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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Rockingham
No. 2015-0624
EXETER HOSPITAL, INC.
v.
STEADFAST INSURANCE COMPANY
Argued: October 19, 2016
Opinion Issued: June 22, 2017
Sheehan Phinney Bass & Green, PA, of Manchester (James Q. Shirley
and Jason D. Gregoire on the brief, and Mr. Shirley orally), for the petitioner.
McLane Middleton, Professional Association, of Manchester (Jeremy T.
Walker and Nicholas F. Casolaro on the brief), and Chadbourne & Parke LLP, of
Washington, D.C. (Joy L. Langford and Samantha Miller on the brief, and Ms.
Langford orally), for the respondent.
CONBOY, J. In this declaratory judgment proceeding, the petitioner,
Exeter Hospital, Inc. (Exeter), appeals an order of the Superior Court
(Anderson, J.) denying its motion for partial summary judgment as to the
amount at which coverage is triggered under an umbrella policy (the policy)
issued to Exeter by the respondent, Steadfast Insurance Company (Steadfast).
We reverse and remand.
The summary judgment record reflects the following pertinent facts. In
the spring of 2011, Exeter hired a cardiovascular technician (technician) to
work in its Cardiac Catheterization Laboratory (Lab). In October 2011, the
technician became a full-time employee. In the spring of 2012, an outbreak of
Hepatitis C infections among patients serviced by the Lab led investigators to
discover that the technician had spread the virus to patients “through a
clandestine drug diversion scheme.” The technician allegedly injected certain
drugs into his body by way of intravenous needles. He then used the same
needles on patients thereby infecting them with the Hepatitis C virus. The
technician’s actions resulted in numerous lawsuits against Exeter by affected
patients.
During the relevant time period, Exeter was primarily insured through a
Self-Insurance Trust Agreement (SIT), which provided professional liability
coverage in the amount of $1 million per medical incident, with a $4 million
annual aggregate cap. Exeter also maintained the policy with Steadfast, which
provided excess health care professional liability coverage. The policy set the
following limits on coverage: a specific loss limit of $20 million, a health care
professional liability aggregate limit of $20 million, and a “Retained Limit” of
$100,000.
Section I.A.1 of the policy, titled “Coverage A – Health Care Professional
Liability Insurance” (Coverage A), provides, in pertinent part, that Steadfast
“will pay on behalf of the insured those sums that the insured becomes legally
obligated to pay as damages because of injury caused by a medical incident to
which this insurance applies.” (Bolding omitted.) It further provides that
Steadfast “will pay only such damages that are in excess of the Retained Limit
specified in Item 4. of the Declarations or that are in excess of the applicable
underlying limit, whichever is greater.” (Bolding omitted.) The term “Retained
Limit” is not specifically defined in the policy; however, the policy’s declarations
list the “Retained Limit” as $100,000. “Applicable underlying limit” is defined
as “the total of all available limits of insurance for the underlying insurance
plus any alternative insurance.” (Bolding omitted.) “Underlying insurance
means the policy or policies of insurance listed in the Schedule of Underlying
Insurance, forming a part of this policy.” (Bolding omitted.) “Alternative
insurance means any type of self-insurance or other mechanisms by which an
insured arranges for funding of legal liabilities and is listed in the Schedule of
Underlying Self-Insurance.” (Bolding omitted.) It is undisputed that Exeter
maintained only alternative insurance — the SIT.
In August 2013, after Exeter had paid approximately $3 million in claims
through the SIT, Steadfast accepted Exeter’s tender of the defense of the
remaining claims. In doing so, Steadfast informed Exeter that “each claimant
constitutes a separate medical incident.” Steadfast further stated that, once
Exeter’s $4 million aggregate limit was exhausted, it would “pay only such
damages that are in excess of the Retained Limit of $100,000. The Retained
2
Limit is the minimum amount for which Exeter is liable for each and every
claim, following exhaustion.” When Exeter paid out its $4 million annual
aggregate under the SIT, Steadfast notified Exeter that:
As Exeter has now exhausted its self-insurance aggregate
limit of $4,000,000.00 there no longer exists an applicable
underlying limit (because the underlying self-insurance is
exhausted) to be compared to the Retained Limit for purposes of
determining “whichever is greater.” Thus, for purposes of
determining what portion of damages Steadfast is obligated to
reimburse in connection with damages for a medical incident that
are incurred post-exhaustion of the self-insured aggregate, the
Retained Limit is necessarily the trigger as exhaustion of the
underlying self-insurance means there is no longer an applicable
underlying limit to compare to the Retained Limit.
(Bolding omitted.) Thus, Steadfast maintained that it would pay damages only
in excess of the $100,000 retained limit for each medical incident.
In May 2014, Exeter filed this declaratory judgment proceeding, seeking
a declaration that it is not required to pay the “$100,000 retained limit per
claim for those claims that settle or that are reduced to judgment after August
1, 2013.” Exeter also asserted a breach of contract claim against Steadfast,
arguing that it is entitled to recovery of excess payments from Steadfast
“because the writs brought against Exeter assert claims that constitute a single
‘medical incident’” and, therefore, Exeter should only have “been required to
satisfy the single $1.0 million limit of its self[-]insurance in order to trigger
Steadfast’s obligations of defense and indemnification.” Subsequently, Exeter
moved for partial summary judgment on its request for a declaratory judgment,
arguing that, pursuant to the policy, once it paid its $4 million annual
aggregate, it did not have to pay the retained limit amount of $100,000 for each
remaining claim. Steadfast objected.
Following a hearing, the trial court denied Exeter’s motion. The court
identified “[t]he crux of the dispute between the parties” as being the
interpretation of the clause in Coverage A limiting Steadfast’s liability to the
“excess over the greater of the retained limit [or] the applicable underlying
limit.” The court then interpreted the term “applicable underlying limit” as
being a variable amount “dependent on the actual coverage remaining under
[the] other [limits of] insurance,” here, the limits of the SIT. Because Exeter
had paid out the limits of the SIT, the court found that the “applicable
underlying limit” was zero, thereby rendering the $100,000 retained limit
greater than the “applicable underlying limit.” Thus, the court determined
that, pursuant to Coverage A, Steadfast is required “to pay damages in excess
of $100,000 for each medical incident.” Exeter sought reconsideration of the
court’s order, which the court denied.
3
In September 2015, the court approved the parties’ stipulation for entry
of final order regarding all remaining issues, thereby dismissing Exeter’s claim
that it is entitled to recovery because the actions against it constituted a single
medical incident requiring it to satisfy only its $1 million self-insured obligation
rather than its $4 million annual aggregate obligation. This appeal followed.
In reviewing a trial court’s summary judgment ruling, we consider the
affidavits and other evidence, and all inferences properly drawn from them, in
the light most favorable to the non-moving party. Rivera v. Liberty Mut. Fire
Ins. Co., 163 N.H. 603, 606 (2012). “If our review of the evidence does not
reveal a genuine issue of material fact, and if the moving party is entitled to
judgment as a matter of law, we will affirm the trial court’s decision.” Amica
Mut. Ins. Co. v. Mutrie, 167 N.H. 108, 111 (2014) (quotation omitted). We
review the trial court’s application of law to the facts de novo. Rivera, 163 N.H.
at 606.
“In a declaratory judgment action to determine the coverage of an
insurance policy, the burden of proof is always on the insurer, regardless of
which party brings the petition.” Cogswell Farm Condo. Ass’n v. Tower Group,
Inc., 167 N.H. 245, 248 (2015) (quotation omitted). The interpretation of
insurance policy language is a question of law for this court to decide. Bartlett
v. Commerce Ins. Co., 167 N.H. 521, 530 (2015). “The fundamental goal of
interpreting an insurance policy, as in all contracts, is to carry out the intent of
the contracting parties.” Id. (quotation omitted). To discern the parties’ intent,
we begin with an examination of the insurance policy language. Id. In
interpreting policy language, we look to the plain and ordinary meaning of the
policy’s words in context. Id. We construe the terms of the policy as would a
reasonable person in the position of the insured based upon more than a
casual reading of the policy as a whole. Id. at 530-31. This is an objective
standard. Great Am. Dining v. Philadelphia Indem. Ins. Co., 164 N.H. 612, 616
(2013). Where an insurance policy’s language is reasonably susceptible of
more than one interpretation, however, and one reasonable interpretation
favors coverage, we construe the ambiguity against the insurer and in favor of
coverage in order to honor the reasonable expectation of the policyholder.
State Farm Mut. Ins. Co. v. Pitman, 148 N.H. 499, 501 (2002). “The doctrine
that ambiguities in an insurance policy must be construed against the insurer
is rooted in the fact that insurers have superior understanding of the terms
they employ.” Id. (quotation omitted).
Exeter argues that the trial court erred by finding that, after it has
satisfied the $4 million aggregate limit of its self-insurance, it is required to pay
the retained limit of $100,000 for each claim before Steadfast will provide
coverage. It contends that Coverage A “requires Exeter to pay either the
amount of its alternative insurance (the limit of the SIT) or the retained limit,
[but] not both.” (Bolding omitted.) Because the $4 million aggregate limit of
4
the SIT is greater than the $100,000 retained limit, Exeter maintains that it
has to pay only the $4 million limit and, thereafter, Steadfast will be
responsible for coverage under the policy.
The policy language at issue here, Coverage A, provides that Steadfast
will pay on behalf of the insured those sums that the insured
becomes legally obligated to pay as damages because of injury
caused by a medical incident to which this insurance applies. We
will pay only such damages that are in excess of the Retained Limit
specified in Item 4. of the Declarations or that are in excess of the
applicable underlying limit, whichever is greater.
The first sentence of Coverage A explains that Steadfast will insure against
damages resulting from injury caused by a medical incident to which the policy
applies.
The second sentence provides that Steadfast will “pay only such damages
that are in excess of the Retained Limit specified in Item 4. of the Declarations
or that are in excess of the applicable underlying limit, whichever is greater.”
(Bolding omitted). The use of the disjunctive “or” in this provision establishes
two alternative triggering points for coverage — when damages are in excess of
the retained limit, here, $100,000, or when damages are in excess of the
applicable underlying limit. Cf. Appeal of Niadni, Inc., 166 N.H. 256, 261
(2014) (explaining that use of disjunctive in statute means only one of two
alternatives need be shown); Unit Owners Assoc. of Summit Vista v. Miller, 141
N.H. 39, 45 (1996) (finding that use of disjunctive “or” in New Hampshire
Consumer Protection Act manifests clear intent to award multiple damages for
either knowing or willful acts); Legacy Vulcan Corp. v. Superior Court, 110 Cal.
Rptr. 3d 795, 804 (Ct. App. 2010) (interpreting “retained limit” in policy’s
insuring agreement, which was defined “as the greater of the limits of liability
in the ‘underlying insurance listed in Schedule A plus the applicable limits of
any other underlying insurance collectible by the Insured’” or “the amount (i.e.,
$100,000) specified in the declarations as to [insured’s] liability ‘not within the
terms of the coverage of the underlying insurance listed in Schedule A’” as
meaning that insurer had no indemnity obligation “unless and until all
underlying insurance [had] been exhausted or if there [was] no coverage for the
claim under any of the Schedule A policies, and the total policy limits of all
‘other’ collectible underlying insurance [did] not exceed $100,000, then
[insurer’s] indemnity obligation shall be limited to amounts in excess of
$100,000” (ellipsis omitted)).
Whether the “Retained Limit” or the “applicable underlying limit” applies
will necessarily depend upon “whichever [limit] is greater.” (Bolding omitted.)
Accordingly, as the trial court explained, to determine the extent of coverage
5
when there are damages because of injury caused by a medical incident, “the
parties must assess whether the retained limit or applicable underlying limit
applies,” which in turn, requires an examination of the value of the applicable
underlying limit.
As defined in the policy, “[a]pplicable underlying limit means the total of
all available limits of insurance for the underlying insurance plus any
alternative insurance.” (Bolding omitted.) It is undisputed that Exeter did not
maintain underlying insurance, but instead had alternative insurance. The
policy defines “[a]lternative insurance” to mean “any type of self-insurance or
other mechanisms by which an insured arranges for funding of legal liabilities
and is listed in the Schedule of Underlying Self-Insurance.” The policy further
defines “[s]elf insured retention” as
any amounts listed on the Schedule of Underlying Self Insurance,
forming a part of this policy. It is the amount the insured must
pay, including underlying expenses, for each claim before we will
pay claims for which insurance is provided under the applicable
coverage, subject to the terms and conditions of this policy.
(Emphasis added; bolding omitted.) The policy’s schedule of underlying self-
insurance lists Exeter’s SIT limits of $1 million per medical incident and $4
million aggregate for the annual policy period.
Exeter argues that nothing in the language of Coverage A demonstrates
“that [the] applicable underlying limit is not exactly what it says, a limit,” but
instead “reduces as Exeter pays claims such that it becomes less than the
$100,000 retained limit.” (Bolding omitted.) Exeter maintains that “alternative
insurance” does not become unavailable for purposes of the “whichever is
greater” comparison in Coverage A because the use of the word “any” before the
phrase “alternative insurance” in the definition of “applicable underlying limit”
disconnects the phrase “the total of all available limits of insurance for the
underlying insurance” from the phrase “alternative insurance.” (Bolding
omitted.)
Exeter further contends that “[a]bsent a clear definition of ‘Retained
Limit’ [in Coverage A] and of the words ‘available limits’” used in the definition
of “applicable underlying limit,” “a reasonable insured would not understand
the retained limit [referenced in Coverage A] to serve as a per-case deductible
upon satisfaction of the self-insured retention.” It maintains that a reasonable
person in its position would not understand that the words “available limits” in
the definition of “applicable underlying limit” means the amount of insurance
remaining after the insured has paid out the limits of its alternative insurance.
It asserts that, had Steadfast meant for its alternative insurance to constitute a
variable amount that decreases as the insured pays out claims, it could have
6
“defined ‘available limits’ to mean ‘the amount of the underlying insurance after
being reduced by the payment of claims.’” Cf. Donald B. MacNeal, Inc. v. Inter.
Fire & Cas., 477 N.E.2d 1322, 1325 (Ill. App. Ct. 1985) (concluding that
language in excess insurance policy stating that insurer would indemnify “the
insured for ‘the ultimate net loss in excess of the retained limit,’ where
‘retained limit’ was defined as ‘the total of the applicable limits of the
underlying policies’” meant that “excess insurer would pay for losses in excess
of a fixed amount, the primary policy limits” in contrast to “‘amount
recoverable’” language, which could “be interpreted as a variable amount which
depends on the actual amount recoverable from the primary insurer, not the
fixed policy limits”).
Exeter cites section VII.W of the policy to support its interpretation of the
policy. Section VII.W provides that Steadfast will not pay damages under the
policy “until the insured, or the insured’s underlying insurer has paid or is
legally obligated to pay the full amount of the Underlying Limits of Insurance,
Underlying Self-Insurance or Retained Limit.” (Bolding omitted.) Exeter
contends that “[w]hen considered with [Coverage A], a reasonable person in
Exeter’s position would conclude that Steadfast’s coverage is triggered after
Exeter has exhausted either the aggregate limits of its SIT or payment of the
retained limit, not both.” Cf. Goodyear Tire & Rubber Co. v. Travelers Cas. and
Surety Co., Civil Action No. 13–00256, 2014 WL 7338717, at *2 (W.D. Pa. Dec.
22, 2014) (stating that policy defined “retained limit” as “the greater of (1) the
total amount of the applicable limits of liability of any underlying insurance or
(2) the deductible amount stated in Item 4 of the declarations” and explaining
that because the amount of applicable underlying limits of liability of
underlying insurance was “higher than the generally applicable deductible of
$100,000 specified in Item 4 of the declarations, this deductible was irrelevant
to the determination of coverage for” specified damages under the policy
(quotations omitted)).
Steadfast, on the other hand, argues that the word “available” as used in
the definition of “applicable underlying limit,” means the amount of underlying
insurance and alternative insurance when “the damages for a medical incident
are incurred.” It contends that, here, because Exeter’s alternative insurance
“contains an aggregate limit, the coverage it provides can be exhausted.” It
maintains that, because the $4 million aggregate limit has “been exhausted
due to payment of claims,” that limit is “no longer ‘available’” within the
meaning of “applicable underlying limit” and, therefore, the “applicable
underlying limit” is zero. Steadfast maintains that the “applicable underlying
limit” must be interpreted as a variable amount because otherwise the
“Retained Limit” and the “whichever is greater” language in Coverage A would
be rendered meaningless. (Bolding omitted.)
Steadfast further argues that defining the “applicable underlying limit” as
“a fixed number that is never subject to reduction or exhaustion for purposes
7
of comparison to the retained limit is contradicted by other provisions in the”
policy. Specifically, it cites section II.E, which provides that “[a]ny self insured
retention amount listed on the Schedule of Underlying Self-Insurance is eroded
or exhausted only by the actual payment of claims that would be insured by
the provisions of this policy.” (Bolding omitted.) Steadfast also cites section
VII.L.2.b, which states that, during the policy period, the insured agrees “[t]hat
the applicable underlying limit will be maintained except for any reduction or
exhaustion of limits by payment of claims covered by alternative insurance or
underlying insurance.” (Bolding omitted.) Steadfast also asserts that the
“differing retention language utilized in” the insuring agreements for Coverage
B and Coverage C evince that Coverage A “expressly provides that where the
designated underlying coverage (‘the applicable underlying limit’) is no longer
available and thus exhausted below $100,000, the separate $100,000 Retained
Limit applies.”
In addition, Steadfast points to the trial court’s notation that section
VII.A, governing appeals, “provide[s] further support that Exeter’s alternative
insurance is [a] variable amount.” Section VII.A provides, in pertinent part,
that “[i]n the event you or any underlying insurer elects not to appeal a
judgment in excess of the amount of the applicable underlying limit, we may
elect to appeal at our expense.” (Bolding omitted.) In doing so, Steadfast
suggests that, if the “applicable underlying limit” is a static amount, it would
never be able to appeal a judgment less than the “applicable underlying limit”
despite its potential liability.
Exeter disputes Steadfast’s argument that the retained limit and the
“‘whichever is greater’” language in Coverage A are rendered meaningless if the
“‘applicable underlying limit’” is defined as a fixed amount in this case. Exeter
contends that “the policy form used for [it] was setup so that it could be
adapted to insureds in different circumstances,” including when the insured
has underlying insurance. Thus, it maintains that conceivably there are
circumstances in which the “‘applicable underlying limit’” would be zero
because the underlying insurance would not apply and, as a result, the
retained limit in Coverage A would be greater than the “‘applicable underlying
limit’” and, therefore, the retained limit would apply.
Exeter further contends that “[t]he fact that other provisions reference
‘erosion’ or ‘exhaustion’ of alternative insurance does not contradict [its]
position.” (Italics and capitalization omitted.) Exeter asserts that nothing in
these provisions “tie[s] the concept of reduction, erosion, or exhaustion to the
concept of unavailability.” Rather, Exeter argues that sections II.E and
VII.L.2.b “simply reaffirm that [it] is required to satisfy its $4.0 million
aggregate limit before Steadfast’s umbrella coverage is triggered” — “an issue
separate and distinct from whether Exeter is required to pay a $100,000 per-
claim retained limit” under Coverage A after it has paid out its aggregate limit.
8
Cf. Royal Surplus Lines Ins. Co. v. Delta Health Group, Inc., No. 3:03CV419–
RS, 2006 WL 167565, at *5 (N.D. Fla. Jan. 23, 2006) (stating that “[t]he word
‘covered’ in the context of defining ‘retained limit’ is wholly independent of
whether the actual underlying limit is exhausted”). Exeter further contends
that Coverages B and C “apply to insureds in different circumstances” than
that found in Coverage A. It, therefore, maintains that the language in those
coverage provisions should not dictate how we interpret Coverage A.
We conclude that the foregoing arguments demonstrate a “reasonable
disagreement between the contracting parties leading to at least two
interpretations of the [policy’s] language,” Newell v. Markel Corp., 169 N.H.
193, 197 (2016) (quotation and brackets omitted). Although we do not agree
with every underlying argument pressed by Exeter, we conclude that its overall
argument regarding the interpretation of Coverage A is reasonable. We
conclude that Coverage A could reasonably be construed as providing that once
Exeter has paid out the $4 million aggregate limit of its alternative insurance,
Steadfast becomes liable for “those sums that [Exeter] becomes legally
obligated to pay as damages because of injury caused by a medical incident to
which” the policy applies. (Bolding omitted.) Cf. General Star Indem. v.
Superior Court, 55 Cal. Rptr. 2d 322, 326 (App. Ct. 1996) (explaining that once
insured had exhausted aggregate limit of self-insured retention, insurance
under excess policy would “cover any additional claims from dollar one”). This
interpretation is further supported by the purpose of an umbrella policy. See
CNA Ins. Co. v. Hartford Ins. Co., 129 N.H. 243, 248 (1987) (explaining that
umbrella coverage is designed “to pick up where primary coverages end”
(quotation omitted)); see also 4 New Appleman on Ins. L. Libr. Ed. § 24.02[3], at
24-17 (Dec. 2010) (“An umbrella policy is thus a ‘gap filler’; by design it
provides first dollar coverage where a primary policy and an excess policy do
not.” (footnote omitted)).
Steadfast, however, also offers a plausible interpretation, i.e., that once
Exeter has paid out the $4 million aggregate limit of its alternative insurance,
coverage will not be triggered under Coverage A until Exeter’s “damages
because of injury caused by a medical incident to which” the policy applies
exceed the $100,000 retained limit. (Bolding omitted.) Accordingly, because
we conclude that Coverage A is subject to more than one reasonable
interpretation, and one of those interpretations provides coverage, an
ambiguity exists that will be construed in favor of Exeter. See Great Am. Ins.
Co. v. Christy, 164 N.H. 196, 203 (2012) (“In view of the ambiguity, we will
read the policy against the insurer in order to honor the reasonable
expectations of the policyholder.” (quotation omitted)).
Because we rule in favor of Exeter, we need not address the other
arguments Exeter raises on appeal.
9
Finally, Exeter has moved for leave to file notice of additional authority.
Steadfast objects. Because our ruling today does not rely upon the authority
cited by Exeter, we decline to rule upon Exeter’s motion as it is moot.
Reversed and remanded.
DALIANIS, C.J., and HICKS and BASSETT, JJ., concurred; LYNN, J.,
concurred specially.
LYNN, J., concurring specially. I agree with the majority that the
umbrella insurance policy here at issue is ambiguous and that one reasonable
construction of the policy supports the insured’s contention that, after it has
exhausted the $4 million aggregate amount of underlying self-insurance that
the policy requires it to maintain, the insurer is required to pay, within its
policy limits, all claims incurred by the insured without regard to the $100,000
retained limit. However, because I arrive at this conclusion based on an
analysis that differs from that employed by the majority, I write separately to
explain my reasoning.
Exeter argues that the word “available” in the definition of “applicable
underlying limit” modifies the phrase “underlying insurance,” but that it does
not modify the phrase “alternative insurance.” (Bolding omitted.) Exeter
contends that the use of the determiner “any” before “alternative insurance”
disconnects the phrase “the total of all available limits of insurance for the
underlying insurance” from the phrase “alternative insurance.”1 (Bolding
omitted.) Exeter, therefore, maintains that “alternative insurance” does not
become “unavailable” for purposes of the “whichever is greater” comparison in
Coverage A. (Bolding omitted.) Because the Self-Insurance Trust Agreement
(SIT) limits constitute “alternative insurance” within the meaning of “applicable
underlying limit,” and because, in its view, alternate insurance does not
become unavailable as Exeter paid claims from the SIT, Exeter contends that
the value of the “applicable underlying limit” is $4 million. (Bolding omitted.)
Steadfast counters that the word “available” modifies the phrase “limits
of insurance,” which includes both the limits of “underlying insurance” and the
limits of “alternative insurance.” (Bolding omitted.) Steadfast argues that, as
used in the definition, the word “available” means the amount of underlying
insurance and alternative insurance when “the damages for a medical incident
are incurred.” It contends that, because the SIT limits “have been exhausted
due to payment of claims . . . those [limits] are no longer ‘available’” within the
1 I note that, in the trial court, Exeter claimed that it was the word “plus,” rather than the word
“any,” which disconnected “available” from “alternative insurance.” Because of this change,
Steadfast maintains that Exeter’s argument is not preserved. Because I see little substantive
difference between Exeter’s argument regardless of whether “any” or “plus” is relied upon as the
alleged disconnector, I assume for purposes of this appeal that Exeter’s argument is preserved.
10
meaning of “applicable underlying limit” and, therefore, the “applicable
underlying limit” is zero.
I agree with Steadfast that the word “available” in the definition of
“[a]pplicable underlying limit” modifies the phrase “limits of insurance,” which
refers to both “underlying insurance” and “alternative insurance.” (Bolding
omitted.) I also agree with Steadfast that use of the term “available” signifies
that the insurance to which it applies (the “underlying insurance” and the
“alternative insurance”) must actually be accessible and capable of providing
coverage for the incident, which is not the case when some or all of said
insurance has been exhausted through the payment of claims. See Webster’s
Third New International Dictionary 150 (unabridged ed. 2002) (defining
“available,” as relevant here, to mean “VALID,” “such as may be availed of :
capable of use for the accomplishment of a purpose,” and “that is accessible or
may be obtained”). Thus, I disagree with Exeter that the “applicable underlying
limit” is a fixed amount (in this case $4 million) that does not decline as claims
are paid from the SIT. Indeed, if literally applied in this manner, i.e., as an
amount that is not exhausted and reduced as claims are paid from the SIT,
coverage would never be available under the umbrella policy except when the
particular medical incident at issue generated a claim that itself exceeded $4
million; for any claim that did not exceed $4 million, the “applicable underlying
limit” would be the fixed amount of $4 million regardless of whether Exeter had
exhausted the SIT through payment of other claims. In other words, Exeter’s
construction of the policy language would effectively convert the $4 million
annual aggregate limit into a $4 million per medical incident limit, which is
clearly at odds with the way in which the policy is intended to operate (since
such construction would render the $1 million per medical incident limit
superfluous). See Int’l. Surplus Lines Ins. Co. v. Mfgs. & Merchants. Mut. Ins.
Co., 140 N.H. 15, 19 (1995) (“we will not presume language in a policy to be
mere surplus”). This of course is not the result for which Exeter advocates, yet
it is the result that logically follows under Exeter’s construction of the policy.
Exeter offers what it contends is a reasonable explanation for why the
policy would differentiate between “underlying insurance” and “alternative
insurance,” by requiring that the former be “available” while the latter need not
be. Under its view, an umbrella policyholder who has purchased “underlying
insurance” has protected itself by doing so, and therefore requiring that the
retained limit apply even when such coverage has been exhausted incentivizes
the insured to act carefully post-exhaustion because it still has “skin in the
game.” In contrast, according to Exeter, an umbrella policyholder who self-
insures for amounts below the level when umbrella insurance becomes
available has already expended substantial sums of its own monies and
therefore has no need to demonstrate additional “skin in the game” as to post-
exhaustion claims. (Quotation omitted.) I find this argument unpersuasive.
First, Exeter has not identified any explicit language in the policy that reflects a
purpose to draw the level-of-skin-in-the-game distinction between “underlying
11
insurance” and “alternative insurance” that it urges. As the trial court
explained:
Coverage A makes no distinction between types of insurance; it
speaks in terms of the applicable underlying limit, which is a
combination of both underlying and alternative insurance
coverages. Given that a single phrase is used to describe the
nature and extent of coverage under Coverage A, the only
reasonable interpretation is that both types of insurance are to be
treated the same.
Moreover, I agree with the trial court’s reasoning that, insofar as the
purpose of the retained limit is to incentivize the policyholder to act carefully,
“that purpose is not furthered by discharging all liability from the insured once
he or she reaches the limits of self-insurance” because, regardless of what it
may have paid to settle past claims, “[w]ithout any possible liability, Exeter
would have no continuing incentive once it reached its self-insurance limits.”2
The trial court’s conclusion that the “applicable underlying limit,” which
includes “alternative insurance,” is a variable amount that is reduced as claims
are paid is also supported by other provisions of the policy. Section II.E of the
policy states that “[a]ny self insured retention amount . . . shall be considered
eroded or exhausted only by the actual payment of claims . . . .” (Bolding
omitted; emphasis added.) Section VII.L.2.b requires Exeter to maintain the
“applicable underlying limit” “except for any reduction or exhaustion of limits
by payment of claims covered by alternative insurance or underlying
insurance.” (Bolding omitted; emphasis added.) Section VII.A provides that,
“In the event you [the insured] . . . elect[] not to appeal a judgment in excess of
the amount of the applicable underlying limit, we [Steadfast] may elect to
appeal at our expense.” (Bolding omitted.) As the trial court aptly observed,
this last provision would lead to an absurd result under Exeter’s construction
of the policy because it would mean that, if Exeter exhausted the alternative
insurance limits of $1 million per medical incident/$4 million annual
aggregate, Steadfast would be unable to appeal judgments in an amount less
than those limits notwithstanding its liability, post-exhaustion, for such
judgments.
The terms of Coverage B of the policy also support the trial court’s
interpretation of Coverage A. Coverage B provides umbrella liability insurance
for claims not involving health care professional liability. The pertinent
2 The trial court also observed that, at least arguably, a self-insured institution that has expended
a significant sum of its own funds (here, $4 million) in payment of claims would have less
incentive to expend additional funds on measures to reduce the possibility of medical incidents for
which it no longer would have potential liability, due to coverage by the umbrella policy, than
would an organization that did not have to make such expenditures because it had underlying
insurance coverage.
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provision of Coverage B states that Steadfast “will pay only such damages that
are in excess of the Retained Limit specified in Item 4. of the Declarations or
that are in excess of the amount payable by alternative insurance as listed in
the Schedule of Underlying Self-Insurance, whichever is greater.” Although
Exeter appears to suggest that the use of the term “payable” in Coverage B,
rather than “available” as in Coverage A, shows that, unlike in Coverage A, in
Coverage B the alternative insurance does reduce as claims are paid, I am not
persuaded that this difference in terminology was intended to draw such a
distinction. In the context used here, I conclude that “available” and “payable”
are merely alternative ways of indicating that the underlying coverage must
actually be in existence and able to satisfy the claim at the time it is made. In
fact, Exeter’s argument on this point is inconsistent with its acknowledgment
that, at least with respect to “underlying insurance,” the use of the term
“available” requires a reduction in the amount of such insurance as claims are
paid. The more important point, in my view, is that under Coverage B, which
applies in situations in which “alternative insurance,” that is, self-insurance,
provides the only form of underlying coverage, the policy nonetheless requires
that the greater of the unexhausted self-insurance or the retained limit be
satisfied before Steadfast becomes obligated to pay. Exeter offers no plausible
explanation for why the policy would require exhaustion of the greater of these
limits in the case of Coverage B, but not in the case of Coverage A.
Although the arguments discussed above are supportive of Steadfast’s
position that the “applicable underlying limit” is a variable amount that
reduces as claims are paid, acceptance of this construction does not end our
inquiry because it does not address Exeter’s contention that the policy is
ambiguous. Specifically, it does not answer the question of whether the policy
contemplates that claims to which “underlying insurance” and/or “self-
insurance” apply are the same claims to which the retained limit is intended to
apply. As explained below, I conclude that the terms of the policy are
ambiguous on this point.
Steadfast’s position on this issue is straightforward: it asserts that
because the “whichever is greater” language found in Coverage A requires a
comparison between the “applicable underlying limit,” on the one hand, and
the retained limit, on the other, both limitations on its coverage must apply to
the same claims. In other words, Steadfast argues that if the category of
claims covered by “the applicable underlying limit” and by the retained limit
were intended to be mutually exclusive there would be no need to require a
comparison between the two. This is a reasonable argument.
The problem for Steadfast, however, is that another provision of the
policy does not call for the comparison between the “applicable underlying
limit” and the retained limit. Under the “Conditions” section of the policy,
section VII.W does not contain the “whichever is greater” language found in the
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section I “Insuring Agreements” that contains Coverage A. Rather, section
VII.W states: “Coverage under this policy will not apply until the insured, or the
insured’s underlying insurer has paid or is legally obligated to pay the full
amount of the Underlying Limits of Insurance, Underlying Self-Insurance or
Retained Limit.” (Bolding omitted.) The absence of comparison language in
section VII.W contradicts the language of section I.A, and could reasonably be
understood by an insured to mean that the claims to which underlying
coverage applies are not the same as those to which the retained limit applies.3
See Kelly v. Prudential Prop. & Cas. Ins. Co., 147 N.H. 642, 643 (2002) (“When
an ambiguity arises from conflicting provisions of a policy, we resolve the
inconsistency in favor of the insured.”). For example, Exeter points out that
there may be circumstances in which a claim does not fall within the
“underlying insurance,” and that, in such circumstances, the retained limit
serves the useful function of acting as a deductible that must be satisfied
before the umbrella policy provides coverage. Although the retained limit in
this policy is not specifically defined so as to be limited in application to losses
not covered by “underlying insurance,” as is the case with respect to the
policies at issue in the authorities upon which Exeter relies, see U.S. Fire Ins.
Co. v. Charter Financial Group, 851 F.2d 957, 959 (7th Cir. 1988); Zurich Ins.
Co. v. Heil Co., 815 F.2d 1122, 1124 (7th Cir. 1987); Gulezian v. Lincoln Ins.
Co., 506 N.E.2d 123, 124 (Mass. 1987); Morbark Industries, Inc. v. Western
Emp. Ins., 429 N.W.2d 213, 215 (Mich. Ct. App. 1988); U.S. Fire Ins. Co. v.
Coleman, 754 S.W.2d 941, 943 (Mo. Ct. App. 1988), if Steadfast desired the
retained limit to apply to both claims that fall within underlying coverage and
those that do not, it bore the responsibility to draft the policy with language
sufficient to eliminate any reasonable construction to the contrary.
At least two other provisions of the policy also can reasonably be read to
support the view that the retained limit was not intended to apply to claims
that are covered by “underlying insurance” or “alternative insurance.” First,
section III.A.1 gives Steadfast “the duty to assume control of the investigation
and defend and settle any claim to which this insurance applies . . . [u]nder
Coverage A . . . , when damages are sought for a medical incident . . . to which
no underlying insurance or alternative insurance applies.” (Bolding omitted;
emphasis added.) Second, section VII.C provides:
3 It must also be noted that if the retained limit is construed as applying to the same claims to
which underlying insurance/self-insurance apply, then section VII.W is rendered nonsensical.
The reason is that, without the comparison language (i.e., “whichever is greater”) there is no way
to know which one of the categories listed in the section as being a prerequisite to Steadfast’s
liability — (1) underlying insurance/self-insurance, or (2) the retained limit — is supposed to
apply to a particular claim. Indeed, given the well-settled rule that ambiguities are to be
construed in favor of the insured, under such a construction, Exeter would appear to have a
plausible argument that because the retained limit is lower than the limits of underlying
insurance/self-insurance Exeter is required to maintain, the retained limit would be the only
amount Exeter is required to satisfy for each claim involving a medical incident. Exeter does not
advance any such argument.
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In the event of bankruptcy, insolvency or refusal or inability
to pay, of any insured or underlying insurer, the insurance
afforded by this policy will not replace such alternative insurance
or underlying insurance but will apply as if all the limits of any
alternative insurance or underlying insurance are fully available
and collectible.
(Bolding omitted.) Read together, these provisions effectively relieve Steadfast
of so-called “drop down” liability with respect to claims that are covered by
“underlying insurance” or “alternative insurance” but are not paid because of
the bankruptcy, insolvency, or refusal or inability to pay of the insured or an
underlying insurer. By negative implication, the clear import of these
provisions is that for claims covered by its umbrella policy but that do not fall
within any “underlying insurance” or “alternative insurance,” Steadfast’s
liability can be triggered for losses below the amount of the coverage limits
Exeter is required to maintain. Indeed, that is why Steadfast is given the
ability to control the defense and settlement of such claims. If Steadfast did
not have “drop down” liability in these circumstances, it would be implausible
to construe the retained limit as intended to provide a deductible limited in
application to these types of claims. But because it does have such liability,
the retained limit insures that Steadfast’s liability is not triggered with the first
dollar of loss but only after Exeter has paid $100,000 toward the claim.
Construction of the retained limit as being applicable only to claims with
respect to which there is no “applicable underlying limit” is generally consistent
with the purpose of an umbrella policy, which, as the majority correctly notes,
is designed to serve as a gap filler that provides first dollar coverage (or, here,
first dollar coverage for losses above a $100,000 deductible) in circumstances
where there is no underlying coverage. See 4 New Appleman on Ins. L. Libr.
Ed. § 24.02[3], at 24-17 (Dec. 2010).
Because Steadfast does not contend that any of the medical incidents for
which Exeter seeks coverage would not have fallen within the coverage of the
SIT, I agree with the majority that a reasonable interpretation of the umbrella
policy is that Steadfast’s liability for each such claim is not subject to the
$100,000 retained limit after Exeter has exhausted its $4 million annual
aggregate. I therefore concur specially in the judgment of the court.
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