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Axis Insurance Co. was not obligated to indemnify a truck fleet operator under terms of its excess policy because the underlying primary policy's limits had not been exhausted, says an appeals court, in affirming a lower court ruling.
Kilgore, Texas-based Martin Resource Management Corp. had sought coverage for the cost of defending a separate stock-dilution lawsuit filed in Texas state court, according to Wednesday's ruling by the 5th U.S. Circuit Court of Appeals in Martin Resource Management Corp. v. Axis Insurance Co.
Martin had purchased a primary insurance policy from Schaumburg, Illinois-based Zurich American Insurance Co. and excess insurance policies from Axis Insurance Co., a unit of Pembroke, Bermuda-based Axis Capital Group Ltd. and Jersey City, New Jersey-based Arch Insurance Co.
All three policies had a $10 million limit, with Axis providing coverage for the first excess layer and Arch for the second layer, according to the ruling.
After Zurich denied coverage for defense costs from the underlying litigation, Martin filed suit against all three insurers. Zurich eventually reached a settlement with Martin under which Zurich agreed to pay $6 million, or $4 million below the $10 million liability limit.
Axis then moved for summary judgment, arguing it was not obligated to pay under its excess policy because the primary limit had not been exhausted.
Martin, however, argued that the Axis policy allowed Martin to “fill the gap” by paying the difference between Zurich's $10 million liability limit and the $6 million below-limit settlement, thus exhausting the primary policy's limit.
A magistrate judge of the District Court in Beaumont, Texas, ruled in Axis' favor, and a three-judge appeals court panel unanimously agreed that under terms of its policy, Axis was not obligated to provide coverage.
The Axis policy states that the policy will apply “only after all applicable underlying insurance … has been exhausted by actual payment under such underlying insurance,” according to the appeals court ruling.
“The Axis policy is unambiguous as to who must pay and the amount that must be paid in order to exhaust the Zurich policy,” said the ruling. “It is unreasonable to construe the Axis policy to allow exhaustion by a below-limit settlement,” the ruling said, in affirming the lower court's ruling.
Former American International Group Inc. Vice Chairman Thomas R. Tizzio has died at the age of 77.