Court Opinion

ID: 7002214
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:44:09.564673+00
Date Added: 2024-06-11T16:09:45.651085
License: Public Domain

GRABER, Circuit Judge,
dissenting:
I respectfully dissent because I disagree with majority’s conclusion that the first *1104and second layers of the RRG policy are co-primary with the MICA policy. As the majority recognizes, the question before us is whether the MICA policy — a primary policy with an “other insurance” clause— must be exhausted before liability attaches under the RRG policy — an excess policy— when the specific primary policy underlying the RRG policy already has been exhausted. Maj. op. at 1096. Because the general rule is that all primary insurance policies must be exhausted before an excess insurance policy provides coverage, and because this case does not require the application of a different rule, I conclude that MICA must contribute its share before the RRG policy becomes applicable.
As the majority recognizes, the MICA policy is a primary policy with an “other insurance” clause. Maj. op. at 1095. The majority also acknowledges that the RRG policy provides excess coverage. Maj. op. at 1099 n.3. Nevertheless, the majority concludes that, after the exhaustion of the Samaritan policy, the first two layers of the RRG policy should be treated as co-primary with the MICA policy. Maj. op. 1096-1099. For the reasons explained below, this conclusion is erroneous.
Contrary to the majority’s suggestion otherwise, the RRG policy is a “true excess” policy. By definition, a “true excess” policy is one in which “the same insured has purchased underlying coverage for the same risk” St. Paul Fire & Mar. Ins. Co. v. Gilmore, 168 Ariz. 159, 812 P.2d 977, 980 (1991) (emphasis in original). Liability under an excess policy attaches only after the underlying primary coverage has been exhausted. Id. The RRG policy falls within this definition. The same insured, the Samaritan Foundation,1 purchased both the Samaritan policy, a “Comprehensive Hospital Liability Insurance” primary policy, and the RRG policy, a “Health Care Excess Liability Policy” in excess to, among other identified policies, that Samaritan policy.2 Both policies cover the same risk: liability for medical malpractice. Further, both the first and second layers of the RRG policy require that the insured maintain underlying primary insurance that must be exhausted before the RRG coverage takes effect.
“As a rule, ... excess and umbrella policies are regarded as excess over and above any type of primary coverage.... ” 15 Couch on Insurance 3d § 220:41 (1999) (emphasis added); see also Am. Family Mut. Ins. Co. v. Cont'l Cas. Co., 23 P.3d 664, 2001 WL 184770, *2-*3 (2001) (stating the rule that primary insurers pay before excess insurers); United Servs. Auto. Ass’n v. Empire Fire & Mar. Ins. Co., 134 Ariz. 64, 653 P.2d 712, 714 (1982) (holding that an insurer providing residual insurance pays after all primary insurers, provided that is the intent of the residual insurer); Douglas R. Richmond, Issues and Problems in “Other Insurance, ” Multiple Insurance, and Self-Insurance, 22 Pepp. L.Rev. 1373, 1399-1402 (1995) (stating that the “majority rule” is that true excess policies provide coverage “over and above all primary coverages, including primary policies with excess ‘other insurance’ clauses” (emphasis added)). The question *1105for us, then, is whether the circumstances here require the application of a different rule. The answer is “no.”
The majority relies on three cases for the proposition that, in some circumstances, a “true excess” insurer should be considered to provide “primary” insurance after the specified underlying policy is exhausted. Maj. op. at 1096. Each of those cases is materially distinguishable.
In Canal Insurance Co. v. United States Fidelity & Guaranty Co., 149 Ariz. 578, 720 P.2d 963, 965 (1986), the Arizona Court of Appeals held that an excess policy provided primary coverage after the exhaustion of the underlying primary policy because the excess policy, “by its very terms, ... became primary coverage when the $500,000 limit of the underlying policy was exhausted.” (Emphasis added.) The policy provided:
“Upon the exhaustion of an aggregate limit of liability applying to a particular coverage afforded by an insurance policy designated in Section 1.7 ... this policy shall replace such exhausted aggregate limit as primary insurance, subject to the terms and conditions of such insurance policy....”
Id. at 964-965 (emphasis added by the Arizona court). RRG’s policy does not contain similar text.
Similarly, the conclusion of the Texas Court of Appeals in U.S. Fire Insurance Co. v. Aetna Casualty & Surety Co., 781 S.W.2d 394, 396 (1989), that an excess policy provided primary insurance upon the exhaustion of the underlying policy hinged on the specific terms of the excess policy. An endorsement to the excess policy provided:
“In consideration of the premium charged, it is agreed that this policy shall apply regardless of the existence of other insurance that would apply on the same basis.
It is further agreed that there shall be no reduction in the limits of liability, contributions by equal shares, or contributions by limits because of the existence of other insurance that would apply on the same basis.”
Id. (emphasis added by the Texas court). The court held that the text of the quoted provision, and the fact that the insured had paid an additional premium for the endorsement, established that the policy was to take effect upon the exhaustion of the specific underlying policy regardless of the existence of other applicable primary insurance. Id. at 399. The court observed by way of contrast that, in a case such as ours, in which the policy lacks a similar provision, the general rule that an excess policy is considered “excess, not only of specified underlying insurance, but of a primary policy with an ‘other insurance’ clause” likely would apply. Id.
Finally, in 20th Century Insurance Co. v. Liberty Mutual Insurance Co., 965 F.2d 747, 757 (9th Cir.1992), a case applying California law, the court held that liability under the excess policy at issue attached upon the exhaustion of the specified underlying policy and that the policy was not excess to all other primary policies. The court noted that the excess policy stated that “ ‘[t]he insurance afforded by this certificate shall follow that of the primary insurer’ ” and identified the primary insurer as the specific underlying carrier. Id. The opinion made no mention of whether the policy contained text stating that liability would attach only after other available insurance had been collected. The court then concluded that the terms of the insurance contract did not demonstrate an intent “to be excess to all primary policies.” Id. (emphasis in original). Twentieth Century applies California law, id. at 754, not Arizona law, and the terms of the contract here — as I will explain next — do demonstrate such an intent.
*1106In this case, neither of the policies providing the first and second layers of RRG coverage contains text analogous to that which proved determinative in Canal Insurance and U.S. Fire. Furthermore, by contrast to 20th Century, each policy expressly provides that it will not take effect until all other insurance has been exhausted.
The first-layer RRG policy states that its coverage applies to “all sums which the Insured shall become legally obligated to pay as loss which is in excess of the total limit(s) of all Underlying Insurance specified as Section 11(b) of the Declarations subject to the limit of liability stated in Section 1(c) of the Declarations of this Excess Policy.” (Emphasis added.) The policy expressly defines “loss” as “the sums paid or payable in settlement of claims for which the Insured is liable after making deductions for all other recoveries, salvages or other insurance (other than recoveries under Underlying Insurance whether recoverable or not) and shall exclude all expenses and costs.” (Emphasis added.) Thus, by its terms, the policy does not require RRG to pay for any “loss” until after deductions have been made for “all ... other insurance” available to the insured.
Likewise, the second-layer RRG policy, by its terms, does not take effect until all primary insurance has been exhausted. The policy provides:
WE will pay on behalf of the INSURED the ULTIMATE NET LOSS in excess of the APPLICABLE UNDERLYING LIMIT which the INSURED shall become legally obligated to pay under the following Coverages, and to the extent not otherwise excluded under Part VIII of this Policy.
In turn, the second-layer RRG policy defines “APPLICABLE UNDERLYING LIMIT” to mean
the total of the limits of liability of the UNDERLYING INSURANCE as stated in the Schedule of Underlying Insurance and the limits of any other valid and collectible insurance less the amount, if any, by which any aggregate limit of such insurance has been reduced by payment of loss for claims made during this POLICY PERIODU
(Emphasis added.) By its express provisions, then, the second layer is excess to all other applicable insurance. This policy’s “Other Insurance” clause also evidences the insurer’s express intent that the policy not take effect until all primary insurance is exhausted:
The insurance afforded by this policy shall be excess insurance over any other valid and collectible insurance available to the INSURED, whether or not described in the Schedule of Underlying Insurance (except insurance purchased to apply in excess of the sum of the underlying limit or retained limit and the limit of liability hereunder) and applicable to any part of ULTIMATE NET LOSS, whether such insurance is stated to be primary, contributing, excess or contingent. Nothing herein shall be construed to make this policy subject to the terms, conditions or limitations of such other insurance.
(Emphasis added.)
The majority contends that the RRG policy cannot be excess to the MICA policy because the two policies do not insure the same risk. The majority reasons that the RRG and MICA policies cover somewhat different (although overlapping) periods of time. Maj. op. at 1097 -1098. The dates of coverage, although they may affect the extent of an insurer’s liability, do not define the kind of risk insured. Moreover, asking whether the RRG policy insures the same risk as the MICA policy is the wrong place to start the analysis. As discussed *1107earlier, the RRG was written in excess of a specific underlying policy insuring the same risk (the Samaritan policy), establishing that the RRG policy provides “true excess” insurance. Once RRG’s status as an excess insurer has been determined, the only question is whether the policy is written to make it excess to other, unrelated primary policies covering the same risk. Presumably, MICA would not be a party to this case if its policy did not reach the “same risk” — i.e., medical malpractice during the same relevant period — as the RRG and Samaritan policies.
The majority also emphasizes that RRG did not know about the MICA policy when it wrote its first and second layers of excess coverage. Maj. op. at 1096 -1097. That may be so, but its lack of knowledge does not translate into a conclusion that the RRG policy was in excess only of enumerated underlying policies. That is because RRG expressly wrote its coverage to take account of other, unnamed primary insurance, and nothing in Arizona law allows us to override such express contractual terms.
Indeed, despite the majority’s statement to the contrary, maj. op. at 1098, this case is indistinguishable from United Services.3 In that case, the Arizona Court of Appeals held that an excess policy, written in excess of a specific underlying policy, also was excess as to an unrelated primary policy with an “other insurance” clause, after the exhaustion of the specific underlying policy. 653 P.2d at 713-14. The excess policy at issue defined “loss” in terms almost identical to those in the first layer of the RRG policy. Id. at 713. The court reasoned that the excess policy there, just like the RRG policy here, would “[ujnder no set of circumstances” provide primary coverage — presumably because the underlying insurance would always have to be exhausted before the excess policy came into effect. Id. at 714. By contrast, the primary policy with the excess clause, like the MICA policy, would provide primary coverage in the absence of any other applicable primary insurance. Id. On those facts alone, the court concluded that the primary policy “necessarily contemplated a different and probably a greater risk than that covered” by the excess policy. Id. Additionally, because the primary policy, like the MICA policy, “was issued to specific persons for primary limited amounts, [the primary insurer] was in a better position to evaluate its risk than would be a purely excess carrier against whom no claims might be made even though its insureds had repeatedly incurred liability in amounts within their primary coverage.” Id. As a result, the court articulated a simple rule for resolving conflicts between excess policies and primary policies with “other insurance” clauses: “[IJnsurers who issue residual protection only are last to pay so long as that is their expressed intent.” Id. (emphasis in original).
Additionally, the Arizona Court of Appeals’ decision in Arizona Joint Underwriting Plan v. Glacier General Assurance Co., 129 Ariz. 351, 631 P.2d 133 (1981), offers further support for the conclusion that the RRG policy should be treated as excess to the MICA policy. Although the majority correctly summarizes most of the analysis in that case, maj. op. at 1098 -1099, it fails to mention the sec*1108ond reason stated by the Arizona court in support of its conclusion that a primary insurer should pay before an excess insurer: “Further, it would be a windfall to Glacier, which must be considered along with MICA as Hayden’s primary insurers, to pay nothing merely because a fellow primary insurer had additional excess coverage.” Id. at 136.
That same reasoning applies with equal force here. It would be a windfall to MICA if its liability were limited by the fortuity that the Samaritan Foundation purchased excess insurance covering the Samaritan policy.
In short, I conclude that the first two layers of the RRG policy clearly express the insurer’s intent that the policy be excess to all primary policies. Nothing in Arizona law prevents an excess insurer from writing such coverage. Under the rule expressed in United Services, MICA must contribute its share of the judgment before RRG can be required to contribute. Accordingly, I dissent.

. The Samaritan policy appears to provide coverage to Dr. Romberger by virtue of a clause stating that it covers physicians who contract with the hospitals and health-care providers within the Samaritan Foundation. The majority suggests that Dr. Romberger purchased the Samaritan policy himself. Maj. op. at 1094-1095. That suggestion is not supported by the record.

. The Samaritan Foundation was the insured identified in the original RRG policy. The policy was later amended to identify "Samaritan Health Systems” as the named insured. The reason for the name change is not clear from the record, but the parties do not suggest that this name change has legal significance.

. The majority suggests that United Services is distinguishable because the result turned on analysis of the circumstances of the parties. However, the Arizona court's analysis, for the most part, was based on the contractual definition of "loss” quoted in this dissent and on "common experience and common sense.” United Servs., 653 P.2d at 714. The court acknowledged that there was "no economic, statistical or actuarial evidence in the record." Id.