If the named insured does not satisfy the self-insured retention (SIR), can the additional insured undertake payment to trigger coverage? Looking at the language of the policies under consideration, the court answered no in Forecast Homes, Inc. v. Steadfast Ins. Co., No. G040876, 2010 Cal. App. LEXIS 172 (Cal. Ct. App. Jan. 12, 2010).
Forecast was a housing developer. It hired subcontractors to build the homes and required them to maintain general liability insurance policies naming Forecast as an additional insured. Forecast's contract with each subcontractor specified in great detail the required policy language and coverage specifications, but did not require any specific language regarding the policies' SIR endorsements.
From 2001 to 2003, Forecast was served with five different lawsuits for construction defects. Forecast tendered the lawsuits to Steadfast, who insured many of the subcontractors. None of the subcontractors were named as defendants in the underlying suits. Steadfast denied Forecast's tender because only the named insured under each policy could satisfy the bargained for per occurrence amounts set forth in the SIR endorsements and none of the subcontractors had satisfied the SIR. The lower court agreed because the policies only allowed the named insured to satisfy the SIR amounts.
The appellate court noted there were two types of SIR endorsements in which Forecast was an additional insured, Form A and Form B. Who could satisfy the SIR depended on each policy's express provisions.
Form B's SIR endorsement started with the boilerplate sentence, "'you' and 'your' refer to the named insured . . . ." The endorsement then limited who could satisfy the SIR by stating, "it is a condition precedent to our liability that you [the named insured] make actual payment until you have paid" the SIR amount. Further, "Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the SIR." Because "you" was defined as the named insured, it logically followed the named insured had to pay defense costs to satisfy the SIR.
Form A did not include the sentence, "Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the SIR." It did, however, describe who's obligation it was to pay the SIR by stating, "'you', the named insured, must make actual payment" of defense costs and/or damages.
Finally, enforcement of the SIR endorsements' plain language did not violate public policy. Forecast acknowledged the primary purpose of an SIR was to allow the named insured to contain its insurance costs. It was the subcontractors, not Forecast, that formed the insurance contract with Steadfast. Further, Forecast could have required its subcontractors to obtain policies listing Forecast as a named insured, but this would have resulted in higher insurance premiums, increasing the cost of the subcontractors and overall bid price, thereby jeopardizing Forecast's chances to gain the development contract.
Although this decision was rendered as unpublished opinion, the appellate court granted Steadfast's requested to publish the opinion on February 11, 2010.
