Parsing a self-insured retention endorsement
In January 2009, Walsh Construction Company, a general contractor, hired Roadsafe Holdings, Inc., to be Walsh’s subcontractor in the construction of a traffic exchange involving Interstates 65 and 80 in Lake County, Indiana. Roadsafe’s obligations included providing a safe traffic pattern through the work zone. Walsh’s contract with Roadsafe required Roadsafe to indemnify Walsh for any liability resulting from Roadsafe’s failure or negligence in its work. Accordingly, Walsh’s contract required Roadsafe to procure a commercial general liability policy that named Walsh as an additional insured on a primary and noncontributory basis.
Roadsafe obtained a CGL policy from Zurich American Insurance Company. The policy defined Roadsafe as the “Named Insured” and stated that, “[t]hroughout this policy[,] the words ‘you’ and ‘your’ refer to the Named Insured …. The word ‘insured’ means any person or organization qualifying as such under Section II—Who Is An Insured.”
An endorsement attached to the policy named as additional insureds any “person and organization where required by written contract,” such as Roadsafe’s contract with Walsh, “but only with respect to liability for ‘bodily injury’ … by your [Roadsafe’s] acts or omissions ….” The policy then provided: “We [Zurich] will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ … to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.”
Roadsafe also obtained a $500,000 per-occurrence, self-insured retention endorsement to the CGL policy. The SIR endorsement amended the CGL policy as follows:
The insurance provided by this policy is subject to the following additional provisions, which in the event of conflict with any other provisions elsewhere in the policy, shall control the application of the insurance to which this endorsement applies:
1. Self Insured Retention and Defense Costs—Your Obligations
A. The “self insured retention” amounts stated … apply as follows:
1. If a Per Occurrence Self InsuredRetention Amount is shown in this endorsement, you shall be responsible for payment of all damages and “pro rata defense costs” for each “occurrence”[ ] until you have paid damages equal to the Per Occurrence amount ….
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B. Defense Costs
Except for any “defense costs” that we may elect to pay, you shall pay “prorata defense costs” as they are incurred ….
C. Settlement of Claim
1. Within Self Insured Retention
If any final judgment or settlement is less than the “self insured retention” indicated … above, you shall have the right and obligation to settle all such claims or suits ….
2. Excess of Self Insured Retention
You may not settle any claim or suit which exceeds any “self insured retention” amount indicated … without our written permission to do so ….
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H. Compliance
Compliance with the requirements set forth in this endorsement is a condition precedent to coverage ….
II. Our Rights and Obligations Excess of the Self Insured Retention
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B. Damages Excess of Self InsuredRetention—Per Occurrence or Per Claim
We shall be liable only for the amountsof our share of “pro rata defense costs” anddamages in excess of the “self insuredretention” amounts … above ….
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D. Settlement of Claims
1. Within Self Insured Retention
We shall have, at our option, the right but not the obligation or duty[ ] to negotiate the settlement of any claim within the applicable “self insured retention” amount, which in our opinion is deemed expedient. But we shall obtain your consent prior to entering into any settlement of any claim which is equal to or less than the “self insured retention” amount ….
2. Excess of Self Insured Retention
With respect to any claim under this insurance which has been tendered to us and which may exceed the “self insured retention” amount shown … we have the right and duty to negotiate the settlement of such claim and may pay any or all damages and “defense costs” on your behalf, both within and excess of the applicable “self insured retention” amount. Any such payments made by us for damages or “defense costs” within the “self insured retention” amount shall be reimbursed promptly by you.
Definitions—
A. “Self insured retention” means:
the amount or amounts which you or any insured must pay for all compensatory damages and “pro rata defense costs” which you or any insured shall become legally obligated to pay because of damages arising from any coverage included in the policy.
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D. “Occurrence[,]” for purposes of this endorsement only, means an “occurrence[,]” offense, accident, act, error or omission[,] or any other such similar event, as defined or used in our policy, that must occur in order to initiate payment of covered losses under the policy terms and conditions.
On June 15, 2009, Boguslaw Maczuga was injured while operating his motor vehicle through the work zone’s traffic pattern. On June 27, 2011, Maczuga served Walsh with a second amended complaint in which Maczuga alleged that Walsh had negligently created an unsafe traffic pattern. As a result of Maczuga’s complaint, on January 18, 2012, Walsh filed a third-party complaint against Roadsafe. In its complaint, Walsh alleged that Roadsafe had failed to indemnify Walsh and that Roadsafe had breached its contract with Walsh. Specifically, Walsh’s complaint stated that “[t]he Maczuga lawsuit seeks recovery from Walsh for its alleged negligence in connection with work that was to be performed by Road[s]afe” and that “[f]ollowing service of process of the Maczuga lawsuit, Walsh tendered its defense and indemnity to Road[s]afe” but Roadsafe had “failed to either agree to indemnify or undertake Walsh’s defense.”
Thereafter, Walsh notified Zurich, pursuant to the terms of the CGL policy, of Maczuga’s lawsuit and requested that Zurich defend Walsh in that suit. Zurich denied Walsh’s request, and Walsh filed a complaint for declaratory judgment against Zurich, in which Walsh alleged that Zurich had a duty to defend and indemnify Walsh. Roadsafe intervened in the declaratory judgment action, and the parties moved for summary judgment. The court entered summary judgment for Zurich, stating:
“Zurich has no contractual obligation to cover Walsh as an additional insured at this time. First of all, the policy is a liability policy between Zurich and Roadsafe, and no person or entity has sued or even made a claim against Roadsafe for any type of negligence. Also, there is a [SIR endorsement] that requires the insured to pay the first $500,000 of costs and damages of any claim before Zurich becomes obligated to pay out on the policy. Since there has been no claim for negligence against Roadsafe, Roadsafe has paid nothing and has made no claim under the policy.” Walsh appealed.
On appeal, the court noted that the relevant question was whether the self-insured retention endorsement amended Zurich’s obligation under the CGL policy to defend Walsh. Walsh and Roadsafe both argued that the SIR endorsement amended only Zurich’s relationship to Roadsafe and that it did not amend Zurich’s obligations under the policy with respect to Walsh. Zurich, on the other hand, contended that the SIR amount must be satisfied before Zurich could have any obligations under the policy.
The appellate court concluded that Zurich’s reading of the SIR endorsement properly harmonized the totality of that document’s language and applied the SIR endorsement as it was meant to be applied.
“In sum, we hold that, under the plain language of the SIR endorsement, Zurich has no obligation under the CGL policy to defend or indemnify Walsh until Roadsafe has satisfied the $500,000 SIR amount. Accordingly, we affirm the trial court’s entry of summary judgment for Zurich.”
Walsh Construction Company vs Zurich American Insurance Company-Court of Appeals of Indiana-March 28, 2017- No. 45A04-1606-PL-1284.
