The Seventh Circuit disagreed, holding that even though the excess policy's "ultimate net loss
" definition included costs of litigation, the excess policy's "loss payable" paragraph was triggered only by the insured or the primary carrier paying the amount of the underlying limits for judgments or settlements.
"Ultimate net loss
" means the total sum, after reduction for recoveries, or salvages collectible, that the insured becomes legally obligated to pay as damages by reason of:
The Umbrella Policies provide that Hartford will indemnify the City "for ultimate net loss
in excess of the underlying limit or the [SIR], whichever is the greater...." The Umbrella Policies define "underlying limit" as the "limits of liability of the underlying insurance...." Each Umbrella Policy's Schedule of Underlying Policies lists an Excess Policy and states that the Excess Policy's limit of liability is $500,000 in excess of the $500,000 SIR.
Underwriters at Lloyd's London, the policy at issue provided: "[w]hen it has been determined that Underwriters are liable under this Insurance, Underwriters shall thereafter promptly reimburse the Assured for all payments." Based on this language, the court held the insurer only had "an obligation to pay defense costs as a portion of ultimate net loss
only if and when there is a determination that the underlying action is covered under the Policy."
The first insuring agreement states that the insurer will pay on behalf of the insured the ultimate net loss
(a defined term) in excess of the retained limit (also a defined term) because of bodily injury or property damage to which the insurance applies; bodily injury includes mental anguish or other mental injury resulting from bodily injury.
In Powerine II, the insuring agreement in the excess/umbrella policies provided coverage for both "damages" and "expenses." In addition, the language in the agreement referred to "ultimate net loss
" in defining "expenses," expressly including money the insured was obligated to pay for the "investigation of claims"
If they were not, claimants could not bring the payments under Section I into the calculation of the ultimate net loss
in the retrocession agreement, nor could they apportion any part of the Section IIIA and Section IIIB settlement to Section IIIB for the purposes of computing the ultimate net loss
as between the claimants and defendants.