Insurer Did Not Breach A Duty To Defend When Duty Arose Only When Other Policy Limits Were Exhausted Or When No Other Coverage Existed - And Neither Was The Case
CASTRONOVO v. NATIONAL UNION FIRE INSURANCE COMPANY (July 6, 2009)
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Sandra Castronovo died the day after her car was struck by a truck driven by Kenneth Lively. At the time of the accident, Lively was employed by and driving a truck owned by Doug Lavery, Ltd. He was hauling a trailer owned by GE Capital Corp. and leased to Greif Brothers Corp., who loaned it to Lavery. Lavery and Lively were named insureds under a $1 million policy issued by Owners Insurance. Travelers Property Casualty Company issued a $2 million policy to Greif. National Union issued a $25 million umbrella policy to Grief which covered permissive users of vehicles owned by Grief. The National Union policy provided excess coverage to the Travelers policy and provided primary coverage for covered risks that were not covered at all by any other insurance. Sandra’s husband John sued Lively, Lavery, GE and Greif. Owners provided a defense to Lively and Lavery but eventually tendered its $1 million policy limit to the court. Travelers defended GE and Greif under the Greif policy. Travelers refused to defend Lavery and made no decision with respect to Lively. In early 2005, Greif and Travelers both spoke with National Union about the case. And National Union continued to follow the developments. In September the court approved a consent judgment against Lively and Lavery in the amount of $6 million. They assigned their rights of coverage to Castronovo in return for a covenant not to execute on their personal assets. National Union learned of the consent judgment only after it was entered. In October, Travelers determined that Lively and Lavery were both insureds and paid their $2 million policy limit to Castronovo. Castronovo sued National Union to recover the approximate $3 million balance. The court granted summary judgment to National Union, holding that Lively and Lavery breached the policy by not notifying National Union of the consent judgment. Castronovo appeals.
In their opinion, Chief Judge Easterbrook and Judges Bauer and Flaum affirmed. The only issue on appeal was whether National Union breached its duty to defend under the umbrella policy. The policy required National Union to defend in two circumstances: a) when all underlying policy limits were exhausted, or b) when the National Union policy provides the only coverage. Castronovo conceded that the former did not apply because the policy limits of the other policies were not exhausted until after the consent judgment was entered. The Court rejected the argument that a duty to defend arose under the “only coverage” clause once Owners tendered its policy limit and Travelers was disputing coverage. The Court ruled that the clauses were mutually exclusive. The first always applies when there is other coverage and the second only applies when there is no other coverage. The Court concluded that National Union had no duty to defend under either clause. The Court also concluded that National Union had no duty to defend because Lively and Lavery never actually requested a defense, a requirement under Ohio law.
