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United States Fire Insurance Co. v. Lay

decided: May 31, 1978.


Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 74-448-C - William E. Steckler, Judge.

Cummings, Circuit Judge, Miller, Associate Judge,*fn* and Tone, Circuit Judge.

Author: Tone

TONE, Circuit Judge.

The issue before us, broadly stated, is the liability of an excess public liability insurance carrier when the personal injury claimant has settled with the insured and the primary carrier for less than the amount of the primary coverage. The District Court held that the excess carrier's liability was extinguished by the settlement. We agree and affirm the judgment.

Robert O. Lay was killed in a motor vehicle accident involving a truck owned by International Comador of Memphis, Inc. At the time of the accident, Comador had two liability policies, the primary one with Canal Insurance Company having a limit of bodily injury liability of $100,000 as to each injured person for a single occurrence, and the excess policy with United States Fire Insurance Company having a limit of liability of $1,000,000 for each occurrence for a loss in excess of the primary limits.

In anticipation of a wrongful death action, Canal, the primary insurer, negotiated a settlement with the decedent's administratrix and widow, Judith A. Lay. The settlement agreement provided that the primary insurer would pay the administratrix only $70,000 of its $100,000 primary policy limit. The administratrix released the primary insurer from any further payment as a result of any judgment. In the event of a judgment in excess of $100,000, the primary insurer and Comador were to "be given credit" of $100,000 on the judgment "and any verdict or judgment in excess of . . . ($100,000.00) . . . will be marked satisfied within available insurance coverages." The agreement recited that except for the "credit" of $100,000 against any judgment obtained by the administratrix against Comador "or uninsured amounts in excess thereof," it was not the intention of the parties to release any claims the administratrix had against parties other than Canal.

Subsequently the administratrix filed a wrongful death action against Comador, which the primary insurer defended on behalf of Comador. The parties presented, and the court entered, an agreed judgment in the amount of $150,000 in favor of the administratrix and against Comador to be satisfied out of available insurance proceeds only, with credit given to the primary insurer in the amount of $100,000.

The United States Fire Insurance Company, the excess carrier, had knowledge of and participated in the negotiations surrounding the agreed judgment entry but was not a party to that agreement. In a separate agreement with the administratrix and Comador, United States Fire reserved its right to contend that it had no liability. The District Court found, and we agree, that the excess carrier had not waived its right, and was not estopped, to dispute its obligation to pay the unsatisfied portion of the judgment. The appellant does not contend otherwise.

After the entry of the agreed judgment, the excess carrier commenced this declaratory judgment action against the administratrix, the primary insurer, and the insured, seeking a declaration that it was not liable for any part of the judgment. The parties submitted the case for decision upon a written record. The court entered a judgment declaring that the excess carrier was not liable.*fn1

The undertaking of the excess carrier is stated in Article I of its policy entitled "Coverage":

The Company agrees to indemnify the insured for ultimate net loss in excess of the retained limit hereinafter stated, which the insured may sustain by reason of the liability imposed upon the insured by law, or assumed by the insured under contract:

(a) Personal Injury Liability. For damages, including damages for care and loss of services, because of personal injury including death at any time resulting therefrom, sustained by any person or persons.

The term "ultimate net loss" is defined elsewhere in the policy to mean

(1) All sums which the insured, or any company as his insurer, or both become legally obligated to pay as damages, whether by reason of adjudication or ...

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