Only the named insured can satisfy general liability insurance policy’s self-insured retention and trigger coverage

Case:
Forecast Homes, Inc. v. Steadfast Ins. Co. (2010) 181 Cal.App.4th 1466, 105 Cal.Rptr.3d 200

Digest Presented by Steven R. Cuneo, Jr., Esq. at the 17th Annual GGLTS Review Preview Seminar (2011)

Key Points:
1) CGL policy prohibiting anyone other than the named insured from paying the policy’s self-insured retention is valid.
2) Policy language upheld, even though it had the practical effect of denying coverage to an additional insured.

Digest:
Housing developers, Forecast Homes, Inc., and K. Hovnanian Forecast Homes, Inc. (referred to collectively and in the singular as Forecast), appealed from the judgment entered in their declaratory relief action in favor of Steadfast Insurance Company (Steadfast). Forecast contractually required all its subcontractors to defend and hold it harmless against any liability arising out of the subcontractors’ work. Subcontractors were required to add Forecast to their general liability insurance policies as an additional insured. Several subcontractors obtained their required insurance coverage from Steadfast, who later refused to indemnify Forecast when a lawsuit was filed by several homeowners against Forecast for construction defects. Steadfast maintained the subcontractor did not pay the policy’s self-insured retention (SIR), which was a precondition for coverage. It argued only the named insured, not Forecast, could satisfy the policies’ SIR and trigger coverage. The trial court agreed and concluded the policies were unambiguous, not against public policy, and not illusory. AFFIRMED. On appeal, Forecast argued that the insurer was required to specifically list who was precluded from paying the SIR out of their pocket. It asserted Steadfast could have easily inserted language to the effect that only the named insured may pay, or specifically precluded payment by other insurance or by any additional insured (such as Forecast). The Court concluded that Forecast’s theory would turn the law of contract interpretation on its head. The endorsement clearly defined “you” and “your” to mean the named insured. And the section in the policy concerning “Your Obligation” explicitly and plainly referred to the named insured’s obligation. Finally, the paragraph below this title, warning, “it is a condition precedent to our liability that you make actual payment of all damages and ‘defense costs’ for each ‘occurrence’ … until you have paid [SIR] amounts” clearly described who was to pay. The Court concluded that this clearly and unambiguously only applied to the named insured. Thus, it was not necessary for Steadfast to envision, and then create a list of who possibly could not satisfy the condition precedent.

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