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Insurance Law

Court Declares Excess Policy Triggered Based On Insured’s Own Funding To Establish Exhaustion Of Primary

I rarely address primary--excess exhaustion cases in CO. They are often too policy language specific to offer any takeaways of substance. But I address Plantation Pipe Line Company v. Highlands Ins. Co., No. 12-29 (Tex. Ct. App. Aug. 29, 2014) here, [enhanced version available to subscribers]. It has a takeaway – that primary--excess exhaustion cases are, well, policy language specific. In addition, I included it because the court held that the insured’s participation, in funding the underlying limits, was permissible for establishing exhaustion. Insurers often argue that this should not be so.

The Texas appeals court framed the sole issue in the case in a tidy fashion: “[w]hether the trial court erred in ruling that Plantation, as a matter of law, forfeited all of its coverage under the excess policy it purchased from Highlands by settling its coverage claims against its lower-level insurers for less than the full limits of those policies, even though Plantation agreed to pay the difference between the underlying settlement amounts and the underlying policy limits.”

More specifically, at issue was coverage for Plantation Pipe Line’s environmental property damage liability on account of a pipe line leak that took place in 1975 when I was in third grade. Plantation spent close to $12 million on remediation efforts. Plantation had $7.9 million collectively in excess coverage (over a $100,000 SIR) from three insurers and then a $10 million excess policy from Highlands Insurance on top of that. Highlands was put into receivership. I’m sure that created a boatload of issues, but the court addressed the matter as if it did not.

Plantation sued the three excess insurers below Highlands for coverage. These three insurers, with $7.9 million between them in limits, collectively settled for $4,550,000. Plantation sought coverage from Highlands for the amount of the remediation costs that exceeded the $8 million in underlying limits. Highlands denied coverage. Plantation sued.

The issue is straightforward. As Plantation saw it, the underlying $8 million in coverage had been exhausted, as the amount that wasn’t paid by the settling underlying insurers – because they settled for less than their full limits – was made up for by Plantation’s payment.

The trial court disagreed, holding that “Highlands was not liable because the other insurers settled their claims with Plantation for less than their various full policy limits and because they had neither paid, nor had they been held liable to pay, the full limits on their individual policies.”

Plantation appealed and the Court of Appeals of Texas reversed. Here’s where it gets more complicated as the court’s decision was tied to the language of the Highlands policy.

The court looked to the limits language of the Highlands policy, and then inserted a follow-form definition from an underlying policy, and concluded that the Highlands policy now read as follows: “It is expressly agreed that liability shall attach to the Company only after the Underlying Umbrella Insurers have paid or have been held liable to pay the full amount of all sums which the insured or any organization as his insurer, or both, become legally obligated to pay as damages, whether by reason of adjudication or settlement, because of personal injury, property damage or advertising liability.” (emphasis added).

Based on this language – which addressed payment by the insured, including for settlements -- the court held that there had been exhaustion of the Highlands policy’s underlying limits: “Highlands has not disputed that Plantation and the other carriers altogether have paid a sum in excess of the attachment point ($8 million) of the Highlands policy. We believe that the language in the Highlands policy is unambiguous, and we see nothing that requires payment of losses solely by the insurers up to the attachment amount in the Highlands policy.”

As for a case that Highlands cited in support of its position, the court addressed it in detail and held that it did not dictate a different result, because, yes, it had different policy language.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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