Last week on the Miller Friel Insurance Recovery Blog, we introduced a three part “how to” series on best practices for settling with primary and excess insurance carriers. The series focuses on how excess insurance coverage language impacts potential settlements with underlying carriers when settlement amounts paid by the underlying insurance carrier are less than the underlying insurance policy limits. When settling with underlying insurance carriers, excess insurance policy language falls into three different categories: the good, the decent, and the ugly. Where an excess insurance policy falls along this spectrum dictates what kind of settlement strategy can safely be employed. This is a critical consideration, because, if settlements are done incorrectly, an excess insurer will argue that coverage has been forfeited.
The Importance of Excess Insurance Policy Language
In today’s video we discuss the kind of excess insurance policy language that we consider “decent.” With respect to the issue of how this language impacts settlement with underlying insurance carriers, courts have held that this kind of language is ambiguous. With this kind of language a business may want to settle with an underlying carrier for less than policy limits, fund the difference, and attempt to proceed against the excess carrier. But, with this kind of language, they are certain to face a fight. Watch the video to learn more.
If you haven’t seen the first video in this series, here’s the link: How to Have Your Cake and Eat it Too: Settling with Primary and Excess Insurance Carrier — Part 1
Below is a transcript of the video:
Excess Insurance Policy: The Decent
In the contrast to the good exhaustion language is the “decent”, what I think of as the decent policy language. Whereas, the good language unambiguously allows a policy holder to trigger their excess insurance by exhausting underlying limits through payments by the insurer, the insured or anyone else. The decent language is more of a middle road. This decent policy language arguably leaves things open to interpretation.
There are cases interpreting and applying the decent policy language and they go both ways. There is a very critical important pro-policy holder case, recent case out of the Eastern District of Virginia Maximus versus Twin City Fire Insurance Company that interpreted and applied this middle of the road, the decent policy language in the policy holder’s favor and held that the policy holder in fact could access its excess insurance even though it settled for less than policy limits with its underlying insurers. In that case the policy holder had a large claim so with both its primary, 1st and 2nd excess layer insurers.
At each stage settled for a little less than policy limits, filled the gap and went on to the next policy. When it got to its 3rd excess policy the insurer said, “Hold on a second, our policy requires you to exhaust underlying insurance through payment of covered claims by the insurer only. Because you filled the gap our policy isn’t triggered and we don’t owe you any coverage.”
The court disagreed. The court said that the language was not as clear as the insurer argued and that it was open to interpretation as to whether or not it did require payment by the insurer only or if it allowed for filling the gap and as a result the policy holder was allowed to fill the gap.
But in contrast, there are few cases in other jurisdictions that go the other way. So when you have this what we refer to as the decent policy language you can be assured that you’re in for a fight with your excess insurers and because you are going to be in a fight with your excess insurers on this issue, it’s critical to engage coverage counsel so that you know how to use the law in your favor.
That you know number 1 that there’s going to be an issue with your excess carriers, because when you go to sell a large claim that’s going to implicate multiple layers of insurance, what you need to do in the first instance is take a look at those excess policies and know whether or not you are going to have this issue.
That if you’re going to run into language that falls into this middle category, you know that you are going to be in a fight with those excess insurers. So that it’s very important to engage coverage counsel at Miller Friel to conduct that analysis and evaluation.