In this declaratory judgment action, we revisit the question of whether an excess insurer must "drop down" into the position of an insolvent primary insurer. See Kelly v. Weil, 563 So.2d 221 (La.1990); Robichaux v. Randolph, 563 So.2d 226 (La.1990).
Interstate issued excess automobile liability policies to a number of insureds for whom Champion issued primary policies. Typically, the policies provided personal injury limits, expressed in terms of split per person/per occurrence limits, as follows: Champion's primary policies provided for underlying limits of $10,000/$20,000, and Interstate's excess policies provided for excess limits of either $25,000/$50,000 or $100,000/$300,000.
On June 5, 1989, Champion was declared insolvent and placed in liquidation, triggering LIGA's statutory responsibility under LSA-R.S. 22:1382 A(1)(a) for claims made by or against Champion's insureds. LIGA and Champion's liquidator each commenced separate declaratory judgment actions against Interstate; each sought a judgment declaring that Interstate's excess policies provided drop down coverage from dollar one and thereby precluded LIGA's statutory responsibility. After these actions were consolidated, LIGA and Interstate filed cross motions for summary judgment. The district court denied Interstate's motion and granted LIGA's motion. In so doing, the district court declared that Interstate was obligated to "pay claims made by or against [Champion's insureds] under its policies ahead of and before LIGA has any obligation to pay."
On Interstate's appeal, the appellate court agreed with the district court's declaration insofar as it found that Interstate's policies provided drop down coverage from dollar one, but disagreed with the district court's declaration insofar as it found that such drop down obligation was unconditional. Louisiana Ins. Guar. Ass'n v. Interstate Fire & Casualty Co., 613 So.2d 210 (La.App. 1st Cir.1992). Construing the loss payable clause contained in the limits of liability provision of Interstate's policy, the appellate court found that this clause conditioned drop down coverage on either the primary insurer or the insured being held liable to pay the full underlying limits.
We granted Interstate's writ application to determine the correctness of that decision. 617 So.2d 921 (La.1993).
The drop down issue presented here is whether the excess insurer, Interstate, is liable only for the amount of the insured's loss above the specified underlying primary limits, or whether it is liable to provide drop down coverage and essentially step into the shoes of the insolvent underlying primary insurer, Champion. Kelly v. Weil, 563 So.2d 221 (La.1990). Kelly reaffirms that the controlling consideration in resolving this drop down issue is the language of the excess policy. See Nasello v. Transit Casualty Co., 530 So.2d 1114, 1115 (La.1988).
In Kelly, we canvassed the federal and state jurisprudence on the drop down issue, and, based on the particular policy language, found that most excess policies can be sorted into three categories. Relevant here are the first and second Kelly categories.
In sorting an excess policy into the appropriate Kelly category, the pertinent policy provision ordinarily is the limits of liability provision since it defines the scope of coverage. See Interco Inc. v. National Surety Corp., 900 F.2d 1264, 1267 n. 4 (8th Cir. 1990) (collecting cases); Highlands Ins. Co. v. Gerber Products Co., 702 F.Supp. 109, 112-13 (D.Md.1988). The Interstate policy's limits of liability provision provides:
Pigeonholing its policy into the second Kelly category, Interstate contends that Kelly is dispositive and drop down is precluded. Stated otherwise, Interstate contends that its policy clearly defines the retained limit in terms of the scheduled underlying insurance as set forth in the declarations page. LIGA counters that Interstate's policy cannot be squeezed into any of the three Kelly categories. LIGA further suggests that those three categories are not all-inclusive and that this policy represents a fourth type.
If Interstate's limits of liability provision stopped after the second sentence, it would fit precisely, as Interstate suggests, into the second Kelly category. Indeed, the dissenting judge recognized this, noting that "[t]he interpretation given by the majority, that Interstate must pay both the primary and excess limits if there is a judgment in excess of the primary limits, is unreasonable in light of the first two sentences." Interstate Fire, 613 So.2d at 214. However, the limits of liability provision contains third and fourth sentences not found in any of the policies we categorized in Kelly. Because of these additional sentences, we agree with LIGA's contention that Interstate's excess policy cannot
The instant case thus hinges on an interpretation of Interstate's excess policy. In our task, we are guided by several elementary principles regarding construction of insurance policies.
An insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Civil Code. Smith v. Matthews, 611 So.2d 1377, 1379 (La.1993); Central Louisiana Electric Co. v. Westinghouse Elec. Corp., 579 So.2d 981, 985 (La.1991). The judicial responsibility in interpreting insurance contracts is to determine the parties' common intent. LSA-C.C. Art. 2045 (defining contractual interpretation as "the determination of the common intent of the parties"); Garcia v. St. Bernard Parish School Bd., 576 So.2d 975, 976 (La.1991) (citing W. McKenzie & H. Johnson, 15 Civil Law Treatise, Insurance Law and Practice § 4 (1986) ("Civil Law Treatise")).
The parties' intent as reflected by the words in the policy determine the extent of coverage. Trinity Industries, Inc. v. Ins. Co. of North America, 916 F.2d 267, 269 (5th Cir.1990) (citing Pareti v. Sentry Indemnity Co., 536 So.2d 417 (La.1988)). Such intent is to be determined in accordance with the general, ordinary, plain and popular meaning of the words used in the policy, unless the words have acquired a technical meaning. LSA-C.C. Art. 2047;
An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion. Lindsey v. Poole, 579 So.2d 1145, 1147 (La.App. 2d Cir.), writ denied, 588 So.2d 100 (La.1991) (citing Zurich Ins. Co. v. Bouler, 198 So.2d 129 (La.App. 1st Cir.1967)); Harvey v. Mr. Lynn's, Inc., 416 So.2d 960, 962 (La.App. 2d Cir.1982) (collecting cases); Jefferson v. Monumental General Ins. Co., 577 So.2d 1184, 1187 (La.App. 2d Cir.1991). Absent a conflict with statutory provisions or public policy, insurers, like other individuals, are entitled to limit their liability and to impose and to enforce reasonable conditions upon the policy obligations they contractually assume. Oceanonics, Inc. v. Petroleum Distributing Co., 292 So.2d 190, 192 (La.1974); Fruge v. First Continental Life and Accident Ins. Co., 430 So.2d 1072, 1077 (La.App. 4th Cir.), writ denied, 438 So.2d 573 (La.1983) (collecting cases); Hartford Acc. & Indem. Co. v. Joe Dean Contractors, Inc., 584 So.2d 1226, 1229 (La.App. 2d Cir.1991) (collecting cases).
Ambiguity in an insurance policy must be resolved by construing the policy as a whole; one policy provision is not to be construed separately at the expense of disregarding other policy provisions. LSA-C.C. Art. 2050;
If after applying the other general rules of construction an ambiguity remains, the ambiguous contractual provision is to be construed against the drafter, or, as originating in the insurance context, in favor of the insured. This rule of strict construction requires that ambiguous policy provisions be construed against the insurer who issued the policy and in favor of coverage to the insured. Smith v. Matthews, 611 So.2d 1377, 1379 (La.1993) (citing Breland, supra). Under this rule, "[e]quivocal provisions seeking to narrow the insurer's obligation are strictly construed against the insurer, since these are prepared by the insurer and the insured had no voice in the preparation." Garcia v. St. Bernard Parish School Bd., 576 So.2d 975, 976 (La.1991). LSA-C.C. Art. 2056 codifies this rule of strict construction, providing that "[i]n case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text. A contract executed in a standard form of one party must be interpreted, in case of doubt, in favor of the other party." LSA-C.C. Art. 2056; Civil Law Treatise, supra § 4; see also W. Freedman, 2 Richards on the Law of Insurance § 11:2[f] (6th Ed.1990) ("Richards") (noting that the rule of strict construction is also labeled the doctrine of contra proferentum).
"Ambiguity will also be resolved by ascertaining how a reasonable insurance policy purchaser would construe the clause at the time the insurance contract was entered." Breland v. Schilling, 550 So.2d 609, 610-11 (La.1989). The court should construe the policy "to fulfill the reasonable expectations of the parties in the light of the customs and usages of the industry." Trinity Industries, 916 F.2d at 269 (5th Cir.1990) (citing Benton, 379 So.2d at 231 and LSA-C.C. Arts. 2045, 2050, 2053 and 2054). In insurance parlance, this is labelled the reasonable expectations doctrine. Richards, supra at § 11:2[g].
Yet, if the policy wording at issue is clear and unambiguously expresses the parties' intent, the insurance contract must be enforced as written. LSA-C.C. Art. 2046 (providing that when the words of a contract are clear, no further interpretation may be made to determine the parties' intent); Schroeder v. Bd. of Supervisors of Louisiana State University, 591 So.2d 342, 345 (La. 1991); Massachusetts Mutual Life Ins. Co. v. Nails, 549 So.2d 826, 832 (La.1989); Albritton v. Fireman's Fund Ins. Co., 224 La. 522, 70 So.2d 111, 113 (1953). When the language of an insurance policy is clear, courts lack the authority to change or alter its terms under the guise of interpretation. Bernard Lumber Co., Inc. v. Louisiana Ins. Guar. Ass'n, 563 So.2d 261, 263 (La.App. 1st Cir.), writ denied, 566 So.2d 981 (La.1990) (citing Radar v. Duke Transp. Inc., 492 So.2d 532, 533-34 (La.App. 3d Cir.1986)). The determination of whether a contract is clear or ambiguous is a question of law. Watts v. Aetna Casualty and Surety Co., 574 So.2d 364, 369 (La. App. 1st Cir.), writ denied, 568 So.2d 1089 (La.1990).
With these settled principles of construction in mind, we turn to the contractual terms of Interstate's excess policy alleged to support drop down coverage. In reviewing them, we first observe the conspicuous absence in the policy of any provision addressing the problem created by the primary insurer's (Champion's) insolvency. We next observe that the policy repeatedly refers to the fact that Interstate is an excess insurer. The policy is labeled an "Automobile Liability Excess Indemnity Insurance Policy." The insuring agreement states that Interstate
Acknowledging this, the appellate court stated that "`[a]ll of the provisions of the policy denote Interstate as an excess insurer that will pay after the underlying limits are used or exhausted ...' except the final [fourth] sentence of the `Limits of Liability' paragraph." Interstate Fire, 613 So.2d at 214. Latching onto that one sentence as creating an ambiguity, the appellate court concluded that the sentence was "clearly susceptible to more than one interpretation," including, as urged by LIGA, that "[i]f Champion or its insured is held liable and, for whatever reason, including insolvency, Champion does not pay, the fourth sentence obligates Interstate to stand in for Champion and to pay whatever amounts are necessary to provide the insured with the coverage promised by both the primary and excess policies." Id. at 213. Adopting that construction, the appellate court found that "[t]he agreement by Interstate in the limits of liability section to pay the sums necessary to afford the coverage of both policies is not conditioned on the collectibility of the primary policy. The agreement is merely to pay the sums necessary to afford the combined coverage in a specific situation [contemplated by the fourth sentence]." Id. at 213. The court further found that "[n]othing in any of the other provisions deals with this specific situation or changes the operation of the fourth sentence." Id.
The sole source of potential ambiguity in Interstate's policy, and thus the sole grounds on which LIGA, supported by the appellate court's conclusion, relies in support of drop down coverage is the fourth sentence of the limits of liability provision. LIGA argues that the insured's reasonable expectations, the ambiguity created by the fourth sentence and public policy considerations are all reasons that support affirming the appellate court's construction of the fourth sentence. Alternatively, LIGA suggests that we construe the fourth sentence as a clear, unconditional contractual guarantee by Interstate to pay the combined policy limits.
On the other hand, Interstate argues that the appellate court erred in focusing all of its attention on that one sentence of the policy in isolation and in relying on that sentence to the exclusion of the balance of the policy. Interstate further argues that the appellate court's construction of that sentence is contrary to LSA-C.C. Art. 2050's mandate that contracts, including insurance policies, be construed as a whole. Interstate contends that, construed as a whole, its policy unambiguously precludes drop down coverage.
For the reasons that follow, we agree with Interstate's contention that, construed as a whole, its policy plainly precludes drop down coverage and thus reverse.
Resolution of this case turns on whether the fourth sentence of Interstate's limits of liability provision requires Interstate to drop down and assume the insolvent
Repeating, the fourth sentence reads: "WE shall then be liable to pay only such additional amounts necessary to provide YOU with a total coverage under the PRIMARY INSURERS and this policy combined." Applying the general rule of construction that words in an insurance contract are to be construed in accordance with their plain and ordinary meaning, we find the words in this fourth sentence reflect that its meaning is dependent upon other policy provisions in at least three respects.
The first dependent word is "then." The word "then" is defined as "[n]ext in ... order." American Heritage Dictionary (1976). In this sentence, "then" means after the trigger condition imposed by the third sentence occurs.
Based on the above definitions, we translate this sentence as providing that after the triggering event, defined in the third sentence, the next event is the activation of Interstate's obligation to pay, and that obligation will be for no more than such supplemental amounts necessary to provide the total combined coverage. This sentence thus clarifies that the excess insurer's (Interstate's) limits are in addition to the primary insurer's (Champion's) limits.
This sentence also sets forth a formula for calculating the supplemental amount that Interstate is obligated to pay after its coverage is activated. Under this formula, the amount Interstate must pay is determined by totalling the sum of the underlying primary limits and the excess limits, and subtracting from that sum the full amount of the primary limits, which the third sentence mandates that the primary insurer have either paid or been held liable to pay. Stated differently, the formula defines Interstate's obligation to pay as the remainder resulting after subtracting the full amount of the underlying primary limits from the "total coverage."
While we construe Interstate's policy as plainly precluding drop down coverage, we nonetheless address each of the three factors LIGA contends supports the appellate court's contrary construction; namely: (i) the reasonable
(i) The Reasonable Expectations Doctrine:
Relying on the reasonable expectations doctrine, the appellate court concluded that the insureds were entitled to reasonably expect that Interstate would fill in any gap in coverage created by Champion's insolvency; specifically, the appellate court stated:
Interstate Fire, 613 So.2d at 213. Disagreeing, the dissenting judge stated:
Id., 613 So.2d at 214.
Consistent with the dissenting judge's statement, the majority of courts nationwide addressing this issue have held that insureds cannot reasonably expect that if their primary insurer is declared insolvent, their excess insurer will drop down and cover losses from dollar one.
Theoretically, an insured purchases excess insurance for the purpose of providing supplemental coverage that picks up where his primary coverage ends and thus providing protection against catastrophic losses. Lindsey v. Poole, 579 So.2d 1145, 1147 (La.App. 2d Cir.), writ denied, 588 So.2d 100 (La. 1991); Coates v. Northlake Oil Co., 499 So.2d 252, 255 (La.App. 1st Cir.1986), writ denied, 503 So.2d 476 (La.1987) (collecting authorities). It follows then that the purpose of excess insurance is to protect the insured against excess liability claims, not to insure against underlying insurer insolvency. Playtex FP, Inc. v. Columbia Cas. Co., 622 A.2d 1074, 1078 (Del.Super.1992).
The very nature of excess insurance coverage is such that a predetermined amount of underlying primary coverage must be paid before the excess coverage is activated.
Recognizing the reality that the primary insurer's insolvency is not a bargained-for risk, one court remarked that "[i]t would simply make no sense to hold that an `excess' insurer should be liable as a primary insurer. This would impose a liability on the `excess' insurer which is not bargained for in its premium that is based on the lesser risk which an excess carrier agrees to assume." Radiator Specialty Co. v. First State Ins. Co., 651 F.Supp. 439, 442 (W.D.N.C.), aff'd, 836 F.2d 193 (4th Cir.1987). Oftcited is the comment that imposing such unbargained-for risk on the excess insurer "would, in effect, transmogrify the policy into one guaranteeing the solvency of whatever primary insurer the insured might chose." Continental Marble & Granite v. Canal Ins. Co., 785 F.2d 1258, 1259 (5th Cir.1986); Lindsey, 579 So.2d at 1149-50 (noting that "impos[ing] a duty upon an excess insurer to guarantee the solvency of a primary carrier, would transform an excess policy into a suretyship agreement").
Summarizing, the courts that have looked beyond the policy language to other external factors, such as the premiums paid and the purpose and nature of excess insurance, have concluded that an insured lacks a reasonable expectation that in the event of his primary insurer's insolvency his excess insurer will provide drop down coverage. Accordingly, although the reasonable expectations doctrine has reared its head in a handful of drop down cases, it is inappropriate in this context. P. Magarick, Excess Liability § 17.12 (3d Ed.1993).
(ii) The Rule of Strict Construction:
Virtually all of the decisions construing excess policies as providing drop down coverage, including the appellate court's decision in the instant case, have centered on the rule of strict construction. "The familiar canon of insurance contract interpretation—that ambiguities are to be construed in favor of the insured—pervades both the analysis and conclusions of the courts." P. Brady and J. Grogan, The Excess Drop Down Issue: When Is The Excess Carrier Responsible for The Insolvency of a Primary Carrier?, FICC Quarterly, Fall 1988 at 63.
Accepting that argument, the Gulezian court held that "[t]he phenomenon of the insolvency of an insurer is not, however, so rare as to excuse that omission of attention to detail. The result is that [the excess insurer] issued a policy in which it generated uncertainty as to what should happen on the insolvency of a primary insurer." 506 N.E.2d at 126. That view, however, has not prevailed; rather, the prevailing view is that the absence of an express insolvency drop down exclusion creates neither policy ambiguity nor drop down coverage. Playtex, 622 A.2d at 1078; Highlands, 702 F.Supp at 113. Silence should not be confused with ambiguity since "[i]t is just as logical to conclude that by not specifically listing insolvency as an exclusion, the parties did not contemplate insolvency of the insurer as an event triggering liability." Fred Weber, Inc. v. Granite State Ins. Co., 829 S.W.2d 589, 593 (Mo.App. 1992).
Span, Inc. v. Associated Int'l Ins. Co., 227 Cal.App.3d 463, 277 Cal.Rptr. 828, 835 (1991), is a good example of the proper application of the rule of strict construction in this context. The Span court points out that a majority of courts that have construed excess policy language requiring exhaustion by payment of losses, or language similar thereto, have found that such language precludes drop down coverage. Explaining away policy silence on the subject of drop down coverage, the Span court reasons that when an excess policy provides that only payment of the primary limits activates the excess coverage, "insolvency of the primary carrier is excluded, indirectly, but unambiguously." 277 Cal. Rptr. at 835.
Accordingly, the rule of strict construction does not require that the excess policy make specific provision for the primary carrier's insolvency. Highlands, 702 F.Supp at 112. Nor does the fact that the policy provides only excess coverage have to "be repeated in every policy provision, and unless there is language present in the policy which affirmatively contradicts what was the parties' plain intent, close linguistic analysis is nothing more than sophistry." Id.
In the same vein, we have cautioned that the rule of strict construction "does not authorize a perversion of language, or the exercise of inventive powers for the purpose of creating an ambiguity where none exists, nor does it authorize the court to make a new contract for the parties or disregard the evidence as expressed, or to refine away the terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties, and embodying requirements, compliance with which is made the condition to liability thereon." Massachusetts Mutual Life Ins. Co. v. Nails, 549 So.2d 826, 832 (La.1989)(quoting Muse v. Metropolitan Life Ins. Co., 193 La. 605, 607, 192 So. 72, 74 (1939)). As we noted long ago:
Hemel v. State Farm Mutual Automobile Ins. Co., 211 La. 95, 29 So.2d 483, 486 (1947) (quoting Williams v. Union Central Life Ins. Co., 291 U.S. 170, 54 S.Ct. 348, 78 L.Ed. 711 (1934)); Watts v. Aetna Casualty and Surety Co., 574 So.2d 364, 369 (La.App. 1st Cir.), writ denied, 568 So.2d 1089 (La.1990) ("courts should not strain to find an ambiguity where none exists"). In short, Louisiana jurisprudence cautions against the alteration of unambiguous policy terms under the guise of interpretation. See Civil Law Treatise, supra § 4 (collecting cases).
Echoing these policy concerns, courts nationwide have recognized that, as a general rule, policies which clearly state that they are excess are not required to provided drop down coverage. P. Magarick, Excess Liability § 17.12 (3d Ed.1993) (collecting cases); see, e.g., Highlands Ins. Co. v. Gerber Products Co., 702 F.Supp. 109, 112 (D.Md.1988). Consequently, courts have refused to extend an excess carrier's coverage when the coverage provided by the policy clearly was intended
An exception to the general rule exists only when the policy uses language that creates a "genuine ambiguity" as to the scope of coverage. Highlands, 702 F.Supp at 112. Language that has been construed to create such a genuine ambiguity includes "[c]lauses indicating that an excess insurer will provide coverage over underlying `collectible' or `recoverable' insurance." Id.; Kelly, 563 So.2d at 222.
To determine whether an excess policy could reasonably be construed to provide drop down coverage, courts have looked to the policy's triggering language, which defines the scope of coverage and which is generally set forth in the limits of liability provision. Interco Inc. v. National Surety Corp., 900 F.2d 1264, 1267 n. 4 (8th Cir.1990) (collecting cases); Highlands, 702 F.Supp. at 112-113. While such language is lacking from the Interstate limits of liability provision, the appellate court, as noted above, found the fourth sentence of that provision susceptible to at least two reasonable interpretations, creating a policy ambiguity which, in turn, served as the basis for applying the rule of strict construction to find drop down coverage. Contrary to the appellate court's conclusion, there are several significant qualifications on the rule of strict construction that prohibit its application here.
The first limitation is that, as expressly stated in LSA-C.C. Art. 2056, which codifies the rule of strict construction, it applies only "[i]n case of doubt that cannot be otherwise resolved." LSA-C.C. Art. 2056 (emphasis supplied). Another limitation is that it applies only when after applying the other general rules of construction, including interpreting the contract as a whole, a genuine ambiguity in meaning remains. Trinity Industries, Inc. v. Ins. Co. of North America, 916 F.2d 267, 269 n. 9 (5th Cir.1990) (noting that ambiguity "in the air" does not justify strict construction against an insurer); Dugger v. Upledger Inst., 795 F.Supp. 184, 188 (E.D.La.1992), aff'd, 8 F.3d 20 (5th Cir.1993). Lastly, it applies only if the ambiguous policy provision is susceptible to two or more reasonable interpretations; for a genuine ambiguity to exist, the insurance policy must be not only susceptible to two or more interpretations, but the alternative interpretations must be equally reasonable. Caraway v. Royale Airlines, Inc., 559 So.2d 954, 959 (La. App. 2d Cir.1990), rev'd in part on other grounds, 579 So.2d 424 (La.1991) (collecting cases); see also Radiator Specialty Co. v. First State Ins. Co., 651 F.Supp. 439, 442 (W.D.N.C.), aff'd, 836 F.2d 193 (4th Cir.1987) (stressing that the key word is "reasonable").
Applying those limitations to the present case, we find that the appellate court allowed the rule of strict construction to overshadow the other principles of contract construction, including that the policy be construed in accordance with its plain and ordinary meaning. A more basic flaw in the appellate court's construction is that, as Interstate contends, it ignores LSA-C.C. Art. 2050's mandate that the contract be construed as a whole. As demonstrated above, considered in its entirety, Interstate's policy, by its plain terms, provides coverage only in excess of Champion's underlying limits, regardless of the collectibility of such limits. See Radiator, 651 F.Supp. at 442 (rejecting argument that a single phrase in the policy be read in isolation so as to create an ambiguity, reasoning that "[t]o so hold would completely ignore all of the definitions and Terms and Conditions of the Policy, which clearly rule out [the] argument that this policy is subject to two interpretations"); see also Fried v. North River Ins. Co., 710 F.2d 1022, 1025
A further flaw in the appellate court's construction is that it is not a reasonable one. Indeed, the dissenting judge posited the following hypothetical to illustrate the unreasonableness of the majority's construction and the anomaly it creates:
Id. at 214. As demonstrated above, Interstate's excess policy is susceptible to only one reasonable interpretation under which drop down coverage is precluded. Hence, we conclude that Interstate's policy language cannot reasonably be interpreted to mean that it was contracting to insure Champion's solvency; therefore, the rule of strict construction is inapposite.
(iii) Public Policy Considerations:
LIGA further contends that public policy dictates that Interstate be held liable to provide drop down coverage from dollar one, precluding the triggering of LIGA's statutory responsibility. In essence, LIGA urges that the stability of the guaranty fund requires that other solvent insurers be required to pay first and that the fund be looked to solely as a last resort. LIGA further urges that the fund is designed to protect policyholders, not to protect other insurance companies from each others insolvencies. We find LIGA's public policy argument unavailing.
The statutory provisions creating the guaranty fund cannot upset contractually provided for ranking of coverages between insurers. See Maricopa County v. Federal Ins. Co., 757 P.2d 112 (1988); Ambassador Associates v. Corcoran, 143 Misc.2d 706, 541 N.Y.S.2d 715, 718 (N.Y.Sup.1989) (finding that "the legislature intended the Fund, not any excess insurers, to pay such [drop down] claims"). Moreover, the nature and purpose of excess insurance, outlined in detail above, favor a finding for the excess insurer; as one commentator explains:
J. Schaller, M. Medaglia, R. Kelly and A. LeBel, Excess, Surplus Lines and Reinsurance: Recent Developments in Umbrella and Excess Liability Insurance, 24 Tort and Ins. L.J. 283, 295 (1989); see, e.g., Hudson Ins. Co. v. Gelman Sciences, Inc., 921 F.2d 92 (7th Cir.1990); Hendrix v. Fireman's Fund Ins. Co., 823 S.W.2d 937 (Ky.App.1991); Fried v. North River Ins. Co., 710 F.2d 1022, 1025-26 (4th Cir.1983) ("equitable considerations will not be employed to rewrite the terms of [the] policy"). "To ignore the language of such a contract, and in effect impose a duty upon an excess insurer to guarantee the solvency of a primary carrier, would transform an excess policy into a suretyship agreement." Lindsey v. Poole, 579 So.2d 1145, 1149-50 (La.App. 2d Cir.), writ denied, 588 So.2d 100 (La.1991). Consequently, we decline LIGA's invitation to rewrite Interstate's policy.
Our findings that Interstate has no obligation under the reasonable expectations doctrine or as a result of applying the rule of
New Process Baking Co. v. Federal Ins. Co., 923 F.2d 62 (7th Cir.1991), is illustrative. There, the court declined to impose the risk of the primary insurer's (Mission's) insolvency on the excess insurer (Federal), reasoning that "[i]n the absence of clear language imposing on Federal the risk of Mission's insolvency, we decline to create any `drop down' obligation for Federal." Id. at 63.
While this jurisprudential rule is not controlling, it provides a powerful guideline supporting our construction of the Interstate policy language in question as precluding drop down coverage. Absent something in the policy indicating that Interstate clearly assumed the obligation to pay more in some instances, Interstate, as excess insurer, should not have to do so. Here, there is nothing in Interstate's policy saying that it as excess carrier has to pay more.
Our construction of the Interstate policy as precluding drop down is further strengthened by the modern trend against imposing a drop down obligation on an excess carrier. Explaining the trend, one commentator aptly noted that "[v]arious courts use different reasons for denying drop down; some reasoning on public policy grounds, some based on policy language which the court deems indicates an intent not to drop down, some based on limits of underlying coverage, and still others on reasoning only understood by the court itself." H. Berg, Fundamentals of Insurance Insolvency Laws, 38 Prac.Law.-No. 7, October 1992 at 59. As the above discussion demonstrates, our decision is based on several, if not all, of those factors.
Though the dispositive language of Interstate's policy is not the plainest, we find it sufficiently plain and unambiguous to yield an interpretation as a matter of law on cross motions for summary judgment.
For the reasons set forth above, the judgment of the district court granting LIGA's motion for summary judgment is reversed, and Interstate's cross-motion for summary judgment is granted to the extent of declaring that the terms of Interstate's excess policy are unambiguous and do not require Interstate to "drop down." Interstate is obligated to pay only that portion of a loss over and above the $10,000/$20,000 limits of Champion's primary policy.