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Vol. 8 - Issue 3
March 20, 2019


Does SIR Apply To First Layer Only Or All Excess Layers?


Deere & Company v. Allstate Insurance Company, No. A145170 (Cal. Ct. App. Feb. 25, 2019) involves an interesting excess-related coverage issue.  Excess cases often do not get discussed in Coverage Opinions, as they can be policy-language driven.  As a result, they may be too unique to offer a lesson or guidance for future cases.  And offering such guidance is one of the key factors for choosing a case for inclusion in CO.  But Deere & Company merits discussion here because it’s a unique issue and the court’s decision turned on policy language that is not unusual. 

At issue in Deere was coverage for claims filed against Deere, for bodily injury, caused by exposure to Deere’s asbestos containing products – brakes, clutch assemblies and gaskets used in Deere’s machines.  Needless to say, it’s complicated.  It involved coverage under 100+ policies issued to Deere from 1958 to 1986.  The trial was in three phases between 2006 and 2013.  Someone could have completed law school – twice – in less time.

The recent California appellate court decision addressed how to treat the self-insured retention in Deere’s policies.  Of note, Deere’s insurance program, for its products claims, did not include primary policies.  Instead, Deere had a series of first layer umbrella policies that provided coverage in excess of a self-insured retention.  It ranged from $50,000 to $1,500,000 over time.  Deere also had several layers of excess policies that sat above the first layer umbrella policy.

The issue before the court was this: Coverage under the first layer umbrella policies was subject to Deere’s satisfaction of the self-insured retention.  But what about the excess policies above that?  Was coverage under those policies also subject to satisfaction of the self-insured retention?

The trial court answered yes.  The appeals court reversed.

The court set out a variety of policy language and observed that the issue was tied to the extent that the “following form” provision incorporates the terms of the underlying policies.  Critical to the court’s analysis was that the scope of coverage, under a following form policy, is generally subject to the same conditions and limitations as the underlying policy – but with the exception for the limits of liability. 

The court had little trouble reaching its conclusion that the SIR was not applicable to the excess layers above the first layer umbrella: “The plain language of the first-layer umbrella policies and the higher-layer excess policies makes clear that Deere has no obligation to pay additional retained limits once the aggregate limits of the underlying policies have been satisfied. Section two of the higher-layers policies is entitled ‘Limit of Liability—Underlying Limits’ and provides that the only precondition to liability attaching to the higher-layers policies is that the ‘Underlying Umbrella Insurers have paid or have been held liable to pay the full amount of their respective ultimate net loss liability’ of $10 million (varies per policy) per occurrence, but $10 million (varies per policy) in the aggregate.  It further states that the higher-layer insurer ‘shall then be liable to pay only the excess thereof … .’ This section says nothing about higher-layer excess coverage being conditioned on Deere paying any additional SIR or retained limit before liability attaches. Moreover, there is no language in this provision that justifies treating Deere as an underlying umbrella insurer or treating the retained limits in the underlying policies as ‘insurance’ for this purpose.”


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