The Ninth Circuit affirmed the district court's ruling that the excess policy was triggered by settlements exhausting the primary policy. Westport Ins. Corp. v. California Cas. Management Company, 2019 U.S. App. LEXIS 4889 (9th Cir. Feb. 20, 2019).
Doe 1, Doe 2 and Doe 3 filed suit against the insured, Moraga School District, and three of its administrators for alleged sexual abuse by a teacher. The District was insured under primary general liability policies from 1991 through 1997. From October 1, 1994 to October 1, 1997, Westport also issued a series of annual excess policies that covered the District and its employees. California Casualty issued success liability policies to the Association of California School Administrators from July 1, 1986 to July 1, 2000, providing excess liability coverage to the District's school administrators.
Doe 1 alleged abuse during policy periods 1993-94, 1994-95, and 1995-96; Doe 2 alleged she was molested in the 1995-96 and 1996-97 periods. Does 3 alleged that she was molested in the 1996-97 period. Westport eventually settled the three suits for an aggregate sum of $15.8 million. California Casualty refused to reimburse Westport. Westport sued and secured summary judgment.
The court divided each Doe's settlement equally across the policy period(s) in which she alleged she was molested. Next, the court reduced each policy period amount by 25 percent to reflect the District's liability. Then, the court deducted $1 million from each policy period in accordance with Wesport's Primary policy limit. Finally, the court assessed liability against California Casualty up to $150,000 for each Administrator in each policy period. In total, the district court found California Casualty liable for $2.6 million of the $15.8 million paid to the Does collectively. Dissatisfied with the result, California Casualty appealed.
On appeal, the Ninth Circuit noted that California Casualty's policy was an excess policy requiring only that the "underlying primary collectible insurance or self-insurance" be exhausted before its coverage began. The policy required the exhaustion of only "primary" or "self" insurance as opposed to "all other" insurance or "primary and excess" insurance. Westport's policy, on the other hand, stated, "If there is any other collectible insurance available to the insured . . . this insurance will apply in excess of other collectible insurance. Accordingly, California Casualty's policy applied upon the exhaustion of the $1 million of underlying insurance, not after exhaustion of all other insurance.
California Casualty had denied excess coverage in the face of settlement demands far exceeding the primary layer. Therefore, it waived its argument that the lack of contemporaneous allocation of liability in the settlements precluded subsequent apportionment. The three settlement agreements released the District and the Administrators from liability and did not differentiate among the defendants. Given the blended pleadings and working of the settlement agreements, the district court did not abuse its discretion in allocating the liability equally among the District and the three administrators. Therefore, the district court's judgment was affirmed.
Thanks to Damon Key blogging colleague Mark Murakami for the heads up on this case.
