“Regardless of Any Apparent Intent,” Excess Policy Does Not Follow Notice Condition of Primary Policy

A Texas appellate court has held that an endorsement to a “follow form” excess liability policy caused the policy to follow only the definitions, exclusions, and limitations of the primary policy, but not its claim reporting requirement. Illinois Union Ins. Co. v. Sabre Holdings Corp., 2015 WL 3917981 (Tex. Ct. App. June 25, 2015). The court therefore rejected the excess insurer’s late notice defense.

In March 2005, the insured provided notice of several lawsuits to the primary carrier, which accepted coverage. The insured did not notify the excess carrier until December 2010. After the primary carrier exhausted its limit in September 2012, the excess carrier denied coverage.

The primary policy required claims to be reported in writing to the insurer during the policy period. The excess policy contained a “Non-Follow Form” endorsement, which replaced the excess policy’s insuring clause and provided that the excess insurer agreed

to provide insurance coverage to the insureds in accordance with the terms, definitions, conditions, exclusions and limitations of the Followed Policy, [defined as primary insurer Policy No. 6409472,] except as otherwise provided herein. However, the Insurer shall not provide Insurance coverage to the Insureds in accordance with the terms and conditions, including those pertaining to Guaranteed Renewal as set forth in the endorsement of the [primary insurer], Policy Number 006409472, as that coverage is provided under the [primary insurer]’s Policy.

The court concluded that the endorsement “could be reasonably interpreted to mean that the excess policy follows form to the definitions, exclusions, and limitations of the primary policy but not the terms and conditions of the primary policy.” The court therefore reasoned that “[b]ecause the reporting requirements in the primary policy are more properly characterized as conditions rather than definitions, exclusions, or limitations, the amended insuring clause can be read as not incorporating the notice conditions of the primary policy.” The court acknowledged that this interpretation appears to conflict with other sections of the policy, but concluded that “it is the only reasonable way to resolve the apparent conflict in the two sentences of the [endorsement] clause.” The court held that “the excess policy, regardless of any apparent intent between the parties, does not follow form to the reporting requirements in the primary policy.”

The court concluded that the excess policy’s notice provision, which only specifically addressed changes in the underlying insurance, did not otherwise incorporate the primary policy’s claim reporting requirement. It therefore affirmed the trial court’s judgment rejecting the excess insurer’s late notice defense.