Westchester Surplus Lines Insurance Co. v. Keller Transport, Inc., 2016 MT 6 (Jan. 12, 2016) (Rice, J.; McKinnon, J., dissenting) (6-1, aff’d & rev’d)
Issue: (1) Whether the district court erred in determining Westchester’s excess policy provided an additional $4 million in coverage under the “general aggregate” limit; and (2) whether the district court erred in holding Westchester breached its duty to defend.
Short Answer: (1) No, and (2) yes.
Affirmed and reversed
Facts: Keller leased a tanker truck from Wagner to transport gasoline to Kalispell. The trailer overturned along the east shore of Flathead Lake, and spilled 6,380 gallons of gasoline, which flowed under the highway and beneath several homeowners’ properties.
Keller and Wagner were insured under a commercial transportation policy from Carolina Casualty that provided commercial auto coverage, with a $1 million per accident policy limit, and commercial general liability coverage, with a policy limit of $1 million for each occurrence and a $2 million “general aggregate” limit. The CGL stated that its “General Aggregate” limit was the most that would be paid under the CGL coverage regardless of the number of insureds or persons making claims. The policy also stated that the insurer had the duty to defend its insureds but that the duty terminated when coverage limits were exhausted by payment of judgments or settlements.
Westchester insured Keller and Wagner under an excess liability policy with limits of $4 million for each occurrence and a $4 million “general aggregate.” The policy did not define “general aggregate.” Westchester’s policy included a federally mandated endorsement, MCS-90, which stated the policy was “excess” and that “the company shall not be liable for amounts in excess of $4,000,000 for each accident in excess of the underlying limits of $1,000,000 for each accident.”
Late in 2008, Carolina exhausted the $1 million auto limit. It notified Keller and Wagner that its duty to defend would end once the auto coverage was exhausted. In early 2009, Homeowners sued Keller and Wagner in Lake County, alleging negligence for both the accident and the cleanup. Westchester undertook the defense pursuant to a reservation of rights until December 2009, at which point it had paid $4 million in cleanup and litigation costs. Claiming the excess coverage for Carolina’s auto policy had been exhausted, Westchester referred the defense back to Carolina in early 2010. Keller and Wagner did not challenge Westchester’s conclusion that its policy limits had been reached.
Carolina continued to provide a defense, and in August 2010 filed this declaratory judgment action in Missoula County. Alleging the negligent cleanup was a separate occurrence, Homeowners then claimed that Carolina’s CGL policy provided an additional $1 million, with an additional $4 million excess coverage under the Westchester policy.
In January 2011, Keller and Wagner filed confessions of judgment in the Lake County action, stipulating that Homeowners had suffered $13 million in damages, to be offset by a $3 million settlement with another defendant. Keller and Wagner assigned their rights under the Carolina and Westchester policies to Homeowners. Carolina and Westchester moved to intervene in the Lake County case prior to the filing of the confessions of judgment, claiming that court must determine the reasonableness of any damages judgment and that they had a right to participate in that determination. The Lake County district court stated it would not rule on the motion to intervene until the Missoula court resolved the coverage issue.
Procedural Posture & Holding: All parties moved for partial summary judgment as to whether Carolina’s CGL policy and Westchester’s excess policy provided additional coverage, and whether Carolina and Westchester had breached their duty to defend Keller and Wagner. The district court held that Carolina’s CGL policy provided an additional $1 million in coverage. Reasoning that the phrase “general aggregate” in Westchester’s policy was ambiguous, it held that the excess policy provided an additional $4 million in coverage. Finally, it held both insurers breached their duty to defend. Westchester filed a 60(b) motion, and Homeowners filed a second motion for partial summary judgment for a determination that the stipulated damages were reasonable. The district court denied the 60(b) motion and granted Homeowners’ second motion for partial summary judgment on the grounds that Westchester was not entitled to a reasonableness hearing and that the stipulated judgments were reasonable as a matter of law. Westchester appeals, and the Supreme Court affirms the coverage holding and reverses to duty-to-defend holding.
Reasoning: (1) Westchester’s policy fails to define “general aggregate” in a policy that provides excess coverage for an underlying policy with more than one coverage and more than one limit. A reasonable consumer could expect $4 million excess coverage under both the auto and CGL portions of the Carolina policy, for a total of $8 million. Applying the rule that any ambiguities in an insurance contract are construed in favor of coverage, the Court holds that Westchester’s policy provides an additional $4 million excess coverage.
(2) Westchester had a continuing duty to defend its insureds. Homeowners argue that duty was breached because Westchester withdrew before the additional policy limits were exhausted. Westchester argues the insureds were represented by counsel at all times and that it and Carolina paid of all of the insureds’ defense costs through the entry of the confessions of judgments. At the time Westchester withdrew from Keller and Wagner’s defense, no party had suggested there might be additional coverage under the CGL policy. Homeowners did not make such a claim until eight months after Westchester withdrew. Keller and Wagner were represented at all times, and the insurers eventually paid all defense costs.
Justice McKinnon’s Dissent: Justice McKinnon concludes the “general aggregate” language of the policy is unambiguous, and establishes a maximum liability of $4 million.