Insured's payment of one SIR satisfies two policies
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When the deadline for funding the settlement arrived, Bordeaux paid the homeowners the $100,000 that American Safety would not. The insurers paid the remainder of the settlement. Bordeaux later settled with several subcontractors. Those funds were held pending a court determination of whether American Safety could recover those funds before Bordeaux was made whole.
At the same time, Bordeaux’s sister corporation, Cameray, Inc., was insured under American Safety and Zurich policies that were identical to Bordeaux’s. Cameray also built condominiums, also was sued for construction defects, and also settled the claims with the homeowners. Like Bordeaux, Cameray obtained settlements from contractors, and those funds were held in trust pending determination of whether American Safety had a right to recover before its insured.
Bordeaux and Cameray then sued American Safety, seeking $100,000 that Bordeaux had paid in settlement and a ruling that they were entitled to retain their SIRs out of the third-party settlements before any proceeds were paid to their insurer. The trial court granted summary judgment to Bordeaux and Cameray on both issues. American Safety appealed.
The court considered whether Bordeaux must pay an SIR under each policy and concluded that it was not required to do so. Neither policy expressly said that the SIR must be paid twice, one for each policy. The court affirmed the trial court’s award of $100,000 to Bordeaux.
The Court of Appeals rejected American Safety’s argument that an SIR was truly self-insurance, with the insured acting as its own insurer. The court said that “traditional insurance involves risk shifting, while self-insurance involves risk retention.” The court noted that the subrogation provision in American Safety’s policy did not allow it to collect sums that it did not pay, such as the SIRs. The insureds were entitled to full reimbursement of their SIRs before the insurers could receive any of the funds recovered from third parties.
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