Business & Insurance Litigation Newsletter for Indiana

Umbrella Policy May Provide Primary Coverage

Umbrella policies fill in gaps in coverage by providing excess coverage and primary coverage. Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 566 (7th Cir. 1997). Excess coverage protects an insured from the possibility of a judgment above the limits of its primary coverage. Certain Underwriters of Lloyd's and Companies Subscribing to Excess Aviation Liability Ins. Policy No. FL-10959 v. General Accident Ins. Co. of America, 909 F.2d 228, 232 (7th Cir. 1990). Primary coverage, on the other hand, provides coverage for claims either excluded or not covered by the underlying insurance. O'Donnell v. American Employers Ins. Co., 622 N.E.2d 570, 577 (Ind. Ct. App. 1994). In essence, an umbrella policy that provides primary coverage "drops down" and assumes the role of the underlying insurance.

However, to secure coverage under an umbrella policy that provides primary coverage, an insured must still show that the claim is covered under the umbrella policy. In O'Donnell, a car dealership had a garage liability policy that covered bodily injury and property damage caused by an accident and resulting from garage operations involving the ownership, maintenance, or use of covered autos. Id. at 573. The dealership also had a commercial umbrella liability policy. Individuals injured in an automobile accident involving a car purchased from the dealership filed a declaratory judgment action seeking a determination that coverage existed under both insurance policies. The court first held that the garage liability policy did not provide coverage since the dealership did not own the vehicle at the time of the accident. Id. at 574. The court then acknowledged that the umbrella policy would serve as primary coverage since coverage was excluded under the garage liability policy. Id. at 577. However, the court noted that coverage still had to be established under the umbrella policy. Since the plaintiffs failed to provide the court with a cogent argument supporting coverage under the umbrella policy, the court held that no coverage existed. Id.