Pay the Limits as Written

It is Prudent to Read the Policy Before You Sue

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The insured sued its insurer for what it believe was the limit of liability of its policy for damage to property by fire. The insurer defended based on the fact that as an excess policy in one of multiple lawyers of insurance coverage it was only obligated to pay that proportion of the loss as described in the policy. The Insured sued and the USDC for the Eastern District of Washington resolved the dispute by reading the full policy in Oregon Potato Company v. Kinsale Insurance Company, No. 2:22-CV-0049-TOR, United States District Court, E.D. Washington (May 5, 2023).


In a first-party property insurance excess coverage dispute the USDC was faced with competing motions for summary judgment. Plaintiff Oregon Potato Company (“OPC”) sued Kinsale Insurance Company for (1) declaratory judgment, (2) breach of contract, (3) insurance bad faith and breach of the covenant of good faith and fair dealing, (4) violation of Washington’s Unfair Claims Settlement Practices Act and Consumer Protection Act, and (5) reservation to assert claims for violation of Washington’s Insurance Fair Conduct Act.

OPC is a Washington corporation headquartered in Pasco, Washington that processes vegetable products and has a facility in Warden, Washington.

On January 21, 2021, a fire destroyed or damaged OPC property in Warden.

Before the fire OPC had purchased first-party property insurance covering its properties  written in three layers, with the last insurer, Kinsale taking (20%) over the second excess layer for $25,000,000 to $50,000,000 for the shares shown in their respective parentheses. Kinsale expresses liability as “$5,000,000 Part of $25,000,000 Excess of $25,000,000 Per Occurrence.”

Kinsale’s policy contains the following Insuring Agreement:

The company will indemnify the Insured for our share, as shown in Item 1 of the Declarations Page of this Policy, of the Ultimate Net Loss caused by the direct physical loss or damage to Covered Property in excess of the Primary and Underlying Excess Insurance as shown in the Schedule of Underlying Insurance of this Policy, occurring during the policy period. This agreement is subject to the following terms, conditions and any endorsements to this Policy.

Kinsale’s policy defines “Ultimate Net Loss” as follows:

Ultimate Net Loss shall mean the actual loss sustained by the Insured as a direct physical result of the peril(s) insured against by the policy(ies) of the Primary and/or Underlying Excess Insurer(s) limited by: a. Any sub limited contained within this Policy or the policy(ies) of the Primary and/or Underlying Excess Insurer(s), and b. Making deductions for any salvage and recoveries from any source other than this Policy and the policy(ies) of the Primary and/or Underlying Excess Insurer(s).

The first sub-location listed on the Statement of Values, shown in paragraph 10, was severely damaged.  Kinsale initially viewed OPC’s loss as “a complete loss to our layer/capacity” and set reserves at is full $5 million limit.  Kinsale does not dispute that this was its preliminary determination but contends that it was subsequently superseded by a more accurate determination of a lower loss reserve after investigation and evaluation proceeded.

OPC sent an Insurance Fair Conduct Act notice to Kinsale asking to pay its full $5 million limit. Kinsale responded that its policy “unambiguously” provides only “limited liability for Location 1 to the $25,100,000 stated value” and that its limit of liability is not $5 million, but instead 20% of every dollar of loss above $25 million.

OPC contends it is currently entitled to payment of the remaining balance of Kinsale’s $5,000,000 policy limit and Kinsale contending that it has paid all sums due according to proofs of loss submitted to date.


The “Occurrence Limit of Liability Endorsement” (“OLLE”):  OLLE is a modification to the underlying policy and sets the upper limits of Kinsale’s liability. The OLLE is read in conjunction with the rest of the policy as “ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.”

The underlying policy states that Kinsale will indemnify OPC “for our share … of the Ultimate Net Loss . . . in excess of the Primary and Underlying Excess Insurance as shown in the Schedule of Underlying Insurance of this Policy”.

Taken together, the language of Kinsale’s policy is not ambiguous. Kinsale’s insurance policy provides excess coverage, which when triggered, is for their “share”, i.e., $5 million out of the $25 million, or 20 percent. Kinsale’s proportional/share liability does not automatically entitle OPC to $5 million under the OLLE – to read otherwise would entitle OPC to overlapping, not excess, coverage. It was only required to pay 20% of the amount owed by its share of the total loss.

Therefore, summary judgment in Kinsale’s favor is appropriate.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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