Illinois Insurance - First District Extends “Selective Tender” Rule to Excess Carriers
North River Ins. Co. v. Grinnell Mut. Reinsurance Co., No. 1-05-0606 (
Ill. App. Ct. 1st Dist. Dec. 8, 2006)
After first confirming an insured’s right to selectively tender its defense to one of several concurrent primary policies, the First District ruled that all primary policies must nevertheless be horizontally exhausted before
an excess policy is required to respond. The First District held as a matter of first impression that an insured may selectively tender its indemnification to one or more of several excess insurers once all applicable
primary policies have been exhausted. The court’s decision comes on the heels of Kajima Construction Services, Inc. v. St. Paul Fire & Marine Insurance Co., No. 1-05-1248 (Ill. App. Ct. 1st Dist. Sept. 15,
2006), which held that an insured must exhaust each of its concurrent primary policies before it can reach any excess policy, even when the insured selectively tenders its defense to a single primary carrier.
In North River Insurance Co., the insured was a general contractor that subcontracted with another company. The subcontractor, in turn, subcontracted with a third company. The general contractor was added
as an additional insured on each subcontractor’s insurance policies. When the general contractor was sued as a result of a construction accident, it selectively tendered its defense only to the two subcontractors’
insurers. The lawsuit was eventually settled for an amount in excess of the two primary policies with an excess policy paying the balance.
The general contractor’s primary insurer argued that it was not liable for any part of the settlement because its indemnity obligation was extinguished when the insured selectively tendered its defense to the two subcontractors’
primary insurers. The appellate court rejected this argument and reaffirmed its holding in Kajima that all primary policies must be exhausted before any excess policy can be triggered, even when the insured makes
a selective tender.
But, unlike in Kajima, the combined primary policy limits were insufficient to satisfy the entire settlement. The general contractor’s excess carrier separately argued that it had no obligation to contribute
to the settlement. The court held that the selective tender doctrine may also be applied to concurrent excess policies. Thus, the court held that both of the subcontractors’ excess policies were triggered, but
that the general contractor’s excess carrier had no indemnity obligation.