Court Opinion

ID: 9535150
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:45:57.595318+00
Date Added: 2024-06-11T13:33:10.632534
License: Public Domain

RAKER, J.,
dissenting.
I would affirm the judgment of the Court of Special Appeals on the grounds that the excess coverage in petitioner’s umbrella policy is “follow the form” or “follows form” coverage, and, as such, it includes the same exclusions as the underlying primary policy, which does not cover injury to a household member.
There are two principal kinds of excess insurance coverage:
“(1) umbrella excess coverage, and (2) follow form excess coverage. Both insurance products are designed to add to an insured’s liability program by extending coverage above the limits provided in the underlying primary coverages. The underwriting involved in these products is distinct, since the primary coverages will usually be sufficient to handle claims brought against the insured. Consequently, excess policies are often purchased from a separate insurer that is competing aggressively in the excess market.
*662The umbrella policy serves two purposes: (1) to extend coverage above the limits of insurance provided in the underlying primary policies, and (2) to offer coverage not available in the underlying policies. Although there is no standard umbrella coverage form, most insurance companies write this coverage for their commercial insureds. Most policies afford defense coverage in addition to a comprehensive grant of liability coverage that will pay the portion of judgments and settlements in excess of amounts paid by the underlying policies. Umbrella policies cover damages for which the insured is liable on account of bodily injury, property damage, personal injury, and advertising injury arising out of an occurrence. Additionally, coverage is available with a claims — made trigger. Some standard exclusions appearing in CGL and other underlying policies are omitted from umbrella policies, or made less restrictive, in order to broaden the umbrella coverage to fill coverage gaps in the underlying policies.
If an umbrella policy covers an occurrence not covered by the underlying policies, the umbrella policy will ‘drop down’ and provide primary coverage for the claim, including a defense of the action. In these circumstances, the policy generally will provide coverage only over a ‘retained limit’ or ‘self-insured retention,’ which is equivalent to a deductible. Because the insurance carriers participating in this market have developed their own policy forms, any umbrella policy must be reviewed carefully to determine if this drop down insurance coverage exists, especially if no potential coverage exists under the employer’s primary liability insurance policies. In a number of cases, employers have sought coverage for employment disputes from their umbrella carrier. Although umbrella policies are often sold by a different insurer than the insurer providing the relevant primary coverage (reflecting the different underwriting and marketing involved), umbrella coverage sometimes is added to the underlying CGL or other liability insurance policy as an endorsement.
*663‘Follow’ Form’ excess liability insurance policies generally provide coverage under the same terms as the primary policy for liability in excess of those policy limits. The typical excess insurance policy will use, or refer to, the same policy language as that in the underlying CGL, Business Auto, Employers Liability or other primary policy. However, some excess policies may contain their own self-contained policy language modifying or deleting defense costs and other coverages contained in the standard underlying policies. As with umbrella policies, there is no standard coverage form.”
Eric Mills Holmes & L. Anthony Sutin, Holmes’ Appleman on Insurance § 120.1, at 386-37 (2d ed.2001).
Courts around the country recognize the validity and utility of “follow form” insurance policies. As stated above, an excess policy that “follows form” provides coverage in accordance with the terms and provisions of a primary or underlying policy. “Excess policies normally follow form to an underlying coverage.” James M. Fischer, Insurance Coverage for Mass Exposure Tort Claims: The Debate Over the Appropriate Trigger Rule, 45 Drake L.Rev. 625, 687 (1997). If the excess insurer does not wish to cover every matter encompassed in the primary policy, the excess insurer must include a clear, unambiguous, and specific exclusion. Jeffrey W. Stem-pel, Domtar Baby: Misplaced Notions of Equitable Apportionment Create A Thicket of Potential Unfairness for Insurance Policy Holders, 25 Wm. Mitchell L.Rev. 769, 782 n. 53 (1999). USAA did just that in this case, although it did not explicitly use the phrase “follow form.”
Courts give effect to the contract language according to an objective standard of the perceptions of the average person who purchases the insurance policy. Holmes’ Appleman on Insurance § 105.3, at 247. The objective standard for ascertaining the plain meaning is what the common, average person in the market place understands the contract to mean. Id.; see also Rummel v. St. Paul Surplus Lines Ins. Co., 123 N.M. 767, 945 P.2d 985, 989 (1997) (noting that “where a policy fails to explicitly exclude coverage of punitive damages, and instead *664adopts a punitive damages exclusion through use of a follow form, the exclusion will be enforced provided the exclusion would have come to the attention of the average insured”).
The umbrella policy in the case sub judice makes clear that the excess coverage included therein is follow form coverage. The excess coverage portion of the umbrella policy reads as follows:
“We provide excess liability protection for occurrences covered by primary insurance. We are responsible for the amount of loss above the limit of the applicable primary insurance up to the Policy Limit. Payment of legal and loss expenses is in addition to the Policy Limit.”
The basic coverage provision of the umbrella policy reads as follows:
“We also insure against liability occurrences that are not covered by primary insurance. This applies only if they are not excluded in this policy....”
The majority recognizes that there is a household exclusion to the basic coverage of the umbrella policy. Maj. op. at 644. Because the household exclusion is not referred to explicitly in the excess coverage provision of the umbrella policy, however, the majority summarily concludes that the household exclusion is not included in the excess coverage. Id.
Despite the clear language of the excess coverage provision in the umbrella policy, the majority finds that the excess coverage does not follow form to the primary policy. I believe the language in the excess coverage provision of petitioner’s umbrella policy is unambiguous with regard to the scope of excess coverage. It states that excess coverage applies to occurrences that are covered by the primary insurance policy. The phrase “we provide excess liability protection for occurrences covered by primary insurance” is, to use the words of the majority, “a conspicuous, clear and express clause that incorporated the exclusions of the primary policy into the umbrella policy.” Maj. op. at 657. If the majority means to say that all follow the form clauses must include the phrase “follow the form,” or something similar, it is simply mistaken. *665A leading insurance treatise states that a typical follow form clause reads as follows:
“The liability of the reinsurer ..., except as otherwise provided by this contract, shall be subject in all respects to all the terms and conditions of the policy issued by the reinsured except such as may purport to create a direct obligation of the reinsurer to the original insured or anyone other than the reinsurer.”
Holmes’ Appleman on Insurance § 102.5, at 49. This clause has the same effect as the clause in the case before us: it limits the excess coverage to events covered by the primary insurance without using the phrase “follows the form.”
The primary policy in the case before us expressly excludes liability coverage for any family member of the insured. Thus, under the policy, any claim by a family member is barred except as mandated by Maryland’s minimum/mandatory insurance requirements under the Financial Responsibility Laws. The primary policy unequivocally bars claims by family members of the insured, and the excess coverage expressly follows the primary. The average insured, if he or she read both policies, would understand that such a claim to be covered must necessarily be covered under the primary policy. A simple reading of the primary policy makes clear that the household exclusion bars petitioner from recovering any amount above $20,000. There is no ambiguity in the primary policy as to the family member.
I agree with Judge Kenney’s analysis in the unreported opinion of the Court of Special Appeals in the case below. The court stated as follows:
“Reviewing the Umbrella Policy, we find that it requires the maintenance of a primary policy with coverage limits shown in the Umbrella Policy’s Schedule of Primary Insurance. The Schedule of Primary Insurance reflects the limits of the required policy for bodily injury resulting from ‘automotive liability’ as being ‘$300,000/$500,000.’ The insurer’s ‘excess coverage’ liability is limited to ‘occurrences covered by the primary insurance.’ As indicated, because of the household *666exclusion, the Primary Policy provided no coverage to Mrs. Megonnell for the occurrence beyond the $20,000.”
Accordingly, I respectfully dissent.