A Sub-Limit Effectively Limits Insured’s Recovery
Barry Zalma, Esq., CFE
Insurance claims expert, consultant at Barry Zalma, Inc. and author/Publisher at ClaimSchool, Inc.
A “Sublimit” Caps the Insurer’s Exposure at an Amount Below the Ordinary Policy Limit
Posted on June 17, 2020 by Barry Zalma
In an insurance coverage dispute, Polynesian Inn, LLC (“Polynesian”), and Andrew Bickford appeal the district court’s grant of summary judgment to StarStone National Insurance Company (“StarStone”) on StarStone’s complaint seeking a declaration that it owed Polynesian no coverage under an excess liability policy because the underlying claim was subject to a “sublimit” of liability in the primary coverage. Appellants maintain that no “sublimit,” properly defined, applies in this case.
In StarStone National Insurance Company v. Polynesian Inn, LLC, d.b.a. Days Inn of Kissimmee, Andrew James Bickford, Jane Doe, as Personal Representative of the Estate of Zackery Ryan Ganoe, No. 19-13769, United States Court Of Appeals For The Eleventh Circuit (June 12, 2020) the Eleventh Circuit was asked to ignore the sub-limit and compel the insurer to pay its full stated limit.
FACTS
In April 2017, a woman wielding a knife attacked Bickford and Zackery Ganoe while they were guests at a hotel operated by Polynesian in Kissimmee, Florida. The woman stabbed Ganoe to death and slashed Bickford’s throat. Bickford survived and then made a claim for damages against Polynesian, which, at the time of the incident, was insured by a primary general-liability policy issued by Northfield Insurance Company (“Northfield”) and an excess-liability policy issued by StarStone.
The primary Northfield policy provided $1 million in liability coverage per occurrence, subject to a $2 million aggregate limit. In its unmodified form, the policy provides coverage for, among other things, sums that Polynesian became liable to pay as damages because of “bodily injury.” However, the Northfield policy includes an endorsement entitled “Limited Assault or Battery Liability Coverage” (the “A&B Endorsement”). In relevant part, the A&B Endorsement:
- adds an exclusion to coverage for “bodily injury” arising out of any “assault” or “battery” committed by any person;
- creates a separate coverage provision for “bodily injury” caused by “an assault or battery offense”; and
- establishes limits of $25,000 for each assault or battery offense, subject to a $50,000 aggregate limit.
There is no dispute that Bickford’s claim is subject to the $25,000 limit.
THE ISSUE
The issue here is whether the StarStone policy provides excess coverage. The StarStone policy, which has a $3,000,000-per-occurrence limit, is a “following form” excess-liability policy, meaning it “follows the definitions, terms, conditions, limitations and exclusions of the Followed Policy”—here, the Northfield policy. StarStone agreed to pay sums in excess of the Northfield policy’s “Total Limits” that the insured becomes legally obligated to pay as damages.
At the same time, the StarStone policy does not provide coverage “with respect to or as a result of any of the following clauses or similar clauses in the Followed Policy: . . . 3. Sublimit of liability, unless coverage for such sublimit is specifically endorsed to this Policy.” Doc. 80-4 at 5 (emphasis added).
When Polynesian submitted Bickford’s claim to StarStone, it denied coverage and then filed this action for a declaratory judgment. StarStone maintained that it owed no coverage for Bickford’s claim because the A&B Endorsement, which applied to the claim, was a “sublimit of liability.” The parties filed competing motions for summary judgment, and the district court granted summary judgment to StarStone.
ANALYSIS
The interpretation of a contract is a question of law subject to de novo review. Contract interpretation is governed by the intent of the parties, which is determined from the plain language of the agreement and the everyday meaning of the words used. Ambiguous provisions are construed against the insurer and in favor of coverage. An insurance policy that is plain and unambiguous must be enforced as written.
StarStone explained that the well-recognized definition of “sublimit” caps the insurer’s exposure at an amount below the ordinary policy limit for a particular type of loss. In support of that argument, StarStone points to the International Risk Management Institute’s (“IRMI”) online glossary of insurance terms, which defines “sublimit” as a limitation in an insurance policy on the amount of coverage available to cover a specific type of loss. A sublimit is part of, rather than in addition to, the limit that would otherwise apply to the loss. In other words, it places a maximum on the amount available to pay that type of loss, rather than providing additional coverage for that type of loss.
The Eleventh Circuit concluded that the district court correctly granted summary judgment to StarStone. The IRMI definition of “sublimit” adopted by the district court is consistent with the ordinary meaning of that term as reflected in legal and non-legal dictionaries. The limit must be part of, rather than in addition to, the limit that would otherwise apply to the loss. Under the ordinary meaning of that term, the A&B Endorsement qualifies as a sublimit because it caps the insurer’s exposure at an amount below the ordinary policy limit for a subcategory of loss. The A&B Endorsement operates to cap Northfield’s liability for that subcategory of loss at $25,000. The A&B Endorsement was designed to cap existing coverage for a particular subcategory of loss, not to create a new category of coverage that did not exist before the A&B Endorsement. The A&B Endorsement is therefore properly viewed as “part of, rather than in addition to, the limit that would otherwise apply to the loss.”
When the Eleventh Circuit and the state of Florida interpret policy language they consider the policy “as a whole” and in view of the the object and purpose of the contract. The purpose and effect of the A&B Endorsement as a whole is to cap existing coverage for bodily injury resulting from assault or battery, not to provide additional coverage for that type of loss.
Therefore, the A&B Endorsement is a “sublimit of liability” or “similar clause[]” under the plain language of the agreements and the everyday meaning of the words used. Therefore, the Eleventh Circuit concluded that the district court’s summary judgment that StarStone owes no coverage to Polynesian in excess of the limits of the Northfield policy with respect to Bickford’s claim was affirmed.
ZALMA OPINION
Insurance policies must always be interpreted as a whole. When an excess policy, following the form of the primary policy, that also clearly and unambiguously states, that it’s limit follows the sublimit the primary policy had for assault and battery. Since that limit was $25,000 and already paid by the primary insurer there was on obligation for the excess insurer to meet.
? 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at https://www.zalma.com and [email protected].
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