lion National Union policy limit. Lloyd’s refused. Qualcomm’s reliance on Zeig. It disagreed with the 1Mr. Russo is an associate in the Litigation and Dispute Resolution Department of Proskauer Rose LLP’s New York office. 2 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008) 3 Emphasis supplied. 423 F.2d 665 (2d Cir. 1928). 5 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 Zeig court’s refusal to require absolute and actual collection of the primary insurance in interpreting the word “payment” in the exhaustion clause. Furthermore, the Zeig court admitted there may be circumstances where settlements for less might not trigger excess liability—where the excess policy explicitly required actual payment as a condition precedent to coverage. The court in Qualcomm believed the Exhaustion Provision, which required that National Union “have paid or have been held liable to pay the full amount,” fell squarely within this exception. Most troubling to the Qualcomm court, however, was the Zeig court’s focus on public policy. The Zeig court rejected an “unnecessarily stringent” standard of requiring actual collection of funds by the insured from the primary insurer because to do so “would in many, if not most, cases involve delay, promote litigation, and prevent an adjustment of disputes which is both convenient and commendable [-a] result harmful to the insured, and of no rational interest to the insurer.” Qualcomm argued that the court should consider giving these public policy concerns equal weight. In the end, the court refused citing its disapproval of the Zeig court’s placement of public policy concerns over the explicit language of the Exhaustion Provision. As a result, the California Court of Appeal ultimately affirmed the judgment of the trial court. interest on reserve funds, the possibility of administering the plan at a lower cost than a commercial insurer, and the ability to keep all monies saved where the loss experienced is less than the loss expected.In addition, a company can always cap its exposure by purchasing excess insurance or reinsurance to cover claims over a certain amount. SELF-INSURERS An issue can arise for a self-insurer where a selfinsured vehicle is involved in an accident with an uninsured or underinsured vehicle. Is the self-insurer obligated to provide PIP and/or UM coverage? Generally, every motor vehicle liability insurance policy must include PIP and UM coverage unless the named insured rejects the coverage in writing.8 For example, Washington law requires the following levels of PIP coverage: medical and hospital benefits of $10,000; funeral expense benefit of $2,000; income continuation benefits of $10,000, subject to a limit of $200 per week, and loss of services benefits of $5,000, subject to a limit of $200 per week.9 Typical coverage under a UM statute includes $25,000 for bodily injury or death of a person, $50,000 for bodily injury or death of two or more persons, and $10,000 for property damage.10 Courts in the majority of states have held that selfinsurance is not a “motor vehicle liability insurance policy.”11 As a result, additional insureds and third parties cannot make a claim against a self-insurer on the basis that, by virtue of the self-insured retention, it issued insurance in the amount of the retention.12 The majority of decisions hold that UM requirements apply only to insurance policies that have been “issued” as such.Because a certificate of self-insurance is not a liability policy and has not been issued, a self-insurer is not required to furnish UM coverage.14 For example, in Cann v. King County, a passenger injured on a King County, Washington, bus brought an action against the self-insured county to recover UM benefits.In response to the plaintiff’s argument that as a self-insurer, King County had a liability policy and was therefore required to provide UM coverage for its passengers, the court observed that the Washington State Supreme Court has held that self-insurance is not a liability policy under the UM statute.16 Self-insurance AND PIP... 7 1A Steven Plitt et. al., Couch on Insurance § 10:1 (3d ed. 2007). A variety of income and tax implications arise when a business decides to self-insure. Those considerations are not dealt with in this article. 8 See Wash. Rev. Code §§ 48.22.030, .085; Cal. Ins. Code §§ 11580, 11580.2. Oregon law allows the insured to elect, in writing, lower limits, so long as the election does not go below the prescribed amount to meet the requirements of Or. Rev. Stat. § 806.070 for bodily injury or death. See Or. Rev. Stat. § 742.502(2)(a). 9 Wash. Rev. Code § 48.22.095 10 See, e.g., Or. Rev. Stat. § 806.070. 11 See Cann v. King County, 86 Wash. App. 162, 937 P.2d 610 (1997); Thompson v. Estate of Pannell, 176 Or. App. 90, 29 P.3d 1184 (2001); O’Sullivan v. Salvation Army, 85 Cal. App. 3d 58, 147 Cal. Rptr. 729 (1978). 12 Alan D. Windt, Insurance Claims and Disputes § 11:31 (5th ed. 2007). 13 Automobile Liability Insurance § 19:26 (4th ed. 2008). 14 Id. 15 Cann v. King County, 86 Wash. App. 162, 937 P.2d 610 (1997). 16 Id. (citing Kyrkos v. State Farm Mut. Auto Ins. Co., 121 Wash. 2d 669, 674, 852 P.2d 1078 (1993)); Wash. Rev. Code § 48.22.030(1). The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 Zeig court’s refusal to require absolute and actual col-requiring actual collection of funds by the insured from lection of the primary insurance in interpreting the the primary insurer because to do so “would in many, if word “payment” in the exhaustion clause. Furthermore, not most, cases involve delay, promote litigation, and the Zeig court admitted there may be circumstances prevent an adjustment of disputes which is both conwhere settlements for less might not trigger excess lia-venient and commendable [-a] result harmful to the bility—where the excess policy explicitly required insured, and of no rational interest to the insurer.” actual payment as a condition precedent to coverage. Qualcomm argued that the court should consider giving The court in Qualcomm believed the Exhaustion these public policy concerns equal weight. In the end, Provision, which required that National Union “have the court refused citing its disapproval of the Zeig paid or have been held liable to pay the full amount,” court’s placement of public policy concerns over the fell squarely within this exception. explicit language of the Exhaustion Provision. Most troubling to the Qualcomm court, however, As a result, the California Court of Appeal ultimatewas the Zeig court’s focus on public policy. The Zeig ly affirmed the judgment of the trial court. court rejected an “unnecessarily stringent” standard of UM AND PIP... coverage under a UM statute includes $25,000 for Continued from page 1 bodily injury or death of a person, $50,000 for bodily injury or death of two or more persons, and $10,000 interest on reserve funds, the possibility of administer-for property damage.10 ing the plan at a lower cost than a commercial insurer, and the ability to keep all monies saved where the loss Courts in the majority of states have held that selfexperienced is less than the loss expected.7 In addition, insurance is not a “motor vehicle liability insurance a company can always cap its exposure by purchasing policy.”11 As a result, additional insureds and third parexcess insurance or reinsurance to cover claims over a ties cannot make a claim against a self-insurer on the certain amount. basis that, by virtue of the self-insured retention, it issued insurance in the amount of the retention.12 The PIP AND UM OBLIGATIONS FOR SELF-INSURERS majority of decisions hold that UM requirements apply An issue can arise for a self-insurer where a self-only to insurance policies that have been “issued” as insured vehicle is involved in an accident with an unin-such.13 Because a certificate of self-insurance is not a sured or underinsured vehicle. Is the self-insurer obli-liability policy and has not been issued, a self-insurer is gated to provide PIP and/or UM coverage? not required to furnish UM coverage.14 Generally, every motor vehicle liability insurance For example, in Cann v. King County, a passenger policy must include PIP and UM coverage unless the injured on a King County, Washington, bus brought an named insured rejects the coverage in writing.8 For action against the self-insured county to recover UM example, Washington law requires the following lev-benefits.15 In response to the plaintiff’s argument that as els of PIP coverage: medical and hospital benefits of a self-insurer, King County had a liability policy and $10,000; funeral expense benefit of $2,000; income was therefore required to provide UM coverage for its continuation benefits of $10,000, subject to a limit of passengers, the court observed that the Washington $200 per week, and loss of services benefits of State Supreme Court has held that self-insurance is not $5,000, subject to a limit of $200 per week.9 Typical a liability policy under the UM statute.16 Self-insurance 7 1A Steven Plitt et. al., Couch on Insurance § 10:1 (3d ed. 2007). A variety of income and tax implications arise when a business decides to self-insure. Those considerations are not dealt with in this article. 8 See Wash. Rev. Code §§ 48.22.030, .085; Cal. Ins. Code §§ 11580, 11580.2. Oregon law allows the insured to elect, in writing, lower limits, so long as the election does not go below the prescribed amount to meet the requirements of Or. Rev. Stat. § 806.070 for bodily injury or death. See Or. Rev. Stat. § 742.502(2)(a). 9 Wash. Rev. Code § 48.22.095 10 See, e.g., Or. Rev. Stat. § 806.070. 11 See Cann v. King County, 86 Wash. App. 162, 937 P.2d 610 (1997); Thompson v. Estate of Pannell, 176 Or. App. 90, 29 P.3d 1184 (2001); O’Sullivan v. Salvation Army, 85 Cal. App. 3d 58, 147 Cal. Rptr. 729 (1978). 12 Alan D. Windt, Insurance Claims and Disputes § 11:31 (5th ed. 2007). 13 Automobile Liability Insurance § 19:26 (4th ed. 2008). 14 Id. 15 Cann v. King County, 86 Wash. App. 162, 937 P.2d 610 (1997). 16 Id. (citing Kyrkos v. State Farm Mut. Auto Ins. Co., 121 Wash. 2d 669, 674, 852 P.2d 1078 (1993)); Wash. Rev. Code § 48.22.030(1). 6 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 does not involve the type of third party relationship that insurance policies contemplate.17 Therefore, the County, as a self-insurer, had no liability policy and no duty to provide UM coverage.18 The Washington Supreme Court, in Kyrkos v. State Farm Mut. Auto Ins. Co., discussed why self-insurers have no duty to provide UM coverage. Wash. Rev. Code § 48.01.040 defines “insurance” as “a contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies.”19 Self-insurance does not involve this type of third party arrangement: Self-insurance is a misnomer. It is not insurance, but instead is one of four methods by which a person can satisfy the financial responsibility statute. Consequently, the certificate of selfinsurance cannot be considered a “policy” for the purposes of underinsured motorist coverage requirements under the statute.20 The Kyrkos court held that an exclusion contained in the policy—purporting to exclude vehicles owned or operated by a self-insurer up to the extent that bodily injury UM limits were payable—was void.21 The court emphasized that the exclusion impermissibly denied coverage “when the [UM] statute, by its terms, requires coverage.”The court also noted that “the Legislature has not authorized these exclusions in defining underinsured motorists even though it has amended the statute a number of times, including authorization of specific exclusions.”23 Likewise, requiring self-insurers to provide UM coverage in California would require courts in that state to exceed the limits of statutory interpretation and legislate in the area of financial responsibility.24 For example, Glens Falls Ins. Co. v. Consolidated Freightways, involved a self-insured common carrier engaged in the trucking business.25 There, the court noted that Defendant Consolidated was not an insurance carrier.26 Consolidated is merely an authorized selfinsurer or, to put it more exactly, a company to which the motor vehicle department has issued a certificate of self-insurance. Neither the Vehicle Code sections referring to self-insurance (§§ 16055, 16056) nor any other sections of said code contain any provisions that such certificate is or constitutes a policy of motor vehicle liability insurance or that said certificate shall be deemed to incorporate or embrace [sic] provisions required in such policies (§ 16451). Indeed the Vehicle Code nowhere intimates any connection between section 16451 and sections 16055, 16056. A certificate of self-insurance is not a motor vehicle liability policy of insurance.27 “While an extension of the uninsured motorist concept to self-insurers may [ ] have persuasive social virtues, to date the Legislature in its wisdom has not seen fit to require that of self-insurers.”28 Oregon courts also hold that self-insurance is not a “motor vehicle liability insurance policy.29 The Oregon financial responsibility statute, however, provides specific coverage obligations for self-insurers. For example, in Thompson v. Estate of Pannell,30 the court construed the following statutes: Or. Rev. Stat. § 806.010 provides for the offense of “driving uninsured,” that is, driving while not in compliance with the motor vehicle-related “financial responsibility” requirements. Or. Rev. Stat. § 806.060 sets out methods by which the financial responsibility requirements can be satisfied. It provides, in part: (1) To meet the financial responsibility requirements, a person must be able to respond in damages in amounts not less than those established under the payment schedule under ORS 806.070. (2) A person may only comply with the financial responsibility requirements of this state 17 18 19 Kyrkos v. State Farm Mut. Auto Ins. Co., 121 Wash. 2d 669, 674, 852 P.2d 1078 (1993). 20 674–21 Id. at 672. 22 23 Id. at 673. Interestingly, the Court did not address the fact that the Washington State Office of the Insurance Commissioner had presumably approved the policy at issue in Kyrkos. 24 O’Sullivan, 85 Cal. App. 3d at 62. 25 Glens Falls Ins. Co. v. Consol. Freightways, 242 Cal. App. 2d 774, 785, 51 Cal. Rptr. 789 (1966). 26 Id. at 785. 27 28 O’Sullivan, 85 Cal. App. 3d at 62. 29 See Thompson, 176 Or. App. at 97. 30 176 Or. App. 90, 29 P.3d 1184 (2001). The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 does not involve the type of third party relationship that Consolidated is merely an authorized selfinsurance policies contemplate.17 Therefore, the insurer or, to put it more exactly, a company to County, as a self-insurer, had no liability policy and no which the motor vehicle department has issued a duty to provide UM coverage.18 certificate of self-insurance. Neither the Vehicle The Washington Supreme Court, in Kyrkos v. State Code sections referring to self-insurance (§§ Farm Mut. Auto Ins. Co., discussed why self-insurers 16055, 16056) nor any other sections of said code contain any provisions that such certificate have no duty to provide UM coverage. Wash. Rev. Code § 48.01.040 defines “insurance” as “a contract is or constitutes a policy of motor vehicle liabilwhereby one undertakes to indemnify another or pay a ity insurance or that said certificate shall be specified amount upon determinable contingencies.”19 deemed to incorporate or embrace [sic] provisions required in such policies (§ 16451). Indeed Self-insurance does not involve this type of third party the Vehicle Code nowhere intimates any connecarrangement: tion between section 16451 and sections 16055, Self-insurance is a misnomer. It is not insurance, 16056. A certificate of self-insurance is not a but instead is one of four methods by which a motor vehicle liability policy of insurance.27 person can satisfy the financial responsibility “While an extension of the uninsured motorist constatute. Consequently, the certificate of self-cept to self-insurers may [ ] have persuasive social insurance cannot be considered a “policy” for virtues, to date the Legislature in its wisdom has not the purposes of underinsured motorist coverage seen fit to require that of self-insurers.”28 requirements under the statute.20 Oregon courts also hold that self-insurance is not a The Kyrkos court held that an exclusion contained “motor vehicle liability insurance policy.29 The Oregon in the policy—purporting to exclude vehicles owned or financial responsibility statute, however, provides speoperated by a self-insurer up to the extent that bodily cific coverage obligations for self-insurers. For examinjury UM limits were payable—was void.21 The court ple, in Thompson v. Estate of Pannell,30 the court conemphasized that the exclusion impermissibly denied strued the following statutes: coverage “when the [UM] statute, by its terms, requires Or. Rev. Stat. § 806.010 provides for the offense coverage.”22 The court also noted that “the Legislature of “driving uninsured,” that is, driving while not has not authorized these exclusions in defining underin compliance with the motor vehicle-related insured motorists even though it has amended the “financial responsibility” requirements. Or. Rev. statute a number of times, including authorization of Stat. § 806.060 sets out methods by which the specific exclusions.”23 financial responsibility requirements can be sat-Likewise, requiring self-insurers to provide UM isfied. It provides, in part: coverage in California would require courts in that state (1) To meet the financial responsibility to exceed the limits of statutory interpretation and leg-requirements, a person must be able to islate in the area of financial responsibility.24 For exam-respond in damages in amounts not less than ple, Glens Falls Ins. Co. v. Consolidated Freightways, those established under the payment schedule involved a self-insured common carrier engaged in the under ORS 806.070. trucking business.25 There, the court noted that Defendant Consolidated was not an insurance carrier.26 (2) A person may only comply with the financial responsibility requirements of this state 17 Id. at 164. 18 Id. at 163. 19 Kyrkos v. State Farm Mut. Auto Ins. Co., 121 Wash. 2d 669, 674, 852 P.2d 1078 (1993). 20 Id. at 674-75. 21 Id. at 672. 22 Id. 23 Id. at 673. Interestingly, the Court did not address the fact that the Washington State Office of the Insurance Commissioner had presumably approved the policy at issue in Kyrkos. 24 O’Sullivan, 85 Cal. App. 3d at 62. 25 Glens Falls Ins. Co. v. Consol. Freightways, 242 Cal. App. 2d 774, 785, 51 Cal. Rptr. 789 (1966). 26 Id. at 785. 27 Id. 28 O’Sullivan, 85 Cal. App. 3d at 62. 29 See Thompson, 176 Or. App. at 97. 30 176 Or. App. 90, 29 P.3d 1184 (2001). 7 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 by establishing the required ability to respond in damages in one of the following ways: (a) Obtaining a motor vehicle liability policy meeting the requirements under ORS 806.080 that will provide at least minimum limits necessary to pay amounts established under the payment schedule under ORS 806.070. . . . (d) Becoming self-insured as provided under ORS 806.130. Or. Rev. Stat. § 806.070 provides that an insurance policy described under Or. Rev. Stat. § 806.080 must provide for payment of at least $25,000 because of bodily injury to or death of any one person in any one accident. Or. Rev. Stat. § 806.130 sets out requirements for self-insurers.A self-insurer must obtain a “certificate of self-insurance” from the Department of Transportation and must “[a]gree to pay the same amounts with respect to an accident occurring while the certificate [of selfinsurance] is in force that an insurer would be obligated to pay under a motor vehicle liability insurance policy, including uninsured motorist coverage and liability coverage to at least the limits specified in ORS 806.070.” The Thompson court held that based on a reading of the above statutes, the requirements for a “motor vehicle liability insurance policy” apply to self-insurers only to the extent that those requirements are made applicable to self-insurance by operation of Or. Rev. Stat. § 806.130 or other statutes setting out requirements for self-insurance.31 Or. Rev. Stat. § 806.130(3) requires that self-insurers provide UM and PIP coverage to at least the limits set out in Or. Rev. Stat. § 806.070.32 It is important to note, however, that in Oregon, just because a self-insurer agrees to provide the same level of UM and PIP coverage that a commercial insurer would be obligated to pay, it does not mean that selfinsurer provides same “scope of coverage” required in an insurance policy under Or. Rev. Stat. § 806.080(1)(b).Or. Rev. Stat. § 806.080(1)(b) provides the following requirement: [The motor vehicle liability insurance policy] must insure the named insured and all other persons insured under the terms of the policy against loss from the liabilities imposed by law for damages arising out of the ownership, operation, use or maintenance of those motor vehicles by persons insured under the policy. The policy must include in its coverage all persons who, with the consent of the named insured, use the motor vehicles insured under the policy, except for any person specifically excluded from coverage under ORS 742.450.34 Or. Rev. Stat. § 806.130, which controls the minimum coverage amounts that self-insurers must provide, makes no reference to Or. Rev. Stat. § 806.080.35 Section 806.080 applies “only to insurers who issue insurance policies insuring others against risk in consideration of premiums.”36 Thus, even though self-insurers in Oregon are required to provide UM and PIP coverage at least to the limits set out in § 806.070, they are not required to provide “omnibus coverage” under § 806.080. DROP DOWN” COVERAGE FOR EXCESS-Another question can arise when self-insurers purchase excess or umbrella insurance to cap their exposure to cover claims over a certain amount. In such a case, is the excess insurer required to “drop down” to provide PIP or UM benefits? The Washington UM statute provides, in pertinent part, that: The coverage required to be offered under this chapter is not applicable to general liability policies, commonly known as umbrella policies, or other policies which apply only as excess to the insurance directly applicable to the vehicle insured.37 In MacKenzie v. Empire Ins. Cos.,38 the Washington Supreme Court concluded that “a comprehensive automobile liability insurance endorsement contained in a special multi-peril policy is exempt from Washington’s [UM] statute insofar as such insurance policy merely 31 Thompson, 176 Or. App. at 98. 32 Id. 33 Farmers Ins. Co. of Oregon v. Snappy Car Rental, Inc., 128 Or. App. 516, 519, 876 P.2d 833 (1994). 34 Or. Rev. Stat. § 806.080(1)(b). 35 Snappy Car Rental, Inc., 128 Or. App. at 521. 36 Id. 37 Wash. Rev. Code § 48.22.030(2). 38 113 Wash. 2d 754. 782 P.2d 1063 (1989). The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 by establishing the required ability to respond § 806.080(1)(b).33 Or. Rev. Stat. § 806.080(1)(b) proin damages in one of the following ways: vides the following requirement: (a) Obtaining a motor vehicle liability pol-[The motor vehicle liability insurance policy] icy meeting the requirements under ORS must insure the named insured and all other per-806.080 that will provide at least mini-sons insured under the terms of the policy mum limits necessary to pay amounts against loss from the liabilities imposed by law established under the payment schedule for damages arising out of the ownership, operaunder ORS 806.070. tion, use or maintenance of those motor vehicles by persons insured under the policy. The policy must include in its coverage all persons who, (d) Becoming self-insured as provided with the consent of the named insured, use the under ORS 806.130. motor vehicles insured under the policy, except Or. Rev. Stat. § 806.070 provides that an insurance for any person specifically excluded from coverage under ORS 742.450.34 policy described under Or. Rev. Stat. § 806.080 must provide for payment of at least $25,000 because of bod-Or. Rev. Stat. § 806.130, which controls the miniily injury to or death of any one person in any one mum coverage amounts that self-insurers must provide, accident. makes no reference to Or. Rev. Stat. § 806.080.35 8S0e6ct.i0o8n0 applies “only to insurers who issue insurance Or. Rev. Stat. § 806.130 sets out requirements for self-insurers. A self-insurer must obtain a “certificate of policies insuring others against risk in consideration of self-insurance” from the Department of Transportation premiums.”36 Thus, even though self-insurers in Oregon and must “[a]gree to pay the same amounts with respect are required to provide UM and PIP coverage at least to to an accident occurring while the certificate [of self-the limits set out in § 806.070, they are not required to insurance] is in force that an insurer would be obligat-provide “omnibus coverage” under § 806.080. ed to pay under a motor vehicle liability insurance pol-“DROP DOWN” COVERAGE REQUIREMENTS icy, including uninsured motorist coverage and liability FEOXCRESS-INSURERS coverage to at least the limits specified in ORS 806.070.” Another question can arise when self-insurers purchase excess or umbrella insurance to cap their expo-The Thompson court held that based on a reading of sure to cover claims over a certain amount. In such a the above statutes, the requirements for a “motor vehi-case, is the excess insurer required to “drop down” to cle liability insurance policy” apply to self-insurers provide PIP or UM benefits? The Washington UM only to the extent that those requirements are made statute provides, in pertinent part, that: applicable to self-insurance by operation of Or. Rev. Stat. § 806.130 or other statutes setting out require-The coverage required to be offered under this ments for self-insurance.31 Or. Rev. Stat. § 806.130(3) chapter is not applicable to general liability polirequires that self-insurers provide UM and PIP cover-cies, commonly known as umbrella policies, or age to at least the limits set out in Or. Rev. Stat. § other policies which apply only as excess to the 806.070.32 insurance directly applicable to the vehicle insured.37 It is important to note, however, that in Oregon, just because a self-insurer agrees to provide the same level In MacKenzie v. Empire Ins. Cos.,38 the Washington of UM and PIP coverage that a commercial insurer Supreme Court concluded that “a comprehensive autowould be obligated to pay, it does not mean that self-mobile liability insurance endorsement contained in a insurer provides same “scope of coverage” required special multi-peril policy is exempt from Washington’s in an insurance policy under Or. Rev. Stat. [UM] statute insofar as such insurance policy merely 31 Thompson, 176 Or. App. at 98. 32 Id. 33 Farmers Ins. Co. of Oregon v. Snappy Car Rental, Inc., 128 Or. App. 516, 519, 876 P.2d 833 (1994). 34 Or. Rev. Stat. § 806.080(1)(b). 35 Snappy Car Rental, Inc., 128 Or. App. at 521. 36 Id. 37 Wash. Rev. Code § 48.22.030(2). 38 113 Wash. 2d 754. 782 P.2d 1063 (1989). 8 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 provides coverage in excess of the primary automobile coverage.”39 The court so held despite plaintiff’s argument that there is a general public policy underlying the UM statute of increasing the public’s protection against automobile accidents. While recognizing the existence of this general policy, the MacKenzie court stated that it “is not sufficient by itself to justify our disregarding the carefully reasoned and well-supported holding in Thompson v. Grange Association.”40 The Thompson court had reasoned that “catastrophic-type policies pick up where primary coverages end.”“They provide coverage excess to that provided by the primary policies.”42 The Thompson court held, therefore, that Washington’s UM statute did not apply to a “catastrophe” or “umbrella” policy.43 In discussing Thompson and other applicable authorities, the MacKenzie court noted that “umbrella” policies, a type of excess coverage, are different in nature than primary liability coverage: Umbrella policies serve an important function in the industry. In this day of uncommon, but possible, enormous verdicts, they pick up this exceptional hazard at a small premium . . . it may assume as a primary carrier certain coverage not included elsewhere, such as invasion of privacy, false arrest, etc., but there is no intention to supplant the basic carriers on the homeowners or automobile coverages. Therefore, these should not even enter into our current consideration [of UM coverage].44 The MacKenzie court went on to observe that the Appleman treatise had “conceded” that some courts have held to the contrary, but concluded that “those decisions reflect a ‘misunderstanding of the courts as to the nature of such coverages.’”45 The MacKenzie court also discussed the fact that in 1985, subsequent to the accident that resulted in the Thompson litigation, the Washington legislature had amended the UM statute to, “in effect, write the Thompson holding into the [UM] statute.”46 The amendment added the above-quoted language exempting excess carriers from the UM requirements embodied in Wash. Rev. Code § 48.22.030.47 California law is generally on par with Washington Law. For example, in Wiemann v. Indus. Underwriters Ins. Co., the court observed that the California legislature specifically exempted excess or umbrella insurers from the obligations of Cal. Ins. Code § 11580.2: (a)(1) No policy of bodily injury liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle . . . shall be issued . . . unless the policy contains, or has added to it by endorsement, a provision . . . insuring the insured . . . for all sums within such limits which he . . . shall be legally entitled to recover as damages for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle. . . . A policy shall be excluded from the application of this section . . . if the automobile liability coverage is provided only on an excess or umbrella basis.48 Thus, subject to the terms of the excess policy, generally, an excess insurer’s coverage becomes applicable only when the self-insurer’s liability exceeds its selfinsured retention.49 Of particular note, was the court’s holding in Wiemann that an excess insurer is not required to provide UM coverage, even when the insured was not registered with the California Department of Motor Vehicles as a self-insured entity.50 The court held that the insured’s failure to obtain a valid DMV certificate as a self-insurer did not create an obligation on the part of the excess insurer to provide UM coverage.51 The court stated, “[p]etitioner has not supplied this court, nor has our research disclosed, any statutory or decisional law which imposes on an excess carrier [ ] the duty to supply uninsured motorist coverage or to 39 Id. at 760. 40 Id. (citing Thompson v. Grange Association, 34 Wash. App. 151, 660 P.2d 307, rev. denied, 99 Wash. 2d 1011 (1983)). 41 MacKenzie, 113 Wash. 2d at 759 (citing Thompson, 34 Wash. App at 156–157). 42 Id. 43 Id. 44 Id. at 757-58 (citing Appleman, Insurance § 5071.65 at 107). 45 Id. at 758 (citing Appleman, Insurance § 5071.65 at § 5071.65). 46 Id. at 759. 47 Id. 48 Wiemann v. Indus. Underwriters Ins. Co., 177 Cal. App. 3d 38, 41, 222 Cal. Rptr. 705 (1986) (citing Cal. Ins. Code § 11580.2(a)(1)) (court’s emphasis). 49 Id. at 43, ft. 2 (citing O’Sullivan v. Salvation Army, 85 Cal. App. 3d 58, 147 Cal. Rptr. 729 (1978). 50 Id. 51 Id. The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 provides coverage in excess of the primary automobile amended the UM statute to, “in effect, write the coverage.”39 Thompson holding into the [UM] statute.”46 The amendment added the above-quoted language exempt-The court so held despite plaintiff’s argument that ing excess carriers from the UM requirements embod-there is a general public policy underlying the UM ied in Wash. Rev. Code § 48.22.030.47 statute of increasing the public’s protection against automobile accidents. While recognizing the existence California law is generally on par with Washington of this general policy, the MacKenzie court stated that Law. For example, in Wiemann v. Indus. Underwriters it “is not sufficient by itself to justify our disregarding Ins. Co., the court observed that the California legislathe carefully reasoned and well-supported holding in ture specifically exempted excess or umbrella insurers Thompson v. Grange Association.”40 The Thompson from the obligations of Cal. Ins. Code § 11580.2: court had reasoned that “catastrophic-type policies pick (a)(1) No policy of bodily injury liability insurup where primary coverages end.”41 “They provide covance covering liability arising out of the ownererage excess to that provided by the primary policies.”42 ship, maintenance, or use of any motor vehicle . The Thompson court held, therefore, that Washington’s . . shall be issued . . . unless the policy contains, UM statute did not apply to a “catastrophe” or “umbrel-or has added to it by endorsement, a provision . . la” policy.43 . insuring the insured . . . for all sums within such In discussing Thompson and other applicable limits which he . . . shall be legally entitled to authorities, the MacKenzie court noted that “umbrella” recover as damages for bodily injury or wrongful policies, a type of excess coverage, are different in death from the owner or operator of an uninsured nature than primary liability coverage: motor vehicle. . . . A policy shall be excluded Umbrella policies serve an important function in from the application of this section . . . if the automobile liability coverage is provided only on the industry. In this day of uncommon, but posan excess or umbrella basis.48 sible, enormous verdicts, they pick up this exceptional hazard at a small premium . . . it may Thus, subject to the terms of the excess policy, genassume as a primary carrier certain coverage not erally, an excess insurer’s coverage becomes applicable included elsewhere, such as invasion of privacy, only when the self-insurer’s liability exceeds its selffalse arrest, etc., but there is no intention to sup-insured plant the basic carriers on the homeowners or retention.49 Of particular note, was the court’s holding in automobile coverages. Therefore, these should Wiemann that an excess insurer is not required to pronot even enter into our current consideration [of vide UM coverage, even when the insured was not reg-UM coverage].44 istered with the California Department of Motor The MacKenzie court went on to observe that the Vehicles as a self-insured entity.50 The court held that Appleman treatise had “conceded” that some courts the insured’s failure to obtain a valid DMV certificate have held to the contrary, but concluded that “those as a self-insurer did not create an obligation on the part decisions reflect a ‘misunderstanding of the courts as to of the excess insurer to provide UM coverage.51 The the nature of such coverages.’”45 court stated, “[p]etitioner has not supplied this court, The MacKenzie court also discussed the fact that in nor has our research disclosed, any statutory or deci1985, subsequent to the accident that resulted in the sional law which imposes on an excess carrier [ ] the Thompson litigation, the Washington legislature had duty to supply uninsured motorist coverage or to 39 Id. at 760. 40 Id. (citing Thompson v. Grange Association, 34 Wash. App. 151, 660 P.2d 307, rev. denied, 99 Wash. 2d 1011 (1983)). 41 MacKenzie, 113 Wash. 2d at 759 (citing Thompson, 34 Wash. App at 156-157). 42 Id. 43 Id. 44 Id. at 757-58 (citing Appleman, Insurance § 5071.65 at 107). 45 Id. at 758 (citing Appleman, Insurance § 5071.65 at § 5071.65). 46 Id. at 759. 47 Id. 48 Wiemann v. Indus. Underwriters Ins. Co., 177 Cal. App. 3d 38, 41, 222 Cal. Rptr. 705 (1986) (citing Cal. Ins. Code § 11580.2(a)(1)) (court’s emphasis). 49 Id. at 43, ft. 2 (citing O’Sullivan v. Salvation Army, 85 Cal. App. 3d 58, 147 Cal. Rptr. 729 (1978). 50 Id. 51 Id. 9 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326— From the Self-Insurers and Risk Managers Committee 2009 require its self-insured policyholder [ ] to first obtain such a certificate from the DMV before issuing an excess coverage policy.”52 In Oregon, whether an excess insurer is obligated to “drop down” to provide UM or PIP benefits does not appear to be an issue. The Oregon financial responsibility statute provides that self-insurers must “[a]gree to pay the same amounts with respect to an accident occurring while the certificate [of self-insurance] is in force that an insurer would be obligated to pay under a motor vehicle liability insurance policy, including uninsured motorist coverage and liability coverage to at least the limits specified in ORS 806.070.”53 Thus, there would never be a need for the excess insurer to “drop down” to pay the required UM or PIP benefits because the self-insurer is already obligated to do so. Courts in Washington and California seem to rely heavily on the notion that they cannot create obligations for self-insurers in the area of UM and PIP coverage, no matter how socially desirable, because to do so would be to usurp the function of the legislature. Perhaps those states’ legislatures will follow the Oregon state legislature’s lead and create UM and PIP coverage requirements for self-insurers. At any rate, courts in all three states are in agreement that a selfinsurer does not, by virtue of its status, issue a “motor vehicle liability insurance policy.” John Fetters is an Associate in the Seattle office of Williams Kastner. His practice focuses on business litigation. Teena Killian is Of Counsel in the Seattle office of Williams Kastner. She concentrates her practice on complex commercial litigation including insurance coverage disputes, on behalf of both policyholders and insurers, and professional liability litigation, with emphasis on attorney malpractice and ethics issues. 52 Id. 53 Or. Rev. Stat. § 806.130. 2009 TIPS CALENDAR Topics in Energy Resource Site Teleconference and Litigation on Lands 13 and Employment Law 2009 InterContinental Seminar & Conference of Orleans, LA Workers Compensation Committee 25 National Trial Academy Sierra Hotel NV 3 Issues Motor Biltmore Resort & Spa Litigation AZ The SIRMon — News From the Self-Insurers and Risk Managers Committee Winter 2009 require its self-insured policyholder [ ] to first obtain obligations for self-insurers in the area of UM and PIP such a certificate from the DMV before issuing an coverage, no matter how socially desirable, because to excess coverage policy.”52 do so would be to usurp the function of the legislature. In Oregon, whether an excess insurer is obligated to Perhaps those states’ legislatures will follow the Oregon state legislature’s lead and create UM and PIP “drop down” to provide UM or PIP benefits does not appear to be an issue. The Oregon financial responsi-coverage requirements for self-insurers. At any rate, bility statute provides that self-insurers must “[a]gree to courts in all three states are in agreement that a selfinsurer does not, by virtue of its status, issue a “motor pay the same amounts with respect to an accident occurring while the certificate [of self-insurance] is in vehicle liability insurance policy.” force that an insurer would be obligated to pay under a John Fetters is an Associate in the Seattle office of Williams motor vehicle liability insurance policy, including unin-Kastner. His practice focuses on business litigation. sured motorist coverage and liability coverage to at Teena Killian is Of Counsel in the Seattle office of Williams least the limits specified in ORS 806.070.”53 Thus, there Kastner. She concentrates her practice on complex commercial litwould never be a need for the excess insurer to “drop igation including insurance coverage disputes, on behalf of both policyholders and insurers, and professional liability litigation, with down” to pay the required UM or PIP benefits because emphasis on attorney malpractice and ethics issues. the self-insurer is already obligated to do so. CONCLUSION Courts in Washington and California seem to rely heavily on the notion that they cannot create 52 Id. 53 Or. Rev. Stat. § 806.130. 2009 TIPS CALENDAR March 10 Hot Topics in Energy Resource Multi-Site Teleconference Development and Litigation on Tribal Lands 10-13 Labor and Employment Law 2009 Hotel InterContinental Midwinter Seminar & Conference of New Orleans, LA the Workers Compensation Committee 21-25 TIPS National Trial Academy Grand Sierra Hotel Reno, NV April 2-3 Emerging Issues Motor Arizona Biltmore Resort & Spa Vehicle Litigation Phoenix, AZ 10 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=e5390b0e-2ea2-48a8-99db-4d5894da3326