Texas Farmers defended Kaiser in the Kupukaa action, which ultimately settled for $3.3 million. Texas Farmers paid its $1 million limit as part of that settlement, and entered into an agreement with Ordway and Lexington pursuant to which Lexington and Texas Farmers agreed to contribute the balance of the settlement ($2.3 million) in equal shares and litigate the issue of which party was responsible for the other’s portion. See Texas Farmers Ins. Co. v. Lexington Ins. Co., No. 2:06-cv-08220 (C.D. Cal. Apr. 21, 2008).
Texas Farmers contended that, under the follow the fortunes doctrine, Lexington was required to pay its share of the Kupukaa settlement because the settlement exceeded the $1 million limit of the Texas Farmers primary policy, triggering the Ordway excess policy. Lexington contended that its reinsurance obligations were never triggered because the Kupukaa action involved claims that occurred prior to the effective date of the Ordway excess policy and Lexington’s facultative certificate. More specifically, Lexington argued that the claims at issue in the Kupukaa action arose under a Texas Farmers’ primary policy effective prior to the inception of the Ordway excess policy.
The court began its analysis by noting that an excess insurer’s coverage obligations are not triggered until an underlying primary insurance policy’s limits are exhausted. The court found that because the Kupukaa claims arose during a coverage period prior to the inception of the Ordway excess policy, the latter’s policy limits were never triggered. Accordingly, Lexington, as Ordway’s reinsurer, had no obligation to contribute to the Kupukaa settlement.
