Opinion ID: 1856294
Heading Depth: 1
Heading Rank: 2

Heading: this policy is subject to the following conditions

Text: .... J. LOSS PAYABLE. Liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurer, shall have paid the amount of the underlying limits on account of such occurrence.... .... S. MAINTENANCE OF UNDERLYING INSURANCES. It is a condition of this policy that the policy or policies referred to in the attached Schedule of Underlying Insurances shall be maintained in full force during the currency of this policy except for any reduction of the aggregate limit or limits contained therein, solely by payment of claims in respect of accidents and/or occurrences during the period of this policy. Failure of the Assured to comply with the foregoing shall not invalidate this policy; but in the event of such failure, the Company shall only be liable to the same extent as they would have been had the Assured complied with the said condition. It is abundantly clear that if the underlying insurer, Ideal Mutual, were not insolvent, the defendant would have no liability until Ideal Mutual's limit of liability was exhausted. The issue is whether upon the insolvency of the underlying insurer, the defendant becomes the primary rather than the excess carrier. The plaintiff contends that the term coverage is not defined in the policy; that the term is ambiguous; and that the policy should be construed to mean that if the underlying insurer is insolvent, then the occurrence was not covered by the underlying policy. Contrary to the plaintiff's contention, the term coverage is defined in paragraph 1 of the insuring agreements. Paragraph 1, which is entitled COVERAGE, describes the risks that the defendant assumes under the policy. Paragraph II, which is entitled LIMIT OF LIABILITY, restricts the defendant's exposure to the excess of (a) the limits of the underlying insurances set out in the schedule or (b) the amount of self-insured retention as set out in the declarations. Under the facts in this case, the latter refers only to advertising liability. The former refers to amounts in excess of $500,000. The language of the policy is clear, and it must be given effect in accordance with its plain and ordinary meaning. This case is similar to Mission Nat. Ins. Co. v. Duke Transp. Co., Inc., 792 F.2d 550 (5th Cir.1986). In the Mission case, the excess policy provided: The Company shall only be liable for ultimate net loss the excess of either (a) the limits of the underlying insurance as set out in the attached schedule [$300,000] in respect of each occurrence covered by said underlying insurance, or (b) the amount as set out in item 2(c) of the Declarations [$10,000] ultimate net loss in respect of each occurrence not covered by said underlying insurance, (hereinafter called the underlying limits).... (Emphasis omitted.) 792 F.2d at 551. In holding that the insolvency of Northwest, the underlying insurer, did not cause Mission to become the primary carrier, the court said at 552-53: Under the plain language of Mission's policy there is no obligation to pay for any loss which is within the limits of the Northwest policy, that is, until the loss exceeds $300,000. The occurrences involved in these cases were covered by the underlying insurance. Further reduction or exhaustion of the limits of the underlying insurance can only be accomplished under the terms of umbrella policy by payment of losses under the underlying insurance and not by the insolvency of Northwest. See, Molina v. U.S. Fire Ins. Co., 574 F.2d 1176, 1178 (4th Cir. 1978).... ... Duke argues that the district court erred in its interpretation of the insurance contract. Duke reads the limitation of liability section as limiting Mission's liability to amounts over the primary coverage only when the primary coverage remains collectible. In the case where the primary insurer collapses, Duke reads the policy as providing drop down coverage, i.e., the excess insurer drops down and assumes the primary insurer's responsibilities. Duke bases its argument on its interpretation of the words covered and not covered in subsections (a) and (b) of the limitation of liability section of the Mission policy. Duke interprets covered to mean covered by the coverage terms of an underlying policy on which the insured can collect. Mission, and the district court, interpret covered to mean covered by an underlying policy without regard to whether the insured can collect from the primary insurer. .... We believe the term covered provides at least as narrow, if not narrower, excess coverage than does the term inapplicable. Just as the primary insurance coverage in Continental Marble [& Granite v. Canal Ins. Co., 785 F.2d 1258 (5th Cir.1986) ] remained applicable to the insured so to [sic] does the primary insurance coverage in the instant case cover the occurrences Duke claims that Mission should provide primary coverage for and defend Duke against. The terms of the Northwest policy specifically provide coverage for all of the claims that Duke asserts Mission should provide primary coverage for and defend Duke against. The cases from outside Louisiana also support this interpretation. The only cases where the courts have found that the excess insurer drops down involve policies where the excess insurer used the terms inapplicable, collectible, or recoverable. E.g. Reserve Insurance Co. v. Pisciotta, 30 Cal.3d 800, 180 Cal. Rptr. 628, 636, 640 P.2d 764, 772 (1982) (recoverable); Gros v. Houston Fire & Casualty Insurance Co., 195 So.2d 674, 676 (La.Ct.App.1967) (collectible); Macalco, Inc. v. Gulf Insurance Co., 550 S.W.2d 883, 896 (Mo.Ct.App.1977) (inapplicable). Of course, our ruling in Continental Marble establishes, at least until the Louisiana courts advise us otherwise, the interpretation to be given to the term inapplicable. And the terms collectible and recoverable are clearly distinguishable from the term covered. When an excess insurer uses the term collectible or recoverable it is agreeing to drop down in the event the primary coverage becomes uncollectible or unrecoverable; on the other hand, when an excess insurer uses the term covered or not covered, it is agreeing to drop down only in the event that the terms of the underlying policy do not provide coverage for the occurrence or occurrences in question. (Emphasis omitted.) The plaintiff has cited Donald B. MacNeal, Inc. v. Int. Fire & Cas. Co., 132 Ill.App.3d 564, 87 Ill.Dec. 794, 477 N.E.2d 1322 (1985), and other cases which involved policies which used the words recoverable or collectible in referring to the underlying insurance. These cases are distinguishable and not applicable here. The plaintiff argues that the defendant could have made its policy more clear by stating that it would not pay anything until the first $500,000 was paid. The language in paragraph J of the conditions does just that. It provides: Liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurer, shall have paid the amount of the underlying limits on account of such occurrence. (Emphasis supplied.) The judgment of the district court is reversed and the cause remanded with directions to enter a judgment in conformity with this opinion. REVERSED AND REMANDED WITH DIRECTIONS.