(Article from Insurance Law Alert, October 2023)
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Holding
A Kentucky appellate court ruled that a commercial umbrella policy was unambiguous and did not provide coverage for the underlying claims at issue, notwithstanding that the underlying primary policy did provide coverage. Grange Ins. Co. v. Georgetown Chicken Coop, LLC, 2023 Ky. App. Unpub. LEXIS 619 (Ky. Ct. App. Oct. 20, 2023).
Background
The coverage dispute arose from a motor vehicle accident resulting in several fatalities. The decedents’ estates sued Roosters, the bar that had served the driver alcohol prior to the accident. In turn, Roosters filed a third-party petition against Grange Insurance Company, which insured Roosters under a business owners’ policy and a commercial umbrella policy. The parties did not dispute that the business owners’ policy provided coverage pursuant to a liquor liability provision, but Grange sought a declaration of no coverage under the umbrella policy. The trial court granted Roosters’ summary judgment motion, deeming the umbrella policy ambiguous and construing it in favor of coverage. The appellate court reversed.
Decision
The appellate court ruled that the umbrella policy was unambiguous and did not provide coverage for the underlying claims. The body of the umbrella policy contained a liquor liability exclusion that included an exception “for liability arising from the business of the insured of serving alcohol.” However, an endorsement to the umbrella policy, entitled “Liquor Liability Exclusion” modified that coverage part. The endorsement contained the same exclusionary language as that in the body of the policy, but also stated: “This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.” The endorsement also specified that it “replaced” the Liquor Liability Exclusion in the policy body.
The appellate court emphasized that use of the word “replace” indicated a clear intent to delete the entirety of the exclusion in the policy body, including the exception that would have operated to provide coverage. In so ruling, the court rejected Roosters’ assertion that the endorsement was intended to supplement, rather than replace the exclusion in the policy body.
Having concluded that the endorsement language was operative and controlling, the court ruled that the umbrella policy was unambiguous in its exclusion of coverage for the underlying claims.
Comments
The ruling reinforces the principle that umbrella coverage need not be construed to mirror primary coverage unless an intent to do so is reflected in policy language. Here, the umbrella policy stated that it followed primary coverage “unless otherwise directed by this insurance.” As the court noted, the endorsement was precisely such an “otherwise direction.” If parties intend umbrella coverage to be a “mirror image” of primary coverage, an express “broad as primary” provision can be used, the court noted.
Additionally, the ruling speaks to the limits of what can give rise to ambiguity. In deeming the umbrella policy ambiguous, the trial court relied, in part, on what it perceived to be the general intent and nature of umbrella coverage, stating that “when an insured purchases both an underlying and umbrella policy, the intent is for them to work in concert. There is no purpose for an umbrella policy if not to supplement the underlying policy if exhausted.” Rejecting this reasoning, the appellate court emphasized that “general observation[s]” about umbrella policies do not give rise to ambiguity where the actual language of the policy is clear.