TRAVELERS V. NATIONAL UNION (8TH Cir. September 2, 2010)
The insured, KCPL, suffered a loss estimated at $452 million, a large segment of which was uninsured. It maintained a $200 million primary policy with National Union and a $100 million excess policy with Travelers.
Following the loss, National Union and KCPL invited Travelers to enter into an agreement regarding subrogation. Travelers declined, stating it did not want to send the "wrong message" that the loss would reach its excess policy limits. National Union and KCPL agreed to split the subrogation proceed 55%-45%, with the 45% designated for KCPL representing uninsred losses. Following the agreement, two lawsuits commenced: one for subrogation and one for insurance coverage. The insurance coverage claim against National Union resulted in payment of the $200 million policy proceeds.
KCPL subrogated and settled with a number of tortfeasors for approximately $142 million. It went to trial regardign its claims against the last tortfeasor. Although the trial resulted in $97 million in damages awarded to KCPL, it was reduced to $190,000. While that verdict was on appeal, Travelers and KCPL settled the coverage action for $10 million. Subsequently, the $97 million award was reinstated.
Travelers then commenced this action seeking recovery of the $10 million it paid from KCPL and National Union. The Eighth Circuit held that Travelers could not recover from KCPL because of its refusal to participate in the subrogation agreement and the designation of KCPL's losses as uninsured. It also, however, recognized that Travelers' priority of coverage over National Union persisted, despite its failure to participate.
National Union's policy recognized priority of coverage and it was bound by KCPL's agreement with Travelers (i.e. the excess policy). Therefore, National Union recognized Travelers' priority interest in subrogation proceeds and was required to repay Travelers' $10 million.
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Sarah Delaney and Sharon Angelino