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Westchester Fire Insurance Co. v. Stewart & Stevenson Services8/24/2000
Petition for review denied February 22, 2001.
WESTCHESTER FIRE INSURANCE COMPANY, APPELLANT
v.
STEWART & STEVENSON SERVICES, INC., APPELLEE
On Appeal from the 113th District Court Harris County, Texas Trial Court Cause No. 97-13542
Panel consists of Justices Hedges, Nuchia, and Evans
The opinion of the court was delivered by: Frank G. Evans *fn5 Justice
OPINION
This is an insurance coverage dispute. Westchester Fire Insurance Company ("Westchester"), an excess insurer, appeals a summary judgment rendered in favor of its insured, Stewart & Stevenson Services, Inc. ("Stewart & Stevenson"). The issue on appeal is whether the primary insurer's policy (the Lloyds policy) had exhausted its aggregate limits, thus requiring the Westchester policy to "drop down" and cover damages incurred by Stewart & Stevenson as the result of a lawsuit brought by Jesus Herrera, a former employee (the Herrera lawsuit).
I. FACTUAL BACKGROUND A. The Insurance Policies
Stewart & Stevenson has the following layers of insurance coverage.
1. Self-Insured Retention
The contract between Stewart & Stevenson and its primary insurer provides a $200,000 self-insured retention (SIR) for any one accident or occurrence. The primary dispute between the parties at trial was whether the payment of defense costs by Stewart & Stevenson erodes the SIR.
2. The Lloyds Policy
The Lloyds policy provides coverage for $1 million dollars per occurrence, with a $2 million dollar aggregate limit. The Lloyds policy has two distinct coverages: (a) Commercial General Liability (CGL) Coverage and (b) an Employment Practices Insurance (EPI) endorsement.
The SIR provision of the CGL coverage provides: "US 200,000 Self Insured Retention any one accident or occurrence," but is silent about whether the payment of defense costs by Stewart & Stevenson reduces the $200,000 SIR.
The EPI endorsement provides "claims made" coverage. The EPI SIR provision states that Lloyds is only responsible for the payment of "Loss in excess of any SIR . . . ." "Loss" is defined in the EPI coverage of the Lloyds policy as "damage judgment (including prejudgment interest awarded against an Insured on that part of any judgment paid by us), settlements, statutory attorney fees and Defense Costs." Thus, under the EPI coverage of the Lloyds policy, payment of defense costs by Stewart & Stevenson will reduce its SIR.
3. The Westchester Policy
The Westchester Policy is an excess policy that provides limits of $10 million per occurrence with a $10 million aggregate limit of liability. The Westchester policy, like the Lloyds policy, is divided into CGL coverage with a separate EPI endorsement (endorsement #16).
a. The CGL coverage
The insuring agreement of the CGL coverage provides: We will indemnify the "insured" for those sums in excess of the "retained limit" which the "insured", by reason of liability imposed by law, or assumed by the "insured" under contract prior to the "occurrence", shall become legally obligated to pay as damages for [bodily injury or property damage, personal injury or advertising injury].
b. The EPI endorsement
The insuring agreement of the EPI endorsement provides: "We will pay those sums that the `insured' must legally pay as damages because of an `insured event' to which this insurance applies." The section of the EPI endorsement entitled "Cove
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