Insurance Coverage Litigation
Second Edition

By Eugene Anderson, Esq., Jordan S. Stanzler, and Lorelie S. Masters, Esq.

TABLE OF CONTENTS
Preface xxxv
Acknowledgements xxxix

CHAPTER 1 AN INTRODUCTION TO STANDARD-FORM GENERAL LIABILITY INSURANCE 1-1
§1.01 Introduction 1-3
§1.02 Standardization 1-7

[A] Revising and “Saleability” 1-16
[B] Effects of Standardization 1-18

§1.03 The Drafting Process: Improvements and Clarifications 1-20
§1.04 Origins of “Comprehensive” Coverage 1-22

[A] Benefits and Selling Points of Comprehensive Coverage 1-25
[B] Drafters of the Standard-Form Policy 1-30

§1.05 Insurance Coverage for Gradual Injury 1-31
§1.06 Insurance Coverage Under Multiple Insurance Policies 1-34
§1.07 Broad Insurance Coverage for Bodily Injury 1-35
§1.08 Broad Insurance Coverage for Loss of Use 1-36
§1.09 The Sudden-and-Accidental Pollution Exclusion 1-37
§1.10 Insurance Coverage for Business Torts 1-38
§1.11 Post-1985 Comprehensive General Liability Insurance Policies 1-39
§1.12 Anatomy of an Insurance Policy 1-42

[A] The Declarations 1-42
[B] Who Is an Insured 1-43

[1] Additional Insureds 1-45
[2] Exclusions 1-48
[3] Anti-Indemnity Statutes 1-49
[4] Causation and Negligence 1-49
[5] The “Other Insurance” Problem 1-50
[6] Certificates of Insurance 1-51
[7] Coverage for Additional Insureds 1-51
[8] Coverage Under Additional Insured Endorsements 1-52
[9] Extent of Additional Insured’s Coverage 1-57
[10] Effect of “Other Insurance” Clauses 1-57

[C] The Limits of Insurance 1-59
[D] The Coverages 1-61
[E] Exclusions 1-63
[F] Definitions 1-64
[G] Conditions 1-65

§1.13 Self-Insurance 1-65

[A] Captives 1-67

CHAPTER 2 RULES OF INSURANCE POLICY INTERPRETATION
2-1
§ 2.01 Introduction: Insurance Policies as Contracts of Adhesion and Modern
Contract Theory 2-3

[A] The Textual Approach 2-7
[B] Modern Contract Theory 2-9

§2.02 The Purpose of Insurance 2-21
§2.03 Plain and Ordinary Meaning 2-24
§2.04 Ambiguity Construed Against the Drafter 2-28
§2.05 The Reasonable Expectations Doctrine 2-36

[A] Varied Applications 2-44

§2.06 Use of Evidence Outside the Insurance Policy to Interpret the Meaning of an Insurance Policy Term . 2-49
§2.07 Evidence of Trade Usage, Course of Dealing, and Course of Performance 2-57

[A] Trade Usage 2-57
[B] Course of Dealing and Course of Performance 2-59

§2.08 Varieties of Evidence 2-60

[A] Regulatory History 2-67
[B] Advertising and Promotional Materials: Elements of the “Contract” 2-68
[C] Inconsistent Positions 2-70
[Dl Other Documentary Evidence 2-70
[El Expert Testimony 2-73

§2.09 Arguments for Relaxing the Contra Proferentem Doctrine 2-76

[A] Rules for Interpreting Insurance Policy Terms Drafted by the Policyholder 2-77
[B] The “Sophisticated Policyholder” Defense 2-78

CHAPTER 3 INSURANCE COMPANY’S DUTY TO DEFEND AND PAY DEFENSE
COSTS AND DUTY TO SETTLE 3-1
§3.0l Introduction 3-3

[A] The Duty to Defend and the Duty to Pay Defense Costs 3-4
[B] Contents of This Chapter 3-7

§3.02 The Potential-for-Coverage Standard 3-9

[A] Groundless, False, or Fraudulent Claims 3-15
[B] Multiple Claims, Some Covered, Others Not 3-18
[C] Environmental Cases 3-25
[D] Pre-Tender Defense Costs 3-30

§3.03 Use of Extrinsic Facts to Determine an Insurance Company’s Duty to Defend 3-34
§3.04 Insurance Company’s Duty to Investigate 3-40
§3.05 Resolution of Doubts Regarding the Insurance Company’s Duty to Defend 3-45
§3.06 Disclaimers of Liability and Reservations of Rights 3-51

[A] Reservation of Rights 3-53
[B] Disclaimers of Liability 3-56

[1] Effect of Failure to Assert Defenses with Specificity in Disclaimer 3-57
[2] Timeliness of Disclaimer 3-60
[3] Liability for Costs of Settlement or Judgment 3-65
[4] Estoppel or Waiver When Insurance Company First Accepts,
But Later Attempts to Disclaim, Coverage 3-68

§3.07 Right to Independent Counsel 3-69
§3.08 Effect of Insurance Company’s Erroneous Refusal to Defend 3-76

[A] Recoverable Damages 3-78
[B] Loss of Rights Under the Insurance Policy 3-82

§3.09 Duty to Defend upon Exhaustion of Indemnity Limits 3-89

[A] The Unlimited Duty to Defend: Defense Clauses 3-89
[B] Decisions Construing Pre-1966 Form Language 3-90
[C] Decisions Construing 1966 Form Language 3-92

[1] Showing of Prejudice Required 3-95
[2] Cases Finding a Failure to Cooperate 3-98
[3] Waiver of Right to Rely on Defenses if Coverage Denied 3-99

§3.10 Effect of Coverage Defenses on the Insurance Company’s Duty to Defend 3-101

[A] Allegations of Fraud in the Procurement – 3-104
[B] Other Coverage Defenses 3-107

§3.11 Direct-Action Statutes 3-110

[A] Louisiana 3-111
[B] Wisconsin 3-113
[C] Puerto Rico 3-113
[D] Guam 3-115
[E] Use of Direct-Action Statutes Against Reinsurers 3-116

§3.12 Allocation of Defense Costs 3-117

[A] Case Law Refusing to Prorate Defense Costs to the Policyholder 3-118
[B] Case Law Apportioning Defense Costs to the Policyholder 3-123
[C] Apportionment of Defense Costs Among Insurance Companies 3-126

§3.13 Insurance Company’s Duty to Settle 3-130

[A] Basis of Duty in the Implied Covenant of Good Faith and Fair Dealing 3-131
[B] Settlement of a Claim by the Insurance Company Without the Policyholder’s Consent 3-134

[1] Prejudice Requirement 3-136

[C] Policyholder Need Not Prove Its Own Liability – 3-144

[1] Claims in Mass Tort Cases 3-148
[2] Public Policy 3-150 Exhibit 3-1 A Policyholder’s Checklist: Responding to Reservation of Rights 3-151

CHAPTER 4 TRIGGER OF COVERAGE 4-1
§4.01 Background

[A] Introduction: The General Rule and Coverage Under Multiple
Policy Periods 4-5

[1] Policy Language 4-6
[2] Repeated and Progressive Injury Cases 4-9

[B] Drafting History: Coverage Under Multiple Policies; Rejection of Alternative Trigger Theories 4-15

[1] The 1966 CGL Program: Clarification of Coverage for Gradual Injury 4-16
[2] Why the “Occurrence” Definition? 4-20
[3] Coverage Under Multiple Insurance Policies/ Manifestation and Other Trigger Theories Rejected 4-22
[4] The Toxic Tort Crisis (l970s-1980s): Manifestation Again Rejected 4-28
[5] Proposed Solution to the Multiple Policy Issue: The Claims-Made Policy 4-31

§4.02 Continuous Trigger 4-33

[A] Continuous Trigger of Coverage 4-33

[1] Po1icyholders’ Expectations 4-35
[2] Courts’ Concerns About Administrative Convenience 4-37

[B] Application of Continuous Trigger 4-39

[1] Trigger for Liability for Implantation of Silicone Gel Breast Implants 4-41
[2] Application of the Continuous Trigger in Construction Defect Cases 4-43
[3] Other Characterizations of the Trigger 4-46
[4] Insurance Industry Arguments for a Continuous Trigger 4-48
[5] Choice-of-Law Issues 4-50
[6] Conclusion 4-50

[C] Application of Continuous Trigger in Environmental Insurance Coverage Cases 4-51

§4.03 Exposure Trigger 4-57

[A] Exposure Trigger 4-57
[B] Application of Exposure Trigger 4-58
[C] Exposure Trigger in Environmental Insurance Coverage Cases 4-60

§4.04 Injury-in-Fact Trigger 4-61

[A] Injury-in-Fact Trigger 4-61
[B] Application of Injury-in-Fact Trigger 4-66
[C] Injury-in-Fact in Environmental Insurance Coverage Cases 4-74
[D] Proof of Injury-in-Fact 4-77

§4.05 Manifestation Trigger 4-84

[A] Manifestation Trigger 4-84
[B] Application of Manifestation Trigger 4-87

[1] Date of Diagnosability 4-87
[2] Assumption of Administrative Convenience – 4-87
[3] Application in Particular Contexts 4-89
[4] Claims-Made Effect 4-95
[5] Analogy to the “Known Loss” Theory 4-96
[6] Conclusion 4-96

[C] Manifestation Trigger in Environmental Insurance Coverage Cases 4-96

§4.06 Triggers of Coverage Under Other Circumstances 4-99

[A] Triggers of Coverage Applied in Other Fact Situations 4-99

[1] Installation of a Defective Product 4-100
[2] Installation of Asbestos 4-104
[3] Negligent Installation
[4] “Cause” Trigger

[B] Trigger of Coverage for a Policyholder’s Liability for Loss of Use 4-111

[1] 1966 Form 4-111
[2] 1973 Form 4-112
[3] 1986 Form 4-115

§4.07 Allocation 4-116

[A] Allocation: The Scope of Each Insurance Company’s Duty to Indemnify 4-119

[1] Applicable Policy Language
[2] Insurance Industry’s Contemporaneous Understanding of the Policy Language 4-122
[3] Majority Rule: Joint and Several Liability 4-126
[4] “Other Insurance” Clause Does Not Change the Result 4-139
[5] Minority Rule of Allocation: Proration 4-143

[a] Pro Rata Decisions 4-144
[b] Pro Rata Schemes 4-148
[c] Complications Raised by Proration 4-153

§4.08 “Anti-Stacking” Arguments and “Deemer Clauses” 4-156

[A] “Anti-Stacking” 4-159
[B] So-Called “Deemer Clauses” 4-160

§4.09 Survey of Law 4-163

[A] Survey of Law on Trigger of Coverage 4-163
[B] Survey of Law on Allocation 4-188

CHAPTER 5 NOTICE OF A CLAIM OR ACTION 5-1
§5.01 Introduction 5-3
§5.02 Jurisdictions Following Modern Rule 5-6

[A] Basis for the Modern Rule: Recognition of Insurance Policies as
Contracts of Adhesion 5-8

[1] Reasonable Expectations 5-11
[2] Forfeiture Interpretation 5-11
[3] Public Policy Considerations 5-12
[4] Excess Insurance 5-14

[B] Purpose of Notice Provisions 5-14
[C] Two-Step Test 5-16

[1] Did the Delay Constitute a Breach 5-19
[2] What Constitutes Prejudice? 5-20

§5.03 Jurisdictions Following Old Rule 5-25

[A] Is Timely Notice a “Condition Precedent”? 5-26
[B] Reasonableness of Policyholder’s Notice 5-28

§5.04 State-by-State Survey of the Notice Issue 5-32
§5.05 The Duty to Cooperate 5-51
§5.06 Difference in the Standard for Notice Under Excess Insurance Policies 5-56

[A] Reasonableness Standard Under the Notice Provisions in Excess
Insurance Policies 5-57

[1] Notice-Prejudice Rule and Prejudice-Presumption Rule 5-63
[2] Per Se Notice Rule 5-66

[B] Notice Law in New York 5-70

[1] Timeliness of Notice as Question of Fact 5-72
[2] New York’s Modern Rule for Insurance Companies 5-75

[C] Insurance Industry Custom and Practice Recognizing That Notice to Umbrella and Excess Insurance Companies Is Different 5-77
[D] Waiver of a Notice Defense by Excess Insurance Companies 5-83

§5.07 “Loss Payable” Clauses 5-89
Exhibit 5-1 A Policyholder’s Checklist: Responding to Reservation of Rights
and Nonwaiver Agreements 5-95

CHAPTER 6 CHOICE OF LAW 6-1
>§ 6.01 Introduction 6-3
§6.02 Threshold Issues for Choice of Law 6-5

[A] Choice-of-Law Analysis Usually Is Considered Necessary Only as to Issues Upon Which Actual Conflicts Exist 6-5
[B] Addressing Choice of Law on an Issue-by-Issue Basis Rather Than on a “Global” Basis 6-12

[1] Issue-by-Issue Basis 6-12
[2] Global Choice of Law 6-17

§6.03 Choice-of-Law Provisions 6-19

[A] Ambiguity Created by Lack of a Choice-of-Law Clause in Most General Liability Insurance Policies 6-19
[B] “Service of Suit” Clause as a Choice-of-Law Provision 6-25

[1] Use of London Insurance Companies’ Contemporary Drafting History of the Service of Suit Clause 6-28
[2] Rules of Contract and Insurance Policy Construction on the Service of Suit Clause 6-34

§6.04 Approaches to Choice of Law 6-37

[A] Lex Loci Contractus 6-37
[B] Restatement (Second) of Conflict of Laws 6-47

[1] Evaluation of Contacts Under Restatement Second
Section 188 6-47
[2] Place of Contracting 6-48
[3] Place of Negotiation of the Contract 6-49
[4] Place of Performance 6-50
[5] Location of the Subject Matter of the Contract 6-51
[6] Domicil, Residence, Nationality, Place of Incorporation, and Place of Business of the Parties 6-53
[7] Evaluation of Conflicts Principles Under Section 6 of
Restatement (Second) 6-54
[8] Needs of the Interstate and International System 6-55
[9] Relevant Policies of the Forum 6-56
[10] Relevant Policies of Other Interested States and the Relative Interests of Those States in the Determination of the Particular Issue 6-57
[11] Protection of Justified Expectations 6-60

[C] Other Approaches Similar to That of Restatement (Second) 6-64

[1] Government Interest Analysis 6-64
[2] Choice-Influencing Considerations Analysis 6-66

[D] Site-Based Choice of Law in Environmental Coverage Actions 6-66

[1] Section 193 of the Restatement (Second) 6-66
[2] The Interest of the State of the Site 6-69

§6.05 Miscellaneous Issues Affecting Choice of Law 6-80

[A] Provisions of Some Case Management Orders Setting Separate Discovery and Briefing Phases for Choice of Law 6-80

[1] Why Courts May Enter CMOs 6-80
[2] CMO Provisions Relating to Choice of Law 6-81
[3] Cases Rejecting Phasing of Choice of Law 6-84

[B] Change of a Policyholder’s Principal Place of Business in the Middle of the Period of Insurance Coverage 6-86

CHAPTER 7 INSURANCE COVERAGE FOR NEGLIGENT AND INTENTIONAL
INJURY 7-1
§7.01 Introduction . 7-3
§7.02 Burden of Proving That the Policyholder Expected or Intended the Injury 7-6
§7.03 Standards 7-7
§7.04 Historical Evidence That the Insurance Industry Intended That a
Subjective Standard Apply 7-9

[A] History of Exclusion (a) 7-10
[B] Rejection of Foreseeability Standard 7-12
[C] Required Proof of Intent to Cause Injury by High- Level Management 7-15

§7.05 Decisions Applying Subjective Standard 7-16
§7.06 Courts That Have Followed So-Called Objective Standards 7-19
§7.07 Separate Standard for “Expected” 7-21
§7.08 Decisions Regarding Intentional Acts 7-23

[A] Negligent or Reckless Conduct 7-25
[B] Morally Culpable Conduct and Public Policy 7-27

§7.09 Standard on Expected/Intended Issue in Environmental Insurance
Coverage Cases 7-32
§7.10 Standard in Products Liability Cases 7-39
§7.11 Cases in Which the Policyholder Is Held Liable for the Actions of
Third Parties 7-43

CHAPTER 8 INSURANCE COVERAGE FOR PUNITIVE DAMAGES ASSESSED
AGAINST A POLICYHOLDER 8-1
§ 8.01 Introduction 8-3
§8.02 Overview of the Issue of the Insurability of Punitive Damages 8-6
§8.03 Choice-of-Law Considerations 8-7
§8.04 Insurance Policy Construction Test 8-11
§8.05 Public Policy Relating to Insurance Coverage for Punitive Damages 8-16

[A] Availability of Insurance Coverage for Punitive Damages as a Matter of Public Policy 8-17

[1] Reasonable Expectation of Coverage 8-17
[2] Intentional Torts 8-19

[B] Insurance Company Arguments That Coverage of Punitive Damages Violates Public Policy 8-20

[1] The McNulty Rule 8-20
[2] Vicariously Assessed Punitive Damages 8-21

CHAPTER 9 THE NUMBER OF OCCURRENCES IN CASES INVOLVING CONTINUOUS OR
REPEATED BODILY INJURY OR PROPERTY DAMAGE 9-1

§ 9.01 Introduction 9-3
§9.02 Policy Language and Drafting History 9-6

[A] Insurance Industry Intent 9-9
[B] Deductibles Issue 9-12

§9.03 “Cause” Test 9-12

[A] Court Decisions Finding One Occurrence 9-13

[1] Discrimination Claims 9-18
[2] Child Molestation Cases 9-20
[3] Fraudulent Acts 9-21
[4] Products Liability Cases 9-22
[5] Criticism of the Cause Test 9-27

[B] Court Decisions Finding Multiple Occurrences 9-27

§9.04 Number-of-Occurrences Test Focusing on the Liability-Triggering Event 9-32

[A] Application of the Liability-Triggering Event Test 9-32
[B] Case Law Using Similar Reasoning 9-36

§9.05 “Unfortunate Events” Test Applied by Some New York Courts 9-36
§9.06 English Rule: Accident or Occurrence May Be Viewed from the
Perspective of the Victim 9-39
§9.07 Number of Occurrences in First-Party Insurance Cases 9-42
§9.08 Number of Deductibles 9-43

CHAPTER 10 COVERAGE FOR THE COSTS OF LOSS MITIGATION
10-1
§ 10.01 Introduction 10-3
§10.02 Insurance Industry Documents Discussing Insurance Coverage for
Costs Paid by a Policyholder to Mitigate Damages 10-5
§10.03 Case Law Addressing Coverage for Loss Mitigation Costs Spent to
Reduce the Amount of Damages 10-9

[A] Globe: Bases for Coverage of Loss Mitigation Costs 10-9
[B] The Hauenstein Doctrine 10-11
[C] Equity and Policy Interpretation 10-13
[D] Rejection of Equitable Considerations 10-15
[E] Distinctions between “Prophylactic” Measures and Mitigation Costs 10-19

§10.04 Case Law Addressing Coverage Costs to Replace Defective Products
or Work 10-22

[A] Asbestos-Related Property Damage 10-23
[B] Refusal of Coverage 10-27

§10.05 Case Law Addressing Loss Mitigation Costs in the Environmental
Context 10-29

[A] Response Costs versus “Prophylactic” Costs 10-30
[B] New Jersey Law on Coverage for Cleanup of Groundwater 10-35

[1] New Jersey Case Law 10-36
[2] Trend in the New Jersey Courts – 10-41

[C] Refusal of Coverage 10-41

§10.06 Case Law Addressing the Policyholder’s Reasonable Expectation of
Coverage for Loss Mitigation Costs 10-42
§10.07 “Mitigation Clauses” in General Liability Insurance Policies 10-44

[A] Scope of Mitigation Clause 10~44
[B] Absence of Mitigation Clause – 10-46
[C] Insurance Industry Drafting History of the “Mitigation Clause” 10-47

§10-08 Concluding Remarks 10-50

CHAPTER 11 BAD FAITH REGARDING CONDUCT OF INSURANCE
COMPANIES 11-1
§11.01 Introduction 11-5
§11.02 Insurance Companies’ Duty of Good Faith and Fair Dealing 11-8
§11.03 Breach-of-Contract Actions for Insurance Company Bad Faith 11-9
§11.04 Tort Cause of Action for Bad Faith for Third-Party Insurance Claims 11-12
§11.05 Special Nature of Insurance Contracts – 11-16
§11.06 Insurance Companies’ Fiduciary Duties to Policyholders 11-26
§11.07 Tort Cause of Action for Bad Faith for First-Party Insurance Claims 11-34

[A] Public Policy Considerations in Favor of the Bad-Faith Tort 11-35
[B] Unequal Bargaining Power in Favor of the Insurance Company 11-36
[C] The Minority Rule: Refusal to Recognize Tort in First-Party Context 11-44

§11.08 Standards for Proving Bad Faith in a First-Party Action 11-45

[A] “Negligence” Standard 11-46
[B] Hybrid Standard 11-46
[C] “Evil Mind” Standard 11-48

§11.09 Whether a Finding of Coverage Under the Insurance Policy Is Necessary 11-50
§11.10 Specific Types of Insurance Company “Bad Faith” 11-53

[A] Failure to Settle 11-53
[B] Failure to Investigate 11-57
[C] Other Examples of Bad-Faith Conduct by Insurance Companies 11-61

[1] The Law of Contract 11-65
[2] The Duty of Good Faith and Fair Dealing 11-67
[3] The Reasonable Expectations Doctrine 11-68
[4] Fraudulent Misrepresentation 11-70

§11.11 Insurance Company’s Continuing Duty of Good Faith During Litigation 11-70
§11.12 Duty of Good Faith and Fair Dealing of a Primary Insurance Company
to Excess and Umbrella Insurance Companies 11-76
§11.13 Damages Available for Bad Faith 11-80

[A] Extra-Contractual Damages 11-80
[B] Recoverability of Attorneys’ Fees in Insurance Coverage Cases
Generally 11-81
[C] Recoverability of In-House Legal Costs 11-84
[D] Pittsburgh
Plate Glass and Its Progeny 11-86
[E] Pitfalls to Policyholders’ Recovery 11-88
[F] Continental Casualty Co. v. Cole 11-90
[G] Punitive Damages 11-91

[1] Public Policy Issues 11-92
[2] Evil Intent 11-94
[3] Reasonableness of Failure to Pay 11-95
[4] Other Standards 11-95
[5] Failure to Investigate 11-97
[6] Failure to Settle 11-97

[H] Recovery of Consequential Damages 11-98

[1] Standards for Recovery of Consequential Damages from Insurance Companies 11-99
[2] Death-of-a-Company Damages 11-107

§11.14 Types of Discovery Available in Bad-Faith Actions 11-108

[A] Work-Product Doctrine 11-108
[B] Attorney-Client Privilege 11-111

§11.15 Statutory Bases for insurance Company Liability for Bad Faith 11-112

[A] Unfair Claims Practices Acts 11-113

[1] Private Right of Action 11-115
[2] General Business Practice Requirement 11-116
[3] Remedies 1-118
[4] Potential Preemption of Common-Law Cause of Action 11-118
[5] Violation of Statute as Evidence of Bad Faith if Pleaded
Through Another Statute 11-119

[B] State Consumer Protection Statutes 11-120

[1] Private Right of Action Under State Consumer Protection Laws 11-121
[a] No Cause of Action for Business Consumers 11-122
[b] Cause of Action Available to Business Consumers 11-122
[2] Deceptive and Unfair Acts or Practices 11-125
[3] Statutes of Limitations 11-127

CHAPTER 12 ESTOPPEL AND ALTERNATIVE CAUSES OF ACTION
12-1
§12.01 Introduction 12-3
§12.02 Estoppel and Related Theories 12-3

[A] Judicial Estoppel 12-5

[1] Preservation of Judicial Integrity 12-6
[2] Application of Doctrine 12-8
[3] Broad View of Doctrine: “Success” of Prior Statement Not Required 12-11
[4] Narrower View of Doctrine: Prior Statement Must Have Been “Successful” 12-13
[5] Interpretation of “Success” 12-14
[6] Public Policy Arguments in Favor of the Broader View 12-15

[B] Equitable Estoppel 12-17

[1] Reasonable Expectations 12-18
[2] Promissory Estoppel 12-25

[C] Regulatory Estoppel 12-26

[1] Morton and Related Cases 12-26
[2] Roots of Regulatory Estoppel Doctrine in Patent Cases 12-31

[D] Quasi-Estoppel 12-32

[1] Elements of the Doctrine 12-32
[2] Application of Doctrine 12-34

[E] Mend-the-Hold Doctrine 12-35

[1] Procedural or Substantive Rule 12-38
[2] Comparison to Judicial Estoppel 12-39

[F] Inconsistent Positions as Admissions Against Interest – 12-39

§12.03 Alternative Causes of Action 12-40

[A] Breach-of-Implied Warranty Theories 12-43

[1] C&J Fertilizer 12-44
[2] Other Case Law 12-46
[3] Congressional View 12-47
[4] Insurance Industry Representations 12-48
[5] Expectation of Coverage 12-49
[6] UCC Applicability 12-50

[B] Conspiracy to Conceal Facts 12-51
[C] Other Attempts 12-53

CHAPTER 13 ISSUES ARISING UNDER UMBRELLA AND EXCESS
INSURANCE POLICIES 13-1
§13.01 Introduction 13-5
§13.02 Structure of a Multilayer Insurance Program: Characteristics of
Primary, Umbrella, and Excess Insurance 13-5
§13.03 Primary Insurance Underlying Excess Layers 13-7
§13.04 Distinctions Between Umbrella and Excess Insurance 13-10

[A] Umbrella Insurance Coverage 13-11

[1] Ultimate Net Loss 13-12
[2] Limits of Liability 13-16
[3] Other Features 13-17

[B] Excess Insurance Coverage 13-18

§13.05 Need to Examine Insurance Policy to Determine Whether It Is an
Umbrella or an Excess Policy 13-20
§13.06 Development of Umbrella and Excess Insurance 13-21
§13.07 Characteristics of Umbrella and Excess Insurance Policy Forms:
Follow-Form and Stand-Alone Insurance Policies 13-25

[A] Use of Standard-Form Language in Umbrella and Excess Insurance Policy Forms 13-25
[B] Follow-Form Provisions in Excess Insurance Policies 13-29

[1] Clear Identification of Underlying Policy 13-31
[2] Amendment or Deletion of Terms 13-34

[C] Stand-Alone Excess Insurance Policy Forms 13-38

§13.08 Exhaustion of Underlying Layers and Attachment Point of Umbrella
and Excess Insurance Policies 13-39

[A] Aggregate Limits 13-40

[1] Ambiguous Provisions 13-40
[2] Exceptions in Follow-Form Provisions 13-44

[B] Issues of Potential Dispute Under Excess Insurance Policies Regarding Exhaustion of Underlying Coverage 13-45

§13.09 Payment of Defense Costs by Umbrella and Excess Insurance
Companies 13-49

[C] Coverage for Defense Costs Under Umbrella and Excess Insurance Policy Forms 13-50

[1] Limitation of Defense Obligations to Be Explicit 13-51
[2] Defense Costs Within or in Addition to Limits of Liability . . 13-53
[3] “Assume Charge” Clause 13-54
[4] “Consent” Provision 13-59
[5] Follow-Form Provision .. 13-61

[B] Assigning Defense Obligations to Primary and Excess Insurance Companies 13-61

[1] When Duty to Pay Defense Costs Attaches 13-64
[2] Equitable Allocation of Defense Costs 13-69
[3] Resolving the issues 13-72

§13.10 Standard for Notice Under Umbrella and Excess Insurance Policy 13-72
§13.11 Excess Insurance Company’s Right to Sue for Failure to Settle an Action 13-73

[A] Equitable Subrogation 13-74
[B] Triangular Reciprocity . 13-76

§13.12 Duties of an Excess Insurance Company When an Underlying Insurance
Company Becom