(Article from Insurance Law Alert, July/August 2020)
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An Ohio appellate court ruled that vertical exhaustion controls whether excess policies are implicated and that only the primary policy directly underneath an excess policy must be exhausted in order to trigger excess coverage. The William Powell Co. v. OneBeacon Ins. Co., 2020 WL 3076571 (Ohio Ct. App. June 10, 2020).
The coverage dispute arose out of thousands of asbestos-related bodily injury claims against Powell. In a previous ruling, the appellate court applied a “triggering-event” theory and held that each exposure to asbestos constitutes a separate occurrence. See January 2017 Alert. Thereafter, an Ohio trial court held a bench trial on remaining issues and concluded that horizontal exhaustion applies, such that all triggered primary policies must be exhausted before excess coverage is available. The appellate court reversed.
Although the terms of OneBeacon’s and Federal’s excess policies varied somewhat, each provided indemnification for sums that Powell became legally obligated to pay “in excess of the insured’s retained limits.” Retained limits was defined as “the total of the applicable limits of liability of the underlying insurance as set forth in Schedule A hereof, plus the applicable limits of any other underlying insurance collectible by the insured.” The court deemed this language, when read together with other policy provisions, as unambiguously requiring vertical exhaustion. The court explained that vertical exhaustion is:
reflected in OneBeacon’s policies’ definition of the term “underlying insurance” (“collectible insurance with any other insurer [ ] available to the insured covering a loss also covered hereunder”) and Federal’s policy provision regarding “Other Insurance” (“any other insurance [ ] available to the insured covering a loss also covered by this policy”). . . . Thus, underlying insurance–insurance available to cover a loss also covered by the excess policy–must also be insurance covering an occurrence during the policy period.
In other words, the policy language reveals that “underlying insurance” “refers only to policies covering the same risk, such as concurrent policies.” Prior and subsequent policies, on the other hand, insure against different risks in different time periods.
Ruling on a separate issue, the court endorsed an “all sums” allocation, under which Powell is entitled to choose one insurer to indemnify all costs incurred during the period of continuous injury.