Hunton Insurance Recovery Blog

California law has become more favorable toward companies facing liabilities based on alleged events spanning multiple years. Previously, California intermediate appellate decisions favored “horizontal exhaustion,” which means that in cases involving a continuous loss, a first-level excess policy that sat over a primary policy could not be accessed until the applicable limits of any other underlying collectible insurance had been exhausted.

But now the California Supreme Court has ruled that vertical exhaustion applies to determine how a policyholder can access its excess insurance policies. Truck Ins. Exch. v. Kaiser Cement, 16 Cal.5th 67 (2024) (“Kaiser”). This means that the excess policy for a policy period can be accessed as soon as the underlying primary policy for that same period is exhausted. There is no need to wait for other years’ policies to be exhausted.

In a recent article published in PropertyCasualty360, Hunton attorneys Syed S. Ahmad, Scott P. DeVries and Yosef Itkin examined the Kaiser decision in more detail. In short, the court found support for its decision relying on the language of the excess policies, along with the policyholder’s reasonable expectations and the history of “other insurance” provisions.

Priority of coverage disputes can arise where different insurers for different insureds cover the same claim. Generally, competing insurers will compare the “Other Insurance” clauses of their policies to decide who should cover the claim first. But where one of the insureds owes contractual indemnity to the other, the indemnity obligation may govern. Thus, the insurer for the insured who owes indemnity may cover the claim first, even if it would have been excess per the “Other Insurance” clauses. Such was the case in Cent. Sur. Co. v. Metro. Transit Auth., et al., No. 20-1474-CV, 2021 WL 4538633, at *1 (2d Cir. Oct. 5, 2021).

The Wisconsin Supreme Court held last week in Steadfast Ins. Co. v. Greenwich Ins. Co. that two insurers must contribute proportionally to the defense of an additional insured under their comprehensive liability policies.

A Georgia Court of Appeals judge recently ruled that Scapa Dryer Fabrics was entitled to $17.4 million worth of primary coverage from National Union Fire Insurance Company of Pittsburgh, PA for claims of injurious exposure to Scapa’s asbestos-containing dryer felts. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Scapa Dryer Fabrics, Inc., No. A18A1173, 2018 WL 5306693, at *1 (Ga. Ct. App. Oct. 26, 2018). Scapa sought coverage under five National Union policies issued from 1983–1987. The 1983, 1984 and 1985 National Union policies had limits of $1 million per occurrence and $1 million in the aggregate. The liability limits for the 1986 and 1987 renewal policies were amended by endorsement to $7.2 million. Scapa sought to recover the full $17.4 million from all five policies. National Union argued that a “Non-Cumulative Limits of Liability Endorsement” in the 1986 and 1987 policies limited Scapa’s recovery to only $7.2 million. Scapa sued National Union and its sister company, New Hampshire Insurance Company (from which Scapa purchased excess liability coverage), in Georgia state court.

Corporate policyholders should carefully consider insurance coverage implications when structuring mergers, acquisitions, or other transactions that may impact available insurance assets. A New Jersey federal court recently granted summary judgment for a surviving bank asserting coverage rights under a D&O policy issued to an entity that dissolved in a statutory merger, based in part on the wording of the parties' merger agreement structuring the transaction in accordance with the New Jersey Business Corporation Act ("NJBCA").

On November 2, 2016, a federal judge in California ruled that a Real Estate Property Managed endorsement in policies issued to a real estate manager negated a standard policy exclusion, but also rendered the policies excess to other available insurance. The case involved a dispute over coverage for a bodily injury claim involving “Pigeon Breeders Disease,” allegedly contracted due to the insured’s failure to keep pigeons away from a condo complex’s rooftop HVAC units. The plaintiff sued the property owners, Jerry and Betty Lee, and the property manager, Sierra Pacific Management Co. Inc. (Sierra Pacific).