Insured's payment of one SIR satisfies two policies

By Jennifer R. Porto

An insured’s payment of its self-insured retention under one liability insurance policy satisfies that obligation under another policy covering the same loss, the Washington Court of Appeals has held.

In Bordeaux, Inc. v. Amer. Safety Ins. Co., no 59947-0-I (Jul. 7, 2008), Bordeaux developed a condominium complex. After the condominiums were completed, their owners sued Bordeaux for construction defects. Bordeaux tendered the defense of the action to its liability insurers, the American Safety and Zurich insurance companies. Both insurers agreed to defend Bordeaux under a reservation of rights.

American Safety's policy covered a 2000-01 policy period, followed by the Zurich policy with a 2001-02 policy period. Each policy had a similar self-insured retention (SIR), which required Bordeaux to pay $100,000 per occurrence. The SIR provision did not address how to fulfill the SIR requirement if a claim triggered coverage under more than one policy.

The American Safety policy also contained a subrogation provision that said that if Bordeaux had rights to recover any of the insurer’s coverage payments, those rights were transferred to the insurer.

The condo owners and Bordeaux settled their lawsuit for $630,000. By this time, Bordeaux had incurred more in defense costs than the $100,000 that each policy’s SIR provision required. However, American Safety asserted that the defense costs merely satisfied Zurich’s SIR provision. American Safety said that it would not pay benefits under its policy until Bordeaux paid a second $100,000. Bordeaux disagreed, contending that it need pay only one SIR to meet both policies’ requirements, and presented documentation to American Safety showing that it had incurred more than $100,000 in defense costs.