In Lamorak Ins. Co. v. Kone, Inc., 2000 Ill. App. (1st) 163398 (Ill. App. May 15, 2018), the Illinois Appellate Court found that in policies containing self-insured retentions, that the SIR was to be treated as a primary policy that had to be exhausted before the insured could tap into the excess layer of coverage.
In Lamorak, the insured, Kone, Inc., notified various insurers that a former employee had brought a case against Kone, alleging long-term exposure to asbestos. One of the notified insurers, Lamorak Insurance Company, filed a declaratory judgment action seeking the allocation of coverage among all of the insurers that covered Kone during the relevant time periods. Under Illinois’ Horizonal Exhaustion Rule, the insured was required to exhaust all available primary limits of coverage before seeking excess coverage. Because of this, the Court needed to decide whether Lamorak’s policies were primary or excess layer policies. The record established that for some of Lamorak’s policies which had been issued earlier, before 1977, the policies contained deductibles and not SIRs. However, from 1977 to 1985, Lamorak’s policies were subject to SIRs and not deductibles. During the same period of time, Lamorak issued to the insured umbrella policies which listed the policies containing the SIRs as underlying insurance. The policies with SIRs provided in the other insurance clauses that the insurance provided by those policies was excess insurance above the retained limit. Lamorak argued that the literal language of the SIR policies should prevail over any other arguments. The Court found that the language in the SIR policies was self-identifying those policies as being excess policies. However, this created an ambiguity regarding whether the policies were primary or excess. Rather than finding ambiguity and then construing it against Lamorak, the Court relied upon extrinsic evidence to inform its decision. Specifically, a wire communication from an insurance agent to a Kone employee who was responsible for risk management described the SIR policies as a “primary general liability program.” Additionally, a chart prepared by Lamorak identified the SIR policies as primary policies. From these documents the Court found there was an inference that Kone believed Lamorak had agreed to issue primary insurance subject to the SIR.
The Lamorak court found that when the policy referred to itself as an excess policy obligating the insurer to defend and indemnify the insured only after the insured exhausted the SIR, that the policy was a primary policy that had to be exhausted along with other triggered primary policies before the insured was able to reach the excess layers of coverage under Horizontal Exhaustion.