Excess Insurer’s Mistake About its Applicable Limits, Absent Bad Faith, Limited its Exposure to Contract Damages
Summary: A tanker truck spilled 6,380 gallons of gasoline, which flowed underneath the highway and beneath the property of multiple homeowners. This case involved the available amount of coverage under primary and excess policies that included both commercial general liability and auto liability coverages. The primary carrier quickly exhausted its $1,000,000 Auto limit through clean-up costs, and when suit was filed the primary carrier tendered the defense to the excess carrier. Excess carrier defended until its $4,000,000 “Per-Occurrence” limit was exhausted and then, believing its applicable limits had been exhausted, re-tendered defense back to the primary carrier. A declaratory judgment action ensued over the amount of available primary and excess coverage. The insureds entered into a “covenant not to execute” agreement that resulted in a stipulated judgment in excess of $13,000,000.