The municipal league's argument that an umbrella policy should contribute to a settlement funded by a municipal risk-pooling organization failed before the Illinois Court of Appeal. Illinois Municipal League Risk Management Ass'n v. State Farm Fire and Casualty Co., 2016 Ill. App. LEXIS 45 (Ill. Ct. App. Feb.2, 2016).

   Roel Valle, a city clerk for the Village of Lynwood, was insured under an umbrella policy issued by State Farm. Lynwood belonged to the Illinois Municipal League Risk Management Association (Association), a municipal risk-pooling organization. 

   Valle was involved in an accident while driving a car owned by Lynwood. The other driver sued Valle and Lynwood. Valle and Lynwood notified the Association and State Farm about the lawsuit. The Association defended and settled with the other driver for $5.8 million. State Farm did not assist in the defense and did not contribute to the settlement. 

   The Association, as subrogee of Valle and Lynwood, sued State Farm, alleging State Farm breached its contract by failing to contribute its policy limits to the settlement. Both parties moved for summary judgment.

   The State Farm umbrella policy required Valle to purchase automobile liability insurance as a primary policy. The policy noted under its "Other Insurance" provision that "[t]he coverage provided by this policy is excess over all other insurance and self insurance." The Association's contract with Lynwood provided,

Other Coverage or Insurance: If any other valid and collectible coverage, whether by commercial insurance, self-insurance or other funding mechanism, applicable to any loss or expense covered by the Association is available to the Members, the coverage afforded by the Association shall be in excess of and shall not contribute with such other coverage. 

   The trial court found that the Association, by contract, agreed to pay the liability of Lynwood and Valle, up to the contract limits of $8 million, and State Farm's umbrella policy provided coverage for the accident only if the liability exceeded $8 million. Because the underlying lawsuit settled for less than $8 million, the trial court held that State Farm owed the Association nothing.

   The appellate court affirmed. An umbrella policy, in contrast to a primary policy that contains an other insurance clause, was recognized as providing unique and special coverage.The court construed the umbrella policy to provide insurance coverage only when the loss exceeded available limits of insurance and self-insurance, including pooled self-insurance. 

   State Farm's coverage was "excess over all other insurance and self insurance." Because the Association provided coverage for the accident by self-insurance, the Association provided coverage for the losses up to $8 million, and State Farm's policy would cover losses only in excess of that amount.