Opinion ID: 203566
Heading Depth: 2
Heading Rank: 2

Heading: Wasting

Text: Doe also urges that the district court erred in granting summary judgment to National Union by interpreting the Sexual Abuse Endorsement of the National Union policy to be a wasting policy and in determining that the entire available coverage had been exhausted by defense costs. The district court concluded that [d]efense costs may reduce the aggregate limit under the sexual abuse endorsement, and that the expenditure by National Union of more than $300,000 in defense of this action ... has exhausted the limits of its insurance policy. J.A. at 1127. Doe argues that the Sexual Abuse Endorsement does not unambiguously state that defense costs erode the limitations of coverage provided in the Endorsement, emphasizing that any ambiguity must be resolved against the insurer. See, e.g., Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir.1997) (`[W]here the language permits more than one rational interpretation, that most favorable to the insured is to be taken.' (quoting Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12, 545 N.E.2d 1156, 1159 (1989))). Although Doe is correct that the language of the Sexual Abuse Endorsement is not a model of clarity, we do not agree that it is ambiguous in this respect. Two provisions of the policy are involved here, the Supplementary Payments provision of the general policy and the language of the Sexual Abuse Endorsement. The Supplementary Payments provision of the general policy, entitled SUPPLEMENTARY PAYMENTS-COVERAGES A AND B, provides coverage for costs associated with defending a covered suit, including all expenses we [National Union] incur, in addition to the coverage for damages for bodily injury. [7] J.A. at 3814. The Supplementary Payments provision expressly states that These payments will not reduce the limits of insurance, J.A. at 3814, and National Union does not dispute that the commercial general liability provisions of the National Union policy are not wasting. However, National Union asserts that the coverage under the Sexual Abuse Endorsement is wasting. We agree with National Union that the Sexual Abuse Endorsement unambiguously states that the $300,000 aggregate limit is reduced by defense costs. The first paragraph of the Endorsement establishes a coverage limit of $100,000 per occurrence `bodily injury' as defined ... below and `personal injury' as defined in the policy, and in the next sentence limits such payments to $300,000 Aggregate. J.A. at 3831. The wasting nature of the policy is made clear by paragraph (B) of the Endorsement, which states that  [t]he aggregate limits shall include all Supplementary Payments as described in the section of this policy SUPPLEMENTARY PAYMENTS COVERAGES A AND B in addition to all damages paid for `bodily injury' or `personal injury' under this endorsement. [8] J.A. at 3831 (emphasis added). Thus, while National Union's liability for payments for bodily injury or personal injury is limited to $300,000 in aggregate, paragraph (B) also states that in addition to including all damages paid for bodily or personal injury, the aggregate limits shall includethat is, take account of, or be reduced byall Supplementary Payments. Id. That the aggregate limit includes both damages for injury and Supplementary Payments such as defense costs (and hence is wasting) is confirmed by the second provision of paragraph (B). While the Supplementary Payments provision of the commercial general liability policy states that such supplemental payments will not reduce the limits of insurance, J.A. at 3814, this provision is overridden by [the] endorsement. J.A. at 3831. The second provision of paragraph (B) of the Endorsement states that  Notwithstanding the statement in [the Supplementary Payments] section that payments will not reduce the [commercial general liability policy] limits of insurance now overridden by this endorsement, the per occurrence and Aggregate limits expressed are the only limits. ... Id. (emphasis added). This language makes clear that payments under the Supplementary Payments provision will reduce available coverage under the Endorsement, even though such payments will not reduce the limits under the general policy. And paragraph (C) further underscores the wasting nature of the Endorsement, stating that National Union's right and duty to defend end when [National Union] ha[s] used up the applicable limit of insurance as described above. J.A. at 3832 (emphasis added). We conclude that the district court correctly interpreted the Sexual Abuse Endorsement as a wasting policy. Doe additionally contends that defense costs are not included within the term expenses as used in paragraph (1) of the SUPPLEMENTARY PAYMENTS-COVERAGES A AND B provision of the National Union policy, and therefore do not count against the Sexual Abuse Endorsement's aggregate limit because they are neither damages for injury nor Supplementary Payments. However, we have no doubt that defense costs are included as expenses within the meaning of Supplementary Payments. There is no dispute that the commercial general liability provisions of the National Union policy were designed to obligate National Union to defend the insureds and to pay defense costs. Excluding defense costs from the Supplementary Payments covered would defeat this purpose. We agree with the district court that defense costs are included within the category of expenses, which are Supplementary Payments that count against the Endorsement's aggregate limit. In short, we conclude that given its plain and ordinary meaning, Brazas Sporting Arms, 220 F.3d at 4, the language of the Sexual Abuse Endorsement unambiguously indicates that payments for defense costs erode the $300,000 aggregate limit of coverage provided by the Endorsement, and the district court did not err in so holding. [9]