
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN





NO. 03-95-00417-CV





Taylor Service Company, Appellant


v.


Texas Property and Casualty Insurance Guaranty Association, Appellee





FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. 95-02107, HONORABLE JOSEPH H. HART, JUDGE PRESIDING





	Taylor Service Company appeals from a trial-court judgment that it take nothing
by its suit for declaratory and ancillary relief against the Texas Property and Casualty Insurance
Guaranty Association.  We will affirm the judgment.


THE CONTROVERSY
	Taylor purchased from COMCO Insurance Company two liability insurance
policies; the first a primary or underlying automobile policy with an aggregate limit of one-million
dollars and the second an excess policy limited in a like amount.  Each policy was in effect when
Taylor became liable to a third party, in the amount of $250,000, following an automobile
accident.
	Because COMCO had become an impaired insurer, its affairs were administered
by the Association.  See Tex. Ins. Code Ann. art. 21.28-C (West Supp. 1996).  The Code
prohibits the Association to pay more than $100,000 for a claim on a policy written by an
insolvent insurer such as COMCO.  See id. § 5(3).  The Association accordingly paid Taylor the
$100,000 statutory limit on COMCO's underlying automobile policy.  The Association declined,
however, to pay any sum under the excess policy.  Taylor sued the Association for declaratory
and ancillary relief to require payment of an additional $100,000 under the excess policy. 
Holding that the claim was not within the coverage of the excess policy, the trial court ordered
that Taylor take nothing.  Taylor appeals, contending in two points of error that the trial court
erred because the excess policy is ambiguous and, properly construed in Taylor's favor, provides
coverage and requires payment of the additional $100,000.


DISCUSSION AND HOLDINGS
	The excess policy provides liability coverage for losses Taylor might incur in
excess of the "retained limits" specified in each of three primary or underlying liability-insurance
policies.  The three underlying policies listed in Item 1.6 are as follows:  (1) the automobile-liability policy issued by COMCO under which the Association paid the initial $100,000; (2) a
commercial general-liability policy also issued by COMCO but not pertaining to the present
litigation; and (3) a worker's compensation employers liability policy not involved in the present
litigation.
	Item 5.16 of the excess policy requires that Taylor maintain in force the three
underlying policies and states that Taylor's failure to do so will not enlarge COMCO's liability
under the excess policy.  Item 5.16 anticipates and provides specifically for an underlying
insurer's insolvency, stating as follows:


Should you be unable to recover from your underlying insurer because of its
insolvency . . . the coverage afforded by this policy shall apply in excess of the
applicable limit of insurance specified in the schedule of "underlying insurance." 


(emphasis added).  The literal sense of this passage in Item 5.16 is that an underlying insurer's
insolvency does not enlarge coverage under the excess policy.  The threshold of coverage
provided by the excess policy remains at the one-million dollar upper limit specified in the
underlying automobile-liability policy issued by the insolvent insurer; that is to say, coverage
under the excess policy does not "drop down" to encompass Taylor's loss over and above the
$100,000 actually paid under the underlying automobile-liability policy. (1)
	Taylor argues that we should depart from the literal meaning of the quoted part of
Item 5.16.  Taylor reasons first that the parties did not intend that the quoted part should apply
when the underlying insurance was written by COMCO itself, for it is unreasonable to suppose
that COMCO intended to provide against its own insolvency.  To sustain this contention requires
that we override by implication the express language of the parties.  We may not do so.  National
Sec. Life & Casualty Co. v. Davis, 257 S.W.2d 943, 945 (Tex. 1953).  Taylor reasons also that
the quoted part of Item 5.16 is ambiguous because certain other provisions in the excess policy
make a distinction between COMCO and "your underlying insurer" even though the quoted part
of Item 5.16 does not.  This does not, in our view, render the quoted part of Item 5.16 or the
contract as a whole susceptible of two reasonable interpretations on the issue of whether the
parties intended that an underlying insurer's insolvency would enlarge the scope of coverage
specified in the excess policy. (2) 
	"The policy must be considered as a whole and effect be given to each part where
reasonably possible."  Davis, 257 S.W.2d at 944.  We cannot follow that precept if we adopt
Taylor's theory that "the applicable limit of insurance specified in the schedule of `underlying
insurance'" means the reduced sum of $100,000 collected on the underlying policy because of the
insurer's insolvency.  This is an unreasonable meaning to impute to Item 5.16 because it conflicts
with and renders meaningless the stated intention of the parties that "the applicable limit of
insurance" is that "specified in the schedule" comprising Item 1.6 of the policy and the definition
of "underlying insurance" in Item 6.19. (3)  The $100,000 is not an applicable limit so specified in
the schedule.  In the absence of two reasonable interpretations there is no ambiguity and an
insurance contract, like any other, should be construed in accordance with ordinary usage.  See
Ranger Ins. Co. v. Bowie, 574 S.W.2d 540, 542 (Tex. 1978); Great Am. Indem. Co. v. Pepper,
339 S.W.2d 660, 661 (Tex. 1960). 
	We hold, therefore, that Item 5.16 is not ambiguous and that the parties intended
it to apply in the event of the underlying insurer's insolvency even though COMCO provided both
the primary and excess coverage. (4)  Under Item 5.16 Taylor would have received nothing from
COMCO under the excess policy had the insurer remained solvent.  Thus, our holding comports
with the ultimate purpose of the Texas Property and Casualty Insurance Guaranty Act (5) which is
to "provide the injured party the same recovery he would have received had the responsible
insurer remained solvent."  See Latter v. Autry, 853 S.W.2d 836, 838 (Tex. App.--Austin 1993,
no writ).


	For the reasons given we overrule Taylor's points of error and affirm the trial-court
judgment.   


  
					John Powers, Justice
Before Justices Powers, Aboussie and Kidd
Affirmed
Filed:   March 13, 1996
Publish 
1.        The expression"drop down" is a useful shorthand
expression employed by the parties.  It describes the result of
construing the terms of an excess-liability policy so that it
provides coverage beginning at the amount actually collected from
an insolvent primary or underlying insurer, as opposed to the
higher threshold of coverage stated explicitly in the excess
policy.  Various provisions in an excess policy may suggest by
implication that this is the interpretation intended by the
parties or one fairly imputed to the excess policy owing to some
ambiguity.  See Jane M. Draper, Annotation, Primary Insurer's
Insolvency as Affecting Excess Insurer's Liability, 85 A.L.R. 4th
729 (1991).  On the other hand, the provisions of excess policies
are not all alike and an express provision therein may defeat the
implication and preclude "questions of the excess insurer being
required to drop down when the primary insurer becomes
insolvent." Id. at 739.  Item 5.16 of the excess policy involved
in the present appeal is an express provision of that kind. 
2.        It is abundantly clear that the parties intended that the
term "underlying insurer" should include COMCO.  Item 6.19 of the
excess policy defines the term "underlying insurance" to mean the
primary policies listed in Item 1.6, a schedule of underlying
insurance policies.  In that schedule, COMCO is listed as the
issuer or carrier of two of the three underlying policies.
3.        Taylor's other arguments regarding ambiguity in other
provisions of the excess policy are irrelevant when Item 5.16 is
read as we understand it.
4.        Our holding is consistent with decisions in other
jurisdictions regarding the "drop-down" question.  These
decisions indicate the only practical way to avoid a "drop down"
obligation in the case of an underlying insurer's insolvency is
to specifically contract against such an obligation.  See McGuire
v. Davis Truck Serv., 518 So. 2d 1171, 1174 (La. Ct. App. 1988)
(finding duty to "drop down," noting excess carrier can rewrite
policy to make clear any intent that coverage will not "drop
down" in event of insolvency of primary insurer); Gibson v.
Kreihs, 538 So. 2d 1057, 1060 (La. Ct. App. 1989) (finding no
obligation to "drop down," noting excess policy unquestionably
provided coverage does not "drop down" in event of insolvency of
underlying insurer); accord Robichaux v. Randolph, 563 So. 2d
226, 227-28 (La. 1990); Alabama Ins. Guar. Ass'n v. Magic City
Trucking Serv., 547 So. 2d 849, 854 (Ala. 1989); see also supra
note 1.
5.        Tex. Ins. Code Ann. art. 21.28-C (West Supp. 1996).
