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Yellowbird Bus Co., Inc. v. Lexington Insurance Co.

July 12, 2010


The opinion of the court was delivered by: Eduardo C. Robreno, J.



The instant dispute involves the interpretation of the terms of an excess automobile liability insurance policy issued for the period of October 7, 2005 through October 7, 2006 (the "Excess Policy"). The Excess Policy was issued to Plaintiff Yellowbird Bus Company, Inc. ("Yellowbird") by Defendant Lexington Insurance Company ("Lexington"). Lexington asserts that the coverage under the Excess Policy is, or will soon be, exhausted, whereas Yellowbird contends there is no aggregate limit under the Excess Policy, such that Lexington is obligated to defend and indemnify Yellowbird for all claims arising out of a July 5, 2006 motor vehicle accident.


A. Facts

The underlying incident that precipitated the instant dispute was an automobile accident which occurred on July 5, 2006 (the "Accident") between a Yellowbird school bus and truck owned by Cowan Systems, Inc. ("Cowan"). As a result of the Accident, over 65 claims were asserted in the Court of Common Pleas of Philadelphia County Pennsylvania, and were consolidated into a single action (the "Underlying Litigation"). A dispute exists between Yellowbird and Cowan as to responsibility for the Accident. All but five of the asserted claims against Yellowbird in the Underlying Litigation have been settled. These five remaining claims are pending in consolidated personal injury cases in the Court of Common Pleas.*fn1

During the relevant time period, Yellowbird had a primary insurance policy (the "Primary Policy") issued by National Casualty Company, which has a combined single limit of $1 million per accident with no aggregate limit as to the number of covered accidents. The Primary Policy will be exhausted due to the settlements reached in the Underlying Litigation.

The Excess Policy was drafted by Lexington and is regulated and governed by Pennsylvania law. The relevant provisions of the Excess Policy are as follows:


A. We will pay on behalf of the Insured that portion of the loss which the Insured will become legally obligated to pay as compensatory damages (excluding all fines, penalties, punitive or exemplary damages) by reason of exhaustion of all applicable underlying limits, whether collectible or not, as specified in Section II of the Declarations, subject to:

1. The terms and conditions of the underlying policy listed in Section IIA of the Declarations, AND

2. Our Limit of Liability as stated in Section IC of the Declarations.


A. This section shall apply to claims resulting from occurrences not covered by any underlying insurance due to exhaustion of any aggregate limits by reason of any losses paid thereunder.

1. We will defend any suit against the Insured alleging liability insured under the provisions of this policy and seeking recovery for damages on account thereof, even if such suit is groundless, false or fraudulent, but we will have the right to make such investigation and negotiation and settlement of any claims or suits as may be deemed expedient by us.

2. We will pay: (a) all premiums on bonds to release attachments for an amount not in excess of the applicable limit of liability of this policy; (b) all premiums on appeal bonds required in any such defended suit, but without any obligation to apply for or furnish such bonds; (c) all costs taxed against the Insured for any such suits; (d) all expenses incurred by us; and (e) all interest accruing after entry of judgment until we have paid, tendered or deposited in court that part of any judgment as does not exceed the limit of our liability thereon.

3. We will reimburse the Insured for all reasonable expenses incurred at our request, (including actual lost wages or salary, but not loss of other income, not to exceed one hundred (100) dollars per day) because of the Insured's attendance at hearings or trial at such request.

4. We will pay all pre-judgment interest awarded against the Insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any pre-judgment interest based on that period of time after the offer.

B. We will pay the amounts incurred under IIA above, but any such payments shall serve to reduce the Limits of Liability of this policy as stated in the Declarations. . . . .


A. Aggregate

This policy is subject to an aggregate limit of liability as stated in the Declarations. This aggregate of liability is the maximum amount which will be paid under this policy for all losses in excess of the underlying policy ...

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