Excess Coverage: Unlimited Exposure for the Excess Carrier? (PA)
In Jin Ming Chen v. Insurance Company of the State of Pennsylvania (Ct. of Appeals, 2020), Plaintiff commenced a personal injury suit after sustaining an injury at a construction site. At the time of the suit, defendant Kam Cheung Construction maintained both primary and excess coverage. The combined coverage limits totaled five million dollars per occurrence: one million per occurrence from the primary carrier and four million dollars per occurrence from the excess carrier. Partial summary judgment was entered in favor of the Plaintiff, in the amount of $2,330,000 plus $396,933.70, in prejudgment interest. Following the judgment, the defendant’s primary carrier was granted a declaratory judgment rescinding the primary policy, on the basis of material misrepresentations made by the defendant in his application for coverage.
In an effort to obtain the entire policy, the Plaintiff concluded that the excess carrier, Insurance Company of the State of Pennsylvania (‘ICSOP”) was liable for the entire judgment, pursuant to the policy’s “ultimate net loss” and “follow form” provisions. ICSOP contended that it was not liable for the portion of the judgment that would have otherwise been paid by the primary carrier, had coverage not been voided, as the excess policy did not “drop down.”
Insurance contracts are governed by the rules of contract law. As such, the language included in an insurance policy/agreement are governed by the plain meaning of the language included in the agreement. Here, the Court of Appeals rejected Plaintiff’s arguments on the basis of the unambiguous language contained in the insurance contracts. While the Court of Appeals chose not to read beyond the language of the insurance agreement, if the Court had done so, ICOSP could have been liable for a judgment that exceeded the scope of coverage for this claim. Thus, many carriers could then be liable for judgments that far exceed coverage limits. For now, pursuant to the highest Court in the State of New York, the liability of carriers does not exceed the provisions of the insurance agreement, thus highlighting the importance of unambiguity in such agreements.
Thanks to Marysa Linares for her contribution to this post. Please contact Heather Aquino with any questions.