Sometimes I like to get a little wild and crazy and pretend to be a coverage attorney. I had such an experience recently and the end result was so interesting I thought I would share it.
My client was sued after a customer allegedly tripped and fell on a floor mat at the store entrance. The incident happened early in the morning. Overnight, the floors were cleaned by a vendor, including under the mats, so the mats were replaced by the vendor after cleaning was done.
We tendered to the vendor and the tender was denied outright. The vendor’s position was that based on the wording of the complaint, the allegations were against my client and not in any way based on the actions of the vendor. Since the allegations did not “arise out of” any negligent act or omission of the vendor, tender was denied.
We also tendered to the vendor’s insurance carrier and that tender was denied. The carrier advised that the vendor had a $1 million self-insured retention (“SIR”) and a $1 umbrella million policy over the SIR. The carrier had no duty to get involved with the litigation or review any tenders until the initial $1 million SIR was exhausted.
In the underlying case, the vendor was ultimately made a direct defendant so we re-tendered to the vendor and its carrier, but the same tender denials were issued. We then defended the underlying case, winning summary judgment and having it upheld on appeal. The vendor settled rather than file a summary judgment motion.
Once the underlying case was fully resolved in our favor, we filed a breach of contract action against the vendor. We argued the vendor breached the contract by not providing a defense to my client and breached the contract by having a $1 million SIR with a $1 million umbrella, rather than $2 million in coverage with an insurance company as was required under the contract. Discovery was not needed and both parties quickly filed cross motions for summary judgment.
The trial court ruled against us on both counts and we appealed. The ruling by the appellate court was very well written in my opinion, and not just because I won!
This was a tough case to have go up on appeal because most of my clients have significant SIRs so while I wanted to win, I did not want to create “bad law” for my clients. The duty to defend is broad and as a defense attorney, I do not want my self-insured clients to be held to the strict requirements of the duty that are imposed on insurance carriers. On the flip side, if my client contracts for insurance coverage, it expects to be given that coverage. The way the appellate court handled this issue was perfect.
Regarding the duty to defend on the vendor, the appellate court agreed with the vendor that the duty was based just on the contract language and not the same as the broad duty to defend imposed on an insurance carrier. This is a good decision because it protects companies with SIRs from being treated as insurance companies.
Regarding the breach of contract for having an SIR, this is where the appellate court ruled in our favor, and rightfully so. The contract required $2 million in coverage from a well-established insurance company. Any changes or revisions to this contractual requirement had to be agreed to in writing. Having a $1 million SIR is absolutely not consistent with the contractual requirement and it was never agreed to by my client. For this reason, the appellate court found the contract was breached and the vendor owed my client a defense.
The basis of the decision was that if there had been insurance coverage as required by the contract, an insurance company would have been involved and it would have had a broader duty to defend my client. Based on the denial letter from the carrier, it was clear it would have accepted the tender, at least under a reservation of rights, had the vendor not had the $1 million SIR. The case was remanded back to the trial court for a hearing on damages.
So what is the lesson here? – there are two:
- If a contract requires you have to coverage with an insurance company, do not rely on your SIR unless you have it in writing that this is agreed to by the other party to the contract; and
- Do not allow your vendors to have SIRs in place of insurance coverage because there is less of a duty to defend.
A copy of the appellate court’s opinion is attached for your reading pleasure.