Illinois Court: Multi-year Policy Limits Applied To Entire Policy Period, Not Annually, And Payments For Potentially Covered Claims Established Exhaustion
October 19, 2015

An Illinois trial court recently addressed the issue of whether an insurer exhausted its limits of liability in paying nearly $90 million for an insured’s defense and indemnity associated with asbestos bodily injury claims.  CNA issued umbrella and excess insurance to Borg-Warner Corporation and contended that the occurrence limits of its multi-year policies applied to the entire policy periods and were exhausted.   Certain excess insurers and the insureds disagreed.  They said the policy limits were annualized (meaning an extra $70 million in limits) and that CNA failed to show its payments were claimant-specific and for covered claims during the policy periods.  The court agreed with CNA and found that CNA’s policy language confirmed that the policy limits applied to the entire policy period and not to each 12 month portion of the multi-year policy period.  The trial court also found that the excess insurers could not “second-guess CNA’s settlement decisions” as an excess insurer does not have the right to challenge exhaustion of underlying insurance by substituting its own analysis or policy requirements for an underlying insurer’s settlement decisions.  The court held that CNA had presented evidence establishing that its payments were made for “potentially covered” claims, which was sufficient to establish exhaustion.  The court also found that it was reasonable for CNA to allocate payments horizontally on a pro rata basis to all umbrella policies.  The court’s order in Continental Cas. Co. v. BorgWarner Inc., 04 CH 01708 (Circuit Court of Cook County, Illinois) can be found here.


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