Washington appeals court resolves "SIR" dispute in favor of insured developer.
In Bordeaux, Inc. et al. v. American Safety Insurance et al. (July 7, 2008), the Washington Court of Appeals addressed and resolved in favor of an insured real estate developer two issues that often arise with liability policies that contain a self-insured retention (“SIR”). The case arose out of construction defect claims against the insureds for condominiums they had developed. The insured and insurers settled the defect claims but were unable to reach agreement on the allocation of ultimate financial responsibility for the settlements.
The first issue involved determining whether the insured was entitled to be made whole – i.e. recoup all of the defense costs spent to satisfy its SIR – from the proceeds of its indemnity claims against subcontractors before the insurers could recover these funds. The Court of Appeals rejected the insurer’s argument that an SIR is akin to primary insurance and applied the longstanding rule that an insured is entitled to be made whole before an insurer may exercise its subrogation rights.
The second issue arose out of a disagreement as to whether the insured satisfied its $100,000 SIR in two different policies with two different insurers by paying initial defense costs of $105,000. One of the insurers took the position that the insured still had to pay an additional $95,000 in order to satisfy the second of the two $100,000 SIRs. The Court of Appeals rejected this argument as well, noting that neither policy contained any language about whether the insured’s SIR obligation is satisfied when it fulfills a similar obligation under another policy.
Click here for a more detailed discussion of the case and the Court of Appeals' decision.
