Changes To The Interpretation Of Excess Insurance Coverage Provisions

In Portland School Dist. v. Great American Insurance Co., 241 Or App 161, 249 P3d 148 (2011), the Oregon Court of Appeals announced two new rules that will have far-reaching application and will upset well established interpretation of excess insurance coverage.

First, the court determined that typical following form language in an excess policy is ambiguous and does not incorporate the underlying policy's anti-assignment clause. Second, the court concluded that an agreement executed before entry of judgment purporting to make a future assignment of claims against the excess insurer after entry of judgment, does not extinguish the insurer's liability as to the assigned claims.

The Facts

The plaintiff school district hired a roofing contractor to replace the roof on a school, but due to the contactor's negligence, the roof caught fire. The contractor had primary liability insurance with CNA Insurance Co., and an excess insurance policy with Great American. Timely claims were made to both carriers, and Great American denied coverage.

CNA, the contractor, and the school district entered into a settlement agreement. Pursuant to that agreement, CNA agreed to pay its policy limit of $1 million and the contractor agreed to pay $50,000. The parties agreed that the school district would file a negligence action against the contractor seeking damages of approximately $2.39 million. CNA and the contractor would then pay the agreed to amounts, the school district would release the contractor from liability up to the amounts paid, while reserving its rights to assert claims for any damages above and beyond $1.05 million. The parties would stipulate to judgment against the contractor for the remaining $1.34 million, and the contractor would then assign its claims and rights against Great American to the school district in exchange for an agreement not to execute on the judgment against the contractor.

Great American denied coverage on the basis of an anti-assignment clause in the underlying policy. The school district contended that this clause was not incorporated into the excess policy. The trial court agreed and granted partial summary judgment for the school district and this appeal followed.

Following Form Provision

The underlying CNA policy contained an anti-assignment clause requiring written consent for any assignment. The excess policy provided that

"We will pay on behalf of the Insured 'loss' in excess of the Underlying Limits of Insurance * *...