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Vol. 5, Iss. 2
February 10, 2016

“General Aggregate” Not Defined:
Supreme Court Says Insurer Obligated To Pay Its Limit--Twice


At the outset of Westchester Surplus Lines Inc. Co. v. Keller Transport, Inc., No. DA14-0278 (Mont. Jan. 12 2016), the Montana Supreme Court noted that the term “General Aggregate” was not defined in the policy before it. At that point, even knowing nothing about the story to come, I was pretty certain that it was not going to end well for the insurer. Courts intent on finding coverage, that otherwise should not exist, have a few ways to make this happen. One of them is to declare that, if the insurer meant for a policy term to have a certain meaning, then it could have, and should have, defined it as such. But since it didn’t, the court is left to grapple with two (or more) possible meanings of the term. And we all know what happens when courts find themselves so grappling. So, when the Keller Transport court made the point, right from the get-go, that the term “General Aggregate” was not defined in the policy, I put the insurer’s chances, for a happy ending, at about the same as an unknown character in Star Trek -- who finds himself in the landing party in the opening scene.

While the specific circumstances involved in Keller Transport do not happen every day, the court’s decision, that the undefined term “General Aggregate” is ambiguous, therefore requiring that it be paid twice, has widespread relevance.

At issue in Keller Transport was coverage for damages caused by an overturned tanker truck that spilled over 6,000 gallons of gasoline. The gasoline flowed under the highway and beneath several homeowners’ properties.

Keller Transport had leased the tanker truck from Wagner Enterprises. Keller and Wagner were insured under a primary policy that contained two coverage parts: Auto ($1 million Per Accident) and General Liability ($1 million Each Occurrence). The policy was subject to a $2 million General Aggregate. Keller and Wagner were insured under a follow form excess policy subject to a $4 million Occurrence limit and a $4 million General Aggregate.

In simple terms, following the spill, the primary policy paid $1 million for clean-up expenses and exhausted the Auto limit. The excess insurer paid $4 million and exhausted its limit. However, additional claims were made by homeowners, alleging that Keller and Wagner engaged in negligent conduct after the truck had overturned. These claims were alleged to trigger the General Liability coverage part of the primary policy. Thus, the homeowners sought an additional $5 million -- $1 million under the General Liability portion of the primary policy and $4 million under the excess policy. Never mind that the excess policy, with a $4 million General Aggregate, had already paid $4 million on account of the Auto claims.

Putting aside some other factors, and following a stipulated judgment and assignment of policy rights, the issue that made its way to the Supreme Court of Montana was whether the excess policy’s “General Aggregate” afforded $4 million for each type of coverage in the primary policy OR a $4 million limit for the entire excess policy.

The court held that the term “General Aggregate” was ambiguous, and, therefore, the excess insurer was obligated to provide an additional $4 million in CGL coverage. On one hand, the court went through a complex analysis to demonstrate that its decision was justified by the interplay between the primary and excess policies’ various limits, on account of the excess policy’s “follow-form” language: “the insurance afforded by this policy shall apply in like manner as the underlying insurance.”

But the Supreme Court’s rationale for its decision was much simpler: “The District Court reasoned that, given that Schedule A [Schedule of Underlying Insurance] makes clear that the Westchester policy provides excess insurance for both the Auto and CGL coverages, and that Item 6 [Limit of the Excess Policy] makes clear there is a $4 million aggregate limit on something, a reasonable insurance consumer might draw two different, but plausible, interpretations. On one hand, the $4 million general aggregate limit might represent the maximum liability of the entire excess policy, so that $4 million exhausted under one coverage would mean there was nothing available under the other coverage. On the other hand, the $4 million general aggregate limit might represent the maximum liability under each coverage, so that $4 million exhausted under one coverage had no bearing on the limits available under the other coverage. The District Court stated that Westchester’s failure to define ‘general aggregate’ makes one no more plausible than the other.” (emphasis in original).

On one hand, Keller Transport is a unique case. The accident at issue impacted both the Auto and CGL coverage parts of a primary policy. You don’t see that every day. On the other hand, the lesson from Keller Transport is hardly so limited. To the contrary, excess policies often provide coverage over more than one type of primary policy. And a single claim, that impacts two types of primary policies (such as in Keller Transport), is no different than two unrelated claims, where one impacts one type of primary policy and the second impacts another type. In both cases, following Keller Transport, the excess insurer’s undefined “General Aggregate” limit can be called upon to pay twice (or three times, if the excess policy provides coverage over three types of primary policies).

Cases like Keller Transport are frustrating for insurers. If insurers define more terms in a policy, they subject themselves to criticism by some courts that their policies are too long or cumbersome, on account of requiring the reader to incorporate definitions. But when a coverage dispute centers around an undefined term, some courts are quick to say that, if the insurer meant for the term to have a certain meaning, then the insurer could have, and should have, defined it as such.

While Keller Transport was wrongly decided, it can’t be ignored. Insurers are advised to take note of it and proceed accordingly. With CGL policies generally defining the term “General Aggregate” (or explaining its operation), Keller Transport is more relevant for excess policy scriveners.


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