Excess liability insurer found to have duty to defend based on "follow form" provision of policy
The issue before the Wisconsin Supreme Court in 'Johnson
Controls Inc. v. London Market' (2007AP1868) was whether London
Market, which issued an excess umbrella liability policy to
Johnson Controls, had a duty to defend in response to an
environmental pollution clean-up claim. The Wisconsin Supreme
Court ruled that the insurer did have a duty to defend. Part of
the significance of the ruling is that there was no explicit
“duty to defend” provision in the London Market policy.
Instead, the policy stated that it provided excess indemnity
coverage after the exhaustion of underlying liability coverage.
Nevertheless, the supreme court held that London Market had a
duty to defend based on its policy’s “follow form” provision,
which states “this policy is subject to the same terms,
definitions, exclusions, and conditions (….except as otherwise
provided herein) as are contained in [the underlying policies].”
The supreme court rejected the insurer’s two main arguments.
First, the court held that it was not necessary for the
underlying policy limits to be exhausted before the duty to
defend was triggered. The court held that exhaustion of
underlying limits was only necessary for the duty to indemnify.
The insurer also relied on the “unless otherwise provided”
exception to the follow form provision. The court rejected this
argument because the policy did not explicitly provide that
there was no duty to defend.
This case is potentially significant if you have a claim where
your insured seeks a defense pursuant to an umbrella policy.
The case raises the prospect that an umbrella policy will afford
a duty to defend even if there is no explicit promise to defend
the insured in the policy. If you have such a claim, it will be
necessary to carefully read the policy to see whether the
language from the Johnson Controls case can be distinguished.
