Supreme Court To Insurers: SIR You Listening? Examine Your Self-Insured Retention Provisions

Supreme Court To Insurers: SIR You Listening? Examine Your Self-Insured Retention Provisions

It is natural for insurers to look at coverage decisions and consider whether they call for any changes to their own policies. But, as a practical matter, only some decisions (or trends of decisions) can serve as a catalyst for amendments to policy language.

Insurers that issue policies with a self-insured retention understandably have a lot invested in the language of their SIR provisions – especially to the extent that they address how to determine whether the retention has been satisfied. The Florida Supreme Court’s decision in Intervest Construction of Jax, Inc. v. General Fidelity Ins. Co., No. SC11-2320 (Fla. Feb. 6, 2014) [enhanced version available to subscribers], addresses this issue. Given the importance of such a provision, and the court’s analysis, Intervest may be one of those decisions that is important enough for insurers to review with an eye toward their own policies.

Cases involving SIRs can be complex. But Intervest involves a commonly seen and easy to understand fact pattern. That’s another reason why the decision is important. I’ve always had a sense that complex decisions, involving unique and hard to follow facts and complex issues, are less likely to be considered by other courts looking for guidance.

Intervest arose under these familiar circumstances. Katherine Ferrin, the owner of a residence constructed by ICI Homes, fell while using attic stairs installed by Custom Cutting. The contract between Custom Cutting and ICI contained an indemnification provision requiring Custom Cutting to indemnify ICI for any damages resulting from Custom Cutting’s negligence. Ferrin filed suit against ICI but did not file suit against Custom Cutting. ICI sought indemnification from Custom Cutting under the terms of the subcontract.

Custom Cutting maintained a commercial general liability policy with North Pointe Insurance. ICI was insured by General Fidelity under a policy that was subject to a $1 million self–insured retention. The SIR endorsement stated that General Fidelity would provide coverage only after the insured had exhausted a $1 million SIR.

ICI, Custom Cutting, North Pointe, General Fidelity and Ferrin participated in a mediation. The parties agreed to a $1.6 million settlement. North Pointe agreed to pay ICI $1 million to settle ICI’s indemnification claim against Custom Cutting. ICI paid the $1 million to Ferrin. Left at issue was whether ICI or ICI’s insurer, General Fidelity, was responsible for paying Ferrin the remaining $600,000. Putting aside lots of steps, the case made its way to the Supreme Court of Florida, on questions certified by the Eleventh Circuit. This is a not uncommon procedure by the Eleventh Circuit in coverage cases. It is the “Go ask your mother” of judicial decision making.

The crux of the issue was this. As ICI saw it, General Fidelity was obligated to pay the remaining $600,000 because Custom Cutting/North Pointe’s contribution of $1 million to settle ICI’s indemnification claim, which was then passed on to Ferrin, satisfied the SIR obligation in the policy. General Fidelity saw it differently. It argued that North Pointe’s $1 million payment, to settle the indemnity claim, did not reduce the SIR because the payment originated from Custom Cutting, not ICI. Therefore, as far as General Fidelity was concerned, the terms of the policy required ICI to pay the additional $600,000 to settle Ferrin’s claim.

The decision is somewhat lengthy and provides more detail than can be addressed here. But here’s the upshot. The SIR provision in the General Fidelity policy stated such things as the following: “We have no duty to defend or indemnify unless and until the amount of the ‘Retained Limit’ is exhausted by payment of settlements, judgments, or “Claims Expense” by you.” “The ‘Retained Limit’ will only be reduced by payments made by the insured.” “The payment of the ‘Retained limits’ by the insured is a condition precedent for our obligation to pay any sums either in defense or indemnity and we shall not pay any such sums until and unless the insured has satisfied its “Retained limits.’”

The court looked at several California decisions for guidance. It compared the language of the SIR contained in the General Fidelity policy with the SIR provisions in those cases. In one California case, the SIR provision expressly stated that, regardless of other insurance, the insured would continue to be responsible for the full SIR before the limits of the policy applied. In another of the California cases, the SIR endorsement required the named insured to “make actual payment” of the SIR amount and expressly provided that “[p]ayments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention.” And in still another, the “other insurance” provision required the insured to pay all amounts within the retained amount “from its own account.”

As the Florida Supreme Court saw it in Intervest, there was no similar language or provision contained in the General Fidelity policy: “The language of the instant [General Fidelity] policy states that the retained limit must be paid by the insured, but does not specify where those funds must originate. Requiring payment to be made from the insured’s ‘own account’ is not necessarily the same as requiring that it be paid ‘by you.’” Accordingly, the Florida high court held that the General Fidelity policy allowed the insured to apply indemnification payments received from a third party toward satisfaction of its $1 million self-insured retention.

Insurers that issue policies with a self-insured retention have a lot of interest in how such policies proscribe the manner for their exhaustion. The moral of Intervest is clear. When making that determination, fine point distinctions in policy language can dramatically alter the outcome of this all-important issue. Intervest provides insurers with food for thought for considering whether their self-insured retention provisions – even if they think they are clear – are clear enough.

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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