In order to avoid extreme costs incurred from accidents, some businesses purchase two types of insurance policies. The first and most common type of insurance is primary insurance. Under this policy, business assets and liabilities are covered in exchange for the payment of a premium. This coverage, however, is capped in order to protect the insurance company from excessive claims. For this reason, many businesses, especially those dealing with expensive equipment and goods, will carry a second insurance policy that provides coverage beyond what is offered through the primary insurer. These policies are known as excess insurance. Premiums for these excess policies are often lower and provide a much higher cap on claim amounts. Excess insurers are able to provide such cheap, yet extensive coverage because the chance of such a catastrophic accident occurring that exhausts the primary insurance cap is minimal. However, as is evident in Indemnity Insurance Company of North America v. American Commercial Lines, L.L.C., where multiple boats collided on the Mississippi River, maritime accident costs sometimes extend beyond primary insurance coverage, bringing questions of how excess insurance money should be handled by courts.
When insurance disputes arise, many times the insurance company will concede the full policy amount, deposit it with the court, withdraw from the proceedings, and leave the claiming parties to battle out their rights to the money in court. Statutory provisions guide the timeline for when primary insurance policies must be deposited with the court, but what is the protocol for an excess insurer that wants to follow the primary insurer’s footsteps? This was the main question in the American Commercial Lines case. The plaintiffs sued the excess insurers claiming that the excess insurers deposited the policy amount with the court too late, resulting in the loss of hundreds of thousands of dollars in interest that could have been distributed amongst the victims. In deciding the case the court had to analyze a couple different issues.
The first issue dealt with determining what law applies to the case. Since the case involves maritime insurance, the court had to decide between maritime law and state law. Statutes provide that if no federal maritime law controls the issue, then state law applies. Because no specific maritime provision covers when an excess insurer should deposit policy amounts with the court, Louisiana court applies. This means, as mentioned above, that excess insurance will not kick in until after all primary insurance funds have been exhausted. This essentially answers the question the second issue poses: when does the excess insurer need to deposit policy amounts with the court?
Though there is some precedent for not allowing an insurer to unreasonably delay depositing with a court and creating unjust enrichment as a result of such delay, the court must still adhere to the contract created between the excess insurers and the policy holders. Through these contracts, policy holders have agreed that excess insurance will not be paid until all primary policy amounts have been exhausted. The court in American Commercial Lines held that policy holders cannot place undue burdens upon excess insurers that were not bargained for in the contract. For this reason, excess insurers are not required to deposit policy amounts with the court at the time of initial court actions. Excess insurers can instead wait until all primary policy money has been paid out before taking action.
Insurance law is complicated and, though this single aspect seems straightforward, it is best left to a licensed attorney. If you have any questions regarding an insurance dispute, please contact the Berniard Law Firm for a consultation.