American Safety Indemnity Co. v. Admiral Insurance

In this case, we once again apply the well-established principle that any limitation on the coverage provided by a liability insurance policy must be express and consistent with the reasonable expectations of the insured.

Here, the subject commercial general liability policy has a provision labeled “Self-insured Retention (SIR)” that clearly makes the insured liable for the first $250,000 in damages payable to any third party claimant. The policy also makes it clear the insured’s paying of defense costs counts toward meeting the insured’s SIR obligations.

However, the SIR clause we are asked to consider does not expressly make payment of the SIR a condition of the insurer’s broader obligation to provide a defense when an arguably covered claim is tendered. Rather, the SIR clause expressly applies only as a limitation on the insurer’s duty to indemnify the insured for covered damages for which the insured is found liable. Given the language of the policy, an insured could quite reasonably interpret it as providing a defense to arguably covered claims as soon as such claims are tendered and before any SIR has been paid. Thus, like the trial court, we find defendant…