Judge Davis Determines Date of Exhaustion of Insurance Policies Based on Policies’ Plain Language
February 16, 2017
In CNH Industrial America LLC v. American Casualty Company of Reading, Pennsylvania, C.A. No. N12C-07-108-EMD-CCLD, Judge Davis concluded that the insurance policies between plaintiff CNH Industrial America LLC (“CNH”) and defendant Travelers Indemnity Company (“Travelers”) were exhausted as a matter of law as of Travelers’ July 6, 2015 payment of the remaining policy limits of liability owed under each policy. CNH filed a declaratory judgment and breach of contract case against defendant insurance companies (including Travelers), alleging that Travelers breached its duty to defend CNH in underlying asbestos litigation. In the course of the action between CNH and Travelers, Travelers made a payment of $1.6 million to CNH for indemnity and defense costs while CNH’s motion for partial summary judgment against Travelers regarding exhaustion of the governing insurance policy was still pending. A payment of $1 million was made for defense costs up to the date of the last settlement, and $600,000 was paid for indemnity.
Travelers wrote to the Court following its payment to CNH arguing that the payment fully discharged its obligations under the governing insurance policies as of May 2009—when CNH tendered its final payment for the underlying asbestos actions. In support of its argument, Travelers cited cases finding that it is irrelevant, for exhaustion purposes, which party makes payments under an insurance policy. In contrast, CNH argued that the Court should approach exhaustion in the same manner that it adopts in non-insurance cases involving mortgages where a judgment debtor does not have the ability to choose how its payments on a judgment are divided between the principal and interest.
Judge Davis noted that neither party provided cases that were factually consistent with the issue at hand. Rather, the Court pointed to the language of the governing insurance policies providing that Travelers “shall not be obligated to pay any additional claim or judgment or to defend any suit after Travelers exhausts the applicable limit of liability.” Accordingly, Travelers, not CNH, must make a payment before Travelers’ obligations terminate due to exhaustion of the policies. As such, the Court held that the policies excused Travelers from any further payments owed to CNH after its July 6, 2015 payment.
Analysis: The CCLD has become a favored venue for insurance coverage cases and has handled some of the largest coverage disputes in Delaware. See, e.g., Viking Pump Inc. vs Century Indemnity Co. et al., C.A. No. N10C-06-141; Mine Safety Appliances Company vs AIU Insurance Company, C.A. No. N10C-07-241. The CCLD is rapidly developing a body of case law in insurance disputes, and the division is working to implement procedures to more expeditiously resolve such coverage disputes. Such procedures include flexible scheduling, assignment of an e-discovery master if requested, and rapid trial times if appropriate.