(Article from Insurance Law Alert, January 2016)
For more information, please visit the Insurance Law Alert Resource Center.
The Montana Supreme Court ruled that a general aggregate limit provision is ambiguous and therefore should be construed as providing an additional $4 million in coverage. Westchester Surplus Lines Ins. Co. v. Keller Transp., Inc., 2016 WL 154989 (Mont. Jan. 12, 2016).
The coverage dispute arose out of a highway accident that resulted in a gasoline spill. The policyholders were insured under a commercial transportation policy issued by Carolina Casualty. The policy provided two distinct coverages: commercial automobile and commercial general liability. Each was subject to a $1 million per occurrence/accident limit, and the general liability coverage was additionally subject to a $2 million “general aggregate.” The policyholders were also insured under an excess policy issued by Westchester, which followed form to the Carolina policy except where otherwise stated. The Westchester policy limited coverage to $4 million per occurrence with a $4 million “general aggregate” limit. The term “general aggregate” was undefined.
After the accident, Carolina Casualty made payments that exhausted the $1 million automobile coverage limit. Thereafter, Westchester undertook defense of the matter until it had paid $4 million in clean-up and litigation costs, at which time it referred the matter back to Carolina Casualty. Carolina Casualty sought a declaration as to the insurers’ defense and indemnity obligations. A Montana trial court ruled, among other things, that the policyholders were entitled to an additional $4 million under Westchester’s excess policy. The trial court reasoned that “general aggregate” was ambiguous and could be read as establishing an aggregate limit for excess payments for each type of coverage in the underlying policy (auto and general liability), rather than an aggregate limit for the entire policy. The Montana Supreme Court affirmed.
The Montana Supreme Court ruled that under the factual circumstances presented, the general aggregate limit provision was ambiguous. The court explained that “the fundamental interpretational problem is caused by Westchester’s failure to define the term ‘general aggregate’ in a policy that provides excess coverage for an underlying policy with more than one coverage and more than one stated limit.” In this respect, the court suggested that ambiguity would not be found where the term was defined or where the underlying policy provided only a single type of coverage.