Qualcomm, Incorporated v. Certain Underwriters at Lloyd’s London
Court of Appeals, Fourth Appelate District, Division One
APPEAL from a judgment of the Superior Court of San Diego CountySuperior.
Court Number GIC873829
Cite as 2008 SOS 1721

Appellate court held in favor of the excess liability insurer

The pertinent facts of this insurance coverage dispute are as follows:

Qualcomm, Incorporated had entered into an insurance contract with liability insurers National Union Fire Insurance Company of Pittsburg (National) and Certain Underwriters at Lloyd’s London.

National was the primary insurer and Certain Underwriters at Lloyd’s London is the excess liability insurer whereby the latter issued an excess director and officer insurance policy.

In the meantime, Qualcomm, Incorporated was involved in a litigation related to their rights to certain unvested company stock options.

Eventually, Qualcomm Incorporated settled the case incurring approximately $3.6 million in un-reimbursed defense expenses for the class action and un-reimbursed expenses in connection with settlement of the other litigation in an estimated amount of over $9 million.

Consequently, Qualcomm Incorporated tendered the above referenced litigation matters to its director and officer (D&O) liability insurers, including National Union Fire Insurance Company of Pittsburgh, P.A. (National) and Underwriters.

In April 2004, Qualcomm, National and Underwriters participated in a mediation concerning coverage for the litigation.

Qualcomm thereafter settled with National under an agreement providing it would release National from all future obligations under the National policy in exchange for National's commitment to reimburse Qualcomm for additional settlement payments and defense expenses for the non-class action litigation, bringing National's total payment under its policy to $16 million.

Certain Underwriters at Lloyd’s London, who had issued an excess director and officer insurance policy to Qualcomm, refused to pay under that policy after Qualcomm settled a coverage dispute with its primary insurer for an amount less than the primary insurer's policy limit and released its primary insurer.

By then, on October 2006, Qualcomm Incorporated filed a complaint for declaratory relief and breach of contract against Certain Underwriters at Lloyd’s London.

In its complaint, Qualcomm sought a judicial declaration that Certain Underwriters at Lloyd’s London was obligated to indemnify Qualcomm for un-reimbursed litigation defense expenses and settlement costs incurred by Qualcomm in excess of the primary policy limit.

Qualcomm also alleged that it had paid the required premiums in full and has satisfied all other conditions to the coverage, or otherwise excused from doing so.

Certain Underwriters at Lloyd’s London move for a demurrer to Qualcomm, Incorporated’s complaint for failure to state sufficient facts constituting a cause of action.

Trial court sustained without leave to amend the demurrer of Certain Underwriters at Lloyd’s London to Qualcomm Incorporated’s complaint.

In sustaining Underwriters' demurrer, the trial court ruled that excess coverage had not been triggered as a matter of law.

Further, the trial court held that Qualcomm's causes of action failed in part under a provision requiring Qualcomm to maintain the primary policy, in view of the complaint's allegations that Qualcomm had settled with the primary insurer in exchange for a release.

The court further ruled that in the absence of facts showing the primary insurer did not pay due to insolvency, bankruptcy or liquidation, Qualcomm could not plead circumstances permitting it to be deemed self-insured.

Qualcomm, Incorporated appealed the trial court’s ruling to the Court of Appeals, Fourth Appelate District, Division One in California.

On appeal, Qualcomm made the following arguments:

• That when an insured settles with its primary insurer for an amount below the primary policy limits but absorbs the resulting gap between the settlement amount and the primary policy limit, primary coverage should be deemed exhausted and the excess coverage triggered, thus, obligating the excess insurer to provide coverage under its policy.


• That this result does not require the excess carrier to pay any more than it would pay had the primary insurer paid its full policy limits and furthers public policy of encouraging civil settlements.

After deliberation, the Court of Appeals, Fourth Appellate District, Division of One, State of California initially decline to make a broad holding based on public policy considerations, and instead conclude that the literal policy language in this case governs.

Further, the court added that our interpretation of the excess policy compels us to conclude that Underwriters' coverage obligation did not arise because Qualcomm's pleadings establish the primary insurer neither paid the "full amount" of its liability limit nor had it become legally obligated to pay the full amount of the primary liability limit in the parties' settlement agreement.

Moreover, the court added that the insured is not entitled to indemnification from the excess liability insurer for un-reimbursed expenses incurred in excess of the primary policy limit.  More so as in this case where the excess insurer’s policy stated, “that its obligations to pay only arose when the insured’s primary insurer had paid or was held liable to pay the primary policy’s limits”, but the insured settled a claim for an amount less than the primary insurer’s policy limit and released the primary insurer.

In full, the appellate court found that the trial court did not abuse its discretion in sustaining the excess insurer’s demurrer, thus affirms the trial court’s judgment.