Court Opinion

ID: 9737315
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:21:35.292503+00
Date Added: 2024-06-11T07:23:58.006512
License: Public Domain

O’Connor, J.
(dissenting). Reserve’s limits of liability stated in the schedule of underlying insurance attached to Continental’s policy are $300,000 per occurrence and $300,000 in the aggregate. Thus, it is clear from the schedule that any payment made by Reserve on account of a loss sustained by its insured reduces Reserve’s maximum indebtedness to its insured on account of subsequent losses. The resulting limit of liability for subsequent losses would be less than $300,000, although the new reduced limit would not appear on the schedule. Thus, in the event of a prior indemnity payment by Reserve, Continental’s promise to “indemnify the insured for loss in excess of the total applicable limits of liability of underlying insurance stated in the schedule” (emphasis added) would leave the insured unprotected to the extent of a new occurrence resulting in a loss that exceeds the reduced limit of Reserve’s coverage but is less than the $300,000 stated in the schedule as Reserve’s per occurrence limit of liability. To plug that gap, the policy provides that “if the applicable limit of liability of the underlying insurance is less than as stated in the schedule of underlying insurance because the aggregate limit of liability of the underlying insurance has been reduced this policy becomes excess of such reduced limit of liability.”
The latter provision is not ambiguous. Nevertheless, the court concludes otherwise, and it bases its conclusion primarily on the following provision focusing on the insured’s promise to maintain underlying insurance at certain levels of coverage: “The insured agrees that the policies listed in the schedule of underlying insurance . . . shall be maintained without alteration of terms or conditions in full effect during the currency of this policy except for any reduction of the aggregate limits of liability in the underlying insurance because of injury or destruc*603tion.” The latter provision specifically refers to reduction “because of injury or destruction,” while the provision setting forth Continental’s promise to pay losses in excess of stated limits of liability as they may be reduced does not specifically refer to a cause or causes of reduction. From this, the court concludes that it is unclear whether Continental has promised to pay losses in excess of the underlying policy’s stated limit of liability, reduced by causes other than “injury or destruction,” including the underlying insurer’s insolvency. In keeping with established principles, the court then resolves the perceived ambiguity in favor of the insured.
But, there is no ambiguity. An underlying insurer’s aggregate limit of liability cannot be reduced except by a prior payment. Even if it could be reduced in some other way, the one fact that is critical to the resolution of this case is that the aggregate limit of liability of an insurer cannot be reduced by insolvency. In the absence of special terms, not present here, the insolvency of an insurer, or that of any other debtor, does not affect the amount of its indebtedness. “Liability” is simply another word for indebtedness, and a limit of liability set forth in an insurance policy is but a ceiling on its indebtedness in the event of a loss incurred by its insured. The inability of an insurer to pay its debts does not extinguish them nor lower the ceiling on its indebtedness. Therefore, it cannot rightly be said that, because of Reserve’s insolvency, “the applicable limit of liability of the underlying insurance is less than as stated in the schedule of underlying insurance because the aggregate limit of liability of the underlying insurance has been reduced.” The aggregate limits of Reserve’s liability simply were not reduced by Reserve’s insolvency. Therefore, Continental’s policy did not provide first dollar coverage to the insured. Nothing in Fageol Truck & Coach Co. v. Pacific Indent. Co., 18 Cal.2d 748, 751-752 (1941), cited by the court as supportive of its holding, suggests otherwise. Unlike the present case, the policy there did not provide coverage in excess of the limits of underlying insurance.
The court does not consider whether the words “applicable limits of liability” are ambiguous, nor whether the word *604“applicable” may be interpreted as meaning “collectible.” Ante at 599 note 2. The plaintiff argues that the word “applicable” may fairly be construed as meaning “capable of being applied” at the appropriate time for payment, and that, since no money was collectible from Reserve at that time, the limit of liability capable of being applied (applicable) was zero. That argument is without merit.
The word “applicable,” modifying the words “limits of liability of underlying insurance,” simply and unambiguously distinguishes the limits of liability stated in the underlying policy covering the loss from the limits of liability contained in irrelevant underlying policies. Since the insured’s loss in this case arose out of a claimant’s falling down on its premises, Reserve’s general liability policy, including its limit of liability, covered the loss, that is, it was capable of being applied. On the other hand, use of the word “collectible” to modify “limits of liability” would make no sense. Limits of liability, that is, ceilings placed on obligations, simply are not collectible. Money is collectible, but rights and duties and limits thereon, since they cannot be gathered or received, are not “collectible” as that word is commonly understood. Collectibility of the underlying insurance proceeds, therefore, has nothing to do with establishing the “applicable limits of liability of underlying insurance.” It follows that the applicable limits of liability in this case were $300,000, and not zero dollars.
The court disclaims reliance on “the concept of an insured’s objectively reasonable expectations as a possible guide to the determination of an insured’s rights under an insurance policy. See Home Indem. Ins. Co. v. Merchants Distribs., Inc., 396 Mass. 103, 107 (1985), and cases cited.” Ante at 600, n.4. Nevertheless, the court states that, “if a reasonable policyholder thought about the subject at all, it probably would have assumed that the excess insurer would step into the void whenever, for whatever reason, the primary insurance company could not or would not meet its policy obligations.” Ante at 600-601. I do not agree.
As I have attempted to show, there is nothing in Continental’s policy that even suggests an undertaking by Continental to *605protect the insured from the risk of an underlying insurer’s insolvency. Furthermore, there has been no showing that the “structure, content, manner of printing of the [insurance contract], or the methods and practices of marketing . . . creat[ed] reasonable expectations of a [greater area] of coverage” than is set forth in the unambiguous provisions of Continental’s policy which are discussed in the court’s opinion and in mine. Jefferson Ins. Co. v. Holyoke, 23 Mass. App. Ct. 472, 477 (1987), quoting Davenport Peters Co. v. Royal Globe Ins. Co., 490 F. Supp. 286, 291-292 (D. Mass. 1980).
I would reverse the judgment below.