Umbrella Policy Always Excess Over Primary Policy

Barry Zalma
Jun 14, 2023

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Two insurance companies argued who must indemnify an insured for a settlement involving their mutual insured. Great American Insurance Company paid subject to a reservation and sued the primary insurer, Allied World Assurance Company, alleging that because it was the umbrella insurer it only owed after Allied World as the primary insurer, paid its limits. The district court agreed, granting summary judgment in Great American’s favor.

In Great American Insurance Company v. Allied World Assurance Company, Inc., No. 22-12496, United States Court of Appeals, Eleventh Circuit (May 31, 2023) determined who was on first to the obligation to indemnify the insured, Tribridge Residential. After two women were shot and killed at an apartment complex that Tribridge managed an ensuing lawsuit alleged Tribridge negligently failed to implement security. Tribridge settled that suit with plaintiffs.

Three different insurance companies insured Tribridge. AmTrust International Underwriters DAC, an insurance company that issued Tribridge a primary commercial general liability policy, paid out its policy limit toward the settlement. Then, Allied World and Great American disagreed about which policy was the priority coverage for the rest of the settlement.

ALLIED WORLD POLICY

Allied World issued Tribridge a commercial general liability policy. Allied World issued a “primary policy,” it contains an excess clause purporting to render its coverage excess of other insurance when liability arises from Tribridge’s
property management activities.

GREAT AMERICAN POLICY

Great American issued a “Commercial Umbrella Coverage” policy which includes Tribridge as an additional insured. The policy covers “those sums in excess of the ‘Retained Limit’ that the ‘insured’ becomes legally obligated to pay imposed by law or . . . because of ‘bodily injury.'”

Great American paid the rest of the settlement against Tribridge and sued Allied World, seeking equitable contribution and a declaratory judgment that its coverage obligation is not triggered until Allied World’s policy limit is exhausted.

ANALYSIS

Georgia law delineates between a “primary” insurance policy “written to provide primary coverage”- and an “umbrella” policy- operating as true excess over and above any type of primary insurance. All primary coverage must be exhausted before umbrella policy coverage is triggered.

Primary policies precede umbrella policies even when the primary policy includes an applicable “excess clause.” Umbrella policies, almost without dispute, are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses. Primary policies take priority to umbrella policies, even when the primary policy includes an applicable excess clause.

Great American’s commercial umbrella coverage policy only covers those sums in excess of listed underlying insurance. The Allied World policy is written to provide primary coverage and the Great American policy is the true excess policy. Accordingly, Allied World’s primary policy must be exhausted before the Great American umbrella policy applies.

In sum, Allied World is first in the pecking order as the “primary insurer.”

Summary judgment was affirmed for Great American but the court reversed the award of attorney’s fees.

ZALMA OPINION

The great comedians Abbot & Costello created the “Who’s on First Routine” that brought laughter to the question of who is in running the game. In this case a primary insurer, even with an “excess” and/or “escape” clause the primary is always on first and the umbrella only owes after the primary – the insurer on first – pays its limit and then the umbrella, on second base pays whatever is needed after the primary pays its limit. Allied World tried to avoid its obligation, failed, and is required to reimburse Great American.

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