Opinion ID: 1814753
Heading Depth: 1
Heading Rank: 1

Heading: Policy Type

Text: As we held above, giving effect to the policy language is of greatest import in this analysis. However, examining the policy types involved within the insurance industry and the premiums charged for such policies is helpful in determining the contractual intent of the insurance policies as evidenced by their language. Auto-Owners and USAA argue that policies like the Frankenmuth policy, which insure a specific risk, differ in kind from umbrella policies. This difference was recognized by this Court in Frankenmuth v. Continental , supra, which characterized umbrella insurance as true excess insurance and coincidental excess insurers, as those which, by the terms of their policies, also cover some loss arising from an insured event. Id. at 437, 537 N.W.2d 879. In Frankenmuth, this Court characterized this very policy as coincidental excess. Id. Auto-Owners contends that this distinction is not merely semantic. Rather, it is rooted in the fundamental differences in the nature and scope of the risks which the policies intend to cover. Those differences are reflected both in the language of the policies ... and in the premiums charged for the risk. This distinction also comports with the overwhelming weight of foreign authority. [4] An Illinois appellate court recognized that general differences exist between umbrella policies and primary policies with excess insurance clauses. Emcasco, supra at 132-133, 93 Ill.Dec. 666, 487 N.E.2d 110. Umbrella policies provide unique coverage, often called catastrophe coverage. Id. at 133, 93 Ill.Dec. 666, 487 N.E.2d 110, citing 8A Appleman, Insurance Law & Practice, § 4906. Where a policy is, in most instances, a primary policy, its limits should be exhausted before an umbrella policy is required to contribute. Allstate Ins. Co. v. American Hardware Mut. Ins. Co., 865 F.2d 592, 595 (C.A.4, 1989). The Court of Appeals failed to appreciate this difference in kind between the automobile coverage provided by the Frankenmuth policy and the multirisk coverage provided by the umbrella policies. The Frankenmuth policy excess coverage availability in certain circumstances does not make it true excess coverage like an umbrella policy because the Frankenmuth policy excess coverage is triggered only upon the circumstances of the accident, while the umbrella policies are written to be excess over any underlying coverage. If there had been no other primary policy, the Frankenmuth policy would have been primary, regardless of the coincidental excess insurance clause, unlike the USAA and Auto-Owners umbrella policies. This Court articulated the definition of a true excess policy in Frankenmuth v. Continental : `True' excess coverage occurs where a single insured has two policies covering the same loss, but one policy is written with the expectation that `the primary will conduct all of the investigation, negotiation and defense of claims until its limits are exhausted....' Id. at 435, n. 4, 537 N.W.2d 879. This Court held that additional insurers, like Frankenmuth, are not true excess insurers. Frankenmuth, supra at 436, 537 N.W.2d 879. The Frankenmuth policy certainly does not appear to have been written with the expectation that a primary insurer would investigate, negotiate, and defend claims. In fact, absent the circumstances of this case, the involvement of a nonowned vehicle and the existence of the Continental policy, this policy would be primary. That it might be excess in some circumstances does not change the nature of the policy. This is the very reason for distinguishing between coincidental excess and true excess. This Court recognized the significance of that distinction [5] in Frankenmuth. The defining character of a coincidental excess policy is that liability attaches immediately upon the occurrence of the insured event. See Frankenmuth v. Continental , supra. The Frankenmuth policy was written chiefly as a primary policy to cover residual liability losses arising out of the use of a motor vehicle. The policy states: To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of: A. bodily injury, sickness or disease, including death resulting therefrom, hereinafter called bodily injury, sustained by any person; B. injury to or destruction of property, including loss or use thereof, hereinafter called property damage; arising out of the ownership, maintenance or use of the owned automobile or any non-owned automobile. These agreements provide the Residual Liability Insurance required by Section 3131 of Chapter 31 of the Michigan Insurance Code. As soon as the insured experiences the bodily injury or property damage described in the policy language, the carrier's liability for those losses under the policy attaches. On the other hand, under an umbrella policy, liability will never automatically attach upon the occurrence of an insured event. Rather, liability under a true excess/umbrella policy only attaches once the limits of all underlying insurance have been exhausted. That is why neither the Auto-Owners policy nor the USAA umbrella policy contains any language similar to the language cited above. Instead, both contain language stating that coverage applies to losses in excess of the retained limit or the limit of the applicable primary insurance. The New York Court of Appeals explained the effect of the other insurance clause in a policy similar to the Frankenmuth policy: The juxtaposition in that [other insurance] clause of provision for pro rata contribution with all insurance except as to a nonowned automobile strongly suggests that what Aetna sought to achieve was an excess position with respect to other primary insurance covering the nonowned vehicle, rather than an intention to place itself on an equal or better footing with all other insurance excess to the primary insurance. [ LiMauro, supra at 376, 492 N.Y.S.2d 534, 482 N.E.2d 13.] On the other hand, 8A Appleman, Insurance Law & Practice, § 4906, p. 348, provides the following discussion of the nature of a true excess umbrella policy: There is, however, a unique form of excess contract which always remains excess over and above all other applicable forms of contract, except as to the specific risks upon which it may elect to carry the primary burden. That is the umbrella or catastrophe policy. This is a needed form of coverage which picks up, above the limits of all other contracts, such as automobile and homeowners coverages, to give the security and peace of mind so necessary today where jury verdicts, or court awards, may be very substantial, to discharge the unexpected, but potentially bankrupting, judgment. The premium is comparatively small for the size of the risk, so that the company cannot be expected to prorate with other excess coverages; and public policy should not demand that this be done. Thus, the effect of the Frankenmuth excess clause is to merely allocate liability among the primary insurers, not to magically remove the primary nature of the policy when a nonowned or substitute vehicle is involved.