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Westchester Fire Insurance Co. v. Stewart & Stevenson Services8/24/2000
osts. Had the parties wished to include defense costs as a covered loss, it is unlikely that they would have rewritten the "loss" definition to delete any reference to defense costs.
As stated earlier, the Westchester policy provides that where its terms differ from the Lloyds policy, the Westchester policy terms will apply. Therefore, the Westchester's definition of "loss" governs, and it does not include defense costs as a covered loss. Rather, the Westchester policy contemplates that it will cover "damages" that its insured is "legally obligated to pay." This does not include defense costs.
Therefore, we conclude that defense costs are not included within the aggregate limits of the Westchester policy. Because the Westchester policy would not include defense costs within its aggregate limits, the non-drop down endorsement provides that Westchester will not recognize the erosion of the underlying Lloyds policy by including defense costs within its aggregate limits.
3. Does the Westchester Policy Have to "Drop Down"?
Lloyds paid $273,813 toward the defense costs of the Campbell lawsuit, which it then deducted from its remaining aggregate. However, as we have concluded, the Westchester policy does not define defense costs as a covered "loss," therefore, it is not required to recognize the erosion of the Lloyds aggregate by the payment of those defense costs. In the eyes of Westchester, it is as if the $273,813 in defense costs for the Campbell suit had never been deducted from Lloyds aggregate limits. If the $273,813 were "added back" to the Lloyds aggregate, there would be no need for Westchester to "drop down" and cover the $273,359 deficit caused by the Herrera suit.
We sustain Westchester's second issue. Because our opinion is based on an interpretation of the Westchester policy, we need not address: (1) whether Westchester has standing to argue about the construction of the Lloyds policy, or (2) whether the SIR underlying the Lloyds policy was eroded by Stewart & Stevenson's payment of its own defense costs, or (3) any other issues related to the interpretation of the Lloyds policy.
III. CONCLUSION
Because the trial court erroneously concluded that the Westchester policy had been triggered, it erred in granting Stewart & Stevenson's motion for summary judgment and in denying Westchester's motion for summary judgment. Accordingly, we reverse the judgment of the trial court and render a judgment ordering that Stewart & Stevenson take nothing from Westchester.
Publish. Tex. R. App. P. 47.
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