Opinion ID: 1714942
Heading Depth: 2
Heading Rank: 4

Heading: Gerling's Arguments Concerning Payment of the SIR Amount

Text: Gerling also argues that it did not owe Dorsey coverage because Dorsey did not pay the required SIR amount. In pertinent part, the Self-Insured Retention Endorsement-C of the Gerling policies states: 1. Our obligation to pay those sums that you become legally obligated to pay as damages applies only to the amount of damages in excess of any Self-Insured Retention stated in the Schedule above [$250,000] to which the Policy would otherwise apply, subject to the limits of Insurance set forth in the Declarations of the policy to which this Endorsement applies and the `occurrence' to which the Policy applies. .... 4. You [Dorsey] shall be responsible for the investigation, defense and settlement of any `claim' or `suit' for damages with the Self-Insured retention, and for the payment of all `Allocated Loss Adjustment Expenses.' You shall exercise the utmost good faith, diligence and prudence to settle all `claims' and `suits' within the Self-Insured Retention. We shall have the right but not the duty to participate with you at our own expense in the defense or settlement of any `claim' or `suit' seeking damages covered under the Policy. In the event of a `claim or `suit' which in our reasonable judgment may result in payments, including `Allocated Loss Adjustment Expenses,' in an amount in excess of the Self-Insured Retention, we may, at our sole discretion, assume control of the defense or settlement of such `claim' or `suit.' You will continue to be responsible for the payment of the Self-Insured Retention. 5. We shall only be liable for losses covered under the Policy up to the Limits of Insurance in excess of the Self-Insured Retention listed in the Schedule hereof, whether or not such Self-Insured Retention is recoverable or collectible. In the summary-judgment order, the circuit court addressed the SIR payment as follows: Finally, the Insurers contend that they are not contractually obligated to provide coverage because Dorsey has not exhausted its $250,000 self-insured retention. It is clear from the record that the November 10, 2000 letter from Dorsey's attorney to the Insurers demonstrates that Dorsey tendered its $250,000 self-insured retention. Dorsey's bankruptcy, and its resulting inability to pay the $250,000 self-insured retention, does not, under the terms of the policies themselves, relieve the Insurers of their contractual obligations. The Court has found that the cracking of the Dorsey trailers from 1995 to the end of 1999 constitutes a single continuous occurrence. Although it is one occurrence, the cracking occurred over the course of five policy periods and thereby triggers coverage under all five policy periods. Since there is a single occurrence resulting in the loss of use of the Wheelwright tractors, the Court finds that only one self-insured retention amount of $250,000 must be satisfied in order to invoke the insurers' obligations. Since there was no evidence that Dorsey has actually paid its self-insured retention, the Insurers are entitled to a setoff of $250,000 from the total amount of the judgment in this case. Gerling argues that the circuit court erred in finding as a fact that Dorsey had tendered the SIR amount. Essentially, it asserts that the letters in the record stating that Dorsey had tendered the SIR amount were improperly considered by the circuit court. The letters in question were attached as evidentiary submissions to Wheelwright's motions for a summary judgment against the insurers. The first letter is from Dorsey's lawyers to the insurers dated November 10, 2000; it states, in pertinent part: At the mediation of September 12, 2000, in this action, Dorsey's insurers failed to make a good faith effort to settle this case. As you know, Dorsey agreed to pay its deductible self-insured retention of $250,000 thereby invoking coverage under its general commercial liability policies. The second letter is from Dorsey dated November 21, 2000, to the insurers; it states, in pertinent part: At the opening round of mediation on September 12, 2000, Dorsey agreed to tender its full self-insured retention amount of $250,000. Gerling argues that the letters are inconsistent with the testimony of James S. Cribbens, Gerling's claims officer, who attended the mediations. Cribbens's affidavit states, in pertinent part: At no time did Dorsey or any of its representatives, during either of the mediation sessions, advise that Dorsey would pay the $250,000 self-insured retentions that were required to be satisfied as a pre-condition to application of the two policies issued by Gerling to Dorsey. Rather Dorsey's stated position was that it had satisfied most, if not all, of a $250,000 self-insured retention by virtue of its expenditures in connection with making repairs to the trailers that had been purchased by Wheelwright and Eufaula and in paying its attorneys to defend it in the Underlying Action. Viewing the evidence most favorably to Gerling, the nonmovant, as we must, Hanners v. Balfour Guthrie, 564 So.2d 412 (Ala.1990), we conclude that Cribbens's affidavit does raise a genuine issue of fact with respect to the question whether Dorsey tendered the SIR payment, and the circuit court has already determined that there was no evidence indicating that Dorsey actually paid the SIR amount. However, we conclude that the fact issue of the sufficiency of Dorsey's tender of the SIR amount is not material in light of the circuit court's application of a setoff in the amount of the SIR, now attributable only to Gerling. From paragraphs 1 and 5 of Gerling's SIR endorsement quoted above, it is apparent that Gerling acknowledges that it will be responsible (assuming that its policies otherwise provide coverage) for losses in excess of the SIR amount up to the limits of its policies whether or not such Self-Insured Retention is recoverable or collectible. Thus, under the terms of the SIR provision in Gerling's policy, payment of the SIR cannot be viewed as a condition precedent to Gerling's obligation under the policy. Rather, the policy states that Gerling will be responsible for all covered liability in excess of the SIR, up to the policy limits. Under the circumstances of this case, the circuit court's setoff simply implements the language of the SIR exclusion. Gerling also argues that the circuit court erred in not setting off the amount of its policy liability by the SIR payments for each of the two years its policies were in effect. The circuit court stated its rationale for including only one SIR amount in the setoff as follows: Both the law and equity dictate that a pro rata division of the judgment among the Insurers supports the payment of only a single $250,000 self-insured retention amount, especially in light of there being only one continuous occurrence. Courts have adopted this approach where one occurrence triggers several policy periods. The circuit court relied upon Lafarge Corp. v. Hartford Casualty Insurance Co., 61 F.3d 389, 401 (5th Cir.1995); Clemtex, Inc. v. Southeastern Fidelity Insurance Co., 807 F.2d 1271, 1277 (5th Cir.1987); and Nationwide Mutual Insurance Co. v. Lafarge Corp., 910 F.Supp. 1104, 1108 (D.Md. 1996)(all holding generally that proration of an insurer's responsibility for liability resulting from a continuous occurrence should also result in a proration of the amount of the deductible to be received by the insurer). Like the circuit court, Gerling has not cited any case in which Georgia courts have directly addressed the issue of prorating a SIR amount in the event of a continuous occurrence, and we have located none. However, Gerling does argue that the cases relied upon by the circuit court are distinguishable because, it says, those cases deal with deductibles under the respective policies involved, rather than with SIR provisions. In support of its argument that the circuit court should have set off a SIR amount for each respective policy period, Gerling relies upon Olin Corp. v. Insurance Co. of North America, 221 F.3d 307 (2d Cir.2000), and Uniroyal, Inc. v. Home Insurance Co., 707 F.Supp. 1368 (E.D.N.Y.1988). In Olin the United States Court of Appeals for the Second Circuit applied New York law in interpreting the provisions of an annually renewed commercial general liability policy in an action arising out of the demand by Olin that its insurer provide coverage for damages arising from Olin's gradual release, from 1956 through 1973, of pesticide components into the environment surrounding its production facility. The court determined that it was appropriate to prorate the insurer's coverage and the responsibility for payment of damages among the various policies that were in effect during the period the damage occurred. Thus, the court determined that each yearly policy extended coverage to the extent that the damage from the continuing release of the pesticides took place during that year. The court also stated that when multiple policies are triggered and liability is allocated to each, each policy's deductible is applicable. 221 F.3d at 328. The court in Olin explained its rationale as follows: Insurance policies are premised on an allocation of risk between the insured and the insurer. For any given occurrence, the policies Olin had with INA [Insurance Company of North America] allocated the first $100,000 of risk to Olin, the next $200,000 to INA, and any amount thereabove to Olin. By prorating the deductible but not the maximum per-occurrence coverage, Olin would upset this balance. The initial $100,000 of risk to be picked up by Olin would be spread over a period of time; the $200,000 of risk to be covered by INA each year would not be. 221 F.3d at 327 (footnote omitted). In Uniroyal, the federal district court also applied New York law in a case brought by a manufacturer of Agent Orange seeking indemnification from its insurer. The court held that it was appropriate to apportion the payments for damages pro rata among the policies in effect over the period that the damage occurred, i.e., at each delivery of the product to the military. The court also held that Uniroyal was obligated to pay the deductible for each of the policy periods involved. Although Olin also dealt with deductibles rather than with SIRs, we conclude that the rationale set out in that case most closely comports with the purpose and intent of the excess commercial liability policies Dorsey purchased for each year. As indicated by paragraph 1 of the SIR exclusion quoted above, the intent of each policy was that Dorsey would be responsible for the first $250,0000 of liability during the coverage period of that policy. Accordingly, that portion of the summary judgment setting off only a single SIR amount is reversed. Upon remand, the circuit court is instructed to determine the extent to which Dorsey satisfied the SIR requirements for each Gerling policy and to set off against Wheelwright's recovery against Gerling under the consent judgment the amount of the SIR for each respective policy that was not satisfied by Dorsey. [13]