Background
A.R. Wilfley & Sons has faced asbestos bodily-injury suits arising from its industrial pumps. Its primary coverage included policies issued by Reliance Insurance Company, a scheduled underlying insurer under Federal Insurance Company’s umbrella/excess policies. Reliance became insolvent, making its policy benefits uncollectible.
Wilfley tendered the asbestos actions to Federal and argued that Reliance’s insolvency made the actions “not covered” by Reliance’s policies, obligating Federal to provide first-dollar defense and indemnity. In the ensuing federal action, the U.S. District Court for the District of Colorado certified that Colorado-law question to the state supreme court.
The Court’s Holding
The Colorado Supreme Court answered no. Under the unambiguous Federal policies, “not covered” concerns whether an occurrence falls outside the scope of coverage supplied by scheduled underlying insurance; it does not mean that coverage is uncollectible because the scheduled insurer is insolvent.
The policies separately used “collectible” in addressing other, unscheduled underlying insurance and required Wilfley to maintain its scheduled underlying insurance. Because the asbestos actions were assumed to be within Reliance’s policy coverage and Reliance’s limits were not assumed exhausted, Federal had no obligation to drop down and furnish first-dollar defense costs or indemnity. The court overruled Deisch & Marion, P.C. v. International Insurance Co. to the extent it conflicted with that conclusion.
Key Takeaways
- A scheduled primary insurer’s insolvency does not convert a covered occurrence into one “not covered” by the primary policy.
- An umbrella/excess carrier does not become a guarantor of a scheduled underlying insurer’s solvency absent policy language requiring that result.
- “Covered” and “collectible” must be given their distinct meanings when the policy text uses them in different contexts.
Why It Matters
The decision establishes that, under this policy language, insureds bear the risk that a scheduled primary insurer becomes insolvent unless their excess or umbrella policy expressly reallocates that risk. Excess insurers remain responsible for risks outside the scheduled primary policy’s scope or losses that reach the applicable attachment point, but not for replacing an insolvent scheduled carrier.