Opinion ID: 1802432
Heading Depth: 4
Heading Rank: 1

Heading: Whether the term sums actually payable refers to the policy limit of $1,000,000 under Legion's policy.

Text: ¶ 15. The parties dispute whether the term sums actually payable refers to the limit of $1,000,000 under Legion's policy or to the actual amount Legion was able to pay, which was zero due to insolvency. The provision states: [LMCC] will pay only the amount in excess of the sums actually payable under the terms of the `underlying insurance.' No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments. In the event the duty of the underlying insurer to defend the insured against a `suit' ceases solely because the applicable limit of insurance is used up in the payment of judgments, then we shall assume the duty for such defense. (Emphasis added). ¶ 16. Caldwell argues that the term sums actually payable is ambiguous and should be liberally construed in its favor. On the other hand, LMCC argues that the phrase sums actually payable should be read in the context of the entire policy, and when doing so, the phrase unambiguously provides coverage only in excess of the primary insurer's coverage. The trial court agreed with LMCC, stating, it follows that in reading the entire policy the Court finds that the meaning of [the term `sums actually payable'] is clearly qualified at Section V, part 9, `Underlying Insurance' to preclude any form of `drop down' coverage from the insurance policy issued by [LMCC]. Section V, part 9 of the policy, dealing with Commercial Catastrophe Liability Conditions and Underlying Insurance states that [i]n the event of bankruptcy, insolvency or financial impairment of the insurance company that issued the `underlying insurance,' [LMCC] shall be liable under Coverage A only to the extent we would otherwise have been liable.  (Emphasis added). ¶ 17. In construing the terms of an insurance policy, the North Carolina Supreme Court has stated [w]here the immediate context in which words are used is not clearly indicative of the meaning intended, resort may be had to other portions of the policy and all clauses of it are to be construed, if possible, so as to bring them into harmony. Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 355, 172 S.E.2d 518, 522 (1970). Furthermore, [e]ach word is deemed to have been put into the policy for a purpose and will be given effect, if that can be done by any reasonable construction in accordance with the foregoing principles. Id. ¶ 18. The North Carolina Court of Appeals has addressed similar disputes regarding whether an excess insurer had an obligation to provide drop down coverage when the primary insurer became insolvent. [5] In Newton v. U.S. Fire Ins. Co., 98 N.C.App. 619, 623, 391 S.E.2d 837, 838-39 (1990), the North Carolina Court of Appeals examined a trial court's finding that an excess insurer's umbrella policy dropped down to primary coverage. [6] Caldwell contends that Newton is not applicable because it is factually distinguishable and did not attempt to define the term sums actually payable. However, we have found no case that deals with the term sums actually payable, and therefore, we rely on cases which analyze the use of similar terms in determining whether an excess insurer is required to drop down when the primary insurer becomes insolvent. ¶ 19. Although the facts of Newton differ slightly, [7] the North Carolina court's analysis is clearly applicable to this case. There, the court found that the excess insurer was not obligated to cover any claim unless the claim was greater than the $500,000 policy limit of the primary insurer, regardless of whether or not that $500,000 was collectible. Id. at 840. Although there was no gap in coverage, the Newton court noted the possibility of a `gap' in coverage that may occur when a primary carrier becomes insolvent since the statutory cap on NCIGA's liability here is $300,000. Id. at 839. Accordingly, the court found that U.S. Fire was entitled to summary judgment. Id. at 840. ¶ 20. Four years later, the North Carolina Court of Appeals faced a similar situation in North Carolina Ins. Guar. Ass'n v. Century Indem. Co., 115 N.C.App. 175, 444 S.E.2d 464 (1994). A dispute arose between NCIGA and Century Indemnity Co. (Century) as to whether Century's commercial umbrella policy [8] was required to drop down and become the primary liability insurance as a result of the primary insurer's insolvency. Id. at 467. NCIGA argued that the phrase amount recoverable meant that amount actually recoverable and collectible from the primary insurer. . . . Because [the primary insurer was] now insolvent, no amount [was] recoverable from the primary insurer. Id. at 469. Therefore, NCIGA argued, Century was required to drop down and provide primary coverage. Id. ¶ 21. The court reasoned that the amount recoverable phrase, read in connection with the loss payable condition, [9] made it clear that a loss arising from an occurrence is not payable by . . . Century unless the limit of the underlying insurance is exhausted by payment, coming either from the insured or from the insured's underlying carrier. Id. at 470. In addition to finding the language of the policy unambiguously to preclude drop down coverage, the court stated that the fundamental purpose of excess insurance is to protect the insured against excess liability claims, not to insure against the underlying insurer's insolvency. Id. ¶ 22. Though there are some differences in the language of the various insurance contracts in Newton and Century, this Court finds the reasoning in both cases applicable to this case. We find that the disputed term sums actually payable is unambiguous, particularly when read in connection with the Underlying Insurance provision. Furthermore, North Carolina law provides that where words are not clear in their immediate context, other clauses may be used to bring the policy into harmony. Wachovia Bank, 172 S.E.2d at 522. ¶ 23. An equally convincing argument is found in looking at the entire phrase in the contract provision of the Catastrophe Policy, where LMCC contracted to pay only the amount in excess of the sums actually payable under the terms  of the Legion policy. (Emphasis added). There is only one amount payable under the terms of the Legion policy, and that is the policy limit of $1,000,000. LMCC points out that Caldwell improperly divorces the phrase `sums actually payable' from the remainder of the sentence. LMCC correctly notes that the sentence, taken as a whole, refers to what amount is covered pursuant to the Legion policy, not what Legion is capable of paying. Caldwell, on the other hand, argues that LMCC should pay the amount in excess of what was actually paid, rather than the amount payable under the terms of the policy. This interpretation would require rewriting the terms of the insurance contract. ¶ 24. Furthermore, the clause in Section V, part 9 of the policy clearly defines LMCC's obligation should the underlying insurer become insolvent. It provides that, in the event of insolvency, LMCC will be liable only to the extent we would otherwise have been liable. Taken together, the policy terms evidence that the Catastrophe Policy was not required to drop down and provide primary coverage due to Legion's insolvency. Therefore, we conclude that the Catastrophe Policy, by its plain language, covered only losses in excess of $1,000,000.