Opinion ID: 50243
Heading Depth: 3
Heading Rank: 2

Heading: The self-insured retention ....3

Text: 28 Underlying insurance: means the coverage(s) afforded under [designated] insurance policies .... 29 (emphasis added). The parties do not dispute the district court's conclusion that the Scottsdale policy is the only designated policy referred to in the definition of underlying insurance. 30 The coverage issue turns on (1) whether coverage(s) afforded means insurance coverage provided, and not excluded, by the Scottsdale policy for particular categories of liability, or (2) whether, taking into consideration the underlying insurance definition's reference to coverage(s) afforded, the Landmark policy is not triggered until the total amount of coverage afforded by the Scottsdale policy for claims in all categories is exhausted. 31 Scottsdale asserts that the district court erred by not specifically considering the definition of underlying insurance, which is coverage(s) afforded by the Scottsdale policy. Because [r]etained limit is defined with reference to underlying insurance and the Landmark policy provides coverage for damages in excess of the retained limit, Scottsdale argues, the Landmark policy provides horizontal coverage when the Scottsdale policy provides no coverage for a given type of claim. Per Scottsdale's view, coverage(s) afforded means the insurance provided, and not excluded, by the Scottsdale policy. 32 The contrary reading of the phrase coverage(s) afforded in the definition of underlying insurance is one in which coverage(s) afforded means the total monetary coverage, i.e., policy limit, afforded by the underlying insurance, notwithstanding any coverage exclusions. Thus, the Landmark policy, as the district court found, would only provide coverage when the total damages (both covered or not covered by the Scottsdale policy) exceeded the Scottsdale policy limit of $1,000,000. 33 The latter reading of the policy is faulty. It confuses the concepts of liability limits and coverage limits, which are distinct. Wells v. Gulf Ins. Co., 484 F.3d 313, 315 (5th Cir.2007). Insurance policies, moreover, are strictly construed against the insurer in order to avoid exclusion of coverage, see Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.1984), and Landmark drafted the policy. 34 Interpreting underlying insurance to mean the insurance coverage provided and not excluded properly gives meaning to the words coverage(s) afforded and resolves any uncertainty about the policy's language in favor of coverage. 4 Also, the Landmark policy excludes from its coverage situations in which the primary insurance becomes uncollectible, due to, inter alia, insolvency. It defines retained limit with reference to `[u]nderlying insurance,' whether such `underlying insurance' is collectible or not. Applicability, collectibility, recoverability, and coverage are concepts used to define the scope of horizontal coverage. See Duke Transp. Co., 792 F.2d at 552-53. Landmark only specified non-collectible underlying insurance. It could have added language like whether covered or not but did not do so. 35 We hold that the district court erred in granting summary judgment in favor of Landmark on the issue of whether the Landmark policy provided coverage for breach of warranty damages when retained limit was defined as coverage(s) afforded by the underlying insurance. That leaves the issue of whether the Scottsdale policy covers the breach of warranty claims at issue. If it does not, the Landmark policy covers horizontally. 36 (3) The Scottsdale policy 37 Scottsdale contends that the Scottsdale policy and the Landmark policy differ in one important respect that requires a holding that the former does not cover breach of warranty damages and the latter does. That difference is in the policies' exclusions on property damage. Scottsdale's argument is that the Scottsdale policy's property damage exclusion is broader than the corresponding exclusion in the Landmark policy because of the policies' respective definitions of your work, a term that forms part of both policies' property damage exclusions. The Scottsdale policy's definition of your work includes [w]arranties or representations made at any time with respect to the fitness, quality, durability, performance or use of `your work.' Landmark does not argue this point; thus it concedes that the Scottsdale policy excludes damages arising from such warranties. 38 The Landmark policy's definition of your work applicable to the property damage exclusion does not include warranties and representations, and therefore the Landmark policy does not exclude damage from such acts. Since the damages at issue are breach of warranty damages, the Landmark policy covers. 39 (4) Landmark's alternate bases to affirm 40 The Landmark policy requires, as a condition precedent to liability, that the ultimate net loss be finally determined by actual trial or by written agreement of the insured, the claimant or the claimant's legal representative and us [Landmark] (hereinafter, Consent Clause). Landmark argues that Scottsdale did not satisfy the Consent Clause because there was no trial in the underlying suit and Scottsdale did not obtain any consent to the settlement agreement. 5 Landmark is correct that there was no trial and, though Landmark demanded settlement within the Scottsdale policy's limits, it was not a party to the state court agreement and did not consent to the settlement. 41 Nonetheless, Landmark waived its right to deny coverage on the basis of the Consent Clause pursuant to the rule in Gulf Insurance Co. v. Parker Products, Inc., 498 S.W.2d 676, 679 (Tex.1973). Under Gulf Insurance, an insurer can require an insured to comply with a consent clause for its own protection, but it may not do so after it is given the opportunity to defend the suit or to agree to the settlement and refuses to do either on the erroneous ground that it has no responsibility under the policy. Id. The policy behind the waiver of consent clauses is as follows: 42 The rationale behind holding to this particular waiver theory is that a claimant should not be required to approach his insurer, hat in hand, and request consent to settle with another when he has already been told in essence, that the insurer is not concerned, and he is to go his way. It is difficult to see why an insurer should be allowed, on the one hand, to deny liability and thus, in the eyes of the insured breach his contract and, at the same time, on the other hand, be allowed to insist that the insured honor all his contractual commitments .... [I]n the case of existent, denied liability the denial is a breach of contract on the part of the insurer and its breach should[,] by rights, relieve the insured of the punitive effects of his failure to comply with consent provisions of the insurance policy. 43 Ford v. State Farm Mut. Auto. Ins. Co., 550 S.W.2d 663, 666 (Tex.1977) (ellipses in original and internal quotation omitted). Given that Landmark demanded settlement within the Scottsdale policy's limit and did not provide coverage below that limit, Landmark's refusal to cover was motivated by its erroneous view that coverage existed only for liability in excess of $1,000,000. Also, Landmark had an opportunity to agree to a settlement since it demanded one. Landmark cannot invoke the Consent Clause while simultaneously refusing to cover breach of warranty damages. See Gulf Ins., 498 S.W.2d at 679; see also Ford, 550 S.W.2d at 666.